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In today’s competitive business environment, business expansion is one of the most significant strategies which can assist the organizations to enhance its brand presence and overall profitability (Doz, 2017). Considering the significance of this strategy, British supermarket chain Morrisons is planning to invest overseas. The company is considering it very important component in the process of attaining its long term strategic goals. Morrison is 4th largest chain of supermarkets in United Kingdom that is headquartered in Bradford, West Yorkshire, England. Currently, it is running two formats i.e. Superstores and convenience stores. For this company, the chosen market is Australian market where company can plan to expand its business operations. This report is focused on analyzing different risks and opportunities which Australian market can offer to the business of Morrison. Australian market can offer various opportunities in the future which can assist the organization to gain more popularity all over the world. For assessing the attractiveness of market, examples of other companies are discussed. At the end, the report provides the recommendations to the chosen organization regarding Australia’s attractiveness and market entry modes.
In United Kingdom, retain sector is one of the fastest growing sectors. It stands on 3rd position in world economy. In the beginning, this industry is used to restrain the small scale stores. Now, these retailers are very much focused on offering excellent customer services and expand business at large scale (Tidy, Wang & Hall, 2016). In United Kingdom, there are various supermarkets like Tesco, ASDA, Morrison and Sainsbury. Morrison Supermarkets is one of the largest supermarket chains in United Kingdom and it has its headquarters in West Yorkshire, England. Established in the year 1899 by William Morrison, the company started as egg and butter stall in Rawson Market, Bradford. Till 2004, its store locations were focused in North England but with the acquisition of Safeway, its presence enhanced in South England, Scotland and Wales. Now, Morrison has 498 superstores all over England, Scotland and Wales. In August 2017, its market share was 10.14% that was 0.86% down from the year 2015 (Kollewe, 2015). It led this retailer behind Tesco, ASDA and Sainsbury. Morrison Supermarket is listed on London Stock Exchange and now it is the part of FTSE 100 index of firms.
Now, the company is purposing to expand its business operations in Australian market in order to attain its long term objectives (Swoboda, Elsner & Morschett, 2014). The below-paragraphs analyze both risks and opportunities which this market can offer to Morrison Supermarkets:
As mentioned above, Australia is chosen as potential market for business expansion of Morrison Supermarkets. So, Country risk analysis of Australia is discussed below:
In Australia, Political environment may offer different risks to the business operations of Morrison. Political scenario in this country is unstable and there are recurrent changes in the regulations and standards of government. It is very important for any retailer like Morrison to consider these changes and comply with the standards accordingly. It is a parliamentary democracy and constitutional monarchy. In this country, the economic policies are made by the government. Australian government has made different policy decisions so that they can control the growth in expenditure (Findlay & Garnaut, 2017). It may have negative effect on the growth of Morrison in this market. However, policies of government do not have major interfere with the foreign investment. As per the root model, this organization may face the control and instability political risks in this nation. Social system of the country is regulated by the government that increases the interference of government in different sectors which will have direct impact on the autonomy of Morrison. Moreover, the company requires developing good relationships with different political groups and government.
There are various cultural and ethical risks which may affect the business of this UK retailer in Australia. Morrison may confront these risks as there are differences between culture of UK and Australia. The culture of UK is very formal and it is Christian based but Australian culture is not so formal rather it is authoritative. It can affect the people’s choices towards retail and grocery products. Both the British and Australian people speak same language, but they speak in diverse ways. In UK, pronunciation differs as per the region and social class that shows UK’s class concerned society and regional competition (Brannen, Piekkari & Tietze, 2017). Thus, Morrison can face the language risks as they need to train their employees about Australian culture and language. In UK, the companies generally use multi-tier organizational structure while corporate structure of Australia is different. It can raise issues for Morrison in operating business by using different organizational structure and processes. Thus, these are the major risks and points which Morrison needs to consider before entering into Australian market (Piekkari, Welch & Welch, 2017).
Apart from political and cultural risks, this British retailer may face the risks related to legal system of Australia. In this country, the laws and taxation policies are the part of basic legal system for retail sector companies (Penrose, 2017). Moreover, the government has imposed various laws regarding food licensing for supermarkets. The quality of food and grocery products should be according to the country’s regulations. Additionally, Morrison needs to take the approval from concerned authority for establishing its new outlets. Australian government promotes the businesses to implement the United Nations Guiding Principles. Labor laws may be a big pain for this retailer if it wants to maintain lower prices of products to stay competitive in Australia. Thus, the legal system of Australia is very different and moderate so incompliance of these regulations may lead Morrison towards legal risks (Foreign and Commonwealth Office, 2018).
Moreover, Morrison may confront some ethical issues if it expands its business operations in Australian market. The major issues are such as poor working conditions, lower wages, environmental concerns and bribery/corruption. Bribery and corruption is illegal so they may have negative impact on the brand image and business of any company. Australia is the country that is ranked 13th on Transparency International’s Corruption Perception Index in the year 2016. It indicates that level of corruption in Australia is somewhat higher than UK. It is very important for Morrison to focus on these factors as the businesses convicted to corruption can receive that fine of up to AUD 17 million. The cost of labor is very high in this country that may resist Morrison to implement lower priced strategy in Australia so that it can compete with its two major competitors i.e. Woolworths and Coles. There are various businesses which are not engaged in environmental-friendly activities. It is very important for Morrison to engage in eco-friendly and corporate social responsibility activities.
Thus, these are major risks which Morrison may face if it expands its business operations in Australian market.
Apart from above risks, Australian market will provide various and significant opportunities to the business operations of Morrison Supermarkets. These opportunities are discussed below:
About Australian economy, it can be stated that economy of this country is one of the largest mixed market economies all over the world with the GDP of 1.62 trillion $. Despite of decline in many industries, its economy has always remained stable and resilient. It can benefit the business activities and processes of Morrison in Australia (Courvisanos, Jain & Mardaneh, 2016). The company may have increased sales due to customers cut back on their spending. In this country, there is an increase in the disposable income of people that may allow them to their grocery shopping from supermarkets like Morrison. The country has controlled inflation that shows its growth will be long term and does not put burden on a family’s spending. This will help Morrison to increase their prices looking at the fact that people have higher disposable income. Currently, Australian dollar is fifth most traded currency in international foreign exchange market behind the yen, the euro, US dollar etc. In the situation of exchange rate and currency fluctuations, it will help Morrison to gain more profits in this country as compared to other countries (Manalo, Perera & Rees, 2015).
In Australian retail market, the level of competition is very high as there are various domestic players which may pose intense competition on Morrison Supermarkets. Some of the leading players are such as Woolworths, Coles, Wesfarmers, Harris Farm Markets, Harvey Norman and David Jones. Among them, 83% of total market is covered by Woolworths and Coles Company. The major reason behind this is that these companies are offering their products and services by using lower priced strategy (Woo & Lee, 2018). Moreover, Aldi is an international (German) retailer that has its operations in Australia with the name of Aldi Australia. This company has a well-established business in the country that can pose competitive threat on Morrison if it expands in Australian retail sector. Additionally, these retailers have got affected over the arrival of United States’ e-commerce player Amazon that has introduced its Australian online shopping portal. Thus, it can be stated that this industry offers higher level of competition to Morrison but company can overcome this by using effective marketing and business strategies (Phillipov, 2016). It may explore various opportunities by using lower priced techniques for its products and services.
In Australia, there are different income levels of population i.e. low, middle, and higher income households. The households with higher and middle incomes have a consistent level of wellbeing and economic resources. Low income does not even have the lower level economic well-being. In Australia, 2.2 million people live on less than half of meddle household income, involving 1.2 million staying on less than 40% of middle level. Demographics of Australia indicate that as of 2018, the total population of Australia is 25,124,500 of which a major portion is covered by higher income people (Wilkins, 2015). With the growth of economy, the disposable income and spend of customers has been increased that will have positive impact on the profits and sales revenues of Morrison. By targeting this customer segment in Australia, the organization can set the prices of its products higher and can generate more revenues.
About education system of Australia, it can be stated that it has greatly considered education system with the regulated qualifications across the higher and vocation education. It indicates that people in this country are highly educated that may have positive impact on the business operations of Morrison as they prefer to buy their household items from supermarkets rather than going to nearby grocery or departmental stores (Hatch & Howland, 2015).
For the retailers and supermarkets, it is vital to adapt ever changing consumer trends but first knowing about the customer buying habits is necessary. Looking at the buying patterns of Australian customers, it can be stated that 75% of Australian say they like to shop at supermarkets. There are various customers who show that their buying decisions are affected by the brochures and catalogues of retailers. The people are becoming very much concerned towards health so they prefer to buy healthy and organic products so it is important for Morrison to sell the products with healthy ingredients. Additionally, Australian population prefers to use the products of companies which are using eco-friendly activities. So, like other retailers, Morrison need to introduce reusable bags. Thus, this organization needs to expand its business operations considering the above buying habits of Australian customers (Pandya & Sisombat, 2017).
Australian market indicates that there are various domestic players so there is not rise in the demand of foreign products and services. Australia is not a free market economy as it is controlled by government. The government welcomes FDI effectively as this is one of the most open nations to FDI. The major reasons behind this are stability, economic liberalism, robust economic development and transparency of legal system (Penrose, 2017).
The success or failure of supermarket is dependent on its ability to provide what the customers want or need. In Australian market, there are various players which are successful while operating business in this country. Aldi is the major international player that attained a great success in Australian market. The major reason behind its success is that company offered the products considering the needs and demands of customers. The company believes that people make their decision regarding supermarket on the basis of three factors i.e. value, product quality and convenience. It led the organizations towards a great success and competitive advantage over other players. Apart from this, H&M and Forever 21 are the companies which have seen failure in this country as they were not able to implement effective strategies and identify the needs and demands of targeted customers (Brook, 2017).
Moreover, there are some firms which have faced different issues. One of the largest mining giant of Australia i.e. Rio Tinto has engaged in bribery activities. Moreover, Woolworths has faced some issues in managing its workforce. As mentioned above, the company is offering products on lower prices so it has provided lower wages and compensation to its employees. Due to this, people went on strike that has affected company’s operations.
From the above analysis, it can be concluded that Morrison should make investment in Australia but first it should make efforts to avoid potential risks. The above report indicates that this company may have various opportunities in this country. These opportunities can assist this British Retailer to mitigate different risks. Australia is chosen for this discussion because this country provides a strong economic environment to this retailer. The customers in this nation prefer to shop their household and grocery products from supermarkets. It is very important for the organization use some innovative methods so that it can overcome the threat of competition in this country.
It is hereby recommended that Morrison should use green field investment as market entry strategy while entering into Australia. Greenfield investment is a mode of foreign business expansion where the company invests funds to start the operations from group up (Ashraf & Herzer, 2014). It is the form of FDI in which Morrison group can develop its business activities in Australia from scratch. By using this entry mode, Morrison can build its new premises and supermarket stores in Australian cities. Moreover, it will establish its offices and distribution centers. This entry mode will assist the company to attain a great position so that it can utilize its company specific advantages (Harms & Méon, 2018). The major reason behind using Greenfield investment is minor costs of transportation. In its retail stores, it can offer the locally produced products of Australia to its population. Moreover, it can help the company to ignore the demerits from the changes in exchange rates. Apart from this, the company may use joint venture to enter into Australia as it is less risky mode of entry. Aldi is the biggest example that has used Green field investment mode while expanding their business in European market (Dudoviskey, 2012). This has helped the organization in successful establishment of operations in this market. Apart from this, in some markets, this company has used franchising mode as market entry mode.
Thus, it can be stated that Morrison should use most effective strategies and entry modes to enter into Australian market.
Ashraf, A., & Herzer, D. (2014). The effects of greenfield investment and M&As on domestic investment in developing countries. Applied Economics Letters, 21(14), 997-1000.
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Brook, B. (2017). US fast fashion brand Forever 21 looks set to exit Australia as Woolworths takes over flagship store. Retrieved from https://www.news.com.au/finance/business/retail/us-fast-fashion-brand-forever-21-looks-set-to-exit-australia-as-woolworths-takes-over-flagship-store/news-story/6ab605f0b38882178822d45a27ec558d
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