Discuss about the International Business Environment and Competition.
In the present business scenario, the competition among the business organizations has increased substantially. The companies are using different strategies to increase their competitiveness and capture the maximum market share. However, the competition among the businesses has reached a very level and matured the market. There is little scope for growth in the local markets and hence, the companies are using international expansion strategies. Along with it, the phenomenon of globalization has also encouraged the companies to seek the foreign and unexploited markets to increase their profitability. With the globalization, the companies are moving from the local markets to a more integrated market place, where the supplies are attained from a different country, manufactured in a different place and sold in a different market (Kaynak, 2014).
Most of the business organizations have identified that the international expansion has numerous benefits for the growth of the companies. It is the strategy, in which the companies take their business outside the borders in which they were founded. Today, most of the large organizations have expanded their operations across boundaries to diversify their risks, target unexploited and fresh markets an increase their productivity (Wheeler, McDonald and Greave, 2003). In this regard, in this report, an international market expansion strategy for Woolworths has been proposed by selecting an appropriate target market. The report begins with providing a brief introduction to the company and its operations. Then after, an appropriate target market has been selected for the organization by evaluating the market conditions and external factors. In the report, the international market expansion strategy and the choice of entry mode in the international market has been discussed.
Woolworths is a major retail organization in Australia and New Zealand. It has a chain of supermarkets and retail stores in Australia and New Zealand. It has a strong market share in the Australian supermarket and grocery market. It specializes in grocery and the household items; and along with it, Woolworths also sell magazines, stationary items and packaged foods. It has more than thousand stores in Australia an also operate as Safeway stores in several rural locations in Australia.
Woolworths Limited was founded in 1924 in Australia and since then has created a strong market share in the country. It has duopoly with the Coles supermarket stores and has established strong relationship with the suppliers and has strong customer loyalty and presence all across Australia (Woolworths, 2017).
However, the presence of the Woolworths Supermarkets outside Australia is very limited with only stores in New Zealand outside Australia. In 2006, Woolworths ventured in the Indian markets with Dick Smith Electronics Stores which were later bought by Tata Sons’ Infiniti in 2012 (PTI, 2012).
In Australia, Woolworths Limited covers majority of market share in the retail business. However, in the recent years, the emergence of several small retail companies and foreign discount retail organizations such as Aldi has reduced the market share of the company (Crane, 2016). These discount retailers have obtained the customers of the company by offering discount, low process and good services. AS a result, the market share of the Woolworths has reduced substantially. Therefore, international market expansion seems a lucrative opportunity for the organization.
In the international expansion strategy, the selection of the target market is the foremost step. The selection of the target market is based upon several factors and criterion. Before entering into the foreign market, a business organization should evaluate the viability of the venture and the overall return. The basic criterion for the selection of the target market is the competition level, the purchasing capability of the customers and the relevance of the product and services offered to the target customers (Ferrell and Pride, 2008).
In this essence, the Woolworths should select the retail market with high household income and political and economic stability. India demonstrates high potential for Woolworths. It is due to the rise in the young population, high standard of living and rise in disposable income of the population (Halligan, 2014). China is also a strong contender for the retail expansion of the organization; however, strict legislations and rule in the country makes it difficult for the organization to enter into the market (Gruver, 2014). Moreover, as discussed in the report, Woolworths has once ventured into the Indian markets; therefore, it has significant market and expansion knowledge of the country. Accordingly, the company can utilize this market knowledge to reenter in the Indian market.
In India, there is growing trend of supermarkets and shopping malls and several multinational companies have entered the Indian markets. It is reported that the Indian retail market is expected to grow by 3.6 trillion dollar by 2020. Therefore, at present, the Indian market seems the best opportunity for the organization (Ahluwalia, 2016).
Before entering into the foreign market, it is important for the organization to evaluate the external and internal factors which might affect the organization and thus examine the viability of the business. In this regard, the PESTLE analysis is used to examine the macro factors and the business environment for the organization.
Political Factors
India is one of the largest democracies of the world and follows the federal form of government. The political environment of the country includes its taxation structure, laws, and legislations for the foreign entities. The county has a well-developed taxation structure and it is politically stable (Qin, 2010). Since 1990s, the government has introduced several reforms to boost the industrial growth of the country. It includes deregulation policy, international trade regulations and simple structure for the corporate taxes. It could be examined that the political environment of the country is suitable for the venture (Rao and Kadam, 2016).
Economic Factors
India is a developing economy and observed an exponential economic growth in the recent years. Several reforms were made in 1990s to increase the economic growth of the country. It includes changes in the industrial licensing and liberalization for the foreign companies. India has successfully recovered from the economic recession and grown exponentially in terms of economy. It is one of the fastest growing countries of the world. Moreover, the economic growth of the country has increased the working population in the country and thus expanding the disposable income of the people (Springfield, 2014). The economic factors also include the interest rates, exchange rates and the foreign exchange rates in the country (Craig and Campbell, 2012). The economic factors assist an organization in assessing the costing of the product, examining the demand and growth in the market. The economic volatility of the market has reduced after the introduction of derivatives trading (Nuruzzaman, 2011). Moreover, in 2016, the Indian government has conducted the demonetization of the currency notes; which has increased the economic volatility of thee county.
Social Factors:
The social factors of any country include the population, religion, customs and the recent trends. India is one of the most populated countries in the world after China. It has a culturally diverse population and majority of the population comprise of young and working population (Henry, 2011). Therefore, they have a fast lifestyle and frequent supermarket stores to buy goods and luxury products.
Technological factors:
The technological factors of the country play a significant role in the success of the organization. It includes the infrastructure, communication systems and the technological equipment. The new technology can reduce cost, increase efficiency, product quality and foster innovations in the organization. It could be evaluated that India is technically advanced country and developing in terms of technical infrastructure. It is home to the largest IT organizations of the world and the business organizations can utilize the advanced technical infrastructure to increase their productivity. It has adopted 3G and 4G technology and provides advanced communication system for the users (Idfc Foundation, 2016).
Legal Factors:
The legal factors of the marketplace include the laws and legislations that can affect the business of the organization. The laws related to the environment protection, consumer protection, employment law and import/export law can affect the business of the organization. The legal factors impact the profit margins, product transportation and the viability of the markets (Qin, 2010).
Environmental factors:
The environmental factors impact the retail businesses in several ways. It has direct impact on the natural resources available for the organization as well as the environmental laws controls the operations of the businesses. In India, there are several environmental laws that control the operations of the company and exploitation of the natural resources. Moreover, the environmental awareness of the customers also impact on the business of the organizations (HG, 2017).
There are several strategies for the international market expansion of a business organization. These strategies are, namely, global standardization, localization, transnational and international strategy. It could be examined that the international is the best strategy for the market expansion of the organization. It refers to a business operating in different countries with different degrees of coordination in business strategy and operations. It coordinates the activities of different subsidiaries of the organization and the business activities of different organizations are regulated by the central office. It aims towards achieving the optimization of cost and the resources in an organization. In this strategy, an organization produces the goods in the domestic market and sells them in the international market with negligible minimal customization according to the local market demands. The international strategy is beneficial for an organization when the company has low pressures for the cost and the local responsiveness. It is beneficial for Woolworths as it is a retail organization and works with fewer profit margins (Hill and Jones, 2011).
It can work with this strategy as it will allow the local subsidiarity of the organization to work independently and with the coordination of the central department. In contrast to it, other strategies for instance, global standardization focuses on reducing the operational cost to the organization be reducing the economy of sale. It is done by exploiting the cost fluctuations in different economies. It can be evaluated that the since Woolworths is a retail organization, the best strategy to enter in the international markets is international strategy. This strategy is used in the international expansion when there is a strong pressure for cost reduction; however, expectations for the local responsiveness are minimal. It is basically adopted to reduce the overall cost to the organization. In the customization strategy, the company ventures into a foreign market by adapting its products to the local preference. It is the best strategy for the product companies to establish into the foreign market. It can be observed that Woolworths is a retail organization and it does not require adapting the product to the local taste of the customers. It can adapt the local strategy of Australia to expand in the Indian market. It involves procuring products from the local farmers and selling them to the customers. It can also introduce the loyalty awards and similar strategies to attain the market share (Peng, 2008).
After the selection of the target market and the internationalization strategy, the next step is to select the entry mode of the organization. There are several entry modes to the international markets and their viability depends on the target customers and the product or the service, the company is offering. Woolworths is a retailing organization and does not produce any product or service but procure products from farmers and local retailers and sell them. The retail industry is characterized by high competition and low profit margins. In this regard, it could be examined that the best entry mode for the organization is the strategic alliance with the local organizations. With this strategy, the company can gain deep insight to the local market trends and the market characteristics as well as hare resources and is experience with the organization. Along with it, there are several other entry modes such as exporting or franchising; however, they are not ideal for Woolworths (Mcdonald, Burton and Dowling, 2002).
Conclusion
It can be concluded that Woolworths is a retail giant situated in Australia. It has a strong local market presence; however, it has limited operations in the foreign markets. In Australia, Woolworths has dominant market share along with Coles; however, the recent advent of Aldi and the foreign discount retailers have reduced its market share. The profits of the company are declining; therefore, it needs to seek new avenues to maintain its market share.
Therefore, in order to increase its profitability and reduce the local market dependence, the international strategy has been proposed for market expansion. In essence, the target market if India has been selected for the internationalization. It is a promising market with high economic growth. Politically, it is stable with a well-developed taxation structure and laws. India has a strong potential due to its growing middle-class and increasing purchasing power of its customers. It has robust economy and ideal market conditions. The social factors also influence the business of an organization. The share of working youth in the population of India is high which can promote the business of retail organization. The infrastructure of the company is technically advanced and has well-developed communication system. Therefore, the company can utilize the advanced technical infrastructure for its operations.
In Indian market, the entry mode of strategic alliance could be adopted. It is the best entry mode for an organization to enter into the foreign markets with little knowledge. In this strategy, the company makes strategic alliance with a local company in order to gain market knowledge and establish itself in foreign country.
References
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