INDEX

1. 2. 3.

PAGE

INTRODUCTION --------------------------------------------------------------------------------2 THE FORCES MACRO AND MICRO ENVIRONMENT---------------------------3 THE MACRO ENVIRONMENT--------------------------------------------------------------5 3.1 Legal ----------------------------------------------------------------------------------------- 5 3.2 Political Issues ----------------------------------------------------------------------------- 7 3.3 Economic Scanning ---------------------------------------------------------------------- 8 3.4 Social & Cultural Values ------------------------------------------------------------- 10 3.5 Technological Advancement --------------------------------------------------------- 10 3.6 Ecological / Nature --------------------------------------------------------------------- 12

4.

THE MICROENVIRONMENT MARKET SENSING ------------------------------ 13 4.1 Competitors ------------------------------------------------------------------------------ 13 4.2 Distribution and Dealers -------------------------------------------------------------- 14

5. CONCLUSION ------------------------------------------------------------------------------------ 15 6. BUSINESS PREDICTION FOR THE NEXT 5 YEARS. ------------------------------- 16 7. IN THE PERIOD OF 10 YEARS ------------------------------------------------------------- 17 8. REFERENCE LIST ------------------------------------------------------------------------------ 19

1. Introduction
This assignment is a learning experience as well as identifying Michael Porters Environment Forces that is influencing a gigantic multinational Retail Store where I am working today. The compilation of this assignment is a combination of information from academic books, business articles and views from respective directors. In addition, which have been opined and quoted by other writers that I have academically relayed in this assignment. 1.1 I am referring to an international leading retail store, Tesco PLC. Here in Malaysia it is Tesco Stores (Malaysia) Sdn Bhd. Tesco carries a wide range of local products form grocery, apparel, household product and entertainment. We also carry life seafood and fresh food. There are more than 60 thousand types of items sold in Tesco. On the other hand, Tesco has established few market segments one of which is Working Womens category. 1.2 Tesco has spread worldwide and to quite a huge percentage to the worlds market share for retail, and now positioning itself towards Malaysia. Its main business objectives are to expand one of its market segment which is hypermarket business all over Malaysia and subsequently expand its other market segments like open store at petrol kiosks, supermarkets, mini markets and other services like financial company, travel agency, insurance company etc. 1.3 Irrespective of the size of an organization or empire, the Micro and Macro environment factors have always been the major reason for change, growth and decline of an organizations activities and its strategies. 2

The major responsibility for identifying significant marketplace changes falls to the companys marketers.
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2. The Forces Macro and Micro Environment

Companies and their suppliers, marketing intermediaries, customers, competitors, and publics all operate in a microenvironment of forces and trends that shape opportunities and pose threats. These forces represent incontrollables. In the economic arena, companies and consumers are increasingly affected by global forces.
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2.1

Global Forces (Macro environment) can affect the organizations long-term plans and force the organization to plan for short term to accommodate the global change/ effect or global forces.

2.2

Micro environmental forces are normally a chain reaction of the macro environment forces. It is predicted to certain extent that Micro forces creates the chain reaction to the Organizations internal forces. That is the Men, Machine, Money and Method.

Legal Technology Political

Organization and the 4 Ms Social/ Cultural

Ecology/ Nature

Economical

Demographic

2 Way Forces - Controllable 1 Way Forces Incontrollable

3. The Macro Environment 3.1 Legal

i) General - There are legal developments that will affect our marketing strategy and tactics, nationally and internationally. The transition to a market economy may follow full privatization or more gradual path. In addressing criticisms of full liberalization, Paul, Miller and Paul (1998) argues for a libertarian state (i.e., no economic intervention) despite the fact that in most advanced economies it is common to find regulation, limited property rights, and government control of some economics.
ii)

Freeze Hypermarkets - Tesco is very much affected by our Governments increasing regulation on Freeze Hypermarkets. There must be a distance of about 3.5 kilometers from one store to another. This is encouraging all the competitors to acquire land at strategic areas for securing market share. Tesco business strategy and objectives to open 4 stores is critically effected by this enforcement and this has caused us to slowdown our objective to open more stores next year. Acquiring a land in strategic places is becoming difficult. Return of Investment will take longer to achieve. As the CEO of Tesco has mentioned in the press that the Return Of Investment of one store will be used to open another store in Malaysia. This entire organizational investment plan is affected. Instead of investing into other stores, the ROI have to be distributed faster than expected to respective partner. 5
(Appendix Error! Bookmark not defined. & 1.1)

iii) Small Business Affected Due to the complaints and plea by the small business owners, the government is encouraging big hypermarkets to work together with this small business owners to open chain franchise of the bigger retailers. For example, in UK Tesco has franchised its other market segments to individual partners. iv) Solution - Alike that, Tesco Malaysia too would have to look into that market segment earlier than planned. This would be to ensure the government that we are concern about the small business owners and would accord the encouragement. As for acquiring land and permit to operate the hypermarket, Malaysia still have a lot of land in all over the country where hypermarkets can operate and the government is encouraging foreign investors to invest in Malaysia. v) Statutory Departments - Jabatan Bomba is very strict on its regulations for Fire protection efforts in our first store in Puchong. Kementerian Kesihatan is going strong on Tescos food preparation areas. Trading Law manager was employed to make sure these guidelines are complied. International policies of recycle of waste and the cleanliness of air pollution is controlled. Majlis Perbandaran is making it difficult for our other stores to get Certificate of Fitness (CF) licenses to operate the store. The Kementerian Keselamatan monitoring the improve of safety measures, the Ministry of Consumer on product liability, labeling, packaging, advertising and pricing control, and last but not least the Ministry of Labour with its new salary schemes, training budgets (HRDF) labor and employment legislation. 6

vi) Solution Tesco is ensuring all efforts are made to comply with all statutory regulations to expedite in the acquiring of legal certificates from all departments before the store is opened. We have employed a Trading Law manager who is well versed with all Trading Law and to ensure that all departments internally comply to the regulations enforced by the law. This includes the Fire & Safety, Food preparation area and hygiene, packing and labeling and the conservation of environmental nature.

3.2 Political Issues

i)

Nationally, One of the main political issues are the efforts by PM Mahathirs party UMNO to neutralize the Islamic-based opposition party PAS. UMNOs approach to PAS is based on the argument that ethnic Malays parties must remain politically aligned, or the countrys ethnopolitical balance will collapse.
9 (Appendix 2 & 2.1)

ii) The above statement is obvious of the situation our Malaysian government is facing. This affects Tescos marketing strategy, as it is difficult to penetrate the north region of our country where the opposition is governing. If we were to open our store there, the entire marketing strategy has to be changed and modified to suit the ethnic Malays parties there. This would include having separate checkout counters for men and women. The type of clothing and food sold in the hypermarket should be carefully filtered especially the canned food. Another angle is the staff costume and also the entire setup of the Store.

iii) Solution To do a survey on the social and cultural view and values. A different approach should be exercised. Interest and value of society there should be carefully studied and the nature of store should be more alike the ethnic group exists there.

3.3 Economic Scanning

Economic development theory commonly begins with understanding Rostows (1960) stages of growth. Improvements in agricultural technology and the commercial exploitation of natural resources provide marketable commodities that generate income to improve the wage structure, underwrite industrialization, and pay for vital public services.
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i) Buying Power - Our main marketing objective is to buy products and food items in wholesale price and sell it to consumers the best possible price. Nevertheless, we are not able to get the best price because there seems to be better market for import of these food products from neighboring country like Singapore. In addition, the competition amongst the retail companies is high and this has caused the supplier or farmers to increase the price. Indirectly, if the wholesale price is expensive, the retail price too will increase. Economically, there will be an increase in buying power and consumers will opt for better price or vice-versa.

In conclusion to the above, Thomas A. Klein and Robert W. Nason has written that,In examining the connection between marketing and economic development, the most fundamental question has been whether marketing actually contributes to development or is merely the result of increases in income and the availability of commercial goods and services.
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ii) AFTA - The Malaysian government has indicated, in year 2005, AFTA (Asia Free Trade Association) will allow the South East Asian countries (ASEAN) to trade without tax amongst themselves. In addition, Malaysian government will continue to ease restrictions on foreign direct investment and acquisitions are liberalizing. For instance, retail market will be so competitive and affordable by the public. However, the implications on electrical and electronic good will be high as the markets buying power will increase and they can just drive down to either Singapore or even Thailand to purchase non taxed items. iii) The concern here is that our neighboring countries whose population is increasing. The level of education is decreasing and level of living is becoming unbearably low, is forcing them to illegally enter countries like Malaysia. They were being employed illegally at the construction sites. The government is paying close attention to organizations employing illegal workers. This has also affected the construction of our stores due to immediate termination of their employment. Tescos marketing plan to open 4 stores this year has been delayed and only 3 stores are planned to open. This will entail the delay to next years plan to open another 4 stores.

3.4 Social & Cultural Values

Major shift is taking place in Asia and one of it is; Western Influence the 11 Asian way. i) This very much applies to Tesco whereby being a foreign company, it has to operate and run the store to suite the Asian culture The Asian Lifestyle pattern. e.g Halal and Non-Halal food is sold in separated areas to show concern and sensitivity to the community. ii) The ethnic composition of Malaysian citizen is bumiputra 65%, Chinese 26% and Indians 8%. This implies that the dominant race is bumiputra and religion is Islam. However, Chinese controls the major market/ business share. Therefore, it is difficult to suite the business in different ethnic groups. The area and the ethnic group in that area could determine the strategy most applicable. The aim is to get their trust, loyalty and confidence towards foreign business and simultaneously the business to adapt to their social and cultural pattern.

3.5 Technological Advancement

i) Globalization The speed of communication is essential as Technology advances to new era. Our organization is continuously challenged by these changes and forces by new technology upgrading. Being in the comparably less developed nation than the west, we are forced to upgrade the

telecommunication system to meet with the west requirements to ensure there is compatibility in the systems. Inventory control and bar coding of all items sold in the store are controlled and upgraded frequently. This includes investment in the Internet store which at this point is under used in this country. 10

ii) Therefore, The Government, with the cooperation of the private sector, would carry on with its efforts to ensure that rural areas were provided with and ICT infrastructure to narrow the so-called digital divide among Malaysians. Dr. Mahathir.
3 (Appendix 3)

This shows that, every corner of the world, namely Malaysia will be equipped with personal computers and Internet. Women at work will be, in fact already doing their shopping through the Internet. Techonology is making our lives more convenient and comfortable. At the same time, our lives are becoming more complex, more confusing and sometimes even treacherous. Both developments are a result of the same thing: Technology.
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iii) Upgrading - As that, Microsoft is now moving into getting big organization to sign up for its window 2003 upgrading next year and companies like ours (local branch) are really not ready for that. We being part of the international retail company are facing conflict with our counter part, as we locally do not feel its necessary to upgrade our system as its still very premature stage. We would rather let the opinion leaders to judge and advice of upgrading from window 1998 to windows 2003. However, Tesco is very well placed and is an established retail store that can cope with the technological changes that may take place in the near future.

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3.6 Ecological / Nature

i) It has resulted in new laws of some countries that apply a cost to using natural resources. However, this should be very much led by world opinion. Good companies improve their practices to ensure that they use less resource and become good citizens. Should there be any shortage of nature resources, in a market environment everything is passed back to the customer and increases in electrical costs due to shortages for example would only result in increased prices for customers. E.g In Tesco today, we are importing all the wet grocery item like Onion etc. Should there be any Flooding of change in temperature in India or China, the quantity of import will drop due to shortage of product. This will automatically increase the price of import as the buying power will drop and will reflect on the customers end. ii) Due to more developed market; we will foresee the shortage of greenery if there is no contingency plans to overcome this situation. Nature is being sacrificed for development. And this is another reason for the government to put stop to big hypermarkets that take about 100 thousand sq meters for 1 store. The world is encouraging for less use of nature or restore nature. Tesco for this instance is practicing to give nature back its share on earth with landscaping or Community Park. The step to conserve nature was taken by Tesco and a landscape of greenery was built at Pusat Bandar to give nature back to its earth.

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The Brudland Reports (WCED 1987) promoted the popular use of sustainability and in particular the term sustainable development that has been defined as development that meets the needs of the present without compromising the ability of future generation to meet their own need.
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4. The Microenvironment Market Sensing 4.1 Competitors

i) Competition will increase amongst the major players, e.g Giant, Carrefour and Macro. However, within that we are already seeing the signs of consolidation through acquisition and merger with the retail sector, which is likely to continue. Conversely, the key competitors for Tesco are Giant and Carrefour, whilst Makro remain left to one side. There is likely for new entrants, as the top 10 international retailers still have not entered large parts of Asia as such. In addition, they will add to the number of our competitors today. ii) Increased Supplier Power - The known strength of our competitors are that they have a better bargaining power because they have been supporting their suppliers longer than Tesco which is still at an infant age in Malaysia. However, this bargaining power will diminish soon because the power of supplier and switching power is growing and market is becoming very competitive. On the other hand, for the traditional store, some of the competitors have own the publics trust on pricing and product liability as being the top convenient store in Malaysia. But it is not likely for the public to accept or perceive to have one of the leading retail store to diversify into small stores. 13

4.2 Distribution and Dealers

i) China is now becoming very popular for its low labour cost and huge population that is growing. Citizens are becoming more knowledgeable, educated and business orientated. This has brought many international businesses from the west as well as from Asia itself to manufacture and distribute its product from China to elsewhere. E.g. household items, clothes, shoes and handbags. ii) The efficiency levels and growth potentials of these channels are great. As for Tesco, these channels are very beneficial. The disadvantage of this however, would be, drop in originality and quality of the product if quality measures not sustained.

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5. Conclusion
In summarizing the environmental forces within which Tesco is operating, a few probable trends might maneuver Tesco to a different set of objectives. Firstly, the legal issue that is being enforced certainly is putting some pressure on the construction, safety and health and packaging of products. We are looking at increasing operating cost and higher negotiation task on supplier to make even, the operating cost against purchases. On the Economy view, International Trading looks attractive after the AFTA regulations. The opposite effect would be the drop in sales in one of our market segment and that is Hardlines. However, the Demographic growth would still progress at this time, and the market size is growing. GDP growth is high and buying power is very competitive. Market is looking out for better service and more convenience rather than just getting a cheap priced product. Competitors on the other hand are main Hypermarkets market players. Since the government has enforced some of the rules on new store locations, the challenge would be the speed of acquiring good locations of land for stores.

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6. Business Prediction for the next 5 years.

The Era Of Transformation. The Tesco management has predetermined Tescos 5-year plan that we will be having 20 stores in all over Malaysia by then. Selangor government has stopped giving out licenses to new hypermarkets and shopping complexes expansion strategies in the Klang Valley but they will consider giving the license to Tesco Stores or for those who will comply to the written regulations, because there is a huge amount of investment involved here and Malaysia currently is encouraging foreign investors. In addition, there is a possibility that we will segment our market to franchising as what the government is now encouraging. We are confident that the countrys growing economy and population will provide huge opportunities for our business for the next 5 years. We are looking at lower wholesale buying cost, lower supplier power due to the open international market. Consumers will be more receptive to the hypermarket business as they see a lot of varieties and allowance to choose from many brands at affordable prices. Malaysias GDP growth set to surpass 3.5pc officials forecast.
1 (Appendix 4)

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7. In The Period of 10 Years

The Era Of Technology To my opinion, the next 10 years from now will be the era of modern living technologically. The total population growth rate of Malaysia is 2.6% over the year of 1991- 2000. This means our population will be growing fast and will create a very high buying power. (Refer to attached census 2000 summary).
Appendix 5

The proposition of urbanization is 100% in Kuala Lumpur and 87% in Selangor. Basing on this census, we can see that the standard of living in Wilayah will be very high and expensive and majority of them will be staying in Smart and Smaller homes. The business opportunities and buying power will be the highest in the city. For these people, products like do it your self and canned food will be part and parcel of their life. This summarizes my opinion that the business for retail in Malaysia is huge especially in urban areas. The growing population, decrease in price due to AFTA, decrease unemployment due to more jobs available, open market for foreigners will open doors for diversification for Tesco. Nevertheless, the patterns of future competition and substitutes for the organizations product/ service are deemed to arrive. There are many more retail chains from all over the world that have not yet put foot in Malaysia, and they might not. The world is going towards globalization, growth, and improvement of lifestyle, convenience and speed. All these sums up to modern world and people are 17

becoming less and less interactive. E.g Internet Shopping. We are looking at competition from our other market segments like, Internet Shopping and new entrants might compete head on with us in years to come.

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REFERENCE LIST
1. Business Times, Tuesday, July 23 2002 2. Ghazally Ismail & Murtedza Mohamad, Biodiversity, Conversation & Research Management Emerging Issues & Regional Needs Institute of Biodiversity & Environment Conservation University Malaysia Sarawak 3. In. Tech/ Tuesday July 30 2002, The Star, Page 4 4. Kotler.P, Marketing Management, The millennium edition, scanning the Marketing Environment, pg. 136 5. Kotler.P, Marketing Management, The millennium edition, scanning the Marketing Environment, pg. 138 6. Paul N. Bloom & Gregory T. Gundlach, Handbook of Marketing and Society, Chapter 12, Marketing & Development - Macromarketing Perspective, page 283, Liberalization Policies 7. Paul N. Bloom & Gregory T. Gundlach Handbook of Marketing and Society, Chapter 12, Macromarketing Perspective, page 264 8. Paul Postma, The New Marketing Era Marketing to the imagination in a Technology Driven World, chapter 1, page 1

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9. Richard Martin, The Economist Conference Asia Pacific Executives Brief, April 2001. Political & Policy Issues to watch 10. Thomas A. Klein, Robert W. Nason, Handbook of Marketing and Society, Chapter 12, Marketing & Development - Macromarketing Perspectives, pg 263 11. The Executives Digest/ March 1996

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APPENDIX
1. The Star, 4th April 2002, Government proposes limit on foreign hypermarkets, by Audrey Edwards 1.1 New Straits Times, 4th April 2002, Hypermarket growth to be controlled, by Hayati Hayatuddin 2. The Economist Conference Asia Pacific Executives Brief, April 2001,Cover Page, by Richard Martin of IMA Pty 2.1 The Economist Conference Asia Pacific Executives Brief, April 2001, Political and Policy Issues to watch ( Malaysia), by Richard Martin of IMA Pty 3. In.Tech, Tuesday July 30 2002, UNDP: Malaysia a leading ICT hub, by Ahmad Zuber Ibrahim 4. Business Times, Tuesday July 2002, GDP growth expected to surpass official forecast of 3.5pc., Norzuhaira Ruhanie 5. Census Summary by State, year 2000

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