Module – 2

International Business Environment

Structure:
1.1 Introduction to International Business
1.2 International business environment
1.3 Economic factors
1.4 Political factors
1.5 Legal factors
1.6 Social and Cultural factors
1.7 Technological factors
1.8 Summary
1.9 Terminal Questions
1.10 Case Study

Learning Objectives:

This unit will enable you to,

 Understand the meaning of International Business Environment.
 Explain the various factors affecting International Business Environment such as:
o Economic factors,
o Political factors,
o Legal factors,
o Social factors,
o Cultural factors,
o Technological factors.

1.1 Introduction to International Business:

The world has witnessed tremendous amount of growth due to advancement in trade and
technology. This has led to development of international business environment. This
chapter discusses the same focusing on all factors emerging out of such an environment.

Every business house’s functioning is influenced by a set of factors whether it operates

locally or globally. Some of these factors emerge internally within the business house, while
many more emerge outside its framework. Both internal and external factors are
responsible for business house’s performance.

 Internal factors include:

o Human resource management.
o Trade unions.
o Organization structure.
o Financial management.
o Marketing management.
o Production management.
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 o Leadership/management style etc.

 External environmental factors are further divided into:

o Micro external factors and
o Macro external factors.

Micro external environmental factors include competitors, customers, market

intermediaries, suppliers of raw materials, bankers, suppliers of finance, shareholders etc.
Macro external environmental factors include economic factors, political factors, legal
factors, social factors, cultural factors, technological factors and natural factors.
Business environment plays its’ role not just at the national level but can stretch itself well
into the international space.

1.2 International Business Environment:

In brief, the international business environment can be explained to exhibit the following
features:
(a) Business environment can be understood as the sum total of all factors external to the
functioning of business firms that deeply influence their functioning.
(b) It covers factors and forces like customers, competitors, suppliers, government, and the
social, cultural, political, technological and legal conditions.
(c) The business environment is dynamic in nature that means it keeps on changing. The
duration and nature of the change has no predetermined parameters.

1.3 Economic Factors:

Economic environment speaks about the nature, size and level of development of a country,
its economic system, policies and conditions, trends in the GNP growth rate and per capita
income, nature and trends in foreign trade, domestic supply and demand conditions etc.

They can be explained as follows:

 The nature and level of development of the country: This refers to the general level of
development impacting the nature and size of demand in the market. The differences
in the income and development levels have important implications for business.
Different countries show different levels of income and development.
 The structure of an economy i.e. such as contribution of the primary, secondary and
tertiary sectors holds relevance as their extent of progress indicates the inherent
business opportunities in a particular economy.
 Economic system and economic policies: This consists of all the economic policies
which can have a great impact on business.

a. Industrial policy: defines the scope and role of different sectors like private, public,
joint, cooperative or large, medium, small and tiny.
b. Trade policy: deals with restrictions and norms pertaining to imports and exports.

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 c. Foreign exchange policy: deals with exchange rate policy and cross border movement
of capital.
d. Foreign investment and technology policy: Are restrictions pertaining to attracting
foreign capital and technology.
e. Fiscal policy: It is the government’s strategy with respect to public expenditure and
revenue.
f. Monetary policy: It is the Central bank’s policy towards the cost, control and availability
of credit are all included.
Economic conditions: Every economy passes through periods of recession and boom. These
periods affect the domestic and international condition of the business. It directly impacts
the exports and imports and thus shows its effect on the international business
environment. The current account and balance of payments position of a country can
significantly influence certain economic policies and business environment

Economic systems in the world:

The economic system of a country explains whether the businesses in the country are
owned privately, or by the government or there is a mixed economy. The economic system
of a country can be capitalistic, socialistic or mixed economy. In a capitalistic society,
private ownership of businesses is the norm. USA is the leading example of a capitalistic
economy.

Analysis of Economic Environment:

Every firm planning to enter international business has to make opportunity analysis to
determine whether it is worthwhile to enter into the foreign market. This includes:
a. Cost – Benefit analysis: This includes analysis of market, competition and financial
strengths of a company. While analysing the market, examination of products, analysis of
workforce, communication needs, and requirements of market, price and profit margin is
to be done. The kind of competition and legal complications of all these factors are to be
examined including the resources they have and the returns expected etc.
b. Risk – Reward analysis: It studies the impact of various environmental factors on the
marketing mix. It examines how political, legal, socio-cultural and technological factors
affect the product and market in foreign countries. The monetary policy, position of
inflation and currency value of the country are some other important factors to be
considered.

1.4 Political Factors:

Political environment refers to aspects of policy making and governance of a nation. It

brings about stability in the functioning of business houses through the required regulation
and revising the same to live up to the changes from time to time. Stability of governance at
the domestic level favourably influences business activities in any country. Changes in the
political climate can change the environment for or against business.

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 Political perspectives of a nation:
Any company planning to do business in another country must evaluate the political
environment of that country. The following are the important political perspectives to be
considered by the MNC’s:

1. Political System of the country:

Political system indicates the form a government takes. One way of classification considers
countries as parliamentary governments or absolutist governments.
a. Parliamentary system: This is an open form of government. Government policies in
these countries are prepared keeping in mind the opinions, preferences of the citizens and
reflect upon the desires of the majority segment of the economy. All the democratic nations
and most of the industrialized countries have the parliamentary type of governments.
b. Absolutist system: The other extreme form is absolutist system, which includes
monarchies and dictatorships. In this system, the ruling regime dictates government
policies without taking into consideration the citizens’ needs or opinions. Absolute
monarchs are very rare. Government can also be classified as:
a. Two - party system: A two-party system is a system where two major political parties
dominate voting in nearly all elections at every level of the government and as a result all
or nearly all elected offices are members of one of the two major parties.
Under a two-party system, one of the two parties typically holds a majority in the
legislature and is usually referred to as the majority party while the other is the minority
party.
b. Multi-party system: In this system there are many major and minor political parties
that all hold a good chance of receiving office. Since all of them compete against each other,
a majority cannot be formed thereby forcing the creation of a coalition party.
If there are multiple major parties each with less than a majority of the vote. Then the
parties are usually compelled to come together to form working governments. This also
promotes centrism as well as coalition-building skills.
c. Single party system: A single-party state or one-party system is a type of a party system
in which a single political party forms the government and no other parties or its
candidates are permitted to run for election.
For instance in the Soviet Union, The Party meant the Communist Party of the Soviet Union
and in reference to the former People’s Republic of Poland it referred to the Polish United
Workers’ Party.
d. Dominated or Dominant one party system: Here, the dominant party does not allow
any opposition resulting in the absence of an alternative to the people. This category of
parties/political organizations has successively won election, victories and whose future
defeat cannot be envisaged or is unlikely for the foreseeable future.
Every political system has its inherent risks. Political environment involves many risks
such as:
1. Confiscation: The government of a country seizes the operations and takes over the
ownership of a firm without awarding any compensation.
2. Expropriation: The government coerces the firm to sell its operations to the
government itself or some private entity. This includes payment of compensation.
3. General instability: This involves risks with respect to uncertainties about the future
capability of the political system of the host country.
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 4. Ownership and control: This refers to the possible risk that the host country might
restrict control and ownership of a subsidiary in the host country. The risk of confiscation
and expropriation enunciate the same.
5. Operation risk: This refers to the restrictions imposed on the operations of a business
by the host country.
6. Transfer risk: This refers to the authority held by the host country to levy constraints
on the rights of the subsidiary company to transfer capital, profit etc to the parent firm
situated outside the host country.
7. Policy risk: This refers to the authority of the host country government to design new
policies or revise the existing policies which may not work in favor of the multinational
business houses.
Although political risk cannot be eliminated, it can be reduced to a certain extent. The
measures which help to deal with and reduce such risk are as follows:
1. Encourage local or home economy: A company should integrate its business activities
according to the economic interests of the host country. This can be achieved by
purchasing raw materials locally, use local work force for man power requirements,
invest in local production facilities, local sourcing etc.

2. Boost local employment opportunities: This can be done by being an equal

opportunity employer, stimulate job creation according to the needs of the host
country, work on a socially desirable policy, not introduce technology which brings
down man power requirement thus working against social and national interests, etc.
All these ideas earn goodwill to the multinational business house in the host country.

3. Promoting shared ownership: Joint ventures are acceptable ways of promoting

shared ownership. Such ventures may be formed with a privately owned company, a
public sector unit or even with another foreign company functioning locally. Sharing
ownership not only reduces political risk but at the same time promotes the goodwill of
the company.

4. Attaining good corporate citizenship: When a company works towards discharging

its ‘Corporate Social Responsibility’ duties towards the needs of local communities, it
works towards attaining the status of a good corporate citizenship. For example
combining investment projects with civic projects, building schools to promote
education, helping with restructuring and infrastructure etc. This holds special
significance in developing countries.

5. Political neutrality: The best behaviour of an outside company with respect to

political disputes is to be neutral towards such happenings. It is wise to protect its own
interests and hence political neutrality is required. It should further clarify its existence
in the host country by highlighting its objectives and relate them primarily to economic
objectives.

6. Shifting political risk: MNCs in today’s world have the option of insuring against
political risk apart from the others listed above. Private insurers, non-profit and public

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 agencies provide such insurance cover where even risks of currency inconvertibility,
expropriation and civil disturbances are also covered.

7. Contingency plan: If the political climate of a host country becomes hostile, companies
should always have a contingent plan ready. Such plans can be used when the political
turbulence stretches beyond the point of tolerance.

1.5 Legal Factors:

Legal system refers to the way law is established, legislations are passed and are brought
into action as and when required. Each country develops its own legal system in
accordance with its belief system.

The legal systems that exist in different countries across the world may be classified into
three categories, viz, common law, civil law or code law and theocratic law.

1. Common law: The basis for common law is tradition, customs, culture, past practices
and legal precedents set by the thorough interpretation of the state legislation and past
rulings. These laws are in force in various countries like the USA, UK and Hong Kong.

2. Code law or civil law: Is based on an all-inclusive system of written rules or codes of
law. It is a detailed set of laws and is based on how the law is applied to facts. Here, the
entire legal system is divided into commercial, criminal and civil law. Even rules of
conducting business are part of the law. Countries like France, Germany and Japan
follow civil laws.

3. The theocratic law: Is based on the religious precepts or principles. For example:
Islamic laws found in Muslim countries. Such laws are inspired by various important
works within the religion found throughout its formation and growth.

Laws of foreign countries: These are rules and regulations formed and followed by the
foreign country in which the business house has or plans to have a branch or a subsidiary.
Laws of home country: These are rules and regulations formed and followed by the country
of origin, where the company is incorporated originally.

A few names of the legislations passed in our country can be listed as follows:
(i) Companies Act, 1956.
(Ii) Foreign Exchange Management Act, 1999.
(iii) The Factories Act, 1948.
(iv) Industrial Disputes Act, 1972.
(v) Payment of Gratuity Act, 1972.
(vi) Industries (Development and Regulation) Act, 1951.
(vii) Prevention of Food Adulteration Act, 1954.
(viii) Essential Commodities Act, 2002.
(ix) The Standards of Weights and Measures Act, 1956.
(x) Monopolies and Restrictive Trade Practices Act, 1969.
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 (xi) Trade Marks Act, 1999.
(xii) Bureau of Indian Standards Act, 1986.
(xiii) Consumer Protection Act, 1986.
(xiv) Environment Protection Act, 1986.
(xv) Competition Act, 2002.

Benefits of legal environment:

1. Protection of Intellectual Property Rights [IPR]:

The output of intellectual activities like an invention, a music composition, screenplay, logo,
chemical formula etc are all examples of intellectual property rights. An invention has to be
patented while a music video gets copyright protection and a logo falls under the category
of trademark. This provides legal protection to all of them by assigning the rights to the
owner exclusively.

If these are used by others without the prior approval of the owner/inventor it is referred
to as infringement.
a. Patents: A patent provides exclusive rights to the inventor of a new product or a process
for a particular period to produce and market the product/process.
b. Trademarks: Trademarks are designs, icons and names used by manufacturers and
marketers to differentiate their products/ services from those of the others. They are
officially registered by the manufacturers and thus derive exclusive rights.
c. Copyright: Copyrights provide exclusive rights to the authors, publishers, composers etc
to publish and market their works.
d. ‘Document’ includes a tape recording, photograph and any electronic or magnetic or
other mediums on, in, or by means or by way of which, images, sound, data or information
may be stored and the ‘documentary’ will be construed accordingly.

There are few international agreements which can simplify this procedure:
i. Patent Cooperation treaty (PCT): This is a multilateral treaty that makes it
possible to file an international application simultaneously in member countries. It
eliminates the need for separate applications.
ii. Paris Union [International Convention for the Protection of Industrial
Property] – 1883: Apart from gaining international equality in filing application.
This agreement also states that if a patent has expired or revoked in the country of
original filing, it will have no effect on its validity in the other member countries.
iii. The Madrid Agreement: This forum with 22 member nations, aims at
international registration of trademarks. According to this agreement, if a
trademark is registered in one member nation, it is automatically registered in other
member nations on payment of the requisite fee.
iv. The Trade Mark Registration Treaty (TRT): If member countries do not refuse
registration under their national laws within 15 months. Then the trademark is
treated as being registered there.

Counterfeiting: Involves infringement of a patent or trademark. It means unauthorized

and illegal use of the product by copying it. This causes serious business problems such as
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 injury to the reputation of the brand name, filling markets with counterfeit trade and time
consuming court cases. In international business, the fight for counterfeiting is carried to
the counterfeit’s countries and other major markets. The cooperation that a company
receives from foreign countries varies from country to country.

According to the estimates of the Counterfeiting Intelligence Bureau (CIB) of the

International Chamber of Commerce (ICC), counterfeit goods make up 5 to 7% of the
world’s trade. The business of Counterfeit Goods is the largest underground industry in the
world. Hundreds of billions of dollars are generated while sapping the economy, putting
lives in jeopardy and funding organized crime in the process. Watches, jewellery etc top the
list of growing counterfeit goods market across globe.

Counterfeiting and legislation:

Most countries have separate legislations passed in their respective lands to tackle the
issue. Communities like the EEC (European Economic Community) have also enacted
legislation providing details about the provisions and measures available with regard to
counterfeit market. Although these regulations have been revised from time to time to
enhance their enforceability, preventing counterfeiting seems to be a distant dream.

Gray market: When items manufactured abroad are imported into a country without the
consent of the trademark holder it is known as gray market goods. It is thus an unintended
channel of distribution that runs parallel to the planned channel. Electronics, perfumes,
watches etc are flooded in the gray market.

A global network was thriving by selling up to 1 million iPhones that bypass Apple’s
restrictions even before the product was allowed to be sold internationally. China was the
principle centre for this as reported by the Business Week on 12th February 2008.

Example: Nike In Vietnam: failure of Implementation of Labour Laws

Nike sub-contracted its manufacturing operations in Vietnam. The operations employed

25,000 employees and most of them are young women. Their wages were as low as 40
dollars a month and the working conditions in the factories were quite inferior. Nike’s
practices were widely criticised by media. Consequently, Nike hired Andrew young –
former US Ambassador to UN to enquire into the working conditions of employees and
present a report. [Link] did not conduct detailed study but reported that Nike was
doing a good job in treating the workers. MR. Young was criticised widely for his improper
reporting. Then Nike Joined a task force including industry leaders, human rights groups
and labour leaders that resulted in reaching an accord for payment of local minimum
wages in foreign factories and establishment of Fair Labour Association-an independent
association to monitor the wages and working conditions. Later, Nike announced a number
of initiatives and incentives to employees working with its subcontractors. It was widely
criticised that the Fair Labour Association was not an independent body and the labour
practices in Nike were unfair even during 2001.

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 [Source: Adapted from “Right group says Nike isn’t Fulfilling Promises”,- Wall street
Journal, May 16, 2001]

1.6 Social and Cultural Factors:

The social environment of business includes social factors like customs, traditions, values,
beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a
society cherishes have a considerable influence on the functioning of business firms. For
example, during festive seasons in India there is an increase in the demand for new clothes,
sweets, fruits, flower, etc.

Culture is about traditional beliefs, values, customs, castes etc. It is inherited from an older
generations and it becomes a way of life. It is rooted in the way one conducts their daily life.
Culture is taught to young ones by parents, educational institutions and society in general.
It is seen in social interactions, celebration of festivals as to how people dress and interact
etc.

Culture in inhabited by several factors beyond those listed above. It is subjective. Which
means it is different from place to place. Within a given geographical region or country, you
will find subculture in a given culture.
Culture is dynamic and changes over a period of time. New ideas are added, old ones
modified and some are even dropped.
In international marketing, studying such ideas and habits to the minutest detail is
necessary before launching a campaign or product. Even established products may tumble
the wrong way unintentionally sometimes.

Impact of culture:

1. Consumption habits: Culture influences what has to be consumed and what not. For
example: Hindus, Chinese and Thai don’t consume beef at all, while in America and
Japan this is a popular and major consumption item.
2. Thinking process: Culture is rooted in a society’s way of life. Hence, even the thinking
process if affected and guided by it. While travelling abroad it is almost impossible to
observe foreign culture without comparing it to our own culture. It is importa nt for a
firm to recognize how the perceptions about foreign cultures can be distorted by the
effects of self- reference criteria.
3. Communication Process: This includes how people address different people, non-
verbal details and body language. The study of impact of culture on communication
processes is important while promoting products or services in the international
market. Culture also determines the space /distance between one person to another
during communication. Latin Americans need only a few inches of distance, while
Asians need substantial conversational distance, especially in case of people of opposite
sex.

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 Time and culture:
Time has different meanings in different cultures. Asians do not need appointment to meet
someone and vice versa. But Europeans and Americans need prior appointment to meet
someone. Friday is the weekly off in Middle East as against Sunday in the west. In fact,
Pakistan also changed its weekly off from Friday to Sunday only in the nineties. This shows
how culture is subject to change.

Strategies for Dealing with Cultural Differences:

1. Making adjustments: This refers to modification of the product and other aspects of
business including marketing strategies where necessary based on the host country’s
culture. For example, Whirlpool is successful in Indian market after modifying its washing
machine to suit to wash Indian sarees.
2. Communication: Business houses should be cautious in spoken and written language,
translation etc. For example, Microsoft purchased a thesaurus code for its Spanish version
of word 6.0, but the meaning of many synonyms had changed and become insulting. This
program was denounced by reports of newspapers and radio. Later the company corrected
the software, but by that time the company lost many customers.

United Airlines promoted a new passenger service in Hong Kong by providing white
carnations to its customers, which backfired as people use them as a sign of sympathy for a
family death.
1. Competitive advantage: Culture of a country determines cost of doing business,
productivity, entrepreneurship and innovations.
1. Business ethics: Though the basic ethical principles are more or less the same
throughout the world, specific issues are closely related to the culture of a country.
Reciprocal help is a culturally bound and ethically valued principle in China in the form of
‘guanxi’. Guanxi is giving gifts or money for help received. This is considered as corruption
in most other countries. But, in China this is a practice of building network and
relationship.
Thomas Donaldson says the following 3 ethical principles are important in IB:
a. Respect for core human values and human rights
b. Respect for local tradition
c. Considering situational factors while deciding what is ethical and unethical.

1.7 Technological Factors:

Technological environment refers to the methods, techniques and approaches adopted for
production and consumption of goods and services, its distribution and the use and
influence of technology in the same is explained in technological factors.

Technology influences our way of life in all spheres. Cooking (electric rice cooker, induction
stove, microwave etc), communicating (use of cell phones, fax, email etc), sourcing
information (websites, telephonic customer care), buying and selling (through television,
telephone orders, e-commerce etc), entertainment options (television, multimedia, I pod, I

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 pads etc), tech aided diagnostic methods and many more stand proof to the fact that
technology has introduced permanent change in today’s life style.

Technology and international competition:

In today’s modern competitive age, the pace of technological changes is very fast. Hence, in
order to survive and grow in the market, adopting such technological changes from time to
time is imperative for a business house to stay profitable. Companies are therefore giving
importance to Research and Development to nurture their products continuously through
innovation and beat competition.

When a new technology is invented in a country, it can affect the market domestically as
well as internationally. The mobile phone market is one of the best examples.
Apple Inc. from USA, Samsung from Korea and Nokia from Finland are prime competitors
in this segment affecting each other’s performance and impacting the market share
directly.

Technology transfer:
International business spreads technology form advanced countries to developing
countries. This enhances international business geographically. This is done by:
a. Establishing subsidiaries in developing countries
b. Establishing joint ventures with the host country’s companies.
c. Acquiring the host country’s companies or by merging with them.
d. Arranging transfer of technology through alliances.

Technology transfer is a prominent source of innovation in foreign markets, especially

developing countries. MNCs bring new products, processes and technologies to the host
countries. These may be old in the home country, but new to the host countries. To retain
the competitive advantage gained through transfer of new technology, they preserve it
through intellectual property rights (IPR)/ patents. This will safeguard the interest and
profitability.

Thus, technology has aided business methods and functioning by:

 Reducing size of inventories.
 Reducing wait time in different departments.
 Reducing unproductive wait time.
 Reducing production delays etc.
 Reducing over production.
 Reducing paper work and time consuming processes.
 Aiding accurate production planning.
 Avoiding movement of physical movement of employees, suppliers and customers.
 Responding to market changes faster, etc.

However, increased use of technology has shown adverse impact on the natural
environment, which has resulted in reduction of quality of life. Today companies are

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 working on reversing this process to restore ecological balance and function through
harmonious methods/ processes.

1.8 Summary:

 Business environment cover factors and forces like customers, competitors, suppliers,
government, and the social, cultural, political, technological and legal conditions.
 Economic environment speaks about the nature, size and level of development of a
country, its economic system, policies, economic conditions, trends in the GNP growth
rate and per capita income, nature and trends in foreign trade, domestic supply and
demand conditions etc.
 Political environment refers to aspects of policy making and governance of a nation.
The political framework is explained through the different economic systems. There are
fundamentally three types of economic systems followed in today’s world – Capitalism,
Socialism and Mixed economy.
 Legal system refers to the way law is established, how legislations are passed and
brought into action as and when required.
 The social environment of business includes social factors like customs, traditions,
values, beliefs, poverty, literacy, life expectancy rate etc.
 Technological environment refers to the methods, techniques and approaches adopted
for production and consumption of goods and services, its distribution, use and
influence of technology is explained in technological factors.

1.9 Terminal Questions:

State whether the following are true or false:

1. Cultural factors don’t affect international marketing.
2. Political environment refers to aspects of policy making and governance of a nation.
3. Business Environment differs from country to country, but not from region to region.
4. There is a finite list of reasons for change that affects a business environment.
5. When the business extends its activities beyond one country, it will enter the
international business arena.
6. Social unrest and domestic disputes indicate social instability in a country.
7. The economic systems may be classified as Capitalism, Socialism and mixed economy.
8. Restrictions pertaining to Import, tax, price, market etc pertain to government
intervention in international business.
9. Legal environment of different nations has different dimensions but is free of complexity.
10. Confiscation and expropriation represent political risks for a firm established in a
foreign country.

Section – A [2 marks each]

1. List any two features of international business environment.
2. What is international business environment?
3. List the factors affecting international business environment.
4. What do you understand by technological factors in international business environment?

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 5. Give two examples of political factors in international business environment.

Section – B [4 marks each]

1. Discuss the impact of cultural and social factors in international business environment.
2. Give the meaning of technological factors and explain the same with two examples.
3. What are the risks involved in political factors? How does it affect a business house?
4. Are economic factors important for IBE? If yes, explain the same.

Section – C [10 marks each]

1. Explain all the factors affecting international business environment with examples.
2. What is international business environment? What are the factors which affect such
environment? Explain any 3 factors in detail with examples.
3. “Business Environment is dynamic”. Explain this statement in the light of the various
factors affecting international business environment.

1.10 Case Study 1

Using diversity and inclusion to provide better service

A Tesco case study

Introduction
Tesco is the UK’s leading retailer, serving millions of customers every day. It also employs
more people than any other company, with over 300,000 employees in the UK. With almost
3,000 stores, Tesco has a presence in every major town and generated revenues of over
£42 billion in 2011/12. Stores range from the convenient town centre Metro and Express
formats, to larger Extra stores. Tesco provides banking, insurance and telecommunications
services as well as having a strong online presence.

Tesco is a business that puts people first, ensuring its customers and colleagues are at the
heart of everything it does.

‘Our core purpose is to create value for customers to earn their lifetime loyalty. Our success
depends on people: the people who shop with us and the people who work with us.’

Earning customer loyalty is crucial and Tesco focuses on this by helping customers in lots
of small ways which together can make a big difference. ‘Every little helps’ is more than just
a slogan. It describes Tesco’s way of working with all of its stakeholders, and that includes
colleagues as well as customers.

Tesco works in a competitive market where products, stores, tastes and even the way
customers shop are constantly changing. Tesco needs to be proactive in preparing to face
these changes. This means finding talented people who will be ambassadors for the brand
in the communities it serves. Diverse communities mean that it needs to recruit and train
people who reflect this diversity, so that all sections of society are included.

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 This case study looks at how Tesco benefits by focusing on diversity and inclusion in its
employment strategies.
Diversity and inclusion

In the UK we have a diverse society. There are people from many different backgrounds
and cultures. There are also changes taking place in the number of men and women in the
population.

These changes to population are called ‘demographics’. One key demographic is that an
increasing number of older people are working – an ageing workforce. Tesco’s policy is to
ensure that its workforce has a balance of different people. It is keen to search for talent
wherever it lies. At Tesco, ‘Everyone is welcome’. Tesco recognises that every person is
different and will bring unique talents and experiences to a role.

‘Difference can be our strength because talent and diversity are two sides of the same coin.
To focus on one while ignoring the other is like trying to run a store with no customers – it
just won’t work’.

Tesco has a particular understanding of what is meant by ‘talent’. It believes in recognising

the strengths of each individual person, regardless of their background and investing in
them to help reach the goals that they set for themselves – being the best they can be.

There is a constant hunt for talent:

'Talent is about people and we all have a role in talent spotting, recruiting, developing,
promoting, moving, rewarding and engaging them.'

Diversity, inclusion and equal opportunities are so central to the workplace that there are
laws to ensure fair treatment. For example, it is against the law to make unfair choices
against people on grounds of age, race, disability, gender or sexual orientation. This is
called discrimination.

Tesco's diversity strategy:

Tesco’s diversity strategy is central to the way it approaches recruitment, training and
development and is reflected throughout the objectives of the business. In practice, that
means that every role and every employee at Tesco has a place in something called the
‘framework for talent’. This framework is used to find and develop talent for the future and
has the following parts:
 Talent plans for the business
 Career plans for individuals
 Succession plans for jobs.
 Reviewing performance

All colleagues set objectives and draw up personal plans for development as part of a
regular review process. Every employee has the same opportunity to discuss his or her
Tesco 17 Image 8performance and career and is given the opportunity to get on. In

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 addition, managers and personnel teams meet regularly to talk about who is ready for a
move, to meet a new challenge or help them develop. This all takes place within a regular
annual cycle, so each employee’s objectives and development plans can be regularly
reviewed and updated.

Engaging with diverse groups:

Tesco has established a number of networks to ensure that it engages with all it’s people.
Its four key networks are:

1. Out at Tesco: This group represents those with different sexual orientations. It has
over 1,000 lesbian, gay, bisexual and transgender (LGBT) members and is recognised by
other groups as an excellent example of how such networks should operate.

2. Women in Business: This is the longest established network. There are a number of
branches supporting women’s issues, raising the profile of women in the business and
supporting them to develop their careers through training, mentoring and career
sponsorship.

3. Tesco Asian Network: This helps to raise the profile of careers at Tesco to Asian
groups. It holds two events each year where Asian colleagues are invited to attend to
network, share experience and to visit a ‘careers fair’ about opportunities at Tesco. It
has inspired a series of ‘parents’ evenings’, which have helped Asian parents to
understand the career opportunities available at Tesco and understand the range of
jobs their children could enjoy in the business.

4. ABC Network: This is the most recent network, which builds on an idea raised at an
Asian Network event. Its aim is to make Tesco the employer of choice for African, Black
British and Caribbean colleagues and to provide training and development
opportunities which will enable more black people to reach senior positions within the
business.

Diversity partners
Tesco also has strong links with many organisations representing disabled people, such as
Whizz-Kidz. It also has its own Diversity Council. The Council sets the diversity strategy for
Tesco. Its goals are to show that Tesco is inclusive, to make everyone welcome and to play
an active role in the diverse communities it serves. Tesco is currently working with
disabled colleagues to establish whether there is a need for a disability network.

The business also works with a number of diversity partners. These partnerships help
Tesco to build and improve its diversity strategy. These partners are:
Stonewall: Tesco is a ‘Diversity Champion’ member of Stonewall, a charity which exists to
ensure equal rights for lesbians and gay men in a society where they can be open, honest
and safe at home, at school, at work and in the community.
EFD (Employers Forum on Disability):EFD is currently working with Tesco to help it to
do a better job for disabled colleagues. It will also help to encourage more disabled people
to choose Tesco as a great place to work. This group offers support for gender equality in
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 business. It is committed to supporting the business to offer opportunities to both men and
women. Its key objective is equal treatment of genders but, as it is women who are most
often under-represented, this tends to be its focus.

A diversity strategy
 The importance that Tesco places on diversity is shown by the detail of its strategy.
The key aspects are that ‘everyone is welcome’ and the aim is to ‘raise the bar on
talent’. Tesco has a dedicated talent and diversity team. This team communicates the
diversity strategy throughout the business to ensure that its objectives are reached.
 Tesco recognises that within each person there is raw talent, ideas and energy. It sees
that everyone is an individual who is seeking a good work-life balance and aims to help
all employees to be the best that they can be.
 It encourages the business to create challenging, interesting and flexible opportunities
to release this potential at every level of the business, from the shop floor to the
boardroom.
 By ensuring that the best people are in the right jobs Tesco is able to compete in a
highly competitive market.
 Tesco - Using diversity and inclusion to provide better service

Benefits of a diversity strategy

 Tesco’s diversity strategy brings many benefits to the business. It means, for instance,
that Tesco is always aiming to recruit from the widest possible talent pool, helping it
find the best person for the job. The workforce will have a better understanding of
customer needs as it reflects the same diversity as the customer base. It also opens up
new ideas and opportunities that may arise from different cultures.
 Having a mixture of different age groups within the workforce can also help to raise
morale. The mix of young and older people brings a broad range of knowledge,
experience and social skills to the company. A diverse workforce is more flexible, since
it consists of a wide range of people from all walks of life, all able to work together to
deliver the best service in all circumstances. It also leads to better performance and
lower costs, since employees are able to offer a variety of expertise that enables jobs to
be done effectively, improving productivity and reducing waste.

Disabled or disadvantaged groups

A key part of the strategy is Tesco’s aim to employ people from disabled or disadvantaged
groups. Tesco offers an interview guarantee to candidates from Remploy, Shaw Trust and
Whizz-Kidz - three organisations that work with disabled people. This guarantee means
that where Tesco has a vacancy and any of these groups has a suitable candidate, he or she
must be interviewed. The interview guarantee does not mean a job offer will be made, but
in many cases applicants from these partners get the job as they are the best candidate.
Tesco also offers work placements to give candidates the experience of working in retail.

Former Tesco Chairman Sir David Reid is chairman of the Trustee Board at Whizz-Kidz, a
charity that supports and empowers young wheelchair users. Tesco therefore has a strong
relationship with the charity. Whizz-Kidz was chosen as Tesco’s Charity of the Year in

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 2006. Research conducted by Whizz-Kidz showed that many young wheelchair users found
it hard to develop adult skills and outlooks, so the charity provides training to help young
people become more confident and independent.
Tesco is backing a five-year project, launched by Whizz-Kidz and also supported by the
National Lottery, to set up a network of clubs for young wheelchair users. The ‘Kidz
Unlimited’ project provides a chance for young disabled people to socialise and raise issues
that are important to them. It also provides training, work skills, advice and access to work
placements.

Conclusion
Tesco recognises that the communities it works in are diverse and constantly evolving. In
addition, each individual has skills and potential that Tesco can help them to realise.
Tesco’s diversity and inclusion strategy ensures that ‘everyone is welcome’ and that the
systems are in place to help people reach their potential. This strategy helps Tesco find,
train and employ the best talent from all parts of society, particularly groups that may
otherwise be under-represented, for instance, young wheelchair users.

This strategy helps to create a workforce that reflects the same diversity as is found in
society. This means it better reflects Tesco’s customer base. The business wants to attract
and keep the best people so it works hard to make Tesco a great place to work. By
encouraging employees’ development, Tesco works to ensure all colleagues – wherever
they work – can fulfil their potential. A strategy that supports its people and is good for
customers is therefore one that is good in helping Tesco to provide better service in a
competitive market.

Questions:
1. What is ‘talent’ as perceived by Tesco? What is the framework used and what the parts
used by Tesco to develop talent for the future?
2. What are the key networks Tesco established to engage all its employees?
3. What were the diversity strategies used by Tesco? What were its merits and demerits?
4. What can we conclude on the diversity strategy used by Tesco?

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