Strategic International Business Management: ALDI's Market Expansion

This report conducts a strategic analysis of ALDI, focusing on its potential entry into the Czech Republic market. It begins with a comparative PESTLE analysis of New Zealand and the Czech Republic, ultimately recommending the Czech Republic due to its economic progress, stable political environment, and favorable demographics. The report then employs Porter's Five Forces to assess the attractiveness of the Czech Republic's supermarket industry, considering factors like the threat of new entrants, bargaining power of buyers and suppliers, the threat of substitutes, and competitive rivalry. Finally, a VRIO framework is applied to evaluate ALDI's resources, highlighting its financial strength, experienced human resources, and technological capabilities as key advantages for successful expansion. The report concludes that ALDI is well-positioned to leverage its strengths and capitalize on the opportunities within the Czech Republic's market.

Running head: STRATEGIC INTERNATIONAL BUSINESS MANAGEMENT
Strategic International Business Management
Name of Student:
Name of University:
Author’s Note:

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Executive Summary:
The aim of the report is to conduct a strategic analysis of the ALDI Company. It also needs to be
understood what factors are to be considered at the time of entering into a new market. There
have been two given markets. These are those of New Zealand and Czech Republic. The
complete analysis of ALDI in the industry of Czech Republic on the basis of comparative Pestle
analysis is conducted. The modes of market entry are also analysed. The comparative Pestle
analysis is provided in the appendix. The five forces analysis is also analysed. All in all the way
in which Aldi can enter into the market of Czech Republic can be analysed.

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Table of Contents
Task 2:.............................................................................................................................................3
Task 3:.............................................................................................................................................5
Task 4:.............................................................................................................................................7
Task 5:.............................................................................................................................................9
References:....................................................................................................................................12
Appendix:......................................................................................................................................14

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Task 1:
The comparative Pestle Analysis of the two countries New Zealand and Czech Republic
are conducted. This is accompanied by a grading system regarding all the six macro-
environmental factors in case of both the countries. Refer to the appendix for the solution.
Task 2:
Aldi is one of the most famous brands of Global Supermarket Chains, which have more
than 10,000 stores in around 18 countries. It has a huge estimated turnover. The policy of the
Aldi group has contributed to its success, which complies with the principle that great quality
needs to come at affordable prices instead of prices out of the reach of the common people. This
is because they are the major consumers of such products.
According to the Global Competitiveness Report, the overall ranking of New Zealand is
at number 13 while Czech Republic is at number 31. The score of New Zealand is at 5.31
whereas the score of Czech Republic is at 4.72. The chosen market for the expansion of market
strategy out of New Zealand and Czech Republic is that of Czech Republic. This is because the
country has made remarkable progress in the recent past and made “several new changes in the
country in order to uplift the political system and the financial condition of the country”.
According to the comparative pestle analysis of both the countries, it is seen that the
political factors are highly stable in New Zealand for the foray of Aldi in the New Zealand
Market in comparison to the reasonably stable conditions in Czech Republic. However, the
overall score in the country of Czech Republic is more and thus this particular country is feasible
for Aldi to expand its business further. The following are the rationale that are responsible for the

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identification and selection of Czech Republic as the ideal market for Aldi along with the
application of a detailed macro-environmental factor analysis (Yüksel 2012).
The political situation of any country is extremely important for any company to enter
into that particular market. There is a politically stable government in Czech Republic. The rules
and regulations for the mode of entry are fair and there has not been any case of any riot or any
sign of war or any major issue of concern in the country for several years in the past.
Aldi has put a major amount of emphasis on the analysis of the “macro environment of
Czech Republic before making any sort of investment plans and from the political analysis
discussed above it shows Czech Republic” possess a “stable political environment for Aldi to
profit from” (Yüksel 2012).
The country has “the most stable as well as rich market in the whole of Central Europe”.
It is extremely well known and popular all over. It has produced a GDP of $214.6 billion in the
year 2011. It reached an even higher mark of $279 billion in the year 2017. Czech Republic also
has low labour costs in comparison to the other countries of Western Europe. The country has a
significant PPP value of $28715 and is ranked at 34 in the entire world. The facts which have
been discussed, show that the economic environment of the country is stable for Aldi to thrive in.
Czech Republic has a high population demographic of young and working class people.
The population falls in the age group of 15-64 years which falls in between the Aldi target
market. The people who reside in Czech Republic are highly educated and usually abide by the
rules and regulations of the country and for Ali to be successful in opening their franchise in
Czech Republic, they need to be patient and follow the rules strictly (Grünig and Kühn 2015).

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There is a significant scientific tradition in the country Czech Republic which is prevalent
through several years of academic and specialized research which is responsible for bringing
about new innovations and inventions. There are certain technological platforms that Aldi can
benefit from. There is also facility for the stable equipments and computers for Aldi.
Czech Republic is ranked quite high in the recycling field and in this regard it can be said
that the “recycling within the country” has been “increased from 1% to 16% over a decade and is
steadily increasing” at present and “landfill taxes” have also been enforced in the country. Aldi
has also produced certain guidelines for the suppliers which indicate reusing, recycling and
packaging whenever possible. Aldi now recycles 98% of its waste from landfill (Grünig and
Kühn 2015). In case of the legal factors it can be stated that there is a free trade movement of
goods in Czech Republic, these striking legal “factors are conducive” to the “ALDI investment
in the Czech Republic” (SUPERMARKET 2012).
Task 3:
The five forces analysis for the discussion on the industrial environment of Czech
Republic and the conditions favourable for Aldi is discussed. The threat of entrants is considered
first. The barriers are low for big companies and high for small companies. There are high
barriers and low risk factors which include “high fixed costs, capital requirement of entry,
economies of scale, access to supply and distribution channels” and also the factors of retaliation.
There are also low barrier and high risk scenarios which include the customer switching cost,
regulation and these are to be kept in mind by the company (Rothaermel 2015).
ALDI has been “operating within the grocery industry and it is a promising area where
the increasing population” would be bound to impact the demand in the future. It can also be said

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that when there are businesses or innovations to the market; it also looks towards the increase of
the population. It can be stated in this regard that the small scale markets would have certain
problems in “entering the market” as the “economies of scale” play a huge role in the industry
and they require a “significant amount of capital and technology” for their survival. The retail
turnover in different segments also plays a chief function in the attraction of more competitors in
the market under consideration.
In relation to the bargaining power of buyer it can be said that there is a high risk with
respect to the forces. There are certain standardised products, customer switching power and
international hubs there are also a distinct group of customers. It is a known fact that more or less
“every person is a potential customer for the grocery industry” and the demand is also
considerably high. Due to the fact that the “grocery products are low or medium involvement
products the buyers would be bargaining for the high quality products and the greater levels of
service for a lower cost”. In case the needs of the customers are not met they have the chance of
switching to another company as there is not much of an involvement of switching cost. Most of
the grocery products are undifferentiated or standardized. “The buyers can pose a threat in case
they can integrate backward in the industry of the seller” (Dobbs 2012).
The threat of substitutes is also extremely high and this needs to be analysed well by the
Company. There are several convenience stores and discount centres and the adaptation and
innovation needs to be devised by the market. The “large scale supermarkets” and shopping
malls are the prime threats for the retail stores are the alternative products range in the
supermarkets is bound to be much greater. “These would not only focus on the national brands
but will also offer home brands for much cheaper rates in the form of substitutes”. In addition to
this it can be stated that the new and more innovative technologies stores and supermarkets will

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not hesitate to bring forward “certain substitutes for the grocery and other household items which
have lower costs with much greater performance and quality”. The fast food outlets such as “Mc
Donald’s and Subway would be the substitutes for the food items of the grocery industry”
(Chung 2015).
With regard to the bargaining power of suppliers there can be said to be a medium risk.
There are few products and lesser amount of dependency on the suppliers up to 40% of fruits and
vegetables are locally produced and there is also a certain proximity to the countries which Aldi
operates in. “The competitive firms focus on the cost reduction and therefore the bargaining
power of the suppliers is thought to be low. In addition to this it can be mentioned that there are
large organisations in the industry with strategies for improvement of the efficiency and
reduction of costs”. There is a tendency where the prices are reduced for many national brands
for the reduction of their costs (Dobbs 2012).
The extent of rivalry among the competitors is also quite high. There are several big
international names which include Tesco, Lidl, Penny Market and other hypermarkets are also
there which comprise of 43% of the Czech Republic households. There are certain offered
discounts which amount to around 25%. Most of the grocery stores are undifferentiated and they
are easy to imitate. Due to this there are chances of intensification of rivalry and the purchasing
decisions are bound to be based primarily on the prices and very less on the nature of service
(Chung 2015).
Task 4:
A VRIO framework helps in the understanding of the strengths which can be gained from
the resources of as company. It comprises of four parts which include the criteria of being

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valuable, rare, unique or scarce, inimitable and suitable organisation. The resource of the
company should be valuable, otherwise this will not pave the way for newer and better
opportunities. The resources need to be rare in order to provide the company with a certain
amount of competitive advantage. It should be inimitable by other competitors and immersed in
the values of organisation. The resources of ALDI can be categorised as financial, technological,
organisational and human resources. The company has a turnover of more than $50 billion and
therefore it has the economic capability to enter into the new market. In addition to this it can be
stated that the human resources are also the biggest asset for ALDI (Lin et al. 2013).
ALDI also possesses immense experience in case of the international business and can
utilize their present strategic frameworks to assist them in obtaining a competitive advantage
over other existent rivals in Czech Republic (Jurevicius 2013). The technological resources are
also used to enhance the technological resources which can be applied by the company in Czech
Republic. By the application of the VRIO framework it can be said that several components can
be described as follows:
The economic resources can help the company to pursue the expansion strategies much
more aggressively in order to achieve a definite competitive advantage. The organisation can
also take advantage of their human resources and also the technologically advanced
supermarkets in the new market. The employees are also technologically savvy and they also
help in training the local people who are hired to work on part of the company. This helps in the
standardisation of the whole operation. The company needs to focus on the existing
technological operations and the resources need to be handled effectively and the rest of the
management needs to be handed over to the marketing department (Andjelkovic Pesic, Jankovic
Milic and Stankovic 2013).

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It can be stated in this regard that the company needs to put in place certain advanced
processes in their respective outlets which might be difficult for their rivals to copy. Then it can
be assured that other organisational resources are utilized as an advantage (Rothaermel 2015).
Based on the conducted VRIO Analysis it can be sated that ALDI focuses on the creation
of value for the customers by the reduction of cost and enhancement of the quality of its products
(Rothaermel 2015). The VRIO and the analysis of the strategic capabilities of ALDI shows that it
possesses certain resources and capabilities which act as key necessities and some are the key
qualities (Kozlenkova, Samaha and Palmatier 2014). The most crucial qualities are the
dominating competencies and these include the low labour cost, high buying power and a
uniform price system which ALDI possesses. This has prompted an income of an above average
return. It can be said that the key necessities are the basic skills which are required to operate in
the market which include the size of a store, the capability of distribution, proper quality of
products with low costs and this has led to earnings of average returns (Knott 2015). These
factors, point to a sustainable competitive advantage for ALDI in Czech Republic.
Task 5:
There are several possible modes of entry into certain foreign markets. The different
modes of entry into the foreign market include exporting, licensing, management contracts,
contract manufacturing, franchising, joint ventures or strategic alliances and finally that of full
acquisition. Out of the different modes of entry into a foreign market, one of the oldest methods
of entry is by exporting. By this procedure the goods and services of one country are sold in
other countries. There are both methods of direct and indirect exporting. In the method if indirect
exporting, there is the least amount of risk involved. The method of direct export needs to be

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applied once the organisations have gained a certain amount of experience. Contractual
agreements are considered at the time when the firms have to approve more responsibility for
their entry into the foreign market. Franchising is another possible option in the context of the
foreign market entry. In case of franchising, the particular organisation can franchise its
operations in another suitable company which is done in exchange for a share of profits (Chung
2015).
The mode of entry which is most suitable in the case of ALDI in Czech Republic is that
of joint venture or strategic alliance. After a proper study of the market in Czech Republic it can
be stated that the best mode of entry of Aldi is by means of joint ventures or “strategic alliances”
in the country. In case of “joint ventures” or strategic alliances, the firms who are internationally
expanding must decide which of the markets can be entered into. The factors which affect the
choice of entry mode covers factors like “transport costs, trade barriers, political risks, economic
risks, strategy of the firm and also the costs”. The timing of entry must be chosen logically such
that the company ultimately benefits from its choice (Laufs and Schwens 2014). The concept of
the choice of joint venture can be attractive because the firms benefit from the knowledge of the
local partner the cultural language, political systems and the business systems. “The costs and the
risks of opening a foreign market are shared”. These actually satisfy the political considerations
for the entry into the market (Chung 2015). “However it also needs to be kept in mind that the
firms also risk the control of its technology to its partner. The firm also might not have a
significantly tight control to realize the experience curve or the location economies. The shared
ownership in this case can lead to conflicts and there are also battles for control in case the goals
and the objectives differ or change over a period of time”. The core competencies of the firm

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also help in the suitable analysis of whether the entry is suitable in a particular existing market
(Laufs and Schwens 2014).
For a successful entry into the market of the Czech Republic, at first the existing market
needs to be properly analysed. The country is characterised by extensive population dispersion.
Over “10 percent of the population” is centred in “Prague, the only city with more than a million
inhabitants”, on the other hand, majority of the Czechs live close to other major commercial and
industrial hubs. Urban consumers in general have a greater purchasing power than the rural
counterparts. “Success in the market also requires an in-country presence such as a particular
agent or distributor or any representative office. The local distributors usually take responsibility
for handling customers, dealing with established wholesalers or retailers and marketing the
product directly to major corporations or the government and handling the after sales service”
(Janda, Michalikov and Skuhrovec 2013). Price is also one of the crucial factors at the time of
positioning a product or a particular service for sale (Ang, Benischke and Doh 2015). “Many
competitors in the grocery industry follow a similar strategy which is to provide high quality
products for low costs”. At present, Aldi has one of the positions as a cost leader and continues a
battle for its maintenance. At first the entry into a new market is tough but the strategic analysis
is crucial for the survival in the market.

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References:
Andjelkovic Pesic, M., Jankovic Milic, V. and Stankovic, J., 2013. APPLICATION OF VRIO
FRAMEWORK FOR ANALYZING HUMAN RESOURCES’ROLE IN PROVIDING
COMPETITIVE ADVANTAGE. Tourism & Management Studies, 2.
Ang, S.H., Benischke, M.H. and Doh, J.P., 2015. The interactions of institutions on foreign
market entry mode. Strategic Management Journal, 36(10), pp.1536-1553.
Chung, F., 2015. The Supermarket switch is on as Aldi takes top award in customer
satisfaction. Business retail July, 21, p.2015.
Chung, F., 2015. The Supermarket switch is on as Aldi takes top award in customer
satisfaction. Business retail July, 21, p.2015.
Dobbs, M.E., 2012, January. Porter's five forces in practice: Templates for firm and case
analysis. In Competition Forum(Vol. 10, No. 1, p. 22). American Society for Competitiveness.
Grünig, R. and Kühn, R., 2015. The strategy planning process: Analyses, options, projects.
Springer.
Janda, K., Michalikova, E. and Skuhrovec, J., 2013. Credit support for export: Robust evidence
from the Czech Republic. The World Economy, 36(12), pp.1588-1610.
Jurevicius, O., 2013. VRIO framework. Strategic Management Insight, Retrieved July, 27,
p.2014.
Knott, P.J., 2015. Does VRIO help managers evaluate a firm’s resources?. Management
Decision, 53(8), pp.1806-1822.

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Kozlenkova, I.V., Samaha, S.A. and Palmatier, R.W., 2014. Resource-based theory in
marketing. Journal of the Academy of Marketing Science, 42(1), pp.1-21.
Laufs, K. and Schwens, C., 2014. Foreign market entry mode choice of small and medium-sized
enterprises: A systematic review and future research agenda. International Business
Review, 23(6), pp.1109-1126.
Lin, C., Tsai, H.L., Wu, Y.J. and Kiang, M., 2012. A fuzzy quantitative VRIO-based framework
for evaluating organizational activities. Management Decision, 50(8), pp.1396-1411.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
SUPERMARKET, A., 2012. Strategic planning.
van Rompay, T.J., Deterink, F. and Fenko, A., 2016. Healthy package, healthy product? Effects
of packaging design as a function of purchase setting. Food quality and preference, 53, pp.84-89.
Yüksel, İ., 2012. Developing a multi-criteria decision making model for PESTEL
analysis. International Journal of Business and Management, 7(24), p.52.

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Appendix:
Task 1:
The following tables comprise the comparative Pestle Analysis for Czech Republic and
New Zealand with regard to the entering of Aldi in the competitive market.
Factors Czech Republic New Zealand
Political Very stable Highly stable
economic Highly strong Very strong
Socio-economic Very strong Strong
technological Very strong Strong
legal Very good Excellent
environment Good Very poor
Factors Czech Republic New Zealand
Political 28*4=112 32*4=128
Economic 47*5=235 41*5=205
Socio-economic 21*3=63 19*3=57
Technological 9*2=18 8*2=16
Legal 15*3=45 20*3=60
environment 5*2=10 0*2=0
Total 483 466

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Description Weight
Most important 5
Very important 4
Important 3
Slightly important 2
Not important 1