P4 - P5: Internal, External and Competitive environment
External environments are influences and factors that affect how a company operates. These are often factors that an organisation cannot stop or control. The factors are often taken into consideration and used to determine what they need to do to maintain their success and what needs to be done to analyse whether they've been successful or unsuccessful. These factors are organised and are called ‘PESTLE' which stands for:
P – Political
E - Economic
S - Social
T - Technological
L - Legal
E – Environmental
In contrast with external environment factors, internal factors are elements within the business itself, meaning that the company itself has control over these factors. This is because the company leaders and its board of executives determine what happens in the company, from trading-related decisions to who they should employ. For a profitable company, for example, the Chief Executive Officer (CEO) often makes all major decisions that guides and rules the company to be able to follow their main aim, which is to make a much profit as possible.
1.) Tesco PLC's External Factors:
Political activities can have a massive role in regulating and controlling a business, because they cannot control what happens and how it's going to affect a certain business, in most cases. This is often done through sets of rules, laws and legislation made and provided by forms of leadership or trading groups such as the UK government, or the body in charge of the country the supermarket is located in, the European Union (EU) and other organisations The World Trade Organisation (WTO).
The World Trade Organisation will need to make sure that the food and products being imported to different countries are safe and the way it is traded and negotiated is fair. As a result, Tesco is then required to follow these rules and guidelines put in place by an external organisation, or else they could be fined or be on the brink of being closed down as a consequence. In addition, a change in government may affect Tesco PLC as new sets of laws and regulations may be put in place in replacement of the old, such as whether the minimum wage would be raised or lowered. And as I've mentioned before, if a company like Tesco does not abide by these laws put in place, they are risking themselves from being fined or shut down.
There are a few things that politics may affect within businesses. One of which is the Fiscal Policy. Fiscal Policy is put in place and introduced various methods by which an administration alters and takes into consideration its spending levels and tax rates to monitor and influence a country's economy. As a result of the government's changes and influences of the Fiscal Policy, it can affect certain aspects of businesses such as Tesco PLC.
One way it can affect Tesco specifically are Taxation Rises. Raising a company's tax means that the company would not earn the maximum profit as it would before the government introduced the raise. This means that a portion of the amount of money they produce are required to be given to the government in the form of taxes. Massive retailers such as Tesco would face a tremendous amount of money because of extra costs from increasing business rates around the country. As a result, there will be a tendency this increase in business taxes would put a heavy risk of Tesco's employment in terms of their staff in tradition retail. This means that there would be a decrease in revenue for businesses such as Tesco PLC.
Interests for an item in the markets, the cost of the item and its profits of an association relies upon the monetary elements like interest, inflation rates and local unemployment levels. Companies can't have control on these monetary variables. However, it can demonstrate antagonistic impacts on the organisation's performance. Tesco is still totally relying upon the UK market despite the fact that it has stores in various nations, which mean if the UK market crashed, collapsed or influenced by any financial factors, Tesco be placed in a tremendous measure of dangers.
Tesco PLC has also profited by the advancement of free exchanging coalitions (trading groups) by governments over the years. Moreover, the inundation of 10 further nations into the European Union (EU) occurred in 2004, advancing more opportunities in trade and exchange amongst Western and Eastern European nations. This has given Tesco plc the opportunity to increase its growth in retail stores all over European Nations and start new partnerships and agreements with them.
The customer's state of mind towards food and products are constantly changing and fluctuates, as they have turned out to be more cautious about health and what they eat. An increase in the interest for organic food has been taken into consideration by Tesco to mirror this adjustment. Instalment (payments) by checks and money at the checkout was first made possible by Tesco.
An investigation of the UK population demonstrates that there are more resigned individuals than youngsters nowadays. The maturing population brings about various disadvantages to Tesco as older individuals have a tendency to eat less. They are less likely to go to supermarkets and stores to shop, in comparison to the more youthful era, along with the economically active. Despite the fact that internet literacy level has dropped beyond 65 years old inside the population, it has been highly anticipated that the maturing population would discover web-based shopping (online shopping) to be reliable and can be done with ease; more convenient. Be that as it may, small individual orders and deliveries are thought to be costly, unreliable and an unsustainable way of buying products.
Advances in technology can have a massive effect on the business, both good and bad. Throughout the past decades, technology has been improving and has been extremely beneficial to starting businesses. For example, during the 1980's, the electronic typewriter has been extremely common, used as a way to manage financial problems and solutions and noting down important information. Also, the invention of modern computers massively benefitted the workplace in businesses because it relieves the stress of managing and organising information, easier than tradition handwritten works. However, current workers are not used to using these new technologies so it took them a fair amount of time to get used to using them; it also took several employees to train them.
Furthermore, as approached the 21st century (The Information Age), the use of internet and Wifi has become a necessity in our daily lives, more so for businesses in order to operate and function. Without it, different businesses from across the world would not be able to communicate properly and discuss things such as negotiation deals and potential partnership deals.
Additionally, Mechanisation has played a huge part in the advancement and success of a business, but it also brings negative impacts with it. Firstly, Mechanisation (or automation) is when existing methods or equipment are replaced by highly technical machines and advanced technology. This can be a great factor for certain businesses, most specifically big businesses that manufacture products and goods because advanced machinery can create and manufacture a massive number of products in less time (mass production) compared to traditional ways of making products using human hands or manual labour. Therefore, companies such as Tesco can now create and manufacture a lot of products more efficiently, reliable and can be done at less money spending.
Moreover, technological advances have massively improved customer satisfaction and have maintained its good reputation to the public. Technologies used in most Tesco stores nowadays include electronic shelf labeling, shopping points system (Tesco Club Card), which rewards regular customers points for shopping every time and can then be used later in store in the future if they have collected enough points. And most importantly, the introduction of Self-Checkout machines. This has definitely changed how the public shops in Tesco stores because they can now pay for the products they've bought easily and quickly through these machines, especially for people on-the-go. The advances in technology that I've mentioned has immensely helped in improving the stocking and distribution processes in Tesco stores and stock warehouses.
The government policies and guidelines that were set in place over the course of a few years have had a direct control over the performance and high rates of success of Tesco PLC.
For example, the Food Retailing Commission (FRC) recommended an enforceable Code of Practice should be required to be set up forbidding a considerable amount of present practices. For example, demanding payments forcefully from providers and changing agreed on costs with consideration or without notice.
The sight of very authoritative rivals with established brands, provides a huge threat on conflicts regarding price wars and strong requirements based on product differentiation.
The government's approaches for restraining infrastructure controls and lessening of purchasers' power can confine entry to this particular sector with so many controls as license requirements and limited access to raw materials.
In order to implement politically correct pricing policies, Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores through the Tesco Club Card. While prices are lowered on promoted goods, prices elsewhere in the store are raised into to meet demands in profit and make sure it's balanced, so they are not losing revenue by reducing a small number of items;
A large portion of organisations attempts to change item costs frequently, keeping in mind that their end goal is to draw in clients and customers towards them and to hold its good position in the market.
Environmentally friendly, pollution reducing packaging is now being promoted and introduced by the government to all major retailers. This is because an investigation led by the Office for National Statistics (2010) that the percentage of consumers utilising reusable bags has increased from 71% to 74% and that those attempting to cut down the quantity of plastic bags they take from the shops has also increased from 65% to 68%. This helps with decreasing the general cost of the production of plastic bags and is useful for Tesco's corporate social responsibility image.
Because of the consumer's awareness with the carbon footprint of the firm, Tesco has included carbon footprint information on dairy items, potatoes, and squeezed oranges, and goes for extending it to baked goods such as bread and non-food items in 2010, in order to stay true and honest to their loyal customers.
Tesco has also established its Greener Living Scheme in order to provide purchasers with advice on issues concerning the environment, including how to reduce and diminish food waste and their carbon footprint while getting ready meals to be more aware and have a higher tendency to create change.
2.) Tesco PLC's Internal Factors:
Because Tesco is a profitable organisation, its main aim and goal are to make money or profit through the products that they sell. They particularly make a lot of money because it is the largest supermarket chain and retailer in the UK. And it is on the road of being a success internationally. When Tesco was first established in 1919, it has since been famous for providing food and drinks, be that as it may, now it also has deals including fashion and clothing, gadgets and electronics, monetary services, telecoms, home, health and well-being, automobile and dental insurance, retailing and renting DVD's and CD's, music downloads, internet services and programming.
The most critical technique that has been embraced by the organisation of Tesco is the personalization of items and services, taking into consideration the market's specific requirements. This means that Tesco has made a majority of its products unique to their trademark brand. This means that their customers and the public can identify with Tesco's brand even more. The effectiveness in the execution done by the company in the most recent decade can be summed up by the assistance of a development in the company's ever-growing interest to be a better company that suits the needs of the people.
Due to Tesco's massive business size, Tesco has the power to buy food, toiletries and household goods in bulks and bundles, meaning that they get can buy products in extremely low prices compared to other smaller retail businesses. In addition, Tesco has earned its way to become one of the most successful retailer in the world (ranked 5th). Therefore, having the advantage of being a massive organisation is that the company can negotiate with big product firms (where they get their products from) easily negotiate product prices and exchange for lower prices. Consequently, this means that
During the 2009 recession, Tesco PLC has not been performing well as expected compared to its major retail competitors. This because a fair number of products were lost which has resulted in a minor financial loss, as well as damaging their good brand reputation towards their customers and also the public.
Although Tesco offers great quality products at affordable prices, it has a massive competition with low price offering companies such as Lidl and Aldi, which offers lower prices in comparison to Tesco's price ranges. This had had a significant effect on Tesco's revenue and profit because they have been making the same amount of money compared what it was like for Tesco before the rise of their competitors.
Tesco has had a few obstacles and challenges that they have faced in the previous three years, for that reason, it has massively affected the company's performance and execution. A few cases have heavily affected the organisation's brand picture; for example, the organisation has been blamed for offering horse meat in their burgers rather than beef meat. In fact, about 30% of the meat in their burgers was observed to be horse meat in January 2013. Furthermore, it was found that approximately 60% of the meat in their spaghetti Bolognese was made out of horse meat as opposed to beef meat. The incredible revelation has essentially raised outrage among people in general and has wounded the organisation's image and reputation.
As a huge company continuously expanding around the world, they would have the ability to extend out to many other developing countries and potentially start new markets and deals with them; can focus on global expansion and will strengthen its position the global stock markets. For example, they could extend out to countries in Asia, the Middle East and Africa, and possibly Latin America, not only in terms of introducing new stores and supermarkets but to also make new trade deals in terms of importing raw products for Tesco to manufacture.
Moreover, the growth of convenience store market in the UK is increasing because more people would find stores closer to where they live a lot more convenient and easier to buy items. The UK convenience market is set to be worth £49 billion by 2019 which is a great advantage for Tesco because they can build more smaller stores around the UK, and follow what the public and to be to adapt to situations that will suit their customer's needs.
As I have mentioned before, the main threat that Tesco faces today is their uprising competitive rivals. Tesco's sales and profits are now under pressure from famous discounter stores such as Aldi and Lidl. Although Tesco has been the leading retailer of this specific sector for over 15 years, it is now facing upcoming rivalry, not only with big discounters but also includes the ‘Big Four'. For example, Asda, Sainsbury's and Morrisons.
Moreover, Tesco PLC also has to be very careful in terms of where they should place their stores. This is very important because they need to be able to cope and compete with other businesses that will potentially be a threat to them. Because if Tesco's administration places a store that is fairly close to an independent convenience store that sells the exact same products at a lower price, people are most likely to go and get their items to the independent store because they sell them cheaper. Therefore, Tesco has to be extremely strategic in regards to where they should locate their stores, otherwise, Tesco will lose some profit.
“M3: Assess the effects of the given business environment on a given business”
Businesses as big as Tesco can be affected by many factors when it comes to its business environment. For example, a business could be heavily influenced by the economic stability of the business because it would have a significantly higher risk of a store being closed down if there was a recession. Therefore, this is influenced by the economic environment.
P - Political
E - Economic
S - Social
T - Technological
L - Legal
E - Environmental
This can come in the form of “PESTLE”, which I will outline in this essay.
Over recent decades, China has become an economic powerhouse in the global markets and has been a highly profitable one that is worth up to 1.3 billion. And China recently opened its doors to western companies to encourage and potentially start and extend their business on a country that is relatively stable when it comes to economic stability. Because China has been more open to new western companies, China has reliably made an agreement (a signed agreement) with Tesco back in 2009 to establish a series of joint ventures from the development of shopping centres in areas such as Anshan and Fushun.
By Tesco extending their global reach and influence and Tesco's rise in international business, it massively increases the company's revenue and profit that is worth one quarter for Tesco's earnings.
In addition, 10 European countries joined the EU back in 2004 that includes Poland, Lithuania, Cyprus, etc. The immersion of these European countries gave Tesco a huge advantage because this means that big organisations such as Tesco can further extend and encourage more trade between countries in the West with Eastern European countries.
In 2008, the United Kingdom officially declared that the country was facing an economic-crushing recession. Therefore, the UK government has been surprisingly success in cutting down interest rates for its citizens in order to cope with the effects of the recession. For a company like Tesco, it is crucial that they keep in mind economic influences on their business, all because they will have lasting impacts on their purchasing behavior of its customers. By lowering interest rates, this enabled the UK government to drastically lower the unemployment in 2009, following the recession.
An analysis of the entire UK population shows that there are more retired people than there are children, which brought the representation of the Baby Boom Generation (Herald Scotland, 2010). The ageing population is discouraging for food retailers, due to the fact that elderly tend to eat less in comparison, to the economically dependent to children. Furthermore, the ageing population are also less capable of travelling to stores and supermarkets to shop compared to the younger generation who can.
The upbringing of new technology can hugely benefit both Tesco's customers and the company itself. This includes the improvements on customer satisfaction because products and goods can easily be accessed and services can be done that gives better experience, personalise it and create a greater shopping experience. The establishment of the Efficient Consumer Response (ECR) initiative provided the shift that is now apparent in the management of food supply chains. Tesco stores now adapt to the following innovative technologies:
Electronic Shelf-Labelling System
Radio Frequency Identification (RIFD)
Technological advancements in Tesco have completely had a big, positive impact on its day-to-day function. One of the most significant changes in the use of technology is the introduction of Tesco's online shopping that facilitates door to door home delivery. This makes shopping easier for people who does not necessarily have great access to physical Tesco stores. Additionally, the introduction of Self-CheckOut machines made shopping in stores done with ease and a lot more comfortable for customers because they can scan their own items and pay the same time which also decreases the need for employees and labour costs.
In conclusion, the factor that probably has had the biggest and most influential impact on the development of Tesco are technological factors, because it takes advantage of the ever-increasing popularity of the internet. They have developed online shopping to cater those who cannot access stores by offering home deliveries through their website.
Tesco PLC are a huge company that aims to make as much profit as possible. They
rely on customers buying their products so they can expand on their business and
make even more money. This is Tesco's biggest strength and they continue to grow.
The employees assist customers on the shop floor so they have a big impact on how
much money is made. This makes Tesco a strong company as they are able to
make around £4 billion every year. People want to come back and shop at Tesco
due to the outstanding customer services, the cheap and affordable prices of the
products and because it is local. There are many stores all around the UK because
of how popular Tesco is, some stores are open for 24 hours and there are many
local Tesco stores which is why customers go and shop there.
Over the past few years, Tesco has dropped in profits. This is due to the amount of
competition Tesco has and because of the recent change in chief executives. Tesco
started to lose market sales to competitors Lidl and Aldi. Since Terry Leahy left the
chief executive role, shares have dropped by 41%. This has had serious effects on
Tesco because they are not able to make the same amount of profit as they were
Due to Tesco PLC being a huge company, they are given the privilege to buy
products from suppliers for cheaper or even in bundles. This allows them to buy
more products for a lower price. Tesco also brings in new ideas such as Tesco
mobile which attracts many people who buy their products and may influence them
to become involved and be a part of Tesco mobile. This makes Tesco's profits rise
higher and the expansion of the business become a success.
Since Tesco was first introduced, they have experienced many threats towards their
business which may have affected the way they work and the way they go about
their business. Currency fluctuations have had an impact on the amount of money
Tesco make and spend. If the currency is strong, they would have purchased goods
for much cheaper and would lead to increased profits. However, when the currency
becomes weaker, it means that products and items become more expensive to buy.
This would reduce the total amount of profit the company could have made due to
the currency. A good example of this would be when the UK left the EU. The pound
currency went down which affected not only Tesco, but all companies that buy
products from abroad.
3.) Competitive Environment of Tesco PLC:
In order for Tesco to maintain its success in the market, they have to be very careful on how they should approach things. Ever decision that they make has to be well thought out and concise because they are continuously in competition with other big retailers in the UK. They are both fighting for prices and their products, and also the public's admiration and support. In order to analyse Tesco's competitiveness, I will be using the ‘The Porter's 5 Forces' analysis technique.
The Power of Suppliers
It should be noticed that the providers are inclined towards significant food and basic grocery retailers and are having a fear of losing their business contracts with vast general stores. As a result, the position of big retailers such as Tesco, Asda, and Sainsbury's is then further reinforced and made stronger and stable, and negotiations are sure to get the most reduced costs from its provider in the future. This means that the power of providers is genuinely low.
Effective retailers with a lot of power, for example, Tesco or WalMart can frequently collect and gather additional charges from their providers in exchange for Tesco to promote their products and items in their stores. Moreover, big companies such as Tesco can easily negotiate with their suppliers because they can buy their products in bundles with would cost relatively lower; saves a lot of money for Tesco. This can result in a long process between Tesco and its suppliers in terms of the payment methods. All these will be useful to the benefit of capable retailers.
Threats of New Market Entrants
As I've mentioned before, Tesco PLC has been the leader in the retail sector for nearly more than 15 years and now, that position that Tesco holds at the moment is under threat because of new businesses coming into the markets. However, Tesco has been in this sector since 1919 and has been continuously growing ever since. As a result, it would be extremely difficult for starting businesses to catch up in terms of their position in the UK market. But this doesn't mean that Tesco is stress-free because even though businesses aren't going to catch up, they are still in competition with them in regards to their products, and also customer services. So Tesco has to keep changing up their products and make different and unique in order to stay ahead with their strongest competitor. Despite having minor threats of new competitors, the level of threat for Tesco quite low because that certain business has to be nearly the same level, if not the same, for businesses to become a major threat.
Bargaining Power of Buyers
There are several factors that will influence the bargaining power of buyers. One of which is how dependent existing distribution channels are. Also, consumers are constantly looking to accomplish higher rates of profitability, but at the same time, buyers would very much to try to spend minimal measure of money concerning high-quality services or items.
Threats of Substitute Products
In the food retail market, the substitutes of significant food and product retailers are small chains of convenience stores, off licenses and naturally picked (organic) shops which are not seen as a danger or a threat to huge general stores like Tesco that offer great quality items at considerably great value. Additionally, Tesco is further getting hold and reaching out to these shops by introducing Express stores in small neighbourhoods in towns and downtown areas making it very difficult for these substitutes to enter the market with ease.
Existing Competitive Rivalry between Suppliers
The power of the competitive rivalry in the business of food and basic retail needs is relatively high. Now, Tesco faces the extreme rivalry of their direct and immediate rivals, including Waitrose, Sainsbury's and Asda that are a serious contender between great item and product value, public services and improvements in their promotional methods or approaches.
The on-going competition among current competitors has been serious and extremely intense – the big retailers contend and fight in regards to item costs and pricing, as well as the need to guarantee their consumers loyalty for long-term gains and profits. Various procedures, methods, and systems had been put in place to draw clients away, far from each other. If by any chance that the rivalry keeps on intensifying, it would become be very difficult for Tesco to sustain its good but competitive position in the retail sector in the foreseeable future.
D2: Evaluation using situational analysis
The administration set out different laws that organizations need to take after and follow. One of these laws is compensation. At the point when the administration within the government increases the minimum wage permitted by law, more individual workers would need to fill in as higher wages are advertised and offered. This implies that the UK would have a lower unemployment rate. This means that more and more individuals would have to invest more energy in finding a new occupation or job and more individuals would get hired because of the higher wages that attracted them in the first place. The UK would have a higher business rate with fewer individuals living on benefits. This would mean imply that the UK government would have more cash since more money is being spent by people. Tesco would have more qualified specialists since workers would need to find a suitable job so they would have the time to continually improve and to learn new skills that would be of great use in the future of their careers. Tesco would profit by this since more specialists would carry out their activity appropriately.
Likewise, higher wages help the economy grow and develop. This is on account of more cash streams around the UK since individuals gain more cash, which implies that more cash would likely be spent. This is a favourable position for Tesco because more individuals will burn through cash on purchasing items they require. Tesco will get more cash from higher wages because of individuals spending a higher measure of the money they generate in Tesco stores, as disposable income.
Because of higher wages, Tesco can hire more individuals in a mixture various ethnicities and backgrounds. Individuals who originate from abroad also have a tendency to have better and more carefully enhanced qualities and skills. Migrants would need to move into the UK as the minimum wage permitted by law has been increased so they would get more cash. A portion of the cash that migrants receive would then go to the nation of origin, as remittances in order to provide their families back home with their necessities such as money for food and rent. Tesco would profit by this as more individuals would search for an occupation, which implies that Tesco would have the more extensive scope of representatives or workers to pick from.
Then again, Tesco would likewise not profit by this law of higher least wages since they would need to pay more cash towards compensation towards their workers. This implies Tesco would have less benefit than what it was like originally. This may mean that Tesco will be forced to fire many workers, keeping in mind the end goal to have more benefit and spare more cash. What's more, Tesco may request for more from their bosses which would not make their workers relatively happy.
2. Unemployment Rate
A financial factor that would influence Tesco is the unemployment rate. On the off chance that the unemployment rate is low, there will be a higher interest for items since more individuals are generating more cash which they can spend on more items. This implies Tesco would have an expansion in benefits because of a higher measure of individuals needing to purchase items. Tesco would need to continually balance the supply with the request to expand and maximise their profit. In any case, if the unemployment rate is high, more individuals are less able to work and not acquire cash. This implies that the demand will gradually decrease because of more individuals having less cash to spend so they would just purchase things they require and need, but not want. This influences Tesco's business in light of the fact that there is a lower request in items because of the relatively high unemployment rate.
3. Trends and Preferences
A social factor that would influence Tesco is patterns and preferences. Individuals compose audits on how great or awful an item is on the Tesco website, which enables them to build up their business from multiple points of view that would suit the clients. Tesco would take into account what local consumers favour and what their requests are with the goal that they can add it to their local Tesco stores. This would imply that more individuals would purchase from Tesco stores as it offers the things/items they need the most which would add profit to the business. Furthermore, Tesco can see the statistic patterns. This would imply that Tesco can determine what the new patterns are with a specific end goal to keep clients satisfied and happy. Most importantly, the statistic patterns will enable Tesco to deliver and master new creative thoughts with the goal that clients can appreciate them, yet in addition to benefiting the entire business.
A drawback to this, however, might be that the pattern might not be as big as expected. This would imply that Tesco would not generate profit as much profit by it as they would have liked to. The audits and reviews only represent a small number of the clients, so if a client composed a negative survey, they might be speaking what's on their minds and others may feel the same way in an unexpected way.
An example of an environmental factor that would impact Tesco is reusing and recycling. Tesco has numerous deliveries on a day-to-day basis in order to ensure items are easily ready and accessible in all their stores and on their online website.
At the point when all deliveries come in as they come in bundles and packs, these sacks are then recycled so that they can be reused again and not discarded and thrown away. In the event that bags are discarded, it would cause increased pollution as it is sent to landfills. Tesco reusing sacks and other assets gives them more respect and a better reputation in the business as they are doing whatever they can to ensure that the environment is being taken of and environmental impacts are being taken into consideration. This would likewise impact and encourage others to reuse.
In addition to recycling, Tesco now sells their shopping bags for 5p to urge individuals to not throw their plastic bags once bought in the bin as it would cost them cash to get another.By doing so, selling their plastic bags makes Tesco more money
as people tend to buy bags every time they shop which increases Tesco's total profit.
Another factor that would affect Tesco is Technology. For example, the self-checkout machine. Tesco introduced the self-checkout machines because it was a new innovation that would help them make more money as whilst also saving more money. This would have meant that Tesco's profits would increase due to the new technology being introduced. When Tesco first introduced the self-checkout machines, it made people want to use them as they would have been fascinated by the new way of shopping. This would have led to more money coming into the business increasing the total profit. Also, the self-checkout machines replaced many workers as employees were not needed at the tills. Tesco would have made more money as less money would have been spent on wages.
A disadvantage of self-checkout machines however is that it makes theft more likely to occur. This is because the self-checkout machine cannot detect how much of an item you have so people can type a lower quantity of a product when they actually have more. Also, this new innovation increases the unemployment rate which would affect the economy and how much money people have.
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