International Strategic Management: The Australian Retail Industry - Research Proposal Example

International Strategic Management: The Australian Retail Industry Introduction It would be prudent to open a grocery store in the China Town area of Melbourne which would specailise in Chinese/Thai/Korean products and goods like Japanese Sake, Thai Milk Tea and Thai Coconut Sake. This area boasts of the ‘longest continuous Chinese settlement’ in the world (Welcome to China Town Melbourne, n.d.). Moreover the store would also be catering to the Japanese, Thai and Korean people in Australia. The logic behind this is, as this population is only a certain percentage of the overall population of Australia not many new entrants or established players would be eager to foray in to this market. Therefore the number of competitors would be significantly less than if a decision to open a general grocery store was opened. Once this specialised store gets established in the market it could easily have a focused clientele on which the store again could focus without much diversion. As the products would be specialised in the Asian context these specific population would have to visit the store and buy specialised products during their festivals and other occasions. This would mean that the store would be able to sustain a particular level of business all throughout the year and also this way the store would be able to postpone the ‘decline’ stage of the ‘industrial life cycle’. Once the store sets up the grocery business it could easily diversify its offerings and add certain products like books, CDs or DVDs in its array. This would be offered to the customers who already visit the store for their grocery shopping. Apart from the various Asian drinks, if capacity permits, the retail outlet also has plans to sale snacks (fried fish). The primary factor working in favour of this store would be the presence of a focused clientele. Also this store could easily get into contracts with the numerous restaurants and eateries in China Town, Melbourne and supply them their requisite materials. This would also provide a steady cash flow and develop into a major chunk of the business. Moreover it could also cater to the numerous tourists visiting from countries aboard and sell them authentic antique or other such goods alongside offering food retail and grocery (Population Composition: Asian-born Australians, April 2006). Types of Stores The Australian retail industry has got a huge array of stores of different kinds. From small and medium sized retail entities to super markets, hypermarkets and others. Melbourne being one of the thriving and most exciting cities of Australia has got to offer a whole array of stores and shopping centres for the public. It has got small store which cater to specialty tastes or hobbies and also got big hyper or supermarkets. On Sundays there is a flea market at Corner St Kilda where 150 artisans sell there beautiful creations. These flea markets sell almost anything starting from leather goods to exotic jewellery. Beautiful creation of glass or ceramic to or stylish fashion garments, are all sold here. This flea market is also a two level one and has got covered stalls. But if any place in Melbourne is going to be called the shopping Mecca in the city it would have to be Queen Victoria Markets. This one is one of the oldest market or shopping destination in Australia and had opened in the year 1878 and also carries the distinction of being the biggest open-air shopping area in the whole of southern hemisphere. From, meat, vegetables, pets and toys to clothing and shoes, one would get almost everything in here. This also is one of the most cosmopolitan markets in Melbourne. Again Block and Royal arcades are places where a bygone era of shopping can be experienced in the city. Chinatown which is situated between Swanston Street and Spring Street in Melbourne on the Little Bourke Street has an array of Asian (mainly Chinese) restaurants, jewellery shops, music shops, antique shops and others. While some of the most modern shopping facilities in Melbourne is offered by supermarket chains like Coles, FoodWorks, and Woolworths. The first one i.e. Coles is a supermarket which offers a whole range of products while Woolworths retails food (Melbourne Shopping, n.d.; Supermarkets, n.d.). Porters 5 Forces Analysis The Porters Five Forces model is utilised to analysis the environment from a perspective of threats originating from new entrants, the level of rivalry between the existing players, bargaining power of the suppliers and buyers and threat of substitutes. Threat of new entrants - The Chinese, Population or for that matter the Japanese, Korean or Thai population is not much in terms of size in context of Australia’s overall population. Therefore the market size is that big which would attract a huge number of players. But as a whole the population of these people is such that it could accommodate a certain number of shops. There are already some well established players in the market like Laguna QV, Central grocery, Wellbeing Korean Grocery, Mini Mart and WING CHEONG TRADING & CO and Great Eastern Food Centre. But some of the well established retail players of Australia like Coles, ALDi or Woolsworth could always accentuate their range of Asian products to leverage the existing market and these big players would be a threat to any newcomer due to their scale and size. Interfirm rivalry of established companies – Some of the established players in this particular market are Laguna QV which is located at Jane Bell Lanes. This store actually has a huge collection of products but these are generally of low quality. The store earlier used to sell Asian Alcohol but it shifted its focus to a broader range of products. Central grocery is another store which has a wide array of products and has been able to leverage its location advantage due to its presence near the subway stations. But the shop is quite small and also the supply of goods or stocks is less than what is needed. Rather Mini Mart is one shop which has an excellent service and equally good range of wide variety of products. The customer service is good and the shop has made a name for itself in the market. Also management of stock is good and is able to satisfy the customer. Wing Cheong Trading & Co has advantage in comparison to the other players as it is able to provide products at a lesser price than the other shops but this plus point is hindered by its disadvantageous location. Great Eastern Food Centre is a very well established player at a good location with wide offering of both alcohols as well as non-alcohol products. It is well known among the customer base but in order to improve its service it would train its personnel. Therefore it is evident that these existing players are all having their own strengths and specialties and they are fighting it out in the market based on these characteristics. Threats of substitute products/services Though the new store would be addressing the need of the Chinese, Korean, Thai, Japanese population yet a proportion of these people were born in Australia and have assimilated with the Australian way of life, while the other half which has come for work or study has also done the same. Therefore these people have become used to using Australian products and lifestyle and so the threat to the new specialized store would come from general established stores or retailers whose general range of products could act as substitute to the specoialised Asian products. For example these people could easily go for western cuisine and not for Chinese or Thai food if g they want to ass they are habituated with both. Bargaining power of buyers Since the new store would be a specialized one catering to small section of the Australian population, it would be heavily dependent on that specific section. So the store won’t be able to raise prices beyond a certain limit otherwise the customer base which is equally conversant with the usual Australian way of life could migrate to cheaper or better options. Bargaining power of suppliers It is not possible to produce all the specialised Asian products or goods in Australia as the market is not that significant in size. Therefore most of the items would be imported from home countries and these suppliers could control prices and delivery as the amount of goods being procured won’t make a big percentage of their business. There is a 6th force also known as the ‘Complementary’ goods which is sometimes discussed in addition to the above. Complementary good could be the presence of Chinese / Thai restaurants in China town which could act as an attractive force for the consumers who would visit the area for eating out there and also end up buying products from the specialised store. The sixth force also includes other external elements like government and the society at large. The retail outlet should have government in its support. Also, it should try and take advantage of the existing law of the land. The retail outlet in order to be successful should utilize the general public and the society at large in its benefit. Ideally, the company should add value to the life of the public so that they become the ambassadors of the company. Macro Environment (PEST) The macro environment is discussed through PEST analysis. PEST stands for political, social, economic and technological factors. The PEST analysis is utilised to analyse what are the key points in the broader macro environment and what effect these four environmental factors could have on the industry or the organisation. Political - Australia was initially under the British rule as the present 6 states of Australia were all colonised by the British. In the year 1901 came together in federation format and at present it is a functioning parliamentary democracy independent of any foreign rule. It is a liberal society and that is reflected in its democratic system also. Religious tolerance and freedom of speech are some of the positives which are practiced in the country. The House of Representatives and the Senate are the two chambers of the Parliament in Australia. After the election the Governor General looks at which political party or which coalition of political parties have gained the majority in terms of seats in the House of Representatives and that party or coalition is invited by the Governor General to form the national government. The losing party or the coalition of parties assumes their role as opposition in Parliament. The country follows a written Constitution which spans over area like trade, immigration, defense and other various other spheres of life. Australia has 6 states as well as 2 mainland territories. The Australian Senate has in total 76 seats with 12 representative members coming from each of the 6 states. The two mainland territories also have 2 representative members each. On the other hand the house of representatives has 150 members in total. The Senate and the House of representatives both have their elections every three years. At the moment the head of the government is Kevin Rudd, the serving Prime Minister. Some of the major political parties in the country are the Australian Labour Party, the Country Liberal Party, the Australian Democrats, the Nationals and the Australian Greens. Being a thriving democracy the country has an array of political and other pressure groups in the form of trade unions, business and other social groups (A parliamentary democracy, n.d.; Australia’s system of government, February 2008, Australia, May 2009). One such group is the NRA or the National retail Association. It is an industry organisation which represents and works in context of the Australian retail industry. From singular enterprises to retail chains and specialty or franchise stores, all are serviced by it. NRA’s sole aim is to facilitate the growth of the retail sector players irrespective of their size or scale. Some of the services it provides are advice on governmental and industrial relations, employment law and also networking and other pertinent services. Another such association is the Australian Retailers association or the ARA. It also promotes the cause of the industry and provides consultative services to big and small retailers (VIEWS OF THE NATIONAL RETAIL ASSOCIATION IN RESPONSE TO THE ISSUES PAPER, n.d.; About ARA, 2009). Central Business District is the most happening business centre of the city Melbourne. There are the world famous brands of life-style, fashion, eateries, pubs and financial companies, all competing and complementing the other. It would be the perfect place of business for the retail outlet as the professional environment already exist at the CBD. Economic – The Australian economy has been one of the strongest in the world and has seen prolonged growth over the last several years. Especially its mining sector has performed extremely well and has earned export revenue for the country. It has always initiated liberal trade reforms and has leveraged it strengths in the mining and agricultural sectors to proper as an economy. Though due to the prevailing economic slowdown worldwide, falling commodity prices and tighter liquidity conditions, the Australian economy has slowed down in the recent time yet it remains comparatively stronger than many other economies of the world. In fact the Australia has witnessed very robust growth for a long period of over seventeen years at a stretch which has pushed the country’s GDP to $1.069 trillion (2008 est.). Services account for 71.1% of the economy while agriculture and industry account for 2.5% and 26.4% respectively. One of the very crucial part of the services sector in the country is the retail sector which $292 billion in value. It is a huge employer also and employs roughly 1.5 million personnel (About ARA, 2009). In fact the retail sector also employs the most in terms of numbers in comparison to other sectors in the economy (VIEWS OF THE NATIONAL RETAIL ASSOCIATION IN RESPONSE TO THE ISSUES PAPER, n.d.). This sector deals in retailing of food items, household goods, recreational good, hospitality services and others (Themes - Retail Latest information about the retail industry, June 2008). Very recently it has been found through surveys by the ARA that the business confidence of the small and medium sized players in the retail sector has ebbed quite a lot. The primary reasons behind this fall in business confidence according to these retailers are slowdown in the economy, fall in business and lack of retail spending by the people. Sales in the retail sector have come down by 18% in comparison to the previous financial quarter. But strangely enough profitability improved in comparison to the last quarter and has risen by 10% over -28% in previous quarter. But employment wise the sector did not do well and has shown the lowest growth rate in comparison to any other sector in the economy. Only 11% of them said that they had increased their headcount while the number was around 23% in the previous quarter. 25% of the retailers said that they had decreased their wages over the last quarter while only a lesser number said that they had to go for partial increase. In terms of prices of goods retailed, only small sections of the retailer have been seen to increase them (Australian Retailers’ Index, March 2009; Australia, May 2009). As CBD is the most happening business place of the city, the outlet can expect to generate economies of scale by choosing central business district as the venue. The retail outlet can easily approach the financial companies for loans as they operate at the business hub of the city which would generate enough confidence among the stakeholders. Social As of July 2009 Australia has a population of 21,262,641. 67. 9% of the population is between 15 to 64 years in age and the median age for the country stands at 37.3 years. Urban population stands at 89%. This means that there is ample opportunity for retail as the median age is below forty and also the majority of the country is urbanised. While 92% of the country is white in context of race, the Asian population stands at a significant 7%. By the year 2000 the Asian born population of Australia has already crossed one million in number (Population Composition: Asian-born Australians, April 2006). The retail food outlet can expect to attract array of consumers because of its place at CBD and that of Chinatown. As CBD is an important place at Melbourne, the outlet would have other customers also apart from the target groups. Also, it can have corporate clients. The tourists visiting Melbourne from other Asian countries would visit the Chinatown. Such customers can also be tapped being at the place. Technological- Like any other industry in the 21st century the retail industry in Australia is also going through a transformation in terms of using technology in its operations. In this context ARA or the Australian Retailers’ Association is also going to hold a conference in China in the moth of June this year. It is being called ‘Retail Technology & Innovation Asia 2009’ (Retail Technology & Innovation Asia 2009, 2009). In fact computerised point of sale (POS) as well as IMS or inventory management systems have come into the fray (Smarter Supply Chain Utilization for the Retailer, January 2006). The outlet should strive to make itself competent with the latest technological innovations and should be able to create convenience for its customers. The ambience of the CBD should be utilized to the fullest in terms of technology like having access to different methods of payments, instant delivery and the inter-net. SWOT Analysis The SWOT analysis is a very useful management tool which is used in analysisng the strengths, weaknesses, threats and opportunities in context of an entity be it a business or an individual. Strengths – The focus of the store on the Asian market and people who have a liking towards Asian, especially Thai-Chinese cuisine, products. The focus on particular market would enable them to improve their operation and offerings which could otherwise have been lost in case of a conventional supermarket. Weakness – The Chinese, Korean, Thai or Japanese make up small percentage of the overall population of the country. So the market for this kind of a store is going to be limited and therefore it would have to locate itself in places where these communities live. There is growth opportunity only up to a certain extent as it would be dealing with a niche market. Opportunity – Opportunity would be from the fact that many more Asians are coming to the country for study and work purposes who would surely like to shop from these kinds of stores. Opportunity also lies in the fact that many Australians are opening their eyes to Asian culture and food. Threat – Threat specifically emanates from some of the already well established players in this area. Some of the established players in Asian grocery are: Laguna QV, which is into selling huge array of products and was earlier into selling Asian alcohol. Central Grocery is strategically located near the metro stations and has got a good range of products on sell. Wellbeing Korean Grocery is another such store which sells Japanese as well as Korean products and goods. Mini Mart is one the best in this category with excellent service and product quality and strategic locations. Another well known Asian shop known as the Great Eastern Food Centre which has a huge range of products, both alcohol and non-alcohol . Other than these stores the established supermarket chains in Melbourne, Australia like Coles, ALDi and Woolsworth have already started to sell Asian products and food items. In addition to all these, global meltdown and economic recession is also a major threat to the business. It is expected that with lack of liquidity (because of bankruptcies and layoffs) in the market would make customers hesitate to spend in the way they used to. Industry Life Cycle Each and every industry has a life cycle. The different stages of industry life cycle are: Introduction Growth Maturity and Decline. The graph of industrial growth is given below: Fig.1. Industry Life Cycle (Source: Maksimovic, V. & Phillips, G., 2006) But before these stages there I s stage called the ‘entrepreneurial stage’ where it is decided, what mode would be taken to set up the new business, whether it would be done on solo basis or would be a joint venture or licensed mode. The decision in context of entry mode should be taken after much deliberation about the different options. But the singular option would offer much more in terms of flexibility and freedom. But again as the store would be in the introductory stage it would really need a certain amount of time to establish itself in the market. It would have to do so by putting up advertisements at pertinent places and also utilise promotional tools. Then it would move onto the growth stage after it would have fought with the existing players in the market and also with the big retailers during the introduction stage. The scenario is such that the if the store gets established once it would be able to sustain a certain level of sales since it caters to a specific customer base who do not have much options in context of those specific products. If is watchful enough about the emerging and present needs and wants of the customers, it should sustain the maturity period and postpone the decline period. Strategic Recommendations It is recommended that: The specialised store concentrates on decoration and environment of the store from the very beginning. Decorating the store in authentic Asian influenced style would not only make its target customers comfortable but it would even appeal to a plethora of tourists who would usually visit China Town to savor the eastern culture. This would give them extra business than otherwise. The store not only concentrates on the retail customer but also get into long-term contracts with restaurants and eateries at China Town which would ensure a steady flow of business. IT should also look at diversifying its product offering and add things like music, books, magazines, which could easily be offered to those visiting the store for grocery shopping. Promotional efforts should not only be concentrated on Asian areas rather some bit of it should be expanded to other tourist destinations also. Tourists always want to savor different cultures and they would like to visit the store and buy authentic Asian products and goods. One of the ways the store can create unique brand equity for itself is by offering the widest range of products and goods in comparison to the existing players and ensuring highest level of customer service and very fast stock replenishment. This would help it in retaining customers and also spread its name by word of mouth. Conclusion It would not be imprudent to open such a specialised store as this would ensure a focused clientele once the established in the targeted customer’s mind with a little effort at the introductory stage. Then if proper quality and range of products are supplied t reasonable prices, word of mouth would help it grow even more. Moreover there are opportunities in terms of getting into contracts for supplying to the restaurants specializing in oriental cuisine. References A parliamentary democracy, (No Date), Australian Government Department of Foreign Affairs and Trade, retrieved online, 30th May, 2009, from: http://www.melbourneaustralia.org/dining-fine.html About ARA, (2009), Australian Retailers Association, retrieved online, 30th May, 2009, from: http://www.retail.org.au/index.php/xarpages/ara_home/aras_mission_and_values Australia’s system of government, (February 2008), Australian Government Department of Foreign Affairs and Trade, retrieved online, 30th May, 2009, from: http://www.dfat.gov.au/facts/sys_gov.html Australian Retailers’ Index, (March 2009), ARA Australian Retailers’ Association, retrieved online, 30th May, 2009, from: http://www.retail.org.au/index.php/policy/ara_research February 2008, Australia, (May 2009), CIA the World Factbook, retrieved online, 30th May, 2009, from: https://www.cia.gov/library/publications/the-world-factbook/geos/as.html Maksimovic, V. & Phillips, G., (2006), The Industry Life Cycle and Acquisitions and Investment: Does Firm Organization Matter?, National Bureau of Economic Research, retrieved online, 30th May, 2009, from: http://www.nber.org/papers/w12297 Melbourne Shopping, (No Date), retrieved online, 30th May, 2009, from: http://www.melbourneaustralia.org/shopping.html Population Composition: Asian-born Australians, (April 2006), Australian Bureau of Statistics, retrieved online, 30th May, 2009, from: http://www.abs.gov.au/AUSSTATS/ABS@.NSF/2f762f95845417aeca25706c00834efa/666a320ed7736d32ca2570ec000bf8f9!OpenDocument Retail Technology & Innovation Asia 2009,(2009), Australian Retailers Association, retrieved online, 30th May, 2009, from: http://www.retail.org.au/index.php/articles/event/Retail_Technology_&_Innovation_Asia_2009 Smarter Supply Chain Utilization for the Retailer, (January 2006), Microsoft, retrieved online, 30th May, 2009, from: http://www.microsoft.com/australia/dynamics/rms/product/supplychainwhitepaper.mspx Supermarkets, (No Date), retrieved online, 30th May, 2009, from: http://www.streetsofmelbourne.com.au/melbourne/s/supermarkets.htm Themes – Retail Latest information about the retail industry, (June 2008), Australian Bureau of Statistics, retrieved online, 30th May, 2009, from: http://www.abs.gov.au/websitedbs/c311215.nsf/43b68f1dafb94862ca256eb0000221a5/b292ee7ffce62667ca256d600022c3ac!OpenDocument Views of The National Retail Association in Response to the Issues Paper, (No Date), National Retail Association, retrieved online, 30th May, 2009, from: http://www.betterregulation.nsw.gov.au/__data/assets/pdf_file/0008/25856/National_Retail_Association.pdf Welcome to China Town Melbourne, (No Date), retrieved online, 30th May, 2009, from: http://www.chinatownmelbourne.com.au/ Appendix i) Fig.1. Industry Life Cycle ……………….. Pg.10 Read More