International Strategy for Woolworths in China

Introduction

Report objectives

The corresponding report based study would be formulated as an international business expansion plan for the Woolworths Supermarkets, the leading grocery supermarket chain owned by the Woolworths Group of Australia, within the Chinese domestic markets. At the initial phase, the company background would be evaluated related to Woolworths and the destination country would also be evaluated in terms of the macro business environment through the political, cultural, economic, legal and ethical analytical perspectives.

Report Scope

The scope would entail the analysis of the most relevant strategies pertaining to production, marketing and supply chain management processes for Woolworths so as to expand within the targeted market segments of China.

Background of Woolworths and China

Additional analysis

According to Schwab (2018), the Global Competitiveness Index (GCI) of the World Economic Forum evaluates the measure of productivity and the capability of fostering prosperity of any particular country. The 12 pillars are of evaluative extents are scored on the 0 to 100 unit scales. The 12 pillars of this GCI report is the constituted by 98 different variables which involve factors such as infrastructure, institutions, macroeconomic stabilisation, health facilities and primary education, skills, labour market conditions, production management, ICT adaptation, capability to innovate, size of the existing markets, financial systems and business dynamics. Cumulatively, these formulate a composite indicator and the subsequent computations are performed through subsequent aggregation of scores which are garnered from the most disaggregated indicator levels through to the overall highest level. At the individual levels, the average of the scores of the related components is utilised to compute the subsequent scores.

140 different economies have been assessed in the Global competitiveness Report index edition 2018. The higher the average score, the greater has been perceived the measure of competitiveness performance for different countries in the GCI report. In case of the Chinese economy and market development, three particular categories of impetus are formulated by these 12 pillars collectively. These could be identified as the following:

1: The primary requirements related sub-index is formulated by the pillars of Institutions, Infrastructure, Primary education and health care conditions at China and the overall macro-economic stability. To these effects, Lo (2017) has outlined that Chinese commitment towards universal primary education provisioning to every citizen has yielded the dividend of 100% rate in the primary school enrolment which has contributed significantly to the skills acquisition of the Chinese labour force. However, the overall skill measure based ranking of China at the GCI 2018 is only 63rd which is lower than those of the majority of the OECD countries.

2: The efficiency enhancement sub-index is formulated through the pillars of efficiency of the goods market and labour markets, availability of skills development opportunities through higher education/ training, development of financial markets, technological adaptation abilities or ICT adoption and sizes of the general markets. In this context, Bucher (2018) has researched that WEF has rated the Chinese labour market 69th globally till 2019. The inability of successful adequacy of greater benefits and wages by the Chinese workers is the primary factor which has been responsible for this tepid rating. In terms of the greater opportunity availing through higher education, according to Lo (2017), the China also considerably lags since only 12 universities situated within the Mainland China are listed amongst the enlistment of 400 institutions of higher education at the Times Higher Education World University Rankings report 2018. In the GCI as well, the achieved ranking by China in terms of talent cultivation for driving of innovation is only 57th.

3: The sub-index of business sophistication and innovation is formulated by factors of similar nomenclature. Roy (2018) has stated that business sophistication has been viewed with specific urgency by the Chinese governments, culminating in efficient financing of business projects and the fast paced development of business infrastructure required for enhancement of economic output. China has acquired 19th place with the GCI 2018 in terms of government expenditure efficiency ratings. Innovation management is still a matter of concern for China since safeguarding of Intellectual Property (IP) rights has been not achieved effectively by China to sustain innovation substance within the Human Resources of the country. The country has been ranged middle thirdly on the global scenario in terms of IP protections (49th). The annual International IP index publicised by the Global Innovation Policy Centre (GIPC), an affiliate to the US Chamber of Commerce and which is based on 40 different indicators cumulatively categorised as the benchmarking activities which are critical for development of innovation capability, has accorded the 21.24 score to China out of 45 base points. USA has been the leading economy in terms of innovation management with 42.66 basis point score in this survey.

Gross Fixed Capital Formation (GFCF)

As per the research of Li & Lin (2017), the National Bureau of Statistics of China had published data during 2018 which outlined the latest value of GFCF in China as $5,755,350,000,000 which is the highest in the previous 58 years. In the previous 58 years, the value of such an indicator has primarily oscillated in between $7,112,682,000 during 1962 to that of the value of 2018 previously mentioned. This has been 42.93% of the GDP of China.

CAGE framework (cultural, administrative, geographic and economic)

Cultural Distance

The intensity of patterns of migration and capital flows could reflect the persistent financial growth which could characterise the gains made by the Chinese economy in terms of international trade. The Chinese culture generally encompasses a geographical region which is large with multi-plethora of traditions and customs. The variations of such cultural components are also extensive between the provinces, urban dwellings and even regions. In this context, Australia has been one of the prime destinations of Chinese migrants during the previous century. In the current scenario, these migrants formulate significant minority communities at various Australian cities such as Melbourne, Sydney, Darwin, Brisbane, Victoria and even at New South Wales. The existence of such Chinese expatriate groups, with relatives on the Mainland PRC, could foster greater connectivity between the two cultures which could facilitate the business expansion of Woolworths in the Chinese internal markets.

Administrative Distance

The bilateral negotiations on formulation of the Free Trade Agreement (FTA) between Australia and China were initiated from November 2013 onwards. Apart from this, the countries had been under serious negotiation concerning the promulgation of a Preferential Bilateral Trade Agreement officially known as the Asia-Pacific Trade Agreement (APTA). This was directly related to the UNESCAP (United Nations Economic and Social Commission for Asia and Pacific). This has culminated into the implementation of a third round of concessions of tariffs by 2016 and as a direct consequence, preferential treatment category included goods had increased significantly.

Geographic Distance

Hasan, Ibrahim & Uddin (2016) have delineated that proper illustration of the effects of geographic distance would require the utilisation of a Table of Calibration through which the intensity of Chinese exports to various countries could be demonstrated.

The distances in between the major urban centres and those of China have been counted in miles in terms of aviation routes. In this context, halving the distance could contribute in doubling exports by these countries into China and this could imply that for 1/4th of the distance in between Australia and the PRC, quadrupling effect of the export intensity could be achieved. To this effect, the above demonstrated Table 1 has been formulated on the perceptions that exports of EU countries to China could be 1/4th of the exports of Hong Kong to Mainland China and thus, the hypothetical share of Hong Kong in international exports to China in comparison to any EU country under consideration in the Table 1, such as that of Germany, could be a factor of closeness of Hong Kong to China in a comparative manner with that of Germany after multiplication of the value by the percentage based share of German exports to China (4.03x4=16.12%). The above demonstrated Table 1 has been based on the study performed by Thierry Mayer and Keith Head with the utilisation of the -1 coefficient value derived from the study. 2508 different gravity models have been utilised with an inclusion of 159 research cross evaluations of studies. -1 has been also the measure of median elasticity of trade in consideration to the geographical distance. These gravity models have utilised data on the mechandise trading involving the time duration ranging from 1960 to 2010 so that possible analysis of the implications of distance on trading practices could be undertaken.

Economic Distance

Furthermore, the utilised Gravity models have suggested that differences in the per capita income could decrease trade intensity since economies with lower levels of monetisation and per capita GDP tend to direct their international trade in a proportionate manner. This leads to high level of arbitrage seeking on part of such trade partners working on only the motivation of per capita income based disparities.

Recommendation for entry mode and multinational structure/competitive strategy involving Woolworth

Company vision

The vision of the company involves the objective of becoming the most responsible retailers of the world through reflecting of the passionate commitment of the organisation through performing of effective business operations and adding benefits to the customers.

International growth strategy

1: Improvement of the core product offerings so that effective brand image and positive customer perceptions could be developed.

2: Greater innovation in product distribution channels and offerings so as to better meet the needs of the developing Chinese urban and rural populaces.

3: Creation of greater customer value through implementation of Lean Retail approach.

The hypercompetitive market scenario of global retail has prompted Woolworths to benchmark the necessity of quality service provisioning for the customers. The millions of customers at both Australia and at international markets, such as that of China, have ensured that management and understanding of the impact qualitative service provisioning in the retail sector should become the prime focus of concern for Woolworths. Such standardisation has involved the ramping up of refurbishment of different supermarkets to retain and obtain new customers. According to Woolworths Group (2020), the following are operated by Woolworths at present:

1: Australian Foods: Mostly concentrated at Australia.

2: New Zealand Foods: Concentrated at New Zealand.

3: Endeavour Drinks: Reselling of soft and health drinks for Australian customers

4: BIGW: Dealing in general merchandise through discounts.

5: Hotels: Hospitality and recreational services.

6: Human Capital: 202000 (approximate numbers).

7: Greater emphasis on technological operations through apps utilisation for online retailing at the Chinese markets.

8: Business risk perspectives: Strategic and financial risks, compliance and operational risks at the Chinese market segments.

9: Business risk mitigation purpose strategies of Woolworths at China: Strategic risks are to be handled through improvement of customer connectivity and consumer first tactical approaches. Furthermore, the corporate social responsibility element would be required to be implemented as well. Financial risks are to be managed through stringent treasury management policies such as Lean Operations management. The Operational risks could be managed through quarterly turnaround plans and infusing of resilience framework within the business processes. Finally, the compliance related risks require the application of internal and legal compliance management frameworks by Woolworths while having to expand into the domestic market spheres of China.

Entry mode recommendation

Indirect exports

Woolworths could as well utilise third party facilitators for proper management of logistics and product delivery to the targeted market locations within China so as not to manage exporting and documentation responsibilities directly. This would additionally benefit Woolworths since this would entail the opportunity to select experienced and reputable exporters and the marketing risks would be lowered.

Franchising

This would entail the formulation of a formal contract by Woolworths and any established, suitable Chinese organisation. The franchisee Chinese company could then product and market the goods and products of Woolworths based on the instructions provided by the franchiser. The benefits of this approach for Woolworths over the previously discussed entry mode strategies would be the relative absence of involved risks with increased profit potentials. Woolworths would be able to receive running royalties, compensations and fees from the franchisee/franchisees.

Foreign Direct Investment mode

For Woolworths, this would entail the most suitable entry mode in Chinese markets since the internationalisation process could be effectively managed in this context. This mode could enable the retailer to assume complete control over the entry mode through direct ownership of subsidiary organisations at China. The retailer could as well develop new models of business operations to better suit the existing markets on the basis of developmental goals, abilities and expertise which the company has.

Competitive strategy recommendation

Pricing strategy

1: Effective ranging of products would be required by Woolworths.

2: Flexible pricing methods are to be applied to achieve the competitive pricing perspectives.

3: Generation of specific product offerings based on targeted customer segments would be crucial for the Australian retailer so as to completely revise and improve the existing competitive pricing leverage obtainment mechanisms.

4: Development of detailed and meticulous strategy for improvement of existing brand image would be required so as to close the product range gaps where branded alternatives could not be in existence. This could favourable impact the pricing perspectives of the company.

5: Establishment of Woolworths FoodCo at China so as to deliver new products and grater purchase experiences to customers at suitable and adequate price ranges.

6: Improvement of the meat and dairy product supplies by the company would be required through development of strategic sourcing initiatives with the Chinese partners and local producers.

7: Capital allocation portfolio would be required to be managed in the most disciplined manner so that incremental and precision based capital allocation could be performed in terms of focusing on luxury and grocery service development at Chinese retail markets.

8: Life cycle based pricing implementation would be required through utilisation of Systems Application and Product (SAP) model. This could enable Woolworths to maintain control and properly manage the trade-offs between price patterns, profits and returns on investment. The minimum support prices for fruits and vegetables regarding the Chinese market could be maintained through this model as well.

Marketing strategy

1: Setting up online retail services: Woolworths would require developing an online retail service in Chinese markets so as to better expand the brand identity of the offered products. 2: Establishment of joint ventures: Woolworths would require formulating joint ventures with e-commerce solution providers such as e-Cargo in multi-branded retail operations. 3: Establishment of online footprints at the largest B2C digital markets at China. The joint venturing with e-commerce solutions could entail better coordination regarding inventory management, distribution and packaging requirements management and brand image formulation strategy determination regarding the unique conditions at Chinese markets. 4: Chinese market dynamics analysis would be required to be performed by Woolworths in terms of determination of preferences of customers and aligning organisational resources with such preference scenarios. Greater emphasis is required to be concentrated on personalised services since the average Chinese consumers prefer purchasing from traditional stores. The distribution strategies would have to be developed accordingly.

Production and supply chain management strategy recommendation

Demand and procurement management

Woolworths utilises merchandise lifecycle management of Tradestone so as to manage the production and supply chain management procedures since this approach offers proper operational handling mechanisms of business activities such as suppliers and financing management, B2C sales and inventory management opportunities. Within China, this mechanism could be utilised to connect with in excess of 6000 existing different suppliers of the Australian retailers. Furthermore, development of pricing mechanisms to better utilise product demand, location establishment prices and SKU (Stock-Keeping Unit) levels associated price changes encompassing the offered services and products would be required for Woolworths.

Merchandise and assortment planning

The previously mentioned SAP solutions could be utilised to define the plans, distribution channels and merchandise offering procedures through which new styles of supply chain management mechanisms could be developed. The practical implementation of this perception could entail assignment of particular sales targets to regional store management personnel of Woolworths at China as well as accordance of targets for sales development and profit margin improvement at every level throughout the different locations of China where Woolworths could determine to establish retail stores.

Rebalancing of capital expenditure through Lean Retail Model

This would entail driving of growth through seeking efficiency through investing in product distribution strategies which could be tailored to the developing market requirements. Furthermore, refurbishment of existing retail stores at Chinese urban and regional centres, which could be acquired by Woolworths in the process of direct investment based market penetration would have to be consistent to achieve the potential customer growth at such markets. Furthermore, the Lean Retail management model would require the following:

1: Inventory on demand based lean warehousing so that saving of cash flow could be achieved.

2: Multiplicity of stops based delivery routes so as to save fuel consumption costs even with large payloads when distribution efficiency could be the factor of concern.

3: Customisation of market efforts of Woolworths to develop repeat wholesales customers since this could entail repetition of similar sales operations and variable product costs could be precluded on grocery or luxury merchandises.

HRM strategy recommendation for Woolworths

Involving the particularities of conditions within the Chinese retail market sector, the Polycentric Approach would be most favourable for Woolworths in HRM strategy formulation so that effective operations of the subsidiary organisations of Woolworths at Chinese economic domains could be managed. This approach would be beneficial to harness the knowledge and experience of the Chinese in managing the socio-cultural aspects of their customers. One particular profitable aspect for Woolworths would be to generate the ability to detect, recruit and retain promising teenagers who could be capable into developing experienced and innovative store managers by their early Twenties. This would provide the company with a vast and appropriate human resource reservoir to resort back to when ever employee turnover could threaten the operating efficacy of the company. To this effect, Woolworths would be required to formulate organisational ecosystems from the ground up. The dual time frame based strategic human resource management would be required to be performed by Woolworths at China which could involve the execution of immediate business responsibilities and simultaneously double sizing expansion efforts in the subsequent five year periods. This procedure could entail performance appraisal on the basis of assigned targets achievement. Other factors would entail the launching of new product offerings and incubating of new distribution models for further expansion of the physical locations of the Australian retailer within the Chinese domestic markets. Independent managerial personnel would be recommended to be appointed for individual time frames so that a complicated collaborative management approach involving human resources could be developed without jeopardising the operational autonomy of the management services. The creation of cross-organisational roles in incremental numbers could be also undertaken by the retailer under consideration for HRM operations so that multitasking abilities of involved employees could be made to flourish.

Conclusion

The emphasis of the preceding business report based plan development has been oriented towards formulation of effective and credible recommendations involving the modes of entry into the international markets, marketing strategy, competitive leverage obtainment, human resource management and supply chain as well as production operations management based improvement perspectives for Woolworths. Such recommendations have been based upon the findings of the business macro-environmental analysis of the destination country. This process has been inclusive of the internationalised marketing strategies based approaches.

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