Woolworths' Strategic Expansion into Indonesia's Retail Market

The report presents a comprehensive evaluation of Woolworths' potential expansion strategy into Indonesia's retail market. With over 18% annual growth in the modern retail sector, significant opportunities exist for international retailers like Woolworths. The analysis utilizes a SWOT framework to identify strengths such as brand recognition and weaknesses including local competition; opportunities involving large consumer markets and threats from established competitors. Additionally, PESTLE analysis highlights economic prospects fueled by rising GDP per capita, political challenges due to corruption and bureaucracy, social shifts towards urbanization, technological advancements supporting digital retail platforms, legal considerations around business operations, and environmental concerns impacting supply chains. Strategic recommendations are provided for Woolworths to effectively navigate the Indonesian market landscape, focusing on leveraging local partnerships, adapting marketing strategies, and ensuring compliance with regulatory standards.

STRATEGIES FOR ANALYSING AND ENGAGING WITH
FOREIGN MARKETS
INTERNATIONAL BUSINESS – IB
ID NUMBER
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Table of Contents
1.0 Introduction.....................................................................................................................4
2.0 Literature Review.................................................................................................................4
2.1 Suitability of Selected Foreign market.................................................................................4
2.2 Risks in the foreign market..................................................................................................6
2.2.1 Feasibility for Selecting Indonesia....................................................................................6
2.2.2 Threats and Opportunities for Woolworths in Foreign Market........................................7
2.2.3 Potential Risks...................................................................................................................8
2.2.4 Feasibility of Target Market..............................................................................................8
3.0 Discussion and Analysis......................................................................................................9
3.1 Analysis of Mode of entry....................................................................................................9
3.2 Analysis of Relevant Market Reponses...............................................................................9
4.0 Recommendation................................................................................................................12
5.0 Conclusion..........................................................................................................................12
Works Cited.............................................................................................................................13
Appendix 1...............................................................................................................................15
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Executive Summary
The present report provides an overview of the business expansion of Woolworths. The
country that has been selected is Indonesia. Woolworths has been focused on expanding their
business since long but they were not clear about their ideas. IG Market Analyst Evan Lucas
considered South East Asia as the best choice for Woolworths. Indonesia has been selected
for expansion. Being a developing country, the country provides a huge scope for the
business. The GDP has been growing and the cost of expansion is low. The rise of the middle
class within the country and the increase in disposable income has further enhanced the scope
of Woolworth. The target market for Woolworths is the middle-class customers of Indonesia.
Although competition is quite high in the retail industry, the scope provided the government
would help Woolworths to gain success. Franchising has been selected as the entry mode as it
would help Woolworth to cay out commercial activity by allowing the local sellers to the sale
the product. Considering the current scenario, suitable recommendations are made.
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1.0 Introduction
Business expansion is the stage when the company needs to fight with opportunities and
perils. Business expansion deals with increasing the physical presence in different locations
to increase the customer base as well as the level of profitability. The present report would
analyze the opportunities and the risks of overseas business expansion with special reference
to Woolworths. Woolworths is one of the largest supermarket chains in Australia. The
organization was established in 1924 with its Headquarter in New South Wales. They have
already expanded in different parts of the world and employs 202,000 employees globally
(Appendix 1). This report would shed light on the different aspects of the expansion of
Woolworths in Indonesia.
2.0 Literature Review
2.1 Suitability of Selected Foreign market
Woolworths has been looking for foreign expansion for expanding its customers. While
looking for overseas expansion, IG Market Analyst Evan Lucas considered South East Asia
as the best choice for Woolworths. Indonesia has been selected for expansion, as the process
of expensing in this country can be cheap (Theaustralian.com.au, 2013). The sales of the
supermarket chain in Indonesia has increased by 5.6% from the last year. Expansion in
Indonesia would further improve the sales of the business organization.
Indonesia has been selected for overseas expansion of Indonesia because the stable economic
and the political condition would increase the disposable income as well as the purchasing
power of the individual. This would increase the growth of the grocery industry within the
country. The government of Indonesia has also enhanced the flow of the Foreign Direct
Invest (FDI) for boosting the growth in the grocery retailers. In the year 2016, the grocery
retailers in Indonesia registered a current value growth of 8% while the number of the outlets
remained static (Euromonitor.com, 2017).
It is important to note that the current market is changing due to globalization and excessive
competition. Hence, before expansion, it is essential to the suitability of the foreign market.
In this case, Porter’s Five Forces would be used to analyze the Supermarket Industry in
Indonesia for evaluating the future success of Woolworths in this country. Porter's Five
Forces tool would provide a comprehensive, systematic and robust format to analyze the
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different factors that can create an impact on the Woolworths Supermarket Indonesia (E.
Dobbs, 2014).
1. The threat of New Entry (High): The market openness policies developed by
Indonesian Government after the financial crisis helped to liberalize the retail and the
grocery trade that also lifted all sorts of restrictions on foreign investment. This has
increased the threat of entry to get a get extent. Moreover, the investment in the retail
and the grocery industry is quite low. However, technological development and
increased competition within the retail market has created some specific problems for
the new retail business, which can hamper the entry to some extent. However, the
support provided by the government enable the new entrants to overcome barriers in
large extent (Euromonitor.com, 2017).
2. Rivalry among Competitors (High): Competition among the retail business in
Indonesia is quite high. The main retail outlets in Indonesia are 7-eleven (60.38%),
Indomaret Point (20.45%), Lawson (12.14%), Family Mart (7.03%). These are the
major retail players in Indonesia. Indomaret is a quite famous and renewed brand that
enjoyed rapid expansion. Hence, Woolworths needs to deploy effective market entry
strategy.
3. The threat of substitutes (Medium): The growth of the supermarket in Indonesia
was also followed by the growth of convenience stores in Indonesia. However, people
still prefer to purchase from the local stores. It is forecasted that the share of the
supermarket selling food products would increase along with per capita income.
However, the threat from the local substitute would remain (Daryanto & Sahara,
2016).
4. Bargaining power of Buyer (High): Existence of a large number of competitors in
the food and grocery industry has increased the bargaining power of the customers.
The customers can purchase their groceries as well as food products from
supermarkets, hypermarkets and from small convenience stores. It is important to note
in upper 20% of income class earn around 20% of the income class earn around
$7,993 every year. This implies that Woolworths needs to maintain its price level
while expanding in Indonesia (Pandin, 2009).
5. Bargaining Power of Suppliers (Low): The bargaining power of the suppliers are
considered to be low. The established codes for the suppliers as well as a large
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number of the international brand has reduced the power of the suppliers in
Indonesian supermarket industry.
2.2 Risks in the foreign market
2.2.1 Feasibility for Selecting Indonesia
Income of Demographic Segments
The GDP of Indonesia is 932.3 billion in the year which ranked 16th in the world. The GDP
of the country has increased positively. Although the income distribution within the country
is unequal it can increase the demand of purchasing from the supermarkets. However, the rise
of the middle class and their income has caught the attention of Australian business and
Woolworths is one of them. The number of the middle class is expected to increase by 141
million in 2030. The expenditure of the Indonesian population on the Supermarket products
has increased considerably. The food expenditure of Indonesia are illustrated below:
Figure 1: Retail Expenditure
Source: (Rangkuti & Wright, 2015)
Policies
The government of Indonesia has focused on promoting the investment opportunity that gave
rise to a favorable investment environment. For instance, GIC, which is the wealth fund, has
aimed to make investments $546 million on PT Trans Retail in Indonesia (Straitstimes.com,
2016). The government of Indonesia has aimed to improve quality of the products supplied to
the customers and also support the new retailers and increase the FDI within the country
(Chang et al., 2013).
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Distribution channels
The easy distribution channel has made the supermarkets to distribute their products easily
and efficiently. The hypermarkets and the supermarkets obtain the products from the
domestic suppliers or from the manufacturers and the importers. The suppliers can also
deliver the products to the distribution centers of the supermarket. Woolworths can get hold
of different local suppliers who would deliver their products and finally it can sell it to the
customers.
2.2.2 Threats and Opportunities for Woolworths in Foreign Market
Opportunities
1. The consumer base of Indonesia is quite large and the population of the country is 258
million. Moreover, the rise of the disposable income and the rise of the middle class
would create a suitable opportunity for Woolworths to attract the customers.
2. The availability of the imported products would be adjusted by the modern retail
sector. The people of Indonesia with the rise of the purchasing power would accept
the products that would be exported by Woolworths.
3. Duties on most of the food are only 5% excluding the 153 food products. This would
increase the profitability of the business.
4. Indonesia does not produce enough quantities of beef, tree nuts and dairy products,
which Woolworths need to take account of, for better capturing the market. The
supermarket should offer good quality beef and dairy products to create a big
customer base.
Threats
1. The purchasing power of the consumers are weak due to high inflation rate
2. Poor taxation system within the country
3. Increased prices of the imported products can reduce the customer base od
Woolworths as customers would prefer low-priced products
4. Product shelf life for shipment to Indonesia id major issue due to the extended time of
transportation and customs clearance process.
5. High level of corruption and inconsistent regulation create challenge for foreign
investors
6. High level of Competition in the market
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2.2.3 Potential Risks
Political Risk: The corruption and the incontinent regulation within Indonesia can affect the
investment process of Woolworths. The instances of corruption in Indonesia from 2004 to
2011 incurred a loss 3.4 billion in business as per Corruption Eradication Commission
(KPK). The inconsistent tax rules can create a significant burden for the foreign investors like
Woolworths. The nature of non-binding is also a major threat to the business. The negative
investment list created some restriction on the FDI and made the process of investment quite
complicated (Kurniawan, 2012).
Economic Risk: The economy of Indonesia has improved and seen a major growth over the
last few years. However, the inflation of the country has increased from 5.9% to 8.61% in the
year 2013 (Tradingeconomics.com, 2014). Currency depreciation has increased the price of
the product. Considering the high inflation rate, the Central Bank of Indonesia increased the
rates of the interest, which in turn can reduce the consumer spending power (Elias & Noone,
2011).
Social Risks: The price of the imported products would be higher as compared to the local
products. Moreover, the culture, choice, and preferences of the people of Indonesia are
different from that Australians (Manik et al., 2013). Hence, the products sold by Woolworths
can turn out to be the biggest rejection by the Incisions. Woolworths need to consider the rice
as well as the effectiveness of the products while selling it to Indonesia.
Competitive Risks: The competition in the retail industry is quite high. There is the threat of
competitors as well as that of the substitute. As a result, increasing the market share in
Indonesia is quite different. Hence, Woolworths need to develop some innovative aspect that
would help to make their product more effective towards the customers (Global Business
Guide, 2013).
2.2.4 Feasibility of Target Market
Woolworths targets the middle-class consumers of Indonesia, as, within a few years, the
middle-class people will start buying clothes and food from stores due to their economic
development (Elias & Noone, 2011). Hence, it will be a great opportunity for Woolworths to
identify the needs of Indonesian middle-class people and develop products accordingly.
However, the firm may face threat such as poor taxation system and a high inflation rate that
limit the buying power of the customers. Further, the company may also face intense market
competition in the supermarket industry of Indonesia, inconsistency in regulation and
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corruption may decrease the feasibility of target market if the planning is not done properly
(Kurniawan, 2012).
3.0 Discussion and Analysis
Based on the acquired data, the critical analysis would be carried out on the modes and entry
and the management requirement for the expansion for Woolworth in Indonesia.
3.1 Analysis of Mode of entry
The choice of the entry mode is often based on the business potential and the business target
market. In this case, the target market includes the middle-class consumers of Indonesia for
which it is essential to select such an entry mode that would help to attract the customers.
Franchising has been selected as the entry mode as it would help Woolworth to cay out
commercial activity by allowing the local sellers to the sale the product (Wach, 2014).
Franchisee option has been selected for expansion of Woolworths because it would reduce
the cost of entry and increase the scope of expansion in the distant market (Chiou & Droge,
2015). The entry mode of Woolworths in Indonesia would be analyzed with the help of the
external factors and the process it would help to overcome the identified risks.
Political Factor: The burden of taxation and inconsistent policies can be easily avoided.
When small business owner purchases the franchisees there are chances of obtaining biggest
tax deduction (Méndez et al., 2014). Moreover, the franchises would encounter less
corrugation as compared to direct investment.
Economic Factor: The impact of the inflation would be minimal on the franchises. The rise
in the price of the product would be same as that of the local products. This is because the
products that would be sold by Woolworths would be purchased from the local supplier and
manufacture.
Social Factor: franchisee would help to address the needs of the local customers as the
products would be obtained from a local supplier and hence it would satisfy the taste and
preference of the customers (Kacker et al., 2016). However, some specific products would be
imported from Australia maintaining authenticity.
3.2 Analysis of Relevant Market Responses
It is found that in the Indonesian market, a number of opportunities are there for Woolworths
and to grab them, the firm needs to do proper planning and management of its resources.
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Human resource management- In order to develop a proper HR planning, a firm needs to
follow four steps are stocktaking, predicting the supply of employees, estimating the demand
for staffs, implementation, and evaluation (Brewster et al., 2016). Woolworths needs to
analyse the availability of its staff for implementing its business plan in Indonesia. It must
ensure that it will be able to meet the demand of employee while implementing the plan of
expanding business in Indonesia. If it feels that there is a shortage of employees within the
firm, then it needs to carry out a recruitment and selection. Moreover, the existing staff must
be provided with appropriate training of handling international customers, so that they can
perform their tasks competently.
Operational functions- International operation management is innumerable of activities used
by a firm to exchange various types of inputs such as labor, material and so on. An
appropriately designed and organised operating system has an important role in determining
the quality of products, services and productivity (Wild et al., 2014). Therefore, Woolworths
does it operation management through developing one team, updating products, developing a
cohesive brand, reducing cost and improving processes. The firm follows the Theory of
Constraints (TOC) for managing its operations successfully. The TOC includes four stages
are exploit constraints, subordinate processes, elevate constraints and repeat cycle (Woeppel,
2016). Using the process, Woolworths identifies the major constraints of expanding its
business in Indonesia and then acts appropriately to handle it. For example, it provided
training to its human resources to enhance their ability to work in the international market
efficiently. Apart from that, to ensure the timely supply of the products, the firm should hire
the local suppliers of Indonesia.
Marketing and cross-cultural issues- Identifying the cross-cultural issue in Indonesia is
important for developing the marketing plan effectively that does not hurt the ethical beliefs
and behavior of Indonesian in any manner (Kaynak & Herbig, 2014). There is a huge
difference between the culture of Australia and Indonesia that can affect the business
activities of Woolworths negatively. If the firm fails to communicate with its potential
customers appropriately for the difference in language, then it may result in significant loses.
Further, the language difference may also affect the marketing activities for promoting the
brand and its products. Therefore, the management and the employees of Woolworths need to
gain proper knowledge regarding the cultural values and language of Indonesians.
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Market analysis- Indonesia is the 6th largest nations among all the developing countries. The
economic condition of the country is developing very fast and its GDP growth rate is near
about 6%. There is an immense potential for the retail industry in Indonesia. The government
regulations are also supportive for the national and international marketers. It has a strong
customer base due to the expanding youthful and middle-class demographics
(Gbgindonesia.com , 2017).
SWOT analysis-
Strengths-
 market leader in the retail industry in
Australia
 Strong brand name
 Operates different subsidiaries like
most famous entertainment
manufacturer
Weaknesses-
 Negligible international presence
comparing to the rival companies
 The external environment affecting
the growth strategy of the firm and its
ability to lead the retail market
Opportunities-
 The developing economy of
Indonesia
 The large customer base
 The firm may avail the opportunity of
grabbing the market of dairy
products, tree nuts, and beef
Threats-
 Poor taxation in Indonesia
 The price of imported products are
increased that can affect the customer
base
 High corruption and market
competition (Nizam & Hoshino,
2016)
Table 1: SWOT analysis of Woolworths
(Source: (Woolworths.com.au, 2017)
Competition analysis- The traditional retail market is unable to maintain their position for the
competition with the modern retail sector. Therefore, Woolworths have to face intense market
competition from the major retail organisations of Indonesia such as 7-eleven, Lawson,
Indomaret Point and so on (Gbgindonesia.com , 2017).
Strategies- In order to compete with the major retail players of Indonesia, Woolworths needs
to develop effective strategies. Woolworths keeps its customers at the center of its business,
which is an effective way of gaining customer attention and trust. Further, the firm needs to
develop innovative ways of shopping, so that customers enjoy buying from Woolworths.
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4.0 Recommendation
Working more solid for customers- In order to survive in the Indonesian market,
Woolworths need to identify the needs and demands of the targeted customer group. Here,
the firm needs consider the cultural values and beliefs of the customers as these have a direct
impact on the purchase decision-making of the customers. Thus, after identifying the
preferences of the customers, the company can develop its products based on that. In order to
attract the customer attention of the Indonesian market, Woolworth must carry out loyalty
programs. It would provide the loyal customers the chance of earning notable discounts on
their shopping. This will help the firm to develop a strong customer base in Indonesia.
Developing a strong partnership with the local suppliers of Indonesia- Woolworths needs
to make partnerships with the suppliers of Indonesia so that it can deliver the products to the
end customers in a timely manner. The partnership must be strong and trustworthy so that it
can ensure smooth operations of the firm. In order to develop a competitive position in the
modern retail sector of Indonesia, Woolworths needs to develop innovative fashion and food
products and deliver them to the customers at first, so that it can earn the advantage of the
first mover.
5.0 Conclusion
Doing international business effectively requires a wide range of resources and planning.
While planning for expanding business in an overseas nation, it is important for the marketers
to carry out an environmental analysis of the country for understanding the situation of the
market of a specific industry. Therefore, carrying out an environmental situational analysis of
Indonesia helped to gain all the necessary information of the retail industry. It helped
Woolworths to decide its market entry mode and develop strategy effectively.
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Appendix 1
Figure 1: Brief of Woolworths
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