MBA611| Strategy Formulation for Viva Energy Group
Introduction
Strategy formulation is essential in enabling a country to operate in international markets. With the availability of different market dynamics and characteristics, the selection of the most appropriate strategy is essential in operating in a new market. An appropriate strategy will enable Viva Energy Group to operate effectively in New Zealand. This report discusses the socio-cultural, political, and market factors associated with entry strategy for the New Zealand market. It also provides a recommendation that will be suitable for Viva Energy’s entry into the New Zealand market. The primary objective of this report is to analyse the strategic opportunities in New Zealand for developing ethical decision-making upon entry and operations into the market.
Analysis
The annual average pay rate in New Zealand varies depending on the industry and other related factors. The average pay rate in the manufacturing and operations industry is $48,000 for entry positions while that of a manager is $110,000 per year (Careers, 2020). Employees working in the factory and manufacturing industry earn approximately $48,000 per year including housing, transport, and other benefits. Generally, factors influencing the pay rate include the demand for workers, the industry, education, and the region where the workplace is located. In this regard, Viva Energy Group should focus on these factors to ensure that it minimises the cost of operating in New Zealand. More specifically, the company should focus on the regions that do not offer high pay rates in New Zealand. An analytical paper by the Treasury shows that there is a significant pay difference in various regions (Treasury, 2018). Some of such regions include Hawkes Bay, Manawatu-Whanganui, and Waikato.
The attitude of the local consumers towards international companies is another essential aspect for entry and operations in international markets. Research shows that many people in New Zealand prefer purchasing products from local providers (Knight, 2019). There is a strong commitment to purchasing locally despite the increasing influence of international companies in New Zealand. Knight (2019) asserts that the MYOB Consumer Insight survey revealed that more than 50% of Kiwi consumers always or often purchase products and services from New Zealand-owned and operated businesses. The local consumer’s attitude toward purchasing products from locally owned companies can influence the operations of international companies in the country. Viva Energy Group should consider the consumers’ attitude to ensure that its entry and operations are successful and effective in the new market.
The transfer of funds between countries is another important aspect that can determine the entry and operations of businesses in the international market. New Zealand and Australia are business partners in different sectors including the banking industry. Some of the banks and financial institutions operate in Australia and New Zealand. Australia and New Zealand Banking Group (ANZ) are one of the largest institutional banks in Australia. Since the bank operates in both countries, it is easier to transfer funds to and from New Zealand and also to repatriate funds back to the home country (ANZ, 2020).
In addition to this, the exchange rate between the Australian Dollar and New Zealand Dollar is 1:0.89; which is significantly important for transferring funds between the countries. The difference between the value of the AUD and NZD is minimal, hence the company is less likely to experience challenges or losses from forex exchange. Opening a wholly-owned subsidiary of the company in the country or buying a local company may not significantly influence the transfer of funds between the two countries. However, it is essential to choose the most appropriate strategy that will give the company a competitive edge in the new market.
According to a report by ANZ Bank, there is an appropriate relationship between New Zealand and Australian banks and financial institutions. Concerning taxation, the report indicates that there is an enabling environment for the free flow of capital between Australia and New Zealand through mutual recognition of franking credits and reform of withholding tax in New Zealand (ANZ, 2012). The relationship between Australian and New Zealand banks and financial institutions provides a free flow of taxation and other prudential standards which are useful in the operation of businesses.
Employees can get a maximum of 12 public holidays a year in New Zealand. It is important to understand the rules and regulations attributed to the holidays. According to Employment New Zealand (2021), if a public holiday is Mondayised, employees cannot claim two holidays, that of the actual date and one for the Mondayised date. Also, an employee cannot be entitled to more than four public holidays over the Christmas and New Year period, regardless of the work pattern. Another important aspect is that if the employee is based in Auckland but is temporarily based in Wellington, the Anniversary Day to be observed is a matter to be agreed upon by the employer and the employees. As a result, employers should adhere to these rules related to holidays for employees.
The current economic situation in the country is also essential for the operation of an international company in the market. According to Stats (2022), New Zealand recorded annual GDP growth of 5.1% in March 2022 with a size of $355 billion in current prices. The increase in the GDP portrays a positive increase in economic performance. The current consumer price index in New Zealand increased to 7.3% in June 2022. The increase in annual inflation is attributable to the impacts of the global supply chain caused by the pandemic and other economic problems. The Reserve Bank of New Zealand has raised the interest rate by 50 bps to a level of 3.0% to reduce the impact of the rising inflation (Trading, 2022). The increase in GDP shows that the economy is performing better, hence doing business in New Zealand can be attractive.
Recommendation
Based on the analysis, the company should focus on buying a local company in the country. Opening a wholly-owned subsidiary of the company in New Zealand will enable Viva Energy to source new employees by complying with the payment rate and other relevant laws. The recruitment process may not only be complex but also expensive due to advertising and industry compliance requirements. However, buying a local company in the country will minimise the process of recruiting new employees and other legal requirements.
Opening a wholly-owned subsidiary of the company in New Zealand will portray the picture of an international company operating in the country. Thus, consumers with the attitude of purchasing from locally-owned businesses may not buy products from Viva Energy Group. On the other hand, buying a local company in the country will attract consumers who have the attitude of purchasing from local businesses. Since many consumers would want to associate with locally operated companies, it would be important to consider a strategy that will be in line with Kiwi consumers’ attitudes. In this case, buying a local company in the country would be in line with the strong commitment of the consumers to buy locally.
With the existence of relationships and agreements with banks in the two countries, having bank accounts from banks such as ANZ would be appropriate for the business. Despite the strategy, having a bank account with institutions that operate in both countries such as ANZ will be essential for the operations of the business in the new market. However, buying a local company in the country will facilitate an easy transfer of funds between the countries.
Conclusion
In summary, the company should adopt buying a local business in New Zealand as an entry and operation strategy in the new market. The choice of this strategy is based on the analysis of the average staff pay rate, consumers’ attitude towards international companies, economic performance, and easy transfer of funds from New Zealand to Australia.
References
ANZ. 2020. ANZ Company. URL https://www.anz.co.nz/about-us/our-company/anz-new-zealand/brands/anz/
ANZ. 2012. Strengthening economic relations between Australia and New Zealand. A joint study. https://www.anz.com.au/content/dam/anzcomau/documents/pdf/aboutus/submission-2012-strengthening-relations-aus-nz.pdf
Careers. 2020. Salary Guide New Zealand. https://www.careers.govt.nz/job-hunting/whats-happening-in-the-job-market/salary-guide/
Employment New Zealand. 2021. Public holidays. https://www.employment.govt.nz/leave-and-holidays/public-holidays/
Knight, I., 2019. New Zealand shoppers want to buy local .Stuff. URL https://www.stuff.co.nz/business/small-business/115058184/new-zealand-shoppers-want-to-buy-local
Stats. 2022. Gross Domestic Product. New Zealand. URL https://www.stats.govt.nz/indicators/gross-domestic-product-gdp/
Treasury. 2018. Statistical Analysis of Ethics Wage Gaps in New Zealand. Analytical Paper 18/03. https://www.treasury.govt.nz/sites/default/files/2018-08/ap18-03.pdf
Trading. 2022. New Zealand Interest Rate. Trading Economics. URL https://tradingeconomics.com/new-zealand/interest-rate