Business Environment and Investment Opportunities - Case Study Example

Country/Product Brief Student’s Name Institutional Affiliation Country/Product Brief Introduction The world retail industry is an ever growing market based on the increased demand for food, clothing, and other consumer goods. The following paper has identified a market opportunity in Chile’s retail and specifically the supermarket sector. Woolworths is the largest supermarket chain in Australia and has expressed its intentions to expand internationally. In this case, Woolworths has an opportunity at exploiting the supermarket industry in Chile. The retail and supermarket industry in Chile is attractive based on over 1.2 billion consumers. Currently, there is no Australian or international supermarket chains with increased presence in Australia. Moreover, is regarded as the regional leader in terms of trade and investment in the Latin America region. Moreover, the country has been ranked among the top recipients of Foreign Direct Investment in the region and the world. Based on the increased success of Woolworths in Australia and the market opportunities in the retail market of Chile, the following paper aims at developing a country/product brief as part of an international marketing plan. Situational Analysis Business Environment One of the main ways of understanding the external business environment is through the micros and macro environment analysis using the PESTEL model. As indicated earlier, Chile is a regional leader in Latin America. In terms of politics, Chile is ranked among the lowest countries with political risk (KPMG, 2012). The current and previous political situations have been stable, thus illustrating a stable political future. The country’s current political regime is also dedicated and committed towards uplifting the standards of life through development of infrastructure, public safety, and social stability (KPMG, 2012). Moreover, the government has illustrated increased transparency with reduced levels of corruption. The economic situation in Chile is also the most dynamic in Latin America. Chile’s GDP rose by about 5.2% in 2010 while the per capital revenue rose its highest level in about 8 years (KPMG, 2012). The country’s GDP has also risen steadily from 2010 despite suffering an earthquake. In 2015, the GDP rose from 1.8% to 2.4% illustrating increased growth into the future. Moreover, consumer spending has also increased with the growth of GDP in Chile. Additionally, Chile is based on an open or free economy with a floating exchange rate and numerous provisions aimed at decreasing economic volatility (Australian Department of Foreign Affairs and Trade, 2014). The Chilean government also implements a strong financial position that has enabled repayment of debts (Australian Department of Foreign Affairs and Trade, 2014). The country has also eradicated most non-tariff barriers and trade distortions. Inflation rates are also maintained under OECD standards since Chile joined the organization. Overall, the economic attributes of Chile are positive and offer an attractive business environment for many international and Australian companies. According to Australian Department of Foreign Affairs and Trade (2014), about 120 Australian companies have expanded to Chile, but more than half of these are in the mining industry. There is little or no presence of Australian companies in the retail and supermarket industry. In the social aspects, Chile’s population is about 14 million. One of the main cultural issues is that the official language is Spanish; therefore business such as Woolworths should ensure they understand and can effectively communicate to consumers through the official language. Additionally, the standards of living are medium based on Chile being and emerging market in the world. The country also boasts of a large pool of highly-qualified labor sector. Technology wise, the country is ranked among the best in Latin America with extensive IT infrastructure as well as human resources (KPMG, 2012). Numerous efforts have also been made to increase sustainability efforts by requiring companies to comply with environmental regulations. Additionally, the legal structure of Chile is very strict, but its taxation environment is friendly and one of the lowest in the Latin America region (KPMG, 2012). Overall, based on the PESTEL analysis, Chile is an attractive country for doing business and offers a unique opportunity in the retail sector. Market Analysis Chile has a population of about 14 million, but the open market system offers business access to about 1 billion people in Latin America (Arellano, 2012). The highest percentage of the population is composed of people aged 15 and above who are about 35% (Arellano, 2012). The retail industry receives most of its consumers from the middle class. This industry is also segmented to the baby boomer category for people aged between 40 and 55 years old. Based on the increased growth of GDP in Chile, the annual gross income has grown in the past five years. It is also expected to grow among the young generation aged between 15 and 35 years (UK Trade & Investment, 2010). The retail industry has also witnessed increased consumer spending based on these income growth. Consumer spending has also grown significantly among the ageing population in Chile. With most of the population being concentrated in the urban centers, where consumer spending is higher than in rural areas. The retail sector especially in supermarkets is expected to grow in the future based on rising demand for food and consumer electronics such as mobile phones. Competitive Analysis The two main supermarket chains in Chile include Cencosud and Dys that account for about 65% of the Chilean supermarket market share. Dys was acquired by Wal-Mart and is considered to be the leading retailer in Chile accounting for an estimated 34% in food sales (UK Trade & Investment, 2010). The supermarket chain operates about 252 stores across Chile including hypermarkets, supermarkets, shopping malls, and discount stores (UK Trade & Investment, 2010). The main competitive advantage of Dys is its aggressive expansion as well as merger with Wal-Mart. This should be considered as a major competitor based on its consumer base as well as growth rate across Chile. Cencosud is also a major player in Chile and Latin America with operation in Peru, Brazil, and Argentina (UK Trade & Investment, 2010). Being a Chilean-based and owned company, it has received increased nation-wide acceptance. The supermarket chain is diversified into numerous segments such as shopping malls, departmental stores, and home improvement stores. Additionally, its regional presence and the largest retailer in Peru also serve as a competitive advantage (UK Trade & Investment, 2010). These two supermarket chains are the leading companies in the retail industry. One of the main issues to note is that the Chilean supermarket or retail industry has not had a dominant player for a long period of time. Numerous supermarket chains have been leading, but dropped or merged due to increased competition. With the right offerings and strategic focus, it is possible for Woolworths to overtake the current leaders and become a leading chain store in Chile. Overall, the competition in Chile is relatively high, but it offers the best environment and opportunity for healthy competition especially for new entrants. The ability to acquire and merge is of great importance for a company such as Woolworths that is looking to expand internationally. Organizational Analysis Woolworths is the largest supermarket chain store company in Australia with a market share of about 80% (Hephaestus Books, 2011). The company operates numerous brands that illustrate a strong strategic focus in product diversification. Some of its brands include Dick Smith Electronics, Dick Smith Powerhouse, Safeway/Woolworths supermarkets, and Dan Murphy’s among others (Hephaestus Books, 2011). Currently, the company operates about 840 stores in Australia, 156 in New Zealand, and 22 supermarkets in India (Hephaestus Books, 2011). Woolworths is well-known for its excellent customer service as brand reputation. Additionally, the company has a strong financial position that is achieved through continues growth in sales. The company has illustrated increased efforts to reduce costs while responding innovatively to customer needs. In turn, this has enabled Woolworths to reach an estimated 7% growth in income for a consecutive 5 years (Hephaestus Books, 2011). This is a higher number of revenue when compared to its top competitors such as Bi-Lo and Coles (Hephaestus Books, 2011). Woolworths is also keen on maintaining its supply chain management relationships. The company has focused on efforts to ensure effective operations with suppliers that include fair trade agreements and reduction of environmental impacts of its supply chain operations. Nonetheless, the main weakness of the company is having a low regional market share. Woolworths is the largest in New Zealand and Australia, but has no significant market share in the Asia-Pacific region. Overall, these competitive advantages are of great importance in helping Woolworths expand to Chile. SWOT Analysis/Conclusion The main strength of this opportunity is that both Chile and Woolworths have increased advantages over disadvantages in exploiting the current opportunity. Chile is considered as one of the major emerging markets for new investments. The country has the best business environment and all necessary elements for foreign investors. Additionally, Woolworths is a leading, reputable, and successful supermarket chain that has no significant international presence. Therefore, Woolworths has a unique opportunity to invest in Chile. Moreover, the retail sector in Chile has illustrated increased future growth as the economy supports increased consumer spending. Woolworth’s business strategy is also suitable for the current retail market in Chile based on their diversified brands that have illustrated increased success in Australia. Overall, Woolworths should consider expanding to Chile based on its friendly environment and opportunities as well as the fact that it requires a focus on the international market. References Arellano, M. M. (2012). Chile: business environment and investment opportunities. Policy, 5-0. Australian Department of Foreign Affairs and Trade, (2014). Chile country brief. Retrieved from http://dfat.gov.au/geo/chile/pages/chile-country-brief.aspx Hephaestus Books, (2011). Articles on Woolworths Limited, Including: Foodtown, Countdown (Supermarket), Progressive Enterprises, Dick Smith (Retailer), Georgie Pie, Dan Murphy'. Canada: Hephaestus Books. KPMG, (2012). Doing business in Chile. Retrieved from https://www.kpmg.de/docs/2012-01-kpmg-doing-business-in-chile.pdf UK Trade & Investment, (2010). Retail Sector Opportunities in Chile. Retrieved from https://s3.amazonaws.com/StagingContentBucket/pdf/20110321121448151.pdf Read More