Firm Resources and Sustained Competitive Advantage - Assignment Example

Student number: [Insert here] Name: [Insert here] Date Submitted: [Insert here] MGT3SMG-All Instances-S2-2015 Assignment 1 – [Individual Written assignment] [1,500 words] Topic: 1) Select two case studies from those attempted in tutorials this semester. 2) With reference to at least 15 academic and peer reviewed journal articles provide an essay response to the following topic: “With reference to at least 15 academic journals explain the following concepts external environmental analysis, a Five Forces analysis and sources of sustainable competitive advantage. Then conduct an external environmental analysis, a Five Forces analysis, and determine the four sources of competitive advantage possessed by the firms in the case studies you have chosen.” . Campus: [Insert here] Lecture time: [Insert here] Lecturer: [Insert here] Tutor: [Insert here] Tutorial Time: [Insert here] Week 3 (Page 428): Too big? Coles, Woolworths and the other players in Australia’s retail industry; Week 4 (Page 436): David Jones in 2012 Word Count: [1480] Introduction Companies operate in an open system. They have got to interact and respond to various factors that impact on their performance. Top among these factors are the external environment (Political, Economic, Social, Technological, Legal and Ecological), the porter’s five forces (threat of substitutes, threat of new entrants, rivalry among existing competitors, bargaining power of suppliers, and bargaining power of suppliers) and competition. This report describes the influence of these factors on Australian grocery industry and the Australian retailing industry. The grocery industry is dominated by two big retail stores; Coles and Woolworths. David Jones is a leading player in the Australian retailing industry. In the first part of the report is the external environment analysis. The second part outlines the five forces analysis. The third part indicates the sources of competitive advantage for each firm. External environment analysis The external environment analysis entails the scanning and evaluation of a firm’s external factors that have an influence on its performance. Scanning involves monitoring and interpreting the political, economic, social, technological, legal and ecological happenings to identify emerging trends that may possibly impact the industry in the long run. This informs the decision makers on the goings-on in the external environment. They identify and can anticipate potential changes in the external environment in the coming times. Evaluation involves looking at the trends in the external sectors and assessing how they may influence the firm judging by the opportunities and the threats. The political environment in Australia is quite stable. There has been peaceful transfer of power under the rules of fairness and democracy. However, the economic environment is subtle amid global economic uncertainty. The current economic situation is characterized by lower consumer spending. Various social factors seem to influence the trade in the Australian grocery and retailing industries. One of the major rising social impacts is the people’s consciousness towards their health. Moreover, social influences seem to have an impact on consumer preferences and tastes with a more demand for organic foods. This offers the opportunity for the grocery companies to bring to the market organic foods that are set to be in demand in the long-term. On the other side, firms specializing in the production of organic foods will feel threatened. Another key emerging social trend is the time convenience that shoppers demand in their shopping spree. This requires firms to offer more product range and a one-stop shopping experience. The technological environment has had a major influence on the industry. The internet has offered a channel for online sales. More consumers are using the internet to buy commodities. The legal environment has mainly influenced the industry’s operations through government legislations requiring big companies, including supermarkets, to consider the impact of their operations to the environment. This is to reduce carbon emissions that are detrimental to the environment. This also touches on the environmental aspect of being eco-friendly. Consumers seem to purchase commodities with green labels or better energy ratings. Porter’s five forces analysis This involves looking at the nature and intensity of competition in the industry. Competition in the industry is mainly influenced by the suppliers, rivals, customers, type of product/service, entry and exit barriers, and government. The influence of these forces informs whether the competition in the industry is weak, moderate or strong. The porter’s five force model indicated in figure 1 below forms the basis upon which the level of competition within an industry is measured. Figure 1: Porter’s five force model The threat of new entrants in the Australian grocery industry is low. Many new entrants are deterred by lack of sufficient grocery stores sites due to leasing arrangements with landlords as well as the local zoning laws. Moreover, landlords seem to prefer the established players, which are Coles and Woolworths. Competing with such players is also challenging in view of the fact that they enjoy huge economies of scale. New entrants have got to invest hugely in specialized human resources, facilities and infrastructure. Rivalry amongst existing competitors is high. The industry has a few major players that are not very much differentiated given that the products and services offered are generic. Competition is limited to store location, price and product range. The Australian grocery industry is also characterized by low bargaining power of buyers. However, buyer’s power is disposed to increase as the ACCC and government push for lower competition barriers paving the way for new entrants. The bargaining power of suppliers is moderate given that Coles and Woolworths account for around 80 per cent of the market. The producers, therefore, have no wide range of players to sale their produce to. The threat of substitutes in the industry is high. There is a lot of competition from farmers’ markets, specialist grocery stores and convenience stores. In particular, convenience stores are likely to expand and compete directly with supermarkets by offering expediency and ‘one-stop shopping’. Farmers’ markets would attract customers preferring organic foods as more of them become wary of their health and well-being. In the retailing industry, the threat of new entrants is low. There are a lot of entry barriers such as the capital investment required to build new stores. The switching costs are also high and it is challenging to establish an efficient distribution system. Rivalry amongst existing players is very high due to the intense competition in the market, particularly involving David Jones and Myers. The bargaining power of suppliers is quite low. Suppliers have no many players to sell their produce to other than the few existing players. David jones can exert pressure on suppliers and hence influence them. The bargaining power of buyers is high given the variety of product choices. Consumers have the freedom to choose from which store to buy their products. The threat of substitutes is also high. The retailing industry is enormous and competitors can generate new substitutes in the market. Sources of competitive advantage Porter indicates that for a firm to compete well in a competitive environment it has got to have some competitive advantage. According to him, a firm needs to craft and sustain a competitive advantage in the industry by way of applying three key wide-ranging generic strategies. These are; cost leadership, differentiation, and focus. The firm also has to create value for the customer. However, the value must be more than the cost of creating it (Porter, 1985; Barney, 2002). Coles and Woolworths have deployed a number of competitive measures. Coles has used competitive actions such as price reduction to gain competitive advantage. For instance, in 2011 the company decided to sale milk at A$1 per liter, which was a big move in the market that caught the attention of Woolworths. Coles and Woolworths have diversified operations. Apart from the core area of grocery retail, the supermarkets also trade in car insurance, food and liquor as well as petrol. The firms also derive their competitive advantage from their logistics systems. They have very effective distribution networks for both in-bound and out-bound logistics. Thirdly, Coles and Woolworths competitive advantage emanates from their established brand names. The companies have built their reputation over a long time. The companies have also invested in large land tracks. The land gives them space for expansion into the future. Moreover, Coles and Woolworths are led by an effective management team. Coles Managing Director John Gilliam and Woolworths Chairman Ralph Waters and the CEO Grant O’Brien have long standing experience and management skill in the industry. David Jones derives its competitive advantage from its value chain. The company has invested greatly in departmental stores in all leading shopping outlets. Besides, David Jones has great human resources who are always innovating and working hard to come up with fresh ideas to beat the competitors. The company has also invested substantially in e-commerce. The company has leveraged on the internet to derive additional revenue through stock trading and advertising. Having been in operation since 1838, David Jones has built its brand name and has been able to attract great customer loyalty. Conclusion To sum it up, it is clear that Coles and Woolworths are the dominant players in the Australian grocery industry. David Jones is a major player in the Australian retailing industry. The external Australian environment provides good business opportunities for the companies that are expected to continue into the future. By and large, the grocery industry still has a low threat of entrants, buyers and suppliers have a moderate bargaining power and the threat of substitutes is high. Nonetheless, Coles and Woolworths have various competitive advantages based on their diversification, logistics, reputable brand names, and for expansion and effective management team. In the retailing industry there is a low threat of entrants, buyers have a high bargaining power, suppliers have a low bargaining power and the threat of substitutes is high. David Jones derives its competitive advantage from a wide network of stores, customer loyalty, technology and e-commerce. References: Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17: 99–120. Barney, J.B. (2002). Gaining and Sustaining Competitive Advantage, 2nd ed. Reading, Mass. Addison-Wesley. Barney, J.B and Hesterly, W. (2006). Strategic management and competitive advantage, Pearson: New Jersey. Barone, M.J. and T.E. DeCarlo (2003). Emerging Forms of Competitive Advantage: Implications for Agricultural Producers. Midwest Agribusiness Trade Research and Information Center Research Paper 03-MRP 5. Besanko, D. David, D. and Mark, S. (2000). Economics of Strategy. 2nd ed. John Wiley & Sons, New York. Ethical Consumer Guide (2012). In Hllonson, D (2012). 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