MGT501 Business Environment: Wesfarmers' Responses to External Risks

This report analyzes Wesfarmers' responses to various external factors influencing its business environment, building upon a previous environmental scan. It discusses the company's reactions to economic, competitive, political, customer, supplier, and legal factors, detailing specific actions taken and their impacts. The report further proposes solutions to environmental risks, focusing on preventable, specific, and external risks. It highlights the use of analytical approaches like scenario planning and war-gaming to mitigate external risks, emphasizing the importance of understanding economic conditions and competitive strategies. The analysis concludes that effective risk management is crucial for Wesfarmers to navigate the complexities of the Australian and global markets. Desklib provides access to similar solved assignments and past papers for students.

Business Environment
4/9/2018
Wesfarmers

Business Environment 1
Contents
Introduction......................................................................................................................................2
Background information..................................................................................................................2
Discussion........................................................................................................................................3
Relevant responses to the factors which can influence the environments...................................3
Respond with a solution to all of the environmental risks...........................................................7
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

Business Environment 2
Introduction
Contemporary business cannot ignore the environment in which they operate their business
activities. It is essential for every business to keep an eye on the factors that can impact the
working of the business (Wheelen, et.al, 2017). Similarly, Wesfarmers; an Australian firm
conducted the external environment analysis which is discussed in the part A of the environment
scan. This report is linked to the previous report which reflected the major external factors that
affect the working of the firm along with the framework that can be used by the company to
resolve the challenges. This report includes the further responses and the comprehensive solution
for the environmental risk.
Background information
The company that has been selected is Wesfarmers which is an Australian conglomerate
company with the headquarters in Perth, Australia, and the company came into existence in the
Year 1914 (Wesfarmers, 2018). The company has diverse business operations including hotels,
liquor, supermarkets, convenience stores and many others due to which it is very important for
the business to analyze the external factors of the markets where the company operate its
business activities. The report is prepared with the aim of proposing a solution of the
environmental challenges faced by the firms with the use of the approach or framework. Firstly,
the report includes the relevant responses by the company considering the types of factors that
can influence the environment. Secondly, it includes the comprehensive responses to the solution
to all the environmental challenges that are laid out in the Part- A of environment scan report.

Business Environment 3
Discussion
This section of the paper reflects the responses of the company considering the major external
factors along with the solution.
Relevant responses to the factors which can influence the environments
Each and every company make the changes in their decision making considering the external
environmental factors. Below given are the responses of the company considering and its impact
on the environment.
Economic factor: - The major economic factors that affect the company include inflation rate,
saving rate, interest rate, foreign exchange rate and the economic cycle which include the
identification of the demand and investment in the economy (Fern Fort University, 2018). The
supermarket business of the Wesfarmers is affected due to high-risk in the industry due to
competition, change in the currency rates, loss of jobs in the market, and many others.
Considering the situation of loss of jobs in the market the company started giving employment to
the people so that they can maintain the flow of money in the market. Today, Wesfarmers is one
of Australia's largest private sector employer that gives the employment to more than 22,000
employees along with this the company has a shareholder base of approximately 530,000
(Wesfarmers, 2018).
This response of the company impacted the environment of Australia as there was a rise in the
Australian unit labor cost as compared to the other nations. This took place because the demand
for the talented labor increased in the market due to which the company started paying a huge
amount. In addition, the fair work commission has announced the rise in the minimum wage by

Business Environment 4
2.4% to $ 672.70 a week. This simply means an extra of $ 15.80 per week and this rule will
come into existence from 1st July (ABC, 2016).
(Source: Egan, 2014)
Moreover, there is a growth in the Australian Average weekly earnings were more than the
inflation which results in that the people of the country can make the purchase of luxury goods.
(Source: Egan, 2014)

Business Environment 5
The rise in the income of the consumer gave the advantage of paying high-interest rates and
credit cards as it depresses and constraints for spending more amount (Hill, Jones & Schilling,
2014). Though, this response leads to the threat for the company as most of the companies will
find a better condition of the Australian market and will think to expand their business which
leads to the competition to the company.
Competition: - The major competitors of Wesfarmers in the Australian market are Woolworths,
Aldi, Best & Less, Tesco and many others considering the market in which the company is
operating its business (MBA Skool, 2018). In the Australian market, the competition is becoming
intensive and it totally depends on the company how they deal with their competitors. In the year
2007, the Wesfarmers purchased Coles Group Limited for A$22 billion (Knight, 2011). Though,
Coles brought new competitors for the company.
Woolworths Group is in existence with most recognized and trusted brands in the retailing and
serving millions of customers in making a purchase of their daily necessity products. The
company is giving strong competition to Coles, but Coles is able to acquire market share and
customer base because it offers delight services to their customers. Moreover, the prices of
products offered by coles are low and competitive. The format of the store is new with the
product enhancement which is a competitive advantage for the company (Kotler, 2015). Apart
from this, for the insurance business, the company decides to deal with some divisional
headwinds to face the competition and to make the business profitable. These were the responses
of the company considering the competition factor. This response has increased the challenge for
the company as competitors are finding new ways through technology and innovation to give a
response to the company.

Business Environment 6
Political factors: - The political factor includes the changes in the rules and regulations for the
industry that can create an impact on the working of the country. The government has formed
different legislative rules and regulations for the mining sectors considering the impact on the
environment (Gobinda Goswami & Haider, 2014). These laws can affect the working of the
company in the mining sector. Moreover, Wesfarmers not only operates its mining business in
Australia but also in other countries. Therefore, the company has to analyze the market before
making decisions for the future expansion of the business. Considering the major risk in the
mining sector the company took a step to expand its business operations in numerous other
sectors. Further, in the grocery business, Australia is known as the largest importer and also
contributes to the economy of the other countries. Though, the change in the policy of any
government might leads to the risk of the import of Coles. The change in the regulations for the
local farmers is also a threat. Considering this challenge the company decided to manufacture
their products (McKellar, 2017). Therefore, now the company is involved in the manufacturing
of the products as well.
Customer and suppliers: - The customers play a vital role in the company, the change in the
preference and demand of the customer leads to the change in the business decision making of
Wesfarmers. The rise in the education of customers towards the healthy food makes them switch
to healthy products (Sheth & Sisodia, 2015). This may lead to change in the business of the
company as they have to form the tie-ups with those suppliers who can offer them healthy
products. There are few companies who manufacture healthy products. This demand for healthy
products will lead to a rising in the opportunity for those companies but forming tie-ups with
these companies will not be cost effective as they can ask for high prices. Wesfarmers have to

Business Environment 7
pay those prices asked by the supplier for the healthy products they can’t negotiate due to less
number of companies present in the market.
Legal factors: - The legal regulations are related to the change in the laws by the government for
the particular industry (Chernev, 2018). In the Australian market, the legal obligations are in
favor of the company because government support companies who contribute to the economic
development of the country. But in other markets, the change in the laws takes place considering
the betterment of their people and companies. These legal factors work as a risk for the company
as they won’t be able to operate the business effectively. Moreover, it is suggested to the
company to follow the legal obligations effectively.
Respond with a solution to all of the environmental risks
It is essential for each and every business in the competitive market to effectively manage the
risk which is essential to understand the qualitative distinctions among the types of the risk that
is faced by the company. Considering the types of risk there are generally three types of risk;
preventable risk, specific risk and external risk.
External risks are the risk which arises from events outside the company. The sources of these
risks are political and natural factors and some of the major macroeconomic shifts. This is the
risk which cannot be reduced or avoided through any of the approaches. It is suggested to the
company to focus on assessing the potential impact of the external factors because these factors
are not in control of the company. Most of the external risks events require a different analytic
approach to reduce the risk associated with the external factors. The analytic approach refers to
as use of the analysis to break a problem down into the elements that are essential to solve it

Business Environment 8
(Kumirska, et.al, 2016). The companies make use of different analytical approaches for the
different sources of the external risk.
Scenario planning
This is the systematic process of defining the plausible boundaries of the future states of the
world. In this type of planning the participants examine the external forces that include political,
social, technological, and regulatory and others. The expert advisors of the company identify the
scenarios and inform about the changes in the significant trends outside the company. If in case
the manager of the company identify that the strategy is contingent on a generally optimistic then
they try to modify the strategy considering the particular scenario or develop plans for the
strategy.
War-gaming
War-gaming analytical approach helps the company vulnerability to change in the strategies of
the competitors. In this approach, the company assigns three or four teams that help in
identifying the strategies that the competitors are going to form in the next one or two years. This
approach helps the company to deal with its competitors including current beliefs and the
possibility of the actions (Kaplan & Mikes, 2012).
These are ways through which the company can try to reduce the risk that is associated with the
political, legal, economic and others. The company analyzes the scenario related to the economy
of the country. Generally, the risk manager of the company analysis the market condition and
predict accordingly that helps the company in making a further decision related to the product or
service. It is essential for the company to evaluate the fact that depicts the economic condition
because the purchasing power of the customer is totally depended on the economic condition.

Business Environment 9
Moreover, the cost of the expenses of the company is also depended on the economy of the
country. Wesfarmers should make use of this analytical approach with the help of which they
will be able to reduce the impact of factors on the decision making of the company.

Business Environment 10
Conclusion
It can be concluded that the report includes the impact of the external factors on the working of
Wesfarmers not only in Australia but also in other countries. The major factors that create impact
were discussed in the previous report with the proper framework that helps the company in
reducing the effect of the external factors on the company (Kotabe & Helsen, 2014). This report
further carries the discussion related to the factors and the response of the company on those
factors. The response of the company on the environmental factor is discussed which reflect how
decision making of the company gets affected along with this it also leads to some of the changes
which arise in the form of risk to the company. Moreover, in the end, the report includes the
approach through which the company can reduce this impact while making the decisions for the
betterment of the company.

Business Environment 11
References
ABC. (2016). Minimum wage: How does Australia compare to other countries?. ABC News.
Retrieved from http://www.abc.net.au/news/2016-05-31/minimum-wage-how-does-
australia-compare/7461794
Chernev, A. (2018). Strategic marketing management. 9th edition. Chicago: Cerebellum
Press.
Egan. (2014) Wage Costs: a Relative Truth. Retrieved from
https://eganassociates.com.au/wage-costs-a-relative-truth/
Fern Fort University. (2018) Wesfarmers Limited PESTEL & Environment Analysis.
Retrieved from http://fernfortuniversity.com/term-papers/pestel/nyse4/4814-
wesfarmers-limited.php
Gobinda Goswami, G., & Haider, S. (2014). Does political risk deter FDI inflow? An
analytical approach using panel data and factor analysis. Journal of Economic
Studies, 41(2), 233-252.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an
integrated approach. US: Cengage Learning.
Kaplan, R.S. & Mikes, A. (2012). Managing Risks: A New Framework. Retrieved from
https://hbr.org/2012/06/managing-risks-a-new-framework