Wesfarmers Business Strategy
Task: Write a report on examining the risks and advantages associated with international trading and global expansion considering the Wesfarmers business strategy.
The study of Wesfarmers business strategy revolves around the concept of global expansion of a business. The global expansion of any business needs certain research of the market of the country the business is to be expanded. In order to investigate the field of international trading, the possible business expansion of Wesfarmers in the global countries has been focused on. The report on Wesfarmers business strategy contains the risks and advantages associated with international trading and global expansion of any industry from the perspective of a business owner.
Well planned Wesfarmers business strategy and organizational skills are the two major points to be considered by the company in order to achieve success in the business world. Making a profit and achieving growth in a business can be difficult sometimes. Therefore, to avoid all the risks and chances of failure, planning out all the necessary steps beforehand is very important. In this era of globalisation, every business owner looks forward to an integrated world more than a self-contained country. In order to achieve success, the companies are aiming at associating with multiple countries instead of focusing on one country. There are an ample number of success stories influencing the owners to work towards expanding their business worldwide. However, there are several obstacles that companies face while trying to settle their business in a foreign land. The companies need to consider different aspects such as target market, production cost, additional costs, adopting new technologies, and so on. With the advantages of globalisation comes a massive range of increased competition, business organisations need to pre-plan their strategies to survive and sustain in the international market while achieving success and profit. This report focuses on exploring the opportunities and strategies of international business while identifying the risks and an effective risk management process as well. Recommendations for betterment will be provided as well. In order to examine all these aspects of Wesfarmers, the successful organisation, Wesfarmers business strategy has been examined in this report.
How Wesfarmers business strategy help identify the opportunities in international trade?
Before expanding the business to the foreign countries, the efficient business owners focus on the potential opportunities the business might offer. Wesfarmers is one of the largest revenue-generating companies in Australia and the largest private employer as well. This organisation has the manpower, system and proper process to expand overseas. However, expansion in the global market needs to be measured by analysing the market beforehand; therefore not hurriedly getting into expansion this company is continuing their groundwork so that they can be prepared to survive through the challenges that come along with the business (Hillman, 2017).
Figure 1: Growth rate of Wesfarmers
(Source: Hillman, 2017)
The possible advantages a foreign market can offer are:
Reach to a huge number of customers: the major advantage that international trade offers is that organisations can increase their number of potential customers. Therefore, each country the business expands to create a scope of business growth, increasing revenue. A various number of the national survey states that different business owners look forward to expanding their business and grow faster to reach a number of customers and attain a loyal customer base. The product reaches increases due to a new market.
Enhanced level of revenue: The readings used to develop this study on Wesfarmers business strategy signifies that making money is one of the most important aspects of a business; therefore, the primary focus of any business remains to cost-cutting. However, efficient business owners aim at enhancing their business revenue efforts. Expanding the business to a new market result in catering to new crowds, which increases business profit, therefore, generates revenue as well.
Longer product life: The life span of certain products in the domestic country might be at a lower level; therefore, introducing the products internationally can help the organisation to extend the lifespan of things as certain markets look forward to buying foreign products more than the domestic products.
Simpler cash flow management: It has been identified from a number of studies considered in this Wesfarmers business strategy report that in the domestic market acquiring payments take more time, in the known market the organisations have to be creative in managing their cash flow. Expansion of the business in the newer market allows the business authority to ask for payments in an upfront manner. Therefore, expanding the business in the international market is also a part of Wesfarmers business strategy that supports a simpler cash flow management.
Currency exchange benefits: Currency fluctuation is a common thing in international business which can cause a certain threat to the business, but it can be utilised as an advantage by an efficient businessman. For instance, a product earns an organisation an amount of 1 AUD and 1$ in another country, when the country's dollar to AUD rate goes higher that means the net profit goes higher because of the change in the exchange rate. Therefore, the business organisations aim at expanding their business to a growing economic country, investing in those countries that can offer a better profit rate.
Diversification and product line expansion: Expansion in an international market helps the business organisations to analyse the requirements of the new customer base and launch a new product line just to fulfil the need of those customers. This results in a product line expansion for the organisation. Diversification refers to a low risk for a certain company, if one organisation's investment performs poorly in the industry, then another investment may perform well.
Better risk management: the significant advantage that international trade offers include diversification. Concentrating on the international market increases the scope of advanced political and environmental factors. Depending on the global market offers scope to resolve the potential risks of the core market.
Surplus good disposal: production of certain products increases the amount of stored well for the industry due to certain economic downtime in the domestic market. Through utilising the global market, international trade can offer an outlet for the disposal of those surplus products.
Opportunity to experiment: doing business in the global market helps the organization to apply certain experimental strategies. As the company’s newly introduced to the global market has a lesser risk of losing customer attention, applying these strategies can help the organisation to know the market better while creating a buzz in the industry.
Acquiring better distributorship: A successful company like a Wesfarmers who has effectively implemented Wesfarmers business strategy to expand its business has a good reputation all over the world. Therefore, introducing business in the new market can help them to gain a new range of distributors, eventually helping them to reduce their operational cost.
Global recognition: one of the major opportunities the international trade offers is global recognition. A successful organisation always aims at reaching a greater number of people; therefore, handling business in various countries help them to achieve more amount of growth and profit in lesser time (Witt, 2019).
The process of developing strategies depending on the opportunities
Developing a proper Wesfarmers business strategy that would ensure success for the organisation is an immensely important responsibility of the owner and the top management of a company. Successful business organisations like Wesfarmers have to outline the Wesfarmers business strategy beforehand to ensure the company's commitment towards the international market. The owner and other top managers have to organise the process depending on which the management team would develop an international business strategy. The companies will have to follow a process that would include steps such as conducting research on the market, developing a mission statement based on the goals of the organisation for the international market, identifying the strategic objectives is also necessary, along with other tactical plans and performance management (Morschett, Schramm-Klein & Zentes, 2015). The international business strategy process, as proposed by the experts includes steps, such as:
- Analysing company’s weaknesses as well as strengths for the growth in the international market
- Researching the other rival companies and their business
- Depending on the research results selecting a target market and technology and product services is to be done
- Identifying the entry modes including direct exports and local manufacturing is important
- Deciding International business goals, budget and time frame
- Preparing a marketing plan as per the demand of the foreign market
- Modifying the existing plans of the organisation
Figure 2: revenue rate of a business organisation in 2018
(Source: Morschett, Schramm-Klein & Zentes, 2015)
The international trade strategy development takes a certain amount of time, and the companies have to keep working on the betterment of their business profit in the domestic field so that the challenges faced in the global market does not have long term impact on the organisations. While developing each step in the process, the workforce of the organisation is divided into small groups of specialized people. Each step is studied in detail, and a vivid report is presented based on the experience, depending on which the management team modifies the process. Developing an international business strategy for a large-scale company takes a lot of time as the large-scale companies have certain risks in introducing something new to their existing successful business process. However, the organisation takes risks to enhance their business profit. In most cases, the organisations give the responsibility to an expert consultant of the company or hire someone to plan the strategy in order to reduce the chance of risk (Nordås, 2015).
Application of risk management in international trading
International trade mentioned in the study of Wesfarmers business strategy mainly refers to the exchange of a number of products as well as services to different countries that affect the demand-supply and pricing strategy along with a profit range of the industry due to global happenings. International trade is important because it offers an increased rate of employment, supplies products and services, monitors the pricing strategy, along with offering global recognition to a company. The entire process is massively dependent on the global events; therefore, the return of investment is always at risk, additionally introducing a threat to the original investment amount as well. The type of risks associated with the process involves customer's risk of accepting the product, credit risk, the risk of the degraded performance level of the company, economic risks, lack of clarity in the documentation process of the business, problems related to financial risks. In addition to that, the organisations might face certain cultural risks, foreign exchange rate related risk, issues in transition, fluctuation in the global economy, political incidents causing surge pricing in products, increase of taxes. The company faces a number of risks in the process, creating a need for a risk management system that would help the organization to survive the problematic face without losing much (Den Haan, Ilzetzki & Ellison, 2017).
Processes that can help in managing or reducing the level of risk are:
As per experts and their theories, investors focus on the aspects of lower risk associated with every asset related to the business as well as considering the investment risks associated in accordance with the entire portfolio. The risk of any investments has two components, such as systematic risk and specific risk. The systematic risk refers to a situation like a global recession where the maximum number of investment or the entire investment might get affected. These kinds of risks are difficult to manage. The second kind refers to threats associated with individual investors, such as the industry might go through a situation where the security of the company is at risk. These risks are simpler to manage. The companies lose, in this case, affects the economy of the country at a certain level; therefore, the government ensures security for the large-scale companies, therefore, risk management is easier for these companies working in the foreign land. In a situation when the problems have arisen an organisation can combine their corporate investments to collaborate the high risk/return aspects to low risk/return aspects in order to balance out the risks and survive the problem. The company's aim at avoiding the risks in the first place by investing in certain places where the risks have already been identified.
Expanding the business overseas can have different advantages along with several problematic factors as well. Before establishing the business, the organisation has to learn about the legislation and regulations of the country the organisation is aiming at expanding, they have to find eligible and trustworthy partners, becoming knowledgeable about the local trends and demands of the customer. The way to international trade can be quite complicated. Organisations like Wesfarmers can utilise the advantages of the expansion to avoid the effects of the challenges (Lasserre, 2017).
Choosing eligible and trustworthy partner and appointing an efficient team: As a part of Wesfarmers business strategy, the company would need to have a team and partners who have proper knowledge of the products this company is aiming at selling. The partners would need to have their objectives aligned with the company objectives. The local employees would know the local consumers and the requirement from the company; therefore, it would be easier for the organization to choose a target consumer base and identify a unique selling point that the local employees would communicate to the new country for enhancing the business of Wesfarmers.
Advanced infrastructure: for the employees to work efficiently for the betterment of an organization, it is important for the company to support them with advanced technology and improved infrastructure, which ensures better organizational productivity. The advanced infrastructure would help the company to have an impactful and smooth launch in the foreign market.
Analysing innovative ideas thoroughly before implementation: By adopting an effective Wesfarmers business strategy, the company becomes one of the most successful companies in Australia, even then before launching their business in the international market they need to think about the customer’s demand from the perspective of the country’s residents. The successful products or offers might not be as impactful in other countries.
Hiring experts: The organisation will have to depend on experts in order to examine international growth strategies.
Constant modification for benefit: the identified issues have to record in the organisational process for the organisation to be able to modify their existing process for better.
High-end customer support: In a foreign land a new organisation takes time to settle. Therefore, it is important for that organisation to provide the best quality customer support for consumers to stay connected to the company.
The analysis provided the study of Wesfarmers business strategy can be concluded by saying that the opportunities and risks of introducing a business have been identified and discussed in detail. The risk management process and recommendations to resolve those critical problems have been provided as well for the successful organisation like Wesfarmers to launch smoothly and perform as effectively in the global market.
Den Haan, W., Ilzetzki, E., & Ellison, M. (2017). Wesfarmers business strategy Global risks from rising debt and asset prices. LSE Business Review.
Hillman, J. (2017). The Rules-Based International Trading System Urgently Needs Attention. Geo. J. Int'l L., 49, 559.
Lasserre, P. (2017). Global strategic management. Macmillan International Higher Education.
Morschett, D., Schramm-Klein, H., & Zentes, J. (2015). Strategic international management (pp. 978-3658078836). Springer.
Nordås, H. K. (2015). Services SMEs in International Trade: Opportunities and Constraints. by International Centre for Trade and Sustainable Development (ICTSD) 7 Chemin de Balexert, 1219 Geneva, Wesfarmers business strategy Switzerland Tel:+ 41 22 917 8492–E-mail: ictsd@ ictsd. ch–Website: www. ictsd. org Publisher and Chief Executive: Ricardo Meléndez-Ortiz World Economic Forum 91-93 route de la Capite, 1223 Cologny/Geneva, Switzerland Tel:+ 41 22 869 1212–E-mail: contact@ weforum. org–Website: www. weforum. org Co-Publisher and Managing Director: Richard Samans.
Rugman, A. M., & Verbeke, A. (2017). Global corporate strategy and trade policy. Routledge.
Witt, M. A. (2019). De-globalization: Theories, predictions, and opportunities for international business research. Wesfarmers business strategy Journal of International Business Studies, 1-25.