Competitive Environment and Corporate Level Strategy for Wesfarmers Limited
Added on 2023-06-13
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This report aims to analyze the
competitive environment and
corporate level strategy for
Wesfarmers Limited
Investigative,
Authentic Learning
Research
Assignment
Kevin Raju (18829905)
Subject Code: MGT5STR
Subject Coordinator: Dr. Anjum Chaudhry
Subject Facilitator: Dr Jacinta Ryan
Submission Date: 09th April 2018
competitive environment and
corporate level strategy for
Wesfarmers Limited
Investigative,
Authentic Learning
Research
Assignment
Kevin Raju (18829905)
Subject Code: MGT5STR
Subject Coordinator: Dr. Anjum Chaudhry
Subject Facilitator: Dr Jacinta Ryan
Submission Date: 09th April 2018
1
Table of Contents
INTRODUCTION ....................................................................................................................................... 2
CORPORATION IDENTIFICATION.............................................................................................................. 3
DIVERSIFICATION..................................................................................................................................... 3
CORPORATION REVENUE CENTRES ......................................................................................................... 4
SOURCE OF SUSTAINABLE COMPETITIVE ADVANTAGE ........................................................................... 5
EXTERNAL ENVIRONMENT ANALYSIS ...................................................................................................... 9
PESTEL – AUSTRALIA ............................................................................................................................... 9
POLITICAL ............................................................................................................................................ 9
ECONOMIC ........................................................................................................................................ 10
SOCIO-CULTURAL .............................................................................................................................. 10
TECHNOLOGY .................................................................................................................................... 11
ENVIRONMENT ................................................................................................................................. 11
LEGAL ................................................................................................................................................ 12
SWOT ANalysis ...................................................................................................................................... 13
MERGER, ACQUISITION AND DOWSIZE ................................................................................................ 14
DEFINITIONS AND RECOMMENDATIONS .......................................................................................... 14
CONCLUSION ......................................................................................................................................... 15
REFERENCES .......................................................................................................................................... 16
APPENDIX A ........................................................................................................................................... 18
APPENDIX B ........................................................................................................................................... 22
Table of Contents
INTRODUCTION ....................................................................................................................................... 2
CORPORATION IDENTIFICATION.............................................................................................................. 3
DIVERSIFICATION..................................................................................................................................... 3
CORPORATION REVENUE CENTRES ......................................................................................................... 4
SOURCE OF SUSTAINABLE COMPETITIVE ADVANTAGE ........................................................................... 5
EXTERNAL ENVIRONMENT ANALYSIS ...................................................................................................... 9
PESTEL – AUSTRALIA ............................................................................................................................... 9
POLITICAL ............................................................................................................................................ 9
ECONOMIC ........................................................................................................................................ 10
SOCIO-CULTURAL .............................................................................................................................. 10
TECHNOLOGY .................................................................................................................................... 11
ENVIRONMENT ................................................................................................................................. 11
LEGAL ................................................................................................................................................ 12
SWOT ANalysis ...................................................................................................................................... 13
MERGER, ACQUISITION AND DOWSIZE ................................................................................................ 14
DEFINITIONS AND RECOMMENDATIONS .......................................................................................... 14
CONCLUSION ......................................................................................................................................... 15
REFERENCES .......................................................................................................................................... 16
APPENDIX A ........................................................................................................................................... 18
APPENDIX B ........................................................................................................................................... 22
2
INTRODUCTION
With the new trends emerging in the international and domestic markets, corporations
require outstanding strategies and strong structures to face challenges on new requests.
Therefore, it is of great importance that organizations can find ways to extend and
understand its products and services according to the new market trends (Jensen and
Sandström, 2011). However, when business units of organizations fail to reach their
projected performance, it is then when strategic directions should be reviewed and redirected
to approach all the factors affecting it. In other words, business units individually need to
develop strong and competitive strategies to stay competitive to its internal and external
challenges in order to constantly achieve customer satisfaction (Wiersema and Bowen,
2007). Business units characterizes an overall impression of a diversified corporation.
Consequently, corporations can then redesign their strategy based on the performance of
the business unit, with decisive actions such as merging, acquiring, downsizing or selling in
order to recover or respond to the market and gain greater market share (Haleblian et al.,
2009). This report aims to analyze the competitive environment and corporate level strategy
for Wesfarmers Limited. The research is based on scholarly journals and secondary sources.
Section 1 will aim to identify the corporation with a diagram to represent the relationship of
the strategic business unit (SBU) to the corporation. This report also aims to provide the
summary for the business unit which holds the greatest revenue along with the study of its
sustainable competitive advantage. VRIN model will be used to analyze the source of
competitive advantage. PESTEL analysis will be conducted based on the industry they are
in, followed by a SWOT analysis. Future strategic merger, acquisition or downsize will be
recommended based on the all the analysis and the report will be finally concluded.
INTRODUCTION
With the new trends emerging in the international and domestic markets, corporations
require outstanding strategies and strong structures to face challenges on new requests.
Therefore, it is of great importance that organizations can find ways to extend and
understand its products and services according to the new market trends (Jensen and
Sandström, 2011). However, when business units of organizations fail to reach their
projected performance, it is then when strategic directions should be reviewed and redirected
to approach all the factors affecting it. In other words, business units individually need to
develop strong and competitive strategies to stay competitive to its internal and external
challenges in order to constantly achieve customer satisfaction (Wiersema and Bowen,
2007). Business units characterizes an overall impression of a diversified corporation.
Consequently, corporations can then redesign their strategy based on the performance of
the business unit, with decisive actions such as merging, acquiring, downsizing or selling in
order to recover or respond to the market and gain greater market share (Haleblian et al.,
2009). This report aims to analyze the competitive environment and corporate level strategy
for Wesfarmers Limited. The research is based on scholarly journals and secondary sources.
Section 1 will aim to identify the corporation with a diagram to represent the relationship of
the strategic business unit (SBU) to the corporation. This report also aims to provide the
summary for the business unit which holds the greatest revenue along with the study of its
sustainable competitive advantage. VRIN model will be used to analyze the source of
competitive advantage. PESTEL analysis will be conducted based on the industry they are
in, followed by a SWOT analysis. Future strategic merger, acquisition or downsize will be
recommended based on the all the analysis and the report will be finally concluded.
3
CORPORATION IDENTIFICATION
“Wesfarmers Limited (Wesfarmers or 'the group') is engaged in diverse business
operations covering supermarkets, liquor, hotels and convenience stores; department stores;
home improvement and office supplies; coal mining, chemicals, energy and fertilizers; and
industrial and safety products. The group classifies its business operations into eight
reportable segments: Coles; Home Improvement; Kmart; Target; Officeworks; Resources;
Industrial and Safety (WIS); and Chemicals, Energy and Fertilizers (WesCEF). Wesfarmers
primarily operates in Australia, New Zealand and the UK. It is headquartered in Perth,
Australia” (MarketLine, 2017). Strategic Business Units (SBU’s) of this corporation will be
studied and discussed in this report.
DIVERSIFICATION
“Diversification is a corporate strategy which seeks to increase profitability through make
and sale of new products or product line in the new markets having no interface with the
existing market of company’s existing products” (Rumelt, 1998). Wesfarmers is a highly
diversified and successful corporation. It employees more than 200,000, making it Australia's
biggest private sector employer. It ranks amoung the top-ten companies in Australia with
businesses in retailing (Coles, Kmart, Target), home and office supplies (Bunnings,
Officeworks), insurance, resources (coal mines), chemicals, energy and fertilizers (includes
plastics), industrial safety, and more. The diagram below shows all the SBU’s relation to
Wesfarmers corporation:
Diagram 1: SBU’s relation to Wesfarmers corporation
CORPORATION IDENTIFICATION
“Wesfarmers Limited (Wesfarmers or 'the group') is engaged in diverse business
operations covering supermarkets, liquor, hotels and convenience stores; department stores;
home improvement and office supplies; coal mining, chemicals, energy and fertilizers; and
industrial and safety products. The group classifies its business operations into eight
reportable segments: Coles; Home Improvement; Kmart; Target; Officeworks; Resources;
Industrial and Safety (WIS); and Chemicals, Energy and Fertilizers (WesCEF). Wesfarmers
primarily operates in Australia, New Zealand and the UK. It is headquartered in Perth,
Australia” (MarketLine, 2017). Strategic Business Units (SBU’s) of this corporation will be
studied and discussed in this report.
DIVERSIFICATION
“Diversification is a corporate strategy which seeks to increase profitability through make
and sale of new products or product line in the new markets having no interface with the
existing market of company’s existing products” (Rumelt, 1998). Wesfarmers is a highly
diversified and successful corporation. It employees more than 200,000, making it Australia's
biggest private sector employer. It ranks amoung the top-ten companies in Australia with
businesses in retailing (Coles, Kmart, Target), home and office supplies (Bunnings,
Officeworks), insurance, resources (coal mines), chemicals, energy and fertilizers (includes
plastics), industrial safety, and more. The diagram below shows all the SBU’s relation to
Wesfarmers corporation:
Diagram 1: SBU’s relation to Wesfarmers corporation
4
CORPORATION REVENUE CENTRES
Wesfarmers Limited presented a total revenue of AUD 68.4b at 30 June 2017 (Market
Line, 2017) and the business unit, Coles generated AUD 39.2b (57.29% of the total revenue)
and an increase of which shows that the business unit Coles, has been generating the
greatest revenue compared to the rest and will be considered as the strategic business unit
of the corporation. It was followed by Home improvement generating AUD 13.6b (19.84% of
total revenue) (Wesfarmers Limited, 2017). However, the difference in the rate of return on
capital employed (ROCE) decrease for both Coles and Home Improvement was more than
double with a decrease of 1.5 and 3.6 percent respectively. This shows that Coles could
sustain the impact on the decrease in ROCE better than Home Improvement. However,
Chart 1 shows the segment result (EBITDA) of different business unit, which is a decrease
comparing to other BU’s; projecting Coles to be a weaker BU to the corporation when
comparing it to their main competitor Woolworths who broke its 7.5-year losing streak to beat
arch rival Coles sales growth (Low, 2017). This suggests that Home Improvement has a
higher segment growth in FY2017 compared to FY2016 and Coles has hit the lowest result
in FY2017 after FY2013 while the rest of the BU’s projects a steady increase.
Chart 1: Segment results FY2013 to FY2017 (Annual Report, 2017 pp. 102)
CORPORATION REVENUE CENTRES
Wesfarmers Limited presented a total revenue of AUD 68.4b at 30 June 2017 (Market
Line, 2017) and the business unit, Coles generated AUD 39.2b (57.29% of the total revenue)
and an increase of which shows that the business unit Coles, has been generating the
greatest revenue compared to the rest and will be considered as the strategic business unit
of the corporation. It was followed by Home improvement generating AUD 13.6b (19.84% of
total revenue) (Wesfarmers Limited, 2017). However, the difference in the rate of return on
capital employed (ROCE) decrease for both Coles and Home Improvement was more than
double with a decrease of 1.5 and 3.6 percent respectively. This shows that Coles could
sustain the impact on the decrease in ROCE better than Home Improvement. However,
Chart 1 shows the segment result (EBITDA) of different business unit, which is a decrease
comparing to other BU’s; projecting Coles to be a weaker BU to the corporation when
comparing it to their main competitor Woolworths who broke its 7.5-year losing streak to beat
arch rival Coles sales growth (Low, 2017). This suggests that Home Improvement has a
higher segment growth in FY2017 compared to FY2016 and Coles has hit the lowest result
in FY2017 after FY2013 while the rest of the BU’s projects a steady increase.
Chart 1: Segment results FY2013 to FY2017 (Annual Report, 2017 pp. 102)
5
SOURCE OF SUSTAINABLE COMPETITIVE ADVANTAGE
The ability gained through attributes and resources to perform higher through the ability gained through attributes and resources in the
same industry or market is termed as competitive advantage (Porter, 1985). Organizations who are considered to be following a unique value
creating strategy when the strategy is not followed by its current or potential competitors; and when competitive corporations are unable to follow
its high-output strategy, it is termed as sustainable competitive advantage (Barney, 1991).
The four criteria of sustainable competitive advantage are; valuable capabilities that helps a firm to neutralize threats or exploit
opportunities, rare capabilities that are not owned by the competitors, costly-to-imitate capabilities that can have a historical, social complexity
and ambiguous cause and non-substitutable capabilities that has no strategic equivalent (Hitt, Ireland and Hoskisson, 2017). The data from the
below table shows the outcomes from combinations of the criteria for sustainable competitive advantage in respect to the plans, strategies,
contracts and agreements, acquisitions/mergers/takeovers that has been derived from (MarketLine, 2017).
Competitive
Advantage
Description Is the
Capability
Valuable?
Is the
Capability
Rare?
Is the
Capability
Costly to
Imitate?
Is the
Capability
Non-
substitutable
?
Competitive
Consequences
Performance
Implication
2017
Plans/
Strategy
In June, the company planned to invest
in Bunnings Warehouse stores across
the UK and Ireland over the next three to
five years with GBP500 million.
Yes No No Yes Partly
competitive
Below-
average
returns
SOURCE OF SUSTAINABLE COMPETITIVE ADVANTAGE
The ability gained through attributes and resources to perform higher through the ability gained through attributes and resources in the
same industry or market is termed as competitive advantage (Porter, 1985). Organizations who are considered to be following a unique value
creating strategy when the strategy is not followed by its current or potential competitors; and when competitive corporations are unable to follow
its high-output strategy, it is termed as sustainable competitive advantage (Barney, 1991).
The four criteria of sustainable competitive advantage are; valuable capabilities that helps a firm to neutralize threats or exploit
opportunities, rare capabilities that are not owned by the competitors, costly-to-imitate capabilities that can have a historical, social complexity
and ambiguous cause and non-substitutable capabilities that has no strategic equivalent (Hitt, Ireland and Hoskisson, 2017). The data from the
below table shows the outcomes from combinations of the criteria for sustainable competitive advantage in respect to the plans, strategies,
contracts and agreements, acquisitions/mergers/takeovers that has been derived from (MarketLine, 2017).
Competitive
Advantage
Description Is the
Capability
Valuable?
Is the
Capability
Rare?
Is the
Capability
Costly to
Imitate?
Is the
Capability
Non-
substitutable
?
Competitive
Consequences
Performance
Implication
2017
Plans/
Strategy
In June, the company planned to invest
in Bunnings Warehouse stores across
the UK and Ireland over the next three to
five years with GBP500 million.
Yes No No Yes Partly
competitive
Below-
average
returns
End of preview
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