Woolworths Foreign Market Entry
As a leading Australian supermarket with a vast coverage of the international market, Woolworth is known for its tactical internationalization strategies that have helped the company grow and succeed in most of its other location across the globe. While most countries the company identified for entering have proven to be profitable markets, each of these countries poses new and unique challenges and risks for the company; informing a change in foreign market entry strategy in the different foreign markets. In the case of Woolworth’s interest to penetrate the Portugal fresh fruits and vegetables market, the company has considered the unique macro environment factors as well as its unique positioning – in the previous study- that will be vital in informing the choice of entry strategy into the market. The focus of this study is to evaluate the entry mode most suitable for use by Woolworth’s supermarket in its plan to penetrate the fresh fruits and vegetables market in Portugal. This study therefore, simply assesses the available options the company can use to penetrate the Portugal market.
2.0 Summary of Woolworths entry into Portugal
This is a presentation on the entry of wool worth in the Portugal fresh fruits and vegetables
market. Consumers in Portugal are shifting from processed groceries, increasing the demand for
fresh ones in the market. The 10.4 million Portuguese people will make a good market for the
organization’s products due to their high purchasing power. The organization will focus on good
customer service and delivery of fresh products. Extensive market communication will create
awareness of its brand in the market. By exploiting its vast financial resources, it will be able to
seize the opportunity. It will also be able mitigate the suppliers bargaining power by entering into
long term supply contracts. The political and economic threats are also minimal considering that
groceries are basic products and will have to be purchased in period of economic down turn.
Nevertheless, proper positioning and good customer service will enable it to gain big market
share amidst competition
3.0 Screening of Market Selection
3.1.1 Think Global, Act Local
Woolworth applied a transitional strategy for local responsiveness and global integration. It acknowledged that the overseas market needed a positive respond from the locals. With the positive respond from the locals the business has spread and grown across different regions hence, they perceived that the business required management for effective and efficient growth of the business. Another consideration that was taken was on the value chain which was to be constructed considering a few factors, such as, local culture, legal-political and economic environments.
3.1.2 Local Management
Local management was the number one priority strategy for Woolworth as the locals showed more responsiveness to the external environment. In this strategy hiring locals was one of the ideas that would make the company’s recognition in the local market, this way it can gain easy bureaucracy access with the local administration. This allows the company to have specified values of accountability, innovation and customer responsiveness. This strategy of local management allows the employees issues are addressed accordingly considering local culture.
3.1.3 Environmental Friendliness
This is one of the new strategy concepts that have emerged. In many developed countries there are laws that have been enforced on the environmental laws. These laws are enforced so that the companies abide by them. Different countries dispose waste differently. Woolworth has applied this strategy as they have engaged in the CRS activity. The CRS activity involves supply chain management, nutritious and healthy food products. On the other hand, Woolworth has come up with low nutritious and low calorie content to the customers.
3.1.4 System and Process Standardization
For a company to run effectively and smoothly in different countries it has to have a well standardized system. Woolworth has standard operating procedures which include make to stock and just –in-time procedures. The implementation of ERP systems and its implementation have helped the Woolworth Company reduce their cost, manual work and have more transparency in data sharing leading into a good stakeholder’s responsiveness.
3.1.5 Price strategy
Companies that enter in different countries have to put some things into consideration; Woolworth had to evaluate the pricing of their products which is centered on the income distribution of the local citizen, currency exchange rate and local inflation. Woolworth noticed that they ended up paying different prices for the same good in different countries. Woolworth shops are opened in major cities which targeted the upper and middle class citizens then later start targeting the lower middle class citizens
3.1Stages of overseas market selection process- A screening approach & new millennium catering
To select the best strategy for the company’s internationalization strategy, a consideration has to be made of the target market, selected products and services, and the objectives of the entry into a foreign market. Thereare a number of elements that have to be considered in order for the company to make the correct choice of strategy.
3.1.1 Reasons to choose the country
Some of the factors that need to be considered include the following:
The goal of Woolworth is to attain sustainable growth within the context of the changing social, economic and environmental needs. This statement is what guides the company in the choice of strategy for its entry mode into the new market.
Size of company
Woolworth’s holdings Limited is one of the largest supermarkets in the world with shares of about 32% of the market and employs over 50,000 employees. The sheer size of the company suggests that some modes of entry might not be as promising as other modes might prove.
Woolworth has an expansive source of funding and assets at its disposal from its numerous locations in Australia, Europe, and USA. This places the company at an advantageous position in being able to choose from different entry modes, especially direct investment, which is hard for companies with limited resources to consider.
Woolworths primary competition in the fresh fruits and food market in Portugal are Lidl&CIA, JeronimoSonaeModale, and dJerónimo Martins- Distribuição de Products de ConsumoLda. Because the competition already secures a large market share, some entry modes such as joint venture might prove less risky than others such as direct investment in a foreign market.
Sometimes entering a foreign market may require that the company works with intermediaries, local business in the same market. For Woolworths, this consideration will mean that it uses joint venture as its main strategy for entering the market.
What risk Woolworth will face in the new market is an important factor to consider when developing its foreign entry strategy into the Portugal fresh fruits and vegetables market. This is what will inform the choice of least risky strategies such as joint venture. Franchising, and exporting.
4.0Market entry modes
Following an evaluation of the target market is the consideration of market entry mode. For Woolworth, this decision is heavily pegged upon specific motives, its internationalization goals, and the profitability of the market it wishes to enter. For the Portugal market, Woolworth can choose from a number of ways by which to penetrate the market. Each mode of entry has its unique set of risks for the company, determining the success or failure of the company’s operations in the new market.
For the purpose of Woolworth’s internationalization strategy into the Portugal market, three modes of foreign market entry will be analyzed as the most suitable for the company.
- Export entry mode
- Joint venture
- Foreign direct Investment entry mode
4.1Export entry mode
Exporting is the least risky mode a company can choose when planning to penetrate a foreign market (Chang, &Rosenzweig 2001). It is often the first consideration most companies choose when planning to do business internationally. For the case of Woolworth, exporting to the Portugal market means that it will produce its own products and facilitate the exporting of the product to the new market, either directly, or indirectly.
4.2 Indirect exporting
In this mode the company does not manages the process of exporting, documentations and other related logistics. Instead it uses a third party to handle the logistics and deliver their products to the market of the foreign company.
According to Chang &Rosenzweig (2001), indirect exporting is most advantageous for its low level of political and marketingrisk. There is also the benefit of being able to choose a reputable and experienced exporter.
On the downside, indirect exporting means that the company surrenders its control of where and when, and how their products will be delivered in the foreign market.
In direct exporting, the company handles the whole process of the logistics, exporting process, and documentation.
Chang &Rosenzweig (2001), the advantages of direct exporting is that the company has full control of its own of the export process. Also, the company is able to form and manage its own business network in the new market, hence gradually increasing control over the whole marketing process.
On the other hand, the company may be overwhelmed for adding new whole business operations to is already complex business order.
4.4Contractual entry modes
The contractual entry mode is most preferred for its flexibility in transferring processes, productions, and knowledge of a company’s formulation. Its main advantage is that through contractual entry, the company is able to quickly fit into the market demands and specifications, presenting a changes for the company to have a better understanding of the market it wishes to operate in. in this mode of entry, we will look at franchising and joint ventures in the context of Woolworths entry into the Portugal fresh fruits and vegetables market.
Franchising is based on a formal contract entered by a franchisee and a franchiser. Woolworth’s entry into the Portugal market as a franchiser will mean that a suitable, already established company is identified and approached to produce and market its products based on Woolworth’s instructions as the franchiser.
The benefits of a franchise are that there is little riskinvolved (Welsh, Alon, &Falbe 2006). Table 1 shows that the franchise mode while it has low risk involved, its profit potential is also lo. Also, as the franchiser, Woolworths will be able to benefit from receiving running royalties, fees, and other forms of compensations from their franchisees.
4.6 Joint venture
For Woolworth in the Portugal market, Joint venture means that it enters into a contract for a long term or short term project or investment for the mutual fulfilment of the parties goals. This means that Woolworth will share both risk and capital in the course of the venture. The advantages of this mode of entry is that it is less risky and highly productive since both parties tap into the others unique strengths while mitigating each other’s weaknesses.
Potential problems that may occur I a joint venture include the slow decision making process that may stall business operations and profits. This may be curbed when one of the party assumes a dominant role to lead the venture into greater opportunities and more profits for the partnership.
4.7 Foreign Direct Investment entry mode
Investment as an entry mode is most suitable for a company that wishes to take full control of its entire internationalization process (Sharma, &Erramilli2004). In the case of Woolworths entering the Portugal market, this mode enables the company to assume control over the mode of entry. In this case Woolworth will assume ownership of the subsidiary in the foreign country, and develop a new business model that suits the new market; based on its unique developmental goals, expertise, and abilities.
In this paper the mode is recommended, not only for the level of control is allows the company, but also for the high potential profits the company is able to gain entering a new market. While its commitment to the company’s resources is very high as compared to other modes of entry, Woolworth is in the right capacity to source adequate funds, capital, and various other resources from its already expansive global business network. The level of risk involved too is very high compared to joint venture and importing entry modes, as illustrated in table 1 below. This is because the company is operating in an entirely new market, with aggressive competitors in the market, it has to source its own capital and develop whole business models from minimal understanding of the market. Even so, an in-depth analysis into the potential markets external environment always helps in the formulation of strategic business plans that have proven to work. Tools such as PESTEL analysis and the SWOT analysis help the company better understand the new market, potential risks, benefits, opportunities, as well as its unique strengths and weaknesses for its operations in the new market.
Table 1 Evaluation of entry modes
|Entry type||Entry mode||Resource commitment||Level of control||Risk||Profit potential|
|Export entry mode||Exporting||Very low||Very low||Very low||Very low|
|entry mode||Joint venture||Medium||Medium||Medium||Medium|
|Investment entry mode||Independent entry||Very high||Very high||Very high||Very high|
Source: Kim, et al., Models of foreign market entry by Korean SI firms 2002, p. 19.
Woolworth targets the high income earners in its new Portugal market. The high standard of living of the consumers in this new market has to be borne by the high cost of production of the company while operating in the country (Herman, Harrison, &Jenks 2006). Woolworth sells its products to a diverse range of consumers and ensures that their marketing strategies are targeted to a wide range of clients. A key consideration the company makes in its marketing segmentation process is to ensure that their marketing process is at per with their objective of focus on social development and the environmental need of the people in the foreign country their wish to operate in.
Woolworths marketing strategy aims at improving its market share index in the future. The company targets people of differ ages. This ensures that the company gains competitive advantage over competitors with biased targeting.
In Portugal, 76% of the people prefer to purchase mostly from the supermarkets. The growing concern for healthy lifestyles reflects on the high percentage of people considering fresh fruits and vegetable over processed products(Gil, Gracia, & Sanchez2000). Woolworths is well positioned to cater to this wide segment for its offering of high quality products at affordable prices.
Woolworth’s consideration to enter the Portugal fresh fruits and vegetable marketcannot have come at a better time. A rising trend inclining towards the preference of fresh organic health foods to processed foods has seen the fresh fruit and vegetable market in the country rise tremendously. Also the preference for people to purchase from supermarkets as opposed to shopping centers, retail outlets and markets, makes the market a suitable choice for the company to consider in its internationalization process. The numerous mode of entry available present a unique choice that Woolworth has to make before rolling out its plan for entering the Portugal market. This paper has seen investment enrty mode as the most suitable mode of entry for the company to consider due to the modes attractiveness in terms of profits. Risks and commitment of resources in this recommended mode are certainly higher than in other modes of entry, but these are mitigated by the company’swide resource base and its assessment of the new market to inform strategic entry.
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