Currently, the business environment is an uncertain one atthe least, with financial, political and technological stability somewhatnon-existent. To overcome this, businesses use the PEST framework to analysechallenges as well as the business environment. This helps them make decisionswhich can often be the make or break of a business. This essay will use thePEST framework to analyse the challenges of Tesco’s, and will use sources ofthe business to consider how the business has been making decisions and whetherthese have been successful (Tesco plc, 2017).In the book ‘Scanning the Business Envoronment’, professorFrancis Aquilar came up with a scanning tool he called ‘ETPS’. Since then ithas been adapted to become PEST, or PESTLE (Aquilar, 1967).
This tool has sincebeen used by most businesses when analysing the business environment. PoliticalIn the current business environment, politics have a largeimpact on the way businesses must run. Firstly, we have political uncertaintyin the current business place due to Article 51 (Brexit). Brexit was voted forby a close majority of the British public, which has caused businesses likeTesco’s to be impacted. Although this is only in Britain, this has impactedthem on a global scale as the costs of importing goods has increased due to theconflicts between the EU and Britain. Furthermore, the price of the pound plummetedin the London stock market to it’s lowest point since 1985 BBC, (2016), ‘Poundplunges after Leave vote’.
This is very surprising, considering the UK wasrecently in a recession and the pound didn’t hit the lows it did in theimmediate aftermath of Brexit. Furthermore, as seen below, Bloomberg show howthe pound per dollar plummeted from 1.43 to 1.32 within a matter of hours when itseemed inevitable that leave would be the vote. (Bloomberg, 2016). This impacted Tesco’s almost immediately, as they got into arow with Unilever – there supplier. Unilever instantly demanded a 10% increasein price of household brands, even those made in the UK, to make up for theincreased importing cost.
Because of this, Tesco’s overall costs haveincreased. Due to this, the business must make decisions to decrease costs sothat they can make the most profit as possible. However, they must still stickto the political guidelines set by the current government. This includes makingsure all employees are still paid at least the minimum wage, which is £7.50 forthose aged above 25. This struggle for Tesco’s has caused a decrease in the shareprice of 2.9%. A decrease like this will not only cause problems for managementas they aren’t making the most profit, but also for shareholders who have madeinvestments.
As prices fall, there may be a mass sale of shares as peopleattempt to cash in before the price decreases more, however, people may see an opportunityfor the shares to increase again so this is very dependant on the share buyer,not a general population. The Brexit situationin the UK, is the largest challenge businesses will currently face. However,globally, there are many other challenges which will affect them. One of these factors is the tension which has hit Americasince Donald Trump was elected. First of all, Tesco’s had already left the USdue to the difficulty in the market, with Wallmart holding the largest marketshare. Furthermore, the US dollar has decreased slowly since Trumps electionvictory, Andy Kiersz, (2017), ‘Here’s How Investors and Workers are Doing After200 Days of President Donald Trump’, BusinessInsider, Aug 8.EconomicThe economic environment is also very uncertain. This isn’t arecent phenomenon, the economy will always fluctuate.
This has been seen in thepast during the great depression, the 2007 recession and currently Brexit. To analysehow Tesco’s have dealt with these challenges we have to look at Tesco’sfinancial statements. However, just looking at the previous year is not enough,as you have nothing to compare it too. Therefore, we must look at the financialstatements of 2017, 2016 and possible 2015.
This allows us to look at trendswithin the business and how challenges both internally and externally haveimpacted them.Over the financial year of 2016/17 there was a 1.1% increaseof sales, and a 24.
9% increase of profit (Tesco PLC, 2017). There could be avariety of reasons why this is the case, especially as many businessesthroughout this financial year did not increase their profits. Despite thehorse meat scandal of 2013, Tesco’s have always tried to pride themselves on “RelationshipMarketing” (Berry, 1983). This is the concept of a business developing a strong,trusting relationship with customers to make sure they come back to thebusiness consistently.
In 2013, the trust within this relationship was strainedand led to a 300-million-pound loss in Tesco’s. This could be one of thereasons why Tesco’s have begun to make profit again, as this relationship hasslowly been rebuilt. Levitt, 1983, reaffirms this by stating “the basicobjective of marketing is to create customers and retain them”.