Entry Plan of Wal-Mart in Australia - Case Study Example

Entry Plan of Wal-Mart in Australia Country Profile: Australia Australia is one of the wealthiest developed countries in the world. The country is divided into six states and has two territories. Australia is placed at the second position in terms of human development index and has earned appreciation worldwide regarding development factors such as, quality of life, education, health, and political and human rights. Political, Economic, Socio-economic and Legal environment analysis Australia is a well-developed democratic nation with political and economic stability. The country has transparent government policy, accountable and flexible financial practices and open regulation that provides low risk business environment for foreign companies. The legal system is extremely impartial and domestic and foreign firms have equal rights. Further, Australia is one of those countries that strictly protect intellectual property rights (NSW Government, 2012). Australia is one of the high income countries as per OECD. There are a number of languages spoken in Australia, English being the primary communication language. According to World Bank data, population of the country was 22.72 million in 2012 and gross domestic product was worth $ 1.532 trillion. The taxation rate is fairly reasonable in the country, accounting for only 30%. Moreover, there is no restriction on capital repatriation, capital flow, transfer of trade-related payments and profit remittances. The business related cost regarding infrastructure and workforce is comparatively low with respect to countries like, Tokyo, London, Singapore, Hong Kong and Paris. Australia has an extremely robust telecommunication infrastructure consisting of fibre-optic, wireless, satellite and microwave system. The main currency of Australia is Australian Dollar, but there is little restriction on other currencies in the country. The monetary sector of the country is monitored by Reserve Bank of Australia. According to World Bank, around 34% of GDP forms the merchandise trade, while 21% of GDP constitutes net export earnings of Australia. Its main trading partners are China, Japan, Korea, United States and Singapore (The World Bank, 2014). Company profile: Wal-Mart Wal-Mart is an American multinational retail chain founded in 1962. The company is registered with New York Stock Exchange and is world’s largest public corporation. The company is a family owned business run by Walton family. The company operates in retail industry in various formats across the world such as, discount stores, supermarkets, hypermarkets, warehouse clubs, restaurants, apparel stores, super centres, convenience store, drug store as well as retail websites such as, walmart.com and samsclub.com. The products offered by the company include meat, ready-to-eat products, dairy products, bakery, frozen foods, alcoholic and non-alcoholic beverages, floral and dry grocery, baby products, paper goods, health and beauty products, household chemicals and pet supplies. The variety of merchandise of Wal-Mart is huge; the range further includes stationery, electronic and electrical goods, entertainment products, jewellery and accessories, household furnishing and home decor. Wal-Mart operates in 27 countries under 71 banners and has approximately 11000 stores (Wal-Mart, 2014). The company currently has approximately 2.2 million full time employees. Wal-Mart’s market capitalisation is worth $ 247 billion. The company operates in three segments: Wal-Mart U.S., Wal-Mart international and Sams Club (Yahoo Finance, 2014). The main competitors of Wal-Mart are Macy’s Inc, Kohl’s Corp and Dillard’s Inc. The major direct shareholders of the company are Jim C Walton, Robson S Walton, Michael T Duke, Douglas McMillon and Lee H Scott (junior). The Price earnings ratio of the company is around 15% and return on equity is around 21%, which shows that the company is employing shareholders’ fund in proper manner. The revenue earned per share by Wal-Mart is as high as $ 146 (CNN Money, 2014). Possibility and feasibility of financial, distribution, and marketing partnerships for Wal-Mart within Australia Market structure and analysis In Australia, the concept of supermarket is highly accepted by consumers; hence, it is expected that Wal-Mart will perform well. Due to presence of a number of similar retailers, the company is expected to have monopolistic competition as market structure. As a part of market analysis, the company need to access the location of its stores, number of buyers, number of competitors, position of competitors and market share. Currency considerations International business involves a number of issues regarding financing and pricing. Since currency value of United States and Australia are not same; so, there will be variation in pricing of the product. While determining price of the merchandises, the foreign exchange rate should always be taken into consideration. In this regard, the relative Purchasing Power Parity theory is very useful. E-commerce Wal-Mart has realised that most consumers in the present generation prefer shopping online, otherwise known as digital shopping. Following the footsteps of Amazon, Wal-Mart has initiated e-commerce activities, which has been well-accepted by its consumers. Australian consumers are also tech-savvy and prefer digital shopping. Consequently, Wal-Mart will be able to reach greater share of consumers (Export.gov, 2012). Regional and global trade integration The rationale behind regional and global integration, in terms of trade and finance, is that both the countries get benefitted. Moreover, the companies can have wider opportunities associated with access to consumers and sources of finance. In Australia, through integration, Wal-Mart will have greater access to its educated workforce, cost advantage in raw materials and other resources and wide base of consumers (Ketchen & Short, 2012). Marketing mix component and potential volume of trade The potential volume of trade in Australia is highly dependent on company’s marketing strategies. It is important Wal-Mart creates a well-blend of 4Ps and 4Cs of marketing, that is, Product, Price, Promotion and Place as well as Consumer, Cost, Communication and convenience. The product should appeal to the consumer; the cost should include that incurred by company as well as price paid by the consumer. This cost must satisfy both. The promotion strategies of Wal-Mart shall be such that it communicates the right message to the right consumer at right time. The location of the store is very important as greater accessibility means greater market share. Hence, it should be convenient for the consumers (Webster, 2002). Culture Majority of population in United States and Australia may speak the same language, but the cultural difference is great. The purchasing pattern, behaviour and expressions, eating habits and taste in entertainment are drastically different from each other. Thus, the company needs to take these factors into consideration before establishing its store in the country (Ketchen & Short, 2012). Wal-Mart’s reason to enter the Australian market Every retail giant aims to capture the whole of global market so as to have access to new consumer base and competitive advantages of operating in a foreign market. Although United States is a large economy, its population accounts only for about 5% of world’s population. So, it is natural for Wal-Mart to wish upon expanding its business and accessing the rest 95% of population. Australia has educated and low cost work force, abundance of raw material and minimum legal implication, which is why Wal-Mart is keen to serve the Australian market (Export.gov, 2012). Potential risks related to foreign market expansion in Australia There are three major risks associated with entry of Wal-Mart in Australia, which are foreign exchange risk, cultural risk and risk associated with non-acceptance. The foreign exchange or currency risk is the cost borne by a company while operating in foreign market due to fluctuation in the value of local currency. The possible way to mitigate this risk is by undertaking local financing support as opposed to that from home country. The culture of Wal-Mart’s home country and host country is different, so cultural clash may result in issues related to management and operations. Therefore, acculturation is very important. Lastly, Australia is a high income developed country and already houses a number of local retailers. As a result, consumer may show resistance towards products offered by Wal-Mart. The only solution to this situation is by initiating digital business through e-commerce for better understanding of consumers’ perspective (The New York Times, 2013). Potential benefits of expanding in Australia If Wal-Mart succeeds in Australia, main advantage that it will earn is cost advantage in terms of raw materials and other resources. Furthermore, the company will have access to huge Australian consumer-base. The company may even access fund locally as in Australia, the government openly support foreign investment and United States is one of its major trading partners. To enjoy these advantages, the company will have to form a management group that will have Australian members as well as hire Australian workforce as its employees (NSW Government, 2012). Operational strategies of Wal-Mart in Australia In order to foster its competitive advantage as well as fit in the changing dynamics of foreign market, the first necessary step for Wal-Mart is to initiate business in Australia through e-commerce to observe consumer response towards its products and marketing style. The second strategy of the firm should be that of incorporating Australian members in its management so as to have a better understanding of local market and culture (Stevenson & Hojati, 2007). Conclusion The paper analyses the potential scope of Wal-Mart in Australia. It was observed that the country is continuously growing and developing. Such a market will boost market reputation and performance of Wal-Mart. The various sections of the paper have evaluated benefits and risks involved in this venture and possible ways to mitigate the risk, thereby ensuring successful entry of Wal-Mart in Australia. References CNN Money. (2014). Wal-Mart Stores Inc. Retrieved from http://money.cnn.com/quote/competitors/competitors.html?symb=WMT. Export.gov. (2012). A Basic Guide to Exporting Contents. Retrieved from http://export.gov/basicguide/eg_main_017244.asp. Ketchen, D. & Short, J. (2012). Advantages and Disadvantages of Competing in International Markets. Retrieved from http://2012books.lardbucket.org/books/strategic-management-evaluation-and-execution/s11-01-advantages-and-disadvantages-o.html. NSW Government. (2012). Why business chooses Sydney. Retrieved from http://www.sydneyaustralia.com/en/doing-business-in-sydney/business-environment. Stevenson, W. J. & Hojati, M. (2007). Operations management. Boston: McGraw-Hill/Irwin. The New York Times. (2013). The Risks of Expanding Into Australia. Retrieved from http://boss.blogs.nytimes.com/2013/03/08/the-risks-of-expanding-into-australia/?_php=true&_type=blogs&_r=0. The World Bank. (2014). Data. Retrieved from http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS/countries. Wal-Mart. (2014). Our story. Retrieved from http://corporate.walmart.com/our-story/. Webster, F. E. (2002). Marketing management in changing times. Marketing Management, 11(1), 18-23. Yahoo Finance. (2014). Wal-Mart Stores Inc. (WMT). Retrieved from https://in.finance.yahoo.com/q/ks?s=WMT. Read More