Woolworths Limited: PESTLE And Porter’s Five Forces Analysis For Expansion Into China

PESTLE analysis of the retail industry in China

Woolworths Limited is a highly recognized retail organization in Australia. The company chiefly offers various types of grocery items to the consumers that include vegetables, fruits, meat, processed foods and others. Along with the supermarket chain, the company also retails liquor and has a good number of takeaway outlets in Australia (Shinnar, Giacomin and Janssen 2012). Woolworths is the second largest retail organization in Australia and has already expanded its business in New Zealand as well as Tasmania. Recently, the management of the mentioned company has noticed that the western retail market has got highly saturated. Hence, Woolworths is planning to expand in business to South East Asia. The current target market of the Company is China. However, The HR Department of the mentioned organization is highly concerned with the expansion since several potential challenges may arrive during the mentioned expansion. In this report, PESTLE analysis, as well as Porter’s five forces analysis, will be performed in order to identify the macro as well as the microenvironment of the retail industry in China. Along with that several potential HRM issues that can impose impact o the business of Woolworths in China will be identified. Moreover, a brief Hofstede Cultural competence analysis between the home and the host country will be performed in the report. Lastly, this report will contain a recommendation for the company for efficiently deal with the identified issues.

Analysis of the Macro environment

In order to establish its business successfully, Woolworths needs to access the external environment of the retail industry of China. This will not only help the company to identify its loopholes but will also help it develop strategies to deal with the identified issues.

Political Factor

The government of China does not consider the retail industry as prestigious as any other industries like the Hospitality and tourism industry. As a result of that, the retail industry is not sanctioned like other heavy weighted industries in China (Chand, Cummings and Patel 2012). Along with that several rules and regulations are implemented by the government recently, to convert all the street markets to submarket. This action of the Chinese government has resulted in reducing trade barrier for the foreign market. This factor will impose a positive impact on Woolworths since fewer barriers will help it to expand its market in the host country.

Economic Factor

Although the overall Gross Domestic Product growth of Chinese the retail industry has dropped by 8.2 percent in the year 2017, the demand for grocery products in China has got enhanced in China (Hofstede Insights 2018).  Moreover, the overall wage growth of the consumers has resulted in a rise in consumption of both utilitarian as well as premium products.  Since, Woolworth is a highly recognised for its superior quality of products, this rise in demand will help the company to expand its business.

Porter’s Five Forces analysis of the retail industry in China

Socio-cultural Factor

The Chinese population, though a strict follower of their culture, have high adaptability. They are more concerned about the quality of the product rather than whether the company offering the product is Chinese or not.  However, several international countries failed miserably since they were not able to incorporate Chinese culture into their business (Zalengera et al., 2014). Technological Factor

The technological advancement of China is not as high as developed countries like the US, UK and Australia. Hence, retail companies in China are often found to suffer from difficulties to find efficient suppliers (Arli et al. 2013). Therefore, the company should build and maintain good communication as well as the relationship with the local suppliers to obtain a competitive advantage in the retail industry of China.

Legal Factor

In China, the government has established several policies and procedures for controlling monopoly and power of the consumers. Moreover, several rules and regulations implemented by the Chinese government impose a negative impact on the access to raw materials (Chhabra and Kiran 2015). This will impose a negative impact on the expansion of Woolworths.

Environmental factor

Due to the rise of pollution in China to a great extent in recent years, the Chinese government has put a ban on the usage of plastic. As a result of this, Chinese retail organizations are using biodegradable plastic packaging along with paper and Jute packaging. Hence in order to gain the trust of the government as well as consumers, Woolworths must abide by the mentioned environmental regulations.

Porter’s Five Forces Analysis

Rivalry among Competitors

The revelry among the competitors in the retail industry of China is moderate. Considering the fact that the number of well established retail organizations in China is much lower than that of the western countries, the aggressiveness of the retail firms is low. Currently, a fewer number of retail organizations that include the Alibaba Group, the Ballian group and Suning Appliance Company Ltd. are dominating the Chinese retail industry (Warner 2014).

Threat from substitutes

The above-mentioned force will be weak for Woolworths. Since the company will be offering the Chinese consumers with a huge range of products starting from bags, jewellery to grocery items, under the same roof, it is difficult for the consumers to find a substitute of the company for good purchase (Wang 2012). However, since street marketing is preferred by a good number of consumers in China, this can be considered as a major threat to the Woolworths.

Identifying potential HRM issues during Woolworths expansion into China

Power of the suppliers

The powers of the suppliers are height in the retail industry in China. As discussed earlier, due to lack of technology, retail organizations in China face the difficulty to find efficient suppliers who will be able to supply high-quality raw materials. This can be considered as a major issue for Woolworths since the brand equity and reputation of the country is majorly based on the quality of products and services delivered by it.  

Power of the Buyers

The power of the suppliers is moderate for the mentioned company. The chief reason behind this is the low switching cost and the availability of several options for the consumers.

The threat from the new entrance

Considering the fact that the Chinese government is working on globalizing its retail industry, the barrier of the mentioned industry low, well known retail organizations from the west are currently developing strategies to establish their business in the China (Zhu, Zhang and Shen 2012). Hence it can be understood that the threat from the new entrance for Woolworths Limited is high.

Identification of key cross-cultural and HRM issues that may arise between home & host countries

Language

When it comes to establishing a business in a market with a totally different cultural origin and background from the home country, the major challenges that will be faced by Woolworths is language barrier leading to miscommunication. Considering the fact that China is still a developed country, only 22 percent of the Chinese residents can speak fluently in English (Chen, Cheung and Law 2012). Thus it can be understood that a majority of local employees that would be recruited by the company will not be able to communicate in English. As a result, a big communication gap resulting in misunderstanding may take place. A frequent misunderstanding between the employees as well as employees and supervisors may result in conflicts in the organization. This, in turn, will cause loss of revenue as well as employee attrition in Woolworths.

Population difference

When it comes to population, the population of China is much higher compared to that of Australia. China is the most populated country in the world. While the percentage of people per square kilometre in Australia is just 2.66 percent, the same for China is 134.74 percent. Due to high population, a much larger pool of candidates will be available to the company for recruitment (Briscoe, Tarique and Schuler 2012). Moreover, due to high population, the competition between the candidates for a certain job profile will be high. The HR department of the company may face challenges while selecting the best candidate among a huge number of candidates.

Hofstede Cultural competence analysis between the home and host country

Cultural difference

This factor has the potential to impose a highly negative impact on the HRM of the Woolworths Company in China. The Chinese culture is highly different from that of Australia. Due to huge cultural difference along with lack of communication, misunderstanding may occur among employees. Moreover, lack of knowledge about each other culture may result in lack of cultural competence. Lack of cultural competence will hinder the performance of the employees as a team. Australian employees may face difficulties in adopting the culture of China. For instance, in China, employees are habituated to start working from 11 or 12 am and work till late night. On the other hand, in Australia, employees are found to be preferred finish early and go back home to spend time with their family in the afternoon (Zalengera et al., 2014).

Distance

The distance between Australia and China is 7,470 km (Xiao and Cooke 2012). This huge distance between the Host and the home country give rise to several challenges for the HR department of Woolworths.  Firstly, the huge difference will add a commendable amount of costs of travelling for the company. During prolonged holidays, the company has to bear the cost of travelling of employees from the host country to the home country. Moreover, the companies will face complexities of managing that knowledge and its effective dispersal across geographies.

National wealth difference

Since Australia is the second wealthiest nation, the national wealth of China is much lesser than that of Australia. This factor has imposed several advantages on the mentioned company. For instance, the remuneration given to the employees is much lower compared to that of the remuneration obtained by the employees in Australia. However, lack of national wealth directly imposes an impact on the literacy rate of the employees. Lack of literacy in China will make it difficult for the Human resource management of Woolworth to recruit a candidate for executive job roles.

 Different lifestyle

The lifestyle of Chinese employees is highly different from that of the employees of Australia. People of China lead more urban lifestyle and are less likely to go outdoors (Zhang and Morris 2014). On the other hand, Australian people are early risers and prefer outdoor vacation and spending time with families. The work life of Chinese employees is devoid of Indulgence. Chinese employees are habituated to work till late night and give least priorities to holidays. This contrast in the lifestyle of the Australian and the Chinese employees has potential to create a major challenge for the HR professionals of Woolworth organization. In one hand, there remains a threat of employees attrition due to dissatisfaction among the Australian employees if the amount of leave is reduced. On the other hand, Chinese employees are often found to join a part-time job while working in an organization that provide a generous amount of leaves (Chhabra and Kiran 2015).

Recommendations for Woolworths to effectively deal with identified issues

Political factors

Political factors that affect businesses include new legislation such as the national minimum wage and setting tax rates such as VAT or Corporation Tax. As discussed earlier, the government of China has lower the tax rates and loosens the rules and regulation in order to globalize the retail industry of China (Yek 2014). Hence the number of new entries in the mentioned industry is increasing. This increment can be considered as a major threat to the Woolworths company since it will increase the completion for the HR department to recruit highly skilled and experienced employees.

Hofstede Cultural comparison between Australia and China

Factors	China	Australia
Power Distance	· believes that inequalities among individuals are acceptable · power abuse by supervisors is common	· Highly resistant towards unethical exploitation · Power abuse is rare and Highly unacceptable to the employees
Individualism	Low individualism and low collectivist culture are chief features of Chinese workplace.	Individualism is high compared that of the host country.
Masculinity	Masculinity level is moderate. Chinese employees give priority to their career over their families as well as leisure time.	Masculinity rate is higher. In Australia, high gender discrimination prevails between the employees of an organization.
Uncertain Avoidance	The culture of the workplace in China is highly ambiguous and Chinese people are found to be highly competence towards other culture (Yek 2014)	In contrast, the cultural competence of the Australian employees is much lower compared to that of China.
Long-term Orientation	The long-term orientation of Chinese employees is higher compared that of the employees of the western countries.	Australian employees are less focused on the prolonged future of the organization.
Indulgence	Chinese employees and prefer to invest a minimum amount of time for leisure and entertainment (Briscoe, Tarique and Schuler 2012)	In contrast, Australian employees prefer to spend a major amount of time with their families.

In order to deal with the above mentioned HRM related issues, the Woolworths Company should eradicate the above-mentioned issues. The following paragraph contains effective recommendations that will help the company to deal with the potential challenges.

Lack of communication due to the difference in languages is the most crucial potential issue for the HRM of Woolworths. Considering the fact that the aim of the company is to capture the retail market of China, it is highly crucial to effectively communicate with the employees as well as with the consumers who reside in China. For this, the HR department of the company should provide training to the Australian employees so that they can learn the Chinese language. Not only will help the Australian employees to understand the requirements of the Chinese consumers and provide service accordingly, but it will also help them to effectively communicate with their Chinese peers. Along with that Chinese employees need to learn English to efficiently communicate with the executive manages as well to communicate effectively through emails (Xiao and Cooke 2012). Moreover, both formal and informal communication should be encouraged by the employees with the help of ice-breaking sessions and implementation of the intranet. The intranet will help the employees as well as the managers to share valuable information.  All these measures will enhance the work environment, productivity and hence the overall revenue of the organization.

In order to recruit the cream candidates out of a large pool of candidates, the HR Manager of Woolworths can implement highly advanced recruitment tools like Application Tracking systems (ATS) and mobile recruiting tools. Moreover, in order to understand the social skill of the candidate the HR professionals may visit their Social media profiles (Zhang and Morris 2014). This measure will help the company to select the most efficient candidate among a bunch of candidates.  In order to reduce the travelling cost due to a high distance of the host country from the home country, the company can introduce virtual communication devices like video conferencing. The company should keep their salary level slightly higher than its competitors for gaining competitive advantage

Reference List

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