PESTLE And Porter's Analysis Of China's Retail Market: A Case Study Of Woolworths Limited Essay.

For this exercise your group must:

• Design and create a meeting outline/overview of the proposed role-play simulation
• Decide and nominate the "home" location and the "host" location for the exercise
• Identify and discuss at least 7 key issues and challenges that may arise when managing business and staff across the two cultures
• Identify key macro and micro environmental factors that are likely to impact the business’ success in the new ‘host’ country

The Woolworths Limited is one of the most popular retail organizations in Australia. The organization has the second largest supermarket chain, the first being the Wesfarmers organization. Woolworths Limited offers the consumers grocery items like vegetables, fruits, processed foods and meat (Shinnar, Giacomin and Janssen 2012). Not only that, the mentioned company is the largest retailer of takeaway liquors in Australia. The company has already expanded its business in New Zealand and hence currently the company operates in New Zealand and Australia. However, in order to enhance its revenue, the management of Woolworths is planning to expand its business. Considering the fact that the retail market of the western countries has got highly saturated, the company is planning to expand its business in South East Asia. The current target market of Woolworths is China. China is considered to have one of the most potential retail markets for retail companies. However, in order to establish their business successfully in the Chinese market, it is highly crucial for Woolworths to assess the cultural background of the host country implement strategies to adopt the same. In this report, PESTLE and Porter’s five force of the Chinese retail industry will be performed to access the macro and microenvironment of the country. Based on the assessment, 7 HRM issues that may arise between the Home and the Host country will be identified. Finally, recommendation for preventing the issues to happen will be provided in this report.

China’s Macro Environment Analysis

PESTLE Analysis

Political Factor

The Chinese government does not consider the retail industry to be a highly prestigious industry and as a result, the mentioned sector is not sanctioned like other heavy industry sectors. For instance, the French hypermarket Carrefour was not punished for bending the rule. Thus it can be understood that the Chinese government does not restrict the development of this industry (Chand, Cummings and Patel 2012). Apart from that, the government has taken initiative to close the street market and convert them into supermarkets. This is done to expand the retail networks of chain supermarkets into China’s western provinces.

In the year, the GDP of China is expected to drop by 11.9 percent (Hofstede Insights 2018). However, the demand for grocery products is expected to rise due to rise in the wage of consumers. This will impose a positive impact on Woolworths as more demand will ensure a greater number of consumers.

PESTLE Analysis of China

Unlike Australia, the population of China is not ageing. The population growth rate of China is approximately 0.73 percent and the average life expectancy of Chinese people is 73.18 years. More than 71.8 percent of the population is of the age range 15 to 64 years (Zalengera et al., 2014). Chinese consumers are health Conesus to a moderate level. However, being highly conservative when it comes to culture, several international countries have failed to expand their business in the Chinese market due to lack of cultural knowledge and competence.

The vast landmass coupled with poor infrastructure has created several challenges for the retail organizations in China. Majority of suppliers lack IT capability. Moreover, since a good number of Chinese household lacks refrigerator, the shopping behaviour of Chinese individuals are not going to shift quickly to one big weekly shopping (Chhabra and Kiran 2015).

Legal Factor

Considering the fact that the current aim of the Chinese government is to globalize the retail market, the entry barrier or foreign organizations in China is much lower. Moreover, the rules and regulations for the retail organizations are highly flexible in China (Arli et al. 2013).

Environmental Factor

The Chinese Government has abolished the usage of plastic bags. Moreover, the Chinese government is making a continuous effort to introduce recycling programs (Zalengera et al., 2014). Apart from, that the government has implemented several laws to control pollution due to high international pressure.

China’s Micro Environment Analysis

Porter's Five Forces Analysis

The threat from substitute is moderate for Woolworths but is increasing with the technological advancement of the country. The two major substitutes of supermarket chains in China are local and traditional stores and online store. Considering the act that China is not a technologically advanced country, the internet is unavailable to a good number of consumers (Warner 2014). However, when it comes to local stores, several numbers of consumers, especially who reside in rural area prefers interaction in a traditional way and human contact and hence avoid marketing in supermarkets.

The threat from the new entrance is high for the Woolworths organization. As being discussed earlier, the company can easily establish their business in the retail industry of China. The government of China is working on globalizing the Chinese retail market (Wang 2012). To achieve this objective, the government has lower the barrier for new entrance so that international companies can establish their business in the Chinese market. This factor can act as a threat to Woolworths since increasing number of new entries has the potential to decrease the overall revenue of the company.

Political Factors in China

The power of consumers is moderate in the Chinese retail industry. This is due to the lack of availability of a huge number of supermarkets in the urban area. However, the number of international retail brands establishing a business in China is increasing and as result, the bargaining power of the consumers is also increasing. Moreover, the low switching cost and availability of street markets are further enhancing the mentioned force.

The bargaining power of international suppliers like Proctor and Unilever is high in the mentioned market. However, the power of local suppliers is low. This is due to lower availability of efficient and IT equipped suppliers required for an international organization like Woolworths. However, in order to retain its quality of products, Woolworths directly communicate with the farmers. Hence the management of the company must implement strategies to maintain good relations with the Chinese farmers as well as efficient suppliers with effective IT infrastructure (Zhu, Zhang and Shen 2012).  

Considering the fact that the retail industry of China is less congested compared to the western retail industries, the force of competition among the competitors is moderate. However, due to lower barrier to new entry, several international retail companies like Tesco, Walmart and Carrefour have entered the Chinese industry and enhanced the competition in the mentioned industry (Warner 2014).

Identification of key cross-cultural and HRM issues that may arise between home & host countries

China is the most populated Country in the world. While the number of the individual per square meter in China is 134.74, the number of the individual per square meter in Australia is as low as 2.66 percent (Chen, Cheung and Law 2012). Hence it can be understood that there prevails a huge difference in population in the two mentioned countries. One of the most crucial challenges that will be faced by the HR department of Woolworths Limited is complexity while recruiting the most efficient candidates from a large pool of candidate. Considering the fact that the current HR department is structured to select candidates from a much smaller pool, it will be difficult for HR professions to handle a huge number of job applications and selected the best ones to form them.

Language can be considered as the most crucial barriers when it comes to establishing a business in a country with a totally different cultural origin. According to researchers, only 22 percent of the Chinese residents can fluently communicate in English. Thus it can be understood that the employees of Woolworths will suffer from major issues while communicating with Chinese consumers as well as employees (Briscoe, Tarique and Schuler 2012). Major conflicts may take place due to misunderstanding resulting from lack of communication skills among the employees. Moreover, considering the fact that Chinese individual is highly conservative when it comes to their culture, the language barrier has the potential to cause a rejection prone mentality among the consumers.    

Economic Factors in China

Culture difference can be considered as another major challenge for Woolworths while establishing a business in the Chinese market. As being discussed earlier, the Chinese people are highly concerned with their culture and lacks cultural competence. Chinese retail consumers prefer traditional r local stores in comparison to the international supermarket. Several examples are there where international organizations have failed to prosper in Australia due to lack of cultural competence. In Woolworths, lack of cultural competence can hinder the performance of the team and may even result in employee attrition (Zalengera et al., 2014). Moreover, lack of knowledge of employees about each other’s culture will deteriorate the workplace environment and impose a negative impact on work satisfaction of the employees.

The distance between China and Australia is 7,470 km (Xiao and Cooke 2012). The chief challenge that may be faced by Woolworths is the increase in the costs of the travelling. The company will have to bear the cost of travelling of employees as well executives for business purpose.  

Considering the fact that Australia is considered to be the second wealthiest nation, the national wealth of the nation is much higher than that of the china. Lower national wealth imposes a direct impact on the literacy and educational qualification of a country. This can be considered as a major challenge for the HR department since lack of literacy in employee has the potential to give birth to conflicts (Zhang and Morris 2014). Moreover, it will be difficult for the HR professionals to recruit candidates for executive job roles.

The lifestyle of Chinese employees is highly different from that of the Australian employees. Chinese individuals are highly repulsive towards leisure. For instance, people residing in China are more habituated to urban lifestyle and are less likely to go outdoors. However, Australian people prefer outdoor vacations and spending time with families. Moreover, in Chinese employees are habituated to start working at 11 or 12 am in the noon and work till late night (Xiao and Cooke 2012). On the other hand, Australian employees prefer completing their official duties by early afternoon and spent the evening with their families. This difference in lifestyle has the potential to give birth to several HRM related issues in Woolworths.

Political factors that affect businesses include new legislation such as the national minimum wage and setting tax rates such as VAT or Corporation Tax (Chhabra and Kiran 2015). Since the Chinese government has lowered the tax rates for the international companies who are trying to establish businesses in China, it is beneficial for the Woolworths Company. However since this decision of the government has resulted in increasing number of Retail organizations in China, the HR department of Woolworths may face the competition while recruiting highly efficient employees in the organization.

Social Factors in China

In order to flourish in the retail industry of China, it is highly crucial for Woolworths to eradicate the seven above discussed HRM related issues. For this purpose, some effective recommendations have been discussed in the following paragraphs.

The most crucial issue that has been detected is potential challenges faced by the HR department due to the language barrier. The Hr department of Woolworths should provide on the job training as well as education to the Australian employees so that they can learn the Chinese language. This training will help the employees to communicate with the local consumers and serve them efficiently by understanding their exact requirements (Yek 2014). Not only that being able to speak and understand the Chinese language will help the Australian employees of Woolworths to efficiently communicate with their Chinese peers. On the other hand, Chinese employees should be provided basic English training so that they can effectively take part in any of the official meetings and establish effective internal communication with their fellow employees as well as superiors through emails as well as intranet. Considering the fact that Chinese employees are highly conscious of their cultural norms, the HRM of Woolworths should encourage both formal as well as informal communication within the employees (Yek 2014). This can be done by organizing ice-breaking sessions as well as through internal communication tools like intranet (Xiao and Cooke 2012). Effective communication will not only help the employees to understand as well as respect each other's cultural background but will also ensure a friendly workplace environment.  

To minimize the cost of travelling, the mentioned company should implement virtual communication tools like video conferencing. To eradicate the issue of complexity while selecting an efficient candidate from a vast pool of candidates and competitive market the Woolworths Company can use high tech applications like Application Tracking systems (ATS) and mobile recruiting tools (Zhang and Morris 2014). In order to gain competitive advantage, the company should keep the timing of the office similar to its competitors while the salary scale should be kept a little higher than its competitors.

Reference List

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