Write about the Masters Hardware Failure for Woolworths does Some Home Improvement.
Strategic alliances have been one of the many strategies that multinationals have used to enter into new international markets. The case: “Masters Hardware failure: Woolworths does some home improvement” provided a clear picture of a poorly done strategic alliance. This paper critically analyses different aspects of strategic alliances and how it was poorly done in this case. For instance, the paper discusses what attracted Woolworths to the Australian home improvement industry, the reasons why Woolworths used strategic alliance to enter the Australian market, strategic factors that contributed to the company’s poor performance as well as its withdrawal strategy.
Factors that Made the Industry Attractive to Woolworth
Market attractiveness is defined as a measure of a market’s potential value; market attractiveness defines the interesting possibilities that an investor will gain profits by investing in a given market or industry (Armstrong, et al., 2012). The measure of profit possibilities that lie within the structure of a particular market or industry is referred to as market attractiveness of that market or industry. Given the case of Woolworth, there are various factors that were compelling for firm to venture into the Australian home improvement industry, including:
The size of the Australian Home improvement market: the Australia’s home investment market was big approximated to be $40 billion a year worth. Accordingly, the retailing segments in the Australian home improvement industry were exhibiting strong growth through posting high profits in the recent years.
Investment potential: given the fact that Burnings was the only major player in the market, Woolworth saw an opportunity for becoming the second major player in the Australian home improvement industry.
Economic factors: the home improvement market was booming economically with regard to the strong profit margins together with sales growth that Burnings was achieving. The economy of Australia was stable and ripe for any investor to venture into the home improvement industry.
Competitive factors: the market was mainly dominated by one major player; Wesfarmers’ Burnings. Woolworth so an opportunity to become another major player in the market to share the customer base with Burnings as well as profits. In essence, there was room for another major second player which would perform even better.
Environmental factors: the Australian real estate was booming particularly in Melbourne and Sydney; the property prices were rising and major investors were attracted to invest so as to dominate the market. Similarly, renovations were order of the day; for this reason, Woolworth was assured of social acceptance to offer their products which would also be accepted by the market.
Strategic Alliance as a Mode of Entry
Strategic Alliances are a form of international market entry strategy that occurs when two or more business organisations collaborate to achieve a similar or common objective. Strategic alliances are a phrase or term used to describe different relationship between firms that market internationally. Strategic alliances can take a myriad of forms, including shared manufacturing, research and development arrangements, distribution alliances, and marketing agreements. In essence, strategic alliances are non-equity based contracts; companies remain separate and independent. Strategic alliances are mainly formed to provide benefits to all parties in the alliance (Rothaermel, 2015).
Woolworth used strategic alliances as a mode of entry into the Australian home improvement market to learn the necessary skills and capabilities from Masters. Similarly, Woolworth wanted to enhance its productive capacity, gain a distribution system in order to extend its supply chain. Furthermore, the conglomerate would gain good or service complement from Masters which would then create a synergy. In the same line of discussion, Woolworth used Strategic Alliances to reduce risks and costs by distributing them across other members of the alliance. For instance, through strategic alliances Woolworth would gain greater economies of scale given the fact that production volumes would increase which would on the other hand, reduce the cost per unity produced (Papadopoulos & Heslop, 2014). Accordingly, strategic alliances would help the company to access the Australian market which would otherwise be hard and costly to access. Furthermore, it reduced the company’s exposure to several entry obstacles, including stiff competition, hostility from the government regulations together with additional complexities. Additionally, risks of opportunity costs as well as direct financial losses because to improper situating of the markets are overcome through strategic alliances (Wild, et al., 2014).
Ansoff’s Matrix provides an exhaustive description suggesting that as a business attempts to grow; its growth will depend on whether it markets existing products or new products in an existing or a new market. The Ansoff’s matrix is a significant marketing tool the aids business companies in determining their products as well as strategy for market growth.
Market Penetration: here a company increases its market share within the existing market segment. For instance, the company accomplishes this by selling more services/products to existing customers or through finding new customers within the existing markets (Hill, et al., 2014).
Product development: under this strategy, a company creates new products for existing markets. It involves thinking about the manner in which new products will satisfy the needs of the customer while outperforming the products of the competitors (Gilligan & Hird, 2012).
Market development: with regard to this strategy, the company finds new markets for its existing products. For instance, market research coupled with further segmentation of the markets helps the company identifying new customer groups (Johnson, et al., 2013).
Diversification: here, the company moves new products into new markets concurrently. It is regarded as the riskiest strategy; the more the company moves away from what it has been doing in the past, the more the uncertainties created (Williams, 2016). Nonetheless, in the event that the existing activities are threatened, diversification is recommended to spread the risk.
Given the above understanding, Woolworth falls in the ‘product development quadrant’ where the company was venturing into the hardware products for the existing Australia’s home improvement industry.
Factors that Contribute to Poor Performance
Strategic alliances are potentially a good strategy for international marketing; however, if not correctly and strategically implemented, it can result into a wide range of challenges that may cause the company not only to underperform, but also fail to gain competitive advantage. The case of Woolworths the following strategic challenges led to its venture’s demise:
Choosing the right partner is a critical strategic choice in making strategic alliances (Cartwright & Cooper, 2012). Woolworths by choosing Masters as its alliance partner, they did not make an effective strategic move; Bunnings was the best choice as they had fool knowledge of the market dynamics, and hence could have provided Woolworths the best strategic alliance option. Further, building a mutually beneficial alliance is another enormous challenge. Humans are not always trustworthy; many are motivated by self-interests and thus they may not be interested in striking business relationships that would benefit others (Haeussler, Patzelt & Zahra, 2012). For instance, Woolworths CEO Grant O’Brien did oversee the implementation of the strategic alliance between Woolworths and Masters; the biggest mistake that resulted into the loss of billions of dollars.
Knowing when to reassess the alliance is another significant challenge that still haunts the company up to the present, Woolworths could have reassessed their strategic alliance with Master s at the beginning of their relationship. Masters misinformed Woolworths because the boom in the Australian market was only attractive in the yester years and the market was no longer favorable for huge investments. Due to not reassessing their strategic alliances, Woolworths ended losing billions of dollars.
Multinationals optimize their international market portfolio through extensions, expansions, and retractions. This was the core objective of Woolworths partnering with Masters; however, the initial objectives of achieving profitability together with increased customer base were not realized. Given this understanding, Woolworths decided to dissolve its strategic alliance with Masters as its practical withdrawal strategy. For instance, David Errington called on Woolworths to abandon the partnership with Masters because its continued association with the later caused the company’s share price to plunge from above $30 to below $22.49.
The above discussion holistically brings to light different aspects of strategic alliances as a mode of international market entry. Using the case: “Masters Hardware failure: Woolworths does some home improvement” this paper has critically discussed how a poorly formed strategically alliance can be detrimental. For instance, Woolworths lost billions of money due its strategic alliance with Masters.
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