Wesfarmers: Analysis of Business Failure and Strategies

This report provides a comprehensive analysis of Wesfarmers, an Australian conglomerate with diverse business interests. It begins with an overview of Wesfarmers, detailing its history, business model, and market position. The report then delves into a thorough environmental analysis, examining political, economic, social, technological, legal, and environmental factors influencing the company's operations. It assesses the industry environment, including threats from new entrants, substitutes, and the bargaining power of suppliers and buyers. A competitive analysis highlights Wesfarmers' growth strategies, failures, and competitive landscape. The report also evaluates Wesfarmers' resources, including financial, technological, organizational, and human resources. It employs VRIO and value chain analyses to assess the company's capabilities and competitive advantages. A SWOT analysis summarizes Wesfarmers' strengths, weaknesses, opportunities, and threats. The report concludes with an examination of current strategies, followed by recommendations for improvement and a conclusion summarizing the key findings. The report provides a detailed understanding of Wesfarmers' business environment and strategic challenges.

Running head: CONTEMPORARY BUSINESS MANAGEMENT
Contemporary Business Management
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Table of Contents
Introduction................................................................................................................................3
Overview of Wesfarmers...........................................................................................................4
Business failure..........................................................................................................................5
Environmental Analysis.........................................................................................................5
Political Factors..................................................................................................................5
Economic Factors...............................................................................................................6
Social Factors.....................................................................................................................7
Technological Factors........................................................................................................8
Legal Factors......................................................................................................................8
Environmental Factors.......................................................................................................9
Industry Environment...............................................................................................................10
Threat from new Entrants.....................................................................................................10
Threat from Substitutes........................................................................................................10
Bargaining Power of the Suppliers......................................................................................11
Bargaining Power of the Buyers..........................................................................................11
Industry Rivalry...................................................................................................................11
Competitive environment.........................................................................................................12
Extensive Growth.................................................................................................................12
Failure to embrace e-commerce model of business.............................................................13
Fierce Competition...............................................................................................................13

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Loss of customers to rivals...................................................................................................14
Unsuccessful strategies............................................................................................................14
Financial Resources.............................................................................................................15
Technological Resources.....................................................................................................15
Organizational Structure......................................................................................................16
Human Resources.................................................................................................................16
Capabilities of Wesfarmers..................................................................................................18
VRIO Analysis.....................................................................................................................19
Value Chain Analysis...........................................................................................................20
SWOT Analysis...................................................................................................................20
Strengths...........................................................................................................................20
Weaknesses......................................................................................................................21
Opportunities....................................................................................................................21
Threats..............................................................................................................................21
Current strategies.....................................................................................................................22
Conclusion and Recommendations..........................................................................................23
References................................................................................................................................25

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Introduction
As opined by Grant (2016), globalization or internationalization and the widespread
use of different types of technologies have positively affected the world of business in the
contemporary times. Ansoff et al. (2019) are of the viewpoint that this has enhanced the
competition faced by the different business enterprises in the business world because of the
number of choices that are available to the customers. Different organizations are thus
required to conduct a thorough analysis of the business environment in which they are
operational and develop effective strategies so as to take advantages of the opportunities
presented by the business market and also to mitigate the threats presented by the same
(Morschett, Schramm-Klein & Zentes, 2015).
Wheelen et al. (2017) have articulated that the overall organizational prospects of an
organization depend greatly on the kind of strategies that the organization is using for the
process of its business operations. However, it is often seen that the organizations take the
help of strategies which are not in synchronicity with the key competencies or the capabilities
of the organization and also the requirements of the external business environment in which
the organizations (Rothaermel, 2015). More importantly, the organizations also fail to take
into effective consideration the requirements or the demands of the customers or the changing
needs of their business and this can have catastrophic results for the concerned organization.
This paper will analyze the manner in which disregard of the requirements of the external
business environment can disrupt the business prospects of an organization in the particular
context of the organization Wesfarmers and the recent losses faced by it.

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Overview of Wesfarmers
Wesfarmers Limited, founded in 1914, is an Australian conglomerate business
enterprise with extensive business interests in the retail, chemical, hardware, fertilizers, coal
mining, safety products and others (Wesfarmers.com.au, 2019). More importantly, the
organization offers a wide range of products or services to the customers starting from
groceries, retail products, safety products, fertilizer to insurances and other kinds of financial
services (Forbes.com, 2019). Furthermore, the organization although headquartered in Perth
is currently operational in Australia, New Zealand, United Kingdom and other nations of the
world (Wesfarmers.com.au, 2019). Moreover, the organization as of 2018 was the largest
private recruiter in Australia with more than 220,000 employees from the different regions of
the nation (Forbes.com, 2019). In addition to these, the organization with an annual profit of
more than $37.7 billion was the largest business enterprise of Australia with the closest rival
being Woolworths Limited (Forbes.com, 2019). The acquisition of various Australian
companies like Bunnings Warehouse, Coles Supermarket, Liquorland, Vintage Cellars and
others in the recent times has contributed much towards the growth of the organization under
discussion here in the recent times (Wesfarmers.com.au, 2019). However, in the year 2018
the organization faced a substantial decline in its revenue and in order to cover up for the
losses had to take the help of divestment and give up many of its enterprises like Coles
Supermarket and others which formed the backbone of the conglomeration under discussion.
The organization Wesfarmers faced a substantial amount of backlash in the year 2018
because of the business practices used by it for the process of its business enterprises. For
example, the brick and mortal business model followed by the organization under discussion
faced a significant amount of criticism in 2018 in UK for the hardware business that it was
conducting in the concerned nation (Abc.net.au, 2019). More importantly, the organization
also faced a substantial amount of loss in the second quarter of 2018 and its market share

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declined by 87pc although the organization has seen a significant amount of profit in the first
quarter of the same year (News.com.au, 2019). In this regard, it needs to be said that although
the organization reported a gross profit of $212 million for the second quarter of 2018 yet
because of the losses that it faced in the business market and the organization also lost a
substantial part of the monopoly that it once held in Australian business market (Abc.net.au,
2019). More importantly, the organization faced a 58% decline in its profit margin after
paying the bank loans and debts that it had taken for the purpose of the management of its
business operations (News.com.au, 2019). In addition to this, Bunnings Warehouse which is
considered one of the most profitable companies of organization ended the year with a loss of
$1.3 billion and to cover up the loss Wesfarmers had to withdraw the organization from the
UK market (Abc.net.au, 2019). Apart from this, Target also ended the year with a loss of
$300 million and in order to cover for these financial losses, the organization had to divest
Coles Group (News.com.au, 2019).
Business failure
Environmental Analysis
Political Factors
Hill, Jones and Schilling (2015) argue that one of the most basic demands of business
enterprises is a stable political environment wherein they can conduct their business
operations in an adequate manner. The nation of Australia is a “federal parliamentary
constitutional monarchy” and follows the principle of representative democracy
(Australia.gov.au, 2019). As opined by Saebi, Lien and Foss (2017), one of the most essential
aspects of Australia is the fact that the nation not only has a stable government but at the
same time is free from various kinds of political struggles and turmoil. In addition to this, it is
seen that the national government takes active initiatives for the growth of trade and

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commerce and for this effective import, export, business policies have been formulated
(Kirchoff, Tate & Mollenkopf, 2016). Furthermore, the active trade relations that the nation
has with the other Commonwealth nations and the free trade policy followed by it has helped
in the growth of trade and commerce in the nation in an adequate manner (Lloret, 2016). It is
pertinent to note that these aspects of the political system of Australia has facilitated the
business of the Wesfarmers and also enabled it to gain success in the nation. However, in the
recent times it is seen that the national government has launched various kinds of mandates
like the fair trade policies, consumer protection stipulations and others which had adversely
affected the business of Wesfarmers and is probably one of the major reasons for the huge
losses incurred by the organization (Prajogo, 2016). More importantly, although the national
government of the nation actively supports the supply chain system of the organization and
helps in the procurement of the raw materials yet it is seen that the stringent procurement
norms given by the government in the recent times had adversely affected the business of the
organization (Vrontis et al., 2017). The organization had to face stringent stipulations
regarding the procurement of raw materials from other nation because of the documentation,
transportation, import and other formalities that are involved in the process.
Economic Factors
The nation of Australia has the largest “mixed-market economy” among all the
nations of the world with an impressive GDP of $1.69 trillion as of 2017 (Australia.gov.au,
2019). In addition to this, the nation of Australia stands at the 2nd position in terms of the
amount of wealth held by the individual people of the nation and is next only to Switzerland
(Australia.gov.au, 2019). Furthermore, the national government in order to promote private
trade and commerce offers various kinds of business loans and other kinds of subsidiaries to
the business enterprises (Wang et al., 2015). More importantly, mention also needs to be of
the lenient import, export, tax and other kinds of tariffs that the business enterprises had to

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pay to the national government for conducting trade in the nation. As of 2017, the nation has
a labor force of 12.7 million which ensures the fact that the different business enterprises of
the nation have access to the desired number of workers so as to get the work of their
organization completed (Australia.gov.au, 2019). However, at the same time it needs to be
said that high inflation rate of the nation is one of the major problems for the organization
under discussion here. This means that the prices of the raw materials that are needed by the
organization keeps on fluctuating and affects the production cost of the organization in an
adverse manner. Furthermore, this not only enhances the cost that the organization is required
to spend on its supply system but at the same time renders it untrustworthy as well because of
which the manufacturing department of the organization is facing problems (Martinez-
Conesa, Soto-Acosta & Carayannis, 2017). In addition to this, the nation is still reeling from
the adverse effects of the financial crisis that the world faced in 2007-2008 and this perhaps
accounts for the fluctuations in the annual profit earned by the organization (Vrontis et al.,
2017).
Social Factors
Frynas and Mellahi (2015) are of the viewpoint that the social factors which affect the
business operations of an organization in a particular business environment are the
demographics of the customers, namely, their age, gender, financial status and other
attributes. As opined by Chang (2016), the buying behavior of the customers in the recent
times has changed in a significant manner because of the number of choices that are available
to them. The net result of this is that the customers often opt for the services or goods offered
by an organization which not only has a positive brand image but at the same time reveals
detailed information regarding the corporate social responsibility (CSR) policies and the
supply chain network that it is using (Wang et al., 2015). In this regard, it needs to be said
that the organization under discussion keeping this behavior of the customers into perspective

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discloses detailed information regarding CSR practices and also the supply chain network
used by it over their online website. In addition to this, taking into effective consideration the
tendency of the modern customers to opt for the e-commerce mode of business, Wesfarmers
had started to offer e-commerce services to the customers as well.
Technological Factors
According to Chang (2016), the success or the failure of an organization depends
significantly on the extent to which it is being able to integrate the latest technologies within
the framework of its business operations. Wesfarmers actively takes the help of the
technological advancements of Australia and also the other Commonwealth nations with
which it had active trade relations. For example, it is seen that the organization is taking the
help of the technology of automation to enhance the effectiveness of its supply chain system
which in turn had improved the delivery system used by the organization (Hanson et al.,
2016). More importantly, the organization realizing the opportunities offered by the construct
of digital marketing is actively using to not only promote as well as market the products or
services offered by it but at the same time to reach out to a much larger customer base as
well. Along with these initiatives, the organization is also gradually embracing the omni-
channel business model to offer both e-commerce and brick and mortar services to the
customers and also to cater to the needs of the diverse customer groups (Hsu, Tan &
Mohamad Zailani, 2016).
Legal Factors
The different organizations of Australia are required to follow the corporate
legislations of the nation for the process of their business operations. Some of the most
important ones in this regard are the ones related to taxation, management policies, employee
legislations, Corporations Act 2001, the mandates of Australian Securities and Investments
Commission (ASIC) and others (Australia.gov.au, 2019). In this regard, it needs to be said to

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address these stipulations or regulations of the nation, the organization under discussion here
has formulated its own version of corporate governance so to manage the diverse affairs of its
organization in an effective manner. More importantly, it is seen that these legislations of the
nation had a profound impact on the supply chain system used by the organization since the
raw materials used by the organization are subjected to vigorous security, quality and other
kinds of checks so as to ensure that the organization is following all the mandates of the
nation related to procurement of goods or services (Foss & Saebi, 2017). In addition to these,
the supply chain used by the organization is also subjected to various kinds of transport and
other kinds of regulations of the national government of Australia.
Environmental Factors
Australia is a signatory member of the Paris Agreement of 2016 which stated that in
order to combat the adverse effects of environmental pollution the different organizations are
required to reduce the amount of pollutants released by them by more than 2.1%
(Australia.gov.au, 2019). The organization Wesfarmers has taken up environmental pollution
as one of its key CSR issues and thus is currently taking the help of recyclable materials for
packing and other similar kind of practices (Wesfarmers.com.au, 2019). More importantly,
the organization in order to mitigate the damage that it is causing to the environment on the
score of its business operations is taking the help of Green Supply Chain Management
(Schaltegger & Wagner, 2017). This system is being more rigorously used by the
organization for its coal mining, petroleum, hardware and similar kinds of businesses.
Industry Environment
Jenkins and Williamson (2015) are of the viewpoint that the construct of industry
environment analysis is important because of the fact that it reveals insightful details
regarding the business completion that an organization is facing in the business environment

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and also industry trends. Porter’s Five Forces model is one of the most widely used models
for analyzing the level of business competition that an organization faces within a particular
business environment (Wong, Wong & Boon-Itt, 2015).
Threat from new Entrants
The organization Wesfarmers faces a very low level of threat from the new entrants in
the business market of Australia. Various reasons can be attributed to this, namely, the
business market of Australia had already been monopolized by the organizations like
Woolworths, Wesfarmers, Coles and others, the huge amount of investment that is needed to
establish a business venture in Australia, the low investment returns and others (Banerjee,
2017). In addition to this, the free trade policy followed by the national government and also
active patronage given by it to the major business enterprises of the nation are other reasons
which contribute to the same (Epstein, 2018).
Threat from Substitutes
Wesfarmers faces a high level of threat from the various substitutes which are
operational in the business market of Australia like Woolworths, Amazon, Aldi and others.
This can be explained on the basis of the fact these organizations offer almost similar kinds of
products or services like the ones offered by Wesfarmers. In order to overcome this problem,
the organization is currently trying to follow the cost leadership strategy through which it
intends to offer the best quality products or services to the customers and that too at the
lowest price possible (Sroufe & Joseph, 2017).
Bargaining Power of the Suppliers
Leonidou et al. (2015) are of the viewpoint that if the bargaining power of the
suppliers is more than this is likely to adversely affect the business prospects of an
organization. However, within the framework of the retail industry it is seen that the

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bargaining power of the suppliers is considerable because of the fact that a handful of
organizations had monopolized the business market and also the entity of brand name or
image is a factor which affects the same (Waddock & Bodwell, 2017). In this regard, it needs
to be said that the organization under discussion here in order to reduce the bargaining power
of the supplier has not only evolved its supplier system but at the same time takes the help of
multi-supply chains.
Bargaining Power of the Buyers
As opined by Grant (2016), the number of choices that are available to the customers
in the retail industry is very high because of the large number of companies which offer
similar kinds of products and that too within the same price range. Furthermore, the cost of
switching over from organization to another is very low and this accounts for the high
bargaining power of the buyers (Pérez‐López, Moreno‐Romero & Barkemeyer, 2015).
Wesfarmers in order to overcome this problem is taking the help of product differentiation
strategy through which it intends to offers superior quality of products to the customers which
are different from the ones that its rivals are offering (Ansoff et al., 2019).
Industry Rivalry
There is a fierce competition in the retail industry of Australia and the majority of the
market share is being held by a handful of organizations like Woolworths, Coles, Aldi, Asda
and others (Saebi, Lien & Foss, 2017). More importantly, the innovative business models and
strategies followed by these organizations had reduced the gross revenue generated by the
organization Wesfarmers and this is perhaps one of the major reasons for the huge losses
incurred by the organization in 2017.