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Lidl is a grocery chain supermarket that is operating in more than 30 countries globally. It is similar of Aldi, however it can be said that the stores of Lidl are available in all European nations except Estonai and Latvia. The company has first opened its discount store in 1973 and it has over 650 stores in different regions around the world. Lidl has only a small number of competitors in the United Kingdom and the share of these competitors were less than 5%. The company has established its major distribution store in Mebane, North California and it has opened its twenty-first store in 2017 (Lidl, 2018). This paper will highlight the expansion of Lidl in Mexico carrying out in-depth analysis of its expansion. It will also discuss this with Porter’s five forces and a critical evaluation of the different human resource management and capabilities will also be described using the VRIO framework. Further, the various modes of entry of Lidl into the Mexican market is also analysed in the paper.
A rationale for selection of Mexico as the suitable market for expansion of Lidl
Lidl must expand in Mexico because it is considered to be a cost-efficient region and this can help the organisation to expand in a quick span of time. The competition in this market is considered to be comparatively low and thus Lidl can take up the necessary strategies for planning and this would be regarded as a much wiser step that is to be taken by the organisation in order to sustain in the long run. Mexico is considered to be the best location for international expansion of the German and the US companies in terms of production and sales. The labour cost in Mexico is considered to be comparatively low and it has been found that an average factory worker can be paid $2.60 per hour including the tax and the other benefits. On the other hand, the average wage of a manufacturing labour in Mexico is considered to be $0.95 and this is very low compared to China and thus it will become easier for Lidl to provide employment to other groups of individual and thus this will raise the labour workforce in the country. Moreover, the employees of Lidl will also be paid medical expenses and other type of expenses and thus this will motivate them to remain engaged in the workforce. Because of extensive and different kinds of responsibilities, it would be easier for the business consultants of Lidl to hire more skilled and advanced employees and this will help the organisation to sustain in the long run. This will also motivate Lidl to engage a large number of workers for factory operation and thus Lidl will be in beneficial stage when its opens up a subsidiary in Mexico (Maglaras, Bourlakis & Fotopoulos, 2015).
It can also be said that Mexico is one of the leading consumer market after US and thus the establishment of a grocery supermarket will be advantageous for the organisation as well as the customers. Lidl, through expansion in Mexico will not only produce the goods and services that are less expensive but it will try to produce goods in a business friendly way and thus this will be beneficial for the home country as well as for Mexico. The products also need to require much transportation cost if the company starts its manufacturing process in Mexico rather than other countries. It can also be said that Mexico has close proximities with the other centres i.e. Germany and US and thus share a common border. The cost incurred in travelling and the costs of shipping between these two countries are comparatively less than the other countries (Lidl, 2018). It has been found that the cost of shipping via air or other modes of transportation is very less compared to the other countries. The marine based shipping process will not involve additional cost and thus it will be easier to carry out the transportation activities to the final destination in a less span of time. Moreover, the business executives would also require less cost to travel and this can be considered as the most important advantage of Lidl. Therefore, it would be advantageous to carry out overseas operation within the specified time.
It can be said that Lidl will also be in advantageous position if its opens up its business in Mexico due to similarity in the time zones. This must be taken into consideration and thus this will help the company to operate successfully in the long run. It has been found that the business operations that are located in other centres becomes interconnected through technology in a better way and thus the distance factor does not come into consideration in this case. There is direct assistance from the headquarter of Lidl and thus there is no such problem in communication or transportation. This will also be easier because Germany and Mexico shares the same production line and this will make the task easier and better. On the other hand, it can be said that the Mexican workers are more skilled than the other workers because they prefer to study in technical backgrounds and thus has adequate knowledge in that area. It has also been found that the average salary of a worker in Mexico is almost the half than that of US and other companies. This implies that the labour force of Mexico is less costly compared to the other countries (Lidl, 2018).
Moreover, raw materials are also readily available in Mexico and thus Lidl will be in advantageous position if it establishes its business entity in Mexico. There are alternative resources available in this particular country and this will help in the production procedures of Lidl. On the other hand, there might be shortage of raw materials from time-to-time and this will make the scenario more worse and thus it will increase the cost of production of different products of Lidl which were earlier produced at a much cheaper rate. It has been found that Mexico has a wealth of resources and there are different sources of raw materials available in the country (Lidl, 2018). Thus, it can be said that the raw materials do not also require to be imported from other countries and thus it leads to a reduction in the cost and the supply margin which affects the production. It is also vital to consider the lead times pertaining to the countries where the organisation is established and this will help in the facilitation of new branch of that particular business entity or expand the production line. This process helps in easing the production procedures from the first step i.e. receiving an order and then placing the requisite order to the suppliers. Lidl will also try to negotiate with their suppliers and then purchase the raw materials accordingly from the market. This will help in the diversification of the business strategies that has to be adopted by Lidl in the long run and it will also remove the problem of shortage of raw materials from the market (Van Duijn et al., 2016). Thus, production in both the countries will require less time and this will be advantageous for Lidl. On the other hand, it is also necessary to find out the global political issues that affects the market and find out the future potential of Lidl in the long run. It is necessary to check that Mexico shares better political relation with Germany and US countries and this will make it easier to strengthen the production base of the country. The geopolitical strategies are also necessary to be taken into consideration and this will help in keeping the price of the product lower and thus it will require less investment for Lidl to expand its business line in Mexico. Foreign direct investment will also be in a better position and thus the strategies that would be taken by Lidl to establish its business in Mexico will be considered suitable for the long run success of the organisation (Venus & Wesseler, 2015).
Porter’s Five Forces
It can be said that the food retail industry has the highest percentage of share in the economy of Mexico. There has been considerable growth in this business sector and this growth is considered to be steady in the long run. This food retail industry can be analysed with the help of Porter’s Five Forces and the role of buyers and suppliers will be analysed in this case.
Bargaining power of the buyers
This is considered to be the most important change in analysing the behaviour of the consumers and in relation to the response of the suppliers in the market. As the consumers in Mexico are aware of their health, they always prefer to purchase fresh and healthy products from the retailers. On the other hand, as there are many supermarkets and discounted retail stores in Mexico, it is necessary to take into consideration that the products are sold at a discounted and attractive price. This will lower the switching cost of the customers and thereby Lidl can sell the products at an attractive price. Thus, it can be said that the bargaining power of the buyers are considered to be moderate.
Bargaining power of the suppliers
There are many big retailers in Mexico and thus the main aim of the retailers is to ensure stability in the market. The suppliers of Lidl will also take into consideration all these factors so that are no possible delays or fluctuations in the delivery process. On the other hand, it has been found that many suppliers also sell their own product directly to the end customers at a much cheaper price. This weakens the position of the suppliers in the marketing environment and thus it can be said that the position of the suppliers of Lidl is moderate (Sroka, 2017).
Threat of new entrants
It is not easier for a new entrant to enter this retail market easily because of dynamic fluctuations in the price level and the different pricing schemes of the retailers in this industry. The low cost of entry and exit in this food retail industry changes the behaviour of the customers and thus it gives the entrants a niche market to grow and develop successfully. On the other hand, it can be said that low growth rate in the market can be considered attractive to the new entrants and thus the threat of new entrants is considered to be moderate in this case (Haleem & Jehangir,2017).
Threat of substitutes
There are different substitutes in the food retail industry such as restaurants, fast food industry and other delivery services. It can be said that food service is regarded as a complement rather than substitute in the market and thus this plays an important role in changing the attitudes of the customers in the long run. The threat of substitutes for Lidl can be considered to be relatively weak.
Threat of rivalry
There exists high competition in the market for food retail industry and this is not due to switching cost of the consumers. The main reason for this is the competitive and the dynamic pricing in the market and thus this pushes Lidl into competitive pricing strategy and thus there emerges price war in the market. The consumers also try to look and find for new offers in the market and thus it can be said that the threat from rivalry is strong in this market.
Critical evaluation of the resources and capabilities of Lidl using VRIO framework
The VRIO framework is considered to be an important framework that is applied by the strategists in order to evaluate the competitive advantage of the service or the product. This competitive advantage arises due to the differences arising due to failure of proper penetration in the market. After applying the VRIO framework to Lidl, it can be said that the value for lowcost goods allows Lidl to compete with the other supermarkets in this industry and thus it allows the consumers to spend less amount in purchasing the goods. On the other hand, due to economic downturn in this particular sector, it has become difficult to compete in the market and thus Lidl has to find out alternative strategies to struggle in the market. There is rarity in Lidl stores and this can be associated with the competitive rivalry of the firm in the market. The different categories of product that are offered by Lidl have affirmed the scarcity of market rarity.
It is difficult to imitate the different products of Lidl store due to the nature of the organisation. This is not because of other supermarkets that are launching the same products in the market or due to Lidl’s imitation of products from the supermarkets. On the other hand, it can be said that organisation of Lidl must be in such a way that the managers must adapt to the national or regional level. This allows continuous process of recommendation from the operational level and thus it ensures that the different processes are carried out in a smooth way within the organisation (Carrión Ortiz, 2016).
The strategic capabilities are considered on the resource based side in the organisation and thus it is necessary to explore the resources and the capabilities. There are several benefits of the resource based view and thus it helps in the continuous of better strategic decisions in the organisation. Lidl depends on the operational mode of management and thus it has implemented or tailored its plan in such a way that it can adapt effectively to the socio-cultural plans of that particular region. The threshold capabilities are considered to be the most vital and basic way through which an organisation enters the industry. Lidl requires proper financial backing from Germany so that they can enter the Mexican market and thus gain competitive advantage in this sector. On the other hand, it can be said that the strategic capabilities also plays a vital role and it is necessary to be efficient in the market so that Lidl can adjust accordingly to all other changes and thus run successfully in the business environment of Mexico (Giannakoudi & Vasileiou, 2017). There are different competencies and resources available for Lidl and it can be said that the most important threshold capability is the required budget in this industry apart from the marketing and other intangible aspects of the company. The core competencies of Lidl are its low price, productive staff and provision of better customer service compared to its competitors in the market. The other resources also include proper access to the banks and thus collecting the desired information from different stores and supplying the products at a lower price to the customers. It is also necessary to have proper knowledge of the industry and a better infrastructure so that the information or survey is done in a better way from the market. It is also necessary to manage the human resource of the organisation and thus the aspects of staff morale are necessary to be considered in this case. Lidl takes into consideration that it provides better customer service by limiting the different products that are available in the market (Grünig & Kühn, 2015).
Various modes of entry available for Lidl’s market expansion
The choice of greenfield investment will be adopted by Lidl and this will help the company to expand in the Mexican market. It has been found that Lidl will be in better and advantageous position to utilize the products in a better way and this is possible if the company choses to expand through the process of greenfield investment. This entry mode will also help Lidl to gain competitive advantage on this particular field and thus it will increase their ability to keep the business cost lost through the different processes of savings and by lowering additional costs such as customer service. On the other hand, it can be said that if Lidl opts for other market entry modes, it might put the company to a threatened or riskier stage and thus this will hamper the overall business. Another important reason for Greenfield investment by Lidl is that it is easier to make investments in Mexican market where the competition is found to be comparatively low than the other industries or companies. This will help in the expansion of Lidl in a quick span of time because there are only a few retailers in this food industry that are operating in the Mexican market. However, it can be said that the company can also form joint venture if it wishes to expand or collaborate with the other enterprises or companies in this particular industry.
Therefore, it can be said that the international expansion of Lidl through greenfield investment or other market expansion strategies will be quicker and this can help in the long run sustenance and development of the market. It is not necessary to choose any other alternatives in this particular industry and thus this will help to cope up with the foreign exchange fluctuations in the market. It is profitable to for the company to offer better incentives to their employees and thus encourage them to work for the betterment of the organisation. On the other hand, the market expansion strategy taken by the organisation also avoids trade restriction and thus it becomes easier for Lidl to adjust to different market conditions from time-to-time. It is not necessary for Lidl to focus only on low price products and thus compete with the other retailers in the food market. On the other hand, there are certain locational advantages of the organisation and thus foreign direct investment is considered to be the best mode of entry of entry in the other markets. It is necessary for Lidl to choose between Greenfield investment and foreign direct investment and thus establish itself in the market. There are certain other advantages of the firm and thus it is necessary for Lidl to take better steps so that it can establish itself in the market in a better way.
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