Strategic International Business Management: Lidl's Mexico Strategy

This report provides a comprehensive analysis of Lidl's international business strategy, specifically focusing on its potential entry into the Mexican market. The report begins with an introduction outlining the objectives and scope, followed by a PESTEL analysis of Mexico, examining the political, economic, social, technological, environmental, and legal factors influencing Lidl's business. A Five Forces Model is then applied to assess the competitive landscape of the retail supermarket industry in Mexico. The report further analyzes Lidl's resources and capabilities, evaluating both tangible and intangible assets. Finally, it explores the most suitable entry mode for Lidl to enter the Mexican market, culminating in a conclusion summarizing the key findings and recommendations. References and appendices are included to support the analysis.

RUNNING HEAD: Strategic International Business Management
Strategic International Business Management

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Contents
Introduction......................................................................................................................................2
Task 2: PESTEL analysis of Mexico for Lidl.................................................................................2
Task 3: Five Forces Model..............................................................................................................4
Task 4: Resource and Capabilities analysis for Lidl.......................................................................6
Task 5: Entry Mode for Lidl............................................................................................................8
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................11
Appendices....................................................................................................................................14
Task 1.........................................................................................................................................14

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Introduction
The objective of the report is to enlighten the reader with the information about the company
Lidl in the international market. This report explain the details about the business expansion
strategy of the company Lidl in order to enter in the market of Norway or Mexico. The internal
and external environmental analysis of the organization has been highlighted in the paper. The
report also explain the entry mode for them to enter in the international market. The organization
Lidl is supermarket retail chain store based in Germany that operates with more than 10,000
stores in the worldwide environment.
Task 2: PESTEL analysis of Mexico for Lidl
Below mentioned is PESTEL analysis of Mexico as the organization aims to enter in this market
so as to increase growth and productivity of Lidl.
Political: the political factors of the country explain that the government plays a major role in
taking crucial actions for different companies present in several industries. There are several
policies defined in the interest of people that help the company to perform business actions using
right activities and initiate effective trade agreement with different nations. The federal
government is the one that take all the crucial decisions in the nations (Cervantes, Lemus, and
Montalvo 2017). The decisions of federal government are encompassed as a legislation which is
then abided by all the people present in the nation. The presidential Federal republic
(government) is segregated into three aspects that are union, state and municipal government.
Economic: the economy of the nation is strong and stable that provides an opportunity to the
people to invest in the nation and earn profitability from it. The economy of the country comes
under top 15 nations with strong economic capacity. Also, it should be noted that the nation has
good relations with US that helps the government in improving its economic value. The
companies in nation work to help the government in increasing its growth per capita. The
country is also comes under the NAFTA agreement (North American Free Trade Agreement)
that explain the free trade agreement with different countries present in the world (Geppert,
Williams, and Wortmann 2015).

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Social: the social factors states that the country is influenced by the North American and Spanish
culture. The people of nation works with the objective to attain globalization in the environment.
The country shows high population which means that there is available of human resource for
the companies in the nation. Mostly urban cities are present in the Mexico environment as 80%
per cent of the land in Mexico comes under developed cities. Also, the nation has high degree of
literacy rate of 95% which shows that the people live a good living Mexico and hold the capacity
to spend on several goods as well (Appendices 1).
Technological: again, it should be noted that the alliance of the nation with US helps the country
under this case. US is a high technology equipped nation, therefore, countries having strong
relations with US also make effective use of technology in their regular day to day working.
Technology also introduces several possibilities for the nation for promote the business function
and increase the scope of profitability as well. Technology helps in finding the loopholes in the
system and working on them to increase the scope of growth for the nation. It also helps in
increasing the degree of client satisfaction by initiating effective communication with them and
making the products and services technologically equipped (Hançerlioğulları, Şen, and Aktunç
2016).
Environmental: the environment of Mexico is one of the most negative factors for the companies
to enter in this market. It should be noted that already existing organization have created high
pollution in the nation due to which government resist the international companies in entering in
such market. The lifestyle of people is getting degraded due to pollution in air and water. Air
pollution is one of the major reasons due to which people do not want to liv in Mexico. The
government is taking several actions in the nation improve the health of environment; however,
they need to strictly regulate the companies to prevent their actions that harm the environment
and pollute it (Kapoor, and Khanna 2016).
Legal: the legal environment Mexico is strong and stable, it does not allow any company to cheat
from the government or initiate unethical actions. The regulations of the nation lay strict
penalties on the companies that they do not think of cheating the people in the business
environment. The rules in Mexico are formed independently by the government and these rules
are influenced by the Civil Law traditions. Although, the rule are flexible enough to help the
companies perform their business actions. These rules performed by the government increases

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the integrity of the companies towards the functioning of the business and their customers as
well (Lamey, et. al., 2018).
Task 3: Five Forces Model
After analysing the Mexico environmental conditions, it is clear to state that it would be
profitable for the organization Lidl to enter in the market of Mexico growth and profitability.
Further, the below mentioned five force model explain details about the industry analysis in
which the organization would work in Mexico (retail supermarket).
Threat of substitute products and services: Medium
There is moderate degree of threat of substitution in the environment. Local shops and stores are
the substitutions for the organization. However, the retail supermarket provide all types and
variety of product are required by the customers on the regular basis. Therefore, there is
moderate degree of threat under this aspect. The company also offer wide range of similar
products in their store that attract the customers to purchase products from them. Also, it should
be noted that products like grocery, biscuits, etc. have extremely low or near to nil possibility of
substitution in the environment due to which the threat gets reduced in the marketplace (Merino,
and Ramirez-Nafarrate 2016). The discounted store also offer goods at economic rates due to
which customers get attracted towards purchasing products from them. However, products other
than grocery hold high chance of situation from the local brands in the environment.
Threat of entry of new competitors: Low
There is low degree of threat of new entrant in the retail market. Clearly, companies present in
this industry require high degree of investment to sell and maintain products and it is not easy for
new companies to enter in this market with high capital value with them. The companies with
which new company would compete are already famous in the market due to which, the
customers would face hard time in placing a definite image for their brand in the target market.
Not all organizations are capable of investment high amount in the business initially and then
continuously multiplying the money so as to maintain the stock requirement of the customers.
France Auchan is an example of the organization present in the market of Mexico that has
already attained valuable image in the target market. In addition, the new entrants would not be

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able to compete with the company Lidl in terms of economic pricing because the organization
works on discounted price scheme (Pantano 2014).
Intensity of competitive rivalry: High
There is presence of high degree of competition in this industry. The companies have cut through
competition between each other as one small mistake of any organization could eliminate them
from the game. All the companies present in the industry are fighting to provide lowest rate
products to the customers with high value in the market so as to increase their profitability and
brand image in the market. Also, it should be noted that there are few companies present in the
Mexico environment who have placed themselves on the right position by attain customers trust
(Pinto, et. al., 2017). Therefore, it would be difficult for Lidl to take over the position of such
companies in the target market. Spending income of customers is high in Mexico that provides
advantage to the companies to fight for the customer’s interest. However, discounted store
scheme would help the organization to maintain their growth in the international market as the
business would be able to provide better rates to the customers as compared to other competitors
in the marketplace.
Bargaining power of buyers: High
There is high bargaining power in the hands of customers in the Mexico environment. It should
be noted that economic value of the country states that customers have optimum capacity to
purchase goods from the supermarket. Therefore, the power lies in their hands as they have high
spending income and low switching cost as well. Low switching cost makes customers to
instantly take the decision without thinking twice about the loyalty with the brand. Therefore, the
company could target people through their differentiated product and service offering style and
activities because products differentiation is also not present in the industry (Skippari, et. al.,
2014).
Bargaining power of suppliers: Low
There is low bargaining power in the hands of suppliers because there are ‘n’ numbers of
supplier present in the market who offer goods to the companies in Mexico. There is slight or
near to nil possibility of differentiation of products in the environment that significantly reduces

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the competence of suppliers to attain power in the business environment. Also, there is presence
of low switching cost in the environment due to which if the suppliers show tantrums for the
pricing of the products then the organization could easily switch to other suppliers in the
environment (Tomasevic, and Spasojevic 2018).
Task 4: Resource and Capabilities analysis for Lidl
The resource and capabilities of the organization Lidl shows that the company has several
facilities with them in the internal process that can successfully help them to initiate success in
the international business environment. The resource and capabilities of the organization
involves accounting of both tangible and intangible assets of the business that helps them in
achieving the organizational objective. The tangible resources of the organization involves four
aspects that are physical, financial, technical and moderate organizational capabilities. The
financial resources involves the amount of revenue earned by the organization that is 24330
million euros in the year 2017 and in the year 2016 the organization earned 23286 million euros
(Statista 2018).
Considering the technical resources, it should be noted that the organization has started using
differentiated ERP system in the environment so as to protect the privacy of the information and
construct effective online platform as well. The technical system of Lidl helps the organization in
increasing online sales and attains effective feedback from the customers as well. Technical
knowledge helps the organization helps them to effectively position the product in front of right
customers and then implement effective sales as well. The organization has also covered the
target market in an appropriate manner (Wheelen, and Hunger 2011).
They have 700 physical stores present in UK where resources are constantly used by the
organization. The capabilities analysis of Lidl explain that the organization focuses on getting
efficiency in the business environment by making good use of supply chain strategies in the
business environment. The intangible assets of the organization helps the business to identify the
brand in front of the customers and protect property rights as well. The brand image of the
discounted store helps the organization to attract more and more customers to initiate sales. The
organization also make use of taglines that clearly explain the mission of the organization to the

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customers like ‘Big on quality and Lidl on price’. This tagline states the company supply high
quality goods in the market with low pricing strategy (Gielens 2018).
The resources used by Lidl are immobile and heterogeneous which states that the products
offered by the organization are differentiated using pricing strategy in the worldwide
environment. These resources helps the organization to offer goods to the customers at valuable
rates in the environment. Thus, it should be noted that in this way resources and services of the
organization Lidl helps the organization in attaining productivity in the environment. The
immobile aspects about the resources of the company explain the goodwill of the business acts as
an additional advantage for the organization for them as no other organization can attain it. Thus,
it can be said that immobile resources helps the business in attaining additional advantage for the
business (Craven 2018). The VRIO (valuable, rare, imitable and organization) analysis of
resources of the company are mentioned below:
Resources Valuable Rare Imitable Organization Advantage
Use of information
technology Yes No Yes Yes Temporary
Integration of logistics Yes No No Yes Temporary
Human Resource Yes Yes No Yes Permanent
Cost effectiveness Yes Yes Yes Yes Permanent
Club/ Loyalty Card Yes Yes No Yes Permanent
Unique Store Format Yes Yes No Yes Permanent
Valuable: the resources of Lidl are valuable enough to derive adequate quality for the
organization in the international environment. These resources helps the organization to match
the expectation of the customers and deliver them products and services accordingly. The
resources of the organization has helped Lidl in becoming 7th largest supermarket chain present
in UK (Schmid, et. al., 2018).

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Rare: considering the rarity of the resources, it should be noted that the resources of Lidl are not
highly differentiated from that of the competitor’s resources as there is presence of low
differentiation in the end products. However, the schemes offered by the organization make them
rare in the environment. The discounted retail store offer rare services to increase the satisfaction
level of the customers.
Imitable: the resources of business should not be imitable otherwise it would lose its
attractiveness in the market. Thus, it can be seen that resources of the organization are differently
used and implemented in the environment. Being the giant retailer, the organization use complex
activities to initiate business actions that cannot be imitable by any other organization in the
market (Tomasevic, and Spasojevic 2018).
Organization: the organization works on a worldwide level that initiate effective organization of
the products to derive success for the organization. Lidl manages more than 600 stores in UK
itself that clearly explains that the products of Lidl are more organized than fussy.
Task 5: Entry Mode for Lidl
There are different types of entry mode prevailing in the business environment that Lidl could
use to enter in the market of Mexico. Franchising, licensing, joint venture and green field
investment etc. are few types of entry mode options prevailing for Lidl. The licensing agreement
makes the licensor organization to grant license to the licensee so that they could purchase and
sell products in the global market on the behalf of licensor organization. The franchising
agreement is almost similar to the licensing agreement and the only difference is that under this
type of agreement there is time boundation (Shaikh, Karjaluoto, and Häkkinen 2018). The green
field investment lets the organization to initiate foreign direct investment in the international
market and setup a wholly owned subsidiary of the company in the international market. Under
this type of expansion strategy, the company attains full control on the functions of the business
in the new market. They also carry on the business functions from scratch in case of green field
investment. Lastly, strategic alliance like joint venture let the organization to join hands with
another domestic organization present in similar or different industry and carry on functions
together by using each other’s tangible and intangible resources. Under this type of alliance, the

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domestic organization helps the new organization to settle in the market by using their brand
image and capture the interest of skimmed customers (Cantaragiu 2019).
However, it should be noted that the company Lidl should make use of Green Field Investment
Strategy for the purpose of business expansion in Mexico environment. The green field
investment would provide complete freedom to the organization Lidl to carry on business
functions in Mexico according to their plan. The management would gain complete power and
authority to initiate activities in new environment. Further, it should be noted that this type of
entry mode require the organization to invest high amount in the new business. As the business
structure of market activities of Lidl are expanded on a large scale, therefore, the organization
would not face difficulty in implement this type of expansion strategy in Mexico (Tench 2016).
The limitation of licensing and franchising that they are contract bound and it would provide a
fixed or limited amount of income to the organization irrespective of profits earned by them.
Further, it should be noted that drawback of joint venture business expansion strategy is that both
companies entering in the alliance might enter in the contract with different objective which
could develop quarrel among in organizations and its employees. Also, the company Lidl does
not need support of any other organization to enter in the new market using their brand image.
Further, after analysis of the above mentioned statements, it can be said that the green field
investment would suffice the organization Lidl to enter in the market of Mexico. The
environment analysis of the organization states that the organization has extreme level of scope
in the retail segment for the organization to initiate their business functions and earn profitability
as well. The retail supermarket industry features also explain that the organization is capable
enough to fight against the competition and earn the loyalty of the customers in the market of
Mexico (Bombaij, and Dekimpe 2019).
Conclusion
Thus, concluding the above mentioned statements, the fact should be noted that the report
elaborated details about the organization Lidl and its business expansion activities in the market
of Mexico. The report analysed the favourableness of the organization to enter in the market of
Mexico or Norway which stated that Mexico is a suitable option for Lidl. Further, external

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environmental analysis of Lidl explains the industry and market features for the organization on
the basis of which they could plan their business strategies. The resource based view highlighted
the resource competencies of the organisation that they could use to capture the Mexican market.
Lastly, entry mode used by Lidl is green field investment for entering in Mexican market.

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