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Unit 1 - M3 - The Business Environment
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Essay of 3 pages for the course Unit 1 - The Business Environment at HSFC (Unit M3)
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Xhuljan Vuthaj 44975Unit 1 M3
M3: Analyse how political, legal and social factors have impacted on the
two contrasting organisations.
Political – Tesco UK
Corporation tax will have a major impact on Tesco as this will be taxation on their
profits, so this would reduce the businesses overall profit. This taxation is
obtained by the government who then use this money for other purposes. For
Tesco the money that they pay for Corporation Tax could’ve been used in other
areas within the business such as reinvestment etc. It won’t stop Tesco from
reinvesting into its business but it would lower the amount they could’ve had
available to reinvest. The government have created a band of categories which
businesses can identify themselves and see what category they fall into
regarding corporation tax so that they can pay the correct amount. In 2009 the
corporation tax rate was 28% which is significantly higher than what it is now.
This decrease in corporation tax has benefited Tesco majorly because it means
that they are now able to keep more of their profits which they can use for
several things such as reinvesting into the business to make it even more
successful. The corporation tax rate at the moment stands at 20% which is much
lower than previous years and due to the decrease Tesco have been able to keep
more of their profits. Examples of places which Tesco could use these profits to
reinvest are things such as improving technology within the stores to make
shopping easier for customers or even improving the vans which deliver goods to
people’s homes. Corporation tax exists because it is a way the government can
vessel funds to pump into other areas of the public sector such as utilising the
NHS and helping local communities. This tax helps the government fund various
other areas which interest them, with this also being known as government
spending.
Political – Tesco China
Tesco China has become a joint venture which is partly owned by the state as
80% of the company is owned by China Resources Enterprise (CRE) which is a
state run business and the 20% owned by Tesco. Corporate Tax has also
decreased in China over the years which will also have had an impact on Tesco
China because it allows to Tesco to keep more of their profits than if the tax rate
was to stay the same. The corporate tax rate in China in 2007 was 33% which is
really high compared to the UK. This would have impacted Tesco as a lot of their
profits would’ve been going straight to the Chinese government but the tax rate
eventually fell to 25% and it has been at the rate since 2008. This 8% decrease
gives Tesco a larger amount of profit which allows them to do several things with
it. Tesco has mainly benefited from this decrease because they are in a more
comfortable position to reinvest their profit into their stores in China and even
expand as a business in China so that they can dominate the Chinese
Supermarket industry.
Social – Tesco UK
, Xhuljan Vuthaj 44975
The change in population will prove to be a factor which Tesco have to take into
account if they are to succeed and maximise profits. Tesco will have to ensure
that they are working efficiently to deal with the increasing population so that
they do not crumble under the pressure of high demand. In the UK the
population is increasing rapidly due to the increase in births and also the
increase in migration from other countries. A business the size of the Tesco will
have to make sure that they are able to deal with this increased demand and
that they are supplying the right amount so that they can maximise profits. Tesco
have dealt with the increase in population very impressively maybe a bit too
impressive. Due to the increase in population Tesco started to open a number of
stores around the UK so that it can relieve the pressure off some of the main
stores. They opened secondary chains such as Tesco Express, Tesco Metro, Tesco
Extra and Tesco Home plus. These stores are smaller versions of the giant
superstores which Tesco has and these small stores sell products that are needs
for consumers. Opening these small stores was smart by Tesco because it meant
that it would be cheaper to open and cheaper to run than a superstore, it would
also help deal with demand as well as saving money for Tesco. They also require
an increase in workers due to the increase in population so that Tesco can run
efficiently and so that its customer service also doesn’t lack during the increase
in population.
Social – Tesco China
A social problem that Tesco China may need to think about would be the
standard of living in China, as it is very low and this would mean that it would be
hard for Tesco to sell pricey goods and services. The GDP per capita in China is
$6,807.43 compared to the UK’s $41,787.47. This means that a majority of the
Chinese population have really low incomes and so it is important that Tesco
adapt to this environment. Tesco will have to come up with a new strategy to
gain as much profit as possible in China as they can. Tesco have regular
promotions which they try and use to encourage consumers to buy their
products. These promotions include discounts on selected products and also
various other offers. Tesco have placed their store in the main metropolitan areas
around the country so that the people that are shopping are of an above average
income and are able to buy their products but Tesco may need to reach a larger
population and so to encourage the average person to shop at Tesco they need
to make sure that their promotions will encourage people to shop there.
Legal – Tesco UK
In 2011 the UK government decided that it will increase VAT from 17.5% to 20%
as the government want to increase tax revenues to cut its deficit. This would
impact Tesco directly because all their goods would experience an increase in
price and this increase in price could deter customers from buying products at
Tesco and instead opt to shop at cheaper stores such as Lidl and Aldi even
though their prices will increase to their products are relatively cheaper and so
would still be cheaper than Tesco’s products. To try and combat the hikes in VAT
rates Tesco have cut down costs and also offered more promotions such as
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