Evaluation of Mexico and Norway for Lidl's International Expansion Strategy

Running head: STRATEGIC INTERNATIONAL BUSINESS MANAGEMENT
STRATEGIC INTERNATIONAL BUSINESS MANAGEMENT
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Executive Summary
This case study is about evaluation of Mexico and Norway to recognize which the
most potentially advantageous market that can be targeted by Lidl’s to propel its international
strategy for expansion in the retail industry. During my evaluation of these two countries to
recommend the most potentially advantageous market, I carried out a comparative analysis
through the PESTEL model evaluating the macro-environmental factors in the two countries,
which I considered appropriate for Lidl. Reason for the selection of Mexico as the chosen
market is analyzed in detail, explained with an explicit detailed evaluation of the PESTEL
analysis considering the implications of the macro-environmental factors of the Mexican
retail market for Lidl that I have presented in Appendix 1.
I have analyzed Lidl’s internal environment using VRIO framework in order to
evaluate its competitive implications, capabilities and resources of the organization while
entering in the Mexican market. I have applied the Porter’s model of 5 forces to critically
evaluate the competitive force of the business environment of the company in Mexico as
explicitly explained in the main body of the report. After critical assessment of the different
modes of entry accessible to Lidl, I have recommended Partnering and Strategic Alliance as
the most appropriate mode of entry that will help in its strategic global expansion to be
successful for Lidl.

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Table of Contents
Discussion on the Rationale for the Selection of Lidl Market...................................................3
Analysis of Competitive Environment of Lidl in Mexico.........................................................6
Evaluation of Attributes for Lidl to Enter into Mexican Market...............................................8
Various Modes of Entry Available to Lidl and Recommendation...........................................12
Appendices...............................................................................................................................16
Evaluation of Potentially Attractive Target Market for Lidl’s Future - International Expansion
Strategy in Mexico and Norway Based on Comparative PESTEL Analysis...........................16
References................................................................................................................................24

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Discussion on the Rationale for the Selection of Lidl Market
The PESTEL framework provides a tool for the analysis in relation to the factors
operating in the external environment of an organization, namely political, economic, social,
technological, environmental and legal nature, which influence their business activities. (Pan,
Chen and Zhan 2019). The PESTEL framework analysis of the macro-environmental factors
presented in Appendix 1 is discussed and interpreted below:
 Political factors - Norway has higher public trust in politicians, less burden of
government regulation in business establishment and execution, less favoritism in
decisions of government officials towards less privileged business entities, more
transparent government policymaking as compared to Mexico (Schwab and Sala-i-
Martín 2017). Moreover, Norway performs better than Mexico in the sub criterion of
irregular payments and bribes. This is an indication that Norwegian market has better
prospects as compared to Mexico in the sense that establishing business in Norway
would be cheaper. It is so because a firm would not be obliged to pay bribes or extra
payments that are undocumented related to (a) exports and imports; (b) public
utilities; (c) licenses and public contracts; (d) annual tax payments; (e) receiving
advantageous judicial decisions; and (f) accessing law enforcement services in
curbing crimes intended to harm the business. The political factors are therefore in
favor of Norway, proving Mexico to be an unfavorable country for business
expansion.
 Economic factors - Based on the assessment of economic criteria, Mexico performs
better as compared to Norway when comes to (GDP) or gross domestic product on the
basis of purchasing power parity (PPP) per capita (Schwab and Sala-i-Martín 2017).
Mexico has the most conducive market for Lidl considering the fact that it has 8 times

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the purchasing power possessed by Norwegian population. The higher purchasing
power and wealth distribution in Norway makes the population prefer premium
quality goods and services. However, the Mexican population comprises of middle
class individuals, which forms the target segment of customers for Lidl. Mexico has a
larger population above the poverty line compared to Norway signifying a bigger
market size for Lidl. Further, Mexico has a higher population within the 25-54-age
range (53.1 million) as compared to Norway (2.2 million) (Cia.gov 2020). This age
range constitutes labor force and is the most probable population group with higher
disposable income. Mexico performs better on household consumption as percentage
of GDP. Accordingly, Mexico despite a complex social and political situation has a
market driven with a huge middle class population with higher consumer spending on
goods and services and therefore has a more attractive market for Lidl. Moreover,
Norway has efficient labor market as compared to Mexico but has an ageing
population. Immigrant labor in Norway is a course of concern, as they tend to quit
jobs easily and migrate to other jobs/regions if the employment are more promising
unlike native Norwegians who are tied down to regions. This means that the cost of
recruiting and recruiting is high for immigrant labor. Therefore, Mexico is a relatively
more attractive market economically for such investment vied by Lidl, which is
largely middleclass-income population dependent.
 Social factors – The Norwegian market performs better than Mexico in terms of
management of ethical behavior in firms and skill sets of the working population
(Weforum.org 2020). However, it has higher buyer sophistication and conservatism
for foreign products, which is unfavorable for the discount supermarket chain Lidl.
Therefore, Mexico proves to be an advantageous option for Lidl’s business expansion
because of the tastes and preferences of the consumers and availability of cheap labor.

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 Technological factors – In terms of technological factors, Norway has a competitive
edge over Mexico due to a better connectivity of mobile broadband and internet
bandwidth along with a larger number of internet users (Weforum.org 2020).
However, both the countries have been identified to have potential capacity for
innovation.
 Environmental factors – Though Norway has a better general state of infrastructure
in terms of railways, port, roads, electricity, communications and air transport,
Mexico is not much worse off (Weforum.org 2020). Furthermore, Norway has stricter
regulations for human health and ecosystems protection thereby increasing the
potential investment costs of Lidl for environmental protection. Therefore, Mexico is
a better market when it comes to investment cost on environment protection.
 Legal factors – The prevalence of non-tariff barriers or NTB includes the legal
challenges that may be faced by a business organization while expanding the scope of
its business in another country (Egger et al. 2015). The barriers present in the
Mexican market include technical barriers to trade (involving the time and cost of
obtaining import certifications), sanitary and phytosanitary requirements,
infrastructure of transport (involving the underdevelopment of rail and road
infrastructure for the supply chain) and low consistency of law enforcement.
However, the NTB of Norway is owing to the regulations of the European Union
(Weforum.org 2020). The regulations of the EU entails that it is the responsibility of
the importer to provide products that complies with the Norwegian food regulations.
I am convinced to choose Mexico over Norway due to the fact that Mexico performs
better on Economic micro-environment criteria (offset other stumbling blocks) since with
high potential on economy of scale it has huge middle-class population (over 25 times that of