PEST ANALYSIS OF TESCO

SWAPNIL MALI
GINNY
KATHARINA
PEST Analysis
Of TESCO

PEST Analysis for TESCO entering Singapore Page 1

1. Introduction

1.1 TESCO Business Strategy

TESCO is one of the largest retailers world-wide (TESCO PLC., 2012). It was founded in
1919 in the East End of London and developed to one of the largest retailers since then.
Originally, the company focused on retailing groceries but it has expanded its assortment of
goods to clothing, electronics, furniture, software, financial service, telecoms, etc. TESCO
spread rapidly over the United Kingdom and is at present operating in 14 countries across
Europe, North America, Asia, Malaysia, the Republic of Ireland and Thailand (TESCO PLC.,
2012).

According to its annual report of 2011, TESCO is the market leader of grocery stores in the
UK and the largest business in the Group. Meanwhile, two-thirds of its profits come from
outside the UK and TESCO is now „either number one or number two in eight of 13 markets
outside the UK‟. This reflects TESCO‟s business strategy of becoming „an outstanding
international retailer in stores and online‟ next to „growing the UK core‟.

If TESCO wants to follow its strategy it needs to expand into further countries. TESCO
yielded „sharp economic improvements‟ in Asia during the recent years (TESCO, 2011).
Therefore, for example Singapore could be considered as one possible future market.

1.2 Introduction to Singapore

The independent Republic of Singapore is located in Southeast Asia. The city-state is found at
the southern tip of the Malay Peninsula and consists of one main island and about 50 small
neighboring islands. Singapore has a high population density with a population of 5,183,700
in 2011 (Government of Singapore, 2011). The population is diverse: three-fourths of the
Singaporeans are Chinese, Malays build the second largest ethnic group, and Indians the third
(Singapore, 2011).

Singapore has a parliamentary democracy and became independent in 1965. Since then it has
sustained political stability and high economic growth. The seaport of Singapore is the most
important one of Southeast Asia (Ulack R, 2009). Singapore is a charter member of the


Association of Southeast Asian Nations (ASEAN) and became a member of the World Trade
Organization in 1995.

The high average life expectancy of 81.8 years (Government of Singapore, 2011), and the low
infant mortality indicate the high living standard.

(Source: http://www.singstat.gov.sg/stats/keyind.html#popnarea)

Fig 1.1 Average Life Expectancy

2. Purpose of a PEST analysis

In order to analyse if Singapore could be a profitable future market for TESCO, a PEST
analysis could be conducted. It is the investigation of political, economic, social/cultural, and
technological influences on a company (Griffiths, A. & Wall, S., 2005).

It therefore concerns the macro-environmental factors that affect the company which affect
the profitability within a potential market (Oxford University Press, 2007). A PEST analysis
is useful for examining the market, and also the target costumers and other influences on a
company. It is an instrument which is used in order to gain understanding for market growth
as well as market decline. It helps to understand the potential and direction for a business and
is also beneficial when planning marketing activities. The PEST analysis is therefore a
common used tool used for the assessment of the business development and influences
decision-making.

In the following, the PEST analysis will be conducted step by step in order to assess if it
would be profitable for TESCO to expand to Singapore.


2.1 Political Analysis

In this segment, the analysis is done from a political point of view. It covers the points related
to the ruling party, the stability of government and the laws which must be taken into
consideration when entering the Singaporean market.

2.1.1 Government, ruling party and ideology

Singapore has a parliamentary democracy which is based on the Westminster model
(Singapore, 2011). The president is the head of state and builds the government together with
the 84 members of the Parliament. The prime minister and the cabinet are appointed by the
parliamentary majority. Here out of 84 members, 17 are female (Lee S. H., 2009).

Since 1956, the politics of the country have been dominated by the People's Action Party
(PAP) (Singapore, 2011). The opposition is led by the Workers' Party, which made significant
gains during the last election in 2011 (Channel News Asia, 2011).

All parties believe that politicians should be given high salaries to make them corruption free.
The parliament members in Singapore are the highest paid politicians in the world (The New
York Times, 2007). This has proven to be a successful strategy as Singapore is rated to be
among the least corrupt countries (Transparency International, 2009). The main ideology of
the ruling party includes pragmatism, meritocracy, multiracialism, and Asian
values or communitarianism (Tremewan, C., 1996).

2.1.2 No foreign worker policy

Singapore laws are strictly against the forced labors and slavery. Laws also provide business
fair and equal protection. There is no minimum wage policy in the country. But the policy in
Singapore says that no one can hire foreign employee (Migration news, 1994).Due to this
retail market claim, they are facing shortage of workers. Therefore, in order to appeal
workers, a company needs to pay attractive wages (Minium Wages n.d.).

2.2 Economical Analysis


This section is about the analysis from the economical point of view. Here, details about the
economical condition of the country, foreign direct investments, and retail sector sales are
taken into consideration.

2.2.1 Easy application system

One advantage about starting a business in Singapore is their user-friendly computerized
system. To start a business in this country you need to apply online through the online form.
After the approval of the online application you can register your company and taxes
information. Also the property (i.e. land, building), can be stated through this online
procedure. This reduces time and saves the transit cost before setting up business in
Singapore.

2.2.2 Economic condition

Singapore has very high per capita income. People here can easily afford to do their shopping
in supermarkets. Also improved transportation and infrastructure has become a milestone for
Singapore. It has the best air transport in the world (Foreign policy globalization index, 2006).

Noticeable are the reduced interest rates. This allows TESCO to borrow money cheaply in
comparison to any other country (Doing Business, n. d.). The graph below shows that the
interest rates are almost null in Singapore. Interest rate was lastly reported at 0.01 percent
(Trading Economics, n.d.). It is good for TESCO to operate their business by raising money
from local financial institutes.

Fig. 2.2.1 Interest rates in Singapore


The monetary system in Singapore does not control through interest rates, but rather it
controls through its currency weighted value (Trading Economics, n.d.).

2.2.3 Foreign Direct Investments

A 100% FDI is allowed in Singapore. So there is no issue in the laws and rules while setting
up business in country.

2.2.4 Overall retail sales and foreign players.

Talking about retail super market sales over previous years (Government of Singapore, 2012).

Retail Sales Index(2010 as base)
105
98.7 100 100.8
100
95.2
95
90 85.7
85 % sale of 2010
80
75
2007 2008 2009 2010 2011

(Source: Business statistics: Department of statistics Singapore, Feb 2012)

Fig 2.2.2 Retail Sales Index in Singapore

This shows that the retail market in Singapore is growing every year and TESCO has a very
good market to capture. Also it is important to assess, if people are interested in a super
market operated by a foreign player. The graph below shows that people in Singapore are
willing to shop in foreign super markets. So there is no opposing from the people of country.

Foreign Sales Index
(2007 as base)
150
114 109.2
100
100 87.8

Foreign Sales Index
50 (2007 as base)
0
2007 2008 2009 2010


(Source: Business statistics: Department of statistics Singapore, Feb 2012)

Fig 2.2.3 Foreign Sales Index in Singapore

2.3. Social Analysis

Singapore is a multinational country with a diversified culture and religion which make it to
be a more probably open-minded country to new influences.

2.3.1 Population and Workforce

Singapore has a population of 5 million people which are mixed mostly among Chinese
(74%), Malaysians (14%) and Indians (9%) (Government of Singapore, 2011). Different
ethnic groups all consider themselves important parts of the diverse society of Singapore,
which creates a cosmopolitan culture of Singapore.

Singapore Total Population Singapore
YEAR Total Population Growth
Residents Residents Growth
(thousand)
(thousand) (percent) (percent)

2008 4,839.4 3,642.7 5.5 1.7

2009 4,987.6 3,733.9 3.1 2.5

2010 (census) 5,076.7 3,771.7 1.8 1.0
(Source: Singapore in Figures 2011)

Table 2.3.1: Singapore Population and Growth Rate

In 2010, the total labour force was 3,135.9 thousand people with the number of Singaporeans
in the labour force grew by 1.8% per annum from 2001. This reflected the rise in citizen
labour force participation rate from 63.7% in 2001 to 64.7% in 2010. Singaporeans have one
of the highest employment rates internationally with 78% of the resident population aged 25
to 64 were employed in 2011, surpassing the previous high of 77.1% in 2010 (Ministry of
Manpower, 2011).

2.3.2 Society Values and Principles

Singaporeans value the hierarchical relationship in society, which means that there must be
special treatments with respect and courtesy in the relationship between employers and
employees, teachers and students, parents and children, the elders and the youngsters. In the

society, family is the core and also the most important unit. Family has a remarkable effect on
the kids and leads them to be collectivism. (Qiang, L., n.d.)

2.3.3 Living standard

Singapore has one of the highest living standards in Asia. The median monthly income among
households with at least one working person (also known as employed households) increased
from $6,340 in 2010 to $7,040 in 2011, an 11 percent growth in nominal terms. The average
monthly household expenditure (excluding imputed rental) in 2007/08 was $3,764, rising
2.7% compared to that in 2002/03. Housing and related expenditure, food and food serving
services and transport accounted for the largest share (60%) of the monthly household
expenditure. (Department of Statistics Singapore, 2011).

2.3.4 Education

The literacy rate in 2011 (among residents aged 15 years & over) stands at 96.1% (up from
93% in 2000) whilst secondary or higher qualification holders (among resident non-students
aged 25-39) are 92.2%. English is the primary language used in Singapore‟s education system
(80% of the literate residents aged 15 and over were literate in English) (Government of
Singapore, 2011).

Recently, more of Singaporean citizens are holding higher skilled jobs. 28% of residents in
the labour force in 2011 were degree holders, up from 17% in 2001. Including those with
diploma & professional qualifications, the share was 47% in 2011 compared with 30% in
2001 (Ministry of Manpower, 2011).

2010 2011
32.8
27.8 28.3
21.5 20.2
18.2 17
11.8 13.4
9.1

Below Secondary Post-Secondary Diploma & Degree
Secondary (Non-Tertiary) Professional
Qualification

(Source: Report on Labour Force in Singapore, 2011)


Fig 2.3.1 Distribution of Resident Labour Force by Education, 2010 and 2011 (As at June)
(Note: Data for each year may not add up to 100% due to rounding)

2.4 Technological Analysis

Singapore “has become one of the forerunners in the race towards innovation and
advancement” (Qureshi, S., 2010). This is an advantage which TESCO can exploit to develop
technologies (self check-out machines, electronic shelf labeling,...) in its merchandising in
Singapore.

2.4.1 Research and Development Activity (R&D)

R&D has been identified to be at the crux of Singapore‟s long-term economic development
policy. In September 2010, Prime Minister Lee Hsien Loong announced that the Government
would spend S$16.1 billion over 2011-2015 on research, innovation and enterprise. The new
allocation was a 20% increase over the S$13.55 billion committed from 2006 to 2010
(Government of Singapore, 2010). This reflects the growing importance of R&D in
Singapore‟s development as a knowledge-based, innovation-driven economy.

Besides, Singapore has developed the cooperation with European Partners in the areas of
R&D by its involvement in projects organized by the European Commission started more than
10 years ago in 1994 with the 4th Framework Programme.

2.4.2 E-commerce

In 2011, Singapore has more than 3.37 million internet users. Shopping for groceries online
took off in a big way in the last year, although the service has been around for nearly a
decade. In 2010 Singapore's online shopping landscape hit S$1.1 billion and is set to hit S$4.4
billion in the next 4 years, according to research done by PayPal. Those over the age of 18
(1.2 million online shoppers) spent an average of S$1492 each on online shopping (Digital
Media in Singapore).


(Source: https://wiki.smu.edu.sg/digitalmediaasia/Digital_Media_in_Singapore)
Fig 2.4.1 Singapore Internet User by Gender

(Source: https://wiki.smu.edu.sg/digitalmediaasia/Digital_Media_in_Singapore)

Fig 2.4.2 Singaporeans – Top 3 Online Purchases

3. Conclusions


The result of the political analysis shows that the country is politically stable. Singapore is
developing, but traditional values are still very important and need to be taken into account. If
TESCO decides to expand to Singapore it must be aware that it is only allowed employing
local workers. When looking at the economic analysis, it can be said that Singapore‟s online
application system is advantageous as it allows setting up a business within a short time
period. Also, the cheap local fund borrowing has the benefit over taxes and the good
infrastructure is to be seen positively. In addition to that, the analyses showed that
Singaporeans are open-minded towards foreign operated supermarkets. The analysis of social
factors shows that Singapore is influenced by various cultures. The high living standards in
the country are advantageous for TESCO as they allow people to spend a large amount of
their income on groceries etc. Looking at the technological analysis it can be seen, that
Singapore puts a high emphasis on research and development and has high technological
standards. Also, Singapore has a high potential market for online shopping.

Concluding from the current PEST analysis and macro-environmental factors which were
being assessed in this analysis, Singapore appears to be suitable potential market for TESCO.


References

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