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Diploma in Business
Unit Number and Title
Unit 7 Business Strategy
Tesco PLC is a British retailing giant, which operates through supermarket chain and has a presence in more than 12 countries around the globe. The company was founded in 1919 by Jack Cohen in the form of a market stall and it gradually becomes the second largest retailing chain over the span of nine decades. It is a Public Limited Company, which is listed in London Stock Exchange. The company employs 530, 000 staffs and serves more than 10 million of customer every week across the world. In the UK, Tesco PLC commands around 30% of market share via 3300 stores and over 310,000 colleagues (Tesco PLC 2014). Despite all this incredible performance and achievements, the company has been experiencing a decline in its market share after 2010 and losing its ground to Aldi and Lidl, other retail giants for the same industry. In the light of emerging business scenario, this paper examines the roles and responsibilities of Tesco’s business strategies, nature of national business environment, behaviour of competitors and their strategies, and global factors that shape national business activities.
Tesco’s business strategies is guided by its mission and vision, which clearly outlines that the retail giant wants to be the most valued business by its customers, communities, colleagues and shareholders. In order to meet its aspirations, the company launched a plan known as ‘Building a Better Tesco’ and invested £1 billion in six key areas. The plan covered the key aspects of business including service and staff, stores and format, range and quality, price and value, brand and marketing, and clicks and bricks (Tesco PLC 2014). The purpose of focusing of these business aspects is to deliver an exceptional value to customers through delivering great service, range, quality and grate value.
As a part of ‘Building a Better Tesco’ the company has been giving training to more than 2, 50,000 colleagues, so that these staffs can help in delivering the expected level of services to each of customer at every point of contact. The company has also renovated stores and formats to deliver fresh foods and has engaged local community for procuring high quality of food products. In order to ensure the best value for consumers’ money, the company has improved 8,000 core Tesco products and has been able to keep the prices stable for these products, attracting a great response from UK’s customers (Tesco PLC 2014).
In spite of global recession the company registered a record profit in year 2010, resulting into an increase in 10.1% pre-tax profit corresponding to £3.4 billion. The dividend of this profit has always been shared with local community, in addition to shareholder of the company. This is evident in its commitment to be the number of among local community and living these words the company took a strong step in 1992 for promoting IT literacy in UK. During the span of six years by 1998, Tesco’s Computers for School programme had been able to put more than one computer for each school in the Kingdom. It was an extremely successful programme of that time and generated a lot of loyalty for the company (Adkins 2007). At present, the company has been a member of Business in the Community’s Per Cent Club for more than two decades and donate at least 1% of pre-tax profit to local community. The company itself runs one funding scheme in UK and this scheme is known as- the Community Awards. This scheme provides one- off donation of amount between £500 and £2,500, which is used for project directly supporting the local community in terms of health, sustainability and opportunity (Tesco PLC 2014). All these attempts have been able to generate positive results at local levels and have helped the local communities to increase the standard of living.
Business environment can be broadly classified into two categories; internal environment and external environment. There are a few certain factors that contribute to these environments and when these factors are seen from national perspectives; political, economic, social, technological, legal and environmental factors are worth considering for performance of a business organisation.
Retail sector has been one of the greatest contributors to the UK’s economy and it is evident through the statistics that it contributed £151 billion to UK economic output in 2012. This figure corresponds to 16% of the total economic output. As per a report published by Rhodes (2014), in 2012, UK’s retail sector employs 4.3 million British workforces and is one of the largest employers. Besides this, the sector also accounts for 8.9% of UK’s business activities with 428,000 retail firm are currently operating in this nation (Rhodes 2014).
Wholesale and Retail Sector of UK
In spite of its strong physical presence in UK market, Tescohas been facing immense pressure in maintaining its leadership and has lost market shares and profit in last few years. These losses and shirking profit can be seen with regard to several factors including UK’s economic context. Even after a sign of recovery, the market of UK is not showing considerable opportunity in long run and this scenario can be attributed to three major factors. Among these factors credit crunch, globalisation of the world economies and subsequent impact on the UK’s public finance are the most important. It is evident from statistics that increased taxation has an adverse impact on saving of people and this has also affected their purchasing power. After economic recession in 2009, the Bank of England cut the interest rates to 0.5%, a record low in 300 years of British history (BBC 2014).
This has deterred the investors to invest in this market and its effect has been felt by many of the sectors, which has experienced slow growth. In retailing, the situation has improved over the period of time, yet it has a long way to go, as the data indicate that there has been an increase of only 1.7% on retail spending in 2014 as compared to 2013 by the end of June 2014 (Retail Sales 2014).
The statistics released by Kantar Worldpanel indicates that Tesco may be losing 1million British shoppers per week and this has resulted into reduction of company’s profit by 3.1% on year basis. In grocery industry the company has experienced biggest ever decline in last 20 years as its market share from 31.5% to 29.0%. Much of their losses are gain for other retail giants like Aldi and Lidl as their market shares have increased by 35.9% and 22.7% respectively (Ruddick 2014). As retail industry of Britain is fiercely competitive and government promotes laissez faire policy, it is quite difficult for a national firm to respond to global completion until and unless it increases its margin. The regulatory mechanism of UK tends to provide a level playing field, so a firm needs to reduce operating cost and increase profit margin in order to meet such a large scale competition in the light of presence of all big retail giants in this country.
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It is often described that the behaviour of an organization and its decisions related to future business operations are dependent on the prevailing market environment. There are various market forces such as competition, availability of material and labour, demand, changes in demographic conditions, which affect the pricing and other strategic decisions of an organization. Market environment not only influences the decision making process of an organization but also it impacts the internal environment of the organization which is, up to a reasonable extent, responsible for long term growth and survival of a business (Pride and Ferrell, 2010). The type of market structure that is faced by particular organization has a severe impact on its valuable decisions such as pricing especially in case of perfect completion where the organization has no choice but to charge the same price as charged by other suppliers providing the same product.
In this global and competitive market, there is no such product that exists as an island into itself and therefore all the organizations offering that particular product have to keep in mind the competition prevailing in the market while deciding the price of their product or service. Competitor’s price for that product has a direct impact on the pricing decisions that are taken by a firm and henceforth it demands for the application of tactics such as price war, undercutting and price matching to upset the competitor’s strategy. Apart from this, recession also affects the pricing decisions of an organization due to its direct impact on the earning of people where people try to cut down their expenses ultimately convincing the firms to lower their product price and reach equilibrium.
With regard to Tesco, a leading food retailer, demographic changes may also impact the pricing decisions as world is presently at the midst of demographic transition. The demand for the products launched by such company is highly influenced by the share of young generation in the overall population of particular region. With the increase in young population, there will be relative increase in wages of people which will ultimately increase the expenditure of people in high priced products launched by the high priced quality focussed products launched by the company (Paul, 2008). In addition to this, changes in the cultural environment may also impact the strategic decisions that are taken by an organization for its long term sustainability and growth. An organization, in this competitive world, must be adaptable to the cultural changes taking place within the society to stay ahead of the competitors and stay pertinent in the minds of its valuable customers.
As a result of changes in socio cultural environment, customer preferences also change and therefore leading companies such as Tesco have to change their product and its price as per the preferences of its consumers. The product that was preferred few years ago may not be preferred by the consumer in the present time and therefore an organization needs to be aware of changing customer preferences while manufacturing new products. Besides this, changing socio cultural environment also sometimes demands for the changes in advertisement techniques as the demand for the companies offering routine products is highly influenced by the mode of advertisement adopted by the company (Vieceli and Valos, n.d.) Advertisement is the area of business which is most closely connected to and is affected by the changes taking place in cultural environment. In this highly technical world, advertisement is the only marketing tool that can enhance the demand and sales of a product and to be in track with the most preferred advertisement mode organizations are required to be in alignment with the preference of the societies in which they conduct their business operations.
Global factors play a very significance role in the success of a business and they are the most important elements of the business especially while conducting business on the global level. It is highly essential to implement the global factors such as competition, quality assurance, innovation, flexibility and optimum utilization of resources for the growth of an organization and many others. All these factors are significant for the organization in order to sustain in such a competitive market such as United Kingdom (UK). Customer relation is also one of the most important global factors for the growth of a business concern while planning international trade as customers are the key elements of a business or an organization. Planning is the king pin of any business as a predetermined plan is very important to define the current business policies of a company and to achieve its internal goals and commitments while conducting business strategy on global level (Brinkman and Harper, 2014). Planning must be effective and all the key goals must be specified clearly as clear goals and objectives provides a clear and measurable basis for evaluating the success of the business because poor planning is one of the major reasons of the downfall of a business or an organization. Therefore, it can be stated that all the global factors ensures the success of a business in the current global competitive environment.
International trade means the exchange of the goods and the services among various countries through import and export facilities without much hindrance or obstructions. International trade has been highly encouraged by the U.K business organizations such as TESCO as it helps in the growth of the business and increases the Gross Domestic Product of the country. Therefore, the international trading system in the U.K business organizations is growing and spreading very fast due to its several benefits such as it increases the economy of the country, reduces poverty and unemployment and enhance potential for the expansion of the business.
Some of the major economic benefits that can be derived by TESCO Company by being the member of European Union (EU) are:
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