International Management Analysis of ALDI

Table of Content

1. Introduction
1.1. Research Objectives
1.2. Company Overview

2. Literature Review
2.1. Bartlett and Ghoshal’s Transnational Typology
2.1.1. Competitive Challenge.
2.1.2. Collaborative Challenge
2.1.3. Organisational Challenge
2.1.4. Worldwide Learning Challenge.
2.1.5. Managerial Challenge.
2.1.6. Criticism of Bartlett and Ghoshal.
2.2. Cultural Challenge (Hofstede, Trompenaar and Lewis)
2.2.1. Hofstede
2.2.2. Trompenaar
2.2.3. Lewis
2.2.4. Criticism of Cultural Dimensions.

3. Company Analysis
3.1. Development and Expansion of Aldi in Germany, UK and Australia
3.1.1. Related and Supporting Industries in Germany, UK and Australia.
3.1.2. Firm Strategy and Structure.
3.2. Competitive Challenge
3.3. Organisational Challenge
3.4. Worldwide Learning and Innovation Challenge
3.5. Cultural Challenge

4. Conclusion

5.References

1. Introduction

This analysis intends to look into how Aldi started out in Germany and how the company expanded not only within Germany, but also its worldwide expansion specifically that of Aldi Süd and its entry into the UK and Australian markets. It will start by giving an overview of Aldi as a company, how it operates and its history. The analysis will be conducted with the help of the Bartlett and Ghoshal Framework that will be introduced in the literature review, but also through ascertaining how culture theories by Hofstede, Trompenaar and Lewis apply.

1.1. Research Objectives

The objective of this analysis is to identify how Aldi Süd overcame the challenges that come with expanding and operating on an international basis and identify whether the company is international, global, multinational or transnational according to Bartlett and Ghoshal . In this context the cultural theories will also be used to assess the cultural issues Aldi was confronted with by expanding internationally more specifically when entering the UK and Australia and how Aldi dealt with these issues.

1.2. Company Overview

The family-owned German supermarket Aldi opened its first store in 1913 in Essen, Germany (Parth, 2006). At this point it was owned by the Albrecht brother’s mother who later gave her store to her sons who then turned it into the discount supermarket chain Aldi is today. The name Aldi is a combination of their name ‘Albrecht’ and the word ‘discount’ (Emsell, 2011). A dispute between the two brothers led to the separation of the chain into Aldi Nord covering the North of Germany and Aldi Süd covering the South of Germany. Their global expansion was also separate. The first international expansion was made in 1961 when Aldi Süd bought the Austrian supermarket chain Hofer which still runs under that name today (Aldi-Süd, 2014). The following figure shows how Aldi Nord and Aldi Süd are represented throughout the world.

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Figure 1: Aldi’s subsidiaries worldwide (Aldi-International, 2014)

The idea to turn their normal supermarket into a discount supermarket was inspired by the post war era when the Albrecht brothers wanted to assure people could get quality products at lower prices than anywhere else (Parth, 2006). This discount was made possible by limiting their offerings which meant Aldi could operate on larger scales of economy. It also meant that there would be a faster turnover and less waste giving the brothers the liquidity that they needed to constantly offer fresh products. Nowadays the offer is still limited compared with other larger supermarket chains, but it has increased severely over the years to offer customers as much as possible for their convenience. Aldi barely has brand products on its shelves, although the range of brand products has also increased in recent years (Parth, 2006). Aldi also has special weekly offers on non-food items such as clothing, stationary, gardening and more. By changing this offer weekly they are increasing their product range without needing extra space to keep the products on display on a permanent basis.

Aldi operates under three key concepts: consistency, simplicity and responsibility (Emsell, 2011). These three principles aid Aldi in bringing superior service and products to their customers and they are what differentiate Aldi from other discount supermarket chains.

To this day the company is not listed in the stock market meaning all profits go to the owners, the Albrecht family (Wortmann, 2004).

2. Literature Review

2.1. Bartlett and Ghoshal’s Transnational Typology

Bartlett and Ghoshal’s transnational typology is the result of empirical research conducted in 1989 (Leong Tan, 1993). In this in-depth case study Bartlett and Ghoshal took 3 European, 3 Japanese and 3 American companies with subsidiaries worldwide and analysed their environment, corporate level strategy, corporate level organisational design, subsidiary role and structure, control mechanisms and human resource practices to identify how they operate on a global level (Harzing, 2000). With the help of this research Bartlett and Ghoshal then categorised these organisations as international, multinational, global or transnational with transnational being the least common as confirmed in a further study Managing Across Borders: An Empirical Test of the Bartlett and Ghoshal (1989) Organizational Typology (Leong Tan, 1993). These four different versions of expanding worldwide differ based on their configuration of assets and capabilities, the role of their subsidiaries and their flow of information and knowledge (Leong Tan, 1993). For example an international company would exploit parent-company knowledge whilst still adapting locally in their subsidiaries meaning that the core competencies are centralized, but with worldwide adaptation some of them are in fact decentralised (Barlett Beamish, 2011). A multinational corporation is even more flexible than the international and their subsidiaries function independently making them even more responsive to their local markets. This form is very decentralised as the subsidiaries are as mentioned nationally self-sufficient (Barlett Beamish, 2011). Global companies operate centralized meaning that everything that happens in the subsidiaries is decided and organised at the headquarters. This form of operation is used to build cost-advantages and global efficiency (Barlett Beamish, 2011). Transnational organisations incorporate different parts of international, multinational and global operations. Their aim is to develop global efficiency whilst still building strong local responsiveness to national differences. But most important is the worldwide innovation and learning process achieved through the flow of information, people and products not only between headquarters and the subsidiaries, but amongst the subsidiaries themselves (Harzing, 2000). They are neither centralized nor decentralised, they are interdependent, specialized and dispersed (Barlett Beamish, 2011). This demand for global efficiency in combination with local responsiveness and worldwide innovation and thus the demand for companies to become transnational is becoming more and more relevant nowadays in the increasingly international environment. However, to achieve this transnational status companies need to overcome several challenges that may differ according to their respective industries. The challenges identified by Bartlett and Ghoshal are the competitive challenge, the collaborative challenge, the organisational challenge, the worldwide learning and innovation challenge and the managerial challenge.

2.1.1. Competitive Challenge.

To achieve competitive advantage worldwide a company must

“build global efficiency in its existing activities, it must develop multinational flexibility to manage diverse country-specific risks and opportunities, and it must create the ability to learn from its international exposure and opportunities and exploit that learning on a worldwide basis” (Barlett Beamish, 2011).

When trying to achieve global efficiency the overall aim is revenue enhancement which is not solely achieved through cost reduction. It is important to evaluate how cost reduction and national responsiveness is best combined. This is best portrayed in the integration responsiveness framework by Prahalad and Doz.

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Figure 2: The Integration-Responsiveness Framework. Adapted from: (Kendall Morrison, 1990).

Therefore it can be said that part of the competitive challenge is to identify what level of global integration and national responsiveness will result in the best benefits.

Another part is to achieve multinational flexibility meaning the flexibility to respond to and manage risks, but also exploit the opportunities arise from the local environment. These risks and opportunities differ from one country to another and are subject to change therefore multinational flexibility is essential to remain competitive on a global scale (Barlett Beamish, 2011).

Though the worldwide learning challenge is a challenge itself which will be elaborated on later in this literature review, worldwide learning is also essential to the competitive challenge. To achieve competitive advantage it is important to learn from experiences and benefit from the knowledge and knowhow local subsidiaries have to offer.

The three points mentioned above are referred to as the goals of the competitive challenge. The means are national differences, economies of scope and economies of scale (Barlett Beamish, 2011). These are the different measures a company can take to achieve the goals mentioned above. National differences means making the most of the opportunities offered by subsidiaries in certain countries for example, exploiting resources such as cheap labour, facilities or natural resources. National differences also include tailoring products to suit local markets with the aim of obtaining higher prices for this modification (Barlett Beamish, 2011). Whereas economies of scale and scope simply refers to the cost reduction achieved when operating on a larger scale or increasing its scope of production.

2.1.2. Collaborative Challenge

The collaborative challenge is concerned with the strategic alliances companies form to be able to keep up with demands from the increasingly global environment (Barlett Beamish, 2011). Many companies do not have the capabilities or the means to create multinational strategies which force them to enter strategic alliances with their suppliers, distributors and other partners dependent on their industry. Gaining capabilities and knowhow through collaborative ventures is definitely a benefit, but there are also risks that come with collaborations. The major issue is to select the right partner for strategic alliance to ensure mutual interests can be pursued. Choosing the wrong partner can cause the entire collaboration to be more of a hassle rather than bringing benefits to either of the partners. Some collaborative ventures are formed between competitors where one partner uses the collaboration to gain information from the other. These ventures are rarely equally beneficial to both parties which is a risk companies need to take into consideration before entering such a collaboration. Furthermore managing strategic alliance with their strategic and organisational complexity often incurs extra costs for both companies (Barlett Beamish, 2011).

When building collaborative ventures it is important to conduct a strategic and organisational analysis when selecting a partner: What are the company’s organisational capabilities or tangible and intangible assets and how accessible are they? (Barlett Beamish, 2011). It is also important to make sure that the managers later implementing the alliance are part of the negotiation process to avoid what Bartlett referred to as “Escalating commitment: Thrill of the Chase” (Barlett Beamish, 2011).

To reduce the management complexity of collaborative ventures it is best to keep the alliance scope as simple and as flexible as possible as opposed to all-encompassing partnerships. This also helps manage the flow of communication and decision-making processes between the two partners (Barlett Beamish, 2011).

Bartlett concludes by stating that the collaborative challenge does not only lie in the building or the managing of these collaborative ventures, but also in the decision to form a strategic alliance in the first place and to know when a strategic alliance should be dissolved (Barlett Beamish, 2011).

2.1.3. Organisational Challenge

The organisational challenge refers to the challenges an organisation faces when going international in terms of organisational structure. There are many factors that can influence a company’s decision when it comes to choosing an organisational structure, but mostly it is concerned with finding a structure that will best fit the company’s needs.

The figure below shows a model created by Stopford and Wells which suggests that a company’s organisational structure changes during its international expansion depending on its level of foreign product diversity and area diversity. Once the product and area diversity both become high companies tend to adopt a global matrix as their operational structure. However, this hypothesis was not confirmed in the empirical study by Qiu and Donaldson suggesting instead that companies using the global matrix structure more often presented high product diversity and low area diversity and that companies with high corporate integration and high area diversification do tend to use the global matrix structure (Qiu Donaldson, 2012).

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Figure 3: Stepford and Wells’s International Structural Stages Model. Adapted from (Qiu Donaldson, 2012)

Though it may be established to what extent the Stopford and Wells model is supported by empirical evidence Bartlett and Ghoshal do state that the global matrix structure is not an ideal form of organisational structure. This is due to the fact that dual reporting can lead to issues in management and decision-making which becomes even more complicated when adding distance, time, language and cultural issues to the mix (Barlett Beamish, 2011).

Another factor influencing choice of organisational structure is a company’s administrative heritage and its organisational culture. There are three main organisational configuration models: Decentralised Federation, Coordinated Federation and Centralised Hub. Their characteristics are listed in figure 4.

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Figure 4: Organisational Configuration Models. Adapted from (Barlett Beamish, 2011)

As seen above these models fall into the same categories as the versions of international expansion as identified by Bartlett and Ghoshal, suggesting that administrative heritage predetermines a company’s form of internationalisation. One could even refer to it as a form of cultural predisposition since a company’s administrative heritage derives from its organisational culture which in turn is a result of national culture. These cultural predispositions will be further analysed in the paragraph on the cultural challenge.

Though the following research is not part of the organisational challenge as defined by Bartlett, Trompenaar developed a theory on how national culture impacts organisational culture that fits very well into Bartlett and Ghoshals organisational challenge (Hodgetts, et al., 2005). He states that some MNC’s have subsidiaries so different to the headquarters that one would not even recognize that they were part of the same MNC, showing that cultural predisposition and how to deal with it is a great part of the organisational challenge (Trompenaars Hampden-Turner, 1997). His model suggests that there are four different types of organisational culture.

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Figure 5: Trompernaar’s Organisational Cultures. Adapted from (Hodgetts, et al., 2005).

These organisational cultures are guided by what is considered appropriate in the national culture in terms of behaviour between colleagues and subordinates, the hierarchical system and the general views on company goals. Trompenaar does state that these categories are theoretical and do overlap in practice (Trompenaars Hampden-Turner, 1997). He also states that with these categories there is a risk of stereotyping, nevertheless with the help of the United Notions he has compiled a study with 13,000 participants from 42 countries giving them questionnaires about their companies with four different possible answers all corresponding with the four categories identified beforehand (Trompenaars Hampden-Turner, 1997). The findings are displayed in figure 6.

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Figure 6: National Cultures in Corporate Culture. (Trompenaars Hampden-Turner, 1997)

Trompenaars research in combination with the theory of administrative heritage show that national culture does seem to have an effect on the organisational structure of a company. This can lead to issues when expanding internationally since organisational culture and national culture may clash if the company administers the home country organisational culture in the host country. On the other hand adjusting to and adopting the host country culture in terms of organisational structure can also lead to issues with home country headquarters in terms of management and communication.

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