Analysis of political, economic, cultural, legal and ethical risks in Morrisons
The purpose of the assignment is to evaluate the prospect of the overseas expansion plan of the company Morrisons. In this respect the selection of the market of Australia has been done and the market attractiveness of Australia will be evaluated on the basis of its potentiality of return of investment. The analysis of the economic, political, cultural, ethical and legal risks of the country Australia will be performed (Klein & Weiss, 2011). Then the identification of the business opportunities will be done and then evaluated.
Political risks: The political of the country Australia is democratic in nature and it has a constitutional monarchy. The Australian constitution of that has been established in 1901 has defined responsibilities for the federal government. The risk that an overseas business is likely to face is due to the reason of the differences in regulations, laws and the different kinds of regulatory practices being different in different states of Australia. Hence when the British supermarket chain company Morrisons will be looking forward to operate across multiple of jurisdictions need to check the relevant regulation in that particular jurisdiction to avoid penalty (Sandberg, 2013). Therefore, disparity between the various federal states is a problem. In Australia there are a series of procedures in the country when the registration of a property is needed to be done. It also becomes a challenge to file the document of the land department and the Property Information Department, state revenue office and the water authority. A total of eleven tax payments are needed to be done by the companies and the tax levied for corporate income is as high as thirty percent (Creusen & Lejour, 2013). The risk which Morissons is facing at the moment is sovereign risk and the AAA debt rating.
Australia is one of the best performing economy which is advancing at a considerable pace. It is a positive point that the country has been capable of avoiding recession for a period of about 26 years. However, in spite of a resource boom the economic growth of the country is below what is expected, so the British supermarket company Morrisons might not be capable of making the full utilization of the resources of the country which the company is planning to utilize. However, the growth rate of 2017 has been lower three percent in comparison to what has been estimated by IMF (Chen & Chang, 2011). The unemployment rate in the country is as low as 5.6 percent which is going to be risk for MORRISONS as it is going to be difficult for the company to get cheap labor. The law regarding the protection of Intellectual property is also extremely strong in Australia hence MORRISONS need to evaluate before starting an overseas business in the country.
The legal risks that the company might be facing in Australia is related to the territory or state criminal laws that is effecting the day to day lives of the population and business organization of Australia. Some of the recent laws that have been introduced in the country are disability discrimination and age discrimination and the company needs to adhere to the principles when employing staff. The supermarket might be subjected to additional costs while adhering to the laws (Creusen & Lejour, 2013). It might also create the risk due to the reason of the change of the demand of a product as the new law might be affecting the likelihood of the customer for buying the product.
Ownership/control risk: The power distance score of both the countries are almost equal. The score of Australia is 36 and the score of UK is 35. The managers and the employees would be operating in a collaborated manner (Wang & Lestari, 2013). Therefore, if the managers of MORRISONS will try to implement Power to the subordinates then the success of the company is going to be risky. Both the countries have a individualistic society so there is not much difference in the culture of both the countries.
Instability risk: The uncertainty voidance of Australia is 51 and for that of UK is 35. Therefore the market of Australia has a tendency of avoiding the risks that might be faced by the company (Murray, Ju & Gao, 2012). Therefore, the instability risk of Australia is less in Australia in comparison to UK.
Operational risk: The long term orientation score of Australia is 21 hence it gives importance to traditional values unlike UK who score is intermediary. Therefore, the company is being subjected to operational risk if it is going to change the operation of the super market from what has been followed in the country for a long period of time.
Transfer risk: Since, the score of most of the elements of hofstead root model is same therefore the transfer risk that the company is facing is going to be low.
The considers that are needed to be made for conducting the business by MORRISINS in an ethical manner are working with honesty, fairness, disclosure of methods, and openness of intent. One of the most significant ethical risks that the company is going to face is related to the practice of corruption. The practice of corruption is a common practice in the regions and the overseas business of MORRISONS is going to face a huge risk in this regard as while the company will be performing business to business operations (Holtbrügge & Baron, 2013). The company might be forced to be engaged into corrupt practice just because of the fact that their business partners are following such practices. Another ethical risk the company is related to the practice of taking bribery. When the competitors of the supermarket chain present in the market of Australia is practices these unethical means such as corruption and bribery then the MORRISONS have to face a moral dilemma of ether being engaged into corrupt practices and be competitive or avoid illegal and unethical activities and be financially hit. Moreover, if the company will maintain a poor working condition in its supermarket then it will be breaking the ethics of business. The practice of employing the labor of Australia in the supermarket at a low wage is also an ethical risk that the business is subjected to (Maekelburger, Schwens & Kabst, 2012). This practice of the employment of workers at a low wage is being done by other super market stores in Australia. Another ethical risk that is needed to be evaluated by the company is the operation of the minority community of Australia. In the country Australia the indigenous people are being subjected to a lot of ill treatments in the business premises (Karakaya & Yannopoulos, 2011). If the super market chain will practice any partiality in employing or serving the minority community of Australia then it has high chances of facing legal consequences related to ethics.
The social system of the country of Australia is regulated by the government hence the supermarket chain is facing the risk of meeting the regulatory requirements. The changes in the legislative requirements that might occur in the business if not been minutely evaluated it can lead to serious consequences for the company.
Identification and evaluation of business opportunities
Key economic/market indicators
The GDP of the country is 323.42 billion dollars for the year and the GDP growth rate of the country is 2 percent annually. The GDP of the country is two percent of the GDP of the whole world’s economy. The GDP per capita is 53,799.94 dollar and the GDP of the country has reached the highest limit in the year 2013 after which it has lessened due to economic slowdown. The inflation rate of the country has recently eased down from being 2.1 percent to 1.9 at present which is a good opportunity for the business (Karakaya & Yannopoulos, 2011). The unemployment rate of Australia is 6.6 percent which is not a good opportunity of the company to get the availability of cheap labor. The GBP (pound) to AUD (Australian dollar) exchange rate is 1.7478 AUD. The low exchange rate is going to make oversees operation of the business easy.
Levels of competition
The level of competition in Australia for the market entry of the overseas super market chain company is high as almost all of the largest multinational super market operating companies such as Woolworths and Coles Super market has a significant presence in Australia. Therefore, the international competition being faced by the company is going to be significant. On the other hand there are a number of local super market companies which have a prominent existence in the individual states (Maekelburger, Schwens & Kabst, 2012). Their local operation and focus on only a particular region of market is making them a significant competitor for Morrison.
Evaluation of income levels
The income level of the population of Australia has increased substantially in the last ten years period due to the reason of labor force earnings growth for the growth of the rate of employment. The percent of population in Australia is fifteen percent and the percent of middle income of the people of Australia is the highest in the country of Australia (Hilmersson & Jansson, 2012). On the other hand there is also the presence of 13 percent low income people. The upper middle income and the high income citizens in the country are 9 percent and 7 percent respectively. Since most of the population of the country are middle income the target market of the super market company is going to be huge. Education system of the country is strong as the literacy of the country is 82 percent.
The population of Australia
(Source: Powell 2014)
Consumer buying habits
It has been found that the income of the people of Australia is considerably high and there are very few poor or low income people in the country. Due to the reason of this fact the buying habit of the consumers especially in case of the super market store items is going to be positive. The consumer would not be making multiple of considerations while buying the items that are being sold by the super market company Morrisons.
The demand of foreign industrial products/service
A major part of the market of the country is being acquired by the multinational companies and the country has a demand for products that has been sources from UK. Although there is significant demand for the local companies in the specialized sector yet the demand of the product and services of the multinational companies is more than the local products. However, a new trend that is slowly gaining its existence in the country is to increase the consumption of products that are “Made in Australia” (Hilmersson & Jansson, 2012). This is going to be a major hurdle for the expansion of the business of the overseas companies who have entered the country recently.
Free market economy and of the degree of government ‘welcome’ afforded to foreign investors
Free market is the most prominent characteristics of Australian economy and in addition to that it falls among the top five free economy country of the world. The four major component of the economy of the country are Manufacturing, service, and trade finance (Rodríguez-Pinto, Carbonell & Rodríguez-Escudero, 2011). Australia is a country which is extremely open towards the foreign direct investment and market entry by the foreign companies and the FDI flow in the country has been high since the year 2011. FDI represent one third of the total GDP of the country.
Appropriate examples of companies to support arguments
There are multiple of examples of companies which has been successful after entering into the market of Australia. The top foreign investors who have acquired a significant market share in the country for the past years are Akibaba.com, Bupa, Exxon Mobile, Viva Energy, Healthscope, and Tolls (Omar & Porter, 2011). These companies have gained significant amount of success in the country of Australia.
Negotiations are being done with the government for the purpose of making alliance and joint venture with the local companies by the above mentioned companies and the government of the country is not engaged any corrupt practices such as bribery in their process of attracting foreign companies.
Conclusion, recommendations and proposed market entry based on findings
It is recommended that that company should enter the market of Australia and make investment in the company by setting up its own supermarket in the country.
The risks that the company is going to face in their process of entry into the market is considerably high in comparison to the opportunities but if the identification of the risks are done prior to the market entry and solutions to those are kept in hand then the opportunities that are going to be presented by Australia is going to be higher in comparison with the risks. For example the legal risk can be easily avoided by properly evaluating the legal and legislative framework of the countries (Omar & Porter, 2011). The company cans avoid the operational risk that it is going to face by [properly evaluating the operational framework of the Australian Supermarket. The ethical risk can also be avoided if Morrisons would maintain its ethical principle in a strict manner when it going to operate in the new country. Therefore, the risks that were identified can either be avoided or mitigated easily and the company can make the utilization of the free market of the country and the high economic growth to have a flourishing business sin the country.
While there are multiple of strategies which Morrisons can implement for entering the market of Australia, yet the best strategy is by setting up a wholly own subsidiary of the company in Australia. Here the company will enter the market by gaining 100 percent ownership of an entity in Australia. As there are two different process of the creation of a wholly owned subsidiary which is acquisition and Greenfield acquisition both the methods could be used by Morrisons. In simple acquisition it would be acquiring a local super market of Australia by buying it and secondly it will also set up a new outlet or a legal entity in the country. The choice of acquisition has been made as the risk cans be significantly reduced in addition to getting a considerable amount of exposure of the business in the country. The example of a company which has entered in to the market of Australia by the creation of subsidiary is the company Unilever which is British-Dutch company selling consumer goods (Rodríguez-Pinto, Carbonell & Rodríguez-Escudero, 2011). The subsidiary of Unilever is known as Unilever Australasia and the business of this subsidiary organization of Unilever is performing in an outstanding manner in the country.
Hence it can be concluded with the help of the above assessment that the market entry operation of the supermarket chain Morrisons is going to be a successful one as there is the existence of huge prospect for the company in the country. Moreover, there are not prominent barriers for the market entry of the company in Australia.