Discuss about the Strategic Analysis Of Starbuck Corporation.
Lidl Stiftung & Co. is a Germany based global discount store that has over 650 stores in across US and Europe. The parent company is Schwarz group which has 315,000 employees working for it globally and has 10,000 stores. It is the 5th largest retailer of the world. The company has plans to expand its stores into other countries and Mexico and Norway are the two targets that the company is exploring. To be able to decide which market would be most suitable to make an entry for the company, the business environment of both countries may be explored. For this, PESTLE analysis can be used.
PESTLE analysis of a country can help in gaining an understanding of the business environment of a country which is important to understand as it can affect the business activities of an organization operating in the respective country. PESTLE analysis involves exploration of political, economic, social, technological, legal and ethical influences that exist in a country that can affect any business. The business environment of Mexico has been explored here using PESTLE analysis method.
Economic environment: There can be several structural aspects that affect the markets, trades, and economies across globe. These factors can cause economic alterations that are important to understand.
Legal Environment: The legal environment of a country can affect the procedures of suppliers and relationships of companies with their customers as the laws and legal procedures regulate the corporate practices so they work to protect the interests of customers by putting restrictions on the business behaviour. FTA is also a part of the legal environment and it affects the import and export procedures in a country.
Social Environment: Social environment in a country can affect the demographics and consumption patterns in a country which in turn affects the demand and supply patterns. Culture of a country can affect the type of products that are sold and marketed.
Political Environment: Political environment can have a great influence on the working practices and corporates have to make adjustments in their processes to adapt to a specific political environment which is why it is essential to understand the political environment of country.
Technological Environment: Investment in technology can bring in innovations and influence the success potential of an organization. Technologies are used for production or for distribution. Technologies provide new ways to connect with customers and open up new marketing platforms. Thus, technological environment of a region is important to study when planning operations.
Ethical environment: Ethical concerns are gaining importance day by day and the companies are pushed to operate in more socially responsible way. Thus, companies take eco-friendly approaches in businesses.
Economic environment: Mexico stands at 15th largest economy in the world and it is predicted that the country would reach a rank of 5th by the year 2050. The country is growing at the rate of 3-4%. Mexico has a huge free trade network and has geographical advantages that lowers the cost of trade in the country. The workforce available in Mexico is both educated and low cost. The country has a population of more than 112 million and has a lot of natural resources available in the country. Recently, Mexico has experienced rise income taxes which is why the government is also performing better monetarily. The oil revenue in the public sector has been on the lower side but the same is compensated with fuel excise and income tax increases. The currency of Mexico is Peso which has depreciated significantly against dollars which has affected the financial stability of the country. I response to this situation, the government has taken a few steps for moderating the exchange rate movements. This includes tightening of the macroeconomic conditions. There are no significant economic risks that are faced by the country today despite the decline in its GDP growth rate. Mexico had opened up its market in 1980s and since then, there have been lowing of tolls and simplifications in import procedures. Mexico has signed a NAFTA free trade agreement as a member of OECD based on which some trade rules have been set between Mexico and other countries like USA and Canada. This agreement gives better access to good exchanged between these countries as the tariff barriers have been eliminated. With this free trade agreement, the country has better access to the materials, technology, and workforce in the country. This has supported the growth in the country with export of goods to the member countries. When it is about trade, the most important goods in the Mexico include electronics, machines, vehicles, engines, oil, pumps, fabric, and leather products. USA is the most significant trade partner for Mexico as over 80% of trade happens between US and Mexico. In 2015, USA had imported 294,741.1 billion dollars’ worth of goods from Mexico. In the import area, manufacturing industry dominates the market which includes products like electronics, equipments, and machines. Other than US, China, South Korea, Germany, and Japan are also important trade partners of Mexico. The total exports from Mexico in 2015 was over 380 million.
Legal Environment: Importing of manufactured products is easy in Mexico because of FTA. More limitations and costs are involved in the service sector as customs are not transparent and very complex because of their own regulations that put restrictions on the technical requirements related to licenses and registrations. The bureaucracy problem is one of the major issues prevailing in the country. While companies plan to do business from the other country, they need to learn about the legal system of Mexico which could be very different from the practices of their home country. Normally, the country officials follow the laws and regulations but in several cases, they also take bribes. A new anticorruption system has been launched in the country to curb this corruption but it can still take time to being constitutional changes. On the ranking of corruption, Mexico scores 35 and is observed as the 95th most corrupt country among 168 countries across the world. The corruption in the legal system in the country makes it difficult for businesses to gain efficiency as completion of any business task would need more workforce as well as expenses to satisfy officials through relationships tricks and bribes.
Social Environment: As compared to other European countries, Mexican people are spread in a wider geographical regions and thus distances are long. There are 21 people living in the capital Mexico City with over 79% of the population of Mexicans. Crime and theft are the common concerns in the societies of Mexico and some areas operate drug cartels. Countryside has also faced violence in rent years. However, violence has gone down in cities recently. However, there is still a very strong hold of these problems in the city. Because of these issues in the country, there exists poverty and inequality in people.
Political Environment: In Mexico, the political figures have influenced the NAFTA agreement of Mexico. Loss of jobs have pushed a decision to raise the tariffs between Mexico. Mexico has a Presidential Federal Republic with its government operating at three levels including federal, state, and municipal. Eight parties represent the congress and the political situation in the country is not very stable because of the influences of drug cartels. Because of high corruption, the trust is less in the democracy. However, the government has taken some initiative in the areas of business by forming some reforms for telecommunication, economic competition, fiancé, tax, education, labour, and transparency. Fighting against corruption is also a part of the new reforms. However, Mexico being very young as a democracy has a long way to go in terms of forming supportive regulations (Kesseli, 2017).
Technological Environment: In Mexico, a recent reform was initiated for the improvement in its telecommunication system which has a positive impact on the economic development as it could bring in more productivity and growth. Currently, the country has low coverage of communication services that are also poor in quality but expensive. However, the structured change defined in the new norm is likely to bring improvements in coverage, service quality, and price levels which increase the penetration levels of telecommunication services. The telecommunication has been a monopolized area in Mexico especially in the State of Jalisco. However, the new reforms has brought in government subsidies that are attracting private players from foreign countries into the industry.
Ethical environment: Considering the ethical environment of Mexico, the country has 8 fundamental labour rights and 78 international conventions. Union leaders in Mexico are powerful. New reforms are pushing the use of ethical practices like clean technologies and following safety regulations in production (Wood, 2014).
Political forces: When considering economic and political stability, Norway stands at a very good position than most countries. The country has political satisfaction and good promises for future developments. A lot of social and financial opportunities are available in the region for growth. Norway has a monarchy and thus, there are no political pressures of opposition. The country also does not have any transnational disputes and has the lowest rate of crime in the world. Norway is scores among the top 10 stable countries among 181 economies of the world has per the World Banks report in 2009. This rating was based on the ease of doing business, registration of properties, cross border training, contract negotiations, and closing business. Norway is also a member of EFTA and EU single market and thus, has preferential policies for the other member countries. When considering industrial products, the country has a liberal regime for trading and investment. However, these agreements may not apply for agriculture such that a food café would have to follow the regulatory procedures of the country.
Economical forces: Norway is famous for strong economic stability with petroleum surplus, healthy stock exchange performance, and a strong banking system. Despite a few challenges, the country promises to keep growing economically in the coming years. GDP of the country is growing at the rate of 2.3%. The country government runs Nordic services that provides packaged deals and services to the companies entering the Norway market
Social Environment: the unemployment rate of the economy is only 2.4% which is one among the lowest in the world. Also, as per the World economic forum, the country is the 15th most competitive country as per Global Competitive Index of 2009. The country scores high ranks in specific areas like stakeholder interest protection, ethics, political trust government surplus, ease of getting loans, technology readiness, education, employer-employee relationships, and professional management in corporate (MarketLine, 2017).
Technological forces: The country has a strong presence of technology and the publicist used to technologies which they use for finding cafes and bars nearly. Business operating in the country thus have online portal and e-catalogues to list their products. However, there are still several cafes that do not have web pages. They make use of general marketing and advertising places for promoting themselves in the country.
Legal forces: The legal system of Norway can be trusted as the Confederation of Norwegian Enterprises (NHO) by the business organizations. The country has strong workforce laws and people work on the egalitarian wage scale. Thus, any company operating in the region has to follow similar rules.
Ethical: Norway being a country with least crimes and a monarchy structure is also considered as one of the most ethical countries in its work practices.
Considering the results of the PESTLE analysis of the two countries, it is recommended that the retail chain takes Norway over Mexico as the first move for its expansion for the following reasons:
Considering the reasons illustrative above, the decision of entering Norway market would be a more rational choice for the grocery chain store as it would help the company make a fast and easy entry as well as get the right target market that is ready for accepting the culture of the organization including the ecommerce selling considering the openness of the people on acceptance of the ecommerce models of sales.
As per the Five forces model, there are five strong competitive forces that work in an environment on a company and these include competitive rivalry, bargaining power of suppliers, bargaining power of buyers, threat from substitutes and threat from new entrants. Considering the choice of Norway as the target market, these forces can be analysed for the retail company (Lucintel, 2013).
Competitive rivalry: Norway has some significant players in the grocery retails like Norgesruppen that has 42.3% of market share, Coop which has 29.4% market share, Rema with 24.4% share. These three retailers have combined 90% of the market share in Norway while other smaller super stores and grocery stores make the remaining 10%. Considering the strong presence of the three retailers, the company would face a strong rivalry (Statistica, 2016).
Bargaining power of suppliers: Suppliers prominently regulate the grocery industry in Norway and have significant effect on prices. They can demand specific prices from the grocery retailers. Large super markets have extra advantages to get supplies because they can purchase in large quantities. However, in the case of Lidl, as the store format is a small superstore and thus, suppliers may not provide the best prices. However, as the store has the low price positioning, to maintain the same, the retailer would have to face the strong bargain from the suppliers.
Bargaining power of buyers: The buyers of grocery have many options to purchase from as the country already have stores available locally and many of them are also available to sell online. The customer would look for price advantages for the day to day items as well as would have a choice made for preferring a retail store on several parameters like location, facilities, price, assortment, and so on. Thus, customers have high bargaining power (Johannesson & Undheim, 2016).
Threat from substitutes: Grocery stores can be substitutes by local shops, shopping malls, online grocery, hypermarkets, supermarkets, and speciality stores. The product sold at the company store can also be found in other stores and thus, in order to remain competitive in the market, the company has to have a strategy in place to fight the substitutes as they can also be a major threat.
Threat from new entrants: It is easy for the local businesses to take an entry into the market but having discount store needs a lot of logistical considerations, legal processes, as well as investments that may not be easily possible for small companies using the same format. Thus, new entrants have moderate power to act as a threat.
Organizational resources and capabilities can create a competitive advantage. A VRIO analyses can be used for identification of these capabilities in an organization and value creation through it can be explored. The VRIO analysis of Lidl is presented in the table below
|
Resources and Capabilities |
Value Creation |
Rare |
Imitation cost |
Exploitation by Competition |
Competitive implication |
|
Establishment of stores in the high street areas |
Yes |
Yes |
Low |
Yes |
Temporary CA |
|
The parent company is present in 28 countries and has a global leader position of being the 5th larges retailer |
Yes |
Yes |
High |
Yes |
CA |
|
Stores are small and fast to operate |
Yes |
Yes |
High |
Yes |
CA |
|
Strong presence in several countries |
Yes |
Yes |
High |
Yes |
CA |
|
Company has a good working culture |
Yes |
Yes |
High |
Yes |
CA |
|
Company leverages on its positioning of high quality products at less price |
Yes |
Yes |
High |
Yes |
Temporary CA |
|
80% of products sold have private labels and the assortment changes twice a week |
Yes |
Yes |
High |
Yes |
Temporary CA (Geereddy, 2013) |
|
Company uses cost saving strategies which gives them good margin |
Yes |
Yes |
High |
Yes |
CA (LIDL, 2018) |
When forming a strategy for entering a new market an organization needs to take care of three aspects including the purpose of selection, choice of the mode of the entry, and staffing needs. Right formulation of strategy would need the organisation to have the right selection of the entry mode. For this, the legal structure and governance structure of the host country needs to be understood. Depending on these structures, an organization can choose from entry modes like export, franchisee, alliance, joint venture, and wholly owned subsidiary. Each of the modes have specific advantages and disadvantages in terms of the investment requirements and level of control a company would have on the store (Ødegård & Kristiansen, 2016).
Figure 1: Entry modes and trade-off dimensions
There are four trade off dimensions that have to be considered while making a selection of the entry mode. These are control, flexibility, resource commitment, and risks. The risk is lowest and the company can enjoy greatest flexibility when exporting but as the company plans to have its own store establishment in the country, this would not be the right option. Wholly owned subsidiary would give the company full control but would also have high risks. A joint venture with a Norway partner could bring in the benefit of the local market experience, reduce the risks as well as provide sufficient level of control over its operations (USTR, 2012).
Thus, a joint venture could be the most appropriate choice for the mode of entry for the organization. Norway being the monarchy have a great level of control of the government and also the cultural difference would require the company to better understand the market. Having a local partner organization would ease off some of the regulatory hassles and would also help gather the workforce that already has an experience with the local market which can be utilized by the company for understanding the market and growing inside it. A joint venture is also a very common way organizations make entry into Norway market. Joint ventures in the country may not be registered as they do not provide any legal entity that regulate Joint Ventures. Such licensing agreements are also not necessary to be recorded with the patent officials. Thus, the company can have more freedom than in a strict joint venture on the terms and conditions attached. Thus, a joint venture would make the most appropriate choice for the company to enter into the Norway market.
References
Geereddy, N., 2013. Strategic Analysis Of Starbucks Corporation, s.l.: Starbucks Corporation.
Johannesson, J. H. & Undheim, R. H., 2016. Market share in the Norwegian grocery sector, s.l.: University of Agder.
Kesseli, T., 2017. The Business Environment and Culture of Mexico from the Perspective of Finnish Companies, s.l.: SeAMK.
LIDL, 2018. Delivering value and freshness since 1973, s.l.: LIDL.
Lucintel, 2013. PESTLE Analysis of Norway, s.l.: Lucintel.
MarketLine, 2017. Norway: In-depth PESTLE insights, s.l.: MarketLine.
Ødegård, S. H. & Kristiansen, S. O., 2016. The Choice of Entry Mode for Successful Business in an Emerging Market, s.l.: University of Agder.
Statistica, 2016. Market share of selected grocery retailers in Norway. [Online]
Available at: https://www.statista.com/statistics/565757/market-share-of-selected-grocery-retailers-in-norway/
[Accessed 26 March 2018].
USTR, 2012. Doing Business in Norway, s.l.: USTR.
Wood, L., 2014. Research and Markets: PESTLE Analysis of Mexico , s.l.: Business Wire.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download