PESTL Analysis and SWOT Analysis of Coles Myer - Case Study Example

Management Table of Contents 0 Introduction 4 2.0 Political Environment 6 2 Government Stability 6 2.2 Government and Contribution 6 2.3 Analysis6 3.0 Economic Environment 7 3.1 Interest Rate 7 3.2 Inflation Rate 7 3.3 Currency Exchange Rate 7 3.4 Free Market/Command/Mixed Economy 7 3.5 Economic Trends 8 3.6 Tax Policies 8 3.7 Analysis 8 4.0 Socio-Cultural Environment 9 4.1 Hofstede’s Cultural Dimension 9 4.1.1 Collectivism vs. Individualism 9 4.1.2 Power Distance 9 4.1.3 Uncertainty Avoidance 9 4.1.4 Time Orientation 9 4.1.5 Quality Vs Quantity of Life 10 4.1.6 Analysis 10 5.0 Technological Environment 10 5.1 Technological Infrastructure 10 5.2 Communication Network 10 5.3 Logistics Network 11 5.4 Analysis 11 6.0 Legal Environment 11 6.1 Regulatory Framework 11 6.2 Labor laws 11 6.3 Business Laws 12 6.4 Taxation Laws 12 6.5 Analysis 12 7.0 SWOT Analysis 13 7.1 Strengths 13 7.2 Weaknesses 13 7.3 Opportunities 13 7.4 Threats 14 8.0 Recommendations 15 9.0 References 16 1.0 Introduction An Australian retail sector organization Coles Myer has been chosen for the study as it is planning to enter into the retail market of Brazil. This retail sector organization is considered as one of the leading retailers as well as largest employers in private sector of Australia (Coles Myer Ltd 2000). The origin of Coles Myer was around 100 years ago was from the two Australian retailers namely “G. J. Coles & Coy and The Myer Emporium” (Coles Myer Ltd 2000). They have their operations in Australia along with New Zealand and possess about 2,000 retail stores in those places. Coles Myer has shareholders numbering above 380,000 (Coles Myer Ltd 2000). The organization’s businesses are generally classified into five groups which include Food & Liquor, Myer Grace Bros, General Merchandize, e.colesmyer and Apparel & Home. The retail stores have an annual sale of more than $24 billion. The various brand of Coles Myer are Grace Bros, Coles, Myer, Target, Bi-Lo, Kmart, Liquor land, Fosseys and Officeworks. This retail sector organization has provided employment to over 167,000 staffs (Plunkett 2005). Coles Myer has adopted wide communication strategies in order to contact with their staffs, suppliers, customers, stakeholders, shareholders by replying through letters and intranet site. They believe that satisfying customers will bring their success and collecting customers’ feedback will help them to make necessary improvements if it is needed. They want to provide best services to the customers and preserve good relationship with them (Coles Myer Ltd 2000). Coles Myer provides ongoing practical training to the staff in order to facilitate them to handle properly the customers and provide quality services to them. The training is provided with a basis of making their staff to have an actual understanding of their compliance responsibilities (Coles Myer Ltd 2000). Coles Myer is entering into the retail market of Brazil with the aim of business expansion as well as spreading their brand name beyond the Oceania region. As Brazil is considered as one of the world’s largest retail markets, thus Coles Myer can get scope of extension of their retail business. Though the store will be located in Brazil but the services will be provided by the Australian organization. However, several Brazilian staffs will be hired for the retail store but the training will be provided by the Australian managers since they are extremely customer oriented. They want to provide best services to the customers of Brazil to build their brand name. The main purpose of the report is to prepare an environmental analysis of the Brazil’s business environment for an Australian retail sector organization Coles Myer who wants to enter in the market of Brazil. The company faces various challenges and can gain opportunities while expanding its business in new Brazilian market. In this paper the PESTL analysis along with SWOT analysis of Coles Myer is conducted and subsequently recommendations are provided for the organization for entering into the Brazilian market. 2.0 Political Environment 2.1 Government Stability Brazil possesses stable political climate which has a great role in developing the business sector of the country. This political stability is expected to continue in coming days since the Workers Party (PT) is in power after 8 years (Rocha 2000). 2.2 Government and Contribution Brazil encompasses a friendly environment for the foreign investments. Companies who are operating in Brazil need to deal with a broad range of regulatory agencies due to the federal structure of the political system (Rocha 2000). The government of Brazil supports growth of various industries in the country. Different government regulations at times hamper the growth of private sector companies. When a business becomes unsuccessful, Brazilian government as an owner helps the private domestic or international industries (Greenbaum 2003). 2.3 Analysis Corruption is generally common and is a binding factor while conducting business deals in the country. The risks are present which is primarily related to public procurement in addition to local judiciary levels. Thus, there is a great challenge while operating in such government and political situation. But if everything gets cleared and entire administrative works are handled properly there is a possibility of gaining huge benefits from Brazilian retail market. The government is also generating help to the unsuccessful firm. 3.0 Economic Environment 3.1 Interest Rate The most recent interest rate was at 11.75%. The authorized rate of interest is the Special System of Clearance and Custody rate (SELIC), which is supposed to be the overnight lending rate. Since 1999 to 2010, the average interest rate of Brazil was 17.22% which had arrived at a high of 45% in March 1999 and a record low of 8.75% in July 2009 (Trading Economics 2010). 3.2 Inflation Rate In Brazil, the inflation rate in February 2011 reported at a figure of 6.01%. Since 1980 to 2010, the ‘average inflation rate’ in Brazil was registered at 445.98% which reached to an extremely high level of 6821.31% in April 1990 and in December 1998 it had lowered down to 1.65% (Trading Economics 2010). 3.3 Currency Exchange Rate The currency exchange rate of Brazil is registered at 1.6600 in first segment of 2011 (Trading Economics 2010). 3.4 Free Market/Command/Mixed Economy According to the International Monetary Fund and the World Bank, Brazil has been placed in eighth position in the world’s economy in “market exchange rates” as well as ninth in “purchasing power parity” (PPP). Brazil has a free market economy and is rich in natural resources (Ellis 1969). 3.5 Economic Trends The recent facts suggest that Brazil falls within the top ten world economies. The country possesses cautious taxation, monetary policy, microeconomic reforms which enable the Brazilian economy to form solid base while withstanding in the global economic crisis. In 2010 there was a growth in country’s economy after a slight downturn in recession in the year 2009 (Brainard & Martinez-Diaz 2009). OECD anticipated that GDP of Brazil would reduce at a rate of 0.8 percent in 2009 and in 2010 it will raise by 4.0 percent. In Brazil, the public debt to GDP has increased (The Economic Times 2009). 3.6 Tax Policies Companies residing in Brazil are legally responsible to “Corporate Income Tax” on profits earned from both Brazil as well as abroad. The basic rate of income tax on corporate profits was 15% for the year 2003 and extra surtax of 10% on taxable profits of above near about R$ 240,000 per annum (Fan 2008). 3.7 Analysis Tax rate and tax regulations are two vital factors for operating business in Brazil. Brazil has free market economy and huge resources which is beneficial for the new entrance of a company. The growing trend in economy provides a positive prospect for an organization to start a new venture in Brazil. 4.0 Socio-Cultural Environment 4.1 Hofstede’s Cultural Dimension 4.1.1 Collectivism vs. Individualism Brazil has a higher individualism rank of 38 which means that there is quite less bonding between individuals. Due to high individualism it is easier to influence people of Brazil. The new industry can easily attract the people there. The collectivism rate is low among people of Brazil because the individuals are not integrated into strong cohesive growth (Kinicki n.d.). 4.1.2 Power Distance The power distance in Brazil is low. In Brazil, subordinates are treated with respect by superiors. Less powerful member of the organization or society assume that power has been distributed inequitably. The level of inequality of society is approved by the followers as much as by the leaders (Peng 2008). 4.1.3 Uncertainty Avoidance Brazil’s highest ‘Hofstede dimension’ is in uncertainty avoidance and is about 76 which mean that society possesses low level of uncertainty tolerance. The high level of uncertainty avoidance means that the society is scared of risk or rarely accepts changes (Hopkins 2009). 4.1.4 Time Orientation The rank of long term orientation is 65 for Brazil, which means the people in this category maintain relationships by status and they have a sense of shame. Their values include perseverance and thrift (Dubrin n.d.). 4.1.5 Quality Vs Quantity of Life Quality of life is seen to be more valuable in Brazil than quantity of life among the people. Cooperation in various aspects of work among the people is a significant characteristic. High level of quality of life has an implication in retail sector as the expectation of the people of Brazil is quite high but the expenditure level will be quite low (Keegan 2009). 4.1.6 Analysis After observing the social and cultural characteristics of people of Brazil it is easier to enter into the market of the country and work with the Brazilians due to its cultural dimension. 5.0 Technological Environment 5.1 Technological Infrastructure The technologies play a purposeful role in Brazil which helps to develop economic productivity. It also helps to remove poverty, aids in education, health along with preventing environmental degradation and also to contribute in an integrated world economy and society. The technology in the industrial sector is highly advanced which paves the way to bring the products of Brazil in a global platform (Fritsch & Franco 1991). 5.2 Communication Network According to World Economic Forum, Brazil has been graded 53rd in the world in its ‘degree of preparation to participate in and benefit from information and communications technology’ There is huge communication facility in Brazil which facilitates the international industry to expand business there (ICT to Brazil 2010). 5.3 Logistics Network In Brazil road network, rail network, air transport and airports, waterways and subways are available which can help in transportation of goods and products (Afsarmanesh & et al 2001). 5.4 Analysis Brazil possesses advance technology, thus it will be possible for retail organization to expand the business in that market. The communication as well as logistics network has also progressed a lot making it feasible for the retail organization to make immediate impact in the Brazilian market easily. 6.0 Legal Environment 6.1 Regulatory Framework The structure for corporate governance in Brazil is regulated by the Brazilian Corporation Law, the Brazilian Civil Code and the Securities Market. OECD White Paper in 2003 recommended that legal as well as regulatory framework should provide understandable rules concerning about the treatment of shareholders when change in corporate control takes place (OECD Development Centre, Centre for International Private Enterprise 2003). 6.2 Labor laws According to Brazilian Labor Law, “an employee works under the direction of employer in return of compensation”. Employer is a sole proprietorship, responsible for taking risk and has the duty of handling economic activity, pay salaries, hires and guidelines of the services provided by the employee. There are a number of laws and also regulations related to preventing any fraudulent and corruption related activities under the business laws (Advodagos 2003). 6.3 Business Laws Foreign trade policies of Brazil are developed by Federal Government. The rates of import duty are on the range between 0% and 35%. Products produced in Brazil are considered to be comparable to a foreign product if it is substitutable in relation to price, quality as well as delivery terms (Advodagos 2003). 6.4 Taxation Laws The Tax on Service (ISS) is calculated on the services delivered by a company along with the list of services attached to a federal supplementary law at a rate of 2-5% on the service value. If it is not possible to charge ISS directly to the Foreign Service provider then the receiver of service will be liable for payment of tax (Advodagos 2003). 6.5 Analysis It has been observed that the medium sized companies spend huge time in managing the administrative work related to taxation system. Thus, it creates problem for operating business in Brazil. 7.0 SWOT Analysis 7.1 Strengths Coles Myer is one of the largest retail organizations in Australia with annual sales of above $24 billion. They provide quality customer service. The main focus is provided to the customers, staffs, stakeholders, suppliers and shareholders. They possess well developed brand name with which they are operating in New Zealand and Australia. The staffs in the retail store are skilled enough as they are provided regular training. The financial profile of the company is also strong (Coles Myer Ltd 2000). 7.2 Weaknesses Coles Myer super market provides online shopping but the staffs are not much familiar with technological operations. They are inexperienced and lack in technological skills (Palmer & et al 2000). 7.3 Opportunities Brazil has a high performing retail markets. The business in retail sector is rising since 2003 and it is expected to continue in future. There is a huge growth of sales in retail industry. The demand for durable goods along with real income and requirement for non-durable consumer goods are rising rapidly. The retail market is fragmented, thus there is enough scope for large retail player to expand their market share in future (Great Britain: Parliament: House of Commons: Trade and Industry Committee, 2007). 7.4 Threats In Brazil, the three worldwide retail organizations such as USs Wal-Mart, Brazils Pão de Açúcar and Frances Carrefour have already dominated the retail market. There will be huge competition in making brand position and gaining consumer attraction towards the Australian retail store. It is difficult to get involved with Brazilian government without the help of local partner from Brazil. There exist complexities in the business environment of Brazil (Saxton 2001). 8.0 Recommendations It can be observed that there will be various challenges and difficulties while doing retail business in Brazil due to existence of competitors. After analyzing the market properly it will be easier to enter into the market of Brazil. The people can easily be attractive due to high individualism in them. The planned proper business planning will facilitate to make entry in the market of Brazil. All the political, legal, economical, social, environment factors have to be taken due care. The government regulations are strict but the Brazilian government is seen to help the domestic as well as private sector businesses thus by properly adhering to the government’s regulations will aid Coles Myer to gain needed support from the government. This will ensure success in the business. 9.0 References Advodagos, N. P. 2003. Guide to Doing Business in Brazil. http://www.brazilian-consulate.org/secom/incs/DoingBusinessinBrazil.pdf (accessed 2011/03/17). Afsarmanesh, H. & Et. Al. 2001. E-Business and Virtual Enterprises: Managing Business-To-Business Cooperation; IFIP TC5/WG5.3 Second IFIP Working Conference On Infrastructures For Virtual Organizations: Managing Cooperation in Virtual Organizations And Electronic Business Towards Smart Organizations, December 4-6, 2000. New York: Springer. Brainard, L. & Martinez-Diaz, L. 2009. Brazil As An Economic Superpower?: Understanding Brazils Changing Role In The Global Economy. US: Brookings Institution Press. Coles Myer Ltd. 2000. Public Compliance Commitment the New Tax System. http://www.accc.gov.au/content/item.phtml?itemId=256030&nodeId=1c1f4ad367b9c2ef1a8944d80c626396&fn=d00_16715.pdf (accessed 2011/03/17). Dubrin, J. A. n.d. Leadership: Research Findings, Practice, Skills Fourth Edition. India: Dreamtech Press. Ellis, S. H. 1969. The Economy of Brazil. US: University of California Press. Fan, Q. 2008. The Investment Climate In Brazil, India, And South Africa: A Comparison Of Approaches For Sustaining Economic Growth In Emerging Economies. World Bank Publications. Fritsch, W. & Franco, B. H. G. 1991. Foreign Direct Investment in Brazil: It’s Impact on Industrial Restructuring. France: OECD Publishing. Greenbaum, H. 2003. Brazil. New York: Infobase Publishing. Great Britain: Parliament: House of Commons: Trade and Industry Committee, 2007. Trade With Brazil And Mercosur: Government Response To The Committees Seventh Report Of Session 2006-07, Sixth Special Report Of Session 2006-07. The Stationery Office. Hopkins, B. 2009. Cultural Differences and Improving Performance: How Values and Beliefs Influence Organizational Performance. UK: Gower Publishing, Ltd. ICT to Brazil. 2010. “The Market”. “Trends and Opportunities” http://www.austrade.gov.au/ICT-to-Brazil/default.aspx (accessed 2011/03/17). Keegan, W. J. 2009. Global Marketing. India: Pearson Education India. Kinicki. A. n.d. Organizational Behavior 3E. India: Tata McGraw-Hill Education. OECD Development Centre, Centre for International Private Enterprise. 2003. Corporate Governance in Development: The Experiences of Brazil, Chile, India, and South Africa. France: OECD Publishing. Palmer, J., J. Kallio, T. Saarinen, M. Tinnila, V. K. Tuunainen and E. V. Heck. 2000. Communications of the Association for Information Systems. http://aisel.aisnet.org/cais/vol4/iss1/3/ (accessed 2011/03/17). Peng, W. M. 2008. Global Strategy. UK: Cengage Learning. Plunkett, J. W. 2005. Plunketts Retail Industry Almanac. US: Plunkett Research, Ltd. Rocha, J. 2000. Brazil. UK: Oxfam. Saxton, J. 2001. Terrorism & Threats to U.S. Interests in Latin America: Hearing before the Committee on Armed Services, U.S. House of Representatives. US: DIANE Publishing. The Economic Times. 2009. OECD Raises India 2010 GDP Growth Forecast. Brazil. http://economictimes.indiatimes.com/news/economy/indicators/oecd-raises-india-2010-gdp-growth-forecast/articleshow/5247626.cms (accessed 2011/03/17). Trading Economics. 2010. Indicators. http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?Symbol=BRL (accessed 2011/03/17). Trading Economics. 2010. Indicators. http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=BRL (accessed 2011/03/17). Trading Economics. 2010. Indicators. http://www.tradingeconomics.com/Economics/Currency.aspx?symbol=BRL (accessed 2011/03/17). Read More