Strategic International Management: Lidl's Mexico Market Entry Report

This report analyzes the international expansion strategy of Lidl, a supermarket chain, focusing on its potential entry into the Mexican market. The report begins with an introduction outlining the need for companies to analyze international markets and choose appropriate entry strategies. It then presents a PESTLE analysis of Mexico, evaluating its political, economic, social, technological, legal, and environmental factors to justify the country's selection for expansion. The report further applies Michael Porter's Five Forces model to assess the attractiveness of the Mexican retail industry, examining competitive rivalry, bargaining power of buyers and suppliers, and the threat of substitutes and new entrants. Finally, a value chain analysis of Lidl is conducted, examining its primary and support activities to identify areas for strategic advantage in the new market. The report concludes with a summary of findings and recommendations for Lidl's successful entry into Mexico.

Running head: MANAGEMENT 0
STRATEGIC INTERNATIONAL MANAGEMENT

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Table of Contents
Introduction:................................................................................................................................................2
Task 2:.........................................................................................................................................................2
Task 3:.........................................................................................................................................................5
Task 4:.........................................................................................................................................................7
Task 5:.......................................................................................................................................................11
References:................................................................................................................................................13
Appendix:..................................................................................................................................................15
Conclusion:...............................................................................................................................................19

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Introduction:
When any of the country needs to expand its operations, it is required by the company to analyze
various factors in order to choose the international market. That analysis helps the company to
make several decisions such as mode of entry. This is the report that focuses on the company
called Lidl. It is the supermarket which needs to enter the international. The report justifies the
strategy selected for mode of entry by the analysis of the country and the company using various
strategic tools.
Task 2:
Mexico has been selected as the country in order to expand the business of Lidl in the new
country. The justification of the selection of this country can be done by PESTLE analysis of
Mexico:
Political factors: this is the section that provides the understanding of the political system of the
country. It has been analysed that political conditions of Mexico are very favourable and stable.
There are many reforms that have been developed by the government of the country such as
telecommunication reform, economic reform, financial reform, labour reform, educational
reform, etc (Freeman, 2010). It has been realised that the reforms have resulted in more dynamic
environment for the business or the international business to enter Mexico. This dynamic
environment creates more competitive environment in the market, development of the jobs and
the economic growth of the country. This, it can be analysed that the changes and the reforms
helps the businesses in the country to grow (Ellickson, 2016).
Economic environment:
Mexico is the country that is considered as the 15th largest economies in the world. Although, the
country is very much dependent on US that is the largest trading partners of Mexico and almost
80% of the exports is done with US. As far as the growth rate of the country is considered, it has
been analysed that in the growth rate was +21% in the year if 2017 that was +2.3% in the year of
2016.

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(En.portal.santandertrade.com. 2018).
The above figure suggests that the GDP of the country is growing and this is the reason why
more and more companies like Lidl want to enter this county for their expansion
(En.portal.santandertrade.com. 2018).
Social factors:
The social environment of the country involves some of the elements such as demography,
culture, preferences, habits of the people etc. Thus; these factors affect the demand and supply of
the products in the country. As far as the supermarket and retail sector is considered, it is very
much dependent on the demography and the preferences of the people as this industry deals with
the consumer products that are used on daily basis (Iacovone, et al. 2009). It has been analysed
that the country is so much populated and the area of the country is also much bigger that most
of the other European countries. The area is almost 2 million square kilometres. It has also been
realised that almost 79% of the total population of Mexico lives in cities and towns and the target
market for supermarket is also the people living in cities and towns.
Technological factors:
Technological environment of the country can be defined as the input and output of the
organisations and the businesses in the country and their impact on the same (Trejo-Pech, et al.
2011). The investment of businesses in innovation and technology has a great impact on the

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success of the organisations. Technology does not only affect the process but also affects the
marketing and distribution. As far as Mexico is considered, it has been realised that the country
is very strong in its telecommunication. This has impacted the businesses of the count in positive
way. In terms of supermarket business, It will be easy for the companies to set up their business
and get the technological assistance from Mexico.
Legal factors:
Generally, each and every country has their administrative and legal system. It has been analysed
that the system is formed in order to manage and govern the institution. More complex
bureaucracy affects the companies operating in the country in a more complex way (Skaggs,
2008). In case of Mexico, it has been analysed that importing is the service that has been made
so easy in Mexico by the government and the administration system. The legal system of Mexico
is based on Civil Law Tradition and is little bit complex to understand. It has been realised that
the companies need to spend some time learning about the legal system of Mexico in case of
expanding the business in the country. This is required so that the differences can be understood
by the company. This helps the company to better set up their business in Mexico (Gonzalez-
Martinez and Schandl, 2008).
Environmental factors:
These are the factors that focus mainly on the surroundings and the environment of the country
that has its impact on the business practices of the companies in the country. In case of Mexico,
it has been realised that the companies in the country has to follow some of the guidelines that
make the practices of the country sustainable in nature. As far as the reforms are considered, it
has been analysed that energy reform was one of the reforms that has made the companies to be
more responsible towards energy use. The major aim of the country is to make such regulation to
have cleaner technologies and regulation of the sector of hydrocarbon sector (Mercille, 2011).

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Task 3:
Michael Porter’s Five Forces Model:
This is the model that deals with analysing the attractiveness of the industry. There are several
factors that are included in the model that needs to be analysed so that the situations of the
industry can be evaluated. There are five major factors such as threat of new entrant, threat of
rivalry, threat of substitutes, bargaining power of buyers and bargaining power of suppliers.
Intensity of Competitive Rivalry (Competition):
The intensity of competition is very strong in Mexico in retail industry.
There are many supermarket chains in the market. Lidl has to face a vast competition and should
focus on the external factors of the market which are; there is large number of firms and business
operating in retail market, there are also large variety of retail firms available, there is high
aggressiveness followed by the firms to remain more competitive in the market. It is necessary
for competitors, in the market to remain competitive and win more customer share (Competition,
2018). Main competitors for Lidl are Kroger, Piggly Wiggly, Whole Food Markets, Wegmans,
Wal-Mart Supercentres etc.

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Bargaining Power of Buyers:
The element bargaining power of buyer refers to the effect of buyers on business. As buyers are
so price sensitive if businesses increase their prices of product then buyers will shift from their
product. In Lidl supermarket, the external forces that contribute to the strong bargaining power
of buyer are low switching cost from one retailer to another (Bhasin, 2018). Also there is
availability of high quality information to the customer about the product businesses is offering
and one of the biggest reason that population in the market purchases goods in small quantity and
which is very low as compared to the total revenues of the firm. But Mexico population is so
large that make it impossible for firms to have monopoly there. Higher the bargaining power of
buyers lower will be the industry profits (The Balance. 2018).
Bargaining Power of Suppliers:
The bargaining power of suppliers refers to the how much power business suppliers has in their
hands and how much control they can access over the market to increase the prices according to
their wills. It also includes the number of suppliers available in the market and if there is less
number of suppliers then market suppliers will enjoy the monopoly and if there were multitude
of suppliers are present then there will a better position for businesses. The large population of
suppliers can affect the lidl as well. However there are many supplier’s competing for little space
in retail stores. Thus, lidl face the low intensity of the bargaining power of suppliers (Greenspan,
2018).
Threat of Substitutes or Substitution:
The threat of substitution remain in every business irrespective of its location, size and nature
etc. but how weak or strong is the force will matter to a business. This threat refers to switching
from one company’s product or service to another company’s product or service. This force talks
about how the competitor’s prices and qualities are compared and selected by consumer. For
determining substitution threat Lidl should analyse the buyer propensity to substitute for a
product. Some external forces are most important for Lidl to help in operating the business.

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Availability of substitutes products in the market, poor quality of substitutes and cost of
substitutes products if it is of high value customer will not purchase it and will stick to only
existing product he/she is using (Lombardo, 2018). As Lidl provides low cost goods as compared
to expensive goods, thus, in the retail supermarkets, the threat of substitutes has weak intensity
on Lidl.
Threat of New Entrants (New Entry):
Threat of new entrants includes those factors and forces which decides how easy or difficult for a
competitor to be in the market. As for any market the entry of new entrant can be made easily
even if there huge giants present there but there is also a greater risk for losing the market share.
Some external forces are also there to influence the business which includes cost of establishing
and running a business is too low. It is costly to create a new brand but Lidl has made its
existence in other market already. This supermarket can also have benefits from the concept of
economies of scale by purchasing in bulk and the per unit of cost of goods can be reduced Thus;
Lidl can keep its business operations in Mexico and can become potential threats to firms like
Wal-Mart.
Task 4:
Value chain analysis of Lidl:

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Value chain analysis of the company helps in analysing the various activities of the firm that
adds value to the company. It includes all those activities that the firm performs from
manufacturing and procurement to the market delivery of the product to the customers. There are
two kinds of activities that are involved in value chain analysis. The first one is support activities
that include firm structure, HRM, technology and procurement. The second one is primary
activities that involve inbound and outbound logistics, operations, marketing and sales and
services.
Primary activities:
Operations: All the activities that are performed in order to convert inputs into outputs are
termed as operations. As far as Lidl is concerned, it has been analysed that the major operations
of Lidl is retail operations (Haber, et al. 2008). The company deals with serving the customers
with the daily needs products from its exclusive stores. It is the core business of the company and
it provides the services to almost all over UK.
Lidl movies: It is the operation that the company has started in the year of 2009. This operation
allow the company to serve the market with rental DVD’s. It has started the cheapest online

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retail services to the customers but, in the year of 2011, the services ceased because the company
that powered the service experienced liquidation (Levine, 2011).
Online photo service: it is also the operations that were conducted by the brad in order to serve
the customers with the services of print photos on some of the products.
Inbound and outbound logistics:
Inbound and outbound logistics involves the activities that includes the practices of collecting,
receiving, storing the products and handling the same in the warehouse and also involves the
activities of distributing the products to the market. Lidl is the company that follows the no-frill
strategies as it believes that it is the best strategy that can be used for logistics. The company
does not really believe in introducing the products and making innovations in the same. The
company tries to make majority of its investment in cost saving provisions. The company has
installed the fully automate pick and packing provision for the distribution centres of the
company and planning to make more distribution centres in UK (Ramos, 2014). Lidl is the
company that tries to make the large and big distribution centre in order to make the process of
supply chain easier and this also helps the company to deliver the products in the market on time.
Lidl have around 105 distribution centres and these centres handles eround10, 000 stores
altogether.
Marketing and sales:
As far as the marketing strategy of the company is considered, it has been realised that the
company invest enough i marketing strategy. The major marketing strategy of the company is the
campaign of Surprise, solution and fresh/Local (Mraz, J., 2010).

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Since years, Lidl is marketing the brand with the thought of two main statement that is Lidl has
surprise for you and Lidl has solution for you but the new statement of Lidl will be a local/fresh
retailer for you is added. All the three statement justifies the marketing strategy of the company
in which it listens to its customers’ voice and then solves their issues.
Services:
The major services that the company deals with are:
 Customer service
 Customers satisfaction
 Selling of the products
 After sales services
Support activities:
Human resource: the HR department of the company focuses on the people working with them.
The company believes in recruiting the talented people and providing the proper training for the
development. Rewards have also been given to the employees with great performances.
Firm structure:
As far as the firm structure is considered, the hierarchical level of the company is flat in nature
and the company serves the market with its highly arranged stores.

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Technology:
The company makes investment in technology as well. The automatic pick and packaging system
is controlled by the IT department of the company. The company also believes in serving the
customers with online website and thus allow the customers to apply trough online mediums.
Other technological advancement includes use of goggle analytics for accessing the data for
knowing the customer preferences (Bhasin, 2018).
Procurement:
The company is highly dependent on the UK market as 70% of the products are supplied from
UK growers and suppliers. This suggest that most of the suppliers re done from UK thus the
company exports a lot from UK to other countries.
As far as Mexico is concerned, it has been analysed that the company lie Lidl has to import many
things from UK as it is the standard supplier for the Lidl products. To maintain the standards, it
is required to import the products from UK. In terms of support activities, it will be required by
the company to send some expatriates to Mexico so that they can hire and train the local people
in Mexico. In terms of primary activities, it has been realised that standardization needs to be
maintains and thus all the earlier practices needs to be used in Mexico as well.
Task 5:
When any of the organisations needs to move into the international country, it has to choose one
of the methods to enter the country. In case of Lidl, it has been analysed that franchisee has been
chosen to enter the county of Mexico (Lombardo, 2017).
What is franchisee?
International franchising is the strategic way in which the organisation reduces its dependence on
the local market. It grows new opportunities and future revenue and profit centres of the
company in the international market. If the brand uses franchising as the method for
internationalising then this result in less risk, requires very low investment and offers a huge
potential for earning more and more revenues from the international market. Franchising is the
pooling of resources and capabilities to attain strategic marketing, distribution of the objectives

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of the company; it is the right to operate a particular business in the international land. In this
model, the franchisor and the franchisee are the two parties involved in the contract. The
franchisors are the one who charges the fee from franchisee. The support services such as
advertising, training etc. are provided by the franchisor and the negotiation are done between the
parties.
Franchising in Mexico:
As far as the data is concerned, it has been analysed that the sector of franchisee is experiencing
a growth of around 10% in the year of 2016. It has been estimated that although the country is
facing so much of economic challenges but the sector has achieved the growth by 8% in 2017 as
well (Mexico - Franchising | export.gov., 2018). In terms of regulation, it has been analysed that
Article 142 of Industrial Property Law is the regulatory Article and Article 65 is also one of the
regulatory Article. In Article 142, mentioned as the definition of Franchise, the requirements for
the same and standards for the all over contract (Export.gov. 2018). Trademark is the very
essential thing that needs to be protected in Mexico. As per the applicable law in Mexico, it has
been suggested that the trademark should be used by the licensee, franchisee or the owner
otherwise; it can be subjected to an action of cancelling because of non-use of the same. In this
context, it is required that the franchising that involves Mexican trademark must be recorded
with the Mexican Institute of Industrial Property. The objections are very less and the time frame
for registering the trademark is four to six months in Mexico. The overall analysis suggests that
Lidl can use this mode for safe and successful entry in Mexico.
Advantages of using franchisee model:
Low investment: The major advantage that the company can get by using the mode of franchise
is that of low investment. As the company needs to sell its name and the trademark to the other
local firm thus it does not require huge capital to invest in the international market. The whole
investment is done by the franchisee and the franchisor has to invest only in some of the support
functions such as marketing, training, physical ambience etc.

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Cultural aspects: As Lidl is the firm that is based at UK and thus run its operations as per the UK
culture. If I want to enter Mexico then it has to learn about the culture of the place. It has been
analysed that Franchisee model solves this problem as well (Business News Daily, 2017). This is
because one of the parties involves in the contract is from Mexico only and thus the party is
already familiar with the local culture of the place and can manage the things accordingly.
Motivated management: When the company like Lidl has to enter the new international country
then, it is required by the firm to appoint a manager and trust him for all the operations. If the
manager is himself an owner of the firm than it becomes very easy for the franchisor to manage
the things on international land. That is what happens in franchise model.
Welcoming nature of Mexico: As Mexico is the developing nation thus it welcomes the ideas of
new business that helps the country to create new job opportunities for the local people. Mexican
franchise association is working very hard for inviting the other countries to set up their business
in Mexico.
The overall analysis suggests that Lidl can easily opt for this model for entering Mexico as it
provides many benefits to Mexico as well as to the international country that is entering by its
business in the new market.
References:
Bhasin, H. 2018. Michael Porter's Five forces model for industry analysis. [online] Marketing91.
Available at: https://www.marketing91.com/porters-five-forces-model/ [Accessed 26 Mar.
2018].
Competition, P. 2018. Porter's Five Forces: Analyzing the Competition. [online] Business News
Daily. Available at: https://www.businessnewsdaily.com/5446-porters-five-forces.html
[Accessed 26 Mar. 2018].

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David, F.R., 2011. Strategic management: Concepts and cases. Peaeson/Prentice Hall.
Donelson, A.J. and Esparza, A.X., 2016. The Colonias Reader: Economy, Housing and Public
Health in US-Mexico Border Colonias. University of Arizona Press.
Ellickson, P.B., 2016. 15 the evolution of the supermarket industry: from a&P to
Walmart1. Handbook on the Economics of Retailing and Distribution, p.368.
En.portal.santandertrade.com. 2018. Economic and political outline Mexico -
Santandertrade.com. [online] Available at: https://en.portal.santandertrade.com/analyse-
markets/mexico/economic-political-outline [Accessed 26 Mar. 2018].
En.portal.santandertrade.com. 2018. Economic and political outline Norway -
Santandertrade.com. [online] Available at: https://en.portal.santandertrade.com/analyse-
markets/norway/economic-political-outline [Accessed 26 Mar. 2018].
Export.gov. 2018. Mexico - Franchising | export.gov. [online] Available at:
https://www.export.gov/article?id=Mexico-Franchising [Accessed 26 Mar. 2018].
Freeman, R.E., 2010. Strategic management: A stakeholder approach. Cambridge university
press.
Gonzalez-Martinez, A.C. and Schandl, H., 2008. The biophysical perspective of a middle income
economy: Material flows in Mexico. Ecological Economics, 68(1-2), pp.317-327.
Greenspan, R. 2018. Walmart: Five Forces Analysis (Porter's Model) - Panmore Institute.
[online] Panmore Institute. Available at: http://panmore.com/walmart-five-forces-analysis-
porters-model-case-study [Accessed 26 Mar. 2018].
Haber, S.H., Klein, H.S., Maurer, N. and Middlebrook, K.J., 2008. Mexico since 1980.
Cambridge: Cambridge University Press.
Iacovone, L., Javorcik, B., Keller, W. and Tybout, J., 2009. Walmart in Mexico: The impact of
FDI on innovation and industry productivity. University of Colorado.
Levine, M.N., 2011. Negotiating Political Economy at Late Postclassic Tututepec (Yucu Dzaa),
Oaxaca, Mexico. American Anthropologist, 113(1), pp.22-39.

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Lombardo, J. 2018. Whole Foods Market Five Forces Analysis (Porter’s Model) - Panmore
Institute. [online] Panmore Institute. Available at: http://panmore.com/whole-foods-market-five-
forces-analysis-porters-model [Accessed 26 Mar. 2018].
Mercille, J., 2011. Violent narco-cartels or US hegemony? The political economy of the ‘war on
drugs’ in Mexico. Third World Quarterly, 32(9), pp.1637-1653.
Mraz, J., 2010. Looking for Mexico: Modern Visual Culture and National Identity. Duke
University Press.
Ramos, S., 2014. Profile of man and culture in Mexico. University of Texas Press.
Schwab, K., 2010, September. The global competitiveness report 2010-2011. Geneva: World
Economic Forum.
Skaggs, S., 2008. Producing change or bagging opportunity? The effects of discrimination
litigation on women in supermarket management. American Journal of Sociology, 113(4),
pp.1148-1182.
The Balance. 2018. Learn About the Largest U.S. Retail Grocery Store Chains in 2013. [online]
Available at: https://www.thebalance.com/largest-us-grocery-stores-2892920 [Accessed 26 Mar.
2018].
Trejo-Pech, C.O., Arellano-Sada, R., Coelho, A.M. and Weldon, R.N., 2011. Is the Baja
California, Mexico, Wine Industry a Cluster?. American Journal of Agricultural
Economics, 94(2), pp.569-575.
Appendix:
Task 1:
PESTLE analysis of Mexico and Norway:

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Factors Mexico Norway
Political Stable political framework
Three different levels such as
federal, state and municipal
Stable political situations
Member of EU and thus have to follow
EU legislations
Political satisfaction amongst the
masses
Economical Mexico is amongst the 15 top
economies of the world
It is known for its high quality and
cheap labour
Rate of unemployment has
dropped by 3.6% (Schwab, 2010)
Annual average growth of more than
5%
Growth rate of economy is decreasing
since 2014
Social 79% of the population lives in
cities
More of the share of the
population is constituted by young
generation
Issues of corruption and cartels
Scarcely populated country with around
14 people living per square kilometre.
Values and trust matters a lot for doing
business
Technological Technological development and
innovations are accepted by each
and every sector of the country
Biggest reform in technical sector
is improvement in telecom sector
that affects other businesses also
Country has high capability of
investment in ICT sector
Legal Administration supports importing
and manufacturing sector but is
difficult for the service sector
Civil law tradition is followed
High bribery (David, 2011).
Legal system of Norway is very
efficient in nature and thus new
business can be easily entered.

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Environmental Very high air pollution rate and
thus it becomes difficult for the
manufacturing industries to set up
here.
Varied climate with less pollution rate
(Schwab, 2010).
Scoring as per the global competitiveness report:
Factors Mexico Norway
Political 3.2 5.8
Economic 5.2 6.6
Social 5.7 6.6
Technological 4.2 6.1
Legal 3.8 5.1
Environmental 4.3 5.0
As far as the above scoring is considered, it has been analysed that Norway is the country that is
already developed in all factors is more competitive in nature as its rank is 11 while ranking of
Mexico is 51. This suggests that entering the country like Mexico provide more opportunities for
the business to gain success and get the chance to operate the business easily without tough
competition (Schwab, 2010).

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Norway:
Mexico:

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As far as above sectors are considered, it has been analysed that Mexico is the place with high
corruption but if the comparison is done between the capacities to innovate, it has been realised
that Mexico has the capability to move ahead and accept the new ideas (Schwab, 2010).
Conclusion:
It has been concluded from the report that Mexico is selected as the country for international
expansion of Lidl over Norway. This is because of several opportunities that are available in
Mexico as it is the developing country. The overall analysis of Mexico suggests that franchise is
the best mode of entry that can be used to enter the country by Lidl.