Strategic Consulting for an International Company - Case Study Example

Student Name: Tutor: Title: Strategic Consulting Report Course: Executive Summary New market entry particularly in a new market entry is a challenge to many global retail players. Various methods have been used to penetrate new markets including foreign direct investment, subsidiary, franchise, licensing, and joint venture. For Wesfarmers to penetrate the Indian retail market it require the right choice of the entry strategy. This strategic consulting report explores the approach that Australia’s Wesfarmers Ltd can use to enter into the robust Indian retail industry. Stringent regulation requires provided the option of a joint venture before full understanding of the Indian market. The report gives a brief history of Wesfarmers Ltd and its growth in Australian market. The report discusses the various opportunities in India. Cross-cultural understanding in global business is crucial. Cross-cultural differences and compatibilities have been explored using Hofstede cultural classification dimensions. The challenges that are expected in the Indian market by Wesfarmers Ltd have been elaborated. Finally the report proposes an entry strategy that Wesfarmers Ltd can use to enter the attractive India retail market. The conclusion echoes the important points in the strategic consulting report. Table of content Executive Summary 2 Introduction 4 Wesfarmers Ltd 4 Cross-culture differences in international Market 7 Challenges anticipated in India for Wesfarmers Ltd 11 Entry strategy 12 Conclusion 13 References 14 Introduction Wesfarmers is one of the big employers in Australia employing more than 200,000 people all over Australia. In 2007 Wesfarmers declared the purchasing of the Coles Group retail conglomerate for a tune of A$22 billion being the largest take-over in the corporate history of Australia. This strategic consulting report discusses the entry of Wesfarmers Ltd into the hitherto banned Indian market through a Joint Venture with a local firm in the host country (Saul, 2010). There is a share of challenges that come with the desire to penetrate the Indian retail market. Cross-cultural compatibility has to be considered. The report discusses the company (Wesfarmers Ltd), opportunities; cultural differences in the international market, challenges and entry strategy. Wesfarmers Ltd Wesfarmers was established on 27th June 1914 as being Westralian Farmers Co-operative focusing on the provision of merchandise and services to the rural community of Western Australia. Wesfarmers Ltd has grown tremendously since its establishment in 1914 to be one of the greatest employers in Australia (Tielmann, 2010). Wesfarmers Ltd is one of the largest public companies in Australia and is also one of the largest retailers found in Australia. The company’s headquarters is found in Perth, Western Australia. Wesfarmers Ltd is involved in retailing operations including supermarkets, specialty department stores, general merchandise; liquor, fuel and convenience outlets; retailing of outdoor living products and home improvement products; industrial and safety product distribution; coal mining and production, distribution and processing of gas, fertilizer and chemicals manufacturer, as well as investments. The company has operations in four segments that include insurance, retail, industrial and other. The company is managed with the objective of ensuring delivering satisfactory returns in the long-term. The company focuses on strengthening its businesses using operation excellence and satisfying customer needs; ensuring growth opportunities using entrepreneurial initiatives, renewing of the operating portfolio using value-adding transactions; and ensuring sustainability applying long-term management (Dainty, 2007). The company aims to expand both organically as well as through acquisition while keeping within existing areas of expertise. Wesfarmers Ltd emphasizes on generation of cash flow while maintaining a balance sheet that is efficient. Opportunities in India Retail Industry Wesfarmers LTD is a diversified business that has operations in department stores, supermarkets, home improvement, and office supplies, resources, insurance, fertilizers, energy and chemicals, as well as safety products. Wesfarmers Ltd headquarter has its headquarters in Western Australia. Wesfarmers Ltd being the second largest retailer in Australia has to look for overseas opportunities for expansion, including its chemicals and coal divisions with its eyes in India. There are vast opportunities in India that Wesfarmers can take advantage in its search for emerging markets (Saul, 2010). India has vast retail sector which is worth $500 billion. The ministry of commerce and industry lifted the ban on foreign direct investments in the country. This ban was lifted in September 2012 and hence India becomes the next new market to many large retailers in the world. The recent series of reforms by the government of India to encourage Foreign Direct Investment in several sectors has brought a new gusto to the India’s investment climate (Hill & Jones, 2012). The retail industry in India is driven by rapid income growth, escalating urbanization, increasing young population, and the willingness to borrow for current consumption hence encouraging huge retail chains in metros and towns. The vast retail sector presents an opportunity for Wesfarmers Ltd to provide its products and expand its market share in the world. The addition of India to its foreign market is a boost to the expansion strategies that the company seeks to employ. The retail sector in India is growing at an annual rate of 20%. India will provide easier access to other markets in the Asia-Pacific region. This provides the opportunity for Wesfarmers Ltd to diversify geographically its operations and businesses in the world. India holds a huge promise to retailers considering its rising middle class and burgeoning spending power. Tesco was the first large retail to be cleared to enter the Indian market (Dangi, 2013). Foreign giants IKEA and Wal-Mart followed next receiving the government green light to enter the Indian Market. India is a large country with a huge population hence offering an attractive market to retail business that Wesfarmers Ltd is interested in. the rising middle class with increased power of purchasing attest to this (Andexer, 2008). Appropriate allocation of resource between the parent and subsidiary company is important to ensure that there is a balance that creates efficiency and effectiveness. Cross-culture differences in international Market Culture refers to knowledge that people apply in filtering the life experiences and come up with social behavior. Managers exist in different cultural context and disparities in national cultures can affect international business or new market entry. Culture is the collective mental programming of human minds that makes them different from other groups. However, no everyone in a given culture is programmed in the same way (Tielmann, 2010). There exist differences among individuals in a society. Some national values are relative but are described using the large percentage in the society. Wesfarmers Ltd has to understand the challenge of culture when it comes to venturing into Indian international market and designing the strategy. Increasing the management staff to integrate people from other national cultures in the host nation environment needs sensitivity and adequate research to take into consideration different values and principles that are important to these individuals (Handa & Grover, 2012). Cultures can be compared to one’s DNA; whereas individuals may appear the same outside, there exist internal factors that make people unique and standout. Dr. Geert Hofstede commenced his research on culture and valuation in the late 1960 as well as 1970s. He commenced by researching on his patients in his psychology career at IBM. He eventually came up with five dimensions that can be used to classify cultures (Mulcaster, 2009). The five cultural dimensions which that Hofstede came up with include Long-term orientation, power distance, masculinity, individualism, and uncertainty avoidance. National cultures can be classified using the mentioned dimensions. It is easy to integrate staff from two national cultures whose values of the five dimensions are close to each other since they appreciate same values. In order to venture into India the Australian company has to understand the scores of the national country on the five dimensions and see how to deal with any differences arising from disparities in national cultures between the parent country and host country (Handa & Grover, 2012). India and Australia can be compared using the five Hofstede’s dimensions while suggested what can be done to achieve harmony where the disparity is massive. Power distance Power distance refers to the degree to which less significant members of institutions or organizations within a society accept and expect that power is unequally distributed. It is fact that inequality in a given society is endorsed by both leaders and followers. Australia scores is 36 for this dimension (Sadler, 2003). In Australian organizations hierarchy is put in place for convenience purposes. Superiors are always accessible and managers rely on employees and teams for their success. Both employees and managers expect to be consulted. Information is shared freely in such a society with low power distance. Flat structures of organization are preferred. Communication is usually direct, informal and participative in countries with low power distance score. The power distance for the Indian society is 77 indicating appreciating top-down structure and hierarchical society. Real power in organization is centralized. Wesfarmers Ltd has to adapt to such a management style in order to penetrate the Indian market. Individualism This refers to the level of interdependence within a society among its members. Individualistic societies expect individuals to take care of only their immediate families. In Collectivist societies, people belong to groups and care about extended families. Australia has a score of 90 for this dimension. Australia is a loosely-knit society where people only care about themselves and their immediate families. Australia is an individualistic society. In the realm of business people display initiative and are self-reliant. Hiring and promotion in the place of work is based on merit and qualifications (Dainty, 2007). India’s score for individualism is 48 hence showing that culture in India embrace both collectivistic and individualistic traits. Wesfarmers Ltd has a chance to settle well in India since the Indian society also accommodates the individualistic traits of the Australian culture. Masculinity High scores on masculinity mean that a society is defined by achievement, competition and success. The value system is grounded in school and continues throughout someone’s life. In a feminine society distinguishing values us caring for others as well as quality of life. Quality of life is a symbol of success in a feminine society and not necessarily standing out from the crowd through achievement and competition. Australia has a score of 61 for masculinity meaning that it is a masculine society (Piepenburg, 2011). People exert themselves to be the best they can turn out be. Australia holds in high esteem achievement and successes in life. In the workplace it provides a basis during promotion and hiring decisions. Conflicts are normally settled at the individual level with the aim of winning. The value for masculinity for India is 56 hence India is regarded as a masculine society. With regard to this dimension, Wesfarmers Ltd management will not have problems since both societies in India and Australia are masculine. The definition for success in both societies is the same and intrinsic motivation effort applied in Australia can be used In India. Uncertainty avoidance This dimension refers to the manner in which a society confronts the fact that the future is not predictable. It is the level at which members of a certain society feel threatened with unknown situations and create institutions that deal with such circumstances. Australia has a value of 51 on this dimension (Hill & Jones, 2012). The score for uncertainty avoidance for India is 40 indicating moderate low preference in avoiding uncertainty. This score is not very far from that India or it is quite low. Short term decisions in the joint venture will have to be important for attaining the strategic goals of the company. Indulgence Humanity is confronted by the level to which children socialize in society. Indulgence defines the level to which people try to control their impulses and desires provided the context in which they were raised. Weak control means indulgence while strong control means restraint. Cultures can be restrained or indulgent. Australia is an indulgent society with a score of 71 on the dimension of indulgence (Piepenburg, 2011). There is willingness to fulfill desires with regard to having fun and enjoying life. There is a positive attitude and an inclination towards optimism. India has an indulgence score of 26. The society in India can be described as restraint. Individuals in the society demonstrate cynicism and pessimism. Very little time is set aside for leisure and individual desires gratification. Individual from the Indian society are constraint to social norms and they consider being too indulgent is not right. Wesfarmers Ltd has to alive to this fact as it seeks to penetrate the Indian market (Lymbersky, 2008). This means that incentives provided to workers will be different from that offered to employees in Australia. More time for leisure activities may not be appreciated in India. Challenges anticipated in India for Wesfarmers Ltd India has been for a long time banned direct foreign investment by multinational companies for the sake of protecting its home market. Consequently there are still long bureaucratic procedures that need to be followed before a company is allowed to enter into the Indian retail market. Wesfarmers Ltd will not be an exception and will have to follow the stringent and tedious process of clearance before it gains access to the vast retail industry in the country (Freeman, 2010). The long procedures of clearance before setting up retail outlet limit the expansion of retail outlets at a faster pace. In India there is the challenge of talent shortage and inadequate trained manpower. Wesfarmers will be forced to take some of its managers from Australia to work in India if there will be shortage of skilled labor. Wesfarmers Ltd will have to use more resources in training and development of its employees in order to equip them for better service delivery (Sekhar, 2009). In the India retail industry supply chain are not are not very efficient and the level of quality that customers are demanding cannot yet be provided. The retail market is full of too many intermediaries hence many chains drive up the costs hence raising the price of goods to the final consumer. Inadequate infrastructure like roads, cord chains, electricity, and posts hinders growing of a pan-India network of supplies. Owing to this, retailers have to turn to multiple vendors for their supplies hence resulting in increased costs, as well as prices. The restrictions by the government on Foreign Direct Investments results in limited exposure to the best practices of expected internationally. Efficiency and effectiveness of doing business in India is affected by this challenge of infrastructure (Saul, 2010). The challenge of cross-cultural differences is imminence, and the business environment in Australia and India is quite different. Differences in culture can prove to challenging during recruitment, training or promotion. Managers from the headquarters in Australia will have the challenge of acquainting themselves with Indian culture before venturing into the India retail market. Employment regulations and laws in the new market have to be followed and legal fee expenses will increase in case they are not interpreted or followed to the later (Murray, Poole & Jones, 2006). Lack of transparency in the process of administration and tedious bureaucratic delays often raise questions concerning sanctity of contracts and fair treatment of foreign companies. Entry strategy Wesfarmers Ltd can enter the Indian retail market through a 50-50 joint venture with a local firm in order to amicably deal with cross-cultural differences. A joint venture is an enterprise owned by two or more partners. It involves contribution of assets contributed by partners for purpose of business. A joint venture involves a strategic alliance where the parties create a partnership for share intellectual property, markets, knowledge, assets, and profits or losses (Andexer, 2008). There is not transfer with regard to ownership. The stringent and bureaucratic procedure for registration increases the urge of using a joint venture as a strategy of entering into the Indian retail market. Many companies opt for joint ventures as a market strategy entry in the India market as opposed to subsidiaries and other types of strategies. Many global retailers are in India courtesy of joint ventures. The tough regulatory environment in India forces many companies to use joint ventures in order to avoid multiple taxes and costs that come with establishing other forms of businesses (Lymbersky, 2008). It takes longer for foreign retailers to understand the market environment in India and local partners are in good position to interpret intricacies in the retail industry. Local partners have a better understanding of the Indian market. The choice of the local partner in India has to be careful done in order to ensure success. Wesfarmers Ltd will deliver its products to retail outlets of the joint venture that will be formed in partnership with a local firm. Other modalities including promotion and advertising can be done by the local firm while displaying goods from Wesfarmers Ltd. Conclusion Going international for any company comes with its own share of challenges that have to be dealt with effectively. India has a robust retail sector worth above $500 billion. Government ban on foreign direct investments had kept away international players from entering the Indian market. Lifting the ban in 2012 by the ministry of commerce and industry has open doors to international players in the retail industry. Wesfarmers Ltd strategic plan to enter the Indian retail sector has to consider cultural compatibility between the Australian and Indian societies. Overlooking culture can be a big mistake that will end up backfiring. Hofstede’s cultural dimensions provide a guideline towards integrating different national cultural. There are promising opportunities that can be found in India and despite challenges of tedious and bureaucratic clearance procedures, the world’s largest retailers like IKEA, TESCO, and Wal-Mart. Wesfarmers Ltd has a chance of excelling in the huge retail sector in India before the market become congested. Challenges can be overcome as the company focuses the opportunity for growth and geographical diversification. References Andexer, T. 2008, Analysis and Evaluation of Market Entry Modes into the Asia-Pacific Region: Based on the Example of a German SME in the Industrial Goods Business, GRIN Verlag, London. Dangi, R.N. 2013, FDI in Indian retail sector: Opportunities and Challenges, Innovative Journal of Business and Management 2 (5): 103-108. Dainty, A. 2007, People and Culture in Construction: A Reader, Routledge, New York. Freeman, R.E. 2010, Strategic Management: A Stakeholder Approach, Cambridge University Press, Cambridge. Handa, V., & Grover, N. 2012, Retail sector in India: Issues and Challenges, International Journal of Multidisciplinary Research 2 (5): 244-264. Hill, C., & Jones, G. 2012, Strategic Management Theory: An Integrated Approach, Cengage Learning, New York. Sekhar, G.V.S., 2009, Business Policy and Strategic Management, I. K. International Pvt Ltd, New Delhi. Mulcaster, W.R. 2009, Three Strategic Frameworks, Business Strategy Series, 10 (1): 68-75. Murray, P., Poole, D., & Jones, G. 2006, Contemporary Issues in Management and Organizational Behavior, Cengage Learning Australia, Melbourne. Lymbersky, C. 2008, Market Entry Strategies, Management Laboratory Press, Hamburg, p.364 Piepenburg, K. 2011, Critical analysis of Hofstede’s model of cultural dimensions: To what extent are his findings reliable, valid and applicable to organizations in the 21st century? GRIN Verlag, London. Saul, J. 2010, Social Innovation, Inc.: 5 Strategies for Driving Business Growth through Social Change, John Wiley & Sons, New Jersey. Sadler, P. 2003, Strategic Management, Kogan Page Publishers, London. Tielmann, V. 2010, Market Entry Strategies, GRIN Verlag, London. Read More