Political Factors

The UK government has recently adopted a tax measure that affected Tesco. In 2011 the UK
government increased the VAT rate from 17.5% to 20% with the aim to increase government
revenue by 13 billion per year (BBC, 2011, n. p.). Crossley et al. (2009, p. 3) contend that an
increase in the VAT rate leads to lower customer spending. Therefore, an increase in the VAT rate
negatively affected the sales revenue generated by Tesco. Sales revenue is the key source of
income of the organization and thus it holds a substantial effect on profits (Atrill, 2009, p.
33).VThe UK government has also proposed to adopt a fat tax with the aim to control obesity
and limit the medical problems associated with it (The Guardian, 2011, n. p.). Such measure can
adversely affect the sales revenue of certain products retailed by Tesco. Tesco is responding to
such a threat. Indeed, in 2014 Tesco launched a "brand new healthy food range" (Tesco, 2014, n.
p.).

Economic Factors
The UK economy is showing positive signs of recovery from the financial crises. Higher
economic growth rate was forecasted and the gross domestic product was estimated to be 2.7%
higher than the pre-crises peak (BBC, 2014, n. p.). A growth in economy is a positive sign for
Tesco because it results in a growth in the supermarket industry, which is the main industry in
which Tesco operates. When there is an economic recession, which is the opposite of economic
growth the rate of unemployment increases. This results in lower disposable income in the hands
of the British people. Customers will decrease spending and will shift to products of a lower
price (Mankiw, 2012, p. 97). To decline in disposable income levels and household incomes,
Tesco, has shifted most of its focus towards advertising its value brands rather than the more
luxurious items. Therefore, recovery from the economic recession stimulates revenue growth for
Tesco.

Social Factors
In the past years there was a decrease in the birth-rate and an increase in the life expectancy of
people (Independent, 2010, n. p.). This led to a shift in the tastes of individuals which should be
taken into account by Tesco. For example, the adoption of online shopping by Tesco for grocery
products is an approach that takes into consideration the mobility issues that elderly people face.
Eastmen and Iyer (2004, p. 208) examined the perception of elderly people to the use of the
Internet. These scholars found that elderly people view the Internet favorably and are willing to
use it. This research also suggested that elderly people with a high income are generally more in
favor to the use of the Internet and are interested to acquire products online (Eastmen and Iyer,
2004, p. 208). Therefore, Tesco has positively responded to this social change.
The literature says that the customers' opinion of an organization can quickly change due to
changes in the quality and price of the company's products, shopping service provided to
customers and competitive moves (Kotler and Armstrong, 2010, p. 163-165). This highlights the
importance that the corporate strategies should be responsive to the business environment. For
example, in 2013 Tesco was accused of the horsemeat scandal. Horse-related puns were
identified in Tesco's burgers and the organization was accused of not providing the good quality
products claimed in their advertising campaigns (Pratley, 2013, n. p.). This scandal affected
negatively the perception of customers on Tesco, which resulted in a decline in sales (Neate and
Moulds, 2013, n. p.). Tesco needs to respond to such scandal, which adversely affected its image.

Technological Factors
Technology is critical for the supply chain management of Tesco. Retailers like Tesco develop
supply chain management systems in order to attain competitive advantages and enhance cost
efficiency (Tan, 2001, p. 41). Johnson et al. (2005, pp. 132 - 133) posit that the most effective
competitive advantages are those that are difficult to imitate by competitors. These are reflected
in the core competencies of the organization (Johnson et al., 2005, pp. 132 - 133). Tesco needs to
be very attentive to technological advancements because these may be an opportunity for the
firm. For example, mobile technology helped to improve Tesco's distribution service because
customers can selected their preferred wine through their mobile (Tomlinson and Evans, 2005, n.
p.).
The management of Tesco needs to be attentive for disruptive technologies, which occur
frequently in retailing. For example, the introduction of e-grocers led to a disruptive wave in the
supermarket industry (Wessel and Christensen, 2012, p. 7). Disruptive technologies result from
an innovation in technology that is initially incapable of reaching the performance of the present
technology. Therefore, customers value the present technology more than this new technology.
However, a niche in the market arises where the disruptive technology is more convenient to
customers. Therefore, such technology will appear unattractive to large well established
organizations, like Tesco. On the contrary small firms will regard a disruptive technology as an
opportunity to enhance the market share (CIMA, 2009, pp. 1 - 2). These small firms will utilize
the technology in order to meet the standards of performance expected by the bulk of the
market" (CIMA, 2009, p. 2). Therefore, over time the disruptive technology will increase in
popularity and will be more valuable to customers than the present technology (CIMA, 2009, p.
2). This will thus negatively affect organizations that have not used this technological
opportunity.

Environmental Factors
In the press substantial emphasis is made on global warming and the consequences associated
with it. For example, the increase in average temperature is leading to a melting of the Arctic ice
and it is envisaged that by 2040 there will be an ice-free summer (National Geographic, 2007, n.
p.). Such facts are leading to higher emphasis on environmental sustainability. Tesco is adopting
a number of measures that are aimed to protect the environment. For example, Tesco is
committed to diminish the consumption of energy and utilization of greenhouse gases (Tesco,
2014c). Management claimed that when they are doing store adjustments they are taking into
account such environmental factors. For example, in Thailand the organization has invested 3.1
million on 49 stores in order to provide energy savings of approximately 2 million (Tesco,
2014, c, pp. 44 - 45).

Legislative Factors
There are a number of laws that affect Tesco because the organization markets a wide number of
products and services. For example, as regards the agricultural products the UK government is
reforming the common agricultural policy. The government is revising the way direct subsidies
will be allocated to farmers (Gov.uk, 2014, n. p.). Such measures can lead to lower subsidies,
which affect the ability of farmers to meet the agricultural standards set by Tesco and the prices
agreed with organizations engaged in the supermarket industry. Winnett (2012, n. p.) contends
that significant fines can be imposed on firms like Tesco if such organizations force agricultural
suppliers to sell at a price which is lower than costs. Tesco is also engaged in financial services
products like credit cards, savings, loans and mortgages (Tesco, 2014a, n. p.). The Financial

Services Act (2012) was recently implemented in the UK (Noked, 2013, n. p.). Three new
governing bodies resulted from this act, which consist of the Financial Policy Committee, the
Prudential Regulatory Authority and the Financial Conduct Authority" (Noked, 2013, n. p.). The
Prudential Regulatory Authority adopts a micro-perspective and is responsible that organizations
engaged in financial services products operate in adherence to relevant regulations (Noked, 2013,
n. p.). The Prudential Regulatory Authority seeks to decrease the negative effects arising from
disruption to the continuity of financial services", which may be influenced by the way financial
services organizations operate or their failure (Noked, 2013, n. p.).