Introduction
Woolworths company has been in operation since 1924 and is arguably one of the largest chain supermarkets in Australia. Like any other business, Woolworths is looking to expand its business operations internationally to acquire new clients and grow profits. The company is renowned for its high-quality meat and grocery products as well as products in the health and beauty sector, household and stationery items, and pet and baby supplies. Expanding into a foreign market requires understanding the country, consumers, laws governing businesses, and competitors to help reduce uncertainty. According to Galdino et al. (2019), market knowledge also helps in the development of international opportunities. For instance, after accessing a new market, a company might learn ways of making the business more productive by introducing technological developments and taking calculated risks.
Woolworths Group operates in the retail industry, where companies focus on selling a wide variety of products at a relatively medium or low price for daily use at home. Therefore, to earn high profits, most retail businesses focus on getting a large number of consumers. As a result, these companies strategically locate their shops in densely populated areas that have a high consumption rate. One such place is Mexico, which is the preferred location for Woolworths’ expansion.
Section A of this report focused on firm analysis, which provided more information about Woolworths’ competitive advantages, revenue, brand awareness, and market share, among others. Such information is essential when trying to expand business operations. This report is a continuation of the previous section, which aims to identify the mode that Woolworth will enter the Mexican retail market. Specifically, this report analyzes macro-economic factors such as the political, social, and economic environment, legal obligations, possible competitors and challenges, marketing strategy, and the mode of entry.
Country Analysis
The business environment includes the external forces that significantly influence business decisions. These factors often introduce uncertainty, turbulence, surprise, or discontinuity of businesses, especially when enterprises miscalculate the risks when entering a new market. Therefore, organizations regularly conduct market analysis to understand the macroeconomic environment and how it can influence business operations. According to Parrish and Castellanons (2019), Mexico has over 129 million consumers, which makes it the second-largest economy after Brazil in Latin America. The country’s macro-economic status remains steady as it has been experiencing steady growth.
The following analysis is conducted using the PESTEL model that focuses on political, economic, social, technological, environmental, and legal factors. Mexico is a federal country with the president as the head of state and government. The country experiences a stable democracy with a multiparty system. The country is a regional power with a significant global presence because of its high production. Mexico has good trade relations with the United States, but Parrish and Castellanons (2019) reported uncertainty because of the new administration under President Lopez Obrador. Such relations might discourage investments, but the current macroeconomic environment supports positive performance in the retail sector. Additionally, there are multiple cases of corruption that Woolworths need to identify when entering the Mexican market.
Secondly, businesses pursuing new markets have to understand the economic factors of the host country. In this case, the factors analyzed include the gross domestic product, per capita income, and inflation rate. The latest available data shows that as of 2017, the Mexican GDP was $1.15 trillion with a GDP real growth of 2.0% (Parrish & Castellanons, 2019). More specifically, in 2018, the retail market in Mexico grew sales by 8.5%, and the supermarkets experienced higher growth, especially on groceries and shoes, and clothing products. This is an area that Woolworths might benefit from by investing in Mexico. Woolworths will also have access to energetic and hardworking Mexican labor, whose rates are relatively lower compared to Australia.
Thirdly, social factors in Mexico considered include issues such as economic affluence, natural beauty, and poverty. According to Rahman (2019), Mexico is one of the most affordable countries in Latin America. Additionally, food prices and rent in Mexico City are affordable as compared to other major cities of the world. However, economic affluence is a challenge to most Mexican, with 53% considered poor (Rahman, 2019). There are notable cases of violence and corruption. Nonetheless, Mexico is known for its socio-cultural like the Mexican cuisine enjoyed by many people around the world. On the technological aspect, the retail sector in Mexico has undergone multiple changes. Most retail businesses have invested in e-commerce shops, mainly because of the wide access to Internet services. Other major tech companies such as Google, Uber, and Amazon have invested in the IT and communication sectors in Mexico. Such growth shows that Mexico is ready to utilize technology to grow business operations.
Mexico is considered one of the most beautiful countries in the world with conducive weather, deserts, beaches, historical landmarks, and landscapes. Mexico is also one of the most visited countries, and it is in the top five nations in terms of biodiversity (Rahman, 2019). Millions of tourists visit attraction sites such as Monarch Butterfly Reserves, Copper Canyon, underground rivers, and Whale Sharks, among others. However, there were some cases of water and air pollution in Mexico City. Finally, the Mexican legal system does not discriminate against foreign nationals. The employers are mandated to provide the employees with a written contract under the Mexican labor laws. Any form of discrimination against gender, race, disability, nationality, social and marital status, as well as religion, is prohibited in Mexico. Additionally, the labor laws indicate that employees are entitled to maternity leaves and annual holidays.
Mexico differs from Australia in some ways. First, the population in Mexico is almost six times that in Australia, and it is also densely populated. A large number of people in Mexico would allow Woolworths to focus on a cost leadership strategy. In Australia, the managers rely on employees and individual team expertise, whereas the workers in Mexico expect to be told what to do in most cases. Therefore, Woolworths should consider the expatriation staffing philosophy in Mexico, where the key positions are filled by competent managers who would guide the junior employees.
Entry Strategy of Woolworths in Mexico
Successful organizations with existing products and services in one country have multiple choices on how to enter new markets. Hitt et al. (2016) noted that such business could export, license, franchise, establish wholly-owned subsidiaries, or form an alliance to access a foreign market. However, a business must evaluate ways in which to enter the international market and still gain maximum benefits. More often, companies opt for the joint alliance because they offer an attractive compromise, especially in reducing the risks of venturing into a different market. Therefore, Woolworths should find a suitable partner who specializes in similar products and services. To further reduce risks, most partnerships begin with small operations such as marketing or assembly until when the sales are high and bring back considerable profits.
In many cases, businesses have to define the reasons as to why they want to enter overseas markets. Additionally, it is crucial to identify the push and pull factors of internationalization. Push factors include external or personal issues such as resources, a company’s culture, management expertise, and environmental considerations, which constitute firm-level and industry-level factors (Madanoglu et al., 2017). The company has grown exponentially over the years with projected revenue of $109.5 billion (IBIS World, 2020). The financial power will enable the company to compete favorably in a new market with major players such as Walmart. On the other hand, pull factors are the opportunistic drivers for internalizations, which include market size, social and economic factors in the foreign market, or country-level factors. The market size in Mexico is wide and diverse with a high consumption power for consumer products. The push factors for Woolworths were analyzed in section A. Nevertheless, the push factors include the organization’s interest to expand the business operations in other countries as well as the need to grow the profits. Resource or asset-seeking motives factors also influenced the decision for Woolworths to explore a new market. Mexico is the leading exporter of food and agricultural produce. These products might help Woolworths to expand its catalog, especially on the grocery and farm produce segment.
However, for the company to successfully venture Mexican market, it needs to conduct risk versus return when choosing the entry strategy. The first step in doing so would involve analyzing possible competition Woolworths will face using Porter’s Five Forces model. This model examines the number of competitors and their market share, customers, suppliers, and potential new market entrants because they influence the profitability of the company.
Porter’s Five Forces Model
Competitive Rivalry
Many successful retail stores are operating in Mexico with similar products offered by Woolworths. The Mexican food retail industry has 33 supermarket chains and a total of over 58,000 stores operating in the country. According to Parrish and Castellanons (2019), the top ten retail players in Mexico include Bodega Aurrera, Walmart, Soriana, Chedruai, Comercial Mexicana, HEB, Casa Ley, OXXO, Superama, and La Comer. The consumption of retail services is across all socioeconomic levels. The customers are familiar with the U.S. retail characteristics, which means they look for good value for money. Woolworths will face off with these retail outlets to provide quality services to Mexican consumers.
Threat of Substitutes
Woolworth is looking to grow its operations in a new market. Currently, the company does not face any threat of substitutes, but the management should understand the other possible alternatives in the market. For instance, 50% of the retail market is covered by informal establishments that include street vendors and open public markets, which are common in Mexico (Parrish & Castellanons, 2019). Therefore, for the company to remain relevant, it should offer a unique market that is specifically tailored towards the needs of people. Despite the availability of substitutes, Woolworth’s will not be affected because it provides quality products and relatively low costs compared to other stores.
Threat to Market Entry
The retail sector in Mexico has many companies delivering similar products and services. Some of these companies are from foreign countries, such as Walmart, which is considered as the leading player as it owns Bodega Aurrera and Superama. However, the threat of new entrants in the retail sector is limited because of the costs involved in planning and setting up such an investment. Additionally, most companies, such as Femsa have captured the main distribution networks, thus creating a significant barrier for new companies to enter the market.
Bargaining Power of Buyers
The retail market in Mexico has an intense rivalry because of the companies involved. The availability of products and services from different retail stores allows them to experiment with new brands or products. Additionally, customers get to choose the stores they want to purchase their products from, especially when there is a cost variance. Many customers would prefer buying products in stores that offer competitive rates or outlets with promotional offers. Such competition means that the buyers’ significant power, but not enough to affect the pricing. The number of consumers in Mexico is many and diverse, which would exert a weak force on Woolworths’ business operations. However, rival companies need to monitor what others are doing.
Bargaining Power of Suppliers
Suppliers in the retail industry can determine the cost of goods sold. The suppliers in Mexico have low bargaining power, mainly because of the market scope where brand loyalty is limited. For instance, the consumers are more likely to buy their products based on proximity or discount offered in a specific store. Additionally, companies such as Walmart and Woolworths with their substantial network connections can significantly affect the bargaining power of suppliers. The high number of suppliers in the retail industry will have minimal influence on Woolworths’ business strategy. Additionally, Woolworths’ should have a contingency plan and invest in corporate social responsibility to help manage suppliers’ impact on the business.
Marketing Mix
The marketing mix analyzes 4P’s, which include product, price, place, and promotion that helps in explaining the Woolworths marketing strategy. Choosing the appropriate marketing approach helps businesses ensure that they have the right product at the right time and price for the customers. The company’s marketing mix focuses on increasing the market share to gain a competitive advantage over other businesses in the same industry.
Product
Woolworths supplies a wide range of products from different brands, local or international. These products include grocery and food items such as fruits, packaged and processed meats, fruits, electronics, housewares, shoes, clothing, beauty products, beddings, beverages, and furniture. These products are diversified and differentiated to suit and cater to different consumers’ needs. Therefore, the products offered by Woolworths in the Mexican market will leave every client satisfied.
Price
In Australia, Woolworths tries to maintain the market price or offers its products at a slightly higher cost. The reason behind this pricing is that the company offers top-quality products, unlike other retail and food chains. However, the Mexican market is different from Australia, and the company should focus on a cost leadership strategy. As a newcomer, Woolworths should focus on supplying their products at low prices. That can be achieved by purchasing products directly from the Mexican farmers at low prices, which would eliminate the cost incurred by distributors and suppliers. Woolworths should also offer regular promotions and discounts to attract more buyers.
Place
Place entails the locations where the business will operate from within the country. In Mexico, Woolworths will set different outlets in the country, mainly focusing on the big cities. The company will also introduce an e-commerce website where people can order from the comfort of their homes. Woolworths can then partner with distributors would make home deliveries. The proposed cities where the company should start its operations include Mexico City, Ecatepec, Guadalajara, and Puebla City. These towns were chosen because of their high population. Woolworths can then expand operations into other areas once the business starts making high volume sales.
Promotion
Promotion and advertising are essential in ensuring business reach many people. Woolworths pays much attention to promotion, and it has introduced some innovative ways of ensuring brand loyalty. For instance, the company launched the fresh food people campaign to help the users understand where the products are sourced—this strategy aimed at getting people to trust Woolworths’ brand. In a new market in Mexico, Woolworths will begin promotion on print media, radios, and televisions so as to reach more target consumers. Most Mexicans also have access to smartphones and the Internet, therefore, Woolworths should also invest in social media campaigns. The business should also introduce a point-based system as a way of ensuring brand loyalty.
Conclusion
In conclusion, Woolworths should enter the Mexico market at this time when the retail industry is experiencing growth. Most retail businesses offering fresh produce and other products have reported increased sales volume, which means that demand is rising. Additionally, there is a new trend in the market where the consumers are more conscious about what they eat with a high preference for health products to processed foods. Additionally, the availability of different modes of entry and limited trade restrictions would help Woolworths adapt well to a new market.
References
Galdino, K. M., Rezende, S. F. L., & Lamont, B. T. (2019). Market and internationalization knowledge in entrepreneurial internationalization processes. International Journal of Entrepreneurial Behavior & Research. 25(7). Web.
IBIS World. (2020). Woolworths International (Australia) Pty Limited – Australian Company Profile. Web.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management: Concepts and cases: Competitiveness and globalization. Cengage Learning.
Madanoglu, M., Alon, I., & Shoham, A. (2017). Push and pull factors in international franchising. International Marketing Review. 34(1). Web.
Parrish, M. & Castellanons, L. (2019). Retail foods: Mexico trends towards e-commerce. [PDF document] Web.
Rahman, M. (2019). PESTEL analysis of Mexico. Howandwhat. Web.