The business ethics of profit making in the Australian retail industry

This case has been developed to offer data about the Australian retail industry. The study covers different facets of the retail industry and pin points strategies developed and implemented by the Australian business system to protect the operations of existing brands in the market. The challenges faced by the Australian retail industry are enormous, some of which are financial and managerial constraint. Competition from multi-national establishment has affected the retail industries because of low prices charged on their product. The increasing competition from other multinational corporations brings about a reduction of prices in the local retail industry due to their high retailing power. Monitoring of suppliers is initiated to prevent unequal supply of brands in the economy. To get a full understanding of this case analytical approach has been used to get the full reflection on all the factors influencing the retail industry. I have gathered the study material through analysis of the various retail reports like report of the Australian supermarkets and report of Australian competition and consumer commission. This case has instilled knowledge of how to control different players in the same industry with the aim of protecting less developed companies from the extensively developed players. Monitoring and evaluation of the industry are necessary to watch healthy competition and protection of suppliers from big retailers.
Retailing involves the sale of goods from a single point of purchase directly to customers who intends to use that product. The single point of purchase can be a permanent built retail store, a catalog or even an internet shopping website. The retail industry enables consumers to buy goods at convenient locations, time and quantities they find appropriate to their needs. This case covers various ways of how different retailers do their business activities in the Australian economy. The case also shows measures put down to ensure these retailers are regulated to have proper operational activities meant for consumer protection and healthy competition with other players in the economy. There are a large number of retailers in Australia with about 10.7 percent of the total working population working in the industry. The retail industry makes a big contribution to the economic output, generating up to 4.1 percent of GDP in 2009-10. The players engaged in retail industry deals in furniture, electrical and electronic goods and clothing and footwear.
The regulatory bodies closely watch the players in the industry for them to remain focused and friendly in the provision of their brands to the market. The Australian Competition and Consumer Commission and Oxfam Baptist World Aid Australia monitors suppliers with the intention of protecting the unlawful treatment of the consumers. The best example of monitoring is the legal action by the Australian Competition and Consumer Commission against Wesfarmers, owner of Coles, about the treatment of the supermarket's suppliers. A significant increase of pressure is felt on the retail players from consumer-based forces such as the rise of the digital generation, growing diverse customer segments and the non-stop customer journey. Despite these pressures, the Australian retail industry has continued to grow in 2015 with the Australian Bureau of Statistics Retail Trade Figures showing that Australian retail turnover increased by 3.7 percent between September 2014 and September 2015. The major retail companies in Australia include Woolworths and Wesfarmers Ltd. Woolworths operates supermarket chains for foodstuffs which include Woolworths Supermarkets, Woolworths' online supermarket, Food for Less discount supermarket, Flemings supermarket and Thomas Dux Grocer supermarket. On the other hand, Wesfarmers is the largest Australian company by revenue overtaking Woolworths and BHP. Apart from the domestic retail companies, there are also foreign companies like H&M, Zara, Uniqlo and Aldi which has brought a significant impact on falling prices.
Auditing is essential in ensuring proper accounting practices in businesses. According to Oxfam highlights, some retailers may have good intentions during auditing, but there is rampant widespread of ‘audit fraud' whereby workers are coached by managers to give right information during independent auditing. Various companies have their accounting policies which suit their intended goals. Some companies knowingly delay their payment to suppliers to improve their financial position. A good example is by Tesco which in some occasions could not repay their debt until over 12 months.
The retail industry in Australia faces various challenges as mentioned in the case. First, there is over-exploitation of the suppliers by the leaders in the industry. Unless the vendor does not act as per the orders of the retailers, dire consequences follow like the downgrading of the brands and delay in payments. Secondly, there are disruptive on-line retail models. This has led to operating and strategic challenges on the performance of the customer facing infrastructure required by the high street retailers. Cost reduction has been undertaken to contain the pressure of maintaining market share and profits, by closing less productive branches and reducing workers.
According to Shulman, (2003) good faith is a contractual dealing which holds a general presumption that the parties to the contract deal with each other honestly and fairly with the aim of not destroying the right of the other party to receive the benefits of the contract. Retailers and wholesalers are required to exercise their powers reasonably under a joint contract which states all the implied terms of trade to avoid deviation from the provision of standard products and or services. In the event, the dealings between the parties in the contract some implied or express terms may differ from the agreed standards. In this case, the provider of the service or product is entitled to communicate early to the customer to prevent any possible losses. A lawsuit based upon the breach of the agreement may arise upon one party to the covenant attempting to claim for the benefit of a technical excuse for breaching the contract or when he uses defined contractual terms in isolation to deny the other party the right to be given the performance of the contact.
Outside legislative situation, an obligation to uphold good faith can arise in a franchise agreement in different ways. It may occur as an implied term of the contract, as an express term, or as a term implied in fact to give business efficacy in the contract. Good faith is implied in law as a necessary incident of a commercial contract. Thus the terms implied in a contract are not to be taken as the presumed intention of the parties but as a legal intention of the parties.
The Food and Grocery Code of Conduct was developed to improve standards of business conduct in the food and grocery industry. An industry code regulates the conduct of the various participants in an industry towards other players in the industry towards consumers in the industry. Legislation of the code of conduct is not affected because it is usually used as an alternative to primary legislations where a market failure has been identified. The code has a role of improving standards of business conduct in the food and grocery sector. Raising concerns raised by the public debate in recent years about the conduct of the retailers towards their suppliers led to the creation of this code. Thus this code is meant to regulate the operations of retailers and wholesalers on the one hand and suppliers on the other hand. The role of the code is to ensure transparency and certainty in commercial transactions in the grocery supply chain and to reduce possible disputes resulting from a lack of certainty regarding the commercial terms agreed between the parties. The second role of this code is to help in regulating the standards of business conduct in the grocery supply chain and to enhance the growth of trust and cooperation throughout the chain. The third purpose of the code is to help in promoting and supporting good faith in commercial dealings which exist between retailers, wholesalers and suppliers.
Understanding on where the power of a firm lies can assist to identify whether new products, services or businesses have the potential to be profitable. However, as stated on page 5 paragraph 6 the power of large retail business has brought considerable distinct disadvantages to the Australian supplies. It is, therefore, important for me to assess whether the use of a decision-making power is legitimate and I will use the guideline given by ACCC on page 7 paragraph 1 to this purpose which includes:
• I will ensure that minimum obligations in making of supply agreements are adhered to.
• I should also ensure that the decisions made are lawful and in good faith.
• I will also never threaten suppliers with business disruption or termination without reasonable grounds.
• I will also establish minimum standards of conduct when dealing with suppliers, such as payment, de-listing, standards and specifications for fresh produce, and the allocation of shelf space.
•& I will ensure that employees and managers who are involved in buying products are trained annually on the requirements of the code.
As stated on page 7, paragraph 5, a company can knowingly delay payment of money to the supplier to improve its financial position. This is possible depending on the policies laid down by the company. A company can also decide to delay supplier payment in cases where the debtors have not honored their debts. This policy raises the financial position of the company thus raising its bargaining power in the wider economy. However, the delay of payment should not be done outside the knowledge of the supplier because if the relationship between the supplier and the retailer is destroyed, the operations of the retailer will highly be affected thus resulting in the final drop of profits and eventual closure of the business. In cases where the retailer or wholesaler has many suppliers, priority payment should be made to the most sensitive supplier.
As stated on page 5, paragraph 2, consumers are willing to pay more for their garments to ensure garment workers had safe and decent working conditions. The RANA Plaza disaster which led to the death of more than one thousand people raised so many questions regarding safe working conditions and factors favoring worker healthy conditions. This disaster prompted many multinational companies and individuals to engage in making efforts which will help improve working conditions of the workers in less developed countries. Any organization has a responsibility to embrace the social responsibility of the surrounding community. The company should assign marketing department with the task of undertaking a market research to see whether the consumers are willing to pay for the increased commodity price. If the consumers are willing to pay for the increased price, then the idea of paying more for products from the less developed country is sustainable. This increased payment to the supplier will in the long ran help the suppliers improve on the employee working conditions thereby limiting any possibility of a work-related tragedy.
According to Jacques, (2014) Integrated Report is a detailed communication about how an organization's strategy, governance, performance, and prospects lead to the creation of value over the short, medium and long term. It, therefore, means that integrated representation of a company's performance regarding financial and other important information.
As stated on page 14, paragraph 1, Integrated Reporting brings change that is being driven by arguments based on the need to take a more holistic view of strategic performance management as opposed to the short-term performance view. This, therefore, informs change of remuneration structure other performance measures other than the short term financial performance measure.
A good example is remuneration structure for DSG management personnel in 2015 as stated on page 11, paragraph 2 with the following components:
• Fixed base salary
• Short-term incentive payment
• Long-term incentive payment (shares )
As stated on page 5, paragraph 1, managers coach their employees to say right things when the independent auditors are around. As an independent auditor, I will undertake a detailed audit as per the prevailing conditions at the company. After the audit, I will embark on more insight on the exact position of the company. This, I will achieve through having impromptu questions to the selected few customers of the company concerning their daily transactions. Also, I will take more interrogation to the suppliers and the financial institution of the company in the pursuit of getting the delivery notes and financial statements respectively. Finally, I will gather all the collected data and do a thorough analysis and draw a conclusion on the exact position of the company.
According to Sachs (2011), a stakeholder is a person, group or organization that has a stake in an organization. A stake is a vital interest in the business or its activities which is either affected by a business or affects business. Business stakeholders of a supermarket are owners, managers, workers, customers, suppliers, lenders and the community. Ethical considerations of the company affect all its stakeholders. Failure of the corporation to check on its dealings with the stakeholders will be affected greatly. For instance, good relations with stakeholders will help the company to grow in profits and overall infrastructure. If a company pays all its workers in time and with good compensation scheme they will be motivated to work harder using well the available resources towards growing the company. Ethical considerations towards the independent auditor help provide truthful information regarding the company operations thereby ensuring good reputation of the company to the general public and to all its stakeholders. Provision of friendly services to customers improves the overall market share of the company and the resultant increase in sales and profits.
As stated on page 4, paragraph 6, employment conditions in Pakistan, India, Vietnam, Indonesia and Bangladesh are poor whereby employees work for 14-16 hours per day. These conditions are unfavorable in employee welfare thus inflicting a lot of suffering due to lack of enough time for resting. The overall output is also greatly affected because the employees do not get enough time for resting and refreshing to rejuvenate. Developed countries have strict adherence to the working conditions like the working hours per day and the safety measures at the working environment.
According to Armstrong, (2007) remuneration is the reward for work done in the form of salary, pay or wages ranging from allowances, bonuses, the monetary value of the noncash incentives and fringe benefits such as company car, pension plan, medical plan. Remuneration for the employee should commensurate with the task or work assigned for it to give self-satisfaction and a sense of belonging to the company. A motivated employee will have a raised morale of working thus improving on the overall company performance.
As stated on page 10, paragraph 8 management is supposed to gain only if the shareholders will gain. This provision puts the company performance in a dilemma because management are supposed to gain well from the efforts of their hard work in running the affairs of the company. At the same time if the reward of the shareholders is high then the managers will also apportion their own payment which is same or almost equal to what the shareholders have earned. In running the affairs of the company, managers have the greatest role of ensuring best results are achieved in terms of making use of the available resources in attaining highest profits for the company. Therefore a set standard of remuneration should be developed in order to provide the management with a clear payment package for the management team.

Conclusion

The case study has brought out key issues in the retail industry which cut across economies. According to the study, the issues highlighted are meant to enlighten the immediate stakeholders of the company like the shareholders, managers, employees, customers and the financial institutions on their expected roles. All the stakeholders are supposed to relate ethically with the company to promote favorable working conditions as well as the expected conditions for doing transactions with the company in question. There are various issues covered in this case touching on business performance and they include:
• ;A disruptive on-line retail model which is both an operating and strategic challenge. Companies without the capacity to undertake on-line retailing suffer immense losses attributed to the additional cost of the required infrastructure needed for stocking the brands. The issue of on-line retailing brings about competition whereby those companies without a big financial muscle to engage in the on-line retailing is forced to cut down its cost by closing down the less productive branches.
• Coaching of employees on what to say during independent auditing. This hides the crucial information which is supposed to reach to the larger stakeholders' attention.
• Poor working conditions in the workplace. Unfavorable working conditions bring about hazardous effects to the employees thereby reducing their productivity.
This case has many lessons that pertain to the day to day running of the businesses:
• There must be ethical considerations of any company towards all the stakeholders.
• Transparency in giving information to the independent auditors is needed.
• There should be good working conditions for all the employees of the company.
• Proper remuneration should be given to the workers of the company.
• Suppliers should be given their payment according to the agreed terms and conditions.
There are some measures which are to be taken to avoid the challenges highlighted in this case to affect similar organizations, and they include:
• Provision of proper working conditions for all the employees.
• Creation of uniform code of ethics for all companies
• Continuous monitoring and evaluation of all the companies in the economy to avoid unnecessary operations.
• Creation of independent bodies responsible for giving disciplinary measures to those companies going against the set business rules.
• Formation of a platform for the airing of complaints by the employees.

References

Armstrong, M. & Murlis, H. (2007). Reward management: a handbook of remuneration strategy and practice. London, Kogan Page.
Jacques, J. & Preda, C. (2014). Functional data clustering: a survey. Advances in Data Analysis and Classification : Theory, Methods, and Applications in Data Science. 8, 231-255.
Sachs, S., & Ruhli, E. (2011). Stakeholders Matter: a New Paradigm for Strategy in Society. Cambridge, Cambridge University Press. http://dx.doi.org/10.1017/CBO9781139026963..
Shulman, M. (2003). Selected readings in business. Ann Arbor, University of Michigan Press. http://books.google.com/books?id=ibRZAAAAMAAJ.
Burch, D., & Lawrence, G. (2007). Supermarkets and agri-food supply chains: transformations in the production and consumption of foods. Cheltenham, UK, Edward Elgar.