Conor Cunningham P5 M3
Introduction
This report will explain the role of the European Union and describe the impact which UK
membership of the EU has on Tesco. The impact which a range of significant global factors
have on the operations on Tesco will also be described followed by an assessment on the
impact of changes in the EU environment and global factors on Tesco.
Findings
P5
European Factors
Different European factors have different influences on the UK economy as the UK is
currently a part of the European Union at the minute. As the EU affects the UK economy,
different businesses such as Tesco are also affected and this will be looked at below.
Role of European Union (EU)
The European Union (EU) is a political and economic union of 28 member states that are
located primarily in Europe. The European Union was formed in 1950 with two countries
and since then there are now 28 countries with others wanting to join. The purpose of the
EU is to allow the free movement of people, goods and services throughout its member
states. In April 2017, the population of the EU is estimated to be 739,207,742.
An organisation such as Tesco has access to the European market that links economies and
this has an impact on them as there is no need to pay any customs or excise charges to
other member states. This has implications for Tesco as they have less expense and are able
to trade much more freely. This free movement of goods has decreased costs for businesses
within the EU as well as reduced costs for countries outside the EU that trade with it.
The Single European Market means that the EU countries are just one big market.
It is a free trade area and a customs union designed to encourage economic growth and
employment throughout the member states. Free trade area means that it allows the free
movement of goods, services, capital and labour between member states without any
restrictions. Customs Union means that there is a common external tariff on goods coming
into the EU from non member states such as the USA and Japan no matter where there
point of entry. This has positive implications for Tesco as they have the same legislation
across the EU which means barriers to trade are removed and this allows Tesco to trade
much more effectively and efficiently with both suppliers and customers.
The European Council was formally founded in 2009 and this helped to draw all the
strengths of the different states together. This then resulted in the Lisbon Treaty being
signed which was set up to enhance the efficiency and legitimacy of the Union and to
improve the coherence of its action. This then allowed the EU to work more effectively and
effectively and allowed the free movement of people, goods and services throughout all
,Conor Cunningham P5 M3
member states. This affected Tesco positively as they were able to buy and sell goods and
services freely as well as source labour from other EU countries without any problems.
Performance of European Union economies
The EU encourages its 28 member states to work closely together through the single market
as this means that as they do so, the economies of individual countries such as Ireland, UK
and Spain for example are more closely linked. As of April 2017, 19 of the 28 EU countries
use the Euro as their currency which means there are no exchange rate fluctuations
between them. As Tesco is primarily based in the UK they use GBP and so the value of the
current currency is less. This impacts on Tesco as it means that they perhaps cannot afford
to buy some products as cheaply as they would like from other EU countries due to the
decreased value of the pound. This would mean that Tesco’s expenses rise and profits may
also be negatively impacted as a result.
The EU has encouraged its 28 member states to work closely through the single market and
as time has passed by the counties have become more closely linked. The performance of a
lot of EU countries has greatly reduced in recent years. They have built up huge deficits.
This led in 2008 to a group of economies in the EU being referred to as PIGS (Portugal, Italy,
Greece and Spain) as they had large deficits and high levels of unemployment. More
recently Ireland has joined the group and it now has become PIIGS.
Different countries within the EU have very different economies as some do well and others
have huge debts and financial deficits. In 2008 a group of economies in the EU were
grouped together as they had large deficits and high levels of unemployment. As of 2017,
some of the most competitive EU economies include
Switzerland, Germany and the Netherlands. The
performance of EU countries would be of interest to Tesco
as if a country they bought goods and services from
became a struggling economy such as that of Luxembourg
with many businesses in debt, Tesco may withdraw
business relations with them. This would result in Tesco
sourcing goods and services elsewhere from a better-
performing country in terms of its economy such as
Switzerland. This would guarantee more security in its
business operations and may allow Tesco to receive better
prices which would allow them to maximise their profits
even further.
European policies
There are many different European policies that affect UK businesses such as Tesco. Some
of these will be looked at in more detail below as well as how they impact on Tesco.
, Conor Cunningham P5 M3
Agriculture – The Common Agricultural Policy (CAP) was developed by the EU and was set
up to benefit its members by encouraging the production of safe and high quality food,
supporting the upholding of rural communities and giving farmers incentives to have a good
corporate responsibility for the environment. The CAP aims to make sure there is
sustainable agricultural production in the EU that ultimately helps the economic and social
environment of the union. In the EU, agricultural land represents a large part and so it is
important to ensure that sustainable agricultural production takes place from not only an
economic point of view, but also an environmental and social point of view.
This policy impacts Tesco as they must follow procedures to ensure they are selling food
which is safe, of high quality and which was produced in line with protecting the
environment. Tesco are also impacted by the CAP as they trade within the EU and to have a
good brand image, must show that they follow guidelines set by the CAP as this will give
them a good image in terms of corporate social responsibility. Tesco may be further
impacted as they follow strict guidelines of suppliers they can and cannot have as well as
ways in which they source their goods.
Business, growth and employment – The European Commission (EC) works with the 28 EU
member states to help achieve business success, growth and employment The EC will look
at ways to invest and grow that are smarter and greener. The EU has policies in place which
promote employment and schemes that support countries to develop and grow. Examples
of policies that support business growth and opportunities for employment include
Enterprise and Industry policies which are developed by the EC.
This policy impacts Tesco as they may be given grants to help them become greener and
grow faster which would help them, other businesses and the economy. Tesco may also be
impacted by this policy as they become more supported with employment schemes and
apprenticeship schemes by the EC to help reduce unemployment. This helps Tesco to
acquire new staff cheaply which helps them cut costs, increase profits and grow much
quicker.
Education – As well as business, growth and development, the European Commission also
sets out policies in relation to education within the 28 member states. The European
strategy in relation to education and training identifies different strategic objectives which
include;
Making lifelong learning and mobility a reality
Improving the quality and efficiency of education and training
Promoting equity, social cohesion and active citizenship
Enhancing creativity and innovation at all levels of education and training
By 2020, the European Commission has set benchmarks for its EU members such as having
at least 95 per cent of children from the age of four participating in early childhood
education and early leavers of education and training should be less than 10 per cent.
