Business Strategy for Lidl

What Is The Differences Between Potential Market Mexico And Norway?

The following report provides a detailed analysis of business management strategies. Particularly, the report focuses on how an organization can expand its operation into the foreign market dealing with the possible marketing challenges that appear during the expansion process. In order to create relevancy in the analysis, the report considers the organization Lidl- A German Supermarket chain. The purpose of the report is to develop a suitable business expansion strategy for Lidli suggesting a suitable market, which would help the firm to resolve its existing challenges and gain profits from the new market. However, expanding business into a new market often appears to be risky and challenges because there are certain external and internal environmental barriers preventing expansion. Nonetheless, this report also suggests how those market barriers can be tackled with appropriate strategies and approaches. As the purpose of developing an expansion strategy, both Mexico and Norway’s market environments have been evaluated in the report and based on the findings one of the markets has been selected for the chosen organization to enter.

PESTLE analysis conducted in task 1 helps to understand that Norway remains as the potential market for Lidl, as Norway’s political environment is comparatively stable and government is very favorable towards the business. Compared to other European nations which fall under EU, Norway is a step ahead, as it is associated with “European Free Trade Association”. The most significant business opportunity that Lidl can find in Norway is the growing economy, which disposable incomes of Norwegians are also increasing. Thus, when the disposable earning of people are increasing, their needs and demands are supposed to increase and to meet the growing needs, a new businesses are required. Hence, Castellacci, Fevolden, and Lundmark (2014) also mentioned that even though the population in Norway is less compared to other European nations, this would not create any further barrier; rather, this will provide a new step for meeting the business goals. For example, as the population is less, number of target customers would be less; thereby, Lidi can easily achieve its short-term goals.  As the economy in Norway is developing, Lidi can sell its high quality products by developing a desired pricing method.

On the other side, Lildl can receive a strong technological backup from Norway’s business environment. Hence, even though technological base in Mexico is developed but extending trades policies combined with United State is barrier for German Supermarket chain Aldi.  Additionally, the social factor discussed above implies that rate of education of Norway is also higher than Mexico, which creates the scope for hiring regional talents. This means Lidi does not have to hire talents from the global environment (Richards et al. 2013). Government in Norway is supportive towards the new the businesses; thereby, keeping footsteps in Norway would be an effective business decision for Lildi. Moreover, the findings indicate that Norway’s government has made additional investment for upcoming three years to spur development for the industries that are lagging behind such as food and retail.

Identified Potential Market: Norway

On the contrary, due to the presence of several political parties in Mexico, government is biased towards the political parties. Consequently, the businesses in Mexico face challenges from the external environment such as unnecessary trade policies formed by political parties and lack of governmental support (Castellacci,  Fevolden and Lundmark 2014). Furthermore, it is also observed in the analysis that due to overpopulation in Mexico, the employment opportunities are decreasing because the number of businesses in the nation is less due to unfavorable business environment. This limited number of businesses in the nations turn into an obstacle in front of the economy.

Bargaining power of the suppliers: (Low)- The analysis provided in task 1 indicates that compared to demands of retail industry in Norway, the number of businesses is less in the market. Therefore, the suppliers do not have much influence on the market. As the number of retail businesses is low, the suppliers have to agree to deals made by retail organizations. However, Knezevic, Renko and Knego (2011) mentioned that there is a lack of availability of suppliers in the retail sector of Norway, which indicates the challenge of providing desired quality of products. Therefore, it can be mentioned that Lidl may not have to observe any strong influence of suppliers in the desired market.

Bargaining power of consumers: (Moderate)-Bargaining power of consumers in the retail market of Norway remains moderate, as due to lack of retail brands in the sector, consumers do not have any high bargaining power on the retailers. The consumers have to buy their essential goods; thereby, they are accustomed to make purchases from the existing retailers. Consumers do not have the option for switching to other brands.

Competitive rivalry: (High)- Competitive rivalry in the retail sector of Norway is high, not because of the presence of competitors in the sector. Eistert (2013) particularly mentioned that due to small market size, existing retail organizations in the sector have become competitive. Kiwi, Meny and Narvesen acquire the entire market. Narvesen has the highest market share in the retail sector. In addition, Swadley and Yücel (2011) mentioned that due to small market size, competitors tend to apply aggressive business management strategies to excel over each other.

Threats of new entrants (High): Threats of new entrants is high, as the retail market of Norway is favorable for new businesses. Customers’ demand is high and government is approaching the foreign brands to establish business in Norway. In addition, the trade tax in Norway, is comparatively less, which is a significant opportunity for the new businesses. As the economy is growing, the new businesses will observe a strong financial stability in businesses. In this context, Reinartz et al. (2011) mentioned that as the purpose of business and urban development, the government is backing up all new and medium size firms in the sector, which indicates that new businesses will receive a positive support from the government.

Threats of substitutes: (High)- Threats of substitutes product is high in Norway; this happens due to the absence of large organizations in the retail sector.  In order to meet the growing demand of retail products, several small businesses in the sector are growing in number and they are approaching customers with substitute products.

Market Barriers and How to Tackle Them

Valuable- Lidl is one of the largest supermarket chains with respect to quality of products and brand value. By performing operation in Germany, it is able to gain high brand awareness in the global market.  Machek (2012), Lidl is probably the only brand that has the ability to gain profits by producing high quality products at the lowest price. Another significant factor that makes the brand valuable is, exact selection of products in the store that customers exactly look for.  This practice certainly has a positive impact on sales because other supermarkets tend to follow the traditional practices of storing extended categories of products and most of which are not necessary to the customers (Kucharska et al. 2015).  When a customer enters the outlet of Lidl, they do not have to spend much time in selecting the products. All Lidl’s stores are having the same intuitive layout, which makes it easier for the customer to find what they need. In other supermarkets, customers buying decision is delayed due to the confusion caused by mass categories of products, in which some are essential and some area not necessary. In addition to all these elements, financial capabilities indicates that  from 2013 to 2016, overall sales of Lidl increased to 9.13%, which is certainly an excellent performance. Lidl’s financial resources seem to be strengthening as the firm is running the operation effectively due to high sales in domestic environment (Lidl.com 2018).

Rarity: Lidl has made a sustaining partnership with the local and regional suppliers that must have to agree to the standards and quality of products. This means that supplies cannot temper the quality of products. On the other, most of the supermarket chains tend to approach the dispersed suppliers that have bonds with several other brands. However, Lidl in this context is unique because each product delivered by Lidl is an outcome of meticulous selection along with quality testing. Another significant fact that makes Lidl’s service rare is, customers can see the most of Lidl’s assortment is their own private label-around 90% of its products, which means the brand particularly these products to meet its high standards and enable the brand to direct the oversight of products integrity (Salisu and Olsson 2014). The business focus of Lildi also makes the brand rare compared to other is its human resource. Employees at Lidl follow their organizational practice, which means that employees are trained in a way that they know customers can ask for while entering the outlet.  The employees are trained with the approach of helping buyers in selecting exactly what they need. Thereby, when the employees know, which product the customers wish to buy, it becomes easy for retailer to determine buyers’ need.

Imitability- Other brands will find it difficult to imitate the service practices as Lidl aims to surprise and delight its customers with a diversified products assortment that is changeable in every two week. Bronnenberg and Ellickson (2015) mentioned that such practice remains difficult to imitate to other supermarket chain because they usually the follow strategy of gaining long-term sustainable product, in which the profits comes later or it may not come. However, changing product assortment on a frequent basis helps firm to lead by short-term profits but it may bring risk to the operation because the production cost is high.

Evaluation of Retail Sector in Norway: Bargaining Power and Competitive Rivalry

Organization- Lidl develops an efficient display and practice, which means the firm, is able to keep the price low in part by reducing waste in each step of the process. The competitive advantages of such practice lies on the logic that most of the supermarkets chain are too large; thereby, it is becoming challenging the people to go for shopping. For example, if a customer wants to go in and out to get a bottle of ketchup, they would probably see about 25 aisles in the outlet. So the customer has to find in which aisle the ketchup is placed. So when the customers get in, they can see 50 types of ketchup, which they do not need. Another element for competitive advantage is that customers will not find onions, oranges and other products stacked in the intricate pyramid formations and this mainstream practice remains inefficient. It may keep mapr products buried and affect the freshness of the products requiring employees to spend plenty of time place them. However, Lidl’s product is usually displayed in the same cupboard box in which they were shipped and the boxes are stacked; thereby, the freshest items are not on top.  So, the outlet can easily place or rearrange the remaining items (Lidl.com 2018).

Direct investment: Lidl has to make direct investment, which means they should enter Norway’s market and establish its own outlet. The organization needs to build its production site in Norway’ retail market and produce local. Thereby, producing goods in Norway’s market should avoid import duties and other requirements and taxes for import permits. As the part of implementation, the organizations needs to acquire the service of skilled employees in Norway’s market as well as acquire intelligence already held by the people in the market. Lidi can gain advantages of lower cost because it will hire regional employees- cheaper labor. As Lidl wants to cut the cost of operation as their strategy of gaining competitive advantages, hiring regional employees from Norway’s market is an effective choice. Hence, Boeh and Beamish (2012) also mentioned that whatever the cause for making direct investment decision, it has to be related with the context of what the company wants to gain or achieve strategically.

Exporting: As put forward by Ahsan and Musteen (2011) exporting could permit small businesses to acquire their current model as well as product. This method helps to send goods in another nation’s market for distribution. Exporting does not have high risk, which may cause by implication. However, if Lidl applies this exporting strategy, it might have to face the barrier of exporting heavy supply of goods. However, exporting goods into a new market may allow Lidl to determine how effectively items can be sold as well as it can have a full control over the adjustment.  

As Lidl is a supermarket chain, it has to build a physical presence in the selected market. It cannot send its supplies of products in the chosen market via third party vendors.  A retail organization always needs to create its own presence in the market to gain customers’ trust. Customers do not prefer to buy essential commodities from a band that does not have physical presence. In addition, there is an old cliché that supermarket increase their brand awareness by developing a sophisticated and environmentally friendly outlet that attracts’ customer attention.  Moreover, the analysis in Task 1 indicates that Norway’ government is welcoming the foreign direct investment as their purpose of urban development. This means if Lidl enters Norway’s market through direct investment, it may receive government’s backup. Moreover, the PESTLE analysis indicates that political environment in Norway is stable, which means while establishing the outlet, the firm does not have to face any political or unions’ barriers.

Threats of New Entrants and Substitutes in Norway’s Retail Sector

On the other side, other mode of entry such as franchising is not suitable here because if a third part vendor runs Lidl’s operation in Norway, Lidi does not have any control on its operation and the organization will not know how the  market responses. On the other side, Lidl will not also be able to achieve its goals of acquiring competitive advantages as because in franchising, the firm does not have track of labor hired and their costs. Moreover, the government in Norway can limit or prohibit the imports of goods from Lidl’s domestic market, but Lidl develop its own production site in Norway’ market, it does not have to face any such barriers.

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