Business Environment Analysis

This report analyses the macro and micro environmental factors affecting Woolworths, a retail organization in Australia. The PESTLE framework and Porter’s five forces framework are used to study the external business factors affecting Woolworths. The report concludes that both the micro and macro environmental factors affect the profitability of Woolworths.

Running head: BUSINESS ENVIRONMENT ANALYSIS
BUSINESS ENVIRONMENT ANALYSIS
Name of the Student
Name of the University
Author Note

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Executive Summary
The analysis in the report is built on the different aspects of the business environment that are
able to affect the operations of modern organizations. The fast changes that take place in the
business environment and their effect on the profitability based levels of the organizations is
examined in the report. The organization which has been taken into consideration for this
study is Woolworths. The macro environmental factors affecting Woolworths are analysed
with the help of PESTLE framework. The micro environmental factors on the other hand are
analysed with the help of Porter’s five forces framework. The report has been concluded by
stating that both the micro environmental and macro environmental factors of business
environment affect the profitability of Woolworths.

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Table of Contents
Introduction and background of the company...............................................................3
Discussion based on the relevant topics.........................................................................3
PESTLE analysis of Woolworths...............................................................................3
Porter’s five forces analysis of Woolworths..............................................................6
Conclusion......................................................................................................................7
References......................................................................................................................9

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Introduction and background of the company
The environment the business organizations operate are able to play a major role in
the levels of profitability and revenues. The external and internal factors related to modern
organizations are thereby considered to be important for the ways by which they are able to
operate in different industries or markets. The different factors which are considered to be a
major part of the business environment thereby include, the customers, demand and supply,
management of the organizations and business regulations. These factors are thereby able to
affect the ways by which organizations operate in an effective way (Abhayawansa & Guthrie,
2014). The expectations of the customers are also fulfilled effectively with the help of
appropriate study of the external business environment.
The company which has been considered for study in the report is Woolworths which
functions in the retail based industry of Australia. Woolworths is an Australian organization
which operates in the retail based market of Australia and New Zealand. The organization has
been able to acquire major share in the Australian retail industry along with the Australian
conglomerate Wesfarmers. Woolworths has also been termed as the largest liquor based
retailer in Australia. The external environment of the company is able to affect the operations
and profitability based levels of Woolworths (Woolworths.com.au, 2018).
Discussion based on the relevant topics
PESTLE analysis of Woolworths
According to Akter and Wamba (2016), the analysis of the external environment is
based on two types of factors which are the macro environmental factors and the micro
environmental factors. The micro environmental factors are able to influence the performance
of the organizations in the industry. The macro environmental aspects on the other hand are
able to affect the organizations externally. Woolworths operates in a highly competitive retail

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industry and the analysis of different factors plays an important role in the successful
operations.
Political factors – Bailey et al. (2015), the countries in which Woolworths operates
like Australia and New Zealand are politically stable in nature. The performance of
Woolworths is thereby affected by the political forces in these two countries. Recently
Woolworths has been affected in a negative manner by the campaign which had been
launched by the government based on unfair competition provided by the company to the
smaller retailers. The fair business based policy which has implemented by the government of
these two countries have a major impact on the performance levels of Woolworths in the
Australian retail industry. The capable management of Woolworths has however played a key
role in the ways by which the company has been able to sustain its position.
Economic factors – According to Deng et al. (2018), the economic performance of
the country impacts the operations and revenues of Woolworths. The purchasing based power
of consumers in Australia have a direct effect on the profitability levels of Woolworths. The
weak purchasing power of consumers are able to affect the revenues of the company in a
negative manner. The inflation levels of the market can raise the prices of the products of
Woolworths which in turn affects the buying behaviour of consumers.
Social factors – The social factors which are able to impact the operations of
Woolworths in the Australian retail industry mainly include the individual beliefs, the
attributes and norms. The changes which are continuously taking place in demographics of
Australia impact the operations of Woolworths in a huge manner. The choice of consumers
and their demands are affected by the different technological changes.
Technological factors – As discussed by Engert, Rauter and Baumgartner (2016), the
immense levels of technological changes which have taken place in the retail industry of

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Australia have affected the ways by which Woolworths is able to conduct its operations. The
innovations in technology are thereby able to affect the competitive edge which Woolworths
has developed in the retail industry of Australia. Technologies have been applied by
Woolworths in different parts of its operations in the retail industry. The organization has
started using the technology of green refrigeration in order store the perishable products. The
self-checkout based machine is also used by Woolworths in order to scan and make payments
which has helped in the effective reduction of costs.
Legal factors – According to Galipoglu et al. (2018), a retail organization like
Woolworths needs to abide by the laws and different legal provisions which exist in the
country of its operations. The policies and rules are thereby able to guide the staff so that they
are able to align the staffs with different constitutional imperatives. The organization is able
to understand the consequences which it can face for not following the legal provisions in an
effective manner. The laws and regulations of the country thereby needs to be considered by
Woolworths in order to develop its operations effectively.
Environmental factors – The operations of Woolworths are affected by the various
environmental standards and norms which are followed in Australia and New Zealand. The
liability based laws and environmental laws that are followed in the two countries have been
able to affect the policies and production based standards which are maintained by
Woolworths. The organization thereby needs to analyse different environmental standards
before it plans to enter a new market area in order to continue its operations. The analysis of
environmental standards in a proper manner proves to be useful for the effective operations of
Woolworths (Higgins, Milne & Van Gramberg, 2015).

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Porter’s five forces analysis of Woolworths
According to Lin and Wu (2014), the Porter’s five forces framework can be used for
analysing the micro environmental factors of external environment which can affect the
profitability levels and operations of the company. The managers of the organization can
thereby use this framework in order analyse the levels of effect of different factors like,
customers, suppliers, competitors.
Threats related to new entrants – The new entrants in the Australian retail based
sector are dominated by the large organizations which enter the market. The threats which are
provided by the new organizations to Woolworths are considered to be quite low. The entry
of global organizations in the industry is however able to influence the profitability levels of
Woolworths. The levels of profitability which were predicted to increase in the future are
affected in a negative manner by the operations of the global organizations which have
entered the market (Prajogo & Oke, 2016).
Bargaining power of the suppliers – As discussed by Sutton-Brady et al. (2015), the
competitive levels of retail trade is able to affect the suppliers who are present in the industry.
The suppliers in the retail industry have high bargaining power and have an immense effect
on the prices of products which are decided by the organizations. The reduction of supply due
to changes which have taken place in the season can affect the power of the suppliers. The
supply chain management based process which is implemented by Woolworths is considered
to be quite effective in nature.
Bargaining power of the buyers – The buyers in the Australian retail industry are
offered with a wide variety of services and products from which they are able to choose. The
high availability of supermarkets in the country has increased the choices which are offered

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to the customers. The levels of competition to offer the buyers with the products of their
choice have increased with the entry of new organizations.
Threats related to power of substitutes – As discussed by Prajogo and Oke (2016),
the products and services which are offered by Woolworths to the customers have many
alternatives or substitutes. This increases the threats that are faced by the company based on
substitutes which are provided by other organizations. Woolworths has implemented the
process of diversification in the product line in order to reduce the levels of competition
which are faced due to the competitors. The pricing based strategy is being implemented by
Woolworths in the Australian market in order to increase its revenues and profitability levels.
The differentiation based strategy has also been implemented by Woolworths in an effective
manner in order to attract consumers and further retain them as well.
Rivalry among existing players – According to Swoboda, Elsner and Olejnik (2015),
the major competitors of Woolworths in the Australian retail market include, Coles, Aldi and
Asda. The organizations mainly compete with each other in order to gain a greater share in
the market by providing the products and services to consumers at lower prices. The levels of
competition in the retail market had affected the profitability of Woolworths in the industry.
The price based competition which is faced by Woolworths from its competitor Coles is quite
high. This is able to affect the prices which are set by the company for different products.
Conclusion
The report can be concluded by asserting that the external business based factors are
able to affect the processes of Woolworths in a huge way. The macro and the micro
environmental factors are thereby considered to be highly important for operations of
Woolworths and the levels of its profitability in the industry. The PESTLE framework and

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Porter’s five forces framework is thereby useful for the effective study of the factors which
can affect the profitable processes of Woolworths in the retail industry of Australia.

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References
Abhayawansa, S., & Guthrie, J. (2014). Importance of intellectual capital information: a
study of Australian analyst reports. Australian Accounting Review, 24(1), 66-83.
Akter, S., & Wamba, S. F. (2016). Big data analytics in E-commerce: a systematic review
and agenda for future research. Electronic Markets, 26(2), 173-194.
Bailey, J., Price, R., Pyman, A., & Parker, J. (2015). Union power in retail: Contrasting cases
in Australia and New Zealand. New Zealand Journal of Employment Relations, 40(1),
1.
Deng, P., Liu, Y., Gallagher, V. C., & Wu, X. (2018). International strategies of emerging
market multinationals: A dynamic capabilities perspective. Journal of Management &
Organization, 1-18.
Engert, S., Rauter, R., & Baumgartner, R. J. (2016). Exploring the integration of corporate
sustainability into strategic management: a literature review. Journal of cleaner
production, 112, 2833-2850.
Galipoglu, E., Kotzab, H., Teller, C., Yumurtaci Hüseyinoglu, I.Ö. & Pöppelbuß, J. (2018).
Omni-channel retailing research–state of the art and intellectual
foundation. International Journal of Physical Distribution & Logistics
Management, 48(4), pp.365-390.
Higgins, C., Milne, M. J., & Van Gramberg, B. (2015). The uptake of sustainability reporting
in Australia. Journal of Business Ethics, 129(2), 445-468.

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Lin, Y., & Wu, L. Y. (2014). Exploring the role of dynamic capabilities in firm performance
under the resource-based view framework. Journal of business research, 67(3), 407-
413.
Prajogo, D. I., & Oke, A. (2016). Human capital, service innovation advantage, and business
performance: The moderating roles of dynamic and competitive
environments. International Journal of Operations & Production Management, 36(9),
974-994.
Sutton-Brady, C., Kamvounias, P., & Taylor, T. (2015). A model of supplier–retailer power
asymmetry in the Australian retail industry. Industrial marketing management, 51,
122-130.
Swoboda, B., Elsner, S., & Olejnik, E. (2015). How do past mode choices influence
subsequent entry? A study on the boundary conditions of preferred entry modes of
retail firms. International Business Review, 24(3), 506-517.
Woolworths.com.au (2018). [online] Woolworths.com.au. Available at:
https://www.woolworths.com.au/ [Accessed 13 Oct. 2018].