03 Business Report Assignment Sample
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Introduction
In the view of Rowling (2016), Risk can be defined as a possibility of losing or gaining something of value. Risk can be unforeseen or estimated in nature. Woolworths Ltd. operates Woolworth’s supermarket since 1924. It is registered at Australian stock Exchange in 1933.The first supermarket store was commenced in the year 1924 in NSW (Woolworth, 2016). Since the first store, company has opened various stores, almost in every district, in each Australian State and operating well in Food & Staple industry successfully till now. Since the inception, Woolworth Ltd has shown growing pattern and expanded throughout the Australia.
Following are 3 big risks which are involved in business
Risk of High Competition
The market of Australia is a growing market. The economy of nation is on rising trend. Australian economy is one of the biggest economies of the world and highly developed (Arli et. al, 2013). GDP of Australia is $ 1.69 trillion in 2017. The major contributor is service sector sharing 61.1 % of GDP (Woolworth, 2016). Because of such lucrative economy environment and favorable government policies, large number of companies is establishing their business in Australia. ‘For example Kaufland, the GERMAN supermarket giant has entered in Australian market; Miniso, the Japanese retail giant has plan to increase its stores up to two hundred fifty by the end of 2020 in NewZealand and Asutralia. All these denote that Woolworth is going to face tremendous competition from other foreign retail giants.
There is also risk of competition due to high cost products offered by Woolworth (Bailey, 2016). The reason behind high cost is operation cost of organization is higher as well as it has large debt to pay. All these, together reduces the profit margin of the organization. Later, high cost products would make it difficult for Woolworth to fight the competitors from other big giants who are offering almost similar product at much lower price (Jie, 2012).
Rising number of retail giants in Australia, will make it hard for Woolworth to retain old employees and would find out difficult to attract new talent because of increased employment opportunities. The competitions would also affect the customer base of Woolworth. Growing rate of unemployment is the great threat and losing its customer base is another risk for Woolworths due to increase competition (Lawrence, Richards and Lyons, 2013).
Recommendations:
In the present scenario, Woolworth is a well-established brand of Australia, having its stores in almost each district. The growing Australian Population offers huge opportunities of business before Woolworth. The large customer base of Woolworth is its competitive advantage over its competitors. Therefore, it is suggested that Woolworth should concentrate more on its customer relationship management for building strong relationship with customers. Further, Woolworth has already reached its break even, hence before commencing of other brand stores , it should introduce product at lower price (since fixed cost already got covered) to give tough competition to new entrants. Also company can use social media marketing to increase its interaction with customers for generating brand loyalty. One more strategy company can adopt is increasing its Corporate Social responsibilities Activities. CSR activities can make favorable image of company in the minds of customers. This will demonstrate the company as local company having concern for people of own country.
It is also suggested that Woolworth to get socially attached with its employees to keep them motivated and to rouse a feel of ‘my organization’ in them for fighting completion in the market. Company can also diversify its business and offer quality product at low price. All these suggestions would help Woolworth in managing the risk associated with competition effectively.
Operational Risk
In supermarket business, innovation could be a competitive advantage for the organization. Woolworth supermarket is facing certain innovation risk related to its business-
Reduction in demand of core products- When the products becomes old or better options available to the customers the demand of the product/ services gets reduced. This is a signal that product requires innovation or improvement (Richards et.al, 2012). Woolworth offers some of the products under its own brand. Some of its products are lagging behind other brands in the market.
Process related risk- Sometimes even after having good product, organization / customer faces difficulty in selling/buying .This might be because of loopholes in the process of distribution of products. For instance, one can easily find long queue at billing desk of Woolworth.
Innovation in promotional schemes: Promotional schemes play a vital role in increasing demand of the product (Wu et. al, 2015). Effective promotional schemes require constant innovation to keep the customers interested and inform them about special offers. In this age of competition, customers are highly educated and rationale in making any decision.
Recommendations:
Company is required to review products and improve those products or drop those products, instead of waiting long till diminishing of product’s demand as it will affect the brand image of the organisation.
Company is required to offer products at most competitive price. For that differed cash back, discount coupons can be offered. Also, organization is required to effectively utilize its social media strategies for better results.
Process related risk must be avoided. New ideas to be derived for reducing waiting time of customers. For e.g. a self-billing system can be introduced in which customer can use Woolworth app to scan Barcode of the product and prepare bill and just pay the total amount and leave the supermarket.
Financial risk
Financial risk is a crucial factor in every business (Zurzolo et. al, 2013). Financial risks not just affect operation of business but also affects sentiments of investors, creditworthiness in market and many –a-time raises question on survival of the organization. There are different types of financial risk like credit risk, debt related risk, investment risk etc (Rowling, 2015). The applicability of risk depends on the industry under which a business operates.
Retail business is highly exposed to financial risk. Big retail giants like Woolworth has huge investment in the form of infrastructure, machinery, stocks etc (Simon and Hillson, 2012). Hence management of financial risk is vital for such organization. Woolworth financial risk is in the form of interest rate fluctuation, fluctuation is forex rates, risk of counterparties default to pay financial dues, and funds availability for regular business.
Interest rate risk
Woolworth has the policy to availing finance through fixed interest bearing instruments. This exposed business to risk of lowering of interest rate in the market. Also the major part of financial comprises of unsecured loans which are high in interest rates.
Credit Risk
Credit risk denotes risk of default form counterparties. It also includes cash, receivables, customer deposits, deposits with financial institution and banks. Woolworth monitors the exposure and hold position with good rated counterparties. However, exposure has been rises much which is a pressure on its financial statements.
Liquidity Risk
Woolworth use to avail finance for its operation from reserve profit, through assets disposal, issues of capital market debt, borrowings from leases and bank. It follows the policy of managing sufficient cash along with bank balance for fulfilling its requirement of liquidity. Organisation manages its liquidity risk through forecasting long term and short term cash flow.
Foreign exchange risk
Woolworth has business dealing with many suppliers from different countries. In international transaction Retail tycoon is exposed to deal in foreign currency with differed denominations. Fluctuating in currency rates affects the cost and revenue of the company.
Recommendation
Managing financial risk not just requires commitment from management of the organisation but also view of financial experts. There are some common ways through which Woolworth can effectively manage financial risk. These are:
- Deciding appropriate policy for making investments as well as availing fiancé from both secured and unsecured sources. A fix of instruments to be used for managing large fluctuation in any one instrument. For e.g. some fixed rate instrument could hedge against fluctuating rate instrument, similarly, some fluctuating rate instruments could hedge against stable rate in case of fall in interest rate.
- Enhancing sound credit policy for collecting dues within stipulated time. Proper provision to be created for doubtful debt for avoiding burden on balance sheet (in case of default).
- Entering into future contract by using future currency market could save company from future fluctuation in currency.
Conclusion
Woolworth is one of the leading organizations of Australia. It has to face various kinds of risk. Woolworth has to manage risks properly in order to leading market as it is doing presently. The organization has loyal customer base. But, in case of mismanagement of operational activity or better offer by another organization its customers can move on. So, Woolworth has to be active for its operational and financial functions. It has to low prices for products and use social media marketing in more innovative way in order to gain competitive advantage over its competitors.
References:
Arli, V., Dylke, S., Burgess, R., Campus, R. and Soldo, E., 2013. Woolworths Australia and Walmart US: Best practices in supply chain collaboration. Journal of Economics, Business, and Accountancy| Ventura,16(1), pp.27-46.
Bailey, M., 2016. Absorptive Capacity, International Business Knowledge Transfer, and Local Adaptation: Establishing Discount Department Stores in Australia. Australian Economic History Review.
Jie, F., 2012. The roles of trust and commitment in the Australian Lamb Retailers/Wholesalers. Australian Farm Business Management Journal, 9(1), p.49.
Lawrence, G., Richards, C. and Lyons, K., 2013. Food security in Australia in an era of neoliberalism, productivism and climate change. Journal of Rural Studies, 29, pp.30-39.
Peter Simon and David Hillson, Practical Risk Management: The ATOM Methodology (2012). Management Concepts. Vienna, VA
Richards, C., Lawrence, G., Loong, M. and Burch, D., 2012. A toothless chihuahua? The Australian Competition and Consumer Commission, neoliberalism and supermarket power in Australia. Rural Society, 21(3), pp.250-263.
Rowling, Megan (2015-03-18). “New global disaster plan sets targets to curb risk, losses | Reuters”. Reuters. Retrieved 2016-01-13.
com.au (2016) Home Page Available at: https://www.woolworthslimited.com.au/ [Accessed on 22 March, 2018]
Wu, J.H., Neal, B., Trevena, H., Crino, M., Stuart-Smith, W., Faulkner-Hogg, K., Louie, J.C.Y. and Dunford, E., 2015. Are gluten-free foods healthier than non-gluten-free foods? An evaluation of supermarket products in Australia.British Journal of Nutrition, 114(03), pp.448-454.
Zurzolo, G.A., Koplin, J.J., Mathai, M.L., Taylor, S.L., Tey, D. and Allen, K.J., 2013. Foods with precautionary allergen labeling in Australia rarely contain detectable allergen. The Journal of Allergy and Clinical Immunology: In Practice, 1(4), pp.401-403.
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