Critical Evaluation Of Modern Economic Theories And Events For International Business

Critically evaluate the key modern economic theories and key events in recent global economic history as they relate to international business

A business strategy plan is the plan that a company adopts to define its strategies. It also decides the course of action that an organization is willing to take to receive a certain type of outcome. It is one of the most important aspects for any new business that is looking to expand and make a mark for itself. It generally includes goals or objective and the manner in which the company goes about achieving them.

Determining the kind of resources that will be required to do so is another essential component. A proper competitive strategy includes four key elements. They are the company’s strengths and weaknesses, personal values of the company, the opportunities and threats facing the company when consisting of the industry and lastly the social standing of the company, and the manner in which it will affect the global economy.  

2.0 Critical evaluation of the key modern economic theories and key events in recent global economic history as they relate to international business

During the economic crisis of 2008, many economists came up with different reasons to why such a situation could happen. One important theory was the resurgence of Keynesian economics. The theory was introduced by John Maynard Keynes during the Great Depression of the 1930s. He believed that free markets would help in providing employment to people. it was notable that the fiscal and other monetary policies would help in removing recessions and depressions in the future. When the 2008 recession took place people were skeptical about the theory of free markets propagating capitalism. However, there were various economists at that times who believed that government intervention would help stabilize this problem (Hoover 2016).

A series of bailouts were conducted and now the economy is much more stable. Another economic theory that was preferred was Austerity. This meant the reduction of government budget deficits that included spending cuts, tax increases, or both (Almeida, KIM and Kim 2015). This theory too received some backlash and was stated to be flawed and incorrect about the economic condition. It was considered a backward approach and needed to be ended. Some other recent events that caused changes within the economic market for business was Saudi Arabia’s decision to decline oil prices and let the markets decide the price.

This was established in 2014, but is still being followed. Climate change is affected due to the Paris Agreement. In Greece, things did not seem too good either. The debt crisis began in 2010 and it resulted in international banks and investors selling off their bonds in Greece and other holdings too.  The economy of Greece has shrunk drastically and employment opportunities have seemed to dry off as well (Wild, Wild and Han 2014). Other countries like Portugal, Ireland and Spain have been able to repair their economics to a huge extent. China’s corruption crackdown stalled the economy as it is one of the biggest economies in the world. Countries that were in ties with them like Brazil have gone into recession (Benmelech and Dvir 2013).

Proposed Business Model

3.0 Proposed Business Model

The proposed business model is for the company Woolworths Limited. Singapore will be considered as the international market in this study. As mentioned above, other markets are going through major turmoil currently and the Asian markets seem to be the most emerging markets excluding China. India and Singapore seem to have a lot new businesses investing. They have gone on to do much better in those markets. Woolworths has to compare with the likes of Tesco, Walmart and Cosco on a global level. Walmart and Tesco have tried entering India, but there seems to be a major food security concern over there. Tesco has already opened up an online store in Singapore. To cut out major competition, they will have to come up with a good and strategic business plan.

4.0 Discussed below are the strengths and weaknesses of the proposed business model and considered strategies for improvement. 

A proposed business model for Woolworths Limited to enter Singapore will be designed based on the strategic model of the company using a SWOT analysis.

SWOT Analysis
Strengths	Weaknesses	Opportunities	Threats
1) The company has been the pioneering in the retail market for quite a long time. 2) The company has adopted the modern model of retail trade. 3) The company has adequate and relevant resources for business expansion. 4) Woolworths has made a pledge for zero food waste to reach the landfill by 2020 (Arli et al. 2013). 5) Strengthened positioning in New Zealand. 6) The company make their own food produced by the Australian farmers and chefs	1) They have been increasing their prices despite supermarkets plummeting in the Australian market. 2) They have rounded their prices. Earlier their strategy of ‘99c’ discount has been discontinued (Woolworths Online. 2017). 3) Although their director of buying and merchandise stated that the move was for making prices simple to compare for the customers, it has received some major backlash. 4) Major wage disparity among the upper management and the casual staff	1) Global market opportunities exist in Asia. 2) It is one of the most growing economies in recent times. 3) Singapore is a developed country in terms of retail, and expansion opportunities. 4) There are opportunities for acquisition growth and further improved diversification in other markets like India as well. 5) Creating franchises in these emerging markets will do them good. 6) They will have to promote their brand through advertising and promotions (Hill and Day 2015)	1) The overall competition will be coming from big retail brand like Costco and Coles. While Coles fall under the same price bracket, Costco provides bulk shopping at reasonable costs. 2) . Cosco is the second largest retailer in the world cause of that very reason. Government inquiry into supermarket prices going up can hinder further growth for the organization (Webster, Bargon and Carter 2015) 3) In Singapore Fair Price and Cold Storage holds the same qualities like that of Costco; convenience and their pricing model adopted.

Table 1: SWOT Analysis

(Source: Hill and Day 2015)

5.0 Examining how the business model would be impacted upon by global competition

5.1. Analyzing the external market using Porter’s Five Forces

Bargaining Power of Buyers (High)

With major competition from other brands like Cosco and Coles, this leaves consumers with the choice to alternate between retailers. There are few switching costs. Consumer purchases can impact a company’s revenue. Thus, providing major discounts or offers would ensure consumer loyalty to those retailers as compared to their competitors. French retailer brand Carrefour, had to call it quits in the Singaporean market because of the major competition from FairPrice and Cold Storage (Booth and Coveney 2015). Fair Price recently announced that they were opening new no-frills outlets in the country. This could be a segment Woolworths could look into in this modernized business era.

Bargaining Power of the Suppliers (Moderate)

In Australia, Woolworths has the prime market share as compared to their competition. This makes suppliers more loyal towards them. Being one of the major retailers, they could end up being the only purchasers of a producer’s product. They have a wide network with farmers and chefs which would help them have an upper hand (Hummerston 2013). Expanding to Singapore could be tough initially; they will have to form networks from scratch.

Threats of Substitutes (High)

The threat of substitutes are high as there will be indirect competition with convenient stores, specialist grocery stores, big chain businesses like FairPrice and Cold Storage and the farmers’ markets. These indirect competitors pose threats to Woolworths because they can easily substitute for them. To ensure this does not happen they will have to come up with new means to differentiate their own products (Methner, Hamann and Nilsson 2015).

Threat of New Entrants (Moderate)

As the Singaporean market is a vibrant-free market, it keeps changing. New companies within the country and from foreign quarters keep looking to expand in its vast market. It has a strategic geographical location, which attracts new businesses. While there are chances that new businesses will emerge, this isn’t a threat just as yet (Murray 2014).

Strengths and weaknesses of the proposed business model and considered strategies for improvement

Rivalry amongst Existing Competitors (High)

The rivalry amongst these supermarkets is massive. Both in Australia and in the future markets of Singapore, there is and will be a lot of competitors. While they have maintained a good position in their own home turf, they will have to come up with new technological advancements adopted by their rivals, and need to diversify their products by creating better merchandise division as compared to their previous attempts such as Masters, and Big W. Singapore is huge in the technological aspects, they will have to cater to those factors (Dailytelegraph.com.au. 2016).

6.0 Characteristics of the country to be entered by conducting a PESTLE Analysis

Political Factors:

The political risk in Singapore is less as compared to other countries. It has the lowest political risk in the whole continent. Since independence they have continued to have political stability. The only factor that could hamper this scenario is the freedom of speech clause.  Defamation done through libel or slander will not be tolerated in the country as its defamation laws are pretty strict. Political parties aren’t allowed to defame one another (Rodan 2016).

Economic Factors:

Singapore’s per-capita income is the highest amongst the countries within the Association of Southeast Asian Nations (ASEAN). The market is very competitive which in turn motivates people to work harder and build the financial and legal sectors of the country. Cheaper labour costs for some it’s near nations helps the country save on expenses. Their service sector contributes the most towards the nations GDP, while the industrial sector comes in second (James 2016). The economy is showing a decline in the oil prices, low fiscal balance and the currency of the country if depreciating.

Social Factors:

Singapore is a lot like its neighboring countries when it comes to the strict values and cultures and traditions. The younger generations tend to follow western cultures and they would be the key prospects for their market segmentation. The literacy rate is high in the country, and there is a good command over the English language.

Technological Factors:

It is one of the most technologically advanced countries in the Asian continent. They have equipped engines and internet connectivity. Many of the factories have automation being used. Instead of having human production lines, everything is done by machinery.

Legal Factors:

Their legal system is based on common laws and they follow a Parliamentary system. Besides Broadcasting and National news media, foreign businesses are allowed to invest in the country. Trade sanctions are done by following a particular Act called Regulations of Import and Export Act (Rodan 2016).

Environmental Factors:

During a particular time Singapore had the highest emission levels of carbon dioxide. Now they have a Ministry of Environment and Anti-pollution Unit that work towards keeping the air clean. Pollution from industries is a major concern. Oils and chemical waste contaminates the water and so it is being recycled after desalination. There is a lack of water supply. Much of the water gathered is by being dependent on Malaysia (Mortimer 2016).

Examining how the business model would be impacted upon by global competition

6.1 Evaluation and Risk factors

Woolworth has a long good run in the Australian markets but still they have had a few setbacks along the way. They had introduced Masters to enter into the hardware sector of the industry. They were not much favourable conditions for doing so, but they went ahead. Poor decisions regarding price ranges, locations and the overall strategy plan were the reasons it plummeted so badly. The next bad decision was introducing Big W.

Things seem better now but for the future seems to be bleak. Bad decisions on the part of the previous CEO have brought down the business terribly. They will have to ensure that they give more importance to their main segment that is the supermarkets while entering a new country. They have had a bad reputation of mistreating suppliers and they were dragged to court as well (Dailytelegraph.com.au. 2016). They will have to look into all these situations before further expansions.

7.0 Conclusion

Through this report it has been proven that Singapore would be an ideal market for Woolworths Limited to expand. While they are the major retailers in Australia, they will have to perform exceedingly well in Singapore to outdo their competitors like FairPrice and Cold Storage. The company needs to adapt to changes quick and be willing to exceed expectations. They will have take note of the PESTEL analysis to ensure they can enhance customer satisfaction and customer experience and ensure that their business can grow and sustain in the Asian emerging markets as well.

References

Almeida, H., KIM, C.S. and Kim, H.B., 2015. Internal capital markets in business groups: Evidence from the Asian financial crisis. The Journal of Finance, 70(6), pp.2539-2586.

Arli, V., Dylke, S., Burgess, R., Campus, R. and Soldo, E., 2013. Woolworths Australia and Walmart US: Best practices in supply chain collaboration. Journal of Economics, Business & Accountancy Ventura, 16(1).

Benmelech, E. and Dvir, E., 2013. Does short-term debt increase vulnerability to crisis? Evidence from the East Asian financial crisis. Journal of International Economics, 89(2), pp.485-494.

Booth, S. and Coveney, J., 2015. ‘Big Food’—The Industrial Food System. In Food Democracy (pp. 3-11). Springer Singapore.

Dailytelegraph.com.au. (2016). Woolworths: We will up our game against our rivals. [online] Available at: https://www.dailytelegraph.com.au/news/nsw/woolworths-we-will-up-our-game-against-our-rivals/news-story/c33e955dd91081bfab412f98aa840945 [Accessed 7 Jul. 2017].

Hill, A. and Day, P., 2015. National food incident response. Food Australia, 67(1), p.28.

Hoover, K.D., 2016. The crisis in economic theory: A review essay. Journal of Economic Literature, 54(4), pp.1350-1361.

Hummerston, J., 2013. Options and Directions for the Continuous Improvement of the Australian Meat Retail Qualifications.

James, S.W., 2016. Beyond ‘local’food: how supermarkets and consumer choice affect the economic viability of small?scale family farms in Sydney, Australia. Area, 48(1), pp.103-110.

Methner, N., Hamann, R. and Nilsson, W., 2015. The Evolution of a Sustainability Leader: The Development of Strategic and Boundary Spanning Organizational Innovation Capabilities in Woolworths. In The Business of Social and Environmental Innovation (pp. 87-104). Springer International Publishing.

Mortimer, G., 2016. The supermarket of the future: Directions for Australia. Inside FMCG Magazine, (4).

Murray, P.A., 2014. The nature and sources of competitive advantage.

Rodan, G., 2016. The political economy of Singapore’s industrialization: national state and international capital. Springer.

Webster, J., Bargon, R. and Carter, M., 2015. Supply chain accountability: How far does responsibility extend?: Recent enforcement outcomes in the trolley collecting industry. Brief, 42(3), p.22.

Wild, J.J., Wild, K.L. and Han, J.C. 2014. International business. Pearson Education Limited.

Woolworths Online. (2017). Woolworths Supermarket – Buy Groceries Online. [online] Available at: https://www.woolworths.com.au/ [Accessed 7 Jul. 2017].