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Woolworths- Influence of host country environments on the operations of global Business Essay Example

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6WOOLWORTH RETAIL COMPANY

Woolworth Retail Company

Woolworth Retail Company

Suggestions of Markets to enter and Modes of Entering

In order to expand and grow, Woolworth should enter into new markets. The potential market for the company is China. The social factors of China may determine the behaviour of customers. China is a collectivist culture which values family relations, and loyalty (Brandt, Hsieh and Zhu, 2008). This means that an organisation needs to form good relationship with the customers in order to succeed in the country. Due to technological advancement in the country, customers often prefer to shop online. The country has more than 420 internet users. E-commerce in China has changed the shopping behaviour of customers (Brandt, Hsieh and Zhu, 2008). However, a portion of them prefers physical shopping due to risks associated with online shopping. In addition, the economic growth of China has led to increasing consumer’s purchasing power. This will contribute to Woolworth’s success if it decides to enter the market (Brandt, Hsieh and Zhu, 2008).

China is among the fastest growing economies in the world. China’s growth and expansion has been driven by heavy investments, cheap labour, manufacturing of commodities and availability of infrastructure (Alesina, Spolaore and Wacziarg, 2005). Labour cost in China is very low which has made many multinational companies to hire workers from the country. Companies in China are bound by regulatory scrutiny from Environmental Protection Agencies concerning the conduct of their services. However due to favourable political, economic and social factors, it is a potential market for Woolworth (Zarkada-Faser and Fraser, 2002). In addition, China is a flourishing market and Woolworth will benefit from it if it understands the environment it would operate in. The rapid economic growth as well as stable political conditions makes the retail industry rewarding to investors.

While it is true that China is a favourable market for Woolworth, understanding its potential and the method of access it can be challenging (Brandt, Hsieh and Zhu, 2008). The mode of entry used will determine the success of Woolworth in China. The favourable entry mode into China is strategic alliance. Strategic alliance is an agreement between two companies to pursue shared objective while remaining independent firms. Woolworth can create a strategic alliance with a local company in order to enjoy expertise and gain knowledge of the customers in China (Bernard et al., 2007). Since it would be the first time entrant for Woolworth in China, it means that the company does not have any previous experience of the market. The company is bound to fail due to lack of local understanding of employees and customers. Therefore, to gain knowledge of the country, Woolworth should form a strategic alliance with a local company as a way of entering the market (Bernard et al., 2007). In addition, strategic alliance will offer an opportunity for the company to utilize the sales network as well as customer base of the local company while retaining their managerial control.

Challenges of International Expansion and Mitigation Strategies

Another internationalization challenge that Woolworth will face is cultural nuance. Different countries have different cultural beliefs, values and customs (Bernard et al., 2007). Cultural differences may affect management activities, employee-management relationship, marketing messages and ability to satisfy the needs of the market. In addition, one culture can be thought as insulting in another (Bernard et al., 2007). In the past, Woolworth has been faced with cultural challenges especially in markets such as South Africa and Latin America. It was only a short period before Woolworth decided to open its first facility in South Africa. The company became a major fixture across the country offering children’s clothing, women clothing and stationary among others (Janda, 2016).

Nevertheless, after some time of operation, the company started struggling due to low employee morale which was attributed to cultural differences (Janda, 2016). To start with, communication between senior directors and local employees was a problem due to language barrier. The performance of the South African outlets was shaky and experienced destabilization. Woolworth should therefore learn from the South African experience and come up with strategies to minimize the same incident in China (Janda, 2016). In order to mitigate this challenge, there is a need of deep understanding of the cultures in the new market. The company should ensure that its key executives undergo cross-cultural training before embarking on a project in foreign market. In addition, the company should introduce a language training program to individuals who have a higher chance of approaching individuals from other languages (Luo and Tung, 2007).

In addition, another internationalization challenge for Woolworth is poor understanding of the market (Janda, 2016). For instance, Woolworth entry into the United Kingdom’s market was a failure. Woolworth entered the UK market with much hope but failed almost immediately. The main reason for their failure was poor understanding of the demand of the market. The fall of Woolworth was brought about by fewer women’s clothes shop. Women and children’s clothes have high demand in the UK market and lack of such stores forced customers to shop in other discount stores (Janda, 2016). In addition, Woolworth sold their products at high prices compared to the competitors which led to their fall. Competitors such as Tesco and Wall-Mart offered their products at relatively low prices and customers preferred to shop at these stores. In order for Woolworth to avoid such fall in China, it should first take time to understand the demand and behaviour of the customers. The company should work with a local contact to establish what the market wants before diving in (Janda, 2016).

Another challenge facing Woolworth in the international market is economic recession and instability. There was a period when Woolworth enjoyed high demand from customers in different countries but after the 2008 economic recession its operations in countries like UK and Europe suffered and the company went off the market for some time (Janda, 2016). The economies of some countries are still suffering which affects Woolworth’s operation. However, there are a number of retail companies that survived in the midst of the recession such as Tesco and Wall-Mart. Woolworth was unable to compete with the market players due to improper strategies that were affected by economic fall. In order for Woolworth to survive economic instabilities in some countries, it should come up with mitigation strategies that will ensure that they are competitive enough (Janda, 2016). For instance, it should update with the technology which is considered one of its weaknesses. In addition, the company should change its strategies due to changes in the needs and demands of different customer in different markets. It should customize its strategies to suit different markets.

References

Alesina, A., Spolaore, E and Wacziarg, R 2005, Trade, Growth and the Size of Countries. In P. Aghion, & S. N. Durlauf, Handbook of Economic Growth, Vol. 1B, pp. 1499-1542.

Bernard, A. B., Jensen, B., Redding, S. J. and Schott, P 2007, Firms in International Trade. Journal of Economic Perspectives, vol. 21, no. 3, pp. 105-130.

Brandt, L., Hsieh, C. T. and X. D. Zhu. 2008, Growth and Structural Transformation in China. In L. Brandt, & T. Rawski, China’s Great Economic Transformation (pp. 683-728). New York: Cambridge University Press.

Janda, M 2016, Woolworth Supermarkets Struggle Not Over Yet. UBS News, Retrieved http://www.abc.net.au/news/2016-07-26/woolworths-supermarket-struggle-not-over-yet-ubs/7660804

Luo, Y and Tung, R 2007, International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, vol. 38, no. 4, pp. 481-498.

Zarkada-Fraser, A & Fraser, C 2002, ‘Store Patronage Prediction for Foreign-owned Supermarkets’, International Journal of Retail & Distribution Management, vol. 30, no. 6/7, pp. 282-299.