Discuss about the International Business for Contemporary Business Organizations.
International business is important for the contemporary business organizations due to the reason that in the current business scenario, organizations should also look beyond their domestic market. This is mainly due to the reason that current market scenario mainly in the Australian domestic market is highly competitive in nature. In addition, the retail business scenario of Australia is intensely competitive with having the presence of number of small and big brands. Therefore it is becoming more important for the domestic organizations in the Australian retail business to look for potential target market in the foreign markets. This will help them to have more market potentiality along with having the global value (Vahlne and Johanson 2017). On the other hand, entering in the foreign market will also ensure that the particular business organization will not only have to be dependent only on the Australian market.
This report will discuss about the potential foreign market for Woolworths in the global business scenario. Woolworths is being selected due to the reason that they are the market leader in the Australian retail business scenario. However, in the recent time Woolworths is facing increased number of challenges from their established competitors and from the emergence of new set of players in the market. Thus, they are having the need of entering in any potential foreign market to overcome the increased challenge in the domestic market. This report will discuss about the external factors of the selected country and the advantages to be gained by Woolworths in entering that particular country. In addition, number of recommended steps will also be discussed in this report in order to enable Woolworths to have effective foreign market operation.
Woolworths is one of the major retail chains in the Australian region. In addition, they are the market leader in the Australian retail business. Woolworths was founded in 1924 in New South Wales and currently they are having more than 900 stores across Australia. It is also being reported that currently Woolworths is having more than 100000 employees across all their stores. In the current time, they are also offering online retail services through Woolworths Online (www.Woolworths.com.au 2018). However with the increase in the competition in the domestic market scenario, Woolworths is having the need to enhance their market share and presence in the foreign market.
China is being selected as the potential target market for Woolworths due to the reason that China is having one of largest economic growth in the recent time with having 6.9 percent growth as of 2017. They are also one of the major economies in the world and with having the largest population in the world; China is having immense opportunities for the foreign business organizations (Shahbaz, Khan and Tahir 2013). This is due to the reason that the more will be the population, the more will be the retail market opportunities for the foreign business houses. According to the global competitiveness index, China is having the ranking of 1 in terms of domestic market size (Www3.weforum.org 2018). Thus, Woolworths will have huge market opportunities in entering and operating in China. China is also having the first ranking in terms of GDP according to the global competitiveness index. Thus, it can be concluded that Woolworths will have favorable economic environment in operating in China.
It is also being reported that China is having the ranking of 26 in terms of country credit rating, which denotes that Woolworths will have less risk related to their investments in entering in China. Another major advantage that will also be gained by Woolworths in operating in China is having the access to the lower rate of operation. This is due to the reason that China is having the lower cost of human resources that will further help Woolworths to reduce their average cost of operation. The less will be the cost of production, the more will be the profitability of Woolworths. Majority of these factors will help Woolworths in having business advantages in operating in China.
However, apart from the advantages that may be gained by Woolworths in operating in China, there are number of challenges and threats also to be faced by them. According to the global competitiveness index, China is having the lower ranking of 102 in terms of investor protection. Thus, it will pose a threat for Woolworths in relation to their investments in China. In addition, it is also being stated that China is having the ranking of 33 in terms of intensity of local competition (Www3.weforum.org 2018). This is mainly due to the reason that China is now being considered as one of the major business hubs in the Asian region. This will lead to the emergence of competition for Woolworths in China that can have adverse impact on the business operation of Woolworths.
China is having the problem of access to finance for the organizations in doing business. In this case, Woolworths will face barrier in sourcing the finance for their operation. It is also seen in the above figure that inefficiency in the government bureaucracy is another issue for doing business in China. This will cause Woolworths to have negative issue on their political and legal environment.
It is recommended that Woolworths should initiate the strategy of joint venture in entering the Chinese market. This is due to the reason that initiation of joint venture will enable Woolworths to have their physical market presence in China along with having lower level of risk related to the investments. The first major reason for recommending the joint venture strategy is involvement of lower risk. In the case of Joint venture, Woolworths will get partnered with a local Chinese firm (Sun and Lee 2013). Thus, both these organizations will have investments in the venture and Woolworths will not have to invest the entre capital. Another reason of recommending joint venture strategy is the differences in the market trend, taste and preference pattern of the customers between China and Australia. Thus, Woolworths will not get succeeded by offering their existing products in the market of China. They have to offer more localized products in order to match the local need and requirement of the customers (Meschi and Wassmer 2013). In this case, initiation of the joint venture strategy will help Woolworths to have a local partner, which have the knowledge about the local market trend and can help Woolworths in initiating their product strategy in China.
Implementing the joint venture entry mode strategy will further help Woolworths to have physical presence in the Chinese market. This is important due to the reason that in the retail sector, Woolworths will not be able to attract customers if they are not being present in the market. Retail market is having the requirement of touch and feel for the majority of the customers. Thus, initiation of the joint venture strategy will help Woolworths to have their physical stores in the Chinese market. However, it is also to be noted that initiation of the joint venture strategy will pose challenges also for Woolworths such as having lower level of control on the business operation (Shi et al. 2014). This may get difficult for them to drive their business in the Chinese market as their Australian business.
Identification of the competitive strategy is important for Woolworths in starting their business in Chin due to the fact that effectiveness of the competitive strategies for Woolworths will determine their efficiency in the doing business in China. There are mainly three major competitive strategies being stated by Porter.
The first competitive strategy if cost leadership. According to this strategy, if the business organizations can reduce their cost of operation to the maximum level in the industry then it will help them to offer their products in cheaper rates in the market. Thus, the more affordable will be the price of the products, the more will be their attractiveness in the market (Marchi, Maria and Micelli 2013). Moreover, it is also to be noted that retail sector where Woolworths is currently operating is much price sensitive in nature. Thus, it is recommended that they should take the advantage of low cost of human resources in the Chinese market along with maximizing the local sourcing. This will reduce the cost of operation for Woolworths and they will be able to offer their products in more competitive prices.
The next competitive strategy to be recommended for Woolworths in their Chinese operation is product differentiation strategy. According to this strategy, offering different and distinctive products in the market will help Woolworths to gain competitive advantages. This is due to the reason that retail market sector of China is already crowded with number of global and domestic competitors (Ray Gehani 2013). Thus, offering the same and similar products in the market will not increase the customer attractiveness for Woolworths. Thus, it is recommended that they should come up distinctive product offering in order to create the distinctive image in the market. The more differently they can operate in the market, the more competitiveness they will gain among the crowded market.
It is also recommended that Woolworths should initiate the product differentiation strategy by means of private label brands. They can come up with unique and distinctive private label brands according to the market taste and preference pattern that will help them to have different value creation in the market for the customers. Woolworths should initiate the differentiation strategy in regards to their service delivery process such as implementation of automated checkout process for the customers (Kaliappen and Hilman 2014). This will also help in creating the distinctive image in the market for Woolworths.
The last recommended competitive strategy is market focus strategy. This refers to the determination of the requirements of the target customer segments and offering products accordingly. It can help the business organizations in operating in a particular target segment and offering products according to the taste and preference pattern of the target segments. Thus, it is recommended that Woolworths should first identify their target customer segment and determine their needs and requirements (Haenlein and Libai 2013). This will ensure that the requirement of the target segment can be effectively fulfilled and will ensure that level of customer satisfaction will also be more ad favorable.
It is recommended that Woolworths should initiate extensive marketing activities in order to effectively operate in the Chinese market. This is due to the reason that Chinese market is huge and vast and extensive marketing strategies are important to cover the maximum customer segments. It is recommended that Woolworths should initiate the market penetration strategy in order to gain the majority of the market share in the initial stage (Banerjee and Soberman 2013). As discussed earlier, Woolworths is operating in the price sensitive consumer goods market and thus initiation of the market penetration strategy will help Woolworths in covering the major market share. Market penetration strategy can also be well aligned with cost leadership competitive strategy by offering the products in more affordable price (Spann, Fischer and Tellis 2014). It is also being recommended that Woolworths should initiate the market penetration pricing strategy in order to cater to maximum number of customers. The price should be as par to the market standard in order to cater to the mass market customers.
It is also being recommended that Woolworths should initiate the Omni Channel distribution strategy due to the reason that it is important for Woolworths to initiate the use of maximum number of distribution channels in order to target the majority of the customers in the Chinese market. Initiation of the Omni Channel distribution strategy will help Woolworths to have the use of online and offline channel in reaching to the customers (Verhoef, Kannan and Inman 2015). In addition, it should also be noted that China is well advanced in terms of technology. According to the global competitiveness index, China is having the ranking of 81 in terms of availability of latest technology and this ranking can be considered as moderate ranking (Www3.weforum.org 2018). Thus, it can be concluded that in order to effectively cater to the Chinese customers, Woolworths should initiate the strategy of Omni Channel distribution by means of both offline and online mediums.
According to global competitiveness index, China is having the ranking of 28 in terms of innovation. This denotes that China is having the potential of generating innovative ideas. This also shows in their ranking of company spending on research and development in China. According to the report, China is having the ranking of 21 in company spending on research and development (Www3.weforum.org 2018). Therefore, it is recommended that Woolworths should have their research and development activities in China. This is due to the reason that having the research and development activities will ensure that Woolworths will be able to generate innovative ideas along with meeting the local needs.
Woolworths is mainly in the retailing business of selling finished customer products. Thus, they are not having extensive production operations. However, it is recommended that Woolworths should be initiating the process of local sourcing for majority of their products. This is due to the reason that having the strategy of local sourcing will enable them to reduce the cost of materials along with gaining the ability to offer localized products to the customers (Bresciani and Ferraris 2014). It is also being recommended that Cole should have their production facilities for private label brands in China. This is due to the reason that China is having the low cost of resources and production and thus having the production facilities in China will reduce the cost of production for Woolworths. In addition, it should also be noted that having the production facilities in China will help Woolworths to change their production approach more frequently according to the market trend and requirement.
However, on the other hand, it is also being recommended that Woolworths should have their production facilities in their home country for the premium goods. This is due to the reason that in case of the premium goods, higher price will help to increase the product value among the target customers. In addition, sales volume of the premium products will also be lower and thus it will not be a viable option to shift the production facilities in China from Australia. This will also enable Woolworths to maintain the quality of the premium products by sourcing them from the same production facilities in their home country.
In doing their business in China, there are will be number of issues related to the human resources will get to emerge for Woolworths. This is due to the reason that the employees of Woolworths from China and Australia will be culturally different and distinct. One of the major issues that can get emerged is cultural conflict among the employees. In addition, it may also get difficult for the upper level management of Woolworths to determine the cultural diversity of the customers in China. This will have adverse impact on the business performance of Woolworths in the Chinese market. Another major issue related to the human resources that can get emerged for Woolworths in operating in China is the inability of the home country employees to get aligned with the host country culture and inability of the host country employees to get aligned with the vision of the home country managers (Qian, Cao and Takeuchi 2013).
It is recommended that Woolworths should initiate the strategy of polycentric approach of staffing for their lower level employees. This is due to the reason that, initiation of the polycentric approach will enable to recruit lower level employees only from the host country (Tiwari 2013). Thus, Woolworths will have local employees in place that will further help them to effectively cater to the local market requirement in the Chinese market. Employees from the local culture will be able to effectively determine the needs and cultural aspects of the local customers and can provide service accordingly.
It is also being recommended that Woolworths should initiate the geocentric approach of staffing for their upper level management. This refers to the process of selecting candidates from both host and home countries based on the eligibility and organizational requirement (Plakhotnik et al. 2015). Thus, this will enable Woolworths to have upper level managers from both China and Australia. In addition, initiation of the geocentric approach of staffing will help Cols to have the proper balance of home and host country culture in the upper level management and will be able to design their organizational strategies with proper determination of both the approaches.
It is also recommended that Woolworths should initiate diversity management program for the host and home country employees in China. This is due to the reason that there is huge probability of having conflict between the two groups in their Chinese operation (Martin Alcazar, Miguel Romero Fernandez and Sanchez Gardey 2013). Thus, it is recommended that employees should be included in the diversity management program and they should be given training accordingly. Both the employee groups should be made aware about the advantages and competitiveness of other and how they can be benefited from the diversity in the workforce. This will ensure that both the home and host country employees will be satisfied in working in the diversified workforce and will be able to generate the maximum output from it.
Conclusion
Thus it can be concluded that China will be the most potential country for Woolworths due to number of reasons. In this report, there are number of reasons being discussed from different perspectives. In addition this report also discussed about the recommended steps that should be followed by Woolworths in order to have effective management and operation in the Chinese market. These recommendations are being discussed from different contexts ranging from marketing strategies, research and development to human resource management and entry mode choice. It is recommended that Woolworths should take the route of joint venture in entering in the Chinese market. It is expected that effective implementation of the discussed recommended steps will help Woolworths to have ideal business operation in China.
Reference
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