Strategic International Business Management Report on Lidl

This report undertakes a strategic analysis of Lidl's international business operations, with a specific focus on a potential market entry into Mexico. It begins with an abstract that provides a brief overview of the report's objectives and structure. The report utilizes various management theories and frameworks to analyze Lidl's business environment, including PESTLE analysis, Porter's Five Forces, and VRIO framework to assess the internal capabilities. The PESTLE analysis examines the political, economic, social, technological, environmental, and legal factors within the Mexican market, evaluating their potential impact on Lidl's operations. The Five Forces framework assesses the competitive dynamics within the Mexican retail industry, including the bargaining power of suppliers and buyers, the threat of new entrants and substitutes, and the intensity of rivalry among existing firms. The VRIO framework is then employed to assess Lidl’s internal resources and capabilities. Based on the analysis, the report recommends a Greenfield investment as the most suitable entry mode for Lidl. The report concludes by highlighting the key findings and implications of the analysis for Lidl’s strategic decision-making.

Running Head: MANAGEMENT 0
Strategic International Business Management

MANAGEMENT 1
Abstract
This report outlines strategies of Lidl in light of international business issues with application
of various management theories and framework such as Pestle framework, value chain
analysis, porter five forces framework and so forth and then offers a creative strategic
solution to a Lidl for entering into the Mexico as the potential target market considering
international expansion strategy. Lidl is one of the leading global discounter superstore chain
functioning in 32 countries globally. The company is known for its offering of good value
products, offers and giving value for money. In relation with PESTEL analysis of Lidl, the
business environment for Lidl can be favourable. As per five forces analysis, there is low
threat of new entrants in Mexico and the bargaining power of suppliers is also low. However,
the bargaining power of buyer and rivalry among existing players is high. VRIO framework
is also being used to analyse the internal competence of the firm with question of
valuableness, rarity, imitability and organisation. Ultimately, the preferable entry mode
identified for Lidl to enter into the Mexico market is Greenfield Investment.

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Table of Contents
Task 2 - PESTLE Analysis........................................................................................................3
Task 3 – Five Force Framework................................................................................................5
Task 4 – VRIO Framework........................................................................................................8
Task 5 – Mode of Entry...........................................................................................................10
References................................................................................................................................12
Appendix..................................................................................................................................14
Task 1...................................................................................................................................14

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Task 2 - PESTLE Analysis
The pestle analysis is presented below of Mexico as this country favours more to Lidl in
terms of long term growth and sustainability as well as performance.
 Political Factors – It considers the policies changes by the government in terms of
new regulations and procedures directly or indirectly impacts the business practices,
performance and growth. Mexico is the second largest country in Latin America by
population and the government takes out a greater role while taking important actions
for many industries and businesses. With entering into Mexico, Lidl will also be
having an opportunity to expand into the markets of Canada and USA as Mexico has
good relations with these nations considering the NAFTA agreement (Barrera, 2017).
However, Lidl needs to be at alert while collaborating positively with different
regulatory bodies, as the local government have the potential to impact business
practices significantly.
 Economic Factors – Any company can gain various opportunities in the country
where the economy is stable and strong as it offers the business a potential to stand
long in the business environment. Furthermore, industry growth and trends also
emphasis significant position to the country economy like the Mexican retail stores is
projected to witness a CAGR of 6.7 per cent by 2024 (Mohol, 2019). The consumer
and retail industry is one of the industry of Mexico that has the potential to exceed
country average national future growth. Moreover, Mexico is a developing market
EconomicPolitical
Social Technological
LegalEnvironmental

MANAGEMENT 4
attracting greater foreign investments and also comes under NAFTA covenant
considering free trade with different nations globally. This will open up many big
opportunities to Lidl in terms of factors in the industry environment as well as the
economic trend.
 Social Factors – According to Petersen, Kushwaha and Kumar (2015), social factors
enables understanding of consumer demographics in relation with income
distribution, income level scenario and cultural aspects. Considering opportunity, Lidl
can have potential to sale its retail products effective as family is perceived to be the
most important element of the Mexican society and between 2010 and 2016, rural
poverty decreased by over 10 per cent (un.org, 2018). Mexico also has a well degree
of literacy rate of 94.86 per cent (statista.com, 2019), signifying that people are well-
educated and have adequate disposable income to spend on various products. This
will also help Lidl to promote its own private label brands products such as Lidl
Grissini over a time span.
 Technological Factors – It includes the factors concerned with strategic information,
technological laws and policies, gaps in technology, patents and opportunities sectors
in the country. Mexico as a developing country is ready to revolutionize its economy
with technology and its positive alliance with the US enables the country to
strengthen its technological capabilities at another level. As technology continues to
become more prevalent in Mexico, direct sellers turn to the internet to connect with
their customer. It also offers an opportunity to Lidl to start selling food online like in
the UK also, Lidl has its website but has not sold products and groceries online to date
(Grant, 2019). It was also found that Lidl is strengthening its technological
capabilities such as signing a four year deal with a UK technology firm specialising in
3D visualising and augmented reality (AR). The company believes that it encourages
customers to discover the perfect wine from their curate range (Sillitoe, 2018).
 Environmental Factors – It concerns with the information on the country
performance on environmental policies and indicators. This factors may create
various challenges for the Lidl to enter into the Mexican market as the country is
facing some serious environmental challenges leading to negative lifestyle to the
population of the country. LGEEPA is the basis for Mexico environmental
management process, there are some significant key regulations businesses should be
aware before expanding into Mexico for the different areas i.e. waste, air pollution
and water pollution. Lidl needs to synchronise its business practices and policies with

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the higher environment regulation as when Mexico becomes more industrialised, its
economic growth with reinforcing businesses to follow such regulations.
 Legal Factors – It includes the factors that define what organisations can and cannot
do at a specific point in time and how regulatory bodies’ laws and rules impact
organisation performance and practices directly or indirectly. Mexican judiciary is
independent and free and provides the right tools to tackle abuse of buying powers in
the retail sector. Employment rights are also protected by the Mexican labour laws
such as employers are bound to pay nearly 10 per cent of their net annual income
among all employees. Lidl needs to analyse the business environment more explicitly,
as legal actions often result in higher prices for consumers and a more conservative
attitude with business executives.
Task 3 – Five Force Framework
Rivalry among existing
firms is highly intensive
Threat of New Entrants is Low
Threat of Substitute is Medium
Bargaining
Power of
Buyers is high
Bargaining
Power of
Suppliers is
Low

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With examination of Mexico environmental factors, it can be said that Mexico is one of the
great countries for Lidl to expand its operations and business activities and embraces over
greater profitability and growth. However, to further analyse its adaptability in the retail
industry of the country, it is necessary to identify the key forces that pose high, medium or
low threat to the company in relation with its future business activities. It is well supported by
Porter five forces framework that helps in understanding the competitive position in the
industry forces and amount of pressure on each of these forces can benefit organization in
determining how future events will impact the company future (Pisano, 2017). It is applied on
the retail industry of Mexico as follows –
 Bargaining Power of Suppliers – In Mexico, there is low bargaining power of
suppliers as due to presence of diverse numbers and range of suppliers offering list of
products to the retailers. This offers Lidl a very strong negotiating power with the
suppliers as suppliers required to comply with the high demands from the organisation
in terms of payment terms, delivery conditions, field practices and special packaging
together with saturated retail market. In addition, the retailers in Mexico enjoy low
switching cost in the industry environment and therefore, easily switch to the other
suppliers if they show irritabilities for the raw materials and products pricing. Hence,
it can be said that the bargaining power of suppliers is very insubstantial in the Lidl
case as due to the scope and size of its business in other countries.
 Bargaining Power of Buyers – In the Mexico retail environment, buyers enjoys high
bargaining power due to presence of a different number of retailers including
Walmart, Oxxo and Bodega Aurrera offering same quality and range of products to
the society. This also leads to low switching cost to the buyers as the power lies in
their hands and make them to promptly take the decisions without any twice thought
in relation with brand loyalty. On the other hand, this also presents an opportunity to

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Lidl to expand in Mexico with product differentiation approach and more private label
brands to reduce the bargaining power of buyers. Together with this, Lidl can also
emphasis on price and convenience aspect of the shopping to exert greater influence
on the customer (Benoit, Klose and Ettinger, 2017).
 Threats of New Entrants – There is a low threat of entrant in the retail sector of
Mexico as to be lead in this sector, one needs to hold a lot of investment on
infrastructure, marketing and promotion (Ramanathan et al, 2017) and hence, include
several challenges for the organisations to enter in the market with low capital. Lidl
also focuses more on price aspect in its supermarket chain of stores and this will
restrict new entrants to directly compete with Lidl. Furthermore, the other resources
and financial capital of Lidl mitigate risks for new entrants as well as they will also
face tough competition from Walmart who established a long time back in Mexico.
 Rivalry among existing firms – The intensity of the rivalry among the Mexican
retail industry is very strong and various firms are fighting over to gain more and
more market share. Due to high disposable income with consumers, it offers an edge
to the companies to fight for the consumer interest together with various schemes and
business practices. Leading retailers in Mexico as per the market share includes
Bodega Aurrera, Oxxo and Walmart with 17.3 %, 12.5 % and 12.1 % respectively
(statista.com, 2019a) and these firms may try to impose different challenges to Lidl in
terms of making its position in the industry. However, Lidl has the capability and
enough resources to make its position in the global market irrespective of the strong
force.
 Threat of Substitute – In the Mexico retail sector, there is a moderate degree of
threat of substitute products. Local stores and Brick and Mortar are the two major
substitutions for Lidl. Although, Lidl is one of the leading retailer dealing in

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thousands of items with offering variety of each item. Furthermore, the company deal
in multiple categories with over 10000 stores such as bakery products, health
associated items, household and cleaning products and so forth (Shaikh, Karjaluoto
and Hakkinen, 2018). This wide range of products will surely attract customers while
reducing the threats of the substitute.
Task 4 – VRIO Framework
Resource/
Capability/
Competence
Valuabl
e
Rar
e Imitable Organizatio
n
Competiti
ve
Advantag
e
Store Brand
products
Yes Yes Somewha
t Hard
Yes Advantage
Inventory Yes No Easy to
Imitate
Neutral Parity
Transportation
Fleet
Yes Yes Easy to
Imitate
Neutral Parity
Physical Stores Yes No Easy to
Imitate
Yes Advantage
Lower cost of
operations
Yes Yes Difficult
to Imitate
Yes Advantage
Employee usage Yes Yes Difficult
to Imitate
Yes Advantage
Consumer
Experience
Yes Yes Difficult
to Imitate
Yes Advantage
Brand Name Yes Yes Difficult
to Imitate
Yes Advantage
Inventory
Management
Yes Yes Difficult
to Imitate
Yes Advantage
Environment
Policy
Yes Yes Difficult
to Imitate
Yes Advantage
Low Costs Yes Yes Difficult
to Imitate
Yes Advantage

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The Question of Value
At present, Lidl signifies to be one of the most profitable and largest organisations operating
with more than 10000 stores. At the time when company sees value in a particular market, it
is effectively intricate to gain its value as it fulfils a need in the marketplace. The question of
value needs than a company assesses the strength it possesses to reduce the effect and outer
threat within in the business environment and industry exploiting its resources (Indartono,
2016). Considering this, Lidl can rank high as it has adequate resources to neutralise any
threat from the industry forces as well as competition. Indeed, there is value in the services
and various products that Lidl chain brings to the Mexico market and the company and its
policy also imply to be valuable in this marketplace while carrying a valuable alternative to
the target segment.
The Question of Rarity
According to Kim, Lee and Shin (2015), the question of rarity leads to exposing where the
significant resources that company requires are in hands of a few individuals or various
groups of people are controlling or organisation it. It will report the ease with which they can
be retrieved together with the value or the price that they can be involved perceived that they
will be costly if they are in the pointers of a few and also can be comparatively inexpensive
and at ease to access if they are in the pointers of various individuals. Considering Lidl, the
resources that it requires to easily gain the market of Mexico are in the hands of various
diverse individuals and this makes it effective for the company to practice in the market and
comply with the existence of laws that controls allocation of resources and regulations, the
company is in a position to confirm it is efficient in its operations. In relation with the
industry, the products may not be called to rare, however, the business practice used by the
company in service delivery and the product in the marketplace can be rare ample to bring a
change or shift in the retail sector of Mexico. In addition, Lidl can be perceived to be rare in
building of an effective organisation structure and business culture that can be exploited for
gaining a stronger market base and a satisfactory capable group of employees signifying to be
a competitive force in the market.
The Question of Imitability
It relates to reaction to the question where it is likely to imitate the services or the product
that a business offers and certainly, even the business model itself. A firm can gain
competitive edge in the market if there is lower the imitability of a product and in relation

MANAGEMENT 11
with Lidl, its product is imitable that the company offers it's to the targeted population across
the sector. Although, the business model and consumer support that the company use is not
imitable as it is specifically built by Lidl. Furthermore, the said culture of the organisation
and notion in which the company practice to fulfil its customer needs can be the force to
compete with its rivals and it might be a part of the company and the business that is not
imitable. It improves and extends the value of the company business and its market
competitiveness in the marketplace. The condensed imitability of the company will be added
advantage for Lidl as the exclusivity of their product or services will lead in drawing the
attention of more number of customers, likely from competing business and hence, benefit
Lidl to gain more market share in the Mexico retail sector.
The Question of Organisation
It seeks to assess whether the company is well-structured and ready to exploit the resource
capability and it can be said that Lidl has adequate resources to enter into any global
marketplace, which requires a team of research so as to help the firm in offering best ways to
employ into new market (Kim, Lee and Shin, 2015). In addition, there are adequate financial
resources with Lidl that can be useful to increase its footprints into the Mexican market and
perform well in the industry. From its incorporation, Lidl has gained various market
opportunities through its proper management and organisational resources and in comparison
with the other big retailers such as Walmart, Lidl is progressively undertaking the
consumables market truly while gaining more market shares.
Task 5 – Mode of Entry
The supermarket industry may seem like a tough sector to make an entry into, however, with
effective entry mode strategy, a business can lead the market share considering the presence
of various industry forces in the business environment. Lidl should this, develop an approach
that will enable the company to serve the targeted population to Mexico and therefore,
emerged to be potential positive endeavour. In addition, the competition in Mexico would be
completely welcome seeing that there has been sense of monotony in the sector in Mexico as
it stands. The Mexico market may have retail businesses and supermarket chains already
present, but the model used by Lidl is unlike any other approach start developing relationship
with the market afresh. In relation with the entry mode, the decision needs to be made holistic
and taking into considering various different factors when potential to invest is concerned.

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The best mode of entry into the Mexico market which can be adopted by Lidl is “Greenfield
Investment”. Lee and Ries (2016) defined it as a form of foreign direct investment where a
parent organisation starts a new venture in a foreign nation by building new operational
facilities. It helps the investors to avoid almost entirely the cost of putting intermediaries in
the business such as lenders or other investors. The select of Greenfield investment will be
adopted by Lidl and it will benefit the company to increase its business model and products in
the Mexico markets. It has been identified that Lidl will be in a greater and beneficial
position to utilize the products in a better way and it is likely if the firm goes for expansion
through this mode of entry.
Greenfield Investment as the entry mode will benefit the company to attain competitive edge
in this specific region and hence, will raise their capability to keep the business cost low with
various process of savings. Another significant aim for Greenfield investment by Lidl is that
it is easier to make investments in the Mexico market where the competition is found
relatively low than other businesses and sectors. It will benefit in the expansion of Lidl in a
fast span of time as due to presence of only a few retailers in the industry that are operating in
the marketplace of Mexico. In addition, it will also allow Lidl to bypass various trade
restrictions imposed by local government in the country.
Considering this, it will bring highest possible profit and benefits in an aggregate sense as
opposed to other entry modes in the market of Mexico such as joint venture, strategic
alliances and mergers and acquisitions. The selection will be recognised to be the one that
will improve the position of Lidl supermarket chain on a cumulative exploration irrespective
of the fact that there factors where it might be ranked or positioned negatively. There are
certain some other benefits to the firm with this Greenfield investment and hence, it is
important for Lidl to take effective steps so that it can expand in the Mexico market in a
better way.

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References
Barrera, A. (2017) The future of the Canada-Mexico relationship in a renegotiated NAFTA
[ONLINE] Available from: http://dawsonstrat.com/2017/05/11/the-future-of-the-canada-
mexico-relationship-in-a-renegotiated-nafta/ [Accessed 14/02/2020].
Benoit, S., Klose, S. and Ettinger, A. (2017) Linking service convenience to satisfaction:
dimensions and key moderators. Journal of Services Marketing, 31(6), pp.527-538.
Grant, K. (2019) Lidl is planning to start selling food online — and it could be more
successful than budget rivals [ONLINE] Available from:
https://inews.co.uk/news/consumer/lidl-website-poised-groceries-quick-supermarket-online-
delivery-657706 [Accessed 14/02/2020].
Indartono, S. (2016) STRATEGIC THINKING CONCEPT AMONG MIDDLE
MANAGERS. Jurnal Universitas Paramadina, 10(2), pp.720-728.
Kim, S.C., Lee, J.S. and Shin, K.I. (2015) The impact of project management assets on the
VRIO characteristics of PM process for competitive advantage. International Journal of
Productivity and Quality Management, 15(2), pp.153-168.
Lee, H.H. and Ries, J. (2016) Aid for trade and greenfield investment. World Development,
84(1), pp.206-218.
Mohol, S. (2019) Mexico Retail Sector Market Share,Size 2020: Global Key Findings,
Industry Demand, Regional Analysis, Key Players Profiles, Future Prospects and Forecasts
to 2024 [ONLINE] Available from: https://www.hashtap.com/@shital.mohol/mexico-retail-
sector-market-share-size-2020-global-key-findings-industry-demand-regional-analysis-key-
players-profiles-future-pr-2o6lrq5yXpeP?lang=en [Accessed 14/02/2020].
Petersen, J.A., Kushwaha, T. and Kumar, V. (2015) Marketing communication strategies and
consumer financial decision making: The role of national culture. Journal of Marketing,
79(1), pp.44-63.

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Pisano, G.P. (2017) Toward a prescriptive theory of dynamic capabilities: connecting
strategic choice, learning, and competition. Industrial and Corporate Change, 26(5), pp.747-
762.
Ramanathan, R., Philpott, E., Duan, Y. and Cao, G. (2017) Adoption of business analytics
and impact on performance: a qualitative study in retail. Production Planning & Control,
28(11-12), pp.985-998.
Shaikh, A.A., Karjaluoto, H. and Hakkinen, J. (2018) Understanding moderating effects in
increasing share-of-wallet and word-of-mouth: A case study of Lidl grocery retailer. Journal
of Retailing and Consumer Services, 44(1), pp.45-53.
Sillitoe, B. (2018) Lidl signs agreement with 3D visualisation company [ONLINE] Available
from: https://www.essentialretail.com/news/lidl-3d-visualisation/ [Accessed 14/02/2020].
statista.com. (2019) Mexico: Literacy rate from 2008 to 2018, total and by gender [ONLINE]
Available from: https://www.statista.com/statistics/275443/literacy-rate-in-mexico/
[Accessed 14/02/2020].
statista.com. (2019a) Leading retailers in Mexico in 2018, by market share [ONLINE]
Available from: https://www.statista.com/statistics/958834/mexico-leading-retailers-market-
share/ [Accessed 14/02/2020].
un.org. (2018) Rural poverty in Mexico: prevalence and challenges
[ONLINE] Available from:
https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/03/RURAL-
POVERTY-IN-MEXICO.-CONEVAL.-Expert-Meeting.-15022019.pdf [Accessed
14/02/2020].

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Appendix
Task 1
PESTEL Analysis for Norway and Mexico -
Particulars Norway Environment Mexico Environment Weight Weight
Using scale -10
to +10
- - Mexico Norway
Political  Norway is a
highly
democratic
nation and has
experienced a
greater level of
stability and
peace through
political
engagements
 Good relations
with USA and
Canada (Under
NATO allies)
 Good relations
with USA and
Canada under
NAFTA
agreement
 Stability in
political
environment
Stable
+9
Stable
+9
Economic:  In 2017,
Norwegian retail
industry sales
 Mexican retail
stores are
projected to
Stable
+8
Stable
+5

MANAGEMENT 16
put up at
NOR551.3
billion and are
expected to
grow at 3.4%
CAGR over the
next five years.
witness a CAGR
of 6.7 per cent by
2024
 The consumer
and retail
industry is one of
the industry of
Mexico that has
the potential to
exceed country
average national
future growth
Social  Norway has 11
per cent of the
population
under low-
income level.
 Norway has a
high degree of
literacy rate i.e.
99%
 Between 2010
and 2016, rural
poverty
decreased by over
10 per cent
 Mexico also has a
well degree of
literacy rate of
94.86 per cent,
signifying that
people are well-
educated and
have adequate
Stable
+6
Less
Stable -
4

MANAGEMENT 17
disposable
income to spend
on various
products
Technology  Norway IT
sector facing
skills shortage
and as per 2018
report by
government, it is
estimated that
Norway could
face a shortfall
of more than
4,000 experts in
the niche area of
IT security alone
by 2030.
 Mexico as a
developing
country is ready
to revolutionize
its economy with
technology and
its positive
alliance with the
US enables the
country to
strengthen its
technological
capabilities at
another level
Stable
+8
Less
Stable
+4
Legal  Norway is
facing stifling
labour laws
especially in
comparison to
other countries
such as Mexico
 Mexican
judiciary is
independent and
free and provides
the right tools to
tackle abuse of
buying powers in
Stable
+6
Less
Stable -
5

MANAGEMENT 18
 The legislations
are also strict
limiting
immoral
business
practices of
Organisations
the retail sector
Environmental  Norway is
committed to the
process of
strengthening
the UNFCCC
with adopting
new and legally
binding
commitments
 LGEEPA is the
basis for Mexico
environmental
management
process, there are
some significant
key regulations
businesses should
be aware before
expanding into
Mexico for the
different areas i.e.
waste, air
pollution and
water pollution
Stable
+5
Stable
+5
Total 42 32