This report makes an attempt to analyse the market entry options for the stock discount supermarket chain, Lidl. The market options of Norway and Mexico would be compared in the course of this report and as an outcome, the most feasible market would be suggested for the market entry. Hence forth after the selection of the best market a rationale would be created for justification of the most important factors that can help the company to achieve future sustainability. After considering the entry options, the external challenges as well as benefits that the company would be enjoying in the business market of the country would be assessed by means of the Five Forces model. After that the VRIO model have also been implemented in this report for the analysis of the most important competitive advantages that the company can enjoy, working in the business domain of the country.
The consumption pattern of the Mexican population is going to largely affect the business nature of the discount supermarkets in Mexico. Currently in Mexico, it is visible that the market of children’s products is feasibly high. Again, as per Laufs and Schwens (2014), another important factor is that this is a sustained trend observed over last 5 financial years.
Aged population in Mexico is also on the rise. That is why the demand for health and medical supplements would be naturally high. Again, the median age of the basic population in Mexico has dramatically shifted from 27.3 years to 42 years in the last 15 years (De Villa, Rajwani and Lawton 2015). This trend has actually proved to be favourable for the supermarket chains in Mexico as the income parity and then range of disposable income of the second group is supposed to be at least 25% higher. This would definitely increase the purchase rate and thus directly impact the rate of revenue generation.
Technological aspects have recently been quite entangled with the spread of business. Most of the wholesale groups’ sales channels are being operated over internet nowadays. The fast growth of ecommerce and the rapid acceptance of the gadget frenzy by people of all age groups would provide the customers of all sorts a lucrative chance of shopping from home. The trend of usage of various gadget based kitchen and home appliances is on the rise. As an impact, the sales of such products would increase. As per Åslund, Forslund and Liljeberg (2017), this boost of the electronic industry would give a tertiary thrust to the sale of products in the supermarket chains also. This would become more feasible for the supermarket brands because the customers generally prefer to buy electrical appliances from the discount supermarket stores.
The exchange rate of the Mexican Peso is in stable position that would facilitate the expansion of business of the supermarkets. Again the formal sector unemployment and the poverty of the educated youth would force the government to allow bigger supermarket chains to make market entry in the country (Shao 2016). As an outcome, mass recruitment options would be open in the country and more scope of income in the organised sector would be generated.
The International Monetary Fund (World Bank) classifies Mexico as a country inhabited by upper middle class. As an outcome, the income and expense parity of this class of people in the country would be automatically high. The annual average growth of economy in the country is taking place by 4.3% and as an outcome, by 2020, the business of supermarkets in the country would reach s standard position. However, as Glowik (2016), observes, the unemployment rate of the country have been escalating, although. This would entice the government to invite more large firms like Lidl with opportunities for mass recruitment.
The Mexican government have proposed that 35% of the energy should be generated I the country should be generated from clean energy sources. As an outcome, this is going to provide a feasible advantage to the Lidl Company, since they use dry waste and solar panels as a source of 80% of their energy production. The weather compatibility of the country also allows the scope for smooth manoeuvring of the delivery cars and the inventory chain also.
In terms of Index of Economic freedom, Mexico is ranked 55th above countries like Portugal, Brazil as well as Italy. This implies that majority of the people of the country have the choice to choose the products they desire in order to fulfil their lifestyle. Besides, this also implies that business organisations in Mexico would enjoy business freedom, trade freedom as well as freedom from corruption and also labour freedom.
The most feasible factor in Norway that is going to support business growth in the country is the government stability. As an outcome of which the spread of business in the country would be facilitated and take place at a smooth rate. However, there is low demand for the entry of foreign companies, especially from the European genre (Paulin, Perrien and Ferguson 2015). As an outcome, market scope is much open for the companies of Asian or Latin origin. The latest reform of the trade policies by the government would also allow the market based companies like Lidl to conveniently open stores all around the country. Again, the corporate tax rate that they would be paying for operating in Norway would be at least 2.5% lesser. This is an added opportunity for the spread of business because, Mexico offers ample scope of spread of virtual business. However in Norway, there is ample scope for spread of business by direct contact. The stable international relations of the country with the neighbours would also facility the country to make potential exports to other countries basing their core business in Norway.
The GDP growth rate of Mexico is also stable. However, inflation in the market based economy is taking place at a high rate. This alternative trend might suggest that economically Mexico is a more stable market than Norway. The per capital income of Norway is stable, yet much lower than Mexico. As an outcome of that the people in Mexico would turn out to be more active shoppers than that in Norway. However, there is one important factor and that is the FDI rate is quite high in the country. Yet in the last two financial years there have been very less penetration of foreign direct companies in the country.
One positive factor in the market of Norway is that rate of urbanisation is high. That is why, people in the upcoming years would be more enticed to buy daily utility products from supermarkets. This is where the role of discount supermarkets come in to play (Chelleri, Schuetze and Salvati 2015). However, there are some negative aspects like high corruption rate, lesser unemployment rate (less chance of getting worker at a low rate) and moderate growth of the population.
The Corporate Tax and Value Added Tax rate is stable in the country. However, the tax incentives rates are increasing under the new reform policies of the government. This is why new market entrants would be enticed to join the market.
The rate of penetration of internet for the purpose of business interaction is high in the country. Besides the mobile connectivity in the country is also high. As an outcome of that the business expansion over internet would be facilitated in the future. However, as Rosas et al. (2017) states, the expanse of business over the internet is quite higher in Mexico under the current market conditions and as an outcome of that considering the current scenario, Mexico seems to be bearing a better prospect of virtual business.
Norway has received highly positive rating from the Kyoto Protocol and the Euro Emission standards. As an outcome, any new market entrant would have to take the responsibility of making lesser than stipulated carbon footprint. Again, Pedraza et al. (2017), opines that in the recent years of a business of a company in a new country, the carbon footprint is natural high ad it takes a company at least 5 years to reduce the amount of carbon output in the country. The government also imposes tax on polluting water beyond a certain level in the country. It generally takes more than 3 years for a big company to settle in the market and as such it requires generally more than 3 years to consolidate the business (Hernandez, Berdegué and Reardon 2015). After than they can start monitoring their pollution level or carbon output. In such a consequence he corporate and green tax amount would suffice the corporate tax rebate benefits that the company could have enjoyed in the country. His suggests that Mexico is a more feasible choice for market entry by the company.
Trade factors seem more alluring in Mexico compared to that of its neighbouring US. America’s cross border trade has fallen about 10to 15% owing to the trade that have been waged between US and other major exporters like China, Australia, France and so on. As an outcome, Mexico is being highly prioritised for cross border trade. In this condition, the Mexican is also ready to invite as much giant wholesale supermarket brands in order to drag the country higher in the FDI index.
The local governments in Mexico are also actively participating in the trade run. Strict laws against unionisation and political demand for mass recruitment for local area urbanisation and economic development is going to offer a big chance to the company for expanding in the cities of Mexico that have the highest income purchase parity. It is recently visible that in order to facilitate the spread of business, the local government of the Mexican cities are focusing on development of industrial parks, better transportation facilities like intercity truck services and new roadmaps and are also developing low interest trade bonds so that most of the big companies come to the cities for business expansion. The World Bank have been suggesting structural adjustment policies because there is lack on integration among the central and the local governments (Davis, McRae and Bejarano 2018). This is again, the prime reason because of which policy implementations for the successful urban development is not accomplished in Mexico. In this situation, the government urgent wants any big organisation to enter the business market and create mass recruitment opportunities. The WTO membership of Mexico would also offer the company c chance to conduct business at a lower rate of corporate taxes and as it seems there is adequate protection of the government towards the companies to expand business.
Since 2013, Mexico have done massive economic recovery and after that the GDP rate of the country is increasing at a rate of 4.3 % per annum (Rudnick and Velasquez 2018). This implies that the people of Mexico now have higher purchasing power and they are investing more for the purchase of packaged and branded products. This is a positive sign for the organisation that would enjoy the benefits of a recently ripening market.
On top of that, the statistics of 2015 shows that Mexico have attracted 35,188.4 million dollars in terms of Foreign Direct Investment (FDI). This is a positive implication that global brands are considering Mexico to be a lucrative market. Other than that Lidl would enjoy benefits of the fact that the country shares free trade area benefits with 40 countries who share free trade area with the country. Hence with the market in the Mexican market, Lidl will be benefited with the allowances of making duty free export and import from and with 40 countries. There by the company can enhance their inventory strength and bring about product diversification including the specialised products from these countries. On the contrary, this would open up the market of these countries for sales expansion also (Machado et al. 2018). The US as well as Canada are two of the biggest importer of the goods of Mexican market.
The evolution of Mexican consumer shows that purchasing power of the people have enhanced and conclusively they have become time-poor. The customers are nowadays not in the mood of bargaining or making transactions. Rather they are interested in developing loyalty with a certain brand as an outcome, beneficial customer service in the country can help the company to develop a high level of brand equity. Besides, Amazon, Mercado-Libre and Walmart there are no big discount supermarket chains in the country. As an outcome, there is very low market saturation rate in the country. Hence, the market acquisition would be easier for the company.
Nanotechnology and Bio-freezing technology is being greatly used by the supermarket chains in Mexico recently. This is helping the companies to enhance their inventory strength as well as keep the products fresh for a longer time. Moreover, the Mexican government is also helping the companies financially to include technologies in their services. Besides, ecommerce is growing faster in the country also. These factors suggest that supermarkets can make the best use of the technological advantages in the country.
The large expanses of protected forests in the country is beneficial for keeping the carbon output low (Shah et al. 2016) . Hence, this would facilitate the company in managing their carbon output, definitely.
Under the General Law for commercial organisations, stock corporations enjoy maximum benefits of the NAFTA. Being a company of this genre, Lidl would enjoy maximum benefits of operating in the country. On one hand, the foreign assets that cause damage to the resources of the country are penalised heavily. In this context, one important benefit that the company enjoys is that of the fact that the business vehicles that the company would be using for the transportation of goods are all directly registered under the government and 60% of these vehicles are supplied by the government to the stock corporation organisations like Lidl (Reardon and Timmer 2015). This is why the damage expenses and the liabilities of the company would be much lesser in the Mexican domain.
The bargaining power d suppliers in weak in the supermarkets industry of the country. The suppliers of individual products is high in the country. That is why large discount supermarkets can highly affect these suppliers and acquire the products at their desired rate (Valenzuela and Studer 2016). The weak force of the suppliers in the Mexican market is owing to these factors:
As an outcome of this market scenario, the individual suppliers cannot influence the business of these giant supermarkets. There is also the fact that large number of suppliers are competing to occupy the market consisting of only few large supermarket brands (Bryner 2016). That is why there is low risk of influence from the suppliers if Lidl enters the Mexican market.
The threat of substitute is also quite low for the market of the Mexico. Lidl offers a large variety of products that hardly any other brand offers in the Mexican market. Hence, any B2B customer who have partnered with the Lidl Company would automatically develop a relation of brand loyalty. The following factors are responsible for the weak threat of substitutes from the other major market players:
Factors like Brand Loyalty and low price of the products of Lidl gives it a subtle competitive advantage and as such the company enjoys the benefits of low threat of substitutes.
There is a high threat of market entry of new competitors. In Mexico, the internet based business prospect is quite high. As an outcome, there is high chance that new internet based supermarket firms would come up and occupy shares of the most lucrative Canadian market. Entrants can compete in the Mexican market against Lid on the basis of convenience, market specialisation, as well as other factors like feasible sales channels and physical location (Davenport, F., Steigerwald and Sweeney 2016).
The most feasible factors that makes the threat of new entrants higher in the Mexican market are as follows:
Small wholesalers in Canada are engaging themselves in a particular specialisation of product and as an impact, many new brands in the whole sale market are emerging very fast.
The bargaining power of the buyers in the Mexican market is going to be very low. This is because there is a major chance that the heavy discount rates that the company offers, would be the lowest in the market. As Kucher, Burnett and Lacombe (2016), states, the following external threats are faced by the company in terms of the bargaining power from the end of the buyers:
The weak buyer diversity is a huge benefit that diminishes the bargaining parity of the customers. The high diversity of buyers makes it rather difficult for the buyers to accumulatively impose pressure on the organisation (Ibarra-Yunez 2015).
Although there are very few leading brands in the market, the range is competitive rivalry is quite strong in the country. There are actually various firms in the whole sale market of the country. In the face of this competition, the most significant considerations are as follows:
There is a whole lot of low cot items in the Lidl supply chain and as an outcome of that customer loyalty is attained at a great extent by the company. The inventory turnaround ratio of the company is very high. This implies that the company have naturally high rate of sales. Again in order to do so, the company needs to have a highly spread and energetic sales network (Knittel, Meiselman and Stock 2017). Besides that the business capital of the company is huge and as an outcome of that there are seldom any recurring or fixed expenses like as rent or pending charges. This greatly helps the company in reducing the net cost of the operations.
The stock discount trading experience in the wholesale sector is the biggest asset of the company as an outcome of which the large demographic prospect can be easily utilised by the company. The company have always have an eye for the tenured and sustained profits as an outcome of which the market acquisition rate of the company is going to be high and they would follow a stealth market entry format.
The company can choose many cities which have a moderate rate of average income. However, the presence of large whole sale super markets is scarce in these regions. The retail business of these regions can flourish further if the company spread discount retail in these regions. Another important factor is that the Lidl stores are generally located in premium locations where they can base their business statutorily.
Since the company have a location advantage, as an outcome, no big company can compete with the organisation within the same location where they are operating. This gives them superior access to all sorts of business inputs. The rivals would find it very difficult to imitate the same model of sourcing in the company. There are also certain network effects of this non-imitability. The customer base becomes highly loyal, and as it seems, the customers cannot provide sufficient incentive to the customers for switching to their brand (Chamberlain, Ginger and Emery 2016). Early entry to the remote locations has given this facility to the company that they can enjoy the local advantages.
Lidl has showed their potential to use the resources very efficiently. That is why in the markets of stock corporations, they have very less rivals of similar scale. In fact they have very less substitute who are strategically substitute to the organisation. The rivals would be severely subjected to cost disadvantages if they try to imitate the business model of the organisation.
There are threats coming the way of the company in the form of whole sale internet based companies who provide the products at a highly competitive rate. As an outcome of that, the physical stores that offer the same services in Mexico would be at stake. This is why, the company would be beneficial of they choose to open stores where the ecommerce have not yet been able to expand its popularity (Alvarez 2015). These are the suburban and the obscure areas. Having a loyal customer base is the basis of whole sale business in the country. Lastly, the company can also benefit if they open an ecommerce shopping channel and also cater to services like individual home delivery.
Since the company is aiming at expanding over a large share of the market in the country, taking a span of over 5 years in an average, they should aim at developing end user sales channels. This would help in the elimination of the middlemen and thus the company can keep the product prices compatible and thus also understand the real demand of the company’s products. They can also understand from this, how active are the sales channels which are vending the products of the company, actually (Zamora-Tavares et al. 2015). Hence, the market expansion would be more authentic and the grip over the market would be stronger.
The company should also employ locality based sales representatives who would be liable for the promotion of the products of the company. Thy can operate in the local market without taking the ownership of the sales channels completely. While approaching directly to the end users, the organisation would be able to:
The organisation can take up the following online selling strategies:
The company can enter in to business contract with the government or other exporting licensees. They can thus adopt the strategy of parasitic market acquisition. Profit would be acquired in the form of royalties.
The genre specific sales channels can be of much help for the organisation as this is an emerging trend in the industry. As an outcome of that the company can achieve maximum sales parity against the products of individual genre (Casanueva-Reguart 2015).
On local basis they can form a smaller concern with parental control under them. His company would be liable for market survey and market acquisition. This company would be a direct market feeder to the Lidl.
Another important strategy that the company can undertake is that like royalty partners in the export chain of the government, the company can launch their own retail segment in collateral basis with the major retail stores that are operating in the country. This can reduce the risk of market segmentation to a great extent. Again, while doing do the company have to be alert of the internal conflict that arises between partners and this can amount to potential business loss.
The company also needs to figure out the most economical operational channels that could help them accumulate the maximum financial benefits. They can adopt for the transport subsidy strategy for the company as an outcome of that the company can operate the transportations channels without any liabilities. Om top of that if they emerge as royalty partners with the government, they can enjoy the advantage of royalty partnership. More so, they can enjoy the advantages of heavy rebates on corporate and specific taxes like Green tax and emission taxes. They can also enjoy the credit insurance strategy of the government as an outcome of which they would be conducting business with the enlisted beneficiaries only, but on a .tax free basis.
In the course of this report, the market entry options for the Lidl Company have been suggested. At first comparing entry options in the Mexican and the Norwegian market, it seems that the company can enjoy high financial benefits on working in the Mexican market. This is because of the fact that the additional tax rates are lesser in Mexico and as it seems Mexico is much more investment friendly and ready market for big companies. In this context, it deserves mention that the factors like steady urbanisation, steady growth of GDP and lack of major market players would facilitate the success of the company in the country. The political conditions are highly favourable in the country and on top of that the government policy is lucrative for companies that support mass recruitment. The five forces analysis of the market suggest that there is high chance that the company can enjoy the benefits of low customer power, high purchase parity and lesser market competition. Under these conditions, it is most expected that the company can emerge as one of the exponential organisations in Mexico.
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