Efficiency and Equity at Work - Case Study Example

External Environment Analysis Name of Student Institutional Affiliation Table of Contents Table of Contents 2 Executive Summary 3 1.0 Introduction 4 2.0 Discussion 6 2.1 Aldi Company and External Environment in Australia 6 2.2 The Porter’s Five Forces Model 7 2.2.1 Customer’s bargaining power 8 2.2.2 Threat of new entrants to the Industry 9 2.2.4 Substitute products/service 10 2.2.5 Rivalry among existing firms 10 2.3 The Macro-environment Model 11 2.3.1 Economic Factors 11 2.3.2 Political factors 12 2.3.3 Technological factors 13 2.3.4 Social/Cultural Factors 13 2.3.5 Legal Factors 13 2.3.6 Ecological Factors 14 3.0 Conclusion and Recommendations 14 References 15 Executive Summary The research makes an in-depth analysis of the external business environment in Australia. In particular, the report focuses on Aldi Company which is a multinational organization operating in Australia’s grocery industry. In the analysis of the external surroundings, the report considers two analysis models. One of the models is the Porter’s Five Force that helps organizations to determine the competition they face. The second model is the Macro-environment analysis that enables firms to identify the external factors affecting their performance. In its conclusion, the report proposes a combination of strategic plans that favor the growth of the organization. The report recommends formulation of a mission statement and specific objectives to guide the organization in attaining its goals. 1.0 Introduction The role of external environment on any organization is paramount. Apart from internal factors that affect an organization from within, there are other external factors. The external factors emanate from other sources that are not within the organization. The external environment comprises of various parameters, which affect the operations of the business. The impact that these factors have on an organization may either be positive or negative. As opposed to internal factors, it is difficult and sometimes impossible for any business to control its external environment. The external factors are basically beyond the control of an organization (Voiculet et al., 2010) The impact of the external parameters on an organization may either be direct or indirect. Any move by an organization's rival in the market amounts to a direct action. In most cases, any measures taken by a competitor affects the business negatively. The direct impact occurs mostly in situations where organizations are dealing with similar products or services (Voiculet et al., 2010). On the hand, indirect effect results from variations in the business environment. Business climate alterations may include changes in the market prices, demand and supply of goods and the prevailing weather conditions. The indirect changes may affect the performance of an organization, either positively or negatively. A favorable weather condition would affect an organization dealing with agricultural products positively and vice versa (Andersson et al., 2002) As organizations evolve, there is a need for the management to take note of the dynamic factors, both internal and external. The external environment of organizations is also changing at a very high rate. The organizations must, therefore, continue adjusting to the new surroundings. A balance is, therefore, necessary between the internal and external parameters of a business. The management of any organization should harmonious the two factors (internal and external), this is for the interest of the company (Voiculet et al., 2010) In the formulation of policies, it is important for organizations to consider the nature of their external environment. Organizations should explore the opportunities presented by the external parameters. A good example is a favorable climate. Businesses engaging in agricultural activities should consider seasons when the weather is conducive and capitalize on it. Organizations should also take advantage of favorable policies set by the concerned legal bodies. The firms should capitalize on the policies (Andersson et al., 2002). Apart from opportunities, external environment of business also present threats to the organization. Businesses must, therefore, consider the risks posed by their external environment; this allows them to make informed decisions (Andersson et al., 2002). Political instability is a perfect example of a threat presented by a business’ external environment. Political stability of any country is essential to the growth and development of the economy. The economy cannot thrive in a business climate that is at a threat. Therefore, it is important for an organization to explore the possibility of threats emanating from its external surrounding (Buchanan, 1993) It is evident that organizations face both opportunities as well as threats from their external parameters. Companies should evaluate their strengths and weaknesses. Organizations that are aware of their strengths and weaknesses make an informed decision on the appropriate cause of action. The firms should use their powers to explore the potential offered by their external surrounding. They should also work towards improving their weak points since the external parameters take such chances to exploit the businesses (Buchanan, 1993) 2.0 Discussion 2.1 Aldi Company and External Environment in Australia The following discussion focuses on critical analysis of the external environment of organizations in Australia. In particular, the research analyzes the external environment of Aldi Company. Aldi is a Multinational organization operating in Australia’s grocery industry (Buchanan, 1993). The external factors have a great impact on the organization's performance and behavior. The factors affect the working conditions of the Company. Despite, the promising growth of the economy in Australia, the Country is facing external hindrances. One of the obstacles is limited skilled manpower. Organizations depend on skilled manpower to carry out their operations. Lack or shortage of qualified personnel is, therefore, detrimental to the growth of the businesses. The Country's workforce is also worrying since it comprises of the most aging group. The Workforce lacks young and energetic personnel; this is a serious problem that needs immediate attention (Thomson et al., 2001) However, the use of modern technology and sourcing of workers from other countries is proving effective in mitigating the challenge of workforce shortage. Besides, Australia organizations are also facing other challenges just like the rest of developed Countries. Among the challenges is the difficulty in adapting to the new technology. Technology is changing very first, and this makes it hard for organizations to keep up with the change. The impact of globalization is another external factor affecting businesses in Australia. The World is rapidly becoming a global village, where Countries engage in trade either freely or with minimal restrictions. Organizations are experiencing competition pressure due to globalization. It is also easy to outsource resources and workforce from other Countries. Organizations are, therefore, tasked with a responsibility of keeping up with the changing external environment (Thomson et al., 2001) The report seeks to further, evaluate the external environment of organizations in Australia. The report will make use of two models, which are very useful in the analysis of the external business environment. The models are the macro-environment and the Five Forces model. 2.2 The Porter’s Five Forces Model Strategic planning in any organization starts with an analysis of the major phases involved, which include internal, macro and industry environment. The Five Forces model forms one of the three phases. The Porter's model applies at the final stage of planning. It is usually a competitive model for analysis, which plays a crucial role in determining the competition facing an organization. Organizations use the Porter's model to measure the level of competition facing them. The model is most suitable due to its simplicity and clarity. Businesses, therefore, prefer to use the model, since they can comprehend the dynamics of their competition. Therefore, they can take decisive actions to mitigate the competition threat (Porter, 2008) The model comprises of five important forces, which are vital in determining the competitive ability of an organization. The forces can either raise or lower the industry's ability to compete effectively. The forces allow organizations to predict their opponent's next move, and this is important as businesses can decide the cause of action to take(Fleisher, 2003). Discussion of the forces relating to external environment of organizations in Australia follows below. 2.2.1 Customer’s bargaining power Analysis of the bargaining power of an organization's customers is paramount when applying the Porter's approach. An organization can ascertain to which level it needs its clients and also to which extent its customers' needs it. The Bargaining force helps the firm to measure the degree of dependency. The dependency is both ways, that is, to which extent the business depends on its customers and vice versa (Porter, 2008). An organization faces a significant risk if its customers enjoy a high purchasing power. Customers with high bargaining power are likely to exploit the organizations. They have the ability to demand goods and services of high quality at same or even lower prices. Therefore, it is necessary for an organization to ensure that it has a large customer's base. A broad customer base reduces the customers bargaining power since the customers need the business more than the company needs them. An organization must also keep check of its competitors since the more the rivals, the less the number of customers. Fewer customers make the business more dependent and thus raising the customers bargaining power (Fleisher, 2003) About the grocery industry in Australia, customers have a high bargaining power. Companies that deal with grocery products in Australia face the threat of their clients shifting to other dealers. The customers may demand high-quality goods and services at the lowest price; this is because they enjoy a high bargaining power. The high purchasing power results from the high number of competitors in the grocery industry, who deals with identical products. Further, the customers bargaining power raises even higher, since they make use of the internet (Hanson et al., 2008) 2.2.2 Threat of new entrants to the Industry New organizations entering the industry pose an enormous threat to the already existing ones. The opposite is also true since the existing businesses are familiar with the market. The existing firms also have an advantage since they already have an established customer base. However, it is possible for the new company to take away the market share of the dominant firm. In most cases, new businesses come into play due to an existing gap in the market. The existing firms may not be effective in meeting the demands of the market. New entrants are, however, faced with various challenges, such as limited capital, legal issues and competition from existing firms (Porter, 2008) The grocery industry in Australia experiences entrants of new businesses in the market; this is because the market is free. Entry of firms in the market is free. The existing businesses are, therefore, charged with a greater task of ensuring that they remain competitive. The existing firms cannot do anything to prevent new companies from getting in the market. The only thing that the current businesses can do is to adapt strategic plans, which will enable them to retain their market share (Fleisher, 2003) 2.2.3 Suppliers’ bargaining power An organization's suppliers are those firms who supply goods and services to the business. It is important for a company to determine the extent to which it depends on its suppliers or its suppliers depend on it. If a firm's suppliers have a high bargaining power over the business, they can manipulate the company. The providers can use their power to alter the prices since the firm is not in a position to negotiate. The business should ensure that the number of its suppliers is very high since the size of its suppliers determines its power to negotiate (Porter, 2008) The grocery industry in Australia comprises of suppliers with low bargaining power. The providers in the market are forced to lower their cost and to improve the quality of their products so as to get clients. The primary aim of firms in the grocery industry is to reduce cost; this ensures that the suppliers’ negotiation power is low. Big companies are also able to improve the efficiency of the market thus maintaining the prices at low levels (Fleisher, 2003) 2.2.4 Substitute products/service Substitute products are products used for the same purpose as the existing one. Firms face the fear of their customers opting to use other alternative products or services Businesses, therefore, have to ensure that, their goods and services are in line with the current technology (Porter, 2008) Retail firms in Australia face the threat of substitution from the large businesses. Large companies enjoy economies of scale; this allows them to produce a variety of products at lower cost. The products are also of high quality compared to the product offered by small firms. Large companies are also able to package the grocery products in a customer friendly manner, thus attracting a wider customer base (Fleisher, 2003) 2.2.5 Rivalry among existing firms There exists bitter rivalry among the firms in the market. In most cases, the market share is usually not enough for all the businesses. The firms, therefore, have to fight to retain their share in the market. Rival companies usually have the same capacity in terms of resources and market share; hence they try to capture the opponent's share (Porter, 2008) High level of rivalry exists between firms in the Australian grocery industry. The firms try to offer high-quality products at relatively low prices. It is, therefore, important for players in the market to up their game and provide their customers with quality and affordable products. (Coriolis, 2000) 2.3 The Macro-environment Model The macro model forms the first phase of strategic planning in an organization. The primary role of the model is to reveal the organization’s opportunities (Melville et al., 2004). The external environment of business presents numerous opportunities for the firm to explore. It is the work of the macro model to identify the opportunities. Apart from the opportunities, the organizations also face serious threats emanating from the external factors. The firms, therefore, make use of the macro model to expose the threats. The model also seeks to establish the overall factor that affects the company's industry. Macro factors are several, which may affect an organization either positively or negatively. The discussion of each of the factors relating to Australian grocery industry follows below (Hanson et al., 2008) 2.3.1 Economic Factors Economic factors comprise of inflation, interest rate, exchange rates and rates of unemployment. Economic factors affect the performance of the firms. The variation of the factors may either be positive or negative. A positive change of the factors favors the growth of the businesses while negative change slows the business growth. Firms should, therefore, consider economic factors before taking any action (Melville et al., 2004) Australian grocery industry is also affected by economic factors. The consumer spending is determined by the economic factors in the market. The unfavorable economic factors lower the consumers' ability to save. Customers are unable to save enough money, due to their low income. Inflation causes the prices of goods and services to increase, and this leads to decrease in demand for goods and services. Also, there is excess supply of products and services in the market, these results to the market not clearing (Hanson et al., 2008) 2.3.2 Political factors Analysis of macro political factors is vital to the growth and stability of the business. The government and politician influence the political factors. The governing body does formulation and implementation of policies. The policies formulated determine the stability of the business. Good policies promote the growth of organizations while wrong policies discourage the growth of the firms. Therefore, is important for the firms to consider the political trends in a country before taking any action (Melville et al., 2004) Australia is governed by the strong belief of social democracy, where the rights of everyone are guarded. Firms in the grocery industry are, therefore, protected by the governing rules. The retailers also have their Association, which fights for their rights. The governing body through the retailers association seeks the views of the business people, before amending or introducing new policies. Therefore, there exist a good working relationship between the firms and the governing body in Australia (Hanson et al., 2008) 2.3.3 Technological factors Globally, businesses are using technology for transaction purposes. The use of technology is effective and efficient. Firms are encouraged to adapt the use of technology in their operations so as to improve their productivity and profitability. Despite, the benefits accruing from the use of modern technology, some businesses are still hesitant to the new changes (Hanson et al., 2008) In Australia, organizations are using technology in their operations, due to this; firms in Australia can now compete at international level. The companies are using the new technology to explore international markets, thus widening their customer base. The Country enjoys extensive connection of fiber- optic cables; this enhances the use of Internet in business (Melville et al., 2004) 2.3.4 Social/Cultural Factors Organizations should consider the social and cultural factors surrounding them. The population in Australia is growing at a very high rate. The increase in population will have an impact in the grocery industry. The demand for goods and services will increase, due to increase in the population. The firms should, therefore, take advantage of this opportunity and produces more goods and services. Australia comprises of people from different cultures. Therefore, the businesses must ensure that they provide a variety of products and services, so as to meet the varying demand (Melville et al., 2004) 2.3.5 Legal Factors Legal factors are necessary for the stability of the business. There exists a relationship between the legal and political factors. The governing body makes laws, which guide the organizations in their operation. Legal factors are important especially when there is a legal battle involving a firm. The common law governs Australia, and legal system works in support of organizations. The players in the grocery industry are, therefore, assured of protection by the law (Hanson et al., 2008) 2.3.6 Ecological Factors Australia stands out as one of the driest countries in the world. The Country receives very little rainfall in a year. A larger population resides in the urban areas. Pollution is also very high, resulting from activities involving the land such as soil erosion. The firms should, therefore, consider the ecological conditions before engaging in any strategic plan (Hanson et al., 2008) 3.0 Conclusion and Recommendations From the discussion, it is clear that organizations face a significant challenge from their external environment. The research gives an in-depth analysis of the external business environment in Australia. In particular, the research focuses on Aldi, which is a multinational company operating in Australia. Aldi Company specializes in grocery products in Australia. Analysis of grocery industry by use of macro-environment model reveals the influence that macro factors have in the industry. The report shows the adverse effects of economic factors on the consumer behavior, which in turn slows down the business growth (STATISTICS, 2010) Analysis of the Porter’s Five Force model reveals the competition level in the market. Aldi Company faces severe competition from other firms in the grocery industry. From the discussion, it is clear that competing firms in the industry use a similar approach. The companies offer products of high quality at lower prices. Aldi Company should adopt a strategy that will make it obtain a high competitive edge in the market. The approach should also allow the Company to capitalize on its strength while improving on its weaknesses. The plan should enable the Company to explore the opportunities presented by the external environment. Further, the organization should be able to predict potential threats from the external factors (STATISTICS, 2010) Finally, the organization should formulate its mission statement and specific objectives. 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