Discuss about the Department Stores Supply Chain Collaboration.
The report is focused on strategic analysis of an Australian based company. For this report the organisation selected is the Woolworths, the largest supermarket retailer in Australia. Across the Australian retail industry, the company has achieved significant growth and development (Woolworths Limited 2015). The report aims to analyse the underlying strategy of the company and evaluate the external issues that area driving the company to move the jobs offshore. Further, the strategic analysis evaluates the internal factors that made the company to develop a strategy of moving its jobs offshore. There are various tools for strategic analysis that are used in this study for analysing Woolworths’ current level of strategic position in the retail industry by analysing the internal and the external environment of the company. The report identifies the key stakeholders of the company and discusses how the shift of offshore activities will affect these stakeholders. The report also explains why a number of jobs will continue to be based in Australia and the associated implications.
In Australia, the organisation with the biggest supermarket chain is Woolworths. It is owned by Woolworths Limited. Established in 1924, the company has opened its initial store in Sydney’s Imperial Arcade. Currently, the organization is one of the leading players in the industry and has been maintaing its position since 80 years. The company along with Coles form a duopoly of supermarkets in Australia and constitutes 80% of the Australian market. The company sells groceries (packaged food, vegetables, meat, fruit, etc.). The “Macro Wholefood Market” delivers range of products meeting the specific requirements of families such as vegetarian food, gluten free diet, and organic foods (Woolworths Limited 2015). The total number of stores in both Australia and New Zealand are 3000. The four levels of Woolworths’ private label brands are- “Woolworths Homebrand, Woolworths Select, Woolworths Gold, and Woolworths Fresh” (Bailey 2016). After the company has been listed publicly on the ASX, it announced the loss of $1.235 billion in 2016 for the FY16 financial year. In 2011, Woolworth has announced moving jobs offshore by effectively pricing local suppliers outside the market despite its net profit of $2.12 billion in the same financial year (Cfmeu.com.au 2011). There was no excuse to manipulate the supply chains and send more manufacturing jobs offshore. Therefore, this act of the company is rationale to perform the external and internal analysis of Woolworths.
This section deals with the strategic analysis of the company’s external environment. To evaluate the external issue causing the offshore movement PESTEL analysis is used as a tool. It refers to
Political factors
The political climate is greatly affecting Woolworths in Australia due to the competition policy launched by the federal government, which eliminates the small retailers and allow giant ones to sustain. However, there is regular fluctuation in currencies in Australia due to unpredictable policy changes according to Keith (2012). The company has benefits of tax consideration even during offshoring and avail the GST free opportunities. Offshoring may also prevent Woolworths from the financial uncertainty due to fluctuations in dollars. Further, moving jobs offshore would reduce the company’s compliance obligations and taxations in some markets.
Economic factors
The harsh trading conditions are making the market development for Woolworths more difficult. According to Glover (2015) the manufacturing workers are earning more in Australia per hour when compared to the workers in New Zealand for the same length of time. Moreover, they also earn more on average when compared to US, Canada and UK (PESTEL Analysis 2017). Further Arli et al. (2013) stated that it is expensive to put the manufacturing workers in the Australian factories because in the past three to four years the productivity as an industry has not increased but there is a 3-4% increment in the payment of wages. The high manufacturing cost in Australia is the driving force for Woolworths to move jobs offshore using a strategy of low manufacturing cost overseas (Hughes 2013). It can be argued that business operations offshore may help Woolworths to claim back the tax credits in Australia while it only pays tax overseas. Further, the offshore jobs may provide access to the low cost of materials. It provides an opportunity to increase the investment in overseas if the dollars goes further (Blundell 2013). It will be cheaper for Woolworths to set up its production base overseas by shipping large product volume to Asia or vice versa. Thus, low freight cost in overseas market would boost profit margins of Woolworths and speed up the delivery.
Social factors
Woolworths is the trend setter of “greener and healthier lifestyle” that enhances the customer loyalty. However, Australian customers have a changing pattern of needs, attitudes and buying trends. By operating business offshore the company would be less bound to this change. Further, the overseas employees are highly skilled compared to Australia and are fluent in English with university education. Therefore, offshoring will help minimise the barriers to developing new products and promotes innovation (Hughes 2013).
Technological factors
Australia is less adaptive to advance technologies as compared US, UK and Japan. Therefore, it is effective to move jobs offshore to meet the higher quality expectations. The current IT structure in Australia is too rigid to allow the implementation of RFID technologies (Mo et al. 2011).
Environmental factors
The petrol and the winemaking business of Woolworths are having adverse effects on the environment conditions therefore the business areas of the company are affected in terms of profitability (Woolworths Limited 2015). Therefore, the company is adopting the strategy to compensate loss by generating high revenue from offshore business.
Legal factors
The retail industry in Australia is greatly affected by the “Australian Competition and Consumer Commission and the Trade Practicing Act” and other foreign trading policies. For example, the implementation of carbon tax has effected Woolworths’s business operations across the economy. Therefore, the company must employ a fair policy while operating its business (Chalmers et al. 2013).
This section presents the internal analysis of Woolworths to evaluate the effectiveness of the strategy employed by the company. SWOT analysis is used as strategic analysis tool to analyse the Strength, Weakness, Opportunities and Threats of Woolworths.
Strength (Glover 2015)
Weakness (Blundell 2013)
Opportunities (Bailey 2016)
Threats (Arli et al. 2013)
It is difficult for the food manufactures to stay afloat with the combination of increment in wages, high Australian dollar and the supermarket price. Further, there is an increase in competition due to new entrants in the market. Therefore, Globalisation would be the effective strategy for the company to sustain itself. Moving offshore would overcome the price challenges faced by the company in the Australia as the products would be manufactured at cheaper prices overseas (Hughes 2013). Woolworths has faced a huge loss in 20 years with declining sales in food and liquor amidst the fierce competition from its rivals Aldi and Coles and it is losing money due to renewal of old stores requiring more capital. Conclusively, it is best strategy for the company to move jobs offshore as it can compensate some of its loss by cutting jobs from support office and supply chain (The Guardian 2017).
The stakeholders are the internal parties of a business and must maintain a good relationship with them to increase the business productivity. The key stakeholders of Woolworths include employees, suppliers, customers, shareholders and the government. The media, unions, community interest groups, franchisees, and non-governmental organisations are the other stakeholders of Woolworths. The stakeholders are affected by business action and concerns due to their stake in the business (Hughes 2013).
According to Hajkowicz et al. (2012) the offshoring has a profit motive which will help the firm in Australia to make more money making the country’s economy stronger. The offshoring activity will ensure greater shareholder returns, which will have positive impact on the company’s stakeholders. Offshoring may be advantageous from a microenvironment point of view but it incurs a huge loss for the employees. Since the jobs are exported the country’s employment tends to decrease which may affect the company’s relationship with the employees who have helped in making the company a giant one. The customer satisfaction may be affected as in the overseas the call centre services may annoy the customers. However, offshoring may increase the purchasing power of customers, as the products turn cheaper when manufactured overseas (Burke 2017). The benefits of offshoring may be exaggerated by the intermediaries which may gloss over the disadvantages associated with it and the cost. Kljenak et al. (2013) believed that exporting the low skilled jobs overseas might benefit the employees in Woolworths (Australia) to have high skilled and more fulfilling jobs. The offshoring will positively affect the suppliers if it drives the volume-based sourcing opportunities and lowers the cost of good. The vision and sustainable ethos of Woolworths can be entrenched further by respecting the local culture while expanding the business in offshore.
There are many implications for the number of jobs based in Australia. For these jobs it is implied to generate high skilled employees by training and education programs. It implies for innovation and strategies to meet the customers’ ever changing social trends (Blundell 2013). Woolworths is required to increase its sales and create new jobs in Australia, as there are number of risks in moving jobs offshore. A business can only run with the support of the stakeholders. Therefore, in the quest to target new market and customers it become difficult to sustain the competitive market. It is necessary to retain the old customers and suppliers to maximise the opportunities and decrease the risks by following the ethical considerations (Hughes 2013). The business must implement strategy according to the political conditions of Australia and implement fair policy in its operations.
Conclusion
Based on the internal and external analysis it can be concluded that the primary factors driving the moving jobs offshore are the economic and political parameters. The government influences and the changing social trends of customers adversely affect the economic stability. The strategy of offshore jobs will help Woolworth to gain greater economic benefits then in Australia due to low freight cost, low material cost, financial certainty, tax benefits, access to high skilled workers, high quality infrastructure and best service providers. The strategic analysis of Woolworths has helped in identifying how the external and internal environment affects its business operations and strategies in negative manner. However, the company’s strategies are focused on attaining highest-level growth in its operations and sustain the global competitiveness. By moving the jobs offshore, it can establish an impression of giant retail chain. Moreover, since the company has already established its mark in Australia, it can easily increase its market share in different countries.
References
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, and Accountancy| Ventura, 16(1), pp.27-46.
Bailey, M., 2016. Absorptive Capacity, International Business Knowledge Transfer, and Local Adaptation: Establishing Discount Department Stores in Australia. Australian Economic History Review.
Blundell, L., 2013. Resurrection of a retail giant. Property Australia, 27(9), p.22.
Burke, J. 2017. Woolworths sends jobs offshore | Food & Beverage. [online] Foodmag.com.au. Available at: https://foodmag.com.au/woolworths-sends-jobs-offshore/ [Accessed 5 Jan. 2017].
Cfmeu.com.au. (2011). Woolworths killing off manufacturing jobs – time to address the supermarket duopoly | CFMEU Mining. [online] Available at: https://cfmeu.com.au/woolworths-killing-off-manufacturing-jobs-time-to-address-the-supermarket-duopoly [Accessed 5 Jan. 2017].
Chalmers, J., Carragher, N., Davoren, S. and O’Brien, P., 2013. Real or perceived impediments to minimum pricing of alcohol in Australia: public opinion, the industry and the law. International Journal of Drug Policy, 24(6), pp.517-523.
Glover, D., 2015. An economy is not a society: Winners and losers in the new Australia (Vol. 7). Black Inc..
Hajkowicz, S.A., Cook, H. and Littleboy, A., 2012. Our Future World: Global megatrends that will change the way we live. The 2012 Revision. CSIRO, Australia.
Hughes, J., 2013. Operating Australian Offshore Seismic Surveys: Can we cut through the Bureaucracy and Stakeholder Perceptions with Good Planning and Sound Science?.
Keith, S., 2012. Coles, Woolworths and the local. Locale: The Australasian-Pacific Journal of Regional Food Studies, 2, pp.47-81.
Kljenak, D.V., Lukic, R. and Jovancevic, D., 2013. SUSTAINABLE COST MANAGEMENT IN RETAIL. Metalurgia International, 18(8), p.69.
Mo, J. and Lorchirachoonkul, W., 2011. Design of RFID cloud services in a low bandwidth network environment. International Journal of Engineering Business Management, 3(1.), pp.38-43.
PESTEL Analysis. 2017. PESTLE-PESTEL Analysis of Woolworths. [online] Available at: https://freepestelanalysis.com/pestle-pestel-analysis-of-woolworths/ [Accessed 5 Jan. 2017].
The Guardian. 2017. Woolworths to cut 500 jobs and close stores across Australia. [online] Available at: https://www.theguardian.com/business/2016/jul/25/woolworths-to-cut-500-jobs-and-close-stores-across-australia [Accessed 5 Jan. 2017].
Woolworths Limited. 2015. Environemnt. Retrived from https://www.woolworthslimited.com.au/page/A_Trusted_Company/Environment/
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