In each and every industry there must be factors that influence the manner in which firms operate, they include political, economic, social, and technological. These variables can be used as a performance mechanism to provide industry analysis of organizations. This paper, therefore, tries to give political, social, economical, and technological factors that affect the large-scale retail industry in the United Kingdom using England as an example. (Chung, 2009)
Since the United Kingdom is a politically stable country, the influence of politics is not all conspicuous. The government of the UK is dedicated to creating a maximum conducive political environment for entrepreneurs to enjoy the bulk trade. However, there are certain specific areas where much government attention should be drawn. These include competition commissions and the department of labor that has ensured that the wage floor is ever increasing. If wages keep on increasing all the time then the retailers might find it very difficult to operate. (Riemer, 2004)
A wage increase could mean inflation in the country since the suppliers and retailers would pass on the increases to the final consumers. In the modern economy market liberalization has brought in stiff competition, where the environment becomes so competitive like in this case i.e. the existence of Morrison, Asda, Sainsbury, and Tesco in the retail industry complicates the situation for small retailers. Unhealthy competition is detrimental to businesses. (Riemer, 2004)
Economic factors are very essential in the survival of business in the business environment; this is because it is the major determinant of the financial success of the business. Globally the economic conditions have continued to deteriorate over time and because of this many of the businesses have been highly affected. The Tesco supermarket is no exception to this; it has been affected by the worsening economic conditions. Some of the major economic factors that have been experienced in the country and that have affected the supermarket include high interest rates, high rate of inflation, and high unemployment rates.
High-interest rates for acquiring finances have affected the supermarket negatively; this is because it has been challenging to acquire loans and other financial sources because of the high-interest rates. This has also affected the customers since many of them can not access these loans hence they lack income hence negative impact on the company. Also, the inflation rate has been very high hence many of the customers are not being able to purchase some of the products they used to. The buyer’s purchasing power has been minimized hence they can not spend much on most of the products they used to hence the negative impact for the company. (Finance and Investment, 2005)
These are factors that are brought about by people’s behaviors and include demographic patterns, lifestyles, culture, and beliefs. In the United Kingdom, the factors that are specific to the retail industry include increased cases of people becoming bankrupt, changing lifestyles, the emergence of shopping classes, and ethical practices.
The growing population in the United Kingdom has created a large market for consumable products which are mainly stocked by large-scale supermarkets like Tesco and Sainsbury. The change in technology has led to a big impact with new living styles creating demand for certain products like cloth wares, domestic appliances, and housing. (Finance and Investment, 2005)
The current world has turned into a global village. The use of technology in business has revolutionized the way in which some of the core activities are done. In the United Kingdom electronic commerce and related techniques like echo, bays has influenced the shopping and purchasing pattern of clients in the retail industry. In England there is the tendency of consumers to scan products in order to purchase them more conveniently; social organizations like co-operatives have also begun scanning products. (RESEARCH STARTERS, 2008)
Technology has also made it easy for retailers to have and operate electronic kiosks. This has led to a rapid increase in sales volume as well margins. Consumers are able to shop anywhere and pay for the product through electronic debit and credit cards. This has ensured that retail giants in the industry like Tesco maintain their client loyalty and help create high customer service, satisfaction, and care. Technology has led to reduced marketing costs as consumers can get the information needed through the internet and therefore make appropriate decisions. This is called personalized marketing. (RESEARCH STARTERS, 2008)
These are factors that are related to the environment in which the business operates and the impact it has on the performance of the company. It covers the global as well as the local environment, environmental issues have become a concern for all people globally, and because of this, there are policies and regulatory guidelines that have been set to govern the environment. These policies and guidelines have both negative as well as positive impacts on the performance of the company. In the case of the Tesco supermarket, it has benefited from the policy of abolishing polythene bags used in supermarkets in order to conserve the environment. This is because they do not incur high costs of obtaining the bags since customers purchase bags that they can reuse. (MPs Briefing, 2006)
The supermarket has also been involved in corporate responsibility and environmental campaigns whereby they participate in environmental conservation like planting trees and ensuring that there are no environmental pollutions as a result of their actions. (MPs Briefing, 2006)
Legal factors relate to legislation governing a country. Businesses are required to observe all the legislation that governs the way their activities and operations are carried out. If they fail to observe these rules then their businesses can be adversely curtailed. A good example is where Tesco has been sued for failing to adhere to employees’ work injury rules, child labor, and client safety. This shows that the legal environment has a great impact on the survival of the business. Tesco though at some point it has failed to observe some of the legal factors like the case mentioned above it has tried to adhere to most of the legal factors that govern its operations. (Section of National Libraries, 1997)
Michael porter and the Five forces Module
Michael Porter is a renowned management scholar who has written many of the valuable literary materials currently used by many researchers. One of such literary materials includes the Five Force Module, where he analyses competition and highlights how firms that adopt this module can survive in a competitive environment. (Section of National Libraries, 1997)This module entails:
- The industry
- The firm itself
- Substitute product
- The buyers bargaining power
- Suppliers bargaining power
This refers to how easy or difficult it is for other firms to enter the industry. The easier it is for other firms to enter the industry the more competitive the environment becomes. Highly rated firms are normally associated with economic and operational barriers established in their industries. These barriers are not always easy to break into and therefore this has ensured that they remain in the industry for long durations. An example includes the petroleum industry. (Strategic Management, 1997)
The firm itself
This refers to the existing conditions within the firm. If a firm is strategically placed then it can be able to withstand any environmental pressure exerted by the rivals in the industry. Conditions are created by the management and include culture, diversity, innovation, dynamics, strategic planning, motivation, recruitment, customer service and satisfaction, total quality management, and management styles. Here we are in the retail industry and these conditions may be identical with a single supermarket e.g. the ASDA. The more distinct a firm is from others the more it becomes competitive. (Strategic Management, 1997)
The existence of close substitutes in an industry poses a lot of competitive pressures on the players. In this industry, most products are likely to have numerous substitutes. This implies that competition is likely to be intense in the retail industry and players should take this into consideration to reduce shock in demand.
Michael Porter argues that if the environment becomes more competitive then the only way that a product-based firm can survive is to completely differentiate its products, make them easily recognized by clients in terms of appearance, design, presentation, and quality. If these products remain almost similar to that of a competitor, then competition is likely to be fierce. Incases of this scenario, a firm will be forced to reduce its margin in order to survive. This is unhealthy for the firm. (Basant, 2001)
The buyers bargaining power
To what extent can the buyers affect the firm in an industry, are there groups, or what really triggers the buyers’ decisions in the industry? In England’s retail industry there are mostly individual consumers with few corporate consumers like schools, colleges, hospitals, government agencies, and etcetera.. (Basant, 2001)
The more these consumers are able to exert influence in the retail industry the more competition intensifies. It means that consumers can move from one supermarket to the other. In certain industries, the customer’s bargaining power is matched with the firm’s pricing strategy. (Basant, 2001)
Suppliers bargaining power
The suppliers’ bargaining power can also influence the level of competition in an environment. If the suppliers exert more pressure on the firm then the industry becomes more competitive and if the vice versa is true then the firm can be able to sustain competition in the industry. Suppliers play a very significant role in the industry, attention should be paid to them especially where it becomes apparent that there is a mismatch between them and the firm. (COMPETITIVE ADVANTAGE, 2009)
The value chain (Tesco Company)
A value chain refers to a chain of activities where a product passes and for each activity, a value is added to the product. The value chain is sometimes referred to as the total value management or supply chain. In a company, there are stages which a product is expected to undergo especially in a manufacturing firm. At all these stages the utility of a product is achieved. Even in service organizations value is added to service in each and every stage. (COMPETITIVE ADVANTAGE, 2009)
Tesco Company is the largest retail supermarket in the United Kingdom and fourth in the world with several branches in countries like America, South Korea, and Thailand, China, Hungary, Japan, France and etc. Tesco has a distribution partner that buys products from its suppliers, processes them, and then supplies them to its major chain stores that are strategically located in the major urban cities (COMPETITIVE ADVANTAGE, 2009)
The main value-adding activities here are divided into two inbound logistics which include production and outbound logistics i.e. marketing and sales. There are also support activities that include; administrative infrastructure management, information technology, human resource management, and procurement. (MPs Briefing 2006)
These are activities that ensure that goods reach the supermarket and are actually available for sale. These activities include transport, delivery, and warehousing. When goods have been ordered from suppliers they are taken to the stores of the distributor. The distributor together with Tesco designs goods and makes a necessary adjustment before they are taken for sale. At each stage that these products pass the value is added. (MPs Briefing 2006)
These are value-adding activities that ensure that the final products reach the final consumers. Once these products are delivered to the store’s consumers must be informed that they are available so as to make appropriate decisions and then finally they buy. The core activities here include marketing and sales. (COMPETITIVE ADVANTAGE, 2009)
These are activities that are core to both inbound logistics and outbound logistics; they provide support for the successful execution of these activities. We need an architecture of infrastructure that will aid the performance of these activities, the human personnel, and information technology. (MPs Briefing 2006)
The value chain is a critical business management concept; it embraces value assurance at all levels of management. If managers insist on its practice it can create a competitive advantage for the firm’s value proposition in the industry.
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