HI6006 Competitive Strategy Essay: Wesfarmers Case Study

This essay provides a comprehensive analysis of strategic management tools, focusing on their application to business environments. The essay begins with an introduction to strategic management and its importance, highlighting tools such as PESTEL analysis, SWOT analysis, Five Forces, Ansoff mat...Read More

RUNNING HEAD: COMPETITIVE STRATEGY
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Competitive Strategy
Essay
System 0032
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Introduction
Strategic Management tools are important to plan the future actions of the companies. These
tools help the businesses to analyze the current business environment whether internal or
external in order to formulate strategic plans for the future. Strategic management tools include
PESTEL analysis, SWOT analysis, Five Forces, Ansoff matrix, Ghemawat, and resource based
views. All the tools that are helpful in analyzing the business environment to make strategic
plans are considered as strategic management tools. The main purpose for using these tools is to
know where the business is going in the upcoming years and how to achieve those future
standards (Ansoff and Lewis 2018). These tools can be used by any businesses whether small
scale business or large scale business. This essay consist of the importance of using these
strategic tools and how these tools are used in the practical scenario by the businesses for that
Wesfarmers is chosen and its Five force analysis, PESTEL analysis and Ghemawat analysis is
done.
Strategy Development Tools
PESTEL analysis is considered as a strategic tool that is used by the businesses to analyze or
monitor the factors in external environment that have greater impact on the profitability and
sustainability of business. This is taken as an important step to devise a strategy that can help in
the business to survive in this competitive scenario. Analysis of external environment is essential
for any business because it provides valuable insight into the challenges that a business is going
to face in the future (Grunig and Kuhn 2015).

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Political factors are related to the degree of interference of government in the businesses or in an
industry through government policy, cross border policies, tax policy, and environmental law
and trade restrictions. Wesfarmers is greatly affected by the price regulation in the food and
retail segment as this affect their profitability and operations in long run.
Economic factors such as inflation, interest rate, exchange rate and aggregate supply and demand
in the economy affect the operations of the business. The main factor in this is growth rate and
inflation rate in the economy that affected the Wesfarmers and due to that company’s profit
decreases at the time of recession in the country.
Social factors are the societal things that such as culture, attitude, belief and values. Wesfarmers
analysis these factors and that help the company to target the right market and offer the right
product to satisfy demands of the society. Understanding social factors helps in knowing the
interest, attitude and habit of the society.
PESTEL
Political
Economic
Social
Technolo
gical
Environ
mental
Legal

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Technology in this current era helps in to gain competitive advantage and analyzing of
technological factor includes technology diffusion, technology in product offering and
technological development in the industry. Wesfarmers operations are different and its
technologies are advanced and innovative that leads the company to achieve the competitive
advantage over others in the retail industry.
Different countries have different environmental laws that can affect the business profitability
and operations. Wesfarmers was affected by the ecological factor as in Australia, wine producing
businesses and petroleum businesses of Wesfarmers are posturing harm to the environment and
earth and these entire environmental factor impacted the operation of the Wesfarmers in long
run.
Legal factors are the copyright, patent, health and safety law and consumer protection law,
businesses run according to the laws in the country and that legal factors directly affect the
operations and survival or image of the business. Wesfarmers was affected by the carbon tax that
was imposed by the Australian government and the business activities of Wesfarmers were
majorly influenced by Consumer Commission of Australia.
Another strategic tool is Five Forces; this tool is useful to analyze the business environment or
the forces that affect the businesses. This tool was created by Michael porter to examine or
monitor the actors that impact the businesses or these five forces are identified to build the
competitive environment. These forces are “competitive rivalry, bargaining power of supplier,
bargaining power of buyer, threat of new entry and threat of substitute”. Each of these five
forces mentioned above help the business to formulate future plans by understanding the profit
potential in an industry (Wolf and Floyd 2017).

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Competitive rivalry amongst existing firm is related to the competitors in a particular industry or
the competitive environment in which firms are operating. Relating it to Wesfarmers it is
analyzed that the company has very few competitors in the retail industry in Australia and
Wesfarmers already captures Australian retail market. Hence the competitive rivalry in this
industry is low for the company.
Threat of new entrants is the ability of the industry to attract other businesses and that resultant
in low profitability to existing players in the industry. The threat of new entrant for Wesfarmers
is low because the company is already established in Australia and have good image in the
market with diversified products in different range. Thus considering its image in the market and
knowing its wide product portfolio it can be said that threat of new entrant is low in this industry.
Bargaining power of supplier is related to the control of suppliers on the prices on which they
deliver material to the company. Wesfarmers get its resources or raw material from different
sources and from various alternatives and due to vast operations the company depends on too
many suppliers that create problem for the company thus increases the bargaining power of
suppliers (Biddle 2016).
Bargaining power of buyers is related to the way buyers control the prices and demand of the
product in the market. Wesfarmers conduct market research to know the demand and changing
expectations of the buyer in the market that help the company to operate accordingly. Thus,
bargaining power of buyer is moderate in this industry.
Threat of substitute is the similar products that buyers get an alternative of a company product.
For Wesfarmers threat of substitute is higher because in retail industry all the products are
similar only customer service matters and Wesfarmers adopted various approaches such as

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efficient method of production, environmental friendly techniques to give high quality services
to its customers. Thus, considering all this factors it can be said that threat of substitute is low in
this industry for Wesfarmers.
“CAGE framework is a tool to identify economic, geographic, administrative and cultural
distances or differences between countries so that businesses get to know the international
environment and formulate strategies accordingly”. This framework was elaborated by
Ghemawat. The framework highlights the differences between two countries so that others
factors can be considered (David and David 2016). Cultural differences between countries can
be lack of trust, different languages, lack of social networks, and differences in value.
Framework also analysis the administrative factor and it includes issues in exchange of
currencies, lack of colonial ties and political instability if differences are identified in the two
countries on the basis of these factors than all these things are analyzed. Further, geographic and
economic differences are physical distance, lack of land border, differences in time zone and
differences in climate. Some of the factors are poor or rich differences, cost of natural resources
and human resources (Ghemawat 2018).
Ghemawat said that these different factors or differences or its impact differ on industry to
industry as each industry has their own differences in other countries. For instance, geographic
differences for Wesfarmers is the cost of transportation and company deals in retail industry it is
essential factor for the company while deciding to operate in other countries. Cultural distance
includes the product preference of consumers as behavior and choice of customer is likely
affected by their values and belief in the society. Thus CAGE framework is an important tool
when businesses decide to expand in the countries as this tool help the businesses to analyze the
factors that are the most influential.

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Conclusion
Strategic development tools are useful in analyzing the internal and external environment of any
business. These tools help in knowing the forces or factors that affect the strategic plan or long
run profitability of the businesses. From the essay it is concluded that these tools are of the
importance for companies in order to implement the strategic plan and to decide where they want
to go in future. Furthermore, the big players like Wesfarmers used these tools effectively and that
make the company successful in the retail industry.

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References
Ansoff, H.I., Kipley, D., Lewis, A.O., Helm-Stevens, R. and Ansoff, R., 2018. Implanting
strategic management. Springer.
Biddle, I., 2016. The Wesfarmers/Woolworths duopoly war: The Bunnings vs. Masters
battle. Busidate, 24(3), p.3.
David, F. and David, F.R., 2016. Strategic Management: A Competitive Advantage Approach,
Concepts and Cases.
Ghemawat, P., 2018. The New Global Road Map: Enduring Strategies for Turbulent Times.
Harvard Business Press.
Grünig, R. and Kühn, R., 2015. Global Environmental Analysis. In The Strategy Planning
Process (pp. 89-96). Springer, Berlin, Heidelberg.
Wolf, C. and Floyd, S.W., 2017. Strategic planning research: Toward a theory-driven
agenda. Journal of Management, 43(6), pp.1754-1788.