Discuss About The Wesfarmers Challenge Outperform Australia.
Contemporary business cannot ignore the environment in which they operate their business activities. It is essential for every business to keep an eye on the factors that can impact the working of the business (Wheelen, et.al, 2017). Similarly, Wesfarmers; an Australian firm conducted the external environment analysis which is discussed in the part A of the environment scan. This report is linked to the previous report which reflected the major external factors that affect the working of the firm along with the framework that can be used by the company to resolve the challenges. This report includes the further responses and the comprehensive solution for the environmental risk.
The company that has been selected is Wesfarmers which is an Australian conglomerate company with the headquarters in Perth, Australia, and the company came into existence in the Year 1914 (Wesfarmers, 2018). The company has diverse business operations including hotels, liquor, supermarkets, convenience stores and many others due to which it is very important for the business to analyze the external factors of the markets where the company operate its business activities. The report is prepared with the aim of proposing a solution of the environmental challenges faced by the firms with the use of the approach or framework. Firstly, the report includes the relevant responses by the company considering the types of factors that can influence the environment. Secondly, it includes the comprehensive responses to the solution to all the environmental challenges that are laid out in the Part- A of environment scan report.
This section of the paper reflects the responses of the company considering the major external factors along with the solution.
Each and every company make the changes in their decision making considering the external environmental factors. Below given are the responses of the company considering and its impact on the environment.
Economic factor: – The major economic factors that affect the company include inflation rate, saving rate, interest rate, foreign exchange rate and the economic cycle which include the identification of the demand and investment in the economy (Fern Fort University, 2018). The supermarket business of the Wesfarmers is affected due to high-risk in the industry due to competition, change in the currency rates, loss of jobs in the market, and many others. Considering the situation of loss of jobs in the market the company started giving employment to the people so that they can maintain the flow of money in the market. Today, Wesfarmers is one of Australia’s largest private sector employer that gives the employment to more than 22,000 employees along with this the company has a shareholder base of approximately 530,000 (Wesfarmers, 2018).
This response of the company impacted the environment of Australia as there was a rise in the Australian unit labor cost as compared to the other nations. This took place because the demand for the talented labor increased in the market due to which the company started paying a huge amount. In addition, the fair work commission has announced the rise in the minimum wage by 2.4% to $ 672.70 a week. This simply means an extra of $ 15.80 per week and this rule will come into existence from 1st July (ABC, 2016).
Moreover, there is a growth in the Australian Average weekly earnings were more than the inflation which results in that the people of the country can make the purchase of luxury goods.
The rise in the income of the consumer gave the advantage of paying high-interest rates and credit cards as it depresses and constraints for spending more amount (Hill, Jones & Schilling, 2014). Though, this response leads to the threat for the company as most of the companies will find a better condition of the Australian market and will think to expand their business which leads to the competition to the company.
Competition: – The major competitors of Wesfarmers in the Australian market are Woolworths, Aldi, Best & Less, Tesco and many others considering the market in which the company is operating its business (MBA Skool, 2018). In the Australian market, the competition is becoming intensive and it totally depends on the company how they deal with their competitors. In the year 2007, the Wesfarmers purchased Coles Group Limited for A$22 billion (Knight, 2011). Though, Coles brought new competitors for the company.
Woolworths Group is in existence with most recognized and trusted brands in the retailing and serving millions of customers in making a purchase of their daily necessity products. The company is giving strong competition to Coles, but Coles is able to acquire market share and customer base because it offers delight services to their customers. Moreover, the prices of products offered by coles are low and competitive. The format of the store is new with the product enhancement which is a competitive advantage for the company (Kotler, 2015). Apart from this, for the insurance business, the company decides to deal with some divisional headwinds to face the competition and to make the business profitable. These were the responses of the company considering the competition factor. This response has increased the challenge for the company as competitors are finding new ways through technology and innovation to give a response to the company.
Political factors: – The political factor includes the changes in the rules and regulations for the industry that can create an impact on the working of the country. The government has formed different legislative rules and regulations for the mining sectors considering the impact on the environment (Gobinda Goswami & Haider, 2014). These laws can affect the working of the company in the mining sector. Moreover, Wesfarmers not only operates its mining business in Australia but also in other countries. Therefore, the company has to analyze the market before making decisions for the future expansion of the business. Considering the major risk in the mining sector the company took a step to expand its business operations in numerous other sectors. Further, in the grocery business, Australia is known as the largest importer and also contributes to the economy of the other countries. Though, the change in the policy of any government might leads to the risk of the import of Coles. The change in the regulations for the local farmers is also a threat. Considering this challenge the company decided to manufacture their products (McKellar, 2017). Therefore, now the company is involved in the manufacturing of the products as well.
Customer and suppliers: – The customers play a vital role in the company, the change in the preference and demand of the customer leads to the change in the business decision making of Wesfarmers. The rise in the education of customers towards the healthy food makes them switch to healthy products (Sheth & Sisodia, 2015). This may lead to change in the business of the company as they have to form the tie-ups with those suppliers who can offer them healthy products. There are few companies who manufacture healthy products. This demand for healthy products will lead to a rising in the opportunity for those companies but forming tie-ups with these companies will not be cost effective as they can ask for high prices. Wesfarmers have to pay those prices asked by the supplier for the healthy products they can’t negotiate due to less number of companies present in the market.
Legal factors: – The legal regulations are related to the change in the laws by the government for the particular industry (Chernev, 2018). In the Australian market, the legal obligations are in favor of the company because government support companies who contribute to the economic development of the country. But in other markets, the change in the laws takes place considering the betterment of their people and companies. These legal factors work as a risk for the company as they won’t be able to operate the business effectively. Moreover, it is suggested to the company to follow the legal obligations effectively.
It is essential for each and every business in the competitive market to effectively manage the risk which is essential to understand the qualitative distinctions among the types of the risk that is faced by the company. Considering the types of risk there are generally three types of risk; preventable risk, specific risk and external risk.
External risks are the risk which arises from events outside the company. The sources of these risks are political and natural factors and some of the major macroeconomic shifts. This is the risk which cannot be reduced or avoided through any of the approaches. It is suggested to the company to focus on assessing the potential impact of the external factors because these factors are not in control of the company. Most of the external risks events require a different analytic approach to reduce the risk associated with the external factors. The analytic approach refers to as use of the analysis to break a problem down into the elements that are essential to solve it (Kumirska, et.al, 2016). The companies make use of different analytical approaches for the different sources of the external risk.
This is the systematic process of defining the plausible boundaries of the future states of the world. In this type of planning the participants examine the external forces that include political, social, technological, and regulatory and others. The expert advisors of the company identify the scenarios and inform about the changes in the significant trends outside the company. If in case the manager of the company identify that the strategy is contingent on a generally optimistic then they try to modify the strategy considering the particular scenario or develop plans for the strategy.
War-gaming analytical approach helps the company vulnerability to change in the strategies of the competitors. In this approach, the company assigns three or four teams that help in identifying the strategies that the competitors are going to form in the next one or two years. This approach helps the company to deal with its competitors including current beliefs and the possibility of the actions (Kaplan & Mikes, 2012).
These are ways through which the company can try to reduce the risk that is associated with the political, legal, economic and others. The company analyzes the scenario related to the economy of the country. Generally, the risk manager of the company analysis the market condition and predict accordingly that helps the company in making a further decision related to the product or service. It is essential for the company to evaluate the fact that depicts the economic condition because the purchasing power of the customer is totally depended on the economic condition. Moreover, the cost of the expenses of the company is also depended on the economy of the country. Wesfarmers should make use of this analytical approach with the help of which they will be able to reduce the impact of factors on the decision making of the company.
Conclusion
It can be concluded that the report includes the impact of the external factors on the working of Wesfarmers not only in Australia but also in other countries. The major factors that create impact were discussed in the previous report with the proper framework that helps the company in reducing the effect of the external factors on the company (Kotabe & Helsen, 2014). This report further carries the discussion related to the factors and the response of the company on those factors. The response of the company on the environmental factor is discussed which reflect how decision making of the company gets affected along with this it also leads to some of the changes which arise in the form of risk to the company. Moreover, in the end, the report includes the approach through which the company can reduce this impact while making the decisions for the betterment of the company.
References
ABC. (2016). Minimum wage: How does Australia compare to other countries?. ABC News. Retrieved from https://www.abc.net.au/news/2016-05-31/minimum-wage-how-does-australia-compare/7461794
Chernev, A. (2018). Strategic marketing management. 9th edition. Chicago: Cerebellum Press.
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Gobinda Goswami, G., & Haider, S. (2014). Does political risk deter FDI inflow? An analytical approach using panel data and factor analysis. Journal of Economic Studies, 41(2), 233-252.
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Kaplan, R.S. & Mikes, A. (2012). Managing Risks: A New Framework. Retrieved from https://hbr.org/2012/06/managing-risks-a-new-framework
Knight, E. (2011). Wesfarmers’ challenge is to outperform Australia. Retrieved from https://www.smh.com.au/business/wesfarmers-challenge-is-to-outperform-australia-20110818-1j0ah.html
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MBA Skool. (2018). Wesfarmers SWOT Analysis, USP & Competitors. Retrieved from https://www.mbaskool.com/brandguide/lifestyle-and-retail/10269-wesfarmers.html
McKellar, R. (2017). A short guide to political risk. New York: Routledge.
Sheth, J. N., & Sisodia, R. S. (2015). Does marketing need reform?: Fresh perspectives on the future. New York: Routledge.
Wesfarmers. (2018). Who we are. Retrieved from https://www.wesfarmers.com.au/who-we-are/who-we-are
Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2017). Strategic management and business policy. India: Pearson.
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