Discuss about the International Business for Political System and Economic Factors.
The report is prepared to conduct the macro environmental analysis of country in which the chosen company is expected to expand. In this particular assignment, the country that has been selected for expansion is Wesfarmers and the country where expansion will be done in United States. Analysis of macro environment of United States is done by evaluating the legal and political system, economic factors and cultural and ethical environment of conducting the business. The expansion of the Wesfarmers into United States is done by conducting the feasibility analysis considering different aspects such as ease in carrying out their operations, sales level and contribution to the economy and environment. Furthermore, analysis and discussion incorporates the application of some models and theories that are relevant to the are concerned.
Wesfarmers is a leading company operating in Australia having diverse business operations. The business operations of company involves hotels, convenience, supermarkets, industrial division with business such as energy, chemical, industrial, fertilizers, coals and safety products and departmental stores. The primary objective of company is to deliver satisfactory return to shareholders. The group engages with the stakeholders by addressing their needs and protecting their reputation and delivering value. Currently, the company is operating internationally in countries such as United Kingdom and New Zealand. Liquor stores and Coles supermarket is operated by company under the brand Vintage Cellar, Liquor land and first choice liquor (Wesfarmers.com.au, 2018). Other products of company such as outdoor living products, home products, car and landlord insurance products are offered to customers through small format stores and warehouse stores. Therefore, it can be seen that Wesfarmers is a conglomerate with predominant interest in fertilizers, chemical, retail, safety and industrial products. Different business operations of Wesfarmers operate both at local and international level. The home ware, general and clothing sector of company is characterized by an expanding international presence and increasing level of online growth and direct sourcing (Wesfarmers.com.au, 2018). For the expansion of business of Wesfarmers, it is required by company to analyze the macro environment of the country in which they are seeking to expand and carry out their business. it is certainly possible that expansion in such some countries might be criticized and call for restructuring of business.
Over the past five years, the grocery and supermarkets stores have grown that is benefitted from strengthening economy. There is increasing per capital disposable income that has resulted in shifting many consumers to organic, premium and all natural brands and thereby helping in lifting the overall revenue of supermarket industry of United States. Even after recession, the inflationary food cost have resulted many consumers to continue purchasing private label brands. It is expected that the retail industry will grow steadily over the next five years. Trend in retail industry is driven by anticipation that consumers will spend confidently through the year 2018. It is projected that market growth rate will reach a healthy rate of 3.2% to 3.8% with intense competition among channels, store formats and players. United States is one of the largest retail markets globally (Ibisworld.com.au. 2018). A permanent change in retail industry of US is witnesses due to several factors such as changing demographics, decreasing store traffics and downsizing of store bases retailers due to growth in non store (Aizenman et al., 2015). For most of the segments, the retail industry of US is consolidated with the market being highly competitive.
The macro environmental analysis of company is done by the analysis of political, economic, social, legal and environmental factors of the environment in which company will operate.
The democratic set up of United States is very strong and have effective rule of law and the national and global policy making is influenced by massive economic and political factors. However, on front of interventionist policies, country is criticized at international level. This particular factor depicts instable political situation that might create disruption in operation of company that would impact revenue and profitability (Wilkins & Stark, 2017). Therefore, it would be required by company to reduce their risk exposure when expanding in United States by managing the political risk.
Legal system of any country plays a very influential role in international business because the business practice is regulated by the law of country. Business transactions of company are regulated by the established rules and policies and have considerable impact on attractiveness of any company for investment. The legal and business environment in United States is generally conducive to free flow of capital and foreign investment and is regarded as common. In some industries, foreign investment may be highly regulated while in other industries, there might be lower degree of regulations. There is decentralization in the legal system of United States and the applicable legal regime plays a considerable role in guiding the business decision and need of enterprise (Khoury et al., 2016).
In US, there are three typical types of business entities namely, corporations, limited liability company and partnership. A rule of governance is provided by the jurisdiction to an operating entity in the country along with enabling them to bear other issues such as local o state taxation and jurisdiction of lawsuits. If the established laws and regulations are conducive to the business objectives and governing needs of entities, an entity will be formed by party in its principal office. Entities seeking to operate in the country should establish themselves as business friendly through administrative ease, governing laws, dispute resolutions mechanism and taxation regimes (Wilde et al., 2016). Therefore, it can be seen that the legal system of US is common and the business requires to comply with all the established regulations and laws if they intend themselves to establish in the country. Wesfarmers are required to establish their business operations in a friendly way so that they are able to seamlessly carry out their operations.
Economic factors- The economy of United States is largest and well developed in the world having GDP of over $ 16.76 million. With economy bouncing back after recession, there has been increased spending by business and customers in year 2014. However, the mixed micro economic signals have resulted in cautious and slow growth in spending of customers. It is required by Wesfarmers to design their products and provide the customers with wide portfolio of products that would help in increasing competitive advantage and market share of business. Growth in wealth by high income consumers and there has been growth in high income and low income consumers. The core consumers of retail business have been forced to focus on value by low end retailers. Technology and innovation are common to economy of United States and the country is leading in terms of application and adapting of technology. Country is expected to continue to retain its technological supremacy over their competitors as they are facing strong competition from emerging economies. Retail sector is expected to be continuously dominated by supermarket sales to $ 97.7 billion in year 2018 (Posner, 2014). Supermarket sales in the country are expected to be driven by the development of sophisticated online options of sale such as tablet and phone. The retail industry of United States has undergone several changes with continued expansion of ongoing sales.
The country is seeking to eliminate or reduce non-tariff barriers that would help in providing competitive advantage to the products of companies operating in European Union. Competitive opportunities of export of by country are limited and unlimited costs are imposed by the agreement such as behind the border barriers comprising of license barriers and restrictive administrative administration of tariff rate quotas. Wesfarmers can have meaningful market access into the country by building on key discipline of the world trade organization agreement on technical barriers to trade using cross cultural disciplines. Such access is also facilitated by establishing of ongoing mechanisms for improving cooperation and dialogue on issues on technical trade barriers (Mazanec et al., 2015).
The ease of doing business in US is improved by allowing foreign direct investment in single brand retail. This will help in creating new economic opportunities by providing more choice to consumers. United states have been the single largest destination for investment made by Australian companies and such investment is regarded as one of the most valuable investment relationship. The new trade and investment policy of country is based on some pillars that are listed below:
Additional analysis of country can be done by evaluating the cultural and ethical environment that takes into consideration social, ethics and cultural factors impacting the business operation.
Cultural environment of United States- The cultural environment of US is analyzed by using the Hofstede model of cultural dimension. This model helps in improving a good overview of factors driving culture in the country. There are six dimensions under this model and this comprise of power distance, masculinity, individualism, uncertainty avoidance, long term orientation and indulgence. Explicit emphasis is placed on equal rights on all the aspects of society of America (Reich, 2017). Management hierarchy is established for convenience where superiors are easily accessible and rely on team and expertise for their expertise. Geographical mobility has a high degree in the country and people tend to develop deep relationships. In addition to this, Americans have typical behavior pattern and a lot of dynamism is created in the society due to can do mentality. Democracy of country is endangered by rising inequality and widening gap among the people. People are willing to accept new ideas, willingness to try something new and innovative products. Americans have well understanding about the good and bad things and business performance is measured on short term basis. Country always intends to indulge in addressing some social issues that is a matter of concern such as rising drug addiction (Rallapalli & Montgomery, 2015).
Therefore, from the analysis of cultural environment of United States using the Hofstede model, it can be inferred that people of America is always inclined toward trying innovative products and buying something new and they embrace openness. Hence, Wesfarmers need to customize the product that aligns with the culture of the country and they can also provide them with the wide range of choices. This will help in pushing up the sales at initial stage.
Social factors- One of the social issue that is faced in US is the aging population that can result in rising amount of tax and serious shortage of labor in future. The serious concern faced by this country is rising racial intolerance with a majority of population having liberal mindset. It is required by global brand such as Wesfarmers to communicate its image so that it is able to change the perception of people. The social factors are attributable to differences in culture of different countries and since there exist relationship between doing business in country and culture, Wesfarmers is required to consider the culture of the country of operations. Retailers such as Wesfarmers are required to consider shopping behavior of people and behavioral responses should be anticipated (Cano-Kollmann et al., 2016). In order to attract customers, they should rely in strategic business strategies and using it to become successful internationally.
When an organization intends to expand internationally, there is certainty that business operations will be facing some ethical issues pertaining to international business such as human rights, environmental regulations, corruption and multinational companies moral obligations. The multinational companies operating in United States are required to follow strict laws regarding the minimum wages, treatment of workers, environmental responsibility, and discrimination and anti bribery. Companies operating in the country are able to cut down their cost as they are bound to follow laws such as equal opportunity hiring that will help in creating safety practices and capitalizing on lower local wages (Spykman, 2017).
Different countries have different definitions on treatment of citizens and human rights that can complicate the operations of multinationals within the other countries laws. Multinationals operating in the country is prohibited from interfering with the government, public policies and other countries election. However, the companies can make their contribution to the political candidates in the same way as they do in their home country. When the financial pressures are exerted by mega corporations on countries that are dependent on the aids offered by United States might face legal and ethical issues. Furthermore, country has specific approaches of preventing pollution that helps organization in reducing the environmental as well as financial costs along with protecting and conserving the environment (Picciotto & Mayne, 2016). Such laws will also help companies in contributing to economic growth by maintaining their production prices more effective.
There are several dimensions of ethical behavior and this comprise of organizational culture, personal ethics, leadership, unrealistic performance expectations and process of decision making. An organization can behave in an ethical way if they take every possible effort to avoid the violation of all such dimensions (Wtsus.com, 2018). Wesfarmers is required to take into account all such dimension and should comply with the rules, laws and regulation of the country in which they are operating.
Conclusion:
The above report is prepared for analyzing the political, legal, economical, cultural and ethical environment of United States. Expansion of multinational such as Wesfarmers into United States requires considering several prerequisites in terms of different factors impacting the operations of business. It can be inferred from above analysis that the economic growth of US is a driving factor for expansion of Wesfarmers supermarket chain and the reason is attributable to the fact that there is increased willingness and spending on part of customers to buy the products. In addition to this, sales of supermarket are further accelerated by the technological innovations that are expected to provide a feasible market for sale of products of Wesfarmers. The cultural factor of the country has one important attribute that is embracing the openness that would provide company with the opportunity of providing customers with wide portfolio of products. Legal system of US is such that it will enable company to carry out their operations without violation the ethical requirement of conducting the business.
References list:
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