Business Practices and Major Players in Australian Retail Industry
Discuss about the Entrepreneurship Theory and Business Ethics.
The case analysis report has been developed in the Australian retail industry. Precisely, through the analysis of the case study, top-line business organisations and their current business practices have been illustrated in the study. In the context of the business scenario, most of the retail industry players operating in the Australian market are targeting sales growth. Meanwhile, some of leading brands have failed to make the adjustment in their business proceedings. The rest of the retail market players have opted for cost reduction tactics to increase profitability (Amato and Amato, 2011). Primarily, the consumer price index of Australia has impacted the sales growth of the retail businesses. Due to the low rate of inflation, the consumers have expected a low set of product pricing. A diagram has been presented below for better understanding:
On the other hand, Australian retail firms have faced significant challenges due to the presence of international marketers such as Aldi and TESCO PLC. The case study also identifies the authority of the largest retailing company such as Woolworths Group, Wesfarmers Limited, and Aldi over the smaller retailers. In the retail sector of the Australian market, competition in the market is significantly tough, to say the least (Kasemsap, 2016). The price-war of the major retailers can be identified as one of the major benefits for the target audience. Precisely, Woolworths Group, Coles Supermarkets, and Aldi Australia can be termed as the leading business giants in the Australian retail industry. Also, H&M, Uniqlo, Zara, and other brands have come onto the scene to make the retail sector more competitive. A diagram has been given below to indicate the market share of the retailers in the Australian market:
Previously, the traditional method of retailing made the organisations incur a huge amount of cost. On the other hand, the profitability of the retailing firms remained quite low due to the price war in the market. A figure has been given below to present the retailer’s profit components:
In the modern business environment, different strategies have been introduced by the retailers such as internet retailing and outsourcing of production that has successfully altered the cost structure of the retail companies. Also, many of the apparel retailing brands have preferred outsourcing to increase the profit margins. However, the study has described that food retailing businesses are the major market shareholders in the Australian retail sector. In the retail industry, auditing fraud is one of the substantial issues in the management. Hence, the workforce working in the retail sector has feared to file practices against the unethical business practices because of losing their employment. In order to describe the ethical foundation of the retail industry, companies sometimes compromise with the quality of products in the race of lower cost price and higher profitability (Colli and Colpan, 2015). Moreover, the competitive strategies of the retailers operating in the same industry should be validated under the purchasing point of the buyers.
Retail Industry Analysis of Australia
Woolworths Group, Coles Supermarkets, and Aldi Australia
Audit frauds, unfair labour practices, unfair contract terms with suppliers, and money held up of the suppliers in some cases
Volume purchase, Promotional Rebates, cost advantage, negation with the Suppliers
Authorised deals, Supervise and efficient management, corporate social responsibility
Price-war strategy, Quality compromise at times, power of the big retailers
Challenges in Australian Retail Industry
In the contemporary retail industry in Australia, business transparency, the corporate governance structure of many of the retailers, fierce market competition, and a lower rate of inflation can be identified as the leading challenges to the business. For instance, Woolworths Group and Wesfarmers Limited are the major retailing firms controlling the food and grocery market in the target region (Gregg, 2011). Hence, the companies should take the liability to maintain the code of conduct given by the administrative. Alternatively, audit fraud in many retail companies has become another considerable challenge. For instance, companies have not followed the standard procedure in the manufacturing of products and hiring staffs. Critically, such issues in the retail industry must be dealt with absolute priority.
The Food and Grocery Code of Conduct has been given to the retail supermarket chains so that the retailers and wholesalers can control the business in an honest way. Herein, the term good faith signifies the transparency in business according to the fundamental demand of the target audience. Precisely, in the business context, companies have immensely looked for cost advantages. Therefore, the directives and code of conduct must be followed so that the quality of items cannot be compromised in offering the food and grocery items (Simshauser and Nelson, 2014). Also, during signing agreements with the suppliers, the standards of payments should be made according to fair pricing.
In the context of retail business, the Food and Grocery Code of Conduct is a voluntary code as it mere provides the guidelines and minimum obligations to the retailers and wholesalers dealing with the suppliers and customers. Meanwhile, such code of contracts has prohibited unethical practices toward the suppliers in case of supply agreements and business disruption issues. But, the code of conduct does not protect the right of the suppliers in a legal way (Kasemsap, 2016). In the business relations of suppliers and retailers, if such code of conduct can be turned into law, the power of the suppliers will be enhanced. As a result, the pricing of products will be impacted as well. Hence, the ACCC has not moved to the government to convert the code into law.
Based on the strategic theories, pricing and purchasing power can be utilised in a competitive market to draw competitive advantage over the rest of the marketers. For the biggest firms operating in the retail industry, senior management must consider their bargaining power with the suppliers (Cui, 2015). In an active market, suppliers must be provided suitable pricing based on the Food and Grocery Code of Conduct in Australia. Therefore, in such cases, the power of the firms should not be used. Now, in the case of assessing the decision-making power, the relationship with the suppliers and other stakeholders should be validated to get the response. If stakeholders are satisfied, the decision making power has been utilised in an efficient manner (Mithani, 2016).
Making late payment to the suppliers in order to improve the cash flow of the organisation and transfer the financial risk to the small and medium scale enterprises is a major ethical issue in the current business scenario (Silvestro and Cross, 2010). The late payment to the suppliers is a type of scandal that impacts the lives of the people associated with the operations of the suppliers. Paying late for legitimate or no valid reason is unethical that impacts the creditability of the firm. The late payment to the suppliers is a type of abuse of power and bullying behaviour by a large organisation. Furthermore, the ethical principles that is primary for a contract is trust. Moreover, trust comes from honesty, fairness and mutual benefits (Back, 2013). Precisely, the reputation for trustworthiness provides the firm with sustainable competitive advantage. Hence, paying late to the suppliers will impact the trust of the external stakeholders over the firm. The loss of reputation will impact the quality of supplies that will further influence the productivity of the retailing business. Hence, it is recommended to pay the suppliers in time to avoid the issues of ethical profit making.
Ethical Considerations in Australian Retail Industry
It is quite difficult to apply the employment standards of the developed countries in the labour market of the developing nations because of the poor economic infrastructure and high unemployment rate in the emerging economies. For example, the pay structure of the developed nations (i.e. the minimum wage rate) cannot be applied in the developing nations. On the other hand, some of the employment standards can be applied in the developing nations in order to improve the workplace conditions for the workforce (Olive, 2012). For instance, the equal employment opportunities and discrimination standards of the developed countries can be applied in the labour market of the developing nations to improve the employment conditions of the people. It will provide equal opportunities to the employees in terms of compensation and benefits, workplace conditions and rights to employment. On the other hand, some laws and regulations related to international trade can be modified to improve the employment standards in the developing nations.
According to the survey made by OxFam Australia, the Australian Consumers are ready pay more for the garments, if the suppliers in the developing countries are paid more. Due to this reason, the company can make use to the Cost Leadership Model to dominate the garments supply market in the developing nations (Paliwal, 2016). For example, if the company increases the payment of the suppliers, the manufacturers in the developing countries will happily deliver their products to the organisation in place of its rivals. Hence, the company will get the best quality products as compared to the rivals and seek competitive advantage in the procurement process (Simshauser and Nelson, 2014). By influencing the supply of the rivals, the retailer in the developed country can offer a higher range of products as compared to the other competitors in the market. Hence, the cost leadership model will help the company to minimise the rivalry by differentiating its products and dominating the supply side of the developing markets.
Audit frauds can be identified as one of the substantial issues in the retail industry. During audits, employees have been told to represent the things following the standards to the independent auditors. In fear of losing their jobs, human resources have to accept the proposal of the firms to mislead the auditors. In order to deal with such issue of audit frauds, as an auditor individual audits should be conducted by the supervisors. Also, the outcome of the results should be kept a secret so that the name of the whistleblower will not be made public (Makkawi and Schick, 2013). Based on the auditing principles, the accounting estimates should be verified according to the description of the firms to validate the entry (Gajjar and Adil, 2011). Thus, each of the reporting documentation should be verified by the received information to make sure the issues of auditing frauds can be mitigated.
Integrated reporting (IR) has delivered a variety of information in a concise way demonstrating the interdependencies regarding substantial information about business strategy, a model of business, the operating business context of a firm (Morros, 2016). Precisely, integrated reporting has been developed in a holistic style so that additional information relevant to the business can be defined to evaluate the sustainability and performance status of business. By utilising IR, company management can define the performance measures and return on invest towards the human resources (Sharp, 2016). Through the identification of the business model and performance measurement via IR, management can make the adjustment in total reward strategy to motivate the employees. Thus, improve in performance through motivation can create a positive impact on the business. Alternatively, based on the improved financial performance, the management can increase the remuneration, so that employee engagement and dedication of workforce will be influenced on a positive note.
Food and Grocery Code of Conduct Compliance
The concept of an “at risk” component of compensation is linked to the performance of the firm. Meanwhile, such compensation plan includes a portion of the income of the human resources that will be depended on the overall performance of the company (Stevens, 2016). For instance, company equity has been paid as compensation towards the employees as a portion of remuneration. Precisely, an “at risk” component of remuneration will be benefited from the management if the shareholders of the company will gain from the business. In the case of a larger company, such an “at risk” component of remuneration for CEOs and senior executive management is bigger as the substantial portion of the compensation has relied on the same compensation plan (Thomsen, 2014). If the shareholders lose their money in the market, the remuneration portion of the CEOs and senior managers will drop down. Also, for bigger companies, the number of shareholders is greater. Therefore, it is an important component of total remuneration for senior executive management and CEOs in largest firms.
In the modern business dynamics, the term stakeholder signifies the person or the groups having an interest in relation to a business (Zhu, Wang and Bart, 2014). Moreover, stakeholders of a company can largely contribute towards the growth of the firm leading by activities suitable for business. In the case of a supermarket company, the major stakeholders are creditors, executive directors, human resources, business owners, suppliers, government, and the serving community involved to the business for resource allocation. The ethical behaviours of a company can dictate the long-term business viability (Heath, 2016). If the organisations do not follow ethical considerations during business environments, the company cannot develop a strong relation with the major stakeholders. Therefore, ethical behavioural practices are mandatory to increase the business scopes.
The statement made by the CEO of Wesfarmers in the context of target rebate confirms the business strategy of the firm with the suppliers. Precisely, sustainability of business of a firm relies on long-term aspects rather than short-term growth. Such influencing culture will create a positive impact on the suppliers so that long-term business relationship with the organisation can be developed (Heath, 2016). On the other hand, by developing such type of culture in the business dynamics, the company can manage rebate deals with the suppliers in a more effective way. Also, the unreasonable behaviour towards the suppliers can be diminished by following such culture in business (Vranceanu, 2013).
It is the role of the accountant to check the expenses of the firm and confirm that the costs are incurred on a productive purpose to increase the profitability of the organisation. In the case Dick Smith Group, the company makes investment of inventories on the basis of the rebate attached to the stock. Hence, the company is not capable of meeting the current demands of the consumers. Furthermore, the lack of considering the customer demand may lead to excess inventory in the organisation that are of no use (Weetman, 2010). Hence, the unwanted inventories and poor product mix decisions leads to increase in the expenses of the expenses of the firm that directly impacts it cash flow and profitability. On the other hand, the procurement decisions on the basis of rebate leads to decline in the capability of the firm to meet the customers demand that further impacts the reputation of the organisation and its customer loyalty. Hence, the role of the accountant is to inform the management regarding this issue to improve the product mix decisions and inventory of the firm.
Strategies in Australian Retail Industry
It is important for the management to consider non-financial measures along with financial measures to develop an ethical organisation. The management theory promotes the idea of using non financial measures in place of financial measures because all aspects of the business cannot be measured through financial data. For example, the satisfaction level of the employees cannot be evaluated through financial measures (Talamo, 2011). On the other hand, the customer satisfaction is also not measureable through financial data. Hence, there is a need of understanding the satisfaction level of the employees and the customers in order to lead the organisation towards an ethical direction (McCrary, 2009). The expectations of the employees and customers must be met by the operations of the firm in order to become an ethical organisation.
The CFO plays different roles in an organisation such as making decisions regarding the capital structure, auditing and reporting, risk management, capital expenditures, working capital management, budgeting and others. Hence, the performance of the CFO cannot be effectively measured using the financial data such as Total Shareholder Return. There is a need of a balanced measure for evaluating the performance of the CFO (Williams et al., 2010). For example, both quantitative and qualitative measures must be used for evaluating the performance of the CFO. In the case of a junior accountant, some qualitative measures are used such as how effective the accountant is in auditing the financial information of the firm. In the same way, a balanced measure must be used for evaluating the performance of the CFO (Go and Park, 2012).
On the basis of the above case study analysis, it can be seen that the retailers in Australia face different challenges in the current market environment that tends them to use unethical measures in order to improve their profitability. It has been said by some philosophers that everything is fare in war. However, the unethical means used by the retailers to seek better profitability may lead them to short run success, but will results in a decline of growth in the long run. In other words, the unethical means to improve profitability does not help the company to seek sustainable growth in the long run. Hence, it is important for the management to identify the ethical means of management accounting in order to improve the current status of the firm and seek growth in the long run.
According to the case study, it can be identified that the ethical issues impacts the reputation and sales of the retailers in the Australian market. The accounting management of the firms need to consider the rules and regulations of the government along with the financial data to operate the firms in an ethical manner. On the other hand, the needs of the consumers must be considered while making purchasing decisions in order to improve the product decision mix of the retail businesses. Additionally, the ethical issues related to the late payment of the suppliers must be mitigated in order to improve their trust towards the firm and minimise the financial risk for the small and medium scale enterprises that are directly connected to the growth of the retail organisations.
Pricing and Purchasing Power for Competitive Advantage
Furthermore, the management must take care of the auditing frauds in order to lead the organisation in an ethical way. The auditors must be influenced to speak the truth and develop trust among the stakeholders. Meanwhile, the non-financial measures must be considered along with the financial measures to evaluate the performance of the workforce and decision making teams. A high satisfaction level of the employees, suppliers and teams must be targeted in order to seek sustainable growth of business in the current business environment of Australia. Conclusively, the trust and loyalty of the stakeholders are the key factors for the growth of business in the long run that can be achieve through ethical profit seeking practices.
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