A good economy needs to have stability and growth, there needs to be a decrease in inflation and low interest rates to ensure there is access to the appropriate supplier of labour. The welsh government usually uses taxes and spending as a way to control the economy. As the banks work for the government they are able to alter the quantity of money that’s available, in 2009 they provided them with more money to be able to lend more to business’s due to the economic environment at that time.
In the year 2008 the UK saw the start to a growing recession, in recent years of 2010, 2011 and even into 2012 Wales recession is still in a bad state, but being controlled a bit more. Towards the start of 2012, the government reduced interest rates by 0. 50% to encourage customers to spend more. , this helped as In 2011 the total spending on Debit/Credit cards was ? 38. 2 billion, however in 2012 the total spend had been ? 42. 2 billion. The Inflation Rate in the UK: Economic Environment in China
All power within the Chinese government is divided among three bodies: the Peoples Republic of China, State Council and the Peoples Liberation Army (PLA). Power is concentrated in the paramount leader, who controls all three bodies, he if effectively General Secretary of the Communist Party and of the Central Committee, President of the Peoples Republic of China, and Chairman of the Central Military Commission. Just like Wales, China is also in a state of recession, due to customers buying less because they can’t afford to, this has caused manufactures to cut back on their orders, producing fewer goods.
This recession has causes a ‘ripple’ effect, for example a person spending less reduces the income of others. As of October 2011, China’s inflation rate has slowed tremendously, lowering to 4. 2%. This inflation is controlled by taxes, and business’s must therefore lower prices. The UK is the sixth largest national economy in the world, measure by GDP, and the Peoples republic of China ranks at the world’s Second largest economy. China’s demand is therefore a lot higher. Supply will be dependent on demand, In Wales demand is currently low and therefore business supply is quite low.
In China, demand is high and therefore supply is high too. Supply will also depend on factors such as availability of the raw materials and labour, competition and government support. This is a major difference between Wales and China, In Wales there are few raw materials available without the use of importing and buying from other countries, whereas in China raw materials are available freely despite the recession, this is due to Chinas land mass and population. Supply is therefore unable to increase quickly within Wales as it can in China.
Global Prices for the raw materials have increased tremendously due to the economic states such as the one in Wales. They often have to import all their raw materials creating a high demand for them. From the charts below you can see this effect and the difference in the number of imports between the countries. Tesco’s in Wales Tesco was founded in 1919 by Jack Cohen from a market stall in London’s East End. Over the years the business has grown and they now operate in 12 countries around the world, employing over 530,000 people and serving tens of millions of customers every week.
Their operation in the UK are the largest within the group, with over 3000 stores and over 310,000 colleagues. There are a numerous amount of Challenges and Opportunities for Tesco in the Welsh Economic Environment, the most obvious challenge being the recession, this will reflect on Tesco’s in that they have to increase their prices. Due to the recession it has become easier for Tesco to obtain labour with the required skills (unemployment is high so easy to find). Thus if new shops are to be opened in Wales skilled labour should be easy to find.
Another challenge within the economy is affordability, Tesco’s must produce affordable products in order to beat competition, but is difficult as raw material costs are rising. Tesco have had to launch a ? 500 million price cut campaign which actually led to a 1% increase in sales volume that year. Supply and Demand change frequently and Tesco’s is currently in a state of disequilibrium. There is an issue that relates to demand due to the desirability of a product, and is unlikely that income will increase enough to cause a change in the demand, therefore Tesco have to create product that are desirable.
In the Current economic environment retailers are struggling as shoppers’ income are squeezed by rising prices. One of Tesco’s main challenges comes from its competition with other markets, As such they are forced to lower prices and create unique offers at the expense of profit. Tesco’s in China China has become a strategically important growth market for Tesco, their stores are located on the eastern seaboard in areas which have a total population of over 600 millon. China have set up large Hypermarkets where most of their physical presence Is obtained, and are currently opening a few express stores and online sites.
China is also a major sourcing location for the group, the international sourcing head quarters are based in Hong Kong where they source more than 60% of all clothing and 40% of other non food items. Tesco currently buy ? 2. 25bn worth of goods and services from china. Just like in Wales there are a number of Challenges and Opportunities for Tesco in China. China is also in recession which is directly affecting their costs but also allows them to find labour very easy, this is good as Tesco’s are looking to expand their stores and will need the labour and workers for it.
Tesco has presented a good opportunity in China, and the demand for their stores is high. A challenge for them is affordability, Consumer prices have rose rapidly and prices were up 13. 4% in September 2011. Tesco’s has a hard time keeping its products interesting and affordable for the Chinese Public. Competition is another challenge for Tesco’s as there is a large amount of foreign supermarket chains, despite this Tesco’s has done pretty well although admitting to a small loss during 2010/11. Rather than Tesco’s attempting to change the local approach to China’s market they have rather kept to it and tried to match China’s taste.
One majorly different technique from Welsh stores is their fresh fish counter, sea cucumbers and soft shell turtle can be found in a pool in the centre of the food hall and also pig’s heads or chicken feat can be taking at the ready-to-eat counter. Demand is very elastic in China, it is rather high due to the growing population and food prices are high, despite this shoppers seem to buy anyway, which is good for Tesco’s. A Comparison between the two business’s in their economic environments Both economic situations are challenging, but in different ways.
In Wales Tesco has often less profit, losing out to its competitors such as ASDA, whereas in China it has done considerably well compared to its rivals such as Wal-Mart. The challenges in both environments consist of issues such as affordability, supply, demand and profitability. Inflation Is currently dropping in China and is expected to do so in Wales. Tesco has often had further challenges in China than in Wales, ensuring that they take measure to fit in with the Chinese market; not taking a more western approach as other supermarket chains have.
Major competition for raw materials has also been a challenge for both, in Wales the materials need to be imported, which is expensive. Although China have access to these raw materials, due to the vast size of China and the high population, raw materials are often expensive. Political Factors impacting the business activities of the Welsh organisation and its stakeholders Political stability is one of the factors that directly impacts it, there is currently stability in Wales allowing Tesco to make decisions based upon the governments own plans. Tax eats into profit, and Tesco being a large corporation must pay over 20% tax.
This is also undesirable for the stakeholder as well as Tesco. Customers and employees want to pay little tax and do not want to have more taken from their wages. Suppliers will not want to pay out tax so that they can receive more profit. Although the government does not give Tesco direct support it does help them in the way of enhancing the skills of the population, via education and training. The helps Tesco employ more skilled labourers. This is good for Tesco’s as well as their stakeholders. Political Factors impacting the business activities of the Chinese rganisation and its stakeholders Foreign businesses in China are given very little government support, Tesco will not receive and type of grant but can access a level of taxation relief if possible. Tesco’s being a foreign company to China will be subject to Tax, the standard company income tax rate is 25%. This tax will also have an effect on the stakeholder, especially its employees. They will be required to contribute 20% of basic payroll to state-administered retirement scheme. Tesco does not receive any direct support to foreign businesses, but will provide indirect support such as infrastructure.
Roads, trains and pedestrians will effect Tesco’s and all of its stakeholders. Social Factors impacting the business activities of the Welsh organisation and its stakeholders Population size is one of the social factors that impacts the organisation. Demand will increase as the population increases. This effects the stakeholders such as customers , employees and suppliers. Tesco UK have career schemes in place to train and educate its staff, making degree and other high qualifications unnecessary. These will mainly effect the employees and encourages people to want to work at Tesco’s. Gender roles will also have an impact on Tesco.
A rise in the consumption of ready meals is a result of both male and females working and having little time to cook. Tesco must acknowledge this to keep their stakeholders such as customers happy. Ethical issues are also a very important social factor. Issues such as fair trade and the environment are aided by Tesco and they ensure to sell fair trade products . This effects the supplier as they may need to change their packaging to be environmentally friendly. Social Factors impacting the business activities of the China organisation and its stakeholders The large population growth has a major impact on all business’s including Tesco.
There is a big demand for goods and for the number of workers needed. This growth effects the stakeholders such as the customer goods demand, the employees needed and what the supplier needs to supply. In regards to gender roles compared with the UK, ready meals are much lower, this is due to many of the women staying home and becoming housewives. China has often been described to have a ‘work to death’ attitude. This provides good relationships with Tesco’s employees but will also affect its consumers. Ethics is a very fragile issues in China, and Tesco have to grapple with ethical issues, often dealing with persuasive corruption.
Legal Factors impacting the business activities of the Wales organisation and its stakeholders Tesco is a plc, which means it will have limited liability. The condition of Tesco affects all shareholders and stakeholders and Tesco has to hold a number of contracts with individuals. The most frequent contract will be for the sales of goods and is covered by the Sales of Goods Act, this will protect consumers too. Employment law is another major law that will affect both Tesco and its stakeholders, employment legislation in Wales consists of UK and EU regulation and must be signed by all employees.
Minimum wage, working hours and conditions are further legal factors that will affect both, but mainly the employees. They must follow these laws and provide their employees with the correct wages and working conditions. They must also abide by other directives such as Equal Treatment, Equal Pay, EU employment and EU Race directives. Legal Factors impacting the business activities of the China organisation and its stakeholders Legal factors are similar to that of the ones in Wales. The State Administration of Industry and Commerce (SAIC) is responsible for the rights of consumers in China.
In addition to the SAIC there is also in the China Consumer’s Administration (CCA). Its responsible for providing information to consumers through mediums such as the China Consumers Monthly. China have a contract employment system and all employees are engaged pursuant to a written employment contract. Tesco’s must then detail a set of rules and regulations as if it difficult to terminate an employee during the term of this contract. The Chinese working week is 40 hours, anything over this is demanded as overtime pay.
Salaries are more typically paid on a 13 month basis, this will equal to a new year bonus. Although Tesco’s do not have to abide by this they do to ensure respect and close relationships with their stakeholders such as their employees. How future changes in economic, political, legal and social factors may impact on the strategy of Tesco in Wales All of these factors will play an important role in Tesco’s strategy but these factors are likely to change, therefore Tesco’s must be able to adapt to these changes no matter how small they may be.
Politically, legislation may change given more or less government support. More would obviously be beneficially but they must be able to adapt to a decrease in support, Tesco and its stakeholders will be given less certainty. The economic condition of the UK and Wales will be liable to change, and may have a great impact on Tesco. Under poor economic conditions, cut backs may have to be made as well as changes in the government policy. The demand for their products may decrease, and may be needed to lower prices to combat that.
Competition may increase, challenging them to better incentives. Any changes in consumer protection law and employment law would impact their strategy, Tesco’s could benefit from this is working hours was increase or minimum wage was decrease. In regard to the social factors, further increases in population would increase demand, which will increase supply and employees. If more people were receiving a higher education which seems to be the case within the last few years, there will be a risk that less people will aim to work at Tesco.
Courtney from Study Moose
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