MGT530: International Business- Macro Environment Analysis- Report Writing Assignment

Internal Code: TV545

Report Writing Assignment:

This report will look at the macro environment of China as part of an expansion proposal to China by Coles, a leading supermarket chain in Australia. China is the worlds’ most populated country and has many factor endowments such as land, labour and natural resources which make it attractive for international business. The economic reform of China started in late 1970s’ and it has transitioned in to a market oriented economy. China has a high GDP growth rate however it is forecasted to decrease in the years to come. China has been criticised for maintaining its currency at a lower level, giving them a competitive advantage over exports. Even though China has an aging population and many other trade barriers like high tariff rates and restrictions for starting businesses , the ease of the one child policy, Highly sophisticated infrastructural aspects and the most important Free trade agreement ChAFTA has made China economically attractive for Coles. China is dictated by one political party, the Communist Party of China (CPC). The political system of China is communist totalitarianism. The current president Xi Jinping has implemented an anti corruption campaign and it has been successful up to a certain level. China follows the civil law system and the Chinese constitution is the highest law in the country. Intellectual property rights laws are unique to China hence; Coles must understand the differences to mitigate threats in terms of IP. China and Australia are different in many cultural aspects. China has a high context culture and Australia is of low context. China is only similar to Australia in one of the Hofstede’s cultural dimensions which is masculinity. In terms of power distance, Indulgence, long term orientation, uncertainty avoidance and individualism, China is dissimilar to Australia. Due to these reasons as well as differences in religion and language, the two countries have a high psychic distance. China has negative reputation in terms of environment pollution as well as bribery and corruption. Actions taken to streamline the environment sustainability journey of China are minimal. Coles must practice good corporate governance to practice home country standards in China. Conclusions can be drawn as China is economically as well as politically viable for the expansion. However, Coles needs to be cautious regarding the cultural differences and execute strategies to overcome these cultural issues that can be faced mostly by expat managers. Introduction to the Report: This report is the part one of a major international business report focusing on Coles Supermarkets Private limited- a dominant player in the Australian supermarket industry, with a proposal to expand its operations in to the Chinese market. The initial topics of this report will focus on providing a synthesised summery of the company background along with its history, and provide reasons for expansion and justification for choosing China as the overseas market for expansion. Secondly, the report will further evaluate China through an in depth analysis of its economic, political and legal aspects related to the supermarket and retail industry. The cultural framework, ethical and corporate social responsibility (CSR) practises of China will be analysed, with potential issues that may arise being evaluated with recommendations being provided. Finally based on the macro environment analysis, conclusions will be made discussing whether or not the Chinese market is suitable and feasible for Coles to expand its operations to. Company Background Coles Supermarkets Australia Private Limited (Coles) is one of the major supermarket chains owning 29% of the market share in the Australian supermarket and grocery store industry (IBISWorld, 2017). Coles is owned by Wesfarmers Limited, a leading conglomerate in that opened the first Coles store in 1914. The core business of Coles is managing supermarkets and convenience stores. With over 787 supermarkets and 690 convenience stores across Australia, Coles accounts for more than 21 million customer transactions on a weekly basis (Coles, 2016). With strong Australian roots, and a history of over 100 years, Coles strives to provide its customers with high quality fresh goods, build strong long term relationships with its suppliers, and continuously reduce the weekly shopping basket of its consumers("Wesfarmers Annual Report," 2016). Doing justice to the vision of its mother company “provide satisfactory returns to shareholders “, Coles had a revenue of $39,242 million AUD with a revenue growth rate of 2.7%with profits being up by 4.3%in 2016 ("Wesfarmers Annual Report," 2016). From 2012 to 2016, the positive growth of all financial performance indicators of Coles is evidence that the company is at a stable mature stage and therefore has the financial capability to explore global markets. Furthermore, the introduction of its first stand alone online store in 2016, followed by gaining a 24.1% sales growth in online shopping and many more technological advancements to their business, depicts that Coles has embraced technological changes which is one of the key drivers of globalisation(Coles, 2016). ECONOMIC ANALYSIS How well does the report cover economic conditions and likely future trends in the foreign country? For example, did it cover aspects such as: 1. Is the country experiencing economic growth? How about inflation? Is the currency stable? 2. What is the GDP per capita? Is the distribution of income significant? What IBM factors might this impact? 3. What is the size of the population overall? Does age breakdown or geographic concentration have relevance? 4. Does the country have good infrastructure eg roads, transport, ports, telecommunications, energy and business infrastructure? 5. Does the country have any trade barriers (eg high tariffs, restrictions on FDI) 6. Does it have some trade agreements such as Free Trade Agreements that could be beneficial (ie especially with Australia/NZ) or might cause some concern (eg member of EU or other)? 7. Is the country a member of the WTO? 8. Were relevant and authoritative sources used (eg CIA, DFAT, Globaledge, Economist, World Bank, relevant country sites etc)