A further analysis on the economic environments that Tesco operate in with the benefits and challenges they face as well as a long term forecast

1. 1Lewis Appleton M2 Miss Johnston

2. The UK is a mixed economy
meaning that businesses are
regulated but also have a
flexibility of being able to
carry out operations without
intervention. The UK
compared to China has a
much higher
unemployment rate with a
much lower population. The
UK has also had a stable
growth but it is not rising.
China has a command
economy which doesn’t
allow businesses to have a
large flexibility as the
government regulates
everything. There is a low
unemployment rate and a
high population. The China
economy has been growing
at high rates for a while and
is expected to continue to do
so.
2Lewis Appleton M2 Miss Johnston

3. In the UK there is a higher rate of import goods which
are more expensive for businesses to obtain. The UK is
part of the Eurozone which do imports/exports at a
cheaper rate and with more complex products. In the UK
there are copyright laws against branded products to
prevent counterfeits being produced and sold.
Compared to China the UK has a much slower growth
percentage. The businesses in the UK produce designer
products to meet the needs of their customers.
3Lewis Appleton M2 Miss Johnston

4. In China there is a better affordability of products, there
is cheaper labour, more resources being produced and
the majority of raw materials required are produced in
fast supply within the country. There may be a larger
competition within China because of the population.
The difficulty with operating in China is that there are
no laws against copyright and fake goods are easily
produced. The growth in China is 19 times higher than
the UK and means the economy has far more money to
spend. China also need to meet the needs of their
customers by producing designer products.
4Lewis Appleton M2 Miss Johnston

5. Tesco operating in the UK is
beneficial because they are
recognised from brand
awareness, as well as this
there are also the factors
that; first of all it is much
easier to set up a business
within the UK because the
China economy is a
command economy. There is
also the factor that there is
more copyright laws in the
UK that prevents items from
being counterfeited.
Tesco operating in China
would be beneficial because
of the large population, as
well as this there are the
factors that; first of all there
is cheaper labour, more
resources that are being
produced by the economy,
the supply of these
resources is also faster. The
economy in China has a
higher growth rate meaning
that the economy is much
better off than the UK.
5Lewis Appleton M2 Miss Johnston

6. In the UK the it may be
difficult for Tesco to set up a
business because the growth
is generally slower than that
in China, there is also a
higher rate of VAT and
corporation tax which will
reduce the profits that the
business make. There are
many known competitors in
the UK that can make it
harder for Tesco. If Tesco
were operating in the UK
they would gain less profit
because of taxation.
In China it may be difficult for
Tesco to set up a business
because there may be many
other competitors out there
that Tesco can struggle
against, there may also be
places that will product fake
replicas of Tesco’s products.
Because China is a
command economy it is
even harder for a business to
be set up in China.
6Lewis Appleton M2 Miss Johnston

7. In the UK Tesco can meet
its challenges by
increasing the amount of
products that they sell to
ensure that the profits are
kept high. Tesco can also
try to raise brand
awareness by promoting
certain products with
advertisements.
In China Tesco can meet its
challenges by introducing
more express stores
because this is what they
are aiming for, they can
also increase the amount
of locations that they have
stores in to increase sales
and profits.
7Lewis Appleton M2 Miss Johnston

8. The UK is trying to reduce its
inflation rate to 2% within the
following years, this would have a
good effect on businesses as they
will be able to afford more imports
and more raw materials, this way
they will produce more goods and
profits. This affects Tesco because if
it happens they will make a better
rate of positive revenue and supplies
will be more affordable. The recent
unemployment rate has increased in
the UK which means less people will
be buying from Tesco and therefore
they will make less profit.
China is trying to increase their
growth so that they can raise the
GDP but they are also trying to make
sure that prices are not set too high.
This affects Tesco because they need
to be able to make a profit from their
operations without paying too much
for their raw materials. An increase
in the GDP in China would mean
that Tesco will have more money
being spent in the economy on them
and therefore they will benefit an
increased profit. The growth is
expected to increase by about 10% in
2012.
8Lewis Appleton M2 Miss Johnston

9. Tesco will generally do better in the UK, this is because it
will be easier for the business to start setting up as it is a
mixed economy. Although there is a higher corporation
tax (28%) and VAT (20%), there is the advantage of a
much lower interest rate. This promotes spending and
loans which can be a good potential for Tesco’s profits.
The problems with being in the UK such as there being a
high unemployment rate (8.3%) can deter people from
spending, the fact that in China there are no copyright
laws in place puts Tesco at risk therefore they are
generally much better off operating in the UK.
9Lewis Appleton M2 Miss Johnston

10. Tesco can possibly look at other environments to operate
within but it is more likely that the UK or China are the
better choices, whereas there is more security and
flexibility in the UK, China has a very large population
which could also increase the profits made. If Tesco were
to choose an alternative environment it should be one
with both a large population and secure laws in place.
One of the alternatives can be one such as America,
which is also a mixed economy. Currently Tesco is
successful in China and is introducing its own style of
branded products.
10Lewis Appleton M2 Miss Johnston

11. The UK continues to go up
and down with growth and is
not achieving what they are
aiming for, but the change
isn’t too drastic and it appears
to be stable. This is likely to
still be the same in the future
unless certain decisions are
made.
China continues to grow and
is rarely having negative
growth, therefore the
economy in China is going to
get bigger and businesses
there will be able to make
more profits. It is expected
that by 2020 or 2024 with
China and Americas current
growth rates, China can
become a bigger economy
than America.
Lewis Appleton M2 Miss Johnston 11