Comparative PESTLE Analysis of Mexico and Norway

This assignment requires students to conduct a comparative PESTLE analysis of Mexico and Norway, examining various factors that affect these countries. The student must analyze the political, economic, social, technological, legal, and environmental aspects of both countries and present their findings in a detailed report. This will involve researching and comparing data on these factors for Mexico and Norway, and then presenting a comprehensive report based on the analysis.

Running head: STRATEGIC INTERNATIONAL BUSINESS MANAGEMENT
Strategic International Business Management
Student’s name:
Name of the university:
Author’s note:

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Table of Contents
Introduction......................................................................................................................................2
Background of the organisation Lidl...............................................................................................2
Task 1...............................................................................................................................................2
Task 2...............................................................................................................................................3
Discussing the rationale for the selection of chosen market............................................................3
Task 3...............................................................................................................................................7
Applying the 5-Forces model to critically analyse the competitive intensity of the industrial
environment of Lidl in Mexico........................................................................................................7
Task 4.............................................................................................................................................11
Critically evaluating the resources and capabilities of Lidl and the competitive implications of
these for the company when entering Mexico through VRIO Framework...................................11
Task 5.............................................................................................................................................15
Critically evaluating the various modes of entry available to Lidl and recommend with
justification....................................................................................................................................15
Conclusion.....................................................................................................................................18
Reference List................................................................................................................................19
Appendix........................................................................................................................................23

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Introduction
Strategic business management is the implementation and formulation of the major
business objectives and initiatives taken by the organisation’s top management based on the
considerations of the capabilities and resources of the organisation. The top management of the
organisation does the external and internal environment analysis in order to take the business
decision (Shaiken, 2015). The aim of the assignment is to show the strategic decision making for
international expansion of Lidl. Lidl retail organisation is chosen to show the strategic business
making for the organisation. In this assignment, Mexico and Norway country are chosen to show
which one would be a good choice for Lidl to enter. In order to show the strategic decision for
Lidl, VRIO, Five Forces model of Porter and PESTLE analysis have been done.
Background of the organisation Lidl
Lidl is a private organisation and it is a retailing industry with the discount supermarket
chain. The first discount store was opened in the year 1973 and the founder of the organisation
was Dieter Schwarz. Headquarter of Lidl is at Neckarsulm, German. Lidl has more than 10,000
stores in more than 30 countries (Lidl.de, 2018). Lidl has mainly stores in Europe and in the
United States. At present, the CEO of the organisation is Jesper Hojer and Lidl mainly sells
discount products. Most importantly, Lidl is a competitor of German supermarket chain Aldi and
Lidl have supermarket chain in almost EU member countries except Estonia and Latvia.
Task 1
(Refer to Appendix)

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Task 2
Discussing the rationale for the selection of chosen market
Mexico is the second largest economy among the Latin American countries and Mexico
is a major oil exporter. In Mexico, the socio-economic gap is wide and rural areas are neglected
by the government behind huge cities. Mexico has been governing by the Institutional
Revolutionary Party and the stability of the political system is ensured by the government. The
government gives freedom to the media and one's section of media describes Mexico as Drug-
Centre of Latin America. Lidl does not have a store in the Latin American country; therefore,
Lidl can try their luck in Latin America from Mexico as political condition of Mexico will help
to enter the business in this country. As observed by (Butler, 2018), president Enrique Nieto
promised the people to bring major changes in an economy with ground-breaking reforms
including the loopholes in corporate tax and liberalising the economy.
The Mexican economy has been dominated by the service sector and it contributes
approximately 62% to the total GDP. The GDP growth of Mexico has been recently hampered
by global financial crisis and recession. The GDP declined to negative rate 4.4% during the time
of 2009 and it managed to take acceleration after 2010 to rate of 5%. The reason behind the
growth of GDP in Mexico was an increase in external demand as well as domestic demand.
Current GDP of Mexico is $1.046 trillion and GDP growth is 2.3% in the first fiscal quarter in
2018 (Bmiresearch.com, 2018). In Mexico, population below poverty line is almost 42% and
labour force is 53 million. Therefore, it shows that Mexico has good potential to make a retail
market as the population is high, the labour force is good and the GDP is going high. UNICAD

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report in 2017 showed that Mexico is going to open to FDI as it is world's fifteenth largest FDI
recipient.
2015 2016
FDI Inward flow (Million U$) 33,180 26,700
FDI stock 509,290 473,520
FDI inwards 12.7 11.1
FDI stock (% of GDP) 44.5 45.6
Table 1: Foreign Direct Investment in Mexico
(Source: Bmiresearch.com, 2018)
Major FDI in Mexico is coming from United States, Belgium, Canada and Japan. Lidl is
German-based Company and Germany gave 3% FDI in the year 2016 and Major investment is
coming from the manufacturing sector (61.2%) (Lustig, 2014). The government in Mexico is
very friendly towards the FDI and the labours are young and skilled.
2013 2014 2015
Total employment in
retailing (‘000)
5,470.30 55,581.00 6,093.00
Employment in
retailing (%)
11.1% 11.2% 11.4%
Table 2: Employment in retailing
(Source: Bmiresearch.com, 2018)

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Figure 1: Retail sales in Mexico
(Source: Bmiresearch.com, 2018)
Mexico has world's eighth largest population and the retail organisations will have a
good customer base. Mexico has strong cultural and economic ties like NAFTA (1994). Mexico
is viewed as a youthful country and the median age in this country is 27 years (Lewrick et al.,
2015). Life expectancy rate in Mexico is 77 Years. Retail industry evolves women and children;
therefore, Lidl can easily make business in Mexico. Mexico does not have a chance to shift to an
aging population and future demands will increase.
In the retail industry, Mexico has good competition in the different retail chain and they
do a competition of consumers' credit. Consumers are using many consumers' channel;
assortment and a large variety of products are used. In Mexico retail industry, bigger market
penetration is possible with diversification. In the year 2007, technological innovation has been
taken place in Mexico regarding establishing many scientific organisations, private companies
and educational institutions (Charlton & Spence, 2017). The younger generation in Mexico is

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very interested to learn about technologies. In retail, the organisations are using internet and
Internet contributes to 1% to GDP.
Civil law in Mexico is depended on the legal system that based on legal principles and
codified law. In FDI, Mexico allows the 100% investment in retailing and the President of
Mexico has continued to restructure the FDIO system (Donelson & Esparza, 2016). It would
benefit Lidl to start the business in Mexico. If any foreign company want to start a business in
Mexico, it would subject to the same tax category as national enterprises. The government in
Mexico does not impose an extra tax for the foreign investment and average 2% to 4% is the
highest value of the transaction in the fair market value.
In Mexico
Number of tax payment per year 6.0
Time is taken for administrative formalities
(hours)
286.0
The total share of taxes 52.0
Table 3: Corporate taxation in Mexico
(Source: Pwc.com, 2018)
In the retail industry of discount store, the organisations have to follow the environmental
policies. Under Mexican law, air and waste must be taken care of. The retail industry is emitting
hazardous waste, products and speciality (Bennet & Sharpe, 2014). Sustainability is the policy of
reducing the environmental impacts that may reduce the regulatory requirements and risks as
well as reputation improvement. Mexican laws urge the companies to use sustainable energy in
order to avoid the penalties.

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Task 3
Applying the 5-Forces model to critically analyse the competitive intensity of the industrial
environment of Lidl in Mexico
Michael Porter in the year 1980 considered that the rivalry on the market result from the
five variables that are referred to as forces. These variables are interconnected and these five
forces can impact the industry's companies. Lidl has a plan to enter Mexico to open its discount
store.
Bargaining Power of Buyers
In Mexico, the total population is 123,600,300 and per capita income of the population is
$20,028. In Mexico, the density of population is 61/km2. Therefore, the customers are large in
Mexico and people living in cities are more in number. There is a vast range of differences
between people living in cities and people living in rural areas. Lidl can set up the stores in cities
areas as the people have money in these cities. Bargaining power of the customers is also
associated with the putting the organisations under the pressure. Potential factors of the
customers are associated with the buyer concentration, bargaining leverage and price sensitivity
(Pham et al., 2017). There are some departmental stores already available in Mexico and the
people in urban sections buy products from there. In Mexico retail industry, bargaining power of
customers will be high as the customers can purchase from different companies that are already
present and from the open market that provide lower-priced products.
Bargaining Power of Suppliers

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The market of inputs is described through the bargaining power of suppliers as suppliers
of Lidl will be different brands those are sold through Lidl discount stores. Therefore, the
suppliers of Lidl will be more, unlike other organisation. The numbers of suppliers for Lidl will
be more and the suppliers' forces will be medium. Potential factors of suppliers in the market are
suppliers' switching cost, the degree of differentiation of inputs, the strength of distribution
channels and suppliers' concentration (Geppert, Williams & Worthman, 2015). In this regard,
Lidl has very good distribution inexistent market and it can make a good distribution in Mexico
as well. In Mexico, the supermarket stores of different organisations are already present;
therefore, the suppliers will have choices to switch to different brands.
Competitive Rivalry in the Industry
Competition in the market is associated with the number of major players who are
already present in the industry. Lidl is in the supermarket industry and retail stores are there in
Mexico already. Industry rivals are the ones that can set the positioning strategy of the new
entrants and products must be distinguished from the rivals in order to survive in the industry.
Lidl can set the price of the products lower from the rivals in order to be in the industry. As
stated by Mirza et al., (2014), the potential factors in industry rivalry are a sustainable
competitive advantage, level of advertising and competition between offline and online
companies. In Mexico, the major industry players in retail are WalMart, Suburbia, Sears, Coppel,
Dorian’s Liverpool, Sears and Viana. The trend of extinction of small retailers can be a trend if
Lidl comes into the market of Mexico. Between the period of 2013 and 2016, all the retail
companies make string hold of positions in the market. This force is medium.
2013 2014 2015

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Store-based retailing 2732.20 2784.10 2924.12
Non-store retailing 159.0 175.0 195.0
Table 4: Sales in Retail (in billions) in Mexico
(Source: Bmiresearch.com, 2018)
The threat of New Entrants
The existence of barriers to entering the retail market is not high as the government does
not put any extra barrier. In addition, in order to open a department store, the investor has to
invest a large of money as the department stores open in different locations. Therefore, Lidl can
open the stores in different locations in Mexico as it has stores financial background and global
presence. The factors that are present in the market are switching cost, capital requirements,
brand equity, customer loyalty and network effect (Davilla, 2016). This factor for Lidl is low.
Threat of Substitutes
The threat of substitute in the market is high for Lidl as already departmental stores are
present in Mexico. The people can also buy the products from the open market that are present in
rural and urban sections. Traditional shops are there to meet the requirements of the people. The
threat of substitute can play an important role for Lidl as buyer propensity; buyer's switching cost
can play an important role in this (Dobbs, 2014). Availability of close substitute is present in the
market and relative price performance of substitute must be low for Lidl.

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Figure 2: Company shares of retail industry
(Source: Bmiresearch.com, 2018)
Figure 3: Departmental stores and their market share in Mexico
(Source: Pwc.com, 2018)

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Task 4
Critically evaluating the resources and capabilities of Lidl and the competitive implications
of these for the company when entering Mexico through VRIO Framework
Capability-based policies are based on the internal resources of the organisation and
internal-resources provide the core-competencies. Core-competency comes from the distinctive
capabilities and resources that set the organisation’s long-term profitability (Seo, Park& Choi,
2016). Lidl is expecting to enter Mexico; however, it is needed to judge resources and capability
of Lidl. Company’s strengths and weaknesses can be judged through four different areas,
managerial, marketing, financial and technical (De Brentani & Kleinschmidt, 2015). Corporate
strategy of an organisation is based on mainly the internal resources and capability. It provides
the superior values to the customers and the management needs to create a capability-based
strategy.
Resources of Lidl
Physical resources: Physical resources help the business to carry out the purposes and
activities. Physical resources of Lidl are present almost 30 countries. Physical resources of Lidl
are building, departmental stores and machinery. Shop locality and distribution centres are
important resources in retailing.
Technological resources: Technological resources help the organisation to get the job
done at right time. The examples of technological resources within Lidl are information and
tools.

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Financial resources: Financial performance of the company is going well as Lidl has
been making its foothold strong in the European market.
Tangible resources
Physical More than 10000 stores in more than 30 countries
Financial Financial values in billions and good cash flow
Strong sales growth that takes almost 12% market share
Technological It has innovative products process, copyrights and trademarks
Intangible resources
Human Trust and managerial skills, expertise and capabilities
It has more than 315,000 employees in all over the world
Reputation Innovation, brand names, reputation with suppliers, social works,
environment-friendly
Table 5: Resources of Lidl
(Source: Self-developed)
Capabilities of Lidl
An organisation’s capacity is to deploy the resources that are purposefully integrated to
gain a desired end state (Paradkar, Knight & Hansen, 2015). Lidl has solid technological,
financial and human resources in order to achieve the capabilities. Therefore, Lidl capabilities
are distributed to the entire organisation. Leadership is one of the capabilities to motivate and
inspire the employees to fulfil the mission of the organisation. Organisational leadership includes
leaders’ decision and leaders’ leadership styles that can help the organisation to meet the
objectives. Leaders of Lidl believe in leading through communication as the leaders want to be

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honest and open. The leaders of Lidl try to develop the employees for performing high and being
dynamic. The leaders want to establish trust and acting fair to the employees and being a role
model towards employees (Liao, Rice & Lu, 2015). In addition,, collaboration is another
capability of Lidl and it provides high-end performance for the company in different sections of
the world. The organisation believes in innovation and it tries to innovate the concept of
departmental stores.
VRIO Framework
Value Rare Imitability Organisation Competitive
implication
Tangible
resources
Physical
stores
Yes No Yes Yes Competitive
parity
Inventory Yes Yes No Yes Partly
advantage
Distribution
and
transportation
Yes No Yes No Advantage
Operating
technologies
Yes Yes Yes No Competitive
advantage
Intangible
resources
Brand equity Yes Yes No Yes Disadvantage

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Leadership
and innovative
ability
No No Yes No Competitive
advantage
Diversified
products
Yes No Yes Yes Competitive
advantage
Low-cost
operations
No No Yes NO Competitive
parity
Staff usage Yes No Yes Yes Advantage
Capabilities
Environmental
policy
Yes No No Yes Competitive
advantage
Inventory
management
Yes Yes Yes No Partly
advantage
Table 6: VRIO Framework
(Source: Self-developed)
Competitive advantage
As stated by Seo, Park & Choi (2016), core-competencies are the competitive advantage
of the organisation that it has from resources and capabilities. Core competencies give a
competitive advantage to the organisation over the rivals in the market. In Mexican market, Lidl
will get competitive advantage of the resources and capabilities as it is globally present
organisation. Core competencies give capacity to the organisation that provides strategic values.

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According to Liao, Rice & Lu (2015), firm’s strategy, rivalry and structure provide competitive
advantage from the group of domestic rivals. Demand conditions in the market are growing
demands that can stimulate the manufacturing growth. Lidl will try to find out the competitive
advantage in the market that would provide lasting ability to outperform all the competitors in
the retail industry in Mexico. As stated by Hennart & Slangen (2015), product differentiation
strategy provides a competitive advantage to the organisation and organisations manipulate the
characteristics of the products and service to gain competitive advantage. Lidl can take
differentiation strategy through offering discount departmental stores in Mexico. If the firm is
able to offer lower-pricing products to the customers, they can be able to gain competitive
advantage.
Task 5
Critically evaluating the various modes of entry available to Lidl and recommend with
justification
Exporting:
Exporting is the process of selling of services and products to one country that is
produced in another country. Exporting is of two types, direct exporting and indirect exporting.
As stated by Wild, Wild & Han (2014), direct exporting is about an organisation's participation
in international business through intermediaries and does not deal with foreign markets. On the
other side, direct exporting is about the organisation works with international countries with the
opportunity to develop the relationship. Indirect exporting of products and services is done
through various home-based products.

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Exporting can help Lidl to enter Mexico as it has relatively low financial exposure and it
permits gradual market entry. In addition, direct exporting acquires knowledge about the local
market and it can help to avoid restriction on foreign investment.
Joint Venture
This strategy assists the organisations to enter a market by making a partnership with
another organisation by sharing the ownership. It is mainly done by the two or more companies.
The major objectives of the joint venture are risk sharing, reward sharing, enter the desired
market, technology sharing and joint product development.
Lidl can take joint venture strategy as it can share the human resources and technological
resources of another organisation. In addition, Lidl can use optimum use of resources. Lidl is a
renowned organisation; therefore Lidl does not need resource sharing to gain competitive
advantage.
Franchising
This strategy helps the organisation to create semi-independent owners which pay fees to
the parent organisation (Cavusgil et al., 2014). Lidl can give the franchise to the semi-
independent owner in return for the right to use the trademark as it would help Lidl to open many
departmental stores all over Mexico. The franchise needs to sell the products and the franchise
can use the business format and system.
Lidl can take the franchise strategy to enter Mexico market as it provides the advantage
of sharing the trademark and logo to the semi-independent owners. In no time, the name of Lidl
can be spread to Mexico by advertisement. Lidl can also get highly motivated employees.

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Merger and Acquisition
An organisation can take the strategy of acquisition in order to accumulate the assets,
resources and liabilities of the business (Kolk, 2016). On the other side, merging helps the
organisation to merge and make one organisation out of two. This strategy can provide benefits
like a tax, fast growth, diversification and synergy. In order to increase the economies of scale,
one organisation get dissolute to make a large organisation.
Licensing
Through licensing, one firm gives permission to do the business in another country by
using legal license, technology and product. The organisation which takes the license can use
trademark and copyright. Lidl can also take the copyright of doing business for a certain period
of time and it is an easy method as has less communication and control. Financial risk is less
involved in this.
Most suitable enter mode for Lid in Mexico
Foreign Direct Investment
FDI is the mode of entering international market and Lidl can use direct investment. FDI
influences the pattern of investment of the economy and it helps to enhance the overall
development. In Mexico, in the retail industry 100% FDI is allowed and it can be done by buying
shares of the assets, company and property. However, FDI is high in most of the towns which are
neighbouring to the US border. FDI inward in Mexico was 11.1$ of GFCF in the year 2016
(Razaei, Fahim & Tavasszy, 2014). Mexico would be a good choice for Lidl as labour costs will
be low compared to Asia based countries and extensive trade agreements are there. Mexico has

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strategic location between South America and North America. Lidl can take advantage of the
place to increase the numbers of stores in North and South America. In addition, the Mexican
government has taken the measure to ensure the FDI despite the fact of global investment.
Mexico ensures the infrastructure for better FDI and the government has created Special
Economic Zone to capture direct foreign investment. Mexico has signed bilateral investment
treaties in order to protect Foreign Investment and Germany is one of them.
Lidl can make modification based on FDI at any point of time. It is an easy mode of entry
by providing only investment.
Conclusion
It has been observed that Mexican retail market is full of domestic companies and these
companies are not internationally renowned. Lidl can take the opportunity to enter Mexico rather
than Norway as Mexican retail industry will be profitable and easily conquerable. Lidl is an
internationally acclaimed organisation on the other side, other market existing companies are not
globally acclaimed. Lidl can get the competitive advantage from the employees and
organisational culture. Lidl can get cost advantage as the organisation Lidl has resources and
capabilities. Lidl can use its resources and capabilities to use the competitive advantage. FDI will
be helpful to enter Mexico.

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Appendix
Comparative PESTLE analysis of Mexico and Norway

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