Strategic Management of Lidl: Business Expansion in China

This assignment discusses the strategic management of Lidl, a German discount supermarket chain, and its business expansion in China. It covers the challenges faced by Lidl, external analysis using PESTEL analysis and 5 Force Framework, and identification of competitive strategies and methods of expansion.

Strategic Management

EXECUTIVE SUMMERY
Strategic management is the process and activity of effectively manage the business
action and operations of that it can survive, sustain and gain competitive advantages form the
market. This assignment is based on Lidl which is international grocery retail company and
operate its business in US and European nations. The report will consist the business expansion
of Lidl in China so the different models, theories and concept used to monitor the impact of
macro and micro factor which affect the business of the firm. Apart from it some framework are
used to monitor the competitive edge from the marketplace.

Table of Contents
EXECUTIVE SUMMERY..............................................................................................................3
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................4
Overview of the organisation......................................................................................................4
External Analysis of the company..............................................................................................4
Internal analysis of the organisation...........................................................................................8
Identification of the competitive strategies.................................................................................9
Strategic direction & methods of expansion.............................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Strategic management refer to process and activity of setting aims and objectives,
examining the competitive atmosphere, monitoring the internal organisation, analysing plan of
actions and assuring that administration rolls out the strategies in whole organisation. Strategic
management consist strategies for leadership, management and business execution (Aguinis,
Edwards and Bradley, 2017). These plan of action use by the administration of the firm for the
effective establishment of the company so that all the set objectives can be accomplished by the
firm appropriately. This assignment is based on Lidl is a German transnational discount super
market chain. This organisation was established in 1930 and operates over 10,000 stores across s
Europe and US. For the appropriate completion of the report, China is the selected nation in
which the company can expand its business. This report will discuss the brief introduction of the
company and the challenges faced by it. Further, will explain about external analysis by using
PESTEL analysis and 5 Force Framework. To conduct internal analysis, VRIO and Value chain
Malaysians will be used. Identification of competitive strategies and strategic directions &
methods of expansion effective models and theories will be applied.
MAIN BODY
Overview of the organisation
Lidl Stifung & Co. KG is a Germany based international discount supermarket chain and
it is as part of the Schwarz Group and one of the largest retailers in Europe.. This organisation
was founded in 1930 by Josef Schwarz and headquartered in Neckarsulm, Germany. This
company operate its business with the help of 10,000 stores in 28 European nations and the US.
There are 315,000 individual work with it and make their contribution in running the business
and accomplishing its aims and objectives.
Challenges faced by Lidl
The respective company deal in grocery sector and Lidl is international grocery retailer
so there are several kind of challenges which are faced it in different nations. During the time of
expanding business in China, it should follow the rules and regulation of international
government. Some times these kind of things can create barriers for the business of the company

when the national authorities make changes in their rules and formulate new laws (Ansoff and et.
al., 2018). Some challenges are mentioned as below:
Government regulations- Rules, regulations, policies, plans and legislations are essential
for following to a company either it operating globally and nationally. Lidl operate its business
internationally so it follow all the policies of government of different countries so that it can
operate its business effectively in different nations (Baumgartner and Rauter, 2017). But some
time its face challenges due to regulations. For example, When the government of China make
modifications in its laws like foreign trade policy, trade restrictions and taxation policy then it
can create in the form of challenges which affect the business operations and activities in
different manner.
Low profit margins- It is another challenges which can be faced by Lidl. There are
several reason to generate these kind of issues in the company like if the company invest more in
offering effective more services to customers, number of rivals in the markets, discount, to invest
more in supply chain and others. Lidl can face challenge when it running its business in China
and it will set up a large outlet which consume more cost and so the company have low
profitability. Another cause is discount strategy, the administration will offer its products in
discount more than its competitors so the firm does not earn actual profit and the profit ratio is
low.
External Analysis of the company
Macro environmental analysis
It refers to the process of analysing the external environment of the industry in which a
company operating its business. With the help of this analysis the management of the company
can examine that factors which affect the business of the firm externally. This analysis is a key
input in to plan of action formulation. To examine the external analysis, the administration of the
Lidl can use PESTEL analysis to monitor the macro environmental factor which affect the
respective company during the time of expanding in China.
PESTEL analysis
It is a framework and tool which is utilised by the administration of the company to
determine and analyse the macro environment factors that create impact upon the firm. PESTEL
analysis of Lidl is defined as beneath:

Political- This factor consist government policy, political stability or instability, trade
restrictions, taxation policy, labour law, foreign trade policy and others. For example, high extent
of taxation can demotivate Lidl in operating its business in China and increasing its profitability
(Certo and et. al., 2016). There are various changes occurred in the rules of national authorities
of nation due to political reason like political stability and instability which affect the business of
the respective firm. A low minimum wage can provide higher profits which maximise the
chances of survival for the respective organisation. For example, the government of China make
change in its trading law and the changes to the trademark law so to operate the business in
China, organisations required proper licences and has been a lengthy procedures fraught with
uncertainty due to unspecified documentation demanded by various extents of national
authorities.
Source: PESTEL analysis,(2018).
Economic- It is another macro environmental factor which include interest rate, exchange
rate, currency rate, inflation, economic growth and others which influence the economic
condition of a company. For instant, Brexit is a factor which is affect the economic growth of
Lidl unfavourably. In Asian Union, Brexit highly impacted the economy by taking inflation and
the value of currency was low in countries and the trading of the goods and services was costly
and the management of the respective company invest more fund in these kind of business
Illustration: PESTEL analysis

activities (Frynas and Mellahi, 2015). In some Asian countries like China, Cambodia, Thailand
and Laos, the rate of employment is low and the people of these nations are ready to work at less
pay. This help in favourably impacting the business of the company.
Social- This factor is known as social cultural factor and involve the components like
culture, values, beliefs, needs, taste and preferences of the customer. This factor also influence
the business of the firm, for example, Lidl is not able to promote a premium product to the
general public because the majority of the population is lower class and they would have to rely
on very niche marketing. Due to focus on a specific market it can not fulfil the needs of its all
customers so it can unfavourably affect the firm. This organisation offer products ad services as
per the consumer need on affordable prices so it have a large number of customer which help in
increasing the profitability of the company.
Technology- This is an essential factor which affect the business of the company in
different ways like using new ways of producing goods and services, new ways of distributing
goods and services and new ways of communicating with target markets. For example, it use
radio, newspaper, magazines, leaflets, billboards hoardings and campaigns to provide the
information about its products and services to its customers. But social media, internet, web
advertisement, Facebook, Instagram and other technological promotion can help the company to
familiar more customer with its business. This positively affect the business of the respective
firm in term of increasing the customer base because in China people tech friendly so with use of
these kind of technology they aware with the company. People of China are more tech-friendly
so they use higher level of technology in their business. For example, in the respective nation,
business person start high bevel of utilization of social media and web advertisement so that they
can create awareness about their products and services.
Environmental- This factor of external analysis consist increasing scarcity of raw
material, pollution targets, carbon footprints, environmental laws and others (Ginter, Duncan and
Swayne, 2018). For example, the management of Lidl, effectively consider and follow the laws
and legislations of national authorities related to environment of those nation in which it operate.
This positively affect the business of the company in favourable manner. If the administration of
the respective firm will not make control on the waste to manage environmental habits then it
can consist pollution fines which may place a financial strain of Lidl. For example, the national

authority of China developed Soil Protection Act from the pollution which is created in the
environment by the wastage and pollution of the business production of different organisations.
Legal- This factor refers to those laws and regulations which are formulated by the
national authorities of the countries so that organisations can operate their business legally and
did not create any kind of fraud and discrimination inside and outside of the company (Hitt and
Duane Ireland, 2017). This factor include several laws like consumer protection law, health and
safety law, equality act, anti discrimination act, product labelling and safety etc. For example,
Lidl appropriately follow equality and anti discrimination act not treat its all employees similarly
by providing their rights as per their position and pay similarly to those workers who are working
on same position. This favourably influence the company because due to this all the employees
perform their responsibilities adequately. For example, the national authority of China's decide to
launch a new law for new e-commerce. This act is developed by the government to improve the
regulation of its booming e-commerce market and extend legal protection for consumers and
brand owners. One of the major changes is the inclusion of non-traditional shopping channels as
places of e-commerce.
Micro environment analysis
It indicates to the examination of those factors which internally affect the business of the
company. Micro factors influence business strategy, decision making and performance of the
company in different manners. For micro environment analysis of Lidl, the administration of the
company can use Porter's 5 Force analysis. The brief explanation of this framework is as follows:
Porter's 5 Force analysis
This model is developed by Michael E Porter in 1979 to identify those micro
environment factor which create their impact upon the business strategies and operations. This
concept is also beneficial to monitor the rival intensity and attractiveness of a market. It also help
in understanding the strength of a company's actual competitive position and the strength of a
position that a firm may look to move into.
Threats of new entrants- It is the first force of this analysis which help in monitor that
how a company enter in to a specific market and industry. Lidl operate its business in retail
industry and in grocery sector so there are various rules and regulations are formulates by
government to operate business (Hitt, Ireland and Hoskisson, 2016). For example, in China, the
national authority of this nation deigned several strict legislations to those organisations which

want to operate their business in this sector. So this create a barrier to them and not easy to enter
in retail industry. There are also more cost and capital required to the firm which want to expand
its business in this industry. Therefore, the threats of new entreats is low for Lidl due to high
inveiglement of cost and strict rules of government of the respective country.
Source: Porter's 5 Force analysis,(2019).
Bargaining power of suppliers- It indicates to the number of suppliers who are provide
raw material to the company for manufacturing products and services to the organisations.
Suppliers are those individual who provide required resources to the company so that it can
manufacture products and services to fulfil consumers needs (Karadag, 2015). For example, In
China, there are less number of suppliers who offer the material to provide the products and
services to the company to its potential customers. Therefore, the bargaining power of supplier is
high due to less number of providers.
Barging power of byers-This force indicates to the number of buyers who are available in
the market to purchase the goods and services of a particular organisation with the motive of
provide satisfaction to their needs and requirements. For instant, the administration Lidl use
discount towards it products & services and also offer good quality services to its target
audiences. So, there are number of buyers in the market of Norway and therefore, the bargaining
power of buyer is high due to large customer base.
Illustration: Porter's 5 Force analysis

Threats of substitutes- This force refer to the risk of similar products which are
manufactured by the company which deal in same sector and produce similar products. Lidl
operate its business in retail industry in grocery sector so that are several organisation which also
run their business in same sector or at international levee. For example, Aldi, Tesco, ASDA,
Saibury's etc. which are operating their business in retail industry and grocery sector. These
organisation manufacture similar product as compare to Lidl. Therefore, the risk of substitute
products is high due to produce similar products. The administration of Lidl can minimise this
threat by making expansion in the product line or by making innovation in the existing products
of the company.
Rivalry among existing competitors- This force mention to the competition that what is
the level of competition in the market among the firms which are dealing in same industry with
similar business. For example, there are high level of competition in the marketplace for Lidl due
to number of grocery business organisations like, Tesco, ASDA, ALDI, Sainsbury's and others
(Lasserre, 2017). These companies are running their business in retail sector by operating the
business of grocery. So the extent of rivalry among exiting competitors are high. It can affect the
sales and profitability of the company in unfavourable manner.
Internal analysis of the organisation
Internal analysis- It refers to the exploration of the company's ability, cost perspective and
competitive practicality in the market. By organising a internal analysis, the management of a
company can incorporates measures that offer important data about the company's strengths,
weaknesses, growth options and risks to the businesses (Meyer, Neck and Meeks, 2017). The
administration of Lidl can do internal analysis to determine the competition, effective resources
and utilization of the origins to prefecture the products and services. For this, the management
can use VRIO analysis which is mentioned as under:
VRIO analysis
It is a business determination model and framework which is used by the organisations
fro evaluating the company's resource and competitive benefits. It was developed by Jay B
Barney to examine the resources of a company like financial, human resource, goodwill and
technology. The administration of Lidl can use use this framework in context of China and the
brief explantation is as follows:

Valuable – It is the first and foremost component of this analysis which indicates to those
resources and origins which help the company to manufacture the goods and services. These
resources and valuable for the company because they make theior contribution in the running of
the business of an organisation. For example, in Lidl, employees, finance and technology is the
most valuable resources to the firm. Because with the help of proper fund the management of the
company can effectively operate the business and make expansion. Skilled and well qualified
workers also a valuable resource to the company because they make their contribution in
business operations and activities of the organisation.
Rare- It is another component of this framework which indicates to those resources
which are rare and acquired by few firms. In Lidl, the administration of the company use
effective technology to increase the efficiency in its operating nations it has presence in can also
be employed in the new market. Industry best practice, their own processes and company's
trademark also technological resources that Lidl can employ in China.
Inimitable- The distribution network of the respective company is also costly to imitate
by competition as find out by Lidl VRIO analysis (Michael, Storey and Thomas, 2017). For
example, in the respective company, the supply chain of the company is also an imitable
resources which can be copied by others.
Organisation- It refer to the effective management of the resources which are used by the
company fro the effective running of the business. Because the resources do not create any
advantages and benefits themselves for an organisation if the administrators are not organised
them in an effective manner (Morschett, Schramm-Klein and Zentes, 2015). For the proper
administration of them the managers planning, directing, controlling and reporting them. So that
they can be organised in adequate way and the firm run its business by utilising of them.
Identification of the competitive strategies
Competitive strategies refers to those long term plan and plan of action which are used by
a company in order to gain and earn competitive benefits from the competitive market over its
rivals. The motive of these kind of plan it maximise the profitability of a company and defensive
position in a sector and generating high level of return investment. To find out the competitive
plan of action, the administration of Lidl can use Porter's Generic model. It is as beneath:
Porter's Generic Model

This model consist plan of action which are beneficial to gain competitive advantages
and combined with the scope of activities for which an organisation seeks to accomplish them.
There are three generic strategies for attaining above average performance in a sector like cost
leadership, differentiation and focus. The brief description of these strategies are as follows in
context of Lidl:
Cost leadership- It is the first strategy in which a company sets out to become low cost
procedure in that industry in which it operating its bus8ienss. In Lidl, the administration of the
company effectively manage and organise the cost of that good quality products can be
manufactured by consume less cost and provide a high level of satisfaction to the customer. If
the manufacturing cost will less then the management can offer that goods of the company to
customers at affordable price which help the respective company in gaining competitive
advantages for the marketplace.
Differentiation- It is another strategy which is used by the company to gain the rival's
benefits from the market. In this plan of action, the company seeks to be unique in its sector by
making differentiation in the products and services which are effective and have some value and
customers are ready to purchase them (Moutinho and Vargas-Sanchez, 2018). For example, in
Lidl, with help of this strategy, if the management of the company make some differentiation and
innovation in its products and services which are different form other grocery retailer so that
target audiences are available to purchase them. This will help the firm in gaining rival's
advantages form the marketplace.
Focus- This generic strategy consist two plan of action like either the company should
focus on the leadership and management of the cost or differentiation in the products (Noe and
et. al., 2017). But the management of the firm can concentrate on one strategy in a time either
cost leadership or innovation. It can be beneficial to the company because it help in offering
competitive edge form the market.
From the above information, it can be summarised that the management of Lidl can focus
on differentiation because by making innovation in existing products, it can offer something new
to its customers as per their requirement which help it in earning competitive advantages.

Strategic direction & methods of expansion
Strategic direction and methods of expansion refers to those ways by which a business
and company make expand in another geographical location and market. For the expansion of
the business, the management of Lidl can use Ansoff Matrix which is as under:
Ansoff Matrix
This model was developed by H Igor Ansoff to understand the risks an threats which are
faced by the company during the time of growing their business. This matrix consist some
growth and development strategies which can be used by a company for the business expansion.
Fro example, the administration of Lidl also can used them during the time of making expansion
in its business.
Market penetration- It is the first growth strategy, in which growth and development can
be accomplished from the market by simply maintaining market share, maximising promotion
and distribution efforts and minimising the prices of the products to retain the existing potential
clients and getting attention of new consumers. This growth strategy is less risky because the
products are sells in existing market.
Market development- It is another growth growth strategy in which development are
formed by the administration in the business of the company by expanding it new market. In it,
existing products and services are launched in the new market with the motive of making growth
and development in the company (Rothaermel, 2017). This strategy is risky more than
penetration because the firm expand its business with the existing commodities in to new market.

Source: Ansoff Matrix,(2019).
Product development- In this growth strategy, the company operate its business in
existing market with innovative or new product. In this plan of action, the management can make
innovation or manufacture new products so that they make development in the firm by offering
new product in the existing market (Trigeorgis and Reuer, 2017). It is more risky in comparison
to market development because it is not sure that the new product will liked by the customers or
not.
Diversification- This strategy is risky in comparison to above mentioned strategies
because with in it, the company make expansion in its business in new market or new nation with
the help of new products and services. So, there is not any kind of surety that product will be
liked by the new market and customers.
From the above mentioned information, it can be analysed that the market development
strategy can be beneficial to the company to make expansion in the new market like china with
the purpose of making development and growth in the business of the firm with its existing
products and services (Aguinis, Edwards and Bradley, 2017).
CONCLUSION
From the above information, it can be summarised that strategic management is an
important aspect which help in effectively manage and administrate the actions,. Operations and
activities of the business of a company. To determine the macro environmental factors which
Illustration: Ansoff Matrix

create impact upon the business of the firm the company can use PESTEL analysis and to
monitor the micro environmental factor it can use Porter's 5 Force Framework. For internal
analysis VRIO model can be used by the management of the firm. To identify the competitive
advantages, Porter's generic strategies can be used by the firm. Each and every business and
requires business growth and development so for this the administration can use Ansoff Matrix.

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