Woolworths Ltd - Australian Business Expansion to the German Market - Case Study Example

Introduction

Australian business expansion to Germany has sufficient reasoning, as according to the official statistical data, Germany has been perceived as one of the ten FDI sources from the Australian perspective in terms of trade. During the last three decades, Germany has been rapidly growing its economic potential and nowadays, the investment sphere has its opportunities and challenges (Austrade.gov.au, 2016). Australian business cannot but sense the favourable investing environment, represented by welcoming prerequisites and minimal restrictions, reflecting the integrative European Union ethos. However, the flip side of the investment is implied by the inflated standards in the face of high employment costs, social security, and the wage rates. Therefore, the expansion procedure is to be well-assessed and thoroughly planned (Austrade.gov.au, 2016).

The purpose of this study is to provide the comprehensive analysis of Germany as the potential partner for the Australian grocery company. The target environment will be estimated with a view to political, economic, social, technological, legal and environmental dimensions. On the other hand, the selected company respectively requires critical analysis in order to perform successful adaptation.

German Grocery Market

German grocery industry occupies the second position out of the three largest European markets, which has contributed over 231 billion € in 2011. The grocery market contributes 73 percent of the overall food sales revenue. During the last five-year period, the food retail market has grown despite the 2.3 percent inflation due to energy resources cost increase. Nowadays, the brick-and-mortar food retail stores are caught up by the online food shops, which are gaining momentum (Department of Foreign Affairs and Trade, 2016). Nevertheless, the brick-and-mortar format remains dominant within the German retail industry (Department of Foreign Affairs and Trade, 2016). During the 2006–2016 decade, the German food retail market has been characterized by the increasing number of the discounters and convenience stores retail forms, and the former has experienced particular rocketing development. The tendencies have negatively influenced the traditional stores market shares, opening the way for the above-mentioned forms to compete in the German market (Department of Foreign Affairs and Trade, 2016).

Woolworths Business Overview

The well-established Australian company known to the public as “Woolies” is one of the grocery market prominent players, owned by Woolworths Ltd, located in Sydney. Established in early 1924, the company covered the path of the single-shop entity to the largest Australian grocery business, occupying 31 percent market share. Woolworths Ltd has accumulated over 28 million customer base, operating through its numerous brands. Regarding the key indicators, such as the sales rates, annual turnovers, and business size, Woolies retains the retail giant status over Australia and New Zealand (White, 2015). At present, Woolworths Ltd runs its business through 845 Australian stores, 157 New Zealand stores and 23 Indian stores on the joint venture basis (White, 2015). Regardless of the business scope, Woolies cannot boast of the rich expansion experience, and Australia remains the major contributor to the company’s revenue. The financial performance has displayed the positivity and robustness during the last decade, resulting in 3.4 percent growth in average, greenlighting foreign expansion, and the further growth perspective (White, 2015).

Possible Restrictions in the German Target Market

Broadly speaking, the German business environment represents the welcoming atmosphere for the potential foreign investor. The legal dimension has been tailored to blur the disparities between the German and foreign investors, providing the equal opportunities and conditions (Tmf-group.com, 2016). The intellectual property protection as one of the developed economy key attributes is performed by means of the patent laws, providing the same extent advocacy for the businesses of different nationalities. Through building the firm legislative base and ensuring the foreign trade freedom, Germany has generated the advantageous ecosystem for the foreign direct investment, with the possibility of investor rights enforcement. The major restrictions elaborated in The Foreign Trade and Payments Act include the foreign exchange and policy issues as well as the social security matters (Tmf-group.com, 2016). However, the German business environment practice shows considerable relaxations and restrictions respective character. Basically, the FDI receives minimal controlling authority. Thus, the major restrictions the Australian Woolworths company would face are related to the importing, which have the direct relation to the United Nations sanctions. The complicated licensing process is required for the specific products list, involving pharmacological industry and military sphere. In general, the investment restrictions that could be faced by the Australian business would not have drastic distinctions from the domestic companies, implying labour regulations, tax rates which can become deterrent factors for the employment (Tmf-group.com, 2016). In this respect, Germany has been engaged in massive reforms programmes in order to tackle the challenges. In recent years, the judicial practice has shown the positive results in terms of contract inviolability insurance. Perceived by the entrepreneurs as highly bureaucratic, Germany is exposed to the steps towards the dispersed and complex regulations compromise (Tmf-group.com, 2016).

Woolworths SWOT Analysis

The target external environment is sure to have the considerable impact on Woolies business profitability. Before undertaking expansion to Germany, Woolworths is required to assess its competencies on the path to the objectives attainment, as the corporate strategy fulfillment and effectiveness are influential for the business success.

Strengths. Woolworths financial performance has created the reliable background for the special market position. The permanent operational cost reduction practice has resulted in 7.96 percent income increase during five years. Thus, the capital generation ability provides a chance for the further expansion and new stores establishment (White, 2015).

The well-established brand identity and reputation is reflected in the company’s capability of responding the customer’s requirements in the most innovative manner, which has been admitted by the 2005 independent survey. Seven years later, Woolworths Ltd was awarded the first place as the sustainable retailing leader on the territories of Australia and New Zealand (White, 2015). The business was assessed by the key measurements, including the business scope, product range, pricing and available services.

Woolworths sustainable vision is reflected in the long perspective supplier relationships establishment, which positively impacts the brand’s reputation. The company’s participative nature motivated the engagement in the 2011 national Food Plan elaboration, which was complemented by the Fair Trade Charter creation with the focus on the supplier partnership standards (White, 2015). Additionally, in 2007 Woolworths founded the “Fresh Food Programme”, targeted at farmers assistance in sustainable agriculture promotion.

Weaknesses. During the 2007-2012 period, the Woolies financial performance has been marked by the significant debt rate growth due to numerous acquisitions. Furthermore, the geographical prerequisites entail the limited global market share in contrast to the world’s retail giants such as Walmart, Tesco and Target, which in its turn underline the global market expansion necessity (White, 2015).

Opportunities. The technocratic society has imposed the new rules on the retailing market, providing the Internet and computerization opportunities and establishing the online-shopping as the independent and rapidly developing industry (White, 2015). The technology-driven approach and electronic commerce have dramatically reshaped the market, changing the supply chain, production, and customer behavioural patterns. The introduction of the Woolworths online shop and iPhone application have resulted in the overall revenue growth, accounting for the transactions 10 percent in 2012. Furthermore, the changing nutrition habits and the rise of healthy lifestyle popularity provide the healthy nutrition market growth opportunity (White, 2015).

Threats. The stiff competition is the major Woolworths threat in the face of the Australian retailers, which have elaborated the price rewind policy as the decent response for the low price Woolies strategy. Moreover, the severe competition is the serious challenge in the context of the Chinese and Indian markets penetration. Taking into account the global arena, Woolies’ growth rates are significantly lower than the prominent market retailers, which adds certain uncertainty degree (White, 2015).

PESTLE Analysis

Political dimension. The democratic paradigm and parliamentary government put the freedom in numerous embodiments at the core. The executive power is represented by the prime minister (the chancellor), which is elected by the Bundestag (Department of Foreign Affairs and Trade, 2016). The president of Germany is given respective and rather ceremonial power, which is elected for the five-year period. The judicial power of Germany is characterized by the high reliability and independence, and the Federal constitutional Court as the major legal institution fulfils the fundamental rights protection. The key political parties in Germany are the Free Democratic Party, Social Democratic party, Alliance 90/Greens, and Left party (Department of Foreign Affairs and Trade, 2016).

Economic dimension. Being the European largest economy and the fifth on the global scale, Germany is the automotive industry, pharmaceutical, and home appliance main exporter. Gerhard Shroeder as the Government Chancellor of 1998-2005 managed to redefine the labour market, tackling the critical issues in the face of high unemployment rates. With the reforms implementation, the stable growth was ensured and unemployment reduction resulted in 7.8 percent by 2007. The next critical issue represented by the recession was the uneasy task for Angela Merkel to deal with, and the GDP reached the full recovery point by 2009, accounting for 3.3 percent growth (Department of Foreign Affairs and Trade, 2016). The recession recovery is predominantly contributed by the export, first and foremost intended for outside the EU. The taxation system relaxations and massive stabilization programmes have had the positive influence on the economic sphere within the last decade, facilitating the free market postulates commitment. The German Government plays the active role in the economy, providing the particular markets with necessary subsidies and ownership advocacy. In general, the economic sphere of Germany has taken rather international traits, putting the export at the forefront (Department of Foreign Affairs and Trade, 2016).

Social Dimension (Hofstede Framework)

Power Distance. This particular indicator describes the individual disparity within the society, focusing on the inequality perception. Germany is characterized as the decentralized state, which largely depends on the middle class. Germany’s power distance indicator is 35 which is the evidence of low power distance group belongingness. The issue of co-determination are significant and require the management consideration (Geert-hofstede.com, 2016). The communication can be described as open and direct with little reliance on leadership phenomenon and controlling.

Individualism. The individualism variable reflects the interdependence degree within the society. The Germans’ score is 67, which describes the high dependency on the relationships between parents and the children. The self-actualization idea is given a special place for an average German citizen, and the necessity of being responsible is one of the core values. From the organizational perspective, the duty and responsibility sense are reflected in the employer-employee contract. Honesty and directness are highly appreciated (Geert-hofstede.com, 2016).

Masculinity. The variable divides the societal focus either on the competition and attainment or the life standards and quality. Germany masculinity score is 66, which is the evidence of highly masculine society. In this respect, the individual performance is the defining indicator, where the education is specially tailored to identify the specialization at a very young age (Geert-hofstede.com, 2016). The work is perceived as the objective but not the means.

The status tends to be reflected by the costly accessories, devices, and high-class vehicles.

Uncertainty Avoidance. Germany belongs to the avoidant group, scoring 65 in the uncertainty avoidance measurement. Taking over Kant’s paradigm, the preference is given to the deductive approach, emphasizing the constant analysis vitality (Geert-hofstede.com, 2016). The details are provided with the special attention, which can be exemplified by the legislative system.

Long Term Orientation. The variable is intended to describe the pattern a society uses to apply the past experience in connection with the present and the future. Germany is scored 83, which is the justification of pragmatic society. The phenomenon of truth greatly depends on the contextualization. The customs are easily adjusted accordingly to the changing environment; the Germans appreciate saving and investing, aiming at the resulting achievement (Geert-hofstede.com, 2016).

Indulgence. The variable is missioned to explain the manner to which the society copes with the impulses, derived from the upbringing. Germany scores 40, which indicated belongingness to the restrained group. In this respect, the German society is viewed as pessimistic and subject to cynicism. The entertainment and life enjoyment in different forms receives little attention and low value, and people are not desire-driven but restrained by the social norms eye (Geert-hofstede.com, 2016).

Technological Dimension

The formation of the German consumer preferences and tastes is to a great extent dependent on the country’s innovation supremacy, which imposes high expectations (Department of Foreign Affairs and Trade, 2016). The engineering and high-tech reputation play the crucial role in Germany’s global competitive position sustainability. According to the WEF innovation rating of 2011 (world economic forum), Germany fairly occupied the 8th position out of 139 countries. The prominent innovative status is contributed by the increased R&D involvement and maintained potential created by the highest quality research and scientific establishments, which are in tight collaboration with the business environment. The coherent cooperation ensures the innovative approach engaged into numerous industries, which creates the premise for the sustainable, eco-friendly and ethical business philosophy and the groundbreaking environment (Department of Foreign Affairs and Trade, 2016)..

Legal Dimension

The legal power is represented by the five divisions, coping with social, labour, financial, administrative and ordinary issues (Department of Foreign Affairs and Trade, 2016). The judicial sphere is not only impacted by the constitutional law but is significantly shaped by the EU and international legislation. The business environment advantageous nature is contributed by the comprehensive legal protection, performed by the Federal Cartel Office and “Act Against Unfair Competition” to battle unjust behaviour. Additionally, the sufficient advocacy is provided in terms of trademarks, patents and intellectual property in general (Department of Foreign Affairs and Trade, 2016). The strict regulation compliance is to be fulfilled when exporting to Germany concerning crucial issues – environmental, quality and fair competition standards. Being the European Union member, Germany has adopted the metric benchmark, where the qualitative and quantitative product data requires quoting. Putting the consumer rights advocacy and information protection at the forefront, the set standards demand distinctive regulative base in terms of food labeling in conformity with the unified European trade zone (Department of Foreign Affairs and Trade, 2016)..

Environmental Dimension

The rapid technological and industrial development, however, has left the damaging footprint on the ecological conditions of Germany. As far as the country’s resources are concerned, Germany utilizes over 107 square kilometres of water resources, 90 percent of which is used by the industrial sector (Department of Foreign Affairs and Trade, 2016).. Among all the available resource base, Germany is primarily reliant on the fossil fuel as a major country’s resource; the other energy sources are characterized by relative consumption – 40 percent of petroleum, 30 percent of national coal reserves, 17 percent of natural gas and less than 10 percent accounts for nuclear energy. Despite the growing innovative potential of Germany, the solar, wind and hydroelectric alternatives are still on the initial development level and do not receive ambiguous implementation. The resource production is predominantly concentrated within the private sector (Department of Foreign Affairs and Trade, 2016).

Critical Values For The Business Success

The expansion procedure of the Australian Woolworths Ltd to Germany demands thoughtful adaptation, based on the host country core values integration into the corporate strategy (Tmf-group.com, 2016). According to the Hofstede’s analysis of the German society, it is essential to regard the basic principles in the view of the organizational level. Provided, the German paradigm outlines the actual performance as the critical aspect, the expertise, and market success needs to be clearly identified and justified by the superb presentation. Argumentation and sufficient reasoning are required ubiquitously (Tmf-group.com, 2016). The German professionalism is largely reflected in the time considerations, which are equally important as money, thus being late is unacceptable and detailed scheduling is vital.

As far as the German contracts are concerned, the terms and conditions sections are less elaborated in contrast to Australian business practice, and controversial nature of the German contract is the details focus and at the same time little attention to restrictions and sanctions (Tmf-group.com, 2016). Taking into account the German society cynicism propensity, the offer made in the host country does not need to contain comparative approach. In this respect, the Woolworths would find it efficient to establish the connection between the Australian product and its intention to meet the unique German customer needs (Tmf-group.com, 2016).

Furthermore, the loyal and pragmatic German customer is hard to be poached or stolen from the preferred brand, and it is even harder to make the German customer change the traditional domestic supplier (Tmf-group.com, 2016). Therefore, the negotiations tone is to have the increasing crescendo, implying the transition from the middle to prestigious levels. The pragmatic German businessmen would rather establish a partnership with the degreed person (Tmf-group.com, 2016). Regarding the details high appreciation and the deduction crucial role, the manager engaged in the German business environment must perform meticulous market exploration. In practice, the host country would require Woolworths management to support the theoretical knowledge by the individual practical experience through learning the market from the customer perspective (Tmf-group.com, 2016).

Cultural Differences On Organizational Level

In contrast to the dimensions analysed in the PESTEL analysis, the cultural sphere is referred to the intangible phenomenon, which is hard to be objectively assessed and measured (Tmf-group.com, 2016).

Figure 1. Hofstede’s Comparative Analysis. Australia and Germany (Geerk Hofstede, 2016)

However, the cultural impact on the business ecosystem is in priority, as it touches upon the multiple aspects. The undisputable influence is sensed by the value chain operations – sales, public relations, and marketing, product features – as well as the human interaction, which is the key aspect in management and further strategy implementation.

According to the thorough analysis enabled by Hofstede’s method, Australia is one of the most individualistic countries, whereas Germany still retains the collectivist characteristics, despite the gradual societal transformations to the opposite direction (Tmf-group.com, 2016). The German business conduct has historically taken the form of team-based approach, where the emphasis is made on the organizational spirit in general rather than individual employee personality (Geert-hofstede.com, 2016).. Practically, the major distinction between the Australian and German cultures to be considered by Woolies is implied by the strict branching into task focus and relationships (Geert-hofstede.com, 2016). German partners are concentrated on the established objectives and the derived obligations, whereas the Australian part is relationship-centred. Moreover, the German business practice recognizes the strict separation between the personal life and work (Department of Foreign Affairs and Trade, 2016).

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Conclusion

Having assessed the relevance of Woolworths expansion to the German grocery market, the certain conclusion is to be derived.

The SWOT analysis has provided the thorough examination of Woolworths company, emphasizing the challenges to be minimized and the options to be implemented. The PESTEL methodology provided the opportunity to assess the target market from the different perspectives, and the German grocery market represents the welcoming environment for the Australian business (Tmf-group.com, 2016). The target market does not contain barriers and restriction for the expansion, however, the social dimension includes the vast array of issues to be taken into account. According to the Hofstede’s technique, the individualism, long-term orientation, and indulgence variables are to be counterbalanced in order to generate the suitable management style and code of conduct (Geert-hofstede.com, 2016).

Thus, accumulating the analysis outcomes, it is evident, that the Woolworths expansion to the German grocery market has the perspective of being successfully implemented, provided the outlined issues and discrepancies are tackled.

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