Overview of Wesfarmers competitive edge
Question:
Discuss about the competitive Strategies of Wesfarmers.
The business world has become very competitive and requires every company to have strong competitive strategies in order to enhance growth and sustainability in the market. Most firms strive for a competitive edge, but few use the right tools towards achieving it (Azizul Islam and Jain, 2013, p. 110). Wesfarmers is an Australian based retail company that operates in a highly competitive retail sector. The management of the company views competitive edge as an activity that creates value for the company against its rivals. Wesfarmers face stiff competition from Woolworths, Wal-Mart, TESCO, ALDI, and Macro Wholefoods Limited companies. Wesfarmers has been striving to bridge the gap between perceived value and cost of its retail products to be higher than that of these competitors. To achieve this competitiveness, Wesfarmers is guided by company mission who is becoming a highly competitive retail company by providing customers with high-quality retail commodities (Ghemawat, 2016, p. 740). In an endeavor to achieve this goal, Wesfarmers applies competitive strategy development tools among which include the SWOT analysis, PESTEL, and Porter’s five forces. The essay will explain these strategy development tools and their applicability to Wesfarmers in obtaining a competitive advantage against rivals.
PESTEL (Political, economic, social, technological, environmental, and legal) business environment factors form a crucial tool in assessing competitive advantage by Wesfarmers in its external sector.
There are adverse political factors that affect the retail industry in which Wesfarmers operate. For instance, the federal government launched a competition policy that denies Wesfarmers the right to eliminate competition using its own strategies (Mortimer, 2016, p. 3). Such political barriers hinder Wesfarmers from formulating competitive policies that can help in gaining a competitive advantage against small entrants.
Australia is faced with market recessions that negatively affect Wesfarmers retail operations and productivity. Economic depressions lead to decline in economic activities and this lowers Wesfarmers sales drastically (Yuan, 2013, p. 1). Also, fluctuations in exchange rates adversely affect Wesfarmers attempts to expand their retail operations to global markets.
The beliefs, customs, norms, religions, and consumer behavior in the Australian market affect Wesfarmers competitiveness in the retail sector. For instance, some Australian cultures consider the consumption of certain goods as a taboo, and this affects Wesfarmers sales. The company is significantly socially responsible to the society and gives back to the society (Wagner and Hollenbeck, 2014, p. 66).
The retail industry is one of the technologically competitive industries in Australia and the world at large. Other competitors of Wesfarmers such as Walmart apply e-commerce in the selling of their products. The company needs to advance its operations and use sophisticated retail technologies such as e-commerce in order to raise its sales and competitiveness in the industry (Yuan, 2013, p. 4).
Wesfarmers’ performance is also affected by environmental factors something which derails its competitiveness in the market. Winemaking and petrol businesses around Wesfarmers location adversely threaten the enterprise’s healthy living conditions since employees’ breath unclean air and use polluted water to drink (Sutton-Brady, Kamvounias, and Taylor, 2015, p. 125).
PESTEL analysis for Wesfarmers
Australian legal regulations affect the company’s retail operations. For example, the Australian Federal government introduced a form of a carbon tax that greatly affected the entire retail industry in Australia (Yüksel, 2012, p. 5). Further, regulation of retail business by Australian Competition and Consumer Commission greatly affect Wesfarmers performance and competitiveness in the market.
Michael Porter presents five strategy analytical tools that help a company assess its current competitive position with respect to the industry in which it operates (Porter, 2011, p. 44). The analysis of Wesfarmers retail operations in Australian retail sector and its competitiveness is undertaken in close reference to the five forces as below:
The retail industry of Australia is dominated by numerous players that compete with Wesfarmers. As a result, bargaining power of consumers is significantly larger when it comes to the purchasing of basic products from the supermarkets. The fact that there is no monopoly power in the industry, Wesfarmers offer after sales services to customers such as transport, discounts, and e-commerce hence winning customer loyalty and this enhances its competitiveness (Porter, 2011, p. 45).
The retail sector in Australia is dominated by large enterprises and among them is Wesfarmers. The other companies such as Woolworths also dominate the market something which divides market share for Wesfarmers retail goods and services (Porter, 2011, p. 48). Therefore, Wesfarmers must advance its supplies roles in order to increase market performance thus broaden the market for its products hence gain a competitive edge.
Threat of new entrants in Australian retail industry is low given that the big companies have already dominated the entire market. Being a large enterprise, Wesfarmers needs to acquire and partners with more small businesses in the market to ensure that its products sell widely in the market (Porter, 2011, p. 50). With this doing, the company will gain a competitive edge against its main rivals.
Wesfarmers faces stiff competition from Woolworths, Walmart, and ALDI in the Australian retail market. These companies fight for the market share and the number of customers. Wesfarmers needs to assess the strategies being used by rivals and formulate counter strategies of improving market share.
Being a retail firm, Wesfarmers offer customers with basic commodities that they require for survival. Customers cannot survive without the products sold by Wesfarmers. Therefore, there is little threat of substitute for consumers have no other choice other than buying from the competitors (West, Ford, and Ibrahim, 2015, p. 100).
SWOT analysis tool can also be used by Wesfarmers management in order to understand both the internal and external market demands. The analysis will help the company formulate competitive strategies as below:
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Strengths i. Largest retail company in Australia and New Zealand private sector with the highest number of stores, in-store staff, and competent personnel ii. Customer sales over online platforms iii. Offer a variety of products that suit varying customer demands iv. Special offers and discounts that attract and enhance customer retention |
Weaknesses i. Fully local supplier of power ii. Low geographic experience for experiences are limited to Australia iii. Being the largest retail company in the market, all decisions made have to be scrutinized iv. Not all business interests are equally profitable |
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Opportunities i. Opportunity to expand retail operations outside Australia ii. Improve product and service quality as well as benchmarks across all stores iii. Growth in the e-commerce business segment iv. Customer loyalty and employee retention across all businesses |
Threats i. Stiff competition from other players in the market such as Woolworths ii. Economic depressions and downturns that sway consumer confidence level on the company’s reliability iii. Competitors offering specialized retail product and services at equitable price rates iv. Non-performance in a diversifid portfolio |
The proper understanding of internal and external market forces would help Wesfarmers formulate effective competitive advantage strategies. These strategies are guided by the above SWOT analysis (Brooks, Heffner, and Henderson, 2014, p. 23). All market opportunities need to be exploited by the company expanding its retail operations to international markets. The available strengths need to maintained and advanced through creativity and innovation to ensure the company competes out Woolworths and other competitors (Bailey et al., 2015, p. 1). Finally, Wesfarmers needs to diversify its portfolios to enhance brand quality thus gaining a competitive advantage over the rivals firms.
Conclusion
A critical analysis of Wesfarmers competitive strategy has been carried out in an endeavor to assess the key strategies that the management should employ to obtain a competitive advantage against its main rival firms in the retail industry. The retail operations of Wesfarmers are affected by both internal and external business factors that are properly analyzed using the SWOT, PESTEL, and Porter Five Forces tools in the above discussion. The analysis shows that Wesfarmers is committed to offering high-quality retail products and services to the target market in order to gain a competitive edge against the competitors. However, the company is faced with intense competition from other retail industries that use the same strategies. The company thus needs to exploit all market opportunities and address all its weaknesses using the competitor’s strategies to counter their operations and compete them out from the market.
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Brooks, G., Heffner, A., and Henderson, D., 2014. A SWOT analysis of competitive knowledge from social media for a small start-up business. The Review of Business Information Systems (Online), 18(1), p.23.
Ghemawat, P., 2016. Evolving ideas about business strategy. Business History Review, 90(4), pp.727-749.
Mortimer, G., 2016. How Kmart ate Target: A story of retail cannibalism. The Conversation, (31).
Porter, M.E., 2011. Competitive advantage of nations: creating and sustaining superior performance (Vol. 2). Simon and Schuster.
Sutton-Brady, C., Kamvounias, P. and Taylor, T., 2015. A model of supplier-retailer power asymmetry in the Australian retail industry. Industrial marketing management, 51, pp.122-130.
Wagner III, J.A., and Hollenbeck, J.R., 2014. Organizational behavior: Securing competitive advantage. Routledge.
West, D.C., Ford, J. and Ibrahim, E., 2015. Strategic marketing: creating competitive advantage. Oxford University Press, USA.
Yuan, H., 2013. A SWOT analysis of successful construction waste management. Journal of Cleaner Production, 39, pp.1-8.
Yüksel, ?., 2012. Developing a multi-criteria decision-making model for PESTEL analysis. International Journal of Business and Management, 7(24), p.52.
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