Lacey Fox Candidate Number: 1061 Centre Number: 27220
Business Level 3 – Unit 1: Learning Aims C&D
The Effects of the Environment on a Business
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,Lacey Fox Candidate Number: 1061 Centre Number: 27220
Introduction
During this report, I will investigate Tesco Supermarket’s foreign company and how it functions with the
European Union. It will include its overall environmental influence in internal and external settings, business
culture, rivalry, demand, and market structure. To enable me to thoroughly evaluate Tesco Supermarkets'
success I will include PESTLE, SWOT and the 5C’s.
Section 1 – P4: The Internal, External and Competitive Environment
Internal Factors
Internal factors influence the operations within a business, both positively and negatively. The three main
internal factors are staffing, finance and adapting technology.
External Factors
External factors are influences outside of the company that directly affect its success. The impacts can have a
positive or negative effect The business has no control over these factors, all they can do is react efficiently in
order to be successful and survive.
PESTLE Analysis
Political
Tesco is headquartered in the United Kingdom and operated in multiple different countries. As one of the
world's largest retailers, the company must comply with various regulations to ensure the compliance and
safety of its products. Due to operating in many contrasting countries, they need to pay close attention to the
changing political environment in each country in which they operate. The better trade opportunities, the
more stable their political environment.
The most recent example is Brexit. With regard to Brexit, there may be a dilemma related to the new
regulations which may lead to a decrease or increase in sales. Also, changes in taxation regulations among
suppliers will have an impact on the company's profitability. Tesco also operates its business in countries such
as the Czech Republic, China, Malaysia, Slovakia, Poland, Hungry, Ireland, and many others. The political
environments of all of these countries are different. A stable political is key to running a successful business in
any country.
Immigration
Arms wholesalers get international exposure. Tesco previously struggled outside of the UK, Eastern Europe,
Malaysia, Thailand, India, and China after being forced to exit the US and Japanese markets in 2012. The rise
of their worldwide branch has been good in recent years, but the profits are larger, so Tesco cannot be
completed in one go. In 2018, the company's overseas business revenue was less than 18% of total revenue,
although adjusted operating profit was 21%. They are making more of their own items, buying more from the
UK, boosting their purchasing power, and diversifying their wholesale offerings. All of these elements will help
Tesco as it deals with Brexit and the current situation with the European Union.
VAT Tax
Tesco is already one of the most significant tax contributors in the UK. In the financial year of April 2019-
February 2020 Pre-Lockdown, the company paid £5.2 billion in tax: this included taxes borne by the business
of £1.8 billion and taxes generated from operations and in doing so they collected £3.4 billion. Tesco is
affected by deflecting funding, which causes lower taxes. It allows people to pay fewer taxes and have a
higher disposable income. High disposable income allows the population to feel more able to buy more wants
as well as needs when shopping at Tesco, therefore increasing sales and profits. However, in the future, the
government may have to increase taxes or cut spending to reduce the deficit, which may lead to reduced
motivation to work, which means more people will be unemployed. This has resulted in less money spent by
people, so Tesco's sales and profits have fallen, which has had a huge impact on the entire organisation. If the
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, Lacey Fox Candidate Number: 1061 Centre Number: 27220
government sells more bonds, this is likely to cause interest rates to rise. This is because they will need to
raise interest rates to attract investors to buy additional debt. If the government raises interest rates, it will
also push up other interest rates, which means more people will save money instead of borrowing. This has
led to reduced expenditures, and as a result, Tesco may be affected by slowing sales and fewer customers.
Trade Union Involvement
In 2017, USDAW worked with Tesco to change the payroll issue affecting 140,000 members of Tesco staff.
There was a problem related to the many voluntary benefits the company provided through the salary
sacrifice plan, including pensions, childcare vouchers, and work cycles. This caused the salary after the
sacrifice unable to meet the national living wage required by some workers. The USDAW continued to work
with Tesco Supermarkets to ensure that all affected employees were notified and urgently aided them to
correct their wages and be reimbursed. This was as high as £40 for most employees. The priority was to reach
an agreement with Tesco to ensure this did not occur again and provided members with the support and
advice needed.
Economic
Tesco sells a wide range of products. Economic factors play a significant role in product consumption. These
issues affect the firms' revenue, sales, distribution, and profit. The company must keep a close eye on any
economic developments in the country or region in which they operate in. Companies should understand
various tax policies in order to use them to their advantage. Despite the fact that the global industry is
expanding, the United Kingdom still accounts for the majority of revenue. Any changes in UK policies could
lead to major changes in the company’s delivery model, and the expenses of redesigning the organisation
could be significant. Tesco’s’ product pricing can also affect sales. When the economy is under pressure or
inflation is present, products which are daily essentials must be priced fairly. As disposable income decreases
and prices inflate, product sales for the company will decrease also.
Fiscal Policy
Fiscal policy involves taxation and government spending and covers areas such as; cuts in government
spending and changes in the way government spending is managed, tax changes or examples change the
income tax rate, value-added tax rate, corporate tax rate, airport tax and customs duties of goods entering
the country and the introduction of new taxes, such as sugar tax, fat tax and tax on hypermarkets. Under the
fiscal policy, the government has taken many different measures and proposed some measures to ensure that
the measures are effectively followed.
Foreign Exchange Rates / Risks
Transaction risk is caused by the cost of buying goods in the future, where these purchases are dominated in a
currency which is different to the buyer company’s functional currency. Trading currency exposures that may
have a significant impact on the group's income statement are hedged. These risks are hedged by forward
foreign exchange options, which are defined as cash flow hedges, and are used to migrate these risks, and the
policy will have the lowest (20%) and the largest (80%) forecasted uncommitted risks in the following 12
months.
Net investment exposure comes from changes in net investment value denominated in currencies other than
the British pound. The Group’s policy is to hedge part of its investments in international subsidiaries through
borrowings in foreign currency derivatives and matching currencies. These currencies are officially designated
as net investment hedges. In the current financial year, changes in currency exchange rates have reduced the
net value of the group's overseas assets by 70 million pounds under the influence of hedging (2019: an
increase of 100 million pounds). The Group also ensures that each subsidiary company is appropriately
hedged with respect to its non-functional currency assets.
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