Conor Cunningham P1
Business and the economic environment
(a) Prepare a brief introduction to the organisation, stating its business objectives and
business activities.
(b) Prepare a set of briefing notes for your colleagues which examines the business cycle
and the economic indicators listed and which explains the likely effects that changes in
these might have on your chosen organisation.
The Business Cycle (growth, recession)
Changes in GDP
Rates of Inflation and Deflation
Employment rates
Trade surpluses/deficits
Balance of Payments
Conflicting objectives
Ripple effects of downturns
Structural adjustments
Welfare considerations
This provides evidence for P1
Introduction
This document will look at the impact of changes in the economic environment on Tesco.
Tesco is a multinational grocery and general merchandise retailer founded in 1919 by Jack
Cohen, a market trader in London. Since then, it has grown to become the third largest
retailer in the world in terms of profitability. Tesco is the UKs largest retailer. It has around
7,000 stores and nearly 600,000 employees, nearly half of those staff are in the UK. Tesco
has now gone global and has stores in 12 countries and is growing more and more every
day.
The mission statement of TESCO PLC is "Creating value for customers, to earn their lifetime
loyalty". Tesco aim to become/remain as the leading retail supermarket and provide good
quality services and products at a low cost so that they are cheaper than their competitors.
Some of Tesco's values are to understand customers, be first to meet their needs, to treat
people as we like to be treated and to trust and respect each other. Objectives of Tesco
include to introduce healthier eating products as well as to provide jobs to their local
community.
,Conor Cunningham P1
The Economic Environment
The economic environment is the external factors that influence the business. The economy
is made up of buyers, investors, sellers, the government and bankers. The economic factors
have the largest impact on any business. A stable economy is important for Tesco because;
Prices stay stable and do not vary
There is steady growth within the business
Unemployment figures remain constant
Exchange rates stay stable
There is good customer confidence and they buy more goods.
Changes in the Economic Environment
The business environment can change frequently which change the ways in which business
operate on a daily basis. The following changes could occur;
Changes in the business growth rate
An increase in the price of goods and services
Changes in credit available and the cost of credit to businesses
Changes in the supply of labour
Government policy changes, and
Changes in business legislation.
The Business Cycle including changes in Gross Domestic Product (GDP)
The economy is seen to follow a cycle (typically every 30 or so years). Growth in the
economy means that there is an increase in GDP from one year to the next. Recession in the
economy means that there is a decrease in GDP from one year to the next.
Considering full 2015, the current growth rate is 2.2%, down from 2.9% in 2014. Although it
fell, this figure is positive and shows that the economy is on the way to recovery.
Growth/recession result from an increase or a decrease in GDP (Gross Domestic Product).
Gross Domestic Product means the value of goods
and services produced within the nation’s borders.
For example, UK borders. GDP is calculated every
quarter by the government. If GDP goes up from
one quarter to the next – there is said to be growth
in the economy. If GDP goes down from one
quarter to the next – there is said to be decline in
the economy. A recession is officially declared
when GDP falls for two consecutive quarters.
Factors such as gross domestic product (GDP), interest rates, levels of employment and
consumer spending can help to determine the current stage of the economic cycle. If
spending increases, demand will increase and GDP will grow. If spending decreases, demand
will decrease and GDP will fall.
, Conor Cunningham P1
There are three categories of spending in the economy which include consumer spending,
investment spending by business and government spending. The government is responsible
for monitoring and controlling all of these. If they fail to do this, the economy may go into a
recession as a result of incorrect controlling.
Growth in the economy means that there is an increase in GDP from one year to the next.
Recession in the economy means that there is a decrease in GDP from one year to the next.
Growth
During a period of growth, the whole economy grows and local communities become richer
as more people are employed and the local councils will have more money to spend on the
local infrastructure. The government sets targets for growth each year. For example, the
current target is 2%.
There is also an increased taxation revenue for the government as more people are working
and therefore they have more money to spend on the provision of services such as
education, health and roads and aids to businesses, such as Tesco in ways.
The economy will be more attractive to Foreign businesses because of the increased
demand and government grants and support from the government to enter the market. This
increases competition in the market and brings benefits for the consumer but more
challenges for businesses such as Tesco as they may have to lower their prices of products
and services to compete.
Economic growth would see rates of employment increasing. This will affect Tesco as more
people are employed and so have higher disposable incomes which may be spent in Tesco
and this would in turn increase their profits due to more people wanting more products and
wanting to spend more money. As people have more money to spend on luxuries, they will
buy more of what they want, more so than what they actually need. Higher value products
will also be purchased. For example, the Andrex toilet rolls will be bought instead of Tesco
value toilet rolls and because of this, Tesco benefit as more money is being spent with them.
Increase in demand affects many departments within Tesco such as production, finance,
human resources, marketing and distribution.
Tesco’s growth occurs when more goods are being produced and consumed, and incomes
are rising. A growth company tends to have very profitable reinvestment opportunities for
its own retained earnings. Growth means higher demand for products and services. The
demand affects what type of service it is, whether it is a need to the consumer or if it is a
luxury.
Over the years, Tesco have watched their
profit steadily grow. Tesco is always looking
at ways to grow and expand. Apart from
opening more stores across the globe, Tesco
has branched into E-Commerce. You can
now purchase goods and services online
from their website
