Strategic Analysis For Bunning Warehouse – Division Of Wesfarmers

Introduction

This report will focus on performing strategic analysis for Bunning Warehouse, which is a division of Wesfarmers. This report will emphasize on performing the PESTEL analysis in the context of the target market of the selected company. In addition to this, the report will focus on conducting porter’s five force analysis for purpose of determining the competitiveness of the market.

Background Information of Company:

Wesfarmers Ltd is the public listed company that is selected in this report for performing strategic analysis. The headquarter of Wesfarmers Ltd is located in the Perth city of Western Australia. This company deals in manufacturing and selling different types of products like industrial & safety products, coal mining, fertilizers, chemicals, etc (Wesfarmers Ltd, 2020). This company has achieved the place of largest employer across the private sector of Australia. This company has employed more than 220,000 employees. There are different competitors of Wesfarmers such as NSW Health, Telstra, Coles, Rio Tinto, Nab, etc. The presence of a company in multiple business segments or multiple market segments creates greater opportunities for the company to ensure sustainable competitive business performance in the business. In other words, the slowdown of any industry will not have a major impact on the business growth of the company.

Macro-environment Analysis:

Political Factors:

The business performance of Wesfarmers Ltd will be highly affected by political conditions in Australia. Example of these political conditions involves Australian Securities Exchange or ASX, Federal or State regulatory bodies including the Australian Competition and Consumer Commission (ACCC), Australian Taxation Office (ATO), etc. The failure of Wesfarmers Ltd to comply with these regulations can cause material adverse effects over the operating and financial performance of the company . The management of Wesfarmers Ltd emphasizes strict compliance with different political and regulations conditions of the country to ensure that their business runs in accordance with the regulations of Australia. The management of the company focuses on highly advanced training programs for the employees of the organization for purpose of keeping them updated about the latest political circumstances and regulations of the country.

Economic Factors:

The economic environment of a country also has a significant level of impact on the business growth or business performance of a country on the international business platform. Total GDP of the economy of Australia was recorded as $1.376 trillion in 2019 ( Appendix-A). At the same time, the per capita GDP of the country was observed as $53,825 in 2019 (Appendix-B). This also indicates a high level of purchasing power of the individuals residing across the country and shows a high level of business scope for Wesfarmers Ltd in Australia for competitive business growth. Key environmental factors and incidents like the global epidemic of the COVID-19 virus have affected the GDP growth rate of the country for 2020. It is anticipated as -6.7%. However, it is predicted that the GDP growth of the country will remain at 6.1% in 2021 (Maidment and Bay, 2020). It is expected to contribute greater profits to Wesfarmers Ltd over the next few years, but it would also be badly affect by the slow growth of Australian Gross Domestic Product (GDP).

Social Factors:

The social environment of Australia is very favourable for Wesfarmers across Australia. The education level in Australia is very high. For example, the literacy rate in Australia is 99%, which is very high (Witcher & Chau, 2010). Moreover, the farmers across the country are also well educated and professionally qualified. This kind of social environment in the country indicates greater demand for different products of the country (Pride, 2017). Moreover, the majority of the population of the country is familiar with technological gadgets and internet technology. This creates an opportunity for Wesfarmers to start selling its products and services through the use of its official e-commerce website.

Technological Factors:

The technological environment of Australia is very advancing at the global. For example, there is the proper availability of highly advanced machinery and equipment required for modern agriculture. Due to these types of technologies and equipment, farmers can maximize their productivity. Example of different innovations in the agriculture in Australia includes cloud-based applications for scarce water management, artificial intelligence supported forecasting systems for microclimate, sensors, virtual fencing technologies, etc (Farabi, 2012). The familiarity of local farmers of Australia with different technological advancements and equipment indicates greater scope for the company to focus on diversifying its business into the field of agriculture equipment and machinery for the generation of competitive revenue performance in the industry.

Environmental Factors:

It is highly pertinent for the individuals and companies to focus on producing and selling the products that are organic and have less carbon footprint over the environment. It is so because the awareness of people about the need for environmental preservation has enhanced at a global level. In this context, the individuals and farmers of Australia give preference to the purchase of organic fertilises and more efficient agriculture equipment to reduce their carbon footprints in their respective works (Huang and Austin, 2011). It can be advisable for the company to focus on producing and selling technologically efficient agriculture equipment and machinery. In addition, the management of Wesfarmers Ltd should focus on the eco-friendly product packaging for the creation of an environment-friendly brand image in the market.

Legal Factors:

The legal environment of a country also has a major role in sustainable business performance and growth for a company (Issa and Chang, 2010). The management of Wesfarmers needs to ensure proper compliance with different laws and legislations of the country for sustainably running a business. Example of different laws and regulations of the country involves the corporations act 2001, Equality act 2019, the privacy act 1988, the national minimum wage law of the country, the workplace health act, etc (Kim, 2013). The failure of the company to comply with any of the laws or regulations can cause legal actions and fines over the business entity, which can enhance the legal cost of business to the company. In this context, the management of the company should strictly focus on compliance with these legislations.

Key Drivers of Change and Conclusion:

The laws and legislations of Australia are key drivers of change for the company. For example, the strategies of the company need to be designed by the laws of the country. The social environment of the country is also a driver of change. For example, the people of Australia are familiar with internet and e-commerce platforms (Huang and Austin, 2011). The company has to offer the opportunity of online shopping for people over its official website.

Industry Environment Analysis:

Threat of New Entrants:

The threat of new entrants is low because it is very difficult for a new company to achieve economies of scale similar to that of Wesfarmers Ltd. For example, Wesfarmers Ltd is a large-sized business entity, which produces products at a large scale and sells them at competitive market prices. It would be a costlier decision for new entrants in the household hardware industry as compared to the business cost of Wesfarmers Ltd. There is a need for strict licensing and legal requirements across Australia for new entrants, which also makes the entry into the market of Australia difficult.

Bargaining Power of Suppliers:

There is a large number of suppliers of the products that are required by Wesfarmers Ltd in Australia. This type of situation gives lower control to the suppliers over prices. In contrast, the products of suppliers are fairly standardized and less differentiated. In this context, there is a very low cost for Wesfarmers to switch from one supplier to another. Wesfarmers Ltd operates in the industry which is a major customer for the suppliers. In this context, the profitability of suppliers s closely tied with the profitability of the industry. Thus, the bargaining power of suppliers is low.

Bargaining Power of Buyers:

In the conglomerate industry of Australia, the number of suppliers is larger as compared to the number of conglomerate companies ( Kalkinemedia, 2020). It can be said that the number of companies, from which buyers can purchase products is few. It indicates the buyers have moderate bargaining power in the conglomerate industry of Australia. However, the customers can easily switch to other small or large-sized market players, if they are not satisfied with the key products and services of the company.

Substitute Threat:

 In this household hardware industry, an absolute advantage over competitors would be to create a compact one-stop offering wide range of products rather than to just specialize in one kind of good, together with unique and distinct products that arduous or even unattainable . Wesfarmers Ltd offers a wide variation of products and some services that have little or no substitutes, although some goods are readily available from others but due to the low variety and high cost of substitution available, buyers would still prefer the convenience and stay with Wesfarmers Ltd. For that reason, the treat of substitutes to Wesfarmers Ltd has a weak intensity in affecting their position

Rivalry:

With the growing demand and significant growth in size and market dominance of large players, increasing household hardware concentration and with the rising purchasing power of buyers, surely there will be many competitors even though Wesfarmers Ltd is already the largest departmental chain in Australia, thus the degree of rivalry is relevantly high. Another vital aspect will be the increasing power of dominant company pursuing to increase market shares as well as acquisitions or merging of smaller company. All these existing competitors and with the increasing online competition could lead to negative impact on sales. Hence, Wesfarmers Ltd experiences strong competitive rivalry in the household hardware industry environment, company must remain aggressive and be consistence with their growth pace to stay in the leading position.

Key Forces Affecting Future Industry Profitability and Conclusion:

Based on the above Diagram, it can be summarized that the competitiveness of the market for the Wesfarmers is very low. The company should focus on selling high-quality products and services to its customers. Therefore, The company should emphasise on implementing high-quality after-sales services across the country (Hubbard, 2014). The company should also set on adopting high quality of product recall and refund policy for better customer satisfaction in the business. The factor of the global epidemic of COVID-19 will also affect the current and future profitability of the company.

Conclusion

The macro business environment of Australia is highly favourable for the business performance and growth of Wesfarmers Ltd. It is a major finding of porter’s five force analysis that there is a low level of rivalry in the conglomerate industry of Australia for Wesfarmers Ltd. Different strategies can be recommended to Wesfarmers Ltd for achieving sustainable competitive business performance. Example of these strategies includes high quality of products and services at its premises, high quality of after-sales services, and sound product recall and refund policy.

References

Beech, N. and MacIntosh, R. (2017) Managing Change: Enquiry and Action. UK: Cambridge University Press.

Farabi, Y. (2012) Analysis of Marketing Environment of Virgin Australia. Germany: GRIN Verlag.

Huang, X. and Austin, I. (2011) Chinese Investment in Australia: Unique Insights from the Mining Industry. Germany: Springer.

Hubbard, G., Rice, J. and Galvin, P. (2014) Strategic Management. Australia: Pearson Australia.

Maidment, J. and Bay, U. (2020) Social Work in Rural Australia: Enabling practice. UK: Routledge.

Pride, W.M., Ferrell, O.C., Lukas, B.A., Schembri, S., Niininen, O. and Casidy, R. (2017) Marketing Principles with Student Resource Access 12 Months. Australia: Cengage AU.

Scandura, T.A. and Gower, K. (2019) Management Today: Best Practices for the Modern Workplace. UK: SAGE Publications.

Wesfarmers Ltd (2020) Wesfarmers Ltd: Home. [Online]. Available at: https://www.wesfarmers.com.au/ (Accessed: 11 August 2020).