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Tesco: The Changing Business Environment

Paper Type: Free Essay Subject: Marketing
Wordcount: 3416 words Published: 24th Apr 2017

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In this report the focal point is to find out, understand and elaborate the company’s key business environments which are macro and micro business environment in the company’s research of those two environments. In an order to do this, significant tools are PESTEL and SWOT analysis. By PESTAL analysis companies can weigh up the external factor of the company which can impact political, Environmental, Legal, Economical, Social and Technological. In other hand SWOT analysis is very vital tool. By SWOT analysis companies can identify own strength and weaknesses. Not only can those companies find opportunities and fear made by their external environment.

Business environment is a set of political, economical, social, and technological forces that are largely outside the control and influence of a business and that can potentially have both a positive and a negative impact on the business (Palmer and Hartley, 2006).

In addition, IT encompasses all other factors which influence a company’s operations, and includes industry’s trend, stakeholders, suppliers, customers, social factors, economical factor , competitors, rules and regulations, government activities and technological developments. In conclusion business environment is very important factor for the company.

As per PESTEL analysis, “The Macro environment is really waste area and in this there are many factors which will concern the decisions of the managers of any organisation”. Some examples are Trade barriers, demographic change, Tax changes. Managers can classify them to help analyses by using PESTEL model.

A definition of Micro Environment as per oxford business dictionary is, “Major external and uncontrollable factors that influence an organization’s decision making, and affect its performance and strategies. These factors include the economic, demographics, legal, political, and social conditions, technological changes, and natural forces.”


In order to do this, PESTEL analysis is the most useful annualising method which involves Political, Economic, Technological, Environmental (green) and Legal environments.

3.1 Political environment

Politics is a worldwide activity which affect to most of the business world in so different ways. (Ian Worthington, 2003).

Political factors are important area of the company to consider. It refers to government strategy and changing of rules. The political environment can be one of the less predictable elements in an organization’s marketing environment.

All kind of business environments are related at some point with each other. And this is main environment which affect mostly on all other factors.

In each and every country politicians shape the general nature of the business rules. Politicians make government and government built new rules and legislation. This rules and legislation always involve business opportunities directly or indirectly. At the same time, supra-national organization, Trading blocs (ASEAN, NAFTA, EU) and inter governmental organizations (The worlds trade organization) (Palmer and Hartley, 2009).

So, before Starting a new business or company or organization investors always review the political conditions of the country and the area of market.

3.2 Economic factor

All business are relies on economy. So, company have to keep an eye on the economy of the country. Nation’s economic heath relies on so many signs. The most common signs are Gross domestic product (GDP) and house hold disposable income. (Palmer and Hartley,2009).One example of economic change is increasing price of labour .This increase can affect on so many things such as increase in products prices, taxes, row materials, Services, and so on.

Therefore, companies have to review the economic conditions of the market areas and country. And after reviewing the economical conditions companies have to take future steps to keep themselves in the market.

3.3Social and cultural factor

As per Palmer and Hartley, “Social and Cultural environment are crucial for businesses to fully appreciate the culture values of a society.”A good example of that, Mc Donald Company cannot sell the Ham burgers in India because of cultural value.

Lancaster state that the most difficult factor in the business environment is ‘Social and Cultural’ to analyse .It is very hard because it relies on people behaviour which is very per head. It also includes different values of culture, people needs and priorities as well as different beliefs (Lancaster, 2008).

For example, some times because of social changes companies have to discontinue many products and introduce new one just because of satisfaction of culture.

3.4 Technological factor

From three decades there had been rapid changes in technology. Technology introduces something new and really advances things on daily basis. Today’s new invention might be very old for tomorrow. For the business organisations it is necessary to keep their products or service up to date. And it reflects on input and output as well.

Investment in the technology is the main key aspect for the companies towards the new innovations.(Worthington and Britton,2003).In today’s trend Most of the Companies or organizations keep separate IT department and spend lots of money towards the new invention.

As per Palmer and Hartley’s view, companies can new types of services, products and facilities. As like carer services by phone, online shopping, online

– Banking and many more services.

New technology gives more opportunities to organizations and companies with new market. It is been too easy to get database of their product related customers and they can target them directly and in very cheaper way as well. On the other hand, Just because of Technology’s inventions there are so many opportunities for the organizations to open new services based businesses. Not only this now a day some companies even trade online and they don’t open any outlets so they just do business online. As like Amazon online shopping (Palmer and Hartley, 2009).

A good example is IBM. Years ago IBM was the main company in computer field. It was the biggest brand in computer but it did not have operating system. Microsoft was small company in compare to it. For operating system IBM collaborate with Microsoft. Now a day, Microsoft is the main company in computer field.

3.5 Environmental factor

This factor plays important part on the company. It also includes weather and climate changes. The change in weather and temperature can reflect on many organizations as like tourism, insurance, farming.

As per Palmer and Hartley, Companies have to consider the natural ecology for two reasons.

(1) In production firm, there is an ongoing issue on natural resources including those which used directly or indirectly. For example reduction of hardboard timber resources, disappearance of some types of animals and shortage of land.

(2) A new trend is for back to nature. People are more interested in recyclable products. Some segments have shown an eager and capability to spend money to improve the economical conditions. (Laroche ET al.2003)

Now a days because of globalisation it is been significant issue for the manufacturing companies. It changes quality of life, future of new generation, and culture. People are more willing to save and protect environment and customers went back to recyclable and eco-friendly products. This trend might open new opportunities and on other hand it can also cause problems for some industry. (Lancaster, 2008)

3.6 Legal factors

This is one of the most important factors for the company. All companies have to review laws before starting business and after set up business in any country in the world.

A legal factor includes consumer laws (to protect customers from unfair practice and misleading customers), Competition laws (Monopoly power), employment laws (dismissal, redundancy, minimum wages, and work-environment) and health and safety laws.

Since government (Including supranational governments) brings laws, from the judgments of the courts, some considerate of the applicable institutions and progresses is attractive. (Worthington and Britton, 2003)

4 The Microenvironment

The micro environment is mainly internal factor of company. As per Cecile Nieuwenhuizen and Dirk Rossouw (2009), the micro environment is the full amount of all other factors and variables that occur internally in the business. And it can influence in a direct or indirect way by the decisions of management.

The micro environment is a complete set of parts. And it can affect indirect on the relationship of organization’s markets. The Micro Environment also includes general trend and forces. Sometimes, it might not affect immediately, but it could affect slowly on its customers, suppliers and intermediaries. For example, changes in economy of the country might not affect straightaway in the way of company’s style of business but gradually they have to change the product or style of selling or price range. The Micro Environment is not controllable. And it is very complex as well. To get batter future and increasable business, companies have to analyses it and take future steps to minimize the bed impacts (Palmer and Hartley, 2006).

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The micro environment encompass company’s managers, working people, companies related people, their sources of manufacturing and other organizations. This organizations and individuals plays vital role weather directly or indirectly on the organization’s activities. It’s not necessary that company has to deal with these organization or individuals. Today company may deal with them even in future or company might not have any intention to deal with other companies in its micro environment, although these can have huge impact on organization’s activities (Palmer and Hartley, 2009).

Now, below figure can make picture clear that what main micro environments are?

As above figure 2 customers, employees, competitors, media, shareholders and suppliers are the micro environment factors of the company. From these factors customers, suppliers, intermediaries and competitors are the most key groups for the companies (Palmer and Hartley 2009).

4.1 Customers

Customers are hart of the company. It means if company have no more customers, company cannot produce a product and full stop on that particular business. companies should keep their products and services up to date with up to level and as per trend of customer’s requirement, Not only that but If companies want to be on number one position in market they should be ready with planning of product or services which will be require for the consumers in few coming years. So, In short companies should be one step ahead then customer’s requirement (Palmer and Hartley, 2009).

As per Dave Neeham and Rom Dronsfield ,”modern organizations are market focussed the recognize that it is the customers who ultimately make the choice of whether or not to spend their money on a particular product” so companies have to focus on customers’ requirements the right product for right customers group to meet their needs the right marketing mix and they have to decide the way to position the product in compare to other competitive products (Dave Needhals, R.B. Dronsfield 2004).

McDonald is very big food chain in UK and other countries but in Philippines McDonald cannot set up their business because they cannot keep their local customers.


Suppliers are main strength of the company. Companies have to rely on the suppliers for the product. The suppliers are who provide raw material, finished goods, services or product . All companies have to rely on supplies whether comparing manufacturing company retailing company.

Suppliers supply raw materials goods services that transformed by comparing in to product or a value added service for the customer .suppliers and customers are both sides of coin for the organization for marketing success .if suppliers are short of a product or raw material then even if there is good demand of the product company cannot sell it unless they have other source (Palmer and Hartley 2009).

4.3 Intermediaries

Large amount dependence is placed on marketing intermediaries, factors and distributors to make sure that the product reaches the final customer.

Intermediates are important link between a organization and their customers big manufacturing companies cannot manage to take care or deal with individual consumer. Therefore, companies sell their products through intermediaries. For some business sectors to apply right and intermediaries could be vital source for marketing success.

As an intermediate, Tesco is very crucial company for many manufacturing companies. Tesco sale so many different companies product and those companies have to rely on Tesco.

4.4 Competitors

In today’s high competitive market, manufacturers or companies have to be aware with competitors and their strategy, their movements and their future policies. in most likely situations. Companies have two types of competitors. One is direct competitor and the other is indirect competitors. Direct competitors have similar type of product and they fulfil consumer need in the same way. While, indirect competitors satisfy similar needs in different form or different ways. As an example, which is the main competitors of cinemas? another cinemas? Theatres? Home rental movies? or some completely different form of leisure activity which satisfies similar underlying needs?(Palmer and Hartley, 2009).


A particularly useful approach to examining the relationship between an organisation and its marketing environment is a SWOT analysis. A SWOT analysis sets out to focus upon the strengths, weaknesses, opportunities and threats facing a business or its products at a given moment .it includes both an internal and an external element. The internal element looks at current strengths and weaknesses of the organisation. The external elements looks at the opportunities and threats present in the environment in which the organisation operates.(Needham and Dransfield,2000).

As per palmer and Hartley, A SWOT analysis summarizes the main environmental issues in the form of opportunities and threats facing an organization.

After carrying out a SWOT analysis the result should go in a company’s development policies and practices. By this result a company can build upon its strength and minimise the weaknesses. Thus, The SWOT analysis is called ‘The planning balance sheet’.

The principles of a SWOT analysis are demonstrated as per figure below.


6 Company Overview

Tesco is number three supermarket chain among the world. It is a big company with high revenue. The main aim of this big company is to make profit. Tesco is a leading retailer which is operating 2482(Tesco, 27/02/2010) stores around the UK. It used to be purely a UK operation but from few year it has expand to many other part of the world such as Europe and Asia (Tesco, 2010).

Tesco has separated their stores in few categories such as Tesco metro, Tesco Extra, Tesco Express and Tesco direct. There store are offering a variety of services for food and non food products which include insurance, entertainment, electrical goods, petrol and diesel, home based furniture and crockery and many more goods.

From 2007, the recession has caused the unemployment level in the United Kingdom to soar over 28.93 million (Office for national statistics).As economical factors are likely to influence demand, cost, price and profits. These figures made Tesco’s management feel particularly apprehensive. Although Tesco’s international business does bring in a high amount of profit. They are still largely dependent on the UK market. With recession Tesco had to compete with other super market like Sainsbury, lids, Morrison’s and other super markets.

From last two decades Tesco had a mountain to climb, yet stumbled upon the slogan ‘EVERY LITTLE HELPS’. Tesco introduce this very clever advertising line and with that it introduce initiatives as like ‘only one in the queue or we will open another else and club card (Tesco, 2008).

Tesco had a big challenge from starting of 2007 of credit crunch in UK. All markets were affected by credit crunch in that time and Tesco was in Queue one. Their sale went very down and even profit was very less as well. Not only that Tesco reported in June2008 that, their sales has bigger than forecast slowdown in sales in its core UK business and in non food categorise it was worst slow in end of 2008.They announced that their UK sales growth rose by 2 percent. In this critical situation Tesco launch cut price ranges as like its new ‘discounter’ lines, and this lower prices was helping cash-strapped shoppers but this new launch deflate Tesco’s sales by two to three percentages. Though, Tesco said the move seeing it attract 300,000 more customers on weekly basis (Tesco, 2008).

As per latest report of Tesco in 2010, They announced fastest speed of growth in compare last two years and it also announced company is ready to move back ahead of rivals after a period when it looked to be declining behind other supermarkets like Asda, Morrison’s, Sainsbury and other super market.

7 Recommendations

To compete in this competitive Market companies should always look for new challenges. Tesco is still expanding its business as it is number third big super market in all over the world. Tesco should expand the services and business area as much as they can. Tesco offer so many different kinds of services and products but as UK is multicultural country Tesco should introduce new services and products and new food ranges as per foreigners’ requirements and culture. So, this products and services can attract all kind of customers.

There is high competition in the market and technology is very advance as well. Customers can check and compare the price of single product just by doing single click. Therefore Tesco should review their prices very critically and Tesco should compare prices with local off licence shops as well.

Tesco is expanding international business but it should focus more on international markets. In the case of business in other countries, Tesco should critically survey the needs and demands of the products as per locality, area, culture and trends. In short Tesco should diversify their core business activity as per requirements and demands.

8 Conclusion

In today’s business world, there is a high competition in each and every business whether it is a small or big company. So, companies have to keep their policies, strategies and other things up to date and review each possible factor that can affect the business. Micro and macro business environments are the main environment factors. Company can take immediate actions on

Companies have to keep their strategy advance. And they might to change it time to time .In order to do this companies can use PESTEL or SWOT analysis method to fulfil every require aspects. And if company wants, company can use different analysis methods such as 7s model, Theory X/Y, motivational method, PERTERS five factors and few more. Companies can use more than one analysis methods as well.

Tesco is trying to be number one super market in the world which is not too far for them although the company should always keep looking for new opportunity in the market and always try to improve the performance in every aspect. and Tesco should always think always as per their slogan ‘EVERY LITTLE HELPS’ from customer’s ,supplier’s, employee’s, society’s point of view.


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