Wesfarmers Limited: Strategic Management, PESTEL, Merger Analysis

This report provides a strategic management analysis of Wesfarmers Limited in Australia, utilizing the PESTEL framework to assess the political, economic, socio-cultural, technological, environmental, and legal factors impacting the company. It discusses the implications of government regulations, economic conditions such as unemployment and interest rates, socio-cultural trends affecting consumer demand, technological advancements in retail, environmental sustainability efforts, and legal compliance. The report further explores potential merger, acquisition, and downsizing strategies for Wesfarmers, offering recommendations on business unit expansion and divestment. It highlights Wesfarmers' community engagement, employment initiatives, and commitment to safety and environmental responsibility, emphasizing the importance of adapting to changing market dynamics and maintaining a competitive advantage in the Australian retail landscape. Desklib provides a platform for students to access similar solved assignments and study resources.

RUNNING HEAD: Strategic Management
Strategic Management

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Contents
PESTEL- AUSTRALIA..................................................................................................................2
MERGER, ACQUISITION AND DOWNSIZE.............................................................................9
Wesfarmers Limited- Future Strategic Merger, Acquisition or Downsize:.................................9
Definitions and Recommendations..............................................................................................9
Advice regarding which business units should be expanded by expansion and which SBU
should be downsized or sold......................................................................................................11

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PESTEL- AUSTRALIA
POLITICAL
In order to adjust with the changes made by government relating to tax and other regulations as
necessitated by the Australian Competition and Consumer Commission (ACCC), some political
policies and laws are required. Every state of the country have their specific laws which makes it
necessary to recognize the respective differences while operating in different states. Similar to
the case of USA and UK, Australia also has a variety of legal, regulatory and political practices.
The interference of the federal government have been witnessed a number of times in order to
reduce the entry barriers and giving the consumers with more power in comparison with the two
major supermarkets. When 20 cents discounts were being provided to the customers by Cole
Express which was subsequently misleading the consumers, there was an intervention of the
government. The changes introduced by government such as the $5 note resulted in significant
costs for Coles due to the non- recognition of monetary value by self- checkout machines.
The ban on plastic bag enforced by the South Australian Government on all Coles Departmental
Stores and Supermarkets necessitated the purchase of plastic bags by the customers in case they
do not carry their own environmental friendly shopping bags. This ban on plastic shopping bags
was not imposed by other states in Australia.
The changed government budget led to the reduction in sales due to its impact on the students.
The sales number also gets impacted as a result of changes in the visa conditions for international
students. The regulations of ACCC guide the Officeworks which lead to the promotion of fair
trading practices and the legislations of competitive behavior.
The industrial sector is monitored by the government as there are a number of rule and
regulations that must be upheld by the organizations for the purpose of ensuring the safety and
wellbeing of every employee. There is stability in the political government which assists in
providing a desirable market for the businesses.
Diverse rules and regulations are encountered by the commercial property profiles in every state.
An agreement has been signed by Wespine with WA Government for the purpose of ensuring

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that the purchases of saw laws are only created by state owned or private pine plantations over a
period of 40 year.
ECONOMIC
There is low unemployment rate in Australia which can further reduced with the help of
increasing store openings in Australia. The interest rates and inflation rate will contribute
towards the buying power of the customers.
A vital role is played by trade and investment in the economy which has strong relationships
with various countries for the purpose of ensuring the effective maintenance of partnerships and
trade agreements. The exchange rates and taxes are considered to be important due to the import
of some products Bunnings. There is no volatility in the corporate tax rate which remains steady
at 30% after 2006 (The Global Economy, 2017). The goods and services in Australia suffer from
fluctuating tax rates from the past 10 years which have brought uncertainty to businesses. There
is a stable trend in the taxes on international trade in Australia with a maximum of 2.52% and a
minimum of 1.81% in the last year (The Global Economy, 2017).
A strategy has been put in place by the departmental stores for the purpose of ensuring fair
wages and long-term employment opportunities. Approximately 1300 people have been
employed by Kmart Automatic and Services that contributes towards the economy in reducing
the unemployment rate. Increase in units sold and transactions take place with the increase in
number of stores opened. The products of departmental stores are sourced internationally and
locally which assist in creating overseas jobs.
There is a constant change in Australian economy due to the fluctuations in energy cost, foreign
investment, interest rates, employment rates and economic growth. The prices of goods and
services are also affected by the economic conditions. Officeworks is capable of providing low
costs to the customers by way of sourcing these goods internationally. The entrance of Amazon
within the retail business has become a challenge for various retail businesses. An Initial Public
Offering has been already held by Officeworks for discussing the future of Officeworks with
stakeholders.

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Multiple businesses are operated by WesCEF in Australia which in turn provides employment to
nearly 1200 people. Skill development and job opportunities are facilitated by ‘Aboriginal
Engagement and Employment Plan’. Community contributions equivalent to $310,000 have been
provided for ensuring the support to councils and local programs. $30,000 was donated to WA
Farmers’ Esperance Fire Appeal for contributing to bushfire damages to businesses. Merchandise
is supplied by Workwear group to large overseas organizations which have the capability of
positively influencing the Australian economy. Specialized clothing to emergency and defense
service are also provided by Workwear Group.
Financial services for other businesses are the center of focus of Gresham Advisory Partners
Limited which assists the Australian economy. Long-term relationships have been maintained by
Gresham with advisors and clients present in different international and domestic locations.
Overseas relations are based in US and Europe. The commitment of the organization to
constructing sawmill is ensured by the agreement of Wespine with WA Government that have
the capability of increasing sales and positively impacting economies of scale.
SOCIO- CULTURAL
The growth in Australian population has led to the increased demand for household goods.
(Australian Bureau of Statistics, 2017). Increased demand for fat free foods and gluten-free foods
has led to the requirement of adjustment in shelving within aisle for catering the shifting demand
within business units that are responsible for selling food products.
Bunning made sustainability commitments by introducing campaigns and offering financial
assistance. This includes garden workshops, project assistance and sausage sizzles and
makeovers.
Priority is given to training and development programs for ensuring strong culture within
organization and safe working environment for employees. Departmental stores such as Room to
Read and Salaam Baalak are heavily invested by various community organizations overseas
which focus on assisting children and families at the times of need.
Officeworks participates in school activities and charities that focus on the significance of
environment and recyclable cartridges. Importance is given to the health and safety of

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individuals which is reflected from the annual report by the reduced number of injuries in
workplace. Leadership roles and team diversity are equally offered to women in the
organizations along with providing indigenous employment programs for increasing
opportunities.
Safety of individuals is the focus of WesCEF within the workplace through their “Safe Person,
Safe Process, Safe Place” programs, which concentrates on business responsibilities, leadership
and support and involvement in environmental activities. Contributions are made by WesCEF to
sponsors, community organizations, sporting clubs and local colleagues. WesCEF has sponsored
STEM (science technology, engineering, mathematics) project which is a big community
investment. Councils and local programs are supported by the community contributions worth
$310,000. $30,000 was donated to WA Farmers’ Esperance Fire Appeal for contributing to
bushfire damages to businesses. Merchandise is supplied by Workwear group to large overseas
organizations which have the capability of positively influencing the Australian economy.
Specialized clothing to emergency and defense service are also provided by Workwear Group.
Success of the business is due to its employees for which their safety is important. The improved
safety standards have led to reduced injuries in the annual reports of Wesrfarmers. Active
involvement of Gresham Advisory Partners Limited along with its employees has been witnessed
in foundations, charities and community activities. Disaster relief is addressed by Gresham
nationally and overseas.
TECHNOLOGY
The combination of digital and retail formats is allowed by business units into one which allows
the organization to target larger market which in turn will also provide the customers with online
shopping platform. Regular servicing, updating and maintaining is required by equipment that
are utilized which includes self- checkout machines, computer units and testing systems.
Performance of the business is impacted by the instant communication between consumers and
business through social media.
Online shopping experience is provided to the customers by Coles which has changed the way in
which goods are provided and delivered to the customers. Various electronic products and
devices are offered by Bunnings which is important to the existing revenue. The Automatic

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Technology (ATA) performs its work with D&D Technologies for producing a system with the
help of which remote access is provided to the garbage gates and doors. Sales can be improved
through technological advances in products and equipment. The relationship of Bunning will get
influenced with suppliers, employees and customers by technological innovation as it will
improve transactions and communications. IMB POWER 7 Technology has been implemented
by Bunnings in 2011 for sustaining the expansion and growth in other countries. It will facilitate
the communication of Bunning in an effective manner with UK, Ireland and New Zealand at any
time. The benefits of technology to business have been identified with Bunning and therefore it
has committed to invest in IT infrastructure for ensuring its competitive advantage.
RFID card systems have been introduced for all stores which assist in eradicating long queues.
Website has been launched by Officeworks which allows the customers to purchase the products
online resulting in high inventory turnover. A dedicated IT team has been installed by
Officeworks that ensured functional security across platforms.
Constant maintenance and updates are required for construction building by Wespine’s
machinery. For ensuring smooth production, regular maintenance of machinery and equipment is
required for completing mining tasks.
ENVIRONMENT
Certain practices have been listed by Australian Government within retail industry such as
process for waste management, use of plastic bags, sustainability reporting and recycling
(department of industry and innovation). Environmental impacts are managed by Bunnings
within its business operations.
Energy usage levels are reduced by Coles at specific petrol stations, supermarkets and stores for
contributing to sustainable environment. This includes changed refrigeration type for reducing
energy, solar panels usage and use of LED lights. The reduction in transportation trucks assist in
contributing cleaner air.
There is very limited impact of the products of Departmental Stores on the environment. ‘Better
Together’ program focuses on environment, people and working conditions. Global

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environmental danger is contributed by internationally sourced products and air pollution is
contributed by transportation of goods.
Commitments relating to reduction in carbon dioxide emissions and improvement in energy
efficiency are essential for Officeworks. Recyclable cartridges collection works alongside with
Planet Ark and department of industry and innovation. BringITback program works alongside
recycling collection of computer equipment. carbon intensity of products and waste recycled
percentage is decreased by the recycling programs. Programs lead to the identification of waste
reduction and recycling importance by the team leaders in the organization. Energy monitoring
systems installation and implementation of LED lights in stores has contributed towards the
environment. Officeworks make the use of paper products that are 100 percent recyclable.
Chemical production is not sustainable for environment. Wellbeing and health of the individuals
are affected by all chemicals as they are toxic and harmful. For screening and decking of
products, the manufacturing of wood-plastic composite material is emphasized as they are
environmental friendly. Wood- plastic is better substitute of timber.
Pine is created by Wespine which is environmental friendly while producing timber for
constructing building. Sustainable business is operated by BWP Trust. Its management and
ownership of commercial properties have low impact on the environment such as emissions,
waste, energy and materials, etc.
LEGAL
Success of an organization depends on the wellbeing and health of the individuals. The
implementation of Health and Safety Standards is necessary across all stores along with the
entitlement of the employees to the policies of Fairwork Australia. The change in laws relating to
Tobacco and Alcohol provides that it can only be used by individuals over 18 years of age. All
the stores across the world has to adjust due to the change in laws of displaying tobacco.
The laws and regulations applicable to the wholesale and retail trade industry must be complied
by Bunnings in electrical products, building supplies, hardware and floor coverings. Codes and
safety standards are compulsory to be followed by Bunnings as regulated under The Australian
Competition and Consumer Commission (ACCC). The products imported by Wesfarmers are

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subject to licensing and permits under the Australian Business Licence and Information Service
(ABLIS). Australian national Fairwork and Health and Safety laws are required to be complied
by Wesfarmers for all employees. Retail and wholesale trade industry also suffers from the
application of taxation rules such as GST for export and imports.
Fire and Building Safety has been committed by Kmart in Bangladesh for enhancing the working
conditions and empowering its workers. For items such as glues, knives and scissors, age
restrictions have been implemented. Ethical sourcing audit program and group- wide ethical
sourcing policy have been implemented into organizations for decreasing the risk of practices
that are unethical. Regular inspections are conducted by ACCC for ensuring the implementation
of Fair Trading in all businesses in Australia.
Hazardous and dangerous nature of working in industrial industry necessitates the requirement of
insurance for employees and organization. Extra precautions are required for the health of
employees when they are surrounded by chemicals all the time.
Business principles are developed by BWP Trust into their business based the United Nations
Principles for Responsible Investment. Business principles are classified into governance,
environmental and social issues that are inserted in the policies, procedures and processes. Rules
and regulations are required to be formed for leasing agreements for commercial properties
according to the states in Australia.
Portfolio management of Wesfarmer is focused on the diversification of its portfolio
across various markets and industries along with making the identification of growth
opportunities and business operations that maintains sustainability. Wesfarmers operates in
various sections such as household consumables and retailing groceries. Liquor is also retailed
through the chain of liquorland, 1st choice stores and Vintage Cellars. It also has convenience
stores with petrol outlets through the joint venture of petrol retailer Shell and Coles Express.
Coles also has section for financial services with insurance services and credit cards and operates
in various hotels under the brand of Spirit Hotels (Wesfarmers Limited 2016). It is difficult to
focus on all the strategies at a single time by the organization, therefore, for the purpose of
achieving success, the primary target of the organization should be to provide sustained
commitment to one of the strategies (Porter, 1980). According to Porter’s Five Forces Analysis,

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the strategy adopted by Coles is a combination of differentiation and cost leadership strategy.
The cost leadership strategy of Coles ensures the value offered to the customers at lowest
possible costs (Wesfarmers Limited 2016). Its prices have been lowered by the ‘Down Down’
marketing campaign in comparison with the key brands due to the adoption of superior supply
chain and activities that provide economies of scale (IBISWorld 2016). The differentiation
strategy is brought by Coles through its brand image which has been developed over decades
with the introduction of various products in the market. However, same products are being
induced by the competitors that offer fresh food products with high quality as a result of which it
is not able to gain competitive advantage. Therefore, both cost leadership and differentiation
strategy has been integrated by Coles in order to provide different products at lowest possible
prices. In other words, superior quality is offered by Coles to its customers through innovative
ways at lowest costs.
MERGER, ACQUISITION AND DOWNSIZE
Wesfarmers Limited- Future Strategic Merger, Acquisition or Downsize:
Definitions and Recommendations
Downsizing can be defined as the reduction in the operating costs of an organization by
way of reducing the number of employees (Nelissen & Van Selm 2008). It occurs due the reason
of deficient performance or poor economic conditions. It also occurs due to high expenditures
and costs suffered by the company which necessitates reducing the number of employees so that
costs can be lowered and profitability can be maintained. It can also be a result of merger
between two companies which requires reduction in the operating costs by reducing its
employees (Edwards & Patton 2012).
The terms mergers and acquisitions are considered as synonyms but have different meanings.
Merger takes place when two companies are combined into one entity or when one company
buys another company (Bris & Cabolis 2008).
Acquisition always involves a purchase. The takeover of a company is also called
acquisition when the existence of the acquired company comes to an end and a new owner is
established (Tikhile 2014). Merger takes place between two companies which are of same size

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and agrees to proceed as a single newly formed company instead of operating with different
owners. The manner of purchase also constitutes a difference between two legal figures. It means
that hostile purchases are called acquisition and negotiations made in peaceful environment are
called mergers (Betton, Eckbo & Thorburn 2008).
Various recommendations have been made for future downsizes acquisition or strategic
merger of Wesfarmers Limited business units. The company should analyze the reasons and
improvements that can be obtained from downsizing, expanding or selling. Firstly, synergy
should be looked for the company which will improve the performance and reduce the costs by
way of combining business activities (Kumar & Bansal 2008). Secondly, merger and acquisition
will provide benefit of diversification to Wesfarmers which in turn will reduce the impact of
industry performance on the profitability of Wesfarmers (Arikan & Stulz 2016). Thirdly, the
opportunity of expanding the market share is provided by merger by purchasing the business unit
of the competitor for a price. The products and customers are kept by the acquired business unit
(Hoberg & Philips 2010). Some business units of Wesfarmers such as Home Improvement
through which great profits were obtained on 30June 2016 under Bunnings brand and Chemicals
Energy and Fertilizers could obtain benefits of acquiring and merging with the distributors or
suppliers. Costs can be eliminated with the help of buying them as the margins can be saved that
were added to the costs by the supplier, known as vertical merger (Li, Liu & Liu 2011). Some
information should be taken into consideration at the time of taking the decision related to
merger and acquisition. As an investor in a company, Wesfarmers should consider the benefits
arising from the purchase. First step for consideration is valuation. The target company will be
valued as high as possible from the seller’s end and at the lowest price possible from the buyer’s
end. Therefore, knowledge regarding various methods should be obtained in order to make the
proper assessment of the target company which includes replacement cost, comparative ratio and
discounted cash (Gomes et al. 2013). Second step includes proceeding with an offer. After
decision regarding merger and acquisition is taken by top managers, the starting of the deal
should take place with tender offer. At this stage, it is recommended that Wesfarmers should
function with investment bankers and financial advisors. The deal ends when an offer is made by
both parties that satisfy both parties after negotiation of the demanded amount (Collan &
Kinnunen 2011). Scrutiny is also faced by some companies from regulatory bodies and this
should be understood by the company. This happens in cases when big size of the companies

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enables them to create monopoly or a threat in the industry (Collan & Kinnunen 2011). After the
deal is finalized by the companies, payment is made through cash, stock or both.
Advice regarding which business units should be expanded by expansion and which SBU
should be downsized or sold.
Coles and Industrial & safety Business units: downsize
The definition of downsizing provides that the reason behind the downsizing of a company
include its deficient economic performance and the need for reduction of costs and maintenance
of profitability. The costs and expenditure of Coles can be effectively reduced by downsizing
strategy and it will affect profit of Coles. In 2016, highest revenue was earned by Coles for
Wesfarmers Limited with $39,242,000 but still it was not as profitable like the other business
nits such as Kmart, Home Improvement or Chemicals Energy and Fertilizers.it is surprising that
the company that have made the investment of $22,122,000 on its assets can earn a profit of
$1,860,000, while the profits obtained by Home Improvement is $1,214,000 with revenue of
$11,571,000 and assets of $6,620,000 which imply that 10.5% profits with respect to revenue as
compared to Coles that account for 4.7%. For reducing the gap between profits and revenue,
Coles is advised to downsize itself. The costs and expenditures of Coles are required to be
reduced that are before profit and after revenue. For increase profit and maximizing efficiency, it
is advised to restructure the company. The downsizing of Coles could increase its profitability.
The costs and expenditure of Industrial and Safety business units are required to be reduced due
to the fact that its profit as % of revenue is low (3.4%) in comparison to other business units.
Resources and Target Business units: Sell
The ultimate objective of a business is to generate profit. When there is no profitability in the
business and there are no hopes for making profit in the future, selling or closing the business is
a best option. Two segments are there in the business units of Wesfarmers’: Mineral and Metal
Wholesaling in Australia and Black Coal Mining in Australia. The business unit resources
suffered a loss of $310,000 on 30 June 2016 and revenue of $1,008,000 which was only 1.5% of
the total revenue. Therefore, a major loss is represented by the business unit which was -30.8%
as the profit as % of revenue. Moreover, there is a growth in the forecast of this business unit
between 2017- 2022 equal to -7.4% which imply that resources as SBU are not going to make

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profits in future (IBISWorld 2016 pp. 15). Wesfarmers does not occupy the major portion of the
market. Its major competitors occupy 38.9% of the market share. This and 420 other companies
in the industry face a negative forecast growth rate which requires the development of strong
strategy. Another business unit, Target, is also not making profits. In 2016, this business unit was
restructured with Kmart for creating a new operational division known as Departmental stores.
This was used as a strategy to incentive the performance of Target under the same strategy of
Kmart which made an outstanding performance. On 30 June 2016, the revenue of Target
amounted to $3,456,000 which was equivalent to 5.2% of Total Revenue. In fiscal year 2016,
this business unit was ended with $195,000 loss which made profit as % of revenue to be -5.6%.
Attempts are being made by Wesfarmers for making it sustainable and profitable. However, all
the resources should be taken into consideration by the organization for the purpose of keeping
Target alive instead of concentrating on other business units. This will assist in boosting
profitability and growth of the business units. However, the results of Targets are not improving.
The half year results of Wesfarmers for the year 2017 provides the deficient performance of
Target as its revenue was $1,623 million in December 2016 while it was $1975 million in
December 2015. This implies there was negative revenue of 17.7% in 2016. These reasons
suggest that the business units of Wesfarmers should be closed or sold off. However, Kmart and
Home Improvement have the capability of improving its profitability with the help of
acquisitions and future transactions. It is advised that Wesfarmers should sell Resources and
Target which will help them in getting cash requested for acquiring business units from other
organizations.
Kmart and Bunnings Business units: Acquisition
Home Improvement (Bunnings) and Kmart are the business units of Wesfarmers Limited that
performed outstandingly well on 30 June 2016. The revenue of Home Improvement was
$11,571,000 which accounted for 17.5% of the total revenue. The revenue of Kmart was 7.8% of
the total revenue. Both the operational divisions concluded with profit with respect to revenue of
10.5% and 9.1%. For the year 2016, these two business units were found to be the second and
third most profitable businesses. it is therefore recommended that Wesfarmers should increase its
focus on these business units for the purpose of booting them. Any effort made in these
businesses has the capability of leading it towards growth. Both Kmart and Bunnings are

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profitable but still it is recommended for Wesfarmers that the business of Bunnings should be
boosted as it appears to be the most sustainable business unit. The historical growth of Bunnings
was 6.8% for the operating segment “Hardware and Building Supplies Retailing in Australia”
and the forecast growth rate amounted to 2.8%. Such rates were among the highest rates among
all the operating segments. After taking into consideration the profit and revenue obtained by
Bunnings through its operations along with its outstanding performance of “Hardware and
Building Supplies Retailing in Australia” and the forecasts made relating to growth rates,
diversification appears to be the most successful way of growing the business of Bunnings. This
can be done with the help of acquitting other business unit from a company or corporation itself.
By considering the benefit of the fact that the most important operating segment is building of
suppliers, investment should be made by Bunnings in acquitting a company belonging to
construction industry. The company could be in building or housing urban projects which in turn
will allow the expansion and diversification of its operations to the industry of which it is a main
supplier. It is the Australia’s third largest industry and it also drives economic activity in a
significant manner (Li & Liu 2012). Bunnings can become the supplier of a new company by
way of acquiring the company belonging to this sector. This will assist in subsequently reducing
the costs of materials and will facilitate the profitability of the new company and creating a
sustainable supply chain which will bring advantages to both the companies. Therefore,
Bunnings should take steps for acquiring construction companies like AV Jenningsm ADCO
Constructions, Burbank, BCI Australia and Cockram, etc.