Most businesses are likely to be affected by various factors with its environment globally. It has been with effective analysis and the study of this environment that assists most businesses to identify the factors that might hinder its operation globally (Johnson, Scholes & Whittington, 2008). The present report is based on studying the various aspects of the international business environment for the expansion Lidl Company. The Company is a global supermarket chain that is based in Germany and seeking to expand its operation into various nations such as Mexico and Norway. There are diverse factors that exist within each and every country that is likely to attract or discourage foreign businesses. This report will analyze the international business environment of the two nations which represents the most potentially attractive target market using the Pestle analysis.
There are diverse factors within the international business environment that are most likely to affect the operation of Lidl Company in some regions. Therefore, this provides the need to understand the various factors that affect the operation of the kind of business in Mexico and Norway. The Lidl Company has been operating in more than 30 countries globally and thus it is important to make the analysis of factors such as political, social and other that might influence the operation in terms of the market. All the factors of international business environment can be understood with the evaluation of PESTLE analysis that in turn provides an insight to Lidl to make a choice on the nation with a favorable environment for the business (Yüksel, 2012).
The political part gives an understanding of the political system and the key figures that are significant to the operations of the business in the country. The political system of Mexico is unstable with various economic problems such as poverty which is said to be caused by government operations. The tax rates vary widely with lack of structural adjustments policies from the government. Recently, the international monetary funds and the World Bank have designed structural adjustment policies for the Mexican government to encourage successful development (Held, McGrew, Goldblatt & Perraton, 2000).
On the other hand, when analyzing the economic and political statistics of Norway, it is vivid that it stands at a better place compared to other nations in relation to the economic and political stability. Norway is a nation that best fulfills the demands of a prosperous life. It grants preferential tariff rates for the members of the European Free trade Association through either a membership or having a signatory (Dahlsrud, 2008). Therefore, it will be very easy and effective for the Lidl Company to expand its operation in Norway.
The Economic factors
These consist of factors that affect consumer purchasing power and spending patterns. Mexico is categorized by the World Bank as an upper-middle-income nation with a poverty spread of approximately 44% of the population living below the poverty lines (Yüksel, 2012). This is an indication that almost half of the population would prefer cheap products that would meet their level of income. Thus, it would be very challenging for international business like the Lidl Company to set a supermarket chain due to the existing market problems (Held, et al, 2000).
On the other hand, Norway is considered to have a stable economy based on various factors. The world economic forum listed Norway among the 15 most competitive economies globally during the 2008- 2009 (Yüksel, 2012). The nation scored high on factors such as protection of minority shareholders’ interests, the public trust of political, government surplus, for ease of access to loans and cooperation of labor employment relations. Therefore, a stable economic and the various achievement of Norway are effective for any operation of foreign investment. This is because the environment is conducive for business operation.
The Social factors
The social part enables an understanding of the consumers’ demographic based on the income distribution, rural-urban segmentation, and educational scenario. Mexico has about 76% of the people with most of the Mexicans emigrate from the rural regions that lack job opportunities. Moreover, Mexico has great strides in the improvement of education and literacy rates over the last moments. On the other hand, Norway has a well-formalized education system with most people living in the urban regions (Yüksel, 2012). Most of Norwegians are educated and thus very easy to manage and reason in relation to business operations. The population of Norwegian is capable to support most of the markets for both international and local businesses.
Technological factors section provides strategic information on technological laws and policies, technological gaps, and patents within a given country. Based on the information by Scopus, Mexico is ranked at number 28 among countries in various publications. The country lags behind the many more technologically developed nations in terms of educational programs and research responses. However, there is much development in relation to technology with the advancement in technology (Held, et al, 2000). On the other hand, Norway has a significant wave of technological advancement since 1990 with the use of internet becoming common by the public. According to the social development committee, it is vivid that every third party in the nation is using the internet and hence an easy opportunity for advertising and online marketing for most businesses. Presently, more and more cafes, restaurants and bars have created their personal websites in order to give the first impression to their customers. The Norwegians are able to find any café through their portal and hence easier for any international business to gain entry and succeeds. The technological environment can allow the performance of any business due to the fact that it is easy to reach the customers and convince them through the internet. These are made effective with their knowledge on the use of various technological gadgets such as a computer to converse online. There is an advantage to the use of the portals or web pages as an advertisement platform.
The legal factors
The section provides information on the legal structure, tax regimes, and the laws to begin a new business in a given nation. The legal dimensions of the environment affect business practices. The significant laws that might affect business are like consumerism, employee relationships, competitive practices and the environment. A variety of the laws are associated with regulatory agencies such as powerful United States regulatory agencies, the environmental protection agencies, equal employment agencies and others (Held, et al, 2000). Either, Norway has a legal system that can be trusted with a better regulatory system such as in the Banking fields and have competent people on an egalitarian wage scale system. Therefore, the straightforward legal system is able to attract foreign investors in any line of business.
Therefore, from the analysis, it is significant that various factors existing within its environment. The PESTLE analysis provided an extensive overlook on various factors such as political, economic, technological, and legal factors for both Mexico and Norway. Thus, from the analysis, it is evident that Norway proves to be the best place for Lidl Company investment region.
According to the book ‘Exploring Corporate strategy,’ the environment is what provides business with a means to survive. It is true that satisfied clients are responsible for the survival of a business in an environment, but there are other important factors such as the market demands, Political stability, and shifts in technology, policies and other factors which can be a challenge for the organization. Therefore, it is important to analyze the external environment to foresee and make modifications. The macro environment is political, technological, social, environmental and legal that has an impact more or less on the organization (Johnson, Scholes & Whittington, 2008).
Most of the businesses choose to expand their operations in foreign nations to seek for market opportunities beyond their countries boundaries. Therefore, it is important for a Company to evaluate the target market before entry to run from the risk of meeting the unexpected due to the un-conducive environment. Based on the evaluation carried out for the two markets; that is Norway and Mexico for the Lidl Company using PESTLE analysis, it was imperative that Norway had an effective environment for the Company to operate.
The Rationale for the Market choice
Based on the evaluation using the PESTLE analysis, it was imperative that Norway is best suit for Lidl Company.
It is important for the Lidl Company to understand the political system of the target market. Therefore, based on the analysis Norway stands a better footing on political stability compared to other nations. This is evidence of the political satisfaction based on masses and stable promises for a greater success of any business. Moreover, the country is a member of European Free Trade Association which provides a suitable environment for any entry in relation to business. For example, it gives preferential tariff rates to European Economic Area (EEA) members. Therefore, this becomes an advantage for Lidl Company since it is based in German.
The economy of a nation is vital to the survival of any business. The purchasing power of the customers depends on the stability of the economy. According to World Economic Forum, Norway is listed 15th most competitive economy among 131 nations in the year 2008-2009 edition based on the global competitiveness Index (Yüksel, 2012). Norway scored more on matters such as ethical behavior, the venture of capital availability, labor-employer relationship, higher education and training and also dependence on professional management. Norway provides employment to approximately 2.5 million people which are able to provide a good market for any business since most of the people can afford to buy goods and services from Lidl Company. The Shopping chain is able to be sustained through the wide market provided by working-class Norwegian citizens.
It is evident that consumption rate for goods and services in Norway are increasing with the increasing economy. Most of the citizens have more money to spend on what they want as opposed to spending on what they need. Therefore, the environment is able to sustain the growth of any business.
Technology has been an integral part of the society since a number of operations are guided and controlled by the internet. Basically, information and communication technology is important for marketing operations which is imperative for the growth of the business. Therefore, Norway is more advanced in terms of technology as many people have the ability operate and browse the internet. The Norwegian are able to assess web-portals for the existing business. This is an important environment for a business such as Lidl Company in relation to reaching out to customers. Thus, with the help of technology Lidl Company can conduct online marketing in the bid to attract the customers. Moreover, Lidl Company is able to enforce easily systems such as online payment methods with the help of technology. Norwegian being conversant with technology, it will be very easy for the Company.
The Legal factors
These factors include factors such as policies and laws from both the local and central government. According to various articles, Norway has a legal system that any business can trust for the operation. Therefore, the favorable environment in terms of legal basis is important for the establishment of Lidl Company. The regulatory system controls the operations of most businesses in the environment.
Competitive intensity of the industrial environment of Lidl in Norway
Norway supermarket industry information background
The industry is composed of the following Norway supermarkets; Coop Mega supermarket, Bunnpris discount supermarket, Coop marked, Coop Prix and other chain stores. The research on these supermarkets shows how established within the industry and their progressive success. The existence of supermarket is able to create a competitive intensity based on the line of products and services. Therefore, the competitive intensity of the industrial environment in Norway will be analyzed using the five force model to ascertain the validity of the market. The following are the five force model;
Bargaining power of the suppliers
Norway supermarket industry would not exist without suppliers for stocking their shelves in relation to the demands of the customers. Thus it is evident that the bargaining power of the suppliers in the market is a significant force to check, for example, when the bargaining power of the suppliers is high then it is able to make the industry un- attractive as the suppliers will have the power to push the price and gain control of the supermarket power. According to Porter, suppliers are more powerful if they are only a few of them existing in the market. Supermarket industry has to operate in an environment with significant number of suppliers of goods and products for stocking in their premises. Therefore, it is vivid that the existence of more suppliers in Norway makes it conducive for Lidl Company and others to operate easily since they are able to make choice of the suppliers in the market. This means that Lidl Company is able to choose the suppliers based on the quality, price, and service which mean that the bargaining power of the suppliers is low. Basically, this makes it very easy for the maintenance of the company-suppliers relationship.
Bargaining power of buyers
In the analysis of Norway supermarket industry, the purchasers based on Porters five force model are the customers. There are thousands of customers all over Norway who are able to purchase the products in the market. Moreover, with a large number of customers in the market, the customers have no bargaining power making them subject to the business world. However, this does not make the customer loyal to any business in the products. The customers are able to shift from one supermarket to another based on the issue of quality, prices and after sale services.
It is vivid that most of the supermarket does offer the same line of products and goods in the market. This means that customers can still obtain the same products and goods in other supermarkets around. However, this does not affect the supermarket since Norway has a great number of customers who are able to purchase commodities in the supermarkets. Most of the supermarkets such as Cool Prix and cool marked are continuously conducting more advertisement to attract new customers and maintain the loyal customers. Therefore, to survive in the market, it is will be valid for Lidl Supermarket to perform major promotion activities and retain most of the loyal customers.
Threats of potential new entrants
It is imperative that any region where new businesses can easily gain entry to a given industry, the intensity of competitiveness among the companies increases. According to Porter, there are barriers to the entry on the supermarket industry. Porter claims that a region with low barriers to entry makes it more attractive for the investors hence more competition. Norway as a country is highly profitable making it more attractive making it easy for entry especially for the nations that are within Europe. Therefore, there is a high chance of more entry even after Lidl Company would have entered the market.
Threat of substitutes
The existence of substitution decreases the demand for a given types of products as clients are able to shift to other alternatives. In Norway supermarket industry, the existing supermarket is the others substitute hence the competition being fierce and constant since the products and goods offered are almost the same.
The extent of competitor rivalry
The rivalry between the firms is usually the most essential of the five competitive forces model. The competitive rivalry plays a significant role in Norway supermarket industry since all the supermarkets offer the same products and at the same time would want to achieve its objectives.
Internal Business environment
Lidl Company is an international discount supermarket that is located in Germany. The Company is currently operating in major areas in Europe making it very challenging for other competing firms by making it difficult for small retail firms to enter. Moreover, it has approximately over 10,000 stores which are in the United Kingdom. Apart from being active in retail operations, the Company also deals with services such as DVD rentals and bakery services that were launched in 2009 and 2012 respectively. The performance of Lidl Company in Norway depends on the strength of internal environment which can be evaluated both based on resources and capabilities to enable success in the market. Therefore, in this part, the report will make use of the VRIO framework to analyze the internal environment within the Lidl Company.
This is basically a tool that is used to analyze a firm’s internal resources and capabilities to find out if they can be a source sustainable competitive advantage within the market. The resources that a Company has can be grouped into intangible and tangible resources while capabilities which are made up of their financial strength and skills able to make the firm a competitive advantage. The following are the four VRIO frameworks;
The first question asks whether the resources of the Company add value by allowing the firm to exploit opportunities and at the same time defend the threats. The resources are considered valuable if they are able to improve the customer value perceived. Lidl Company has a skilled labor force that is capable of coming with distinctive skills and delivers value to the customers. Moreover, the company has a flexible system of operation and customer delivery system. For example, offering a delivery service for any customer to their virtual doorstep from any nation globally. This is supported by the technological advances that are present in the Company allowing for customers to make online orders and the goods will be delivered to their respective location. Additionally, the Company has a high level of excellence that is displayed on the layout and the structures of their stores. For example, the Company has wireless devices, electronic shelf labeling, self-checkout machines, and intelligent scale. This is accompanied by a corporative customer care services that are available physically and also online.
The resources of the Company are supposed to be rare. It is imperative that most supermarket offers the same line of products, but this a Company should think of various ways to make the products and other resources such as employees very different from the one that is in the society. Basically, this has been a major operation highly practiced by Lidl Company in most of the regions of operation. For example, Constant updates on their services to make the Company’s resources different based on a proper layout system that is able to attract the customers. The launch of bakery services in the year 2009 was an initiative to make their product different from the customers can find fresh bread and cakes made by the Company.
Costly to imitate or copy
A resource is considered costly to copy if other organization does not have the same resources. Lidl Company has embraced a level of technological systems that are costly for small firms and can only be achieved by large organizations of its caliber. It has trained staffs that are able to deliver value and make shifts on behalf of the Company in relation to various economic changes. The staffs have been motivated to the level that their desire is to work and deliver professionally. A successful business is one that has a well-coordinated staff to perform fully.
Organized to Capture Value
The resources are not able to be advantageous if they are not coordinated to capture value. The Lidl Company has its operation performed electronically such as a flow system at the cashier where a customer is able to serve faster without any errors. It has a strong display team who are skilled in designing and art. The team arranges the products professionally that creates value by attracting clients. Moreover, a strong customer services offering after sales are evident in major stores such as the ones in the United Kingdom. These are able to attract new customers and create value as well.
|Lidl Company VRIO Capability|
|Product design and layout operations|
|Valuable?||Rare?||Costly to Copy and imitate?||Is the Company organized to exploit it?|
|Result: The company is able to sustain a competitive advantage|
Modes of entry into a foreign Market
A business has various entry modes to choose from during internationalization process. The section of the report focuses on the on the various types of foreign entry modes that Lidl Company has to choose from. From an extensive research, it is imperative that no entry mode is superior compared to the others, but instead, the Company’s status, objectives, and goals will be best suited for a given mode of entry. The Company’s resources and capabilities as internal factors and the external environment of the nations of entry are other significant considerations when making a choice to the foreign entry mode.
Most organization will have a number of reasons for entering the global market which will have an effect on the entry mode that is the best suite to the firms. It is important to determine the Company’s desired level of flexibility, presence commitment, and risks when entering the global market. There are various foreign entry modes exist such as licensing, exporting, franchising, wholly owned subsidiary and the joint venture. The section of the report will analyze these foreign entry modes in details.
Licensing entry mode
This is a cross-border agreement allowing various organizations in the target nation the right to utilize the property of the licensor. The properties are the trademarks, production techniques and patents. Licensing is chosen most of the times because of its low risk, low exposure to the political and economic conditions, and have a high return on the aspect of investments. On the other hand, it has various limitations such as it has the capability to reduce the potential profit of the ownership out righted, can nurture a potential competitor for the future and affects the brand image because of lack of control over the licensee.
Franchising mode of entry
Franchising is where an independent Company’s owner known as the franchisee pays fees and royalties to the franchiser to utilize a Company’s trademark and sell its products or services. The terms of the franchise package depend on the contract scheme such as operations, equipment, the management manual, staff training and approval of a location. However, it is important to consider the pros and cons despite its widely used international border entry. The most known pros of the mode of entry are the fact that it capitalizes on a strategy that is already successful, it has an understanding on the locals regions, it also a low risk and the franchisor is not exposed to the risks that are associated with the foreign market. However, it has some cons such as loss of brand image due to lack of full control, not maximizing on the profit but instead receives royalty fees and not full and the possibility of building a competitor.
The joint venture mode of entry
The Company might choose to enter into a joint venture in order to divide the risks with other parties and also to use each other’s strength in taking the market. The Companies in the joint venture has to merge their objectives and able to learn from one another without sharing their competitive advantage. The advantage of using the entry is that the organization does not fall as the victims of the local government.
A wholly owned subsidiary mode of entry
This is where an organization decides to enter the foreign market on 100% ownership of the foreign entity. There are two ways that are Greenfield operations and acquisition. The Greenfield is where an organization creates a new organization and legal entry while the acquisition is where an organization purchases a foreign organization as a method of entering the new market. The mode has great benefit if implemented correctly due to a high control of the brand, high commitment, and a single objective. However, it has high risk compared to other modes of entry due to the possibility of getting restrictions from the local government.
I will recommend Lidl Company to use the wholly owned subsidiary mode of entry to Norway. This is because Norway gives preferential tariff rates to the European Economic Area especially to the members of the European free trade association. Moreover, Lidl Company has a strong internal management system that is capable to take the company through the new environment after gaining a significant knowledge on Norway.
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