A2. External factors and cultural differences
Task 1
Tesco is the market leader of groceries and general merchandise in the United Kingdom. The
retailer was founded by Jack Cohen in Hackney, London, in 1919. Currently, the chain of
supermarkets has over 7000 shops (in 2020) in four countries other than the UK (Ireland,
Slovakia, Czech Republic, Hungary).
This report will explain the external factors that have impact on Tesco considering trading
internationally, as well as what business support systems help Tesco with the international
trade. Additionally, the report will include a situational analysis on two countries (Belgium
and Romania) Tesco could target in order to trade internationally, as well as
recommendation about the country that would be more suitable.
P5. The external factors that influence Tesco when trading
internationally
The external factors have a significant impact on Tesco’s performance and they are crucial in
deciding whether or not to enter a particular new market in a new country, because the
success of the company is influenced by these factors. PESTLE is a situational analysis that is
very useful for a business in identifying external factors.
Political
The political aspects existing in a country have a crucial impact on international businesses.
The political system influences the choice if Tesco to enter or not a market in that country.
For example, it is much easier to do international trade with a democratic country than with
a communist state.
Political changes and government decisions have impact on the businesses (e.g. Brexit,
political stability or instability, trade barriers etc.). The governments of some countries
encourage trade (because multinationals create jobs and contributes to national economy,
some governments lower their taxes to encourage them to come to their country) and
others are more restrained in international trade (they support domestic businesses,
minimising the number of imports). Also, some governments promotes third party trade
(e.g. subsidies). For example, the introduction of a new tax by the government has a direct
impact on Tesco’s level of profit, which could make the expansion of the company in a
certain country to be unprofitable. Also, trade barriers restrict imports which means that
Tesco may not bring the products that will lead to loss of customers, decrease revenue and
profit etc. Additionally, trading blocs influence international trade, encouraging member
states of the same trading bloc to trade, but bringing disadvantages to trade with non-
member countries (e.g. higher costs, more administrative difficulties etc.). After Brexit, for
1
, Tesco may be more difficult to expand in countries belonging to the EU than it was before
when the UK was member of the trading bloc.
Economic
Economic factors play an important role when Tesco wants to enter a new market. An
analysis of the country’s economy must be made, because a country without economic
stability will not be profitable, bringing losses to Tesco. The company has to ensure that the
potential customers afford to buy the products sold by them, as well as if there is a high
demand of products. Also, they need to consider the exchange rate and to analyse the
benefits and the drawbacks of trading in a particular currency. Furthermore, before entering
a new country, Tesco has to consider different factors such as: inflation, interest rates,
different taxes and fees (VAT differs depending on the country), wage rates, disposable
income, economic cycle etc. For example, if disposable income increases, the customers
have more money that might lead to growth in demand (more sales and more profit for
Tesco). A decrease in disposable income would lead to less customers and revenue, being
less profitable for Tesco.
Social
From a social point of view, before entering a new market, Tesco needs to consider aspects
such as: level of education and skills, religion, lifestyles, environmental behaviours, changes
in the population (trends such as decline/ growth), migration level, income distribution etc.
Population trends have impact on Tesco’s workforce (e.g. in a country with an aging
population it will be more difficult to find employees) and on type of goods that clients want
to buy. For example, a country with a large population has lower net wages because the
demand for jobs is high. In this case, Tesco increases their profits (salary and wage costs are
low), but Tesco needs to decrease the products’ prices in order to make more sales (Tesco
would have no sales if it maintained high prices in a low-wage country).
Moreover, the lifestyle of a country’s inhabitants can have a big impacts on business. For
example, some countries adopt a healthy lifestyle, the demand for organic products being
very high, so Tesco needs to comply with the wants and needs of the customers in order to
be successful. Also, the existence of a large immigrant community may lead Tesco to bring
their traditional products into the stores to increase sales.
Technological
Some countries are more technologically developed than others, which may require
different approaches from Tesco (e.g. training on different systems). Advances in technology
facilitate communication between business partners or between Tesco and customers; sales
(e.g. in the pandemic, online sales expanded); marketing (social media attracts wide target
market); tracking delivery (e.g. GPS). Technology leads to increased profits for Tesco. For
example, a well-organised website that have all the essential information for customers
increases the amount of customers and sales. Also, Tesco made investments to develop the
online shopping systems needed especially during the pandemic that led to increased
revenues. Additionally, self-check-out machines improve their customers’ shopping
2
Task 1
Tesco is the market leader of groceries and general merchandise in the United Kingdom. The
retailer was founded by Jack Cohen in Hackney, London, in 1919. Currently, the chain of
supermarkets has over 7000 shops (in 2020) in four countries other than the UK (Ireland,
Slovakia, Czech Republic, Hungary).
This report will explain the external factors that have impact on Tesco considering trading
internationally, as well as what business support systems help Tesco with the international
trade. Additionally, the report will include a situational analysis on two countries (Belgium
and Romania) Tesco could target in order to trade internationally, as well as
recommendation about the country that would be more suitable.
P5. The external factors that influence Tesco when trading
internationally
The external factors have a significant impact on Tesco’s performance and they are crucial in
deciding whether or not to enter a particular new market in a new country, because the
success of the company is influenced by these factors. PESTLE is a situational analysis that is
very useful for a business in identifying external factors.
Political
The political aspects existing in a country have a crucial impact on international businesses.
The political system influences the choice if Tesco to enter or not a market in that country.
For example, it is much easier to do international trade with a democratic country than with
a communist state.
Political changes and government decisions have impact on the businesses (e.g. Brexit,
political stability or instability, trade barriers etc.). The governments of some countries
encourage trade (because multinationals create jobs and contributes to national economy,
some governments lower their taxes to encourage them to come to their country) and
others are more restrained in international trade (they support domestic businesses,
minimising the number of imports). Also, some governments promotes third party trade
(e.g. subsidies). For example, the introduction of a new tax by the government has a direct
impact on Tesco’s level of profit, which could make the expansion of the company in a
certain country to be unprofitable. Also, trade barriers restrict imports which means that
Tesco may not bring the products that will lead to loss of customers, decrease revenue and
profit etc. Additionally, trading blocs influence international trade, encouraging member
states of the same trading bloc to trade, but bringing disadvantages to trade with non-
member countries (e.g. higher costs, more administrative difficulties etc.). After Brexit, for
1
, Tesco may be more difficult to expand in countries belonging to the EU than it was before
when the UK was member of the trading bloc.
Economic
Economic factors play an important role when Tesco wants to enter a new market. An
analysis of the country’s economy must be made, because a country without economic
stability will not be profitable, bringing losses to Tesco. The company has to ensure that the
potential customers afford to buy the products sold by them, as well as if there is a high
demand of products. Also, they need to consider the exchange rate and to analyse the
benefits and the drawbacks of trading in a particular currency. Furthermore, before entering
a new country, Tesco has to consider different factors such as: inflation, interest rates,
different taxes and fees (VAT differs depending on the country), wage rates, disposable
income, economic cycle etc. For example, if disposable income increases, the customers
have more money that might lead to growth in demand (more sales and more profit for
Tesco). A decrease in disposable income would lead to less customers and revenue, being
less profitable for Tesco.
Social
From a social point of view, before entering a new market, Tesco needs to consider aspects
such as: level of education and skills, religion, lifestyles, environmental behaviours, changes
in the population (trends such as decline/ growth), migration level, income distribution etc.
Population trends have impact on Tesco’s workforce (e.g. in a country with an aging
population it will be more difficult to find employees) and on type of goods that clients want
to buy. For example, a country with a large population has lower net wages because the
demand for jobs is high. In this case, Tesco increases their profits (salary and wage costs are
low), but Tesco needs to decrease the products’ prices in order to make more sales (Tesco
would have no sales if it maintained high prices in a low-wage country).
Moreover, the lifestyle of a country’s inhabitants can have a big impacts on business. For
example, some countries adopt a healthy lifestyle, the demand for organic products being
very high, so Tesco needs to comply with the wants and needs of the customers in order to
be successful. Also, the existence of a large immigrant community may lead Tesco to bring
their traditional products into the stores to increase sales.
Technological
Some countries are more technologically developed than others, which may require
different approaches from Tesco (e.g. training on different systems). Advances in technology
facilitate communication between business partners or between Tesco and customers; sales
(e.g. in the pandemic, online sales expanded); marketing (social media attracts wide target
market); tracking delivery (e.g. GPS). Technology leads to increased profits for Tesco. For
example, a well-organised website that have all the essential information for customers
increases the amount of customers and sales. Also, Tesco made investments to develop the
online shopping systems needed especially during the pandemic that led to increased
revenues. Additionally, self-check-out machines improve their customers’ shopping
2
