External Factors Affecting Woolworths: An Environment Scan

This report discusses the external factors affecting Woolworths, an Australian organization in the retail sector. The report covers macroeconomic and microeconomic factors, including political, legal, economic, social, technological, and environmental factors.

MGT501_Business Environment
Name: Abdul Hai Umaiz Mohammed
Student ID: 00258064T
Semester: Trimester 3 - 2018
Subject: Business Environment (MGT501)
Assessment – 1- Environment Scan Part A
Course Name: Master of Business Administration (Advanced)

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Introduction:
Marketing management and management decisions of an organization are affected by
different number of components and decisions of the organization based on the fact that how
these components behave. These components can be inside the organization and can be outside
from the organization. It is necessary that all these components must be considered while taking
the decisions related to the organization. It must be noted that, all these components are
categorized into internal environment of business and external environment of business.
Australian organization chosen for this assignment is the Woolworths, because this
organization is very vigilant in terms of the environment which surrounds the marketing
management and also involved in the different environmental factors so that they can make
themselves ready for making changes in the strategies and frameworks. It is necessary for the
organization to act in context of these forces and brace them against the competition. This report
mainly discusses the external factors which affects the Woolworths.
External factors
External factors are divided into two categories that are macroeconomic factors and
microeconomic factors, and it is necessary for the organization to consider the behaviour of all
these factors and understanding them in better manner while taking any decision for the
organizations. Microeconomic factors includes the suppliers, intermediaries, customers, markets
where the products and services are sold, competitors, and public which consists media,
government etc. On the other hand, macroeconomic factors include political, legal, natural,
technological, cultural, economic and demographic forces. Both macro and Micro economic
factors in terms of the Woolworths are described below-
Source- IBIS, 2018
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Macro-Economic Environmental factors
PESTEL analysis
Political & Legal factors- these factors are considered as very strong factors in any
environment of business because compliance with these factors is must. Operations of the
organizations are generally controlled through legal frameworks, and it is also important to have
legal framework at place for conducting any business without the hassle. For complying with
both the factors constitution and code of conduct is developed by the Woolworths, and both the
documents highlights the rules and policies of the organization, policies which deals with the
security dealings, shareholders communication policies, etc.. These policies ensure that
individuals connected with the Woolworths must comply with the law (Byrne, Fernald &
Reinsdorf, 2016).
On the other hand political factors create the opportunities for the organization by making
changes in the different market rules, but also obligate these markets up to the particular manner.
This can be understood with the help of example, large business of Woolworths in Australia and
New Zealand is possible because of the New Zealand Closer Economic Relations Trade
Agreement (ANZCERTA). Political stability occurred because of this agreement help the
Woolworths in expanding their business (Woolworths, 2016).
Economic factors- Economic factors of Australia play great role in the retail sector of
Australia and because of this business of Woolworths also. Woolworths mainly operates in the
sound economy of Australia and because of this it is free from number of issues. Decision related
to the capital budgeting are taken by the Woolworths on the basis of the interest rates, exchange
rates and other economic factors of the economic environment of Australia. Current, economy of
Australia is good for the business operates in the Australia and very few issues are faced by these
businesses at the time of global financial crises. It can be said that, economic factors of Australia
does not cause much effect on the Woolworths business and this business organization as much
value as possible to its customers (Kotler, Linden, Stewart, Suzan, Armstrong, 2009).
Economic factors are also important in context of considering the purchasing power of
consumers and because of this complete premises of the business rely on these factors. In other
words, an exchange and inflation rate directly relates with the purchasing power of the
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consumers, which means, in case purchasing powers of the consumers are weak then it
negatively affects the performance of the company. On the other side, fluctuation in inflation rate
increases the price of different products hence affecting the buying behaviours of the consumers.
Social factors- Social factors of the external environment include different components
such as demographic patterns, individual beliefs, norms, attributes, etc. Demographic origins of
the Australia changed on continuous basis and this also affects the business of the organization.
Socio-cultural factors directly deals with the behaviour of the consumers and this is the biggest
reason because of which it is necessary for the organizations to deal with these factors.
Consumer change their preferences in terms of technological changes such as they mainly prefer
in consuming the latest products and also they also prefer those organizations while purchasing
their products which leads in the activities of the corporate social responsibility (Brassington &
Pettitt, 2000)
For dealing with this, Woolworths mainly focus on giving the fresh produce of different
products to its customers by ensuring the fresh food initiatives they ensure the fast delivery of the
fresh food from the farm to store; try to expand the new areas such as store kitchens through
which they enhance the diverse tastes. This is mainly handled by the distribution centre of the
Woolworths. This organization creates an image among the consumers that it is the safe place to
shop and it does not cause any harm to the people.
It is necessary for the organizations to understand that consumers are the main focus of
the organization, because they are the only reason because of which business organizations run.
There is no difference in this context for Woolworths, but the methods adopted by this
organization in context of dealing with this issue are remarkable. Woolworths holds almost
customer base of 24 million every week, and they serve these customers from all its brands. For
the purpose of retaining this large customer base, this organization initiates number of programs
for earning the loyalty of customers (Woolworths, 2017).
Technological Factors- Technological factors are the only factors which reflect
tremendous evolution in shorter period of time, and become necessary for the organizations to
implement these changes in the business operations.
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The technological factors in this modern business world are considered as important
factors and currently they affected the maximum business organizations and their operations. In
this present business world, technological changes and innovations are considered as common
trend and these trends are incorporated by the organizations for improving their competitive
position in the market. Woolworths also implement number of technological changes in
maximum of its operations such as they use green refrigeration technology for storing its
perishable products. In similar manner self-checkout machine is used by the organization for
scan, weigh and make payments as this help the organization in reducing their operations cost
(Woolworths, 2018).
Environment factors- These factors are considered as important factors in the modern
business environment and this happen because of the increasing activism related to the
environment. Woolworths face similar pressure in terms of the environment regulations and
duties imposed on the organizations by both society and government (Woolworths, 2015).
Legal factors- these factors consists the laws and regulations introduced by the
government for the business organizations operates their business in Australia, and non-
compliance of these factors will lead to heavy penalties for the organization (IBIS, 2018).
Source- B2U, 2016
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Micro-Economic Factors
Competitors- It is very difficult for the new firms to enter into the retail sector of
Australia, because big firms already captured large portion of the market. This is the reason
because of which threats related to the new and lower firms are not much for the Woolworths
(Woolworths, 2017). However, situations are completely different in context of the existing
competitors. Competitors are generally considered as most important factors for the
organizations in context of the external environment, and the reason behind this is the direct
effect of their moves. In other words, Moves of the competitor’s directly cause negative effect on
the business. In case of Woolworths, situations are similar, as the main competitors of this
business includes Cole supermarket, Aldi, Asda, and more. All these companies mainly compete
for the large portion of the market and this makes them strong competitors in the retail sector of
Australia. All these competitors and their actions directly affect the profitability level of
Woolworths, and their profitability also reduced because of the customers who changed their
references and choose the competitor of Woolworths instead of Woolworths (ABC News, 2016).
Substitute threat- another threat faced by the organization in its external environment is
the alternative products against the existing products offered by the competitors. Generally, this
is the continuous threat because alternative products are always available. For dealing with these
issues, Woolworths, ensure the diversification in its products and give the opportunity to the
consumers to choose from number of products offered by the organizations. Presently,
Woolworths also adopted the pricing strategy for the market of Australia and international
market such as differentiation is implemented by the organization for gaining more customers
and wins their loyalty. These strategies ultimately increase the sales of the organization and
enhance the profitability (Hanan, 2016).
Conclusion
Above stated facts clearly demonstrates the external factors which directly or indirectly
affects the business operations of the organization, and it is necessary for the Woolworths to
frame their strategies after considering these factors. Marketing management and management
decisions of a Woolworths are affected by different number of external factors and decisions of
the organization based on the fact that how these components behave. External factors are
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divided into two categories that are macroeconomic factors and microeconomic factors, and it is
necessary for the organization consider the behaviour of all these factors and understanding them
in better manner while taking any decision for the organizations.
References
ABC, (2016). Woolworths posts $1.2b loss; food, petrol sales slump. Retrieved from
http://www.abc.net.au/news/2016-08-25/woolworths-results/7783378.
B2U, (2016). Scanning the Environment: PESTEL Analysis. Retrieved
fromhttps://www.business-to-you.com/scanning-the-environment-pestel-analysis/.
Brassington, F. & Pettitt, S. (2000), Principles of Marketing. 2nd edition, Prentice Hall, Harlow.
Byrne D. Fernald, J. & Reinsdorf, M. (2016). Does the United States have a Productivity
Slowdown or a Measurement Problem?. Brookings Papers on Economic Activity.
Hanan A. (2016). An Exploratory Paper on Strategy Implementation: Industry Look at Some of
the World’s Most Profitable and Most Innovative Companies, volume 17(4).
IBIS World, (2018). Supermarkets and Grocery Stores - Australia Market Research Report.
Retrieved from https://www.ibisworld.com.au/industry-trends/market-research-reports/
retail-trade/food-retailing/supermarkets-grocery-stores.html.
Kotler, P. Linden, B. Stewart, A. Suzan, B. Armstrong, G. (2009). Marketing. 8th edition,
Pearson Prentice Hall, Frenchs Forest.
Woolworths, (2015). Annual Report 2015. Retrieved from
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf.
Woolworths, (2016). Annual Report 2016. Retrieved from
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf.
Woolworths, (2017). Annual Report 2017. Retrieved from
https://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2016.pdf.
MGT501_Assessment_1_Environment Scan Part A