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Separate Legal Entity Of Corporation

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Question:

Discuss about the Separate Legal Entity of Corporation.
 
 

Answer:

Introduction

This report is prepared to gear up perceptive about how business level strategic decision-making process effects in the competitive environment. Internal and external environmental factors influences on corporate objectives and strategy. This report is prepared to analyze Wesfarmers strategic planning for retail strategic business units viz. Target and Kmart to sustain and nurture their brand representation in the industrial environment. Report explains Product portfolio and product line of the chosen Wesfarmers retail business units. Business unit revenue study and external environment analyses is explained in the report in order to find out best possible strategic plan which encompasses sustainable growth opportunity through competitive advantage  in the challenging economic condition. In order to study the concept of strategic growth in competitive environment several managerial terminologies used in the report are also defined to grasp the complete perceptive of the exploration. Report also explains source factors of sustainable competitive advantage for Wesfarmers retail division.

Corporation Identification

Wesfarmers Limited is a leading Australian company. Company made its foundation in 1914 with an objective to provide support to Western Australian farmers in agricultural services and merchandise. Subsequent to the strategic corporate restructuring from private to public company in the year 1984, Westralian Farmers Co-operative Limited formed Wesfarmers Limited. Headquarter of the company is situated in Perth, Western Australia. Company holds different products in their product portfolio to cater the needs of domestic and commercial consumers’ allied to retail, chemicals, fertilizers, coal and industrial safety products. Company is equipped with its diverse business operation and multiple business units into supermarkets, liquor, hotels and convenience stores, home improvement, office supplies, department stores and an industrials division dealing into industrial and safety products (Wesfarmers, 2017).

Corporation is defined as a business entity, which legally subsists and independent from its owners. Corporation’s owners are shareholders and there extent of ownership in the business is represented through company’s shares they possess. Shareholders are allowed to elect board of directors for supervising business proceedings. The owners of a business are not personally liable for the debts or affairs of the company consequently enjoy a privilege of limited liability. Corporation is a deemed legal person and holds the similar rights and responsibilities as a person like in the case of violation of prevailing legal framework, it can be litigated and penalized (Waqas and Rehman, 2016).

 

Product portfolio is defined as range of goods or services offered by the organisation to its customers. Product portfolio is a company’s snapshot over different categories of products and different product lines. Management of the company analyses factors like company growth projection, profit margin, income contributions, there market position and probable functional uncertainties in the process of designing product portfolio. Product portfolio analysis is essential task for the organisational managers as it provides them base for planning future financial performance. It not only assists organisational planning but also helps investors to conduct equity research analysis through which they plans there prospective investment policy (Rubera, Chandrasekaran and Ordanini, 2016).

Service Portfolio is defined as a comprehensive package of services offered by the service provider to its customers. The service provider is responsible to maintain the quality of service delivery and consistent supply of service of its service portfolio (Vendrell-Herrero et al., 2017).

Business Unit Research

Wesfarmers in the year 2016 commenced with new retail segmental business units to explore more occasions where the company can attain sustainable growth and enhance their brand recognition. Company’s new department stores viz. Target and Kmart aimed at maintaining and nurturing there brand representation in Australian market. Kmart is one of the leading retail groups among Australian retailers’ cartel. Wesfarmers possess over 200 ‘Kmart’ stores in New Zealand and Australia. Kmart holds employees base of around 30,000 staff members to facilitate its retail business operations including commodities sourcing task. Kmart offers a broad collection of general merchandising goods, home brand products and apparel products at affordable prices, which assist company into optimization in customers’ satisfaction and delivering enhanced value to customers (Wesfarmers, 2017).

Wesfarmers holds over 240 retail stores offering customers with automotive service, repair and tyre replacement through Kmart Tyre & Auto Service. These retail stores holds team of around 1300 mechanics and apprentice mechanics. Company’s another retail venture branded as ‘Target’, provides nationwide network of over 300 stores and offers domestic customers with extensive range of products for the contemporary family requirements concerning apparel, homewares and general merchandise. These retail stores engage the team of over 16,000 employees to support its operations in Asia (Forbes, 2017).

Strategic business unit (SBU) is defined as section of a business structure, which is completely operational. SBU owes its independent directive approach and vision. A strategic business unit of the business venture functions as separate business entity, but plays significant role in companies overall performance. SBU operates like independent entity but functional status on the recurring basis is reported to company’s head office to establish the management information system. It functions separately and consistently focuses around target market to improve overall company’s performance. SBU has its own departmental structure and authority to establish its own HR developmental programs. The concept of SBU is most advantageous for organisations holding multiple product lines in their business structure like P&G, LG etc. (Palia, 2017).

Product/Service line of the company refers to set of associated goods or services of the particular brand, which subsist to cater the customers’ need through sales. Organisation operates in various brands associated to their typical product lines. The companies interested in expanding their product basket inclined to enlarge existing product lines with their innovative products and services in order to offer wide purchase options to consumers (Chen et al., 2016).

 

Business Unit Revenue

Wesfarmers in the financial year 2015-16 has attained increase in profit amounting to $8.6 billion with 8.2% growth in revenue of Department Stores. Kmart as revenue center is acknowledged to drive this increased growth rate. Department Stores total profits for the year was $275 million, which was depicting the sluggish trend of 47.3 % in comparison to the previous financial years (2014-15) performance of the retail division. The reason behind this revenue shrink is recovering loss of $195 million incurred by one of its retail business center ‘Target’. In spite of offsetting effect, Kmart has proven its potential through its strong growth and performance in the assessment year. Target’s financial performance is inclusive of provision for loss of $145 million of restructuring costs. The allocated provision amount is to be utilized by the management to strategically restructure this business unit. Target’s profits are reported increase of $3.5 billion for the year. Fundamentally, Target’s financials covered with loss of $50 million owing to elevated stock clearance and the impact of a poorer Australian dollar position in the global market (Wesfarmers Annual Report, 2016).

Revenue in financial terms refers to earnings produced from sales efforts of organisational products and services. Revenue can also be defined as the return on investment made by business owners into business operations and capital assets acquisition (Wagner and Petera, 2014).

External Environment Analysis

An external (operating) environment is defined as a group of external elements viz. micro and macro environmental factors, which directly influences the operations of the business entity (Munro and Belanger, 2017). External environment has a direct influence on corporate objectives and managerial strategic decision-making process. Hence, organisational managers required to analyse the intensity of external factors over organisational framework in order to attain sustainable organisational growth in global competitive market scenario.

The political environments not only influenced the Australian retail industry but also the performance of Wesfarmers retail store division largely. The increasing market dominance of big retailers has resulted into uncertainty among small retailers and growth stagnancy in the retail industry. Australian Government’s recent reform initiative into competition policy safeguards several retailers against extremely competitive business environment and provided flexibility they require to nurture their business (Harkness, 2017).

Australian slow-moving economic conditions tend to adversely influencing performance of Wesfarmers. Slump in economic activities of New Zealand and Australia is emerged as a challenge for business operators in retail market. Swinging stock market index and variation in the currency swap rates resultant to downward Australian currency value trend in the global market and have adversely affected the business of Wesfarmers intercontinental retail operations  (Woolworths Annual Report, 2013).

The recent global business environment is shifted towards promoting and implementing eco-friendly organisational practices understanding there corporate social responsibility. It has been observed that customers prefer those companies that show their social responsiveness by taking social initiatives. Wesfarmers can significantly influence the mind of the customers through enterprising their contributory efforts in social causes (Stubbs, 2017).

Involvement of innovative technology into operations of global businesses has been significantly influencing Wesfarmers retail business. Wesfarmers has to engage with innovative technological research and developmental activities through establishment of dedicated R&D department in the organisation. R&D department will persistently explore innovative technological ideas to improve Wesfarmers’ product quality and service delivery issues (Balaji and Roy, 2017).

The environmental factor like fashion-consciousness and brand awareness, are the key drivers of global consumers reorientation towards their life style, thinking and believes. This dynamic cultural change has a direct influence over the entire Australian retail industry (Demirgunes, and Ozsacmaci, 2017).

Australian legislative intervention in carbon pricing has framed new carbon pricing policy aimed to promote investment in renewable energy. Australian economy gains a key foreign exchange revenue chunk through its coal resource (Fankhauser and Jotzo, 2017).

Political environment refers to the manner in which the government influences strategic decision-making process and routine operations of business management. Political factors like governmental stability and agenda directly affect sector performance, trade and commerce of the country (Underhill and Rimmer, 2017).

Economic environment is a mix of economic micro and macro elements, which directly influences the business surroundings of the country and the business developmental strategy. Economic environment affects business managers’ decision-making progression through which organisation nurtures its growth path (Courtemanche et al., 2015).

 


Social environment refers to social heritage, which is developed by people living in a specific geographical environment. Society specify pattern of economic activities carried out in physical surroundings and economic conditions. Every social environment possesses its independent   cultural values, ethical standards and beliefs (Pavel and Vlad, 2016).

Technological environment refers to external factors linked to research and development of innovative technology, which dynamically enhances organisational operational performance Organisational management need to explore the opportunity searching innovative ways of technical improvement in order to attain sustainable growth in the comparative market. (de Waal, van Nierop and Sloot, 2017).  

Environmental factors refer to external environmental elements closely associated to specific geographic environment. Business environmental study is performed analyzing elements like climate, weather, geographical location, global changes in climate, environmental offsets (Marques, Trindade and Santos, 2016)

Legal environment defined as legislative framework including laws and policies of the particular country, which directly influences the business performance and operations (Maric et al., 2017).

Source of Sustainable Competitive Advantage 

The sources of sustainable competitive advantage for Wesfarmers retail division is its outstanding team of employees, commercial excellence, dominant organisational culture, innovation, focused social responsibility and robust financial capability. These key sources assure the company to drive efficient operational performance and attainment of sustainable competitive advantage.

Excellent management team and operations - Trained and talented employees’ workforce backed up with expert managerial team outlines base for constantly efficient business performance and attainment of sustainable competitive advantage. Wesfarmers retail division holds team of talented employees, which assure its lasting sustainable success (Davis, 2017).

Commercial excellence - Organisation can attain sustainable competitive advantage through improved production capacity and quality. Organisation can enjoy incremental profit margins by enhancing their volume of production, which tends to reduced per unit cost and ultimately influences turnover figures. Wesfarmers retail division holds strong commercial potential. Its business leaders constantly strive to explore noble ways to reduce the cost of their class of product offerings in order to render optimum benefits to its customers (Androniceanu, A., 2017).

Superior product or customer support - Company that has the ability to rapidly supply, products and services as per the consumers’ changing requirements holds competitive advantage over competitor companies. Wesfarmers retail division holds the proficient customer support team, which continuously analyse the changed behaviour of the customers. Management of the company manufactures or procures products according to the clients’ changed requirements and feedback (Kuo, Lin and Lu, 2017).

Focused social responsibility - The organisational business approach is shift towards promoting eco-friendly organisational processes, as contemporary customers lobby is paying attention to attach with socially responsible organisations. Corporate social responsibility is key to sustainable competitive advantage. Wesfarmers retail division is engaged in employees, customers and suppliers value enhancement through environmental responsibility and community contribution (Martinez-Conesa, Soto-Acosta and Palacios-Manzano, 2017).

Innovation - Organisation can achieve competitive advantage through its unique research and development capacity. Well-built research and development programs of the entity influences product development processes. Companies with superior research capabilities lead to innovative and cost efficient product offerings for customers. Wesfarmers retail division is structured around culture that encompasses constant product developmental activities, which encourages innovative and creativity product offerings. Innovative product offerings of the company entail competitive advantage in the industrial competition (Durand, Grant and Madsen, 2017).

 

Strategic Direction

Strategic direction is a plan or road map that guides organisational management to attain long-term strategic goals of the organisation. The changing economic trends customized the organisational blueprint and actions of the company, its inner chain of value, mission, vision and innovative expertise in order to attain sustainable growth in globally competitive market (Cosic, Shanks & Maynard, 2015).

The management of the company is advised to improve its managerial efficiency in organisational technical excellence, cost efficiency and financial growth required to sustain organisational growth in global competition. In addition, company is advised to stick towards strategic priority of corporate social responsibility through their aggressive engagement in undertaking social initiatives. Management of the company is also suggested to implement organic developmental growth strategy with the aim to retain the ongoing culture and adoption of new cultural values along with sustainable growth, which may drive adoption of the change elements implicated into recent global business practices. A recent globalised business market offers impressive growth opportunity for Wesfarmers retail division, which opens up the innovative growth avenue in untouched markets. Company is advised to reap the expansion advantage from globalization effects.

Conclusion

In view of the above analysis, it is stated that the intensity of adverse external environment to Wesfarmers retail division is significantly high. Unfavorable external economic elements, declining Australian economy, continuous fluctuation in stock market index and variation in the currency swap rates resulted into emerging competition with expertise retailers in the industry. The management of the company needs to review its strategic planning in order to retain its client base and assure its sustainable growth in extremely competitive market. The company’s management can also enhance company’s asset portfolio in global market through acquisition strategic approach, which benefit organisation in bring in more revenue from approaching opportunities and gain advantages of company’s internal dynamism.

 

Reference

Androniceanu, A. (2017) ‘The Three-Dimensional Approach of Total Quality Management, an Essential Strategic Option for Business Excellence’, Amfiteatru Economic, 19(44), p.61.

Balaji, M.S. and Roy, S.K. (2017) ‘Value co-creation with Internet of things technology in the retail industry’ Journal of Marketing Management, 33(1-2), pp.7-31.

Chen, K.H., Wang, C.H., Huang, S.Z. and Shen, G.C. (2016) ‘Service innovation and new product performance: The influence of market-linking capabilities and market turbulence.’ International Journal of Production Economics, 172, pp.54-64.

Cosic, R., Shanks, G. and Maynard, S. (2015) ‘A business analytics capability framework’, Australasian Journal of Information Systems, 19, pp. S5-S19.

Courtemanche, C.J., Pinkston, J.C., Ruhm, C.J. and Wehby, G.L. (2015) ‘Can Changing Economic Factors Explain the Rise in Obesity?’, Georgia State University, pp. 1-60.

de Waal, A., van Nierop, E. and Sloot, L. (2017) "Analysing supermarket performance with the high-performance organisation framework", International Journal of Retail & Distribution Management, Vol. 45 Issue: 1, pp.57-70.

Demirgunes, B.K. and Ozsacmaci, B.(2017) ‘Exploring the Effect of Consumers’ Food-Related Decision Making Styles on National Brand vs. Store Brand Choice’, International Journal of Marketing Studies, 9(1), pp.46.

Durand, R., Grant, R.M. and Madsen, T.L. (2017) ‘The expanding domain of strategic management research and the quest for integration’ Strategic Management Journal, 38(1), pp.4-16.

Fankhauser, S. and Jotzo, F. (2017) ‘Economic growth and development with low-carbon energy’, Australian National University, pp. 1-25.

Forbes (2017) ‘The World’s Biggest Public Companies’, [Online].  Available at: https://www.forbes.com/companies/wesfarmers/ (Accessed: 7 April 2017).

Harkness, J. (2017) ‘Competition Reforms Introduced To Improve The Bargaining Power Of Small Business’, Dynamic Business, 31March [Online].  Available at: https://www.dynamicbusiness.com.au/small-business-resources/legal/competition-reforms-introduced-to-improve-the-bargaining-power-of-small-business.html (Accessed: 7 April 2017).

Kuo, S.Y., Lin, P.C. and Lu, C.S. (2017) ‘The effects of dynamic capabilities, service capabilities, competitive advantage, and organizational performance in container shipping’ Transportation Research Part A: Policy and Practice, 95, pp.356-371.

Maric, R.M., Radnovic, B., Duranovic, D. and Vukmirovic, G. (2017) ‘Socially Responsible Behavior of Sales Staff: Evidence from Western Balkans Supermarkets’, Engineering Economics, 28(1), pp.110-119.

Marques, S.H., Trindade, G. and Santos, M. (2016) ‘The importance of atmospherics in the choice of hypermarkets and supermarkets’, The International Review of Retail, Distribution and Consumer Research, 26(1), pp.17-34.

Martinez-Conesa, I., Soto-Acosta, P. and Palacios-Manzano, M. (2017) ‘Corporate social responsibility and its effect on innovation and firm performance: An empirical research in SMEs’,  Journal of Cleaner Production, 142, pp.2374-2383.

Munro, M.M., Belanger, C. (2017) "Analyzing external environment factors affecting social enterprise development", Social Enterprise Journal, 13(1), pp.38-52.

Palia, A.(2017) ‘Developing a Strategic Target SBU Portfolio with The Target Portfolio Package. ’, Developments in Business Simulation and Experiential Learning, 44(1), pp. 167-182.

Paul J. Davis, (2017) "How HR can create competitive advantage for the firm: Applying the principles of resource-based theory", Human Resource Management International Digest, 25(2), pp.4-6.

Pavel, C. and Vlad, F. (2016) ‘Modern Retail and its Influence on Consumer Behavior’, Quaestus Multidisciplinary Research Journal, (9), pp.89-93.

Rubera, G., Chandrasekaran, D. and Ordanini, A. (2016) ‘Open innovation, product portfolio innovativeness and firm performance: the dual role of new product development capabilities.’, Journal of the Academy of Marketing Science, 44(2), pp.166-184.

Stubbs, W. (2017) ‘Characterising B Corps as a sustainable business model: An exploratory study of B Corps in Australia’, Journal of Cleaner Production, 144, pp.299-312.

Underhill, E. and Rimmer, M. (2017) ‘Private governance, state regulation and employment standards: how political factors shape their nexus in Australian horticulture’, Relations Industrielles, 72(1), pp.33-55.

Vendrell-Herrero, F., Myrthianos, V., Parry, G. and Bustinza, O.F., (2017) ‘Digital dark matter within product service systems.’, Competitiveness Review: An International Business Journal, 27(1), pp.62-79.

Wagner, J. and Petera, P. (2014) ‘Approaches to Revenue Definition and Recognition and Their Implications for Profit and Loss Measurement.’, Cesky financni a ucetni casopis, 2014(3), pp.20-33.

Waqas, M. and Rehman, Z. ( 2016)  ‘Separate Legal Entity of Corporation: The Corporate Veil’, International Journal of Social Sciences and Management, 3(1), pp.1-4.

Wesfarmers (2017) Our Businesses. [Online]. Available at: https://www.wesfarmers.com.au/our-businesses/our-businesses (Accessed: 6 April 2017).

Wesfarmers Annual Report (2016) 2016 Annual Report, [Online].  Available at: https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=4 (Accessed: 7 April 2017).

Wesfarmers(2017)Department Stores. [Online].  Available at: https://www.wesfarmers.com.au/our-businesses/department-stores (Accessed: 7 April 2017).

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