Woolworths Strategic Management: Multinational Companies Essay

Question:

Discuss about the Woolworths Strategic Management for Multinational Companies.

Answer:

Introduction

Investing in foreign countries is one of the most successful strategies utilized by multinational companies in the expansion of their market and growth. It helps a company to enjoy a large pool of skilled and talented workforce from the host country. Also, the company may benefit from low-cost operations and availability of raw materials at a cheaper cost. Many factors influence the entity to invest or move some of its business operations offshore. These factors may be internal or external (Sirmon et al. 2011, p. 1392). Internal environment includes factors such as business structure, organizational culture, the level of technology used in production, employees as well as products and services of the business organization. On the flipside, the external environment involves political, legal, demographic factors that affect business operations. As such, this paper will provide a detailed strategic management analysis of Woolworths Limited and how it has influenced its decision to move its business operations offshore.

Woolworth Business strategies

Woolworths Limited Company is a major Australian business organization with a great retail interest in Australia. It is rated as the second-largest business enterprise in Australia based on revenue generation. The company specializes in the provision of groceries, home supplies, liquor, petroleum products, insurance services, real estate investments, electronics as well as seasonal goods. The company runs a chain of supermarkets and food stores in Australia. To manage the retail stores effectively, the company pushes its goods and services to the consumers. However, the business enterprise is trying to get a competitive advantage in the market by cutting the operational costs and selling a variety of products in different volumes. The key source of its products is fresh produce from suppliers. As such, the Woolworths management has put in place mechanisms of empowering suppliers and established inventory management (Hitt, Ireland & Hoskisson 2012, p. 1). To ensure that the business has a constant supply to all its supermarkets and chain stores, which are spread throughout the country, Woolworths have developed strategically positioned distribution centers that facilitate easier and efficient delivery of products to the stores.

The company has contracted logistic companies that transport its products to various stores. The current business strategy of Woolworth is based on product differentiation. This strategy helps the company to focus on diversification of its products and also venturing into different markets. It has made the company to concentrate on developing highly differentiated marking program and product line so as to become the leading company in this competitive industry. By using the ‘Fresh Food People’ as its vision statement, the firm has been successful with its outstanding product differentiation technique. Through orienting the business operations around the fundamental value of food products being fresh, Woolworths has attracted a significantly large percentage of consumers in the market and thus, getting the lion’s share of the market (Collins, Roper & Lawrence 2010, p. 479, p. 18).

Woolworths operations in New Zealand

Apart from Australia, which is the parent country, the company has also moved its business operation in New Zealand. Most of the Woolworth’s stores in New Zealand are rebranded and operate under the business name referred to as Countdown. However, the operations of these stores in Australia fall under Woolworths’ management. The company made this major decision of investing abroad as a mechanism of enjoying the benefits of foreign direct investment, which allows it to explore offshore markets by utilizing the resources and infrastructure of the host country. Foreign direct investment has various benefits to both the investors as well as the host country (Sornarajah 2010). The host country benefits from direct investment through taxation and job creation. Being the second largest chain company in New Zeeland, Woolworth has created employment opportunities for citizens and residents of New Zealand. There are more than 100 full-service supermarkets of Woolworths Company in Australia operating under the brand name Countdown (Sornarajah 2010). Also, 20 supermarkets operating in Hamilton, Auckland as well as Tuiaranga under the Foodtown brand name were rebranded to Countdown in 2012, and they form part of Woolworths stores established in New Zealand.

The stores provide employment opportunities such as shop attendants, suppliers, distributors and managerial positions to the citizens of the host country. Also, the taxation policies of New Zealand require these countries to file their tax returns each year and as such, the government of the host country gets revenue from these stores through taxation. On the other hand, Woolworth companies have gained many benefits from its direct investment in New Zealand. The large population of this country serves as a market for the company’s fresh products, and other non-food products. The business enterprise has increased its market share by investing in this country. Besides, Woolworth has benefitted from the vast agricultural resources of New Zealand (Kumar, Jones, Venkatesan & Leone 2011, p. 21).

The fresh vegetable products and meat from farmers serve as sources of products for Woolworths Company. The enterprise depends on the agricultural supply from farmers for its chain stores in New Zealand and Australia. The favorable climate of New Zeeland has helped the company to have a continuous supply of fresh products for its store in both New Zealand and Australia. Moreover, the company enjoys a large pool of workforce from the host country. New Zealand has highly qualified, skilled and talented young professionals who serve in managerial positions for various Woolworths supermarkets in both Australia and New Zealand (Collins, Roper & Lawrence 2010). The company can also get non-skilled or semi-skilled labor force at a low cost and hence, reducing its operational costs.

Internal issues

Internal factors played a crucial role in influencing the Woolworths Company to opt for foreign direct investment in New Zealand. One of such internal factors is the business structure of the Woolworth. The company‘s structure is based on chain stores that operate as franchise. As such, venturing into offshore tends to be cost effective. The entire supply chain of Woolworth is aligned to its business structure. Also, the company’s business structure is based on the efficient consumer response as the key driving force of its operations. Therefore, the company’s structure has helped Woolworth to get a competitive advantage by opening more chain stores and supermarkets in New Zealand.

Another internal factor that has influenced the company to invest in offshore is the market. The firm offers diversified products to its consumers. Fresh products such as groceries have high demand in New Zealand. Also, the electronic industry of this country is characterized with low competition. Since the company provides high-quality electronics, it offers stiff offers competition to other companies offering the similar products in the host country and thus, expanding its market share (Hitt, Ireland & Hoskisson 2012).

The company has heavily invested in market research such helps it to understand the trends in tastes and preferences of customers in the Australian market and thereby, developing products that suits the demands of its customers in the offshore markets. Moreover, the management strategy of the Woolworths has played a significant role in its foreign direct investment strategy. The company has a management team of qualified, talent and ambitious staffs. The management offers the company with most efficient strategies and business plans that have helped it to expand its operations abroad. The management utilizes transformative leadership style which provides the opportunity for the management to develop a class of future leaders. Also, the presence of effective management has helped the company to reduce its cost of production by ensuring that the Workers are very productive and make optimum utilization of available resources with the objective of maximizing profits as pointed out by Kumar (2014, p. 244).

Labor is another factor that has motivated the company to take part in foreign investment in New Zeeland. In the modern business environment, which is characterized by technological changes and stiff competition in the market, the company requires having employee with diverse skills and exceptional talents (Reuter et al. 2010, p. 46). Employees play a crucial role in the success of any business organization. The presence of creative and innovative workers helps the company to discover various new ways of business operations and new products that give it a competitive advantage in the market (McWilliams & Siegel 2010). Also, hardworking and skilled workers are more productive and deliver quality and great output which contributes to the success of the business. The access of skilled and competitive workers at a low cost in New Zealand has helped Woolworth company to reduce its operation costs in the host country. A comparison of the economy of Australia and that of New Zealand shows that Australian economy majorly depends on minerals while that of New Zealand is based on agriculture. Therefore, the company can access to cheaper fresh agricultural products from host country than in the parent country due to the favorable climatic conditions in New Zealand. The availability of low-cost products and labor in New Zealand helps the company to maximum profit as a result of low operation costs (Kumar 2014, p. 249).

External issues

External factors have also contributed foreign investment move in New Zealand by this company. Such factors involve social, political, economic and demographic factors which make up the external environment in which Woolworths Company operates. Under political viewpoint, New Zealand is peaceful and politically stable country and thus, it has attracted the many multinational companies including Woolworths. The stability of this nation provides a favorable working environment for this company. Keller (2010) notes that the company is likely to encounter low level of risks that arises of unstable governments Also, the New Zealand government provides favorable business regulatory policies that are favorable for investors. The bureaucracies involved in the registration of foreign business enterprise are very few. Besides, the taxation policies for foreign investors are very flexible and favorable thus attracting more multinational companies in New Zealand (Hill, Jones & Schilling 2014).

The economic environment includes factors such as inflation, market structure and level of completion. New Zeeland has a stable current which is not adversely affected by the global economic crisis. As such, Woolworths is not likely to incur heavy losses which arise from high levels of inflation. Since Woolworths has diversified products, it is less likely to face stiff competition in the foreign market. Provision of a variety of high-quality products in the market has given the Woolworths Company a competitive advantage and thus becoming one of the leading companies in New Zealand. The demographic structure of New Zeeland plays a crucial role to the expansion of Woolworths Company in New Zealand market Sirmon et al. 2011). The country is characterized by a high population that consists of high, middle and low-class income earners. The large New Zealand population offers a ready market for the variety of products offered by this company. Besides, Woolworths Company offers that are designed to suit both high-end and low-end segments of the market and thus, all citizens in this country can afford to purchase and consumer Woolworths’ products irrespective of their economic status (Freeman 2010).

Effects of Offshore Activities on Stakeholders

The key stakeholders of Woolworths Company include employees, shareholders, and suppliers. The employees of Woolworths Company enjoy benefits that result from the company’s offshore activities. The company is experiencing a significant expansion which will guarantee job security for its employees. The likelihood of the company sacking some workers is very low since it requires a large workforce as it expands its operations. Also, the workers are likely to get salary increment as the company expands. Any company pays its employees depending on its revenue returns. Therefore, Woolworths Company will continue to offer a good pay to its employees as long as it continues to make good profits. Similarly, shareholders of this company will be one of the beneficiaries of offshore activities. High-profit returns from the company’s activities will result in high dividend rates among the shareholders (Swayne &Duncan, Ginter 2012). Also, their shares will gain value due to the company’s high revenue (Frank & Freeman 2014).

On the other hand, customers both in the parent country and the offshore country will benefit from by purchasing products at relatively low cost. Foreign invest will help the company to expand and thus benefiting from the economies of scale. Therefore, it will sell its products at a lower price than its competitors in the market. Similarly, the suppliers in both the parent and host countries are likely to benefit from the company’s business strategic as a result of increased demand for products. The suppliers will sell more units of their products to the company and thereby increase their income. In a nutshell, offshore activities will economic benefits to all stakeholders of Woolworths Limited Company (Reuter et al. 2010, p. 51).

The future of job opportunities in Australia

Since Australia is the parent country of Woolworths, the company will still continue to create more job opportunities in this country despite expanding its operations in abroad countries. The headquarters of the company which is based in Vista, New South Wales, will still attract more employment opportunities at various job levels (Cederberg, Henriksson, & Ledgard 2011, p. 421). The expansion of the company means that the company will expand its management team by recruiting more managers. Also, the home brands of Woolworths Company such as Big W, Maters Home Improvement, and ALH Groups are popularly in the Australian market and therefore, the company will have to recruit more workers who will continue to provide quality its customers in all states of Australia.

Conclusion

Woolworths Limited Company is an Australian business firm whose operations are based on diversified products. It offers products ranging from fresh foods, electronics, liquor, insurance services, and real estate investment to petroleum products. The company’s strategy of product diversification has given it a competitive advantage to become the largest company in both Australia and New Zealand. The company’s decision of moving some of its operations in Australian has played a crucial role to its success and thus, benefiting all its stakeholders.

References

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