Global Expansion of the Discounter Lidl. Strategic International Business Management


Academic Paper, 2019

37 Pages, Grade: 62


Excerpt

Contents

1. Chosen market: Mexico

2. Key drivers
2.1 Quality of land administration
2.2 Market Size
2.3 Target Groups
2.4 Buyer sophistication
2.5 Infrastructure & Quality of road network
2.6 Skills and Culture
2.7 Organized Crime

3. Five-Forces
3.1 The threat of entry
3.2 The threat of substitutes
3.3 The power of buyers
3.4 The power of suppliers
3.5 Competitive rivalry

4. Resources and capabilities
4.1 Value
4.2 Rarity
4.3 Inimitability
4.4 Organized

5. Modes of Entry
5.1 Geographical Strategy: Sonora
5.2 Geographical Strategy: Quintana Roo
5.3 Target Group
5.4 Import/ Export
5.5 Joint venture and alliances
5.6 Marketing and Pricing
5.7 Supply Chain Management
5.8 Operational management
5.9 Investment and Budget

6. Appendix A: PESTLE Analysis

7. Appendix B: Skills and Culture

8. Appendix C: Global Suppliers

9. References

Abstract

This paper will examine the possibilities of expansion for the Hard Discounter Chain Lidl that operates in the food and non-food retail sector. The organization is keen to expand on an international scale (Johnson et al 2008, p.262) and it will be evaluated if the expansion is more likely to be successful by opening a store in Norway or Mexico. The paper will use different analyzing models to identify the most potentially attractive target market.

1. Chosen market: Mexico

This paper will focus on the market in Mexico. The important factors and Key Drives, shown in Appendix A, will be discussed in order to understand the macro environment following the strategy of the retailer Lidl (LD) (Johnson et al 2008, p.56).

2. Key drivers

2.1 Quality of land administration

The Mexican Ejido Lands, as mentioned by Confer (2011, p.452), occupy half of the country's space. An Ejido is a land outside of urban areas, shaped by the revolution and given to communities, meaning they cannot be bought by private individuals or companies (Confer 2011, p.452). Looking at Mexico’s area around the city of “Playa del Carmen” where the growth in the last 10 years was so tremendous that thousands of miles of beautiful beachfront property where sold to non-Mexican citizens (Anon 2013), there the urban belt spread wide around the Ejido areas. Therefore, it is of utmost importance to consider the zones of Ejido Land when planning the spread of LD stores (Anon 2013). The high cost of construction permits and regulations have to be taken into account (Schwab et al 2017, p. 241; PESTEL Appendix A) while planning the implementation of the stores into the Mexican Market.

2.2 Market Size

According to the World Trade Organizations (WTO) "Global Competitiveness Report 2018" (TGCR18), Mexico holds the 46th place globally and is therefore the second strongest Latin American country in terms of economic strength. It holds the 11th place in terms of market size, making it much more attractive for companies, especially in comparison to Norway which holds the 50th place. Therefore, Mexico has a clear advantage over Norway which is ranked on position 50th (Schwab & Sala 2017). The forecast of Schwab and Sala (2017, p.25) notes that Mexico will promote a "higher and sustainable level of income if competitiveness remains stable” with a 4.4 % inflation and a GDP product per capita of 9,304.2 US Dollars in 2018 and an annual GDP growth of 2%. (Schwab & Sala 2017, p.391).

2.3 Target Groups

In order to understand the market and the behavior of buyers the target groups need to be evaluated (Kotler et al 2017). LD has the following target group of buyers as shown in Table 1 below:

Abbildung in dieser Leseprobe nicht enthalten

Table 1: The target groups of buyers (Author’s own work)

Gastronomy RES and HORE could be a new target group, especially with a high potential in touristic areas where LD with its strategy of ordering large amounts of a product for a low price would suit the needs of the mentioned audience (Geppert et al 2015; Barschel 2004).

2.4 Buyer sophistication

Mexico holds a global position of 58 on the TGCR18 while the US is on position 1. The value propositions of LD are low prize for best quality (info.lidl 2019; Geppert et al 2015; Barschel 2004; Kumar 2007) as shown in the key visual of LD below in Figure 1.

This image was removed by the editing department for copyright reasons.

Figure 1: LDs key visual on quality and price (info.lidl 2019)

The 4 target groups will strongly develop as Mexico’s “ tourism has become one of the most dynamic platforms for socio-economic development” (SECURE 2018) and “are significant drivers of economic growth” (Schwab et al 2017). The largest groups of people named in target group AT come from the US and Canada (Torres & Momsen 2005; geo-mexico 2015), which is a target group with a high level of buyer sophistication (Johnson et al 2008, pp77-78). Since LD has already established itself in the USA and therefore knows the needs of the buyers, these important findings can be used for Mexico to enter the market in a tourist zone where the share of US buyers is very high (Torres & Momsen 2005; geo-mexico 2015).

2.5 Infrastructure & Quality of road network

In order to examine the risks and weaknesses of a supply chain (Asbjornslett 2009, p.24; Slack et al 2007, p.122 ; Mullai 2009, p. 87) it is important to examine the entire construct and interaction of the supply chain partners (SCP) and not just the individual links in the chain (Viljoen & Joubert 2018, p.87). Therefore, it is important to understand the vulnerability of such a network, that would include not just weather conditions and low street quality as shown in Figure 2 below and measured in Appendix A;

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Figure 2: Rainfall in the state of Quintana Roo, photo by: Patrick Wiget

Also, the traffic in urban areas can disrupt the supply chain in terms of time frames and delayed deliveries (Viljoen & Joubert 2017, P.87). Properly functioning road networks are essential to establish a profitable position for LD in the Mexican market (Viljoen & Joubert 2017), where Mexico is one of the best Latin countries in terms of Infrastructure and Road Network (TGCR18).

2.6 Skills and Culture

Researches have shown trends on exploitation of LD workers (Geppert et al 2015). With LD employed in market of low qualifications and salary, with little or no room for self-realization. This is due to the highly standardized process that are centralized and Controller by LDs Headquarters (Geppert et al 2015, p.242). Since in Mexico the employee expects to be told what and how to do something and the superior is a benevolent autocrat (Hofstede Insights 2019; Hofstede et al 2010), as shown in Figure 4 below:

Abbildung in dieser Leseprobe nicht enthalten

Figure 4: the comparison by Hofstede represents Germany (blue) and Mexico (purple) (Hofstede et al 2010).

Mexico appeals more to the management style of LD than Germany, which will prove to be an advantage for Lidl. That suggests great potential and sustainability, as the areas of masculinity and uncertainty avoidance are very similar (Ghemawat 2001, p.1). In Appendix B further explanation of the above-mentioned Figure 4 is shown.

2.7 Organized Crime

Organized crime has not been considered as a key driver in Appendix A. Why this is the case will be explained further here. After el Salvador, Mexico has the second highest rate of organized crime (OC) holding position 139 on the TGCR18. This index must be taken into account when planning LD stores all across Mexico. However, the factor of OC was not included in this papers rating as a key driver, for the following reasons as shown in Table 2:

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Table 2: Concentration of OC (Author’s own work)

Shown in Figure 3 the Map with the concentration of the Homicides that can be related to the CO.

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Figure 3: Organized-Crime-Style Homicide Map for 2018 (Calderon et al 2019, P.28)

However, ensuring OC must be taken into consideration while developing a strategy of geographical spread for LD.

3. Five-Forces

It is essential to understand the competitors strategy and impact on LD intentions in Mexico. This is investigated with the model of Porters “five-forces” (Johnson et al 2008, p.59) in more detail as followed.

3.1 The threat of entry

Lidl operates since 1973 and manages over 10‘000.00 stores in about 29 countries (info.lidl 2019). Therefore LD “has sufficient redundant experience” (Johnson et al 2008, p.62) and should also be sensitized after failing in 2009 to open LD Stores in Norway (Asioli & Alfnes 2016, p.2358). As a first step, LD should deal intensively with the key drivers and strategies to build a stable relation to supply and distribution channels (Flynn and Hue and Zhao 2010, p. 58). LD is promoting a firm relationship with its SCP on a global and regional level (2007), providing quality items to a low discount price (info.lidl 2019; Geppert et al 2015; Barschel 2004; Kumar 2009). Therefore, it is of great importance to take advantage of existing supply or distribution partners (Kumar 2007). As shown below in Table 3 the effort of the National Retailers Association of Mexico (ANTAD) to deepen an international business network to access supply or distribution channels could prove to be helpful to LD as well.

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Table 3: International business network to access through the exhibition called ANTAD (ANTAD 2019)

Another important point to consider is the burden of governmental regulations (Schwab & Sala 2017; Doing Business 2017), which can take a lot of time, therefor enough buffers need to be implemented to execute the strategy.

3.2 The threat of substitutes

Looking at the target groups like MNC and AT, “street markets” (geo-mexico 2012) are recognizable as a possible substitute; as shown in Figure 6:

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Figure 6: Butcher at the street market in the state of Yucatan, photo by: Patrick Wiget

However, markets are not open every day and might not appeal to the target audience of AT regarding the hygiene expectations. Another possible substitute are Restaurants in tourist locations, but those are usually too expensive for the target group MNC!

3.3 The power of buyers

Because LD appeals to all those who value price and quality, i.e. the 4 defined target groups like MNC, AT, RES and HORE. MNC and AT show themselves as individuals without great purchasing power. The audience like HORE and RES, excluding the big hotel chains, often focus on the local market, called by Kumar (2007) “mom-and pop-stores”, they are outspread widely and do not represent a high bargaining power. But in cooperation with institutions like “Providers of Hotels, Restaurants and Cafeterias” (HoReCa 2016) who could gain a substantial bargaining power as a buyer group (Johnson et al 2009, p.63) including does so called “mom-and pop stores” (Kumar 2007). The switching cost of the buyers are not known, for the case Mexico it depends how Lidl gets the supply chain and the market under control (Thakur 2017, p. 52).

Described by Johnson et al (2009, p.63) as the “backward vertical integration, If the buyer has some facilities to supply itself
to sources of supply” it is evaluated as a small risk for MNC, RES, HORE and even less for AT. As the Target audience would has to come up with a high investment and farming own vegetables and fruits by MNC and AT is not common in the urban areas where LD is placed.

3.4 The power of suppliers

Mexico has some global players in the country, this is shown in Appendix C, to mention some of the suppliers: Nestle, Johnson & Johnson, Unilever, as shown in Figure 7 below.

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Figure 7: Source: Derived from M+M Planet Retail, 2005; “Fortune Global 500,” Fortune, July 24, 2006, 113–120; and authors’ own calculations and estimates.

As discussed by Kumar (2007, p.3) and shown in Figure 7 “retailers dominate manufactures on size”, with LD on Global Position 11 (TGCR18), that the buyers such as LD gain a greater bargaining power as more as they expand globally.

An example of how the suppliers of hard discounters have been under pressure is the case of Unilever in 2006. They started to produce their own-labeled products, under the Labels of LD (Anon 2006, p.7). A global player like LD has an advantage on price negotiations and thus has a preferred position and low switching costs. Supplier competition threat the
“forward vertical integration” (Johnson et al 2008, p.63); the strategy of cutting out suppliers, shortening the supply chain and getting the products in the label of the Hard Discounter. This is the practice that LD uses to their advantage. That the target audience of LD is cutting out LD as a supplier to reach out to a directly to a producer is not likely (Johnson et al 2008, p.63). Further, there is also a stable variation of large suppliers competing with each other and thus not showing any great danger of monopolistic pricing development (Kumar 2007).

[...]

Excerpt out of 37 pages

Details

Title
Global Expansion of the Discounter Lidl. Strategic International Business Management
College
University of Salford
Grade
62
Author
Year
2019
Pages
37
Catalog Number
V976498
ISBN (eBook)
9783346338341
ISBN (Book)
9783346338358
Language
English
Tags
Lidl Discounter, discounter, porters 5 forces, Five Forces, Teste, Mexico, International Business Strategy, Geographical Strategy, Target Groups, Import Export, Marketing and Pricing, Operational Management, Investment and Budget, power of buyers, the threat of entry, the threat of Substitutes, the power of suppliers, competitive rivalry
Quote paper
Patrick Wiget (Author), 2019, Global Expansion of the Discounter Lidl. Strategic International Business Management, Munich, GRIN Verlag, https://www.grin.com/document/976498

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