Table of Contents
The rationale for selecting Mexico for expanding Lidl
Porter’s Five Forces.
Critical evaluating resources as well as capabilities of Lidl with the help of VRIO framework.
Different modes of entry that are available for the market expansion of Lidl
Globalization has tremendously amended the methodology of operations for numerous businesses in the world (Lasserre, 2017). With the constant changes and cut-throat competition in the trading policies, various massive multinational organizations have opted to locate the various operational functions in different countries wherein they could get lesser obstructions to entry (Morschett, Schramm-Klein & Zentes, 2015). There are numerous factors including technological changes and augmentation in the need of the products and services in comparison to various other factors, have forced the organizations to develop their territories. In this regard, Lidl has been considered as one of the leading grocery chains that have been operating in the above 30 nations in the world (Geppert, Williams & Wortmann, 2015). It is somewhat similar to Aldi but it has stored available across European nations excluding Latvia and Estonia.
The initial discount store was opened by the company in the year 1973 and acquires approximately 650 stores in distinct regions worldwide. Lidl has negligible rivals in the UK and these competitors have a share of less than 5%. The key distribution store has been established by the company in Mebane, North California and has established its twenty-first store in the year 2017. This paper is going to accentuate the expansion of the Organization in either of the countries; Norway or Mexico through a detailed analysis related to its expansion. It will have a discussion on Porter’s five forces along with the critical evaluation considering various human resource management as well as capabilities by using the VRIO framework. Lastly, different modes of entry for Lidl in the market of Mexico will also be analyzed further in the paper.
The political environment influences more in regards to the performance of the business in a specific arena. The analysis indicated that Lidl must enlarge in the market of Mexico as it is regarded as the cost-effective region that can be helpful in the expansion of the organization in a swift span of time (Tomasevic & Spasojevic, 2018). The market competition is comparatively low and Lidl can consider it as a golden opportunity wherein it can take vital strategies so that it can plan accordingly to sustain in the future. Mexico is regarded as the most suitable location for global expansion of the companies based in US and German related to sales and production (Gielens, 2018). The labor cost is low as compared to Norway or any other region and it has been discovered that a factory worker on an average can be paid $2.60 based on per hour comprising tax and varieties of benefits.
Moreover, the manufacturing labor has an average wage of $0.95 which is quite low as compared to Norway and China and this will make it easier for Lidl to offer employment to the individuals thereby raising the labor workforce within the country. Furthermore, the medical expenses will be paid to the workers of Lidl and various types of expenses which will help motivate the employees so that they can remain involved in their work. The distinct and extensive kinds of responsibilities and will be useful for the company to hire advanced and skilled employees which will lead to the sustainability of the organization in the long run. This will further lead in motivating Lidl so that it can involve its employees for factory operation which will open up the beneficial stage for Lidl when it introduces a subsidiary in Mexico.
Mexico is considered to be the foremost consumer market subsequent to the market of the United States and therefore the establishing grocery supermarket will prove to be advantageous for Lidl and its consumers (Merino & Ramirez-Nafarrate, 2016). With the expansion of Lidl in Mexico, there will not only be the production of less expensive products and services but the organization will also be able to produce products in a business-friendly manner which will prove to be beneficial for Mexico as well as the home country. There will also be the requirement of transportation costs if the manufacturing process begins in Mexico instead of any other country. Mexico is considered to have close proximity to various other centers such as the US and Germany thereby sharing a mutual border (Rodriguez, Paredes & Yi, 2016). This indicates that the shipping, as well as the traveling cost, is less as compared to Norway or any other nation. The marine shipping process will not incur any extra cost which will be easier for carrying out the activities of transportation of the goods to its eventual destination with less consumption of time. Furthermore, there will be less cost involved for the business executives to travel that can be regarded as one of the most advantageous aspects for Lidl. Therefore, it can prove to be beneficial to conduct overseas operations within a precise time.
Another advantage for Lidl to launch its business in Mexico would be the reason for resemblance in the time zone. This will be useful for the company in the long run. It has been observed businesses operating in different centers are interconnected with the help of technology appropriately and this shows that there is no involvement of distance factor in this case. The headquarter of Lidl can directly assist the store based in Mexico and hence there will not be any kind of transportation or communication issue. It can be feasible for the company because the production line is the same which is shared by Mexico and Germany which will make the activities easier and enhanced. Moreover, it has been found that the workers of Mexico are more skilled as compared to the workers of Norway. The workers of Mexico acquire information in the technical background and therefore they are considered to have adequate information based on that area (Varela, 2018). Apart from this, the workers’ average salary in Mexico is approximately half in comparison to the salary of the workers in the US and various other countries (Robles, Wiese & Torres-Baumgarten, 2014). This entails that the labor force is less expensive in Mexico than any other nation.
The raw materials are easily obtainable in Mexico as alternative resources are accessible in this country which will be helpful in the procedure of production of Lidl. Moreover, Mexico is considered to have a wealth of resources and there are various sources for raw resources that can be easily accessible in Mexico (Maldonado-Guzman et al. 2016). Hence it can be said that there is no requirement for importing raw materials from other countries which will further leas in reducing cost as well as supply margin. It is important to take into consideration the lead times that pertain to the nations wherein the organization is to be introduced helping in the facilitation of a novel branch of that specific entity of business or expansion of production line. This is going to ease the procedures of production from the beginning. Moreover, Lidl can negotiate with its suppliers and accordingly can procure raw materials from the market. This will lead to the diversification of various business strategies that Lidl should adopt in the long run thereby removing the scarcity of raw materials within the market.
Additionally, it is also essential to search for political issues prevailing in Mexico that can affect the market along with several potentials of Lidl for future aspects. Additionally, it is also essential to search for political issues prevailing in Mexico that can affect the market along with several potentials of Lidl for future aspects (Tomasevic & Spasojevic, 2018). The country should better political terms with the US and Germany because it will be easier for it to reinforce the base of the production of the country. Foreign direct investment will also take better shape and position and thereby the strategies would be considered to be suitable that would be build-up by Lidl so that it can establish its business in Mexico.
The industry of food retail is considered to have the greatest percentage of economy share in Mexico. Moreover, considerable development in the business sector could be seen which is considered to be stable in the long run. The industry of food retail can be analyzed by using Porter's Five Forces wherein the roles of suppliers and buyers can be analyzed.
This requires analyzing the attitude of the consumers related to the response of the suppliers within the market. The consumers of the country are aware and conscious of their health and prefer purchasing healthy and fresh goods from retailers (Sroka, 2017). However, there are several supermarkets as well as discounted stores of retailers in Mexico, therefore, it is essential to consider the products are offered to the customers at attractive and discounted prices. This will help in lowering the switching cost of the consumers. By this, the bargaining power of the consumers can be considered to be moderate.
Mexico has several huge retailers and their key aim is to ensure steadiness within the market. The suppliers of Lidl are required to consider every minute factor so that possible fluctuations or delays could be avoided while delivering goods. Moreover, the suppliers sell their offerings directly to the end customers at a much cheaper rate. This thereby deteriorates the place of suppliers within the marketing environment and hence it can be said that the suppliers of the company share a moderate position.
It is quite challenging for the new entrants to get into the retail market so easily due to dynamic fluctuations in the level of price and differences in the schemes of pricing of the retailers within the industry. The low cost of exit and entry in the industry of food retail can change the attitude of the consumers thereby providing the entrants a niche market so that it can grow successfully. (Haleem & Jehangir,2017). Furthermore, considering the low growth rate within the market can be attractive for the new entrants which thus shows that the threat of new entrants is moderate in this situation.
Diverse substitutes are available in the food retail industry such as the fast-food industry, restaurants, and various other delivery services. Foodservice is considered as a compliment instead of substitutes within the market and this is how it plays a significant role in bringing changes in the behavior of the consumers in the long run. The threat of substitutes is regarded as relatively weak for Lidl.
The competition is extremely high in the industry of food retail and this is not because of the switching cost. The primary reason is the dynamic pricing system and competitiveness within the market which further pushes the company into a pricing strategy that is competitive in nature which leads to emerging price war within the market. The consumers too search for finding for novel offers within the market and therefore it is proved that threat from rivalry is extremely stronger within the market.
Resources and capabilities of Lidl are critically evaluated with the help of the VRIO framework. The financial, as well as physical resources, are considered to be paramount that enable the business to expand its offerings in foreign as well as local markets (Morais, 2016). The enterprises can endure various market forces, because of to culture of performance and substantial policies that could be regarded as exceptional in the economy wherein they operate. The culture of Lidl can be considered to be valuable to imitate in a sense that 9f functions based on the low price being offered to its customers. There is one best way that the company has so far effectively managed to surpass its competitors in various nations wherein it operates is via continuous creativity and innovations that retain its customers makes them always buy their offerings from them. The products of Lidl are usually demonstrated in the custom boxes, rather them stocking them on the shelves. Moreover, Lidl saves costs only fewer workers would be needed to refill the stock. These savings are then transferred to its consumers in the form of low-cost products. The organization tends to offer its customers with the assortments of products such as toys, kitchen gadgets, home décor, power tools, and various others. The products when diversified delight the buyers who ultimately have the feeling of being valued by the management of the organization. Accordingly, Lidl has been capable of building loyalty and reliability among consumers that is challenging to break providing it a competitive edge amid various other retailers.
The framework of VRIO is regarded as one of the vital frameworks that are used by the strategist so that competitive advantage can be evaluated for the products and services being offered by the company. The competitive advantage takes place because of the dissimilarities occurring due to proper penetration failure within the market. With the application of the VRIO framework to the organization, value for goods with low cost can allow Lidl to step into in situation wherein it can compete with its rivals within the industry thereby allowing the consumers to spend less quantity of buying products and services. Apart from this, the economic downturn within this sector has turned out to be extremely challenging for competing in the market and for this Lidl should look into approaches or strategies so that it can survive within the market. Rarity is considered to prevail in the stores of Lidl and that can be linked with the competitive rivalry of the organization within the market. There are distinct categories of the offerings provided by Lidl that have asserted the insufficiency of market rarity (Ortiz, 2016).
The nature of the organization makes it challenging to imitate the various products and services of Lidl stores. Lidl should be organized in a manner that managers can get adapted to the regional or national level that can lead in the continuous procedure of commendation from the operational level and hence it can ensure the various processes that are carried out smoothly within the firm.
The strategic capabilities are believed to be on side of a resource-based within the organization and therefore it essential to discover the resources along with the capabilities. There are numerous advantages of the resource-based view and thus assist in taking appropriate decisions within the decision. Lidl has the dependency on the operational mode in regards to the management and therefore it has executed or modified its plan in a manner that it can effectively adapt itself to the plans of socio-cultural of that specific region. It is often said that threshold capabilities are regarded as the most significant and central way by which any organization can enter into an industry or market. There is an appropriate requirement of financial backing for Lidl that it can have from Germany to enter into the market of Mexico which can be helpful for it to acquire competitive advantage within this sector. Strategic capabilities have a significant role which necessitates being efficient within the market that can make Lidl adjust as per various other changes and hence can run successfully In Mexico concerning to business environment.
There are various resources and competencies accessible for Lidl. One of the most fundamental threshold capabilities is concerned with the required budget within the industry separately from marketing and several other intangible aspects of the organization. Some of the core competencies of Lidl include productive staff, low price and provision of proper customer service in comparison to its rivals within the market. The various other resources may also include effectiveness in accessing banks and thus gathering necessary and relevant information from distinct stores and delivering goods at a lower price to the consumers. Moreover, proper information related to the industry is extremely necessary along with the appropriate infrastructure to carry out a survey in a better manner within the market. The human resource of the firm must also be managed carefully along with considering employee morale in this respect (Grunig & Kuhn, 2015). Lidl mainly concentrates on the provision of better and improved customer service by restricting various products that are available in the market.
There are different modes of entry that are available for the market expansion of Lidl. The multinational organizations can create the existence and survival within a new environment through the evaluation of various modes of entry available in the market (Laufs & Schwens, 2014). To reach the most suitable decision to be in the appropriate direction to choose, studying the internal environment of a business is always considered to be paramount along with the macro factors related to the host country. One of the approaches that the company can adopt is export which is regarded as the common mode of entry strategy in which a foreign organization manufactures the goods in a familiar location and eventually is transmitted to another nation. This is helpful in the achievement of economies of scale. Moreover, it is considered to be cost-effective in reducing transportation costs as well as tariffs. The approach of exporting does not require much investment as compared to the various other modes of entry.
Another method of entry is franchising wherein another business is allowed by the company to function under its brand and logo. The qualities of the offerings are almost equal to that of the mother company. Moreover, the franchiser is supposed to supply all sorts of goods and regularly examine the quality of those products to retain the brand name (Ang et al. 2015). In this case, local investors could be used by Lidl that is not appropriately established with the intent to sell goods. Similar strategies are being used by some huge firms such as Burger King, McDonald’s and so on. This kind of approach is cost-effective and also the organization has greater control over investment. Additionally, it facilitates the quick growth of the global market. However, an effective franchisee is expensive in regards to time and cost.
Furthermore, the joint venture of the mode of entry is an approach wherein a hosting company attracts foreign businesses to have partnership (Ang et al. 2015). In this method, the firms share ownership of stock and then decide which entity should take up the management control. Moreover, they agreeably access each others’ resources and skills thereby leading to the refinement of performances of both the organizations. The government restrictions are overcome along with the minimization of risk failure. Apart from this, accessing local expertise along with the contacts is improved since the market is very well understood by the host company.
Lidl can adopt Greenfield investment that can be helpful for the company in the expansion into the Mexican market. In this way, Lidl can acquire an advantageous and better position so that products can be utilized most suitably and this can be probable if the organization prefers to expand in the market of Mexico adopting Greenfield investment. This mode of entry can prove to be helpful for Lidl in gaining competitive advantage thereby enhancing the ability to maintain the loss of business cost through the distinct procedures of savings as well as reducing the additional costs. If any other modes of market entry would be adopted by Lidl, it might end up putting the company at a riskier stage that would eventually hamper the entire business. The major reason for choosing the Greenfield investment is that it is quite feasible to invest in the market of Mexico wherein the competition is low as compared to other companies or industries. As there are fewer retailers in the food industry operating in the market of Mexico, this will be helpful in the development of Lidl in a swift span of time. Nevertheless, the company can also adopt the approach of joint venture willing to expand with other companies within the industry.
There is no doubt that competitions within different economies have necessitated various businesses to expand within foreign nations. Any kind of business aiming towards entry into a new market must take into consideration both the aspects macro and microenvironments that may impact the chances for the growth of the company. To establish a new segment, political, economical, environmental, technological, legal and social aspects are essential. Lidl strictly stands out in regards to pricing as well as regulation of goods being supplied via rigorous testing. Some of the chosen modes of entry into a market are exports, joint venture, franchising, and Greenfield investments. However, Greenfield investment is the chosen mode of entry for international expansion that will be helpful in the sustenance in the long run along with the growth of the market. Nonetheless, it is crucial to study the needs and demands of the host nation before making any decision related to entry into a market.
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