FE4055
Understanding the Business and Economic
Environment
Student’s Name: Alin-Florin Radu
Student ID: 20034465
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Contents
Introduction......................................................................................................................................1
Overview of Selected Industry........................................................................................................1
Overview of Selected Company......................................................................................................1
External Business Environment Analysis of Tesco Plc...................................................................2
STEEPLE Analysis......................................................................................................................2
Research and Discussion on Challenges faced by Tesco from the External Factors.......................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6
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Introduction
The success of a business largely depends on the structure of the industry. There are many factors
in an industry which can make a huge impact on a business (Mckitric, 2014). These factors are
known as external factors. To analyze this kind of factors there are many kind of strategic tools.
This report will use one of those tools to analyze the external business environment of Tesco
which is UK based public limited company. The report will initially discuss the industry in which
Tesco Plc resides. Then the STEEPLE analysis will be conducted to identify the external
business environment of Tesco Plc.
Overview of Selected Industry
The selected industry from the SIC 2007 is the retail industry of UK. The retail industry among
the 16 industry is wholesale and retail trade; repair of motor vehicles and motorcycles which is
section G in the list. More specifically the selected industry has the SIC code 47110 which refers
to the industry of retail sale in non-specialized stores with food, beverage or tobacco
predominating (Jean and Gerard, 2016). These characteristics indicates that the structure of the
retail industry of UK is oligopoly. The structure of the retail industry forces each company
operating within the industry to develop its technologies and product quality in order to hold
their customers.
Overview of Selected Company
The selected public limited company from the retail industry of UK is Tesco Plc. In retail
industry of UK there are four main players who are called the “BIG 4”. These four companies,
controls almost all retail shops in the country and makes a noteworthy influence on each other.
Tesco is one of the “BIG 4” retailers of UK which generated a revenue of more than 64 billion
euros last year (Macrotrends, 2021). Tesco was established more than hundred years ago and in
present it has more than 400,000 thousand employees working for them in more than 7000 shops
around the world. Tesco is one of the big 4 supermarkets in the retail industry of UK.
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External Business Environment Analysis of Tesco Plc
STEEPLE Analysis
Social Factor: Every business needs to adapt to its society’s norms and cultures. One generation
after another the social norms changes continuously. So if a business wants to gain success in a
society it is must that they meet the social norms, values and culture. There are many social
factors such as people’s age, education, family size, religion, buying habits and many more that
can influence the demand of products of a business. Tesco recently started online shopping which
helped increase the demand of their products as many elderly people can now use order products
online without going physically to shop. The health awareness among the people of a society is
also a great factor that changes the demand of product. As people are getting more health aware
the demand for organic food is increasing which Tesco started providing recently. Customers of
Tesco are into bulk shopping which helped Tesco in cutting their cost and reduce price to
increase demand.
Graph 1: Rightward Shift in Demand Increases Price (Blais, 2012)
Technological Factor: One of the greatest things in this century is the advancement of
technology. If used properly technology can help a business to operate more smoothly and
cheaply (Anderloni et al, 2019). Tesco has used technology to implement online shopping in
their business. This has increased the demand of their products. This has also cut several cost of
Tesco as the business now have to pay less to physical employees as most of their business is
occurring online. Recently the company introduced their mobile payment app known as “Pay+”
which increased the customer convenience and attracted many new customers. Technology can
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be used to reduce extra cost and increase customer convenience and satisfaction. Tesco has
changed their technology according to the market demand and is able to increase their product
demand in the market.
Environmental Factor: World temperature is increasing each year and most of them occurs
because of the factory emission of unwanted gasses. Recently most of the countries have become
aware of this situation and ordered businesses to check their release of greenhouse gas on
environment. Tesco is also doing their part in this regard. The company showed their initiative to
become zero carbon and has planned to do so by 2035 in UK and by 2050 globally. Tesco has
reduced their emission of greenhouse gas by 54% which is more than they planned. All this
environmental factor has forced Tesco to manage their business in more environment friendly
way. Tesco has also taken initiative to gather unused plastic from their consumers to recycle them
which achieved a great applaud from their customers.
Economic Factor: Factors like interest rate, tax rates and other economic factors can have
significant influence on a business. The wage rate of UK has increased in last few years which
has caused an extra expense for Tesco. The company largely depends on the business done in UK
and any change in government policy of UK can affect the company significantly.
Political Factor: Factors like tax policy, labor law, tariffs on trade of a country can make a huge
influence on the profitability of a business. All these are political factors which can have a large
impact on the success or failure of businesses of a country. UK this year left the European Union
which is known as the Brexit which is making an influence in the businesses of UK. Tesco is a
grocery business based in UK and has also been affect indirectly by the Brexit. The price of
products of Tesco has not risen because of Brexit but the labor law has changed and for that the
company is has to face some issues in employing non UK citizens. Tesco has to pay large sum of
import duty to the UK government every year for buying materials from China and Asia which
reduces their supply and increases the overall price shown in graph below.
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Graph 2: Leftward Shift in Supply Increases Price (Blais, 2012)
Legal Factor: How the legal system of a country affects the business of that country can have a
huge impact on the operations of the business. A strong legal system can be both positive and
negative for a company. Tesco operates in multiple countries and it becomes really tough for a
company to meet legalities of every country properly (Brian, 2007). In 2016, the company got a
lawsuit from its own employees because of low payment. The company also has to meet the rigid
code of FRC or the food retailing commission.
Ethical Factors: One of the most important factors that shapes the success of a business is its
ethical factors. Ethics must start from the lowest level to the top management level in an
organization to make a business successful. Any loose end in ethics can cause a great harm to
any business. Tesco also faced a great damage due to this ethical factor when they faced a
lawsuit for deceiving their investing with false accounting information. For this Tesco was fined
twelve million for settling the lawsuit. Tesco was also found guilty of paying their night worker
less than the morning workers which also brought them a lawsuit. These ethical weakness of
Tesco hampers the trust of their employees and customers on the company.
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Research and Discussion on Challenges faced by Tesco from the
External Factors
Tesco operates its business in multiple countries and face challenges from external factors every
now and then. Because of the Brexit the supermarkets of UK which includes Tesco is facing a
negative effect on their supply chain as the new policies hinders the port entries of imported
food. Tesco is one of the big4 supermarket in UK and there is a fierce rivalry among them which
can hamper the market position of Tesco.
New laws and policies in UK after the Brexit is resulting in addition cost for Tesco. The
company last year asked its supplier to reduce their prices on which suppliers are not very happy
and in future Tesco can lose its supplier for this. Because of the pandemic it is forecasted that the
world economy will go to recession which will affect the profitability of Tesco.
Conclusion
Success and failure of a business mostly depends on the business and economic factors of that
business. Businesses have no influence on these external factors and cannot control it (Fernie and
Sparks, 2014). So it is very important to be aware of the all the factors that can impact the
business so that the business can adapt to every possible situation resulted from the factors.
Tesco is a retailer who is also facing challenges from its external factors. Strategic tools can help
the company to understand its external environment which can help them in facing any critical
situation in future.
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References
Anderloni, L., Llewellyn, D. and Schmidt, R., 2019. Innovation in retail market. Cheltenham: E.
Elgar.
Blais, S., 2012. Business analysis. Hoboken, N.J: Wiley.
Brian, K., 2007. Tesco leads the way in the loyalty program stakes. Strategic Direction, 23(2),
pp.18-21.
Feichtinger, G., 2013. Optimal Control Therory and Economic Analysis 3. Amsterdam: North -
Holland.
Fernie, J. and Sparks, L., 2014. Logistics and retail management. London [etc.]: Kogan Page.
Jean, M. and Gerard, P., 2016. Standard industrial classification. Ottawa: Statistics Canada,
Standards Division.
Macrotrends.net. 2021. Tesco Revenue 2006-2021 | TSCDY. [online] Available at:
<https://www.macrotrends.net/stocks/charts/TSCDY/tesco/revenue> [Accessed 23 May
2021].
McKitrick, R., 2014. Economic Analysis of Environmental Policy. Toronto: University of
Toronto Press.
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