Westfield

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Globalisation Report ¡V Westfield Holdings

Westfield Holdings Limited is an Australian publicly listed company that continues to experience extraordinary growth in the international marketplace. This report will incorporate the company¡¦s reasons for expansion onto the international stage, its methods of expansion and its strategies used to manage its operations that envelop 87 shopping centers in four countries.

Reasons for Expansion

In critically examining Westfield¡¦s global strategies, it is important to reflect on the broader reasons why many Australian businesses are increasingly pursuing a global strategy. The reasons for their expanding overseas include

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„Ï To find new markets and increase sales

„Ï To achieve economies of scale from a larger operation

„Ï To cushion the effects of fluctuations in the domestic economic cycle

„Ï To take advantage of regulatory differences, or

„Ï To minimise tax

Although not all of the above reasons are significant in Westfield¡¦s strategies to expand globally, some certainly can be considered significant. For example, Australia¡¦s comparatively small market (with a population of less than 0 million) represents limited opportunities for Westfield to expand its shopping centre creation or management domestically. By limiting itself to Australia, Westfield would have missed the opportunities to take advantage of changing demand in new and emerging markets and thereby increase its sales that would flow from successful entry into overseas markets.

Westfield¡¦s global expansion strategy also expands their income generating potential. For example, with each additional development, Westfield commands development fees of % of total development cost, leasing fees of 10% of the first year¡¦s income of each specialty store and property management fees of 5% of gross income.

Expanding was also essential to Westfield in order to remain competitive. By operating solely in Australia, it would be unable to achieve the economies of scale that are typically enjoyed by oversea competitors. The nature of many businesses means that the bigger their scale of operations, the more they can spread the costs in order to achieve higher profits.

Methods of Expansion

Westfield management has continued to employ a combination of acquisition and joint ventures (both coming under foreign direct investment) as a means of pursuing its growth and expansion strategy overseas. For example, in the United States, and in New Zealand, Westfield purchased a number of existing shopping centres whilst in the United Kingdom, it has entered into a joint venture, holding nine British shopping centres.

Westfield management has discovered that there are no Greenfield site opportunities in the United Kingdom due to zoning policies of the British government. Greenfield expansion occurs when a domestic business builds a new facility in a foreign country. The UK government is restricting such development of out-of-town centres and encouraging the redevelopment of existing town centres. Westfield has not been deterred by such a policy, as much of its expertise lies in the redevelopment of sites.

Managing Global Operations

„ Financial

When an Australian business decides to expand overseas, there are a number of financial risks. In particular currency fluctuations, overseas borrowing and interest rates. One of the main risks is exchange rate fluctuations. Westfield is not in the business of exporting or importing physical goods. Rather, management has chosen to invest and manage operations in the countries in which they have created shopping centres. Whilst this has reduced their exposure to this type of risk, it has not eliminated it. Westfield uses interest rate swaps to hedge against the risk of fluctuations on their borrowings. Management also makes good use of cross currency swaps and forward exchange contracts to hedge against losses when transferring foreign denominated assets, liabilities, income or expenses. Westfield does not trade in these derivative instruments but uses them only to the extent necessary to protect their interests.

By operating in a number of countries, Westfield has minimised the impact of fluctuations in the economic cycle of any one country on their overall profits. This is of particular interest to shareholders who could therefore expect to maintain a steady or increasing return on their investment.

„ Marketing

Westfield is very much a one-brand company. All shopping centre complexes, both in Australia and overseas, carry the Westfield logo. Westfield has found that branding works to increase market penetration and sales, and consequently rental income. By using a single brand name, Westfield is able to leverage their marketing expenditure, driving home the message to consumers that to shop at Westfield is a worthwhile shopping experience. The success of the brand allows Westfield to create an emotional bond with consumers, giving it a competitive edge is much the same way as McDonalds has done with their fast food outlets.

Westfield is the first shopping centre owner and operator in the United Sates to consistently brand all its shopping centres. Although the United States is an enormous market, Westfield is having success in achieving brand recognition because its shopping centres are clustered in many of the areas in which they do business.

Another marketing tactic Westfield have employed is the introduction of entertainment and leisure precincts (¡§ELPs¡¨) that integrate state-of-the-art cinemas with cafes, restaurants and lifestyle retailers such as stores selling books, music, sporting goods or youth fashion. The ELPs have proved extremely popular and an excellent driver of customer traffic.

„ Operations

Westfield has taken its successful domestic retailing formula and applied it to selected global markets with considerable success. However, management has had to adapt the operations of the business to the regulatory requirements of the different countries. For example, Westfield management has established that government policy in Britain favours the re-development of existing shopping centre sites, whereas in the United States government is typically in favour of seeing new shopping centre sites created.

Westfield does not spread its operations throughout the target countries, but develops clusters in particular cities or regions, all branded with the Westfield logo. These clusters allow Westfield to achieve significant efficiencies in operations, marketing and leasing. In 1, Westfield management also established a team with a strategic brief to develop Internet Shoppingtown in line with the global movement towards this type of retailing.

„ Employment relations

Whilst Westfield manages their global operations primarily using Australian senior executives, i.e. an ethnocentric approach, staffing at lower levels in the organisation is very much polycentric. This of course means that Westfield is providing an employment in the areas within which it operates. Westfield currently employs more than 650 employees globally and it is mindful of differences in labour laws between countries. These laws tend not to be an issue with senior executives whose employment contracts are determined in Australia using Australian rules.

Stakeholders

Westfield¡¦s search for global remedies, while increasing the global potential of its business operations, has consequences for its stakeholders. For example, Westfield¡¦s senior executives have been increasingly stretched by the expanded pace of business operations. While senior executives would typically have improved career prospects, it is perhaps shareholders who stand out to be the biggest winners.

Shareholders have watched their wealth grow with Westfield¡¦s global expansion strategies and remedies. A consequence for shareholders of the global strategy is the increased profitability from offshore operations, they are provided with a tax-effective income stream.

Competitors are also affected as Westfield adopts an aggressive approach in their expansion into foreign markets, taking their opposition and in the process, acquiring some of them. Westfield¡¦s policy of consistently branding all of its shopping centres is also having an impact on their brand recognition, market share and behaviour by competitors.

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