Discuss about the strategies that should be initiated and followed by Wesfarmers in entering in the market of United States.
In the current business scenario, entering in the foreign markets is one of the major business strategies for the contemporary business organizations. This is due to the reason that in the current era of globalization, global economy is becoming more border less and thus with the entrance of the global companies in the different countries, the intensity of the competition is rapidly increasing. This situation is forcing the contemporary business organizations to look beyond their home markets and target the potential foreign markets in order to enhance the business operation (Xia et al., 2014). However, in order to do so, there are number of factors that should be considered by the organizations in effectively operating in the foreign countries.
Moreover, it is also to be noted that the factors to be considered will be different based on the different country situations and it is important for the business organizations to effectively determine these factors accordingly. On the other hand, the factors will also get changed in accordance to the business sector (Sleuwaegen & Onkelinx, 2014). Some of the major considerations for the business organizations in operating in the foreign country are entry mode choice, marketing, research and development, production and human resource management.
This report will discuss about the recommended strategies based on the factors stated above for Wesfarmers in operating in the market of the United States. There are number of recommended steps will be discussed in this report in order to have an overall and holistic process of operation in the host country. This report will also discuss about the brief details of Wesfarmers and the United States as the host country.
Wesfarmers are one of the major and leading retail chains in the Australian region. Though they are having established brand presence in the retail sector but their presence in different business sectors helped them to become a conglomerate. Currently, they are having their presence in different business sectors such as retail sector, hotel sector, chemical sector and energy. However, till now they are having limited market reach in the global scenario due to the fact that outside of the Australian region, Wesfarmers are having their presence only in the United Kingdom and New Zealand (Wesfarmers.com.au. 2018). Thus, they are having the need of entering in some other markets also in order to increase their global presence and reducing the dependability from the existing markets. However, in order to enter in the new markets, it is important for them to consider the factors stated above along with properly identifying the target market.
For the expansion of the global business of Wesfarmers, United States is selected as the host country. This is due to the reason that United States is the one of the leading countries in the world with having favorable business and market opportunities (Routh, 2017). One of the major reasons behind the selection of the United States as the host country is that they are growing at a positive growth rate annually and is the largest country in terms of the value of gross domestic product. Thus, according to the basic business theory, the more will be the gross domestic product of the country, the more will be the average per capita income of the population. This will lead to the increase in the purchasing power of the customers. According to the latest reports, the current growth rate of GDP of the United States is standing at 2.3 percent Thus, entering in the market of the United States will also enable Wesfarmers to leverage on the growing economy of the country.
From the business point of view also, Wesfarmers will have favorable environment in the United States due to the reason that United States is considered as one of the most developed and industrialized countries in the world. On the other hand, according to the global competitiveness report, United States is having the ranking of 2 in terms of the domestic market size (Www3.weforum.org, 2018). This is mainly due to the reason that the United States is having a good number of populations along with having favorable economic condition. It will be easy for Wesfarmers to market their products in the American market due to the reason that internal infrastructure of the country is also well advanced compared to some major economies.
However, apart from the positive factors in the American market, there are certain negative factors also to be faced by Wesfarmers in operating in the United States. These negative factors and the challenges are also important to be identified in order to design their business strategies accordingly. One of the major negative factors in operating in the market of the United States is the intensity of local competition. According to the global competitiveness index, United States is currently having the ranking of 6 in terms of the intensity of the local competition (Www3.weforum.org, 2018). Thus, Wesfarmers will face huge competition in the market and it will be a challenging factor for them to increase their profitability.
Figure: 1
Problematic factors in doing business in the United States
Source: (Www3.weforum.org, 2018)
According major problematic factor being identified in the global competiveness index is the tax rates and regulations in the country. These factors have increased in the recent time due to the political turmoil between the United States and some other countries. It is being recently announced that added tax tariffs are being imposed on the import of certain items in the country. Thus, for a business conglomerate such as Wesfarmers it will be difficult to operate if their international business gets hampered (Www3.weforum.org, 2018). It is also being identified that Wesfarmers will have the issue or challenge of higher cost of operation in the country. This is due to the reason that cost of resources including the human resources is relatively high in the country compared to some other countries. Thus, it will also be challenging for Wesfarmers to maintain their profitability in the intensive competitive market along with having higher cost of operation.
Among all the available mode of entries for the business organizations, it is recommended that Wesfarmers should initiate the route of direct investments. This is due to the reason that the business sectors where Wesfarmers is currently operating are also high investment areas and thus initiating alternative entry mode strategies such as exporting or licensing are not applicable for them (Martin, 2013). On the other hand, joint venture strategy may applicable as well as effective for the business of Wesfarmers in the American market but involvement of the external partners will further complicate the business operation. Moreover, Wesfarmers is having the capability and resources to have the own entity in the new market (Brouthers, 2013). However, there are some factors that should be considered prior to the initiation of the direct investments due to the fact that direct investment is having the maximum risk and liability compared to some other entry mode strategies.
One of the major risks that may get emerged in the process of foreign investment is the risk associated with it. This is due the reason that there are number of risks such as political, legal and economical that may affect the foreign investments in the long term. However, according to the global competitiveness index, United States is having the ranking of 31 in terms of the investor protection (Www3.weforum.org, 2018). Thus, this ranking is denoting that the foreign investors will find less risk in relation to the investment in the United States. In addition, this is also one of the major reasons for selecting direct investment as the entry mode strategy of Wesfarmers in the United States (Blonigen & Piger, 2014). Another major reason for selecting direct investment as the chosen entry mode strategy is favorable ranking of the Unites States in terms of the intellectual property rights. This refers to the fact that foreign investors will find more security in terms of the protection of their patent and trademark. Thus, another risk of direct investments is also not evident in the United States. Coupled with all these factors, the favorable market and economical status of the country are also responsible for the selection of direct investments as the chosen entry mode strategy for Wesfarmers.
Determination of the competitive strategy is important for Wesfarmers in order to have the most effective business operations in the country. In addition, it should also be noted that the more effective will be the competitive strategy of Wesfarmers in their host market, the more will be their business potentiality in the new market. However, competitive strategies of the business organizations will be different and varied based on the business sectors and the business offerings (Teeratansirikool et al., 2013). Thus, due to the fact that Wesfarmers is having their business in diverse sectors, it is important from them to have different competitive strategy for different business operation. This report will discuss the competitive strategies based on the retail business of Wesfarmers. According to the Porter’s generic strategy, there are mainly three major competitive strategies that can help the business organizations in gaining competitiveness.
The first probable competitive strategy is the cost leadership. This refers to the process of offering the products in the market in the lowest price possible and reducing the cost of operation as much as possible to gain competitive advantages in the market (Kaliappen & Hilman, 2013). This is due to the reason that the lower will be the price level of the offerings; the more will be the attractiveness among the potential customers. In the case of Wesfarmers, it is recommended that they should initiate the process of cost leadership due to the reason that completion is high and huge in the American market. Thus, initiation of the cost leadership strategy will enable Wesfarmers to have larger target market and attracting customers by offering the lowest price (Banker, Mashruwala & Tripathy, 2014). It is also to be noted that retail sector is very much price sensitive market and thus initiation of the cost leadership market will help Wesfarmers to cater to the market effectively.
The next probable competitive strategy is differentiation. According to this strategy, it is important for the business organizations to have distinctive approach in their business strategy in order to have unique image in the market. Initiation of the differentiation strategy will help Wesfarmers to have unique identity in the market and will help in staying ahead in the competition (Zehir, Can & Karaboga, 2015). Thus it is recommended that Wesfarmers should initiate the differentiation strategy in order to create the unique image in the market. It is also being recommended that retail market is having less chance of creating distinctive image and thus Wesfarmers should initiate the differentiation strategy mainly in their business and service delivery approach. In addition, they can initiate the differentiation strategy in their marketing and promotional activities also.
The last competitive strategy in accordance to the porter generic strategy is market focus strategy. This refers to the concept of targeting a particular customer segment and offering the products accordingly along with designing the business and marketing strategies in accordance to the focused segment (Bader & Enkel, 2014). It is recommended that Wesfarmers can initiate the market focus strategy in their certain business segments in the retail business. For instance, they can have a particular sub-brand for the premium customers through which they will offer quality products with higher price tags and the products will also be designed in accordance to the taste and preference of the premium customers. This will enable Wesfarmers to ensure the favorable level of satisfaction among the customers by effectively meeting their requirements.
Marketing will play an important role in determining the business performance and effectiveness of Wesfarmers in the American market. This is due to the reason that the more effective will be the marketing strategy, the more will be the potentiality and market exposure of Wesfarmers in the American market (Gummesson, Kuusela & Narvanen, 204). Segmentation, targeting and positioning strategies and marketing mix will be initiated in order to identify the ideal marketing strategies for Wesfarmers.
It is recommended that Wesfarmers should initiate geographical segmentation by targeting the key major cities in the United States. It is recommended that they should enter the business scenario of the United States by having their presence in certain potential geographical locations (Cross, Belich & Rudeliua, 2015). It will ensure that the risk of investments will be less for Wesfarmers and they can also determine the market trend and rectify it accordingly in the further stage. In terms of the demographical segmentation, the target segment will be vast age groups due to the reason that Wesfarmers is having products for different age groups and it will also help them to cater to the larger target market.
It is recommended that Wesfarmers should initiate the strategy of the festive offerings and discounts such as offering discounts at the time of Easter and Christmas. This will help them to tap the increased trend of expenditure of the customers during the festive season. In addition, it is also being recommended that Wesfarmers should initiate the concepts of localized targeting process in order to cater to different target segments effectively (Haenlein & Libai, 2013). In this case, Wesfarmers should have localized approach in accordance to the different target segments.
It is recommended that Wesfarmers should position themselves as an affordable and mass market alternative in the American market with having larger product assortment and options. This strategy is recommended due to the reason that there are number of luxury brands already operating in the American market and the profit margin and market size is also low. Thus, positioning as a mass market and affordable brand will help Wesfarmers to maintain their globalized approach along with having more sales volume.
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Product |
· Wesfarmers should have deep product assortment and diverse product portfolio to attract more customer segments (Kahn et al., 2014). · Localized approach should be initiated in order to offer products according to the local needs. |
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Price |
· Market penetration pricing strategy should be initiated in order to cater to larger customer segments (Spann, Fischer & Tellis, 2014). · Premium pricing can also be promoted if any luxury sub brand being introduced in the market. |
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Place |
· It is recommended that both online and offline retail stores should be offered in order to target both the customer segments (Verma, Sharma & Sheth, 2016). · In order to initiate distinctive approach in the market, it is also recommended that they should initiate automated service delivery process for their offline retail stores. |
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Promotion |
· Omni Channel promotional activities should be initiated in order to have holistic effectiveness. · Social media marketing should be extensively used as the main mode of marketing (Ashley & Tuten, 2015). |
It is recommended that Wesfarmers should have their research and development facilities in Australia as they now have. It is recommended that in the initial few years of the operation in the United States, research and development program should be continued in their home country only. In the further stage, research and development activities can be shifted to the United States based on the market trend and other factors. This strategy will ensure that there will be less risk being associated with Wesfarmers in the initial stage of their business.
Wesfarmers will mainly source their products from the manufacturers in their retail business. Thus, it is recommended that they should increase the rate of locally sourced items in their business in the United States. This will have dual advantages for Wesfarmers with one of the major advantages will reduction in the cost of sourcing materials by sourcing from local sources (Farinas, Lopez & Martin-Marcos, 2014). Another advantage will be the opportunity for offering local products in the market. Thus, offering local products will ensure that customers in the host country can be effectively targeted. It is also recommended that production of their private label brand and manufacturing operations in other business sector can be outsourced or can be manufactured in the off shore facility of Wesfarmers (Morschett, Schramm-Klein & Zentes, 2015). This will help to reduce the associated cost with the production and will help Wesfarmers to gain cost leadership from the process.
In the international business, one of the major issues related to the human resource management is the diversity in the workforce and cultural difference between the host and the home country. Wesfarmers will also face the issue of cultural differences between their Australian employees and the locally recruited employees in the United States. On the other hand, they may also face the challenge of determining the requirement and preference of the local customers by the home country employees. Thus, it is recommended that Wesfarmers should initiate the geocentric staffing approach in order to have employees from both home and host countries across every organizational level (Plakhotnik et al., 2015). This will help Wesfarmers to create a diversified environment in the organization and will be able to enhance the connectivity between the employees from different social and cultural groups.
It is also being recommended that extensive training program should be initiated for the employees in order to make them aware about the organizational values and mission. This will help Wesfarmers to have employees in the United States with the same level of expertise and approach similar to their operations in other countries (Tiwari, 2013). The more trained will be the employees, the more effectively they can offer service to their customers according to the desired organizational standards.
Conclusion
It is can be concluded that entering in the market of the United States will have both opportunities and challenges for Wesfarmers. They are having the need of effective business strategies in order to overcome the identified challenges. This report discussed about different recommended steps in terms of marketing, production process, human resource management and competitive strategies. The recommended steps are discussed with the help of different models and theories and by considering different business factors that can get emerged in operating in the market of the United States. It can also be concluded that effective implementation of the discussed steps in this report will help Wesfarmers to have more effective business in the United States.
References
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