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PESTEL Analyses for Tesco
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DescriptionPolitical, Economic, Social, Technological, Environmental and Legal issues
3. PESTEL Analysis
The PESTEL framework below analyses the dynamic and unpredictable environment in which Tesco operates by identifying the forces that have the most impact on Tesco’s performance:
China’s accession to the WTO has promoted a free flow of foreign trades by removing all barriers encouraging Western companies, including Tesco, to make way into the world’s most profitable market encompassing over 1.3 billion people (Straits Times, 2010). In 2009 an agreement was signed by Tesco to set up a premeditated series of joint ventures for the development of shopping malls in China. This joint venture included three malls: Anshan, Fushan and Qinhuangdao. Furthermore, 18 new hypermarkets are expected to open in China by 2010 (Tesco, 2009). The growth of Tesco’s international business segment is on the rise and it is predicted to account for one quarter of the company’s profit.
Promotion of free trading blocs by governments to benefit from globalisation has been presented in the literature (Lynch, 2003). Immersion of 10 further countries into the European Union (EU ) took place in 2004 promoting trade between Western and Eastern European countries (BBC, 2009). This has provided Tesco with a platform to expand its retail network across the EU.
Economic factors are a matter of concern for Tesco since they impact directly on the buying behaviour of customers. Although the UK economy was declared officially under recession in 2008, the government’s substantial reduction in interest rates helped to minimise further rises in unemployment during 2009 (Euromonitor, 2010). As a result of this, the spending power of consumers is again on a steady rise as they are more confident about their current financial situation. However, there is still a lot of financial uncertainty meaning that consumers are likely to spend less on premium products, encompassing organics and ready prepared meals, which will adversely affect both sales value and margins (Keynote, 2010).
However, the positive aspect of recession is that the customers eat out less and eat more at home which provides opportunities for grocery retailers like Tesco to increase their output (Guardian, 2010). It must be noted that food is the last thing that customers will cut back on. The percentage of overall consumer spending on food has risen considerably over the years, as shown below (Euromonitor, 2010):
Fig 2: UK Spending on Food as % of Overall Consumer Spending 2004 to 2008
The economic downturn has been brought to light with the assistance of the following GDP growth graph since 1989 (Mintel, 2009):
Fig 3: UK GDP Growth 1989-2009
An analysis of the UK population shows that there are more retired people than children representing the Baby Boom generation (Herald Scotland, 2010). The ageing population ...
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