Lidl's Expansion: Mexico or Norway? A Strategic Business Report

This report evaluates Mexico and Norway as potential markets for Lidl's expansion. The analysis begins with a PESTEL analysis, concluding that Mexico is more suitable due to its higher GDP growth, larger population, and flexible legal environment. The report then applies Porter's Five Forces framework to assess the competitive intensity in Mexico's retail sector, followed by a VRIO analysis to identify Lidl's key resources and capabilities, such as financial resources, technological abilities, and human resources, for gaining a competitive advantage. Finally, the report examines different modes of entry, recommending a joint venture as the most appropriate option for Lidl's successful market entry. The report provides a comprehensive strategic assessment for Lidl's international expansion plans, considering political, economic, social, technological, environmental, and legal factors.

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Strategic International Business Management
Lidl

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Abstract
The aim of this report is to evaluate Mexico and Norway to find out which is a more suitable
market for Lidl to expand its operations. Based on the PESTEL analysis, Mexico is a suitable
market for Lidl because its GDP growth rate is higher, population is higher and legal
compliances are flexible. The five forces framework of Mexico is analysed in this report to
evaluate the competitive intensity in the country and how it affects the operations of Lidl.
The VRIO model is used in this report to find out key resources and capabilities which can be
used by Lidl to gain a competitive advantage in the market which includes human resources,
technological capabilities and financial resources. Lastly, different modes of entry are
discussed for Lidl based on which joint venture is the most suitable option for Lidl.

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Table of Contents
Introduction...............................................................................................................................3
Task 2..........................................................................................................................................4
Selection of a market.............................................................................................................4
Task 3..........................................................................................................................................6
5-Forces Model......................................................................................................................6
Task 4..........................................................................................................................................8
VRIO framework.....................................................................................................................8
Task 5........................................................................................................................................11
Modes of entry.....................................................................................................................11
Conclusion................................................................................................................................13
References................................................................................................................................14
Appendix..................................................................................................................................17
Exhibit 1: PESTEL of Mexico.................................................................................................17
Exhibit 2: PESTEL of Norway................................................................................................18
Exhibit 3: Ranking of Attractiveness.....................................................................................18

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Introduction
Lidl Stiftung & Co. KG or Lidl is a German global discount supermarket chain which operates
in the retaining industry. The company has established its operations in more than 10,500
locations in 29 countries (Lidl, 2018a). This report will focus on evaluating the retailing
market of Mexico and Norway to determine which one is the suitable market for Lidl to
expand its operations. This report will use 5-Forces model to critically analyse the intensity
of competition in the industry for Lidl in the chosen market. An internal analysis of Lidl will
be analysed in this report by using the VRIO framework to evaluate the key resources and
capabilities of the company which provides it a competitive advantage in the chosen
market. Lastly, various modes of entry will be analysed in this report to recommend the
most suitable mode of entry in the chosen country for its success.

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Task 2
Selection of a market
As per the PESTEL analysis of Mexico and Norway, it is concluded that Mexico is a more
suitable option for the expansion of Lidl than compared to Norway. There are a number of
factors which provide more growth opportunities to Lidl in Mexico than compared to
Norway.
 Political factors
The political environment in Norway is more suitable for Lidl than compared to Mexico;
however, it also provides fewer growth opportunities for the company. The political
environment in Norway is stable, and Lidl will not face any issues from the government
(Gullberg, 2013). However, the government of Mexico is likely to provide support to Lidl
through corporate welfare programs which can assist the company in successful establish its
operations in the country. The expansion of Lidl will bring new jobs in the country, and it will
support its economic growth as well, therefore, the company is likely to get support from
the government of Mexico which will assist in success of its expansion in the country.
 Economic factors
The GDP averaged of Mexico (434.76 USD billion) is considerably higher than Norway
(157.05 USD billion) which provides more growth opportunities to foreign businesses which
are planning to expand their operations in the country (Trading Economics, 2018a).
Although the inflation rate of Mexico (4.9 percent) is around three times higher than
Norway (1.88 percent) which is negative for the company in the long run, however, a high
GDP growth rate will compensate the loss of Lidl in Mexico. Moreover, the GDP growth of
Mexico (2.49 percent) is higher than Norway (2 percent) based on which the company will
receive growth opportunities in the future. As per the 2018 Global Competitiveness Report
published by the World Economic Forum, the competitiveness is higher in Norway than
compared to Mexico; therefore, Mexico is a suitable market for Lidl (Trading Economics,
2018c).
 Social factors

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The growth of Lidl depends on a large customer based because it offers discounted products
to its customers. Therefore, the company is required to increase its customer base in order
to become successful. The population of Mexico (131.37 million) is considerably higher than
compared to Norway (5.3 million) which provides a bigger customer based to Lidl
(Worldometers, 2018a). The company will be able to sell more products in Mexico than
compared to Norway because the number of customers is higher. The economic conduction
of citizens is Norway is better than compared to Mexicans, and they prefer to purchase
products which are environment-friendly. On the other hand, Lidl is known for offering its
products at discounted prices to its customers. Therefore, the company is likely to find more
customers in Mexico than compared to Norway.
 Technological factors
The use of technology in businesses is higher in Mexico than compared to Norway. The
popularity of online shopping websites in Mexico increases competition for Lidl, however,
the company can leverage its technological capabilities to generate competitive advantage
(Lechman and Marszk, 2015). The corporation can build strong connection with its
customers in Mexico through social media sites, and it can lure them through offering
discounts on their smartphones. Thus, Lidl can leverage technological capabilities in Mexico
which will assist the company in successful expanding its growth in the country.
 Environmental factors
The environmental policies are strict in Norway than compared to Mexico. The government
has implemented regulations such as Greenhouse Gas Emission Trading Act 2004, Biobanks
2003 and others which provide various policies for corporations to reduce their carbon
footprint (Lexadin, 2018). Although the government of Mexico has started to implement
environmental policies to address the issue of air pollution in the country, however, they are
not as strict. Lidl will be able to reduce its operating costs by not complying with strict
environmental policies imposed by the government of Norway based on which the company
should select Mexico for its expansion.
 Legal factors

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The legal structure of Mexico is strict with provisions given by the Occupational Safety and
Health Administration (OSHA), the Environmental Protection Agency (EPA) and the Equal
Employment Opportunity Commission (EEOC) (Cmtisantafe, 2018). However, due to higher
population rate, the corporations can easily hire cheap labour in the country. The
Norwegian Employment Protection Act and the Norwegian Working Environment Act also
provides strict regulations for companies in the country. Due to high literacy rate and less
population, the company is less likely to save costs in legal charges relating to employment
laws; thus, it should select Mexico for its expansion.
Task 3
5-Forces Model
The five forces model was developed by Michael Porter which is a tool used by marketers to
evaluate the attractiveness of an industry. This model analyses the competitive environment
faced by a business in its industry or the industry in which it is expanding its operations.
There are five forces provided by M. Porter which influence the competitive environment in
an industry which include the competitive rivalry, the threat of new entrants, the threat of
substitutes, the bargaining power of buyers and the bargaining power of suppliers (Dobbs,
2014). Following is an evaluation of competitive intensity in the industrial environment
faced by Lidl in Mexico.
Threat of new entrants (moderate)
In the retailing sector of Mexico, the number of players is growing especially with the
expansion of foreign companies. The biggest competitor of Lidl in Mexico is Wal-Mart which
is the world’s largest retailing chain of the United States. In Mexico, there are more than
2,397 stores situated by Wal-Mart which provides the main competition to Lidl (Revolvy,
2018). Wal-Mart also provides low-cost products to its customers; it has generated a
competitive advantage by establishing a distribution network in the country. Moreover, the
number of e-commerce websites is growing in Mexico with launch of large online shopping
websites such as Amazon and eBay. However, the initial investment is considerably high due
to which not all retailers are able to expand their operations in the country; therefore, the
threat of new entrants is moderate in retailing sector of Mexico.

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Threat of substitutes (high)
The risk of substitute products in Mexico is moderate because there are a limited number of
players in retail sector. The big retailing corporations such as Wal-Mart, Kmart and others
offer discounted products to their customers as well; there are a large number of small local
players which continue to attract more customers (Merino and Ramirez-Nafarrate, 2016).
The popularity of online shopping also provides substitute products to customers in Mexico.
Thus, the threat of substitute products is very high in Mexico which makes it easy for
customers to switch to new upcoming stores or local small stores.
Competitive rivalry (high)
The competition in the retailing sector is considerably high in Mexico because there are a
large number of players in the country. The competition is intense because the number of
discount stores is increasing, and they are providing their customer service to increase their
customer base. Wal-Mart and Amazon are the biggest competitors for Lidl because they
offer cheap products to their customers with high discounts (Progressive Grocer, 2018). The
quality of Wal-Mart products is comparatively high as well. They also use aggressive
advertisement and promotional strategy to increase customer awareness, and they have
also established a wide distribution channel in the country which provides them a
competitive advantage. Therefore, the competitive rivalry is considerably high for Lidl in
Mexico.
Bargaining power of buyers (high)
In Mexico, customers have the upper hand due to intense competitive rivalry among the
retail players. They prefer to experiment with new products and brands, and the switching
cost is considerably low. Customers are not loyal to a particular brand which is beneficial for
Lidl to expand its business but it also creates future challenges for the enterprise (Sanchez-
Medina et al., 2015). Therefore, each corporation has to closely watch customers to offer
related products to attract them.
Bargaining power of suppliers (low)

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The bargaining power of suppliers is low in Mexico because they did not have must scope
for differentiation among different retailers. The purchasing habits of customers are
dynamic, and they can easily choose different parameters such as proximity of stores, offers
and others while purchasing products (Qing, 2012). The cost of changing suppliers for Lidl is
relatively low because their number is considerably high. Therefore, suppliers cannot
enforce organisations to change their prices based on which their bargaining power is low.
Task 4
VRIO framework
VRIO framework is a tool which is used by a company to analyse internet resources and
capabilities to evaluate various factors which can be used by the company to sustain
competitive advantage (Lin et al., 2012). This tool is used by enterprises to evaluate their
internet environment which enables them to use their resources for sustaining a
competitive advantage. VRIO is an acronym for valuable, rare, inimitable and organised. The
following is the VRIO framework for Lidl which can assist the company in evaluating its
resources and capabilities which assist it in generating a competitive advantage while
entering into Mexican retailing industry.
 Financial resources
Rare: Although there are many competitors of Lidl in Mexico such as Wal-Mart and Amazon
with high financial resources, however, Lidl has strong financial resources because it is an
established brand in Europe and the United States (Shand, 2015). It is rare because most
foreign companies such as Kmart and other small businesses did not have more resources
than compared to Lidl.
Valuable: The financial resources are valuable because they enable Lidl to gain a competitive
advantage over its competitors by using effective marketing strategy and offering
competitive pricing to its customers.
Imitability: It is not possible for local small businesses or other competitors such as Kmart to
generate similar financial resources as Lidl because the company generate its profits from

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more than 10,500 locations (Lidl, 2018a). Therefore, these resources are inimitable for the
competitors of Lidl.
Organised: The Company has effectively organised its resources to use them in order to
successfully implement its international expansion project. While expanding its operations
in new markets, the company uses its resources to ensure that it offers competitive pricing
to its competitors that include offers and discounts. Therefore, effective organisation of
financial resources will assist Lidl in successfully expanding its business in Mexico.
 Technological resources
Lidl is known for using technology in its operations to improve the efficiency of operations
and overall experience of customers. It is a customer-centric brand which focuses on
spending on technological innovations to bring a high-quality experience to customers. The
company has hired Sam Gaunt who has 15-years experience in media and digital agency,
and he has worked with McDonald's, Kellogg’s and Heinz (Carless, 2018).
Valuable: These resources are valuable for the company because it assists them in reducing
the complexity from their procedures and providing a better experience to their customers.
Other competitors did not have access to or experience with modern technologies when
compared with Lidl because it has been using them for its stores for a while. These policies
assist the company in adopting a cost-effective approach which reduces its overall costs.
Rare: In Mexico, use of digital technologies to improve customer experience is rare because
most businesses did not use them. Most corporations provide a traditional retailing
experience to their customers because they did not have access to modern technological
resources.
Imitability: With experienced staff members such as Sam Gaunt and years of experience
with modern technologies, it is difficult for the competitors of Lidl to implement
technological resources as compared to the company (Carless, 2018). Small businesses did
not have the resources, and large competitors did not have the experience to effectively use
them to gain a competitive advantage.

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Organised: Lidl has effectively organised its technological resources to ensure that it
generate and sustain a competitive advantage over its competitors. It uses them to improve
its distribution chain and also improve the efficiency of check-out process of customers,
thus, it provides the company an edge over its competitors.
 Human resources
Lidl has hired more than 315,000 employees across Europe and the United States to
perform its operations (Owler, 2018). The company has experienced staff members who
know about its processes, and it has established an effective training program to improve
the abilities of new members.
Valuable: Highly skilled and trained employees are crucial for the success of retailing stores
because they build strong connection with customers by providing them effective services
which increases brand loyalty.
Rare: Most large retailing businesses in Mexico did not focus on building strong relationship
with customers because they emphasise on providing them cheaper products rather than
fulfilling their requirements.
Imitability: Building a highly skilled workforce who is trained enough to teach new
employees about the values and processes of the company take a long time, and it is a
difficult procedure as well (The Irish Times, 2018).
Organised: Lidl has effectively organised this resource by it prefers to hire local employees
who know the native language and provide them training with its experienced employees to
improve their skills which assist the company in building strong relationships with
customers.
Based on these three resources, Lidl will be able to generate a competitive advantage over
its competitors in Mexico and sustain it which will enable the company to successfully
expand its operations in the country.

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Task 5
Modes of entry
There are three main modes of entry available for Lidl which can be used by the company to
successful expand its operations in Mexico.
 Export
Lidl can choose to promote and sell its products directly to the Mexican market. While
selecting this option, the most significant aspect is the service delivery. The company can
export its products in the country and customers can order its products through online or
offline routes. However, since most of the products offered by Lidl are groceries, food,
beverages, and everyday consumer related, most customers will not prefer to export them
to the country because they can simply purchase them from their local stores (Lidl, 2018b).
In case any product is defective, then the cost of importing it back to the country will
increase the operating costs of Lidl.
 Wholly owned subsidiary
Lidl can invest in Mexican market to set up wholly owned subsidiary in the country which
means that it has to start from scratch. Since the company did not have knowledge about
the local market, it can face challenges. The legal framework in the country also poses
different threats to the company. On the other side, it will be positive for the company since
it will be able to effectively manage its operations and it can apply its own working
standards in its operations (Lopez-Duarte and Vidal-Suarez, 2013). However, in the long run,
the corporation is likely to face more difficulties because it has to invest substantial capital
in the beginning, therefore, this is an expensive option.
 Joint venture
This is the most preferable route which is selected by a large number of retailer
corporations. There are various benefits which Lidl will receive if the company select this
mode of entry. Firstly, the company will not have to worry about lack of knowledge about
the local market. The company can choose a local corporation which has a positive
reputation in the market so that the expertise of the company complements the expansion