Evaluate how future economic, political, legal and social factors impact the strategy of an organisation Essay
Evaluate how future economic, political, legal and social factors impact the strategy of an organisation
Economic factors have always been a concern for businesses like Tesco’s this is because the economy is continuously changing. In 2008 we experienced a worldwide recession which affected every business after the stock market collapsed. Tesco’s were also affected by the recession which resulted in their profits decreasing however they did find a way to benefit from the lack of flow of cash in the economy they did this by changes the prices of their products to match the state of the economy to continue to generate sales.
Tesco’s is a high risk company to the recession and credit crunch, we can see this because of what happened when Woolworths were hit by the recession and failed to recover from it this shows how even a profitable company can fall if they cannot cope with the changes in the economic environment.
Part of the economic crisis was inflation and the credit crunch, inflation is where there is a rise in the price of goods this means that customers were more likely to shop at discount stores rather than the likes of Tesco because they thought they were getting more for their money.
If the economy was then to go into a recession again this would have serious consequences for Tesco which would leave them in a very risky position because after the first recession it would be too risky for Tesco’s to lower their prices anymore without suffering too much loss for the company, in the worst case scenario Tesco would end up having to close down stores in order to save money. If the opposite were to happen which would be that the economy recover then this would allow Tesco’s to have the freedom to increase their pricings which should lead to higher revenue and profits for their shareholders.
Political factors are a concern which all businesses have to face, if the government make changes to the law set in place this can affect businesses in either a positive or negative way such as a rise in tax would mean that customers have less disposable income which means they are not going to spend as much money in store as they would have normally. Tax increase is also a problem for business such as Tesco’s and Spar because they would have to pay more tax which means they will lose money therefore lowering their profits.
Another concern for these business is the Vat rise which has risen from 15% to 20% which has made prices higher which means that Tesco’s will have to pay more to their suppliers which results in Tesco’s selling their products for a higher price in order to stop their profit from falling. Fuel price rises are also another concern because Tesco’s use fuel for things such as home deliveries and suppliers with fuel prices rising it is going to make these deliveries more costly which will either result in stopping certain services or rising prices which will have a negative effect on Tesco’s customers because they will either have to pay more for the service or not receive it at all.
Legal factors are also important with the running of a business like Tesco’s or Spar, these business need to ensure that they working within the laws enforced by the government and are up to date on any changes in the regulations, for example is the European Union became more strict on importing goods this could mean that certain products that Tesco import could be declined because they don’t fit the regulations anymore and if Tesco’s were found importing these goods after this law had been set into place they would be in trouble which would give Tesco’s a bad review and they also would probably receive a large fine for breaking the law.
Social factors are also an important issue which is continuously changing and that these businesses need to keep up to date on things such as a population increase or immigration can have a effect on Tesco’s and Spar because they will find that there is a higher demand for european food and other products so Tesco’s and Spar would then need to purchase new products in order to fit the demand of the customers. If there was an increase in birth rate then Tesco’s would need to purchase more baby related supplies or even purchase new products to fit this demand, so this is why it is important for Tesco’s to understand what is going on within the general public so that they are able to fit the customers demand to ensure that they will not lose customers to competing chains who fit the customers needs better.