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Lidl Internationalisation Strategy: Competition and Challenges

4427 words (18 pages) Business Assignment

2nd Nov 2020 Business Assignment Reference this

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Introduction

The company that is going to be used here is Lidl, an international giant in the food industry, which has global reputation for managing better quality every day. To clarify the strategy that has to be taken to make an entry in the new market of a country, the entry mode choices have been illustrated, and this has been supported with secondary analysis. The Pestle, and strength, and opportunity of each mode have been mentioned for the sake of the report quality.  The Growth rate and the market suitability have been justified on behalf of the company, which has been internationalised through the penetration of the global market. The manager of Lidl has made a tremendous contribution to managing holistic myopia, handling the challenges for the management of the company’s penetration and existing capacity, and developing the strategy of the company. Finally, recommendations have been added to the CEO of the chosen company regarding its international penetration strategies in new markets and industry territory.

Question 1

The company: Lidl

Internationalisation refers to the planning and process of getting involved in international markets by an organisation (Ahi et al., 2017). The company that has been selected as the internationalised company is Lidl and the reason behind it is that it has been acclaimed with the reputation of being a prime discount giver on a daily basis. The core idea is to carve into minds of the consumers that this brand will ensure the quality and surely create value for their money. The brand has been globalised, starting from Germany, managing over 9100 outlets (Spencer, 2014) there, and in Ireland it has gained an even greater reputation as a globalized and internationalised brand, competing with Aldi and Tesco. The brand has now been targeting the US market more than ever before because of global expansion. It has already penetrated Portugal and several countries in Europe. The Main showbiz of the world is in NY and here they want to build their business with the help of the international expansion strategies which have previously been successful in Ireland and Portugal.

Lidl and Internationalisation

A company which has been running their business over international borders, with over 2 markets in which they are operating, can be termed as an internationalised brand. The company Lidl has fulfilled its business model and has been working throughout 11 different markets of the globe, making it an internationalised company with the strategy of wholly-owned subsidiary outlets. This international organisation initiated in Germany in 1930. It has been globalised firstly through the expansion in 1989 in France (Whitley, 2014). Since then it has been maintaining its performance and its outstanding international management. The companies who can grasp the opportunity of going global using such strategies are the ones who are the survivors of international markets. The management of these companies has to beat the challenges of their local and global competitors using scale method and blue ocean strategy. As a discounter, along with its unique CSR strategy, the company has been stronger than a lot of their competition in processing businesses in different countries.

Markets Lidl has entered

Markets Lidl is operating in

Entering year

The revenue in 2018

Germany

Neckarsulm, Ludwigshafen

1930

22.3 billion Euro

France

Paris, Strasbourg

1989

4.7 billion Euro

Portugal

Lisbon, Kosovo

1993

0.4 billion Euro

United Kingdom

London, Manchester.

1994

8.7 billion Euro

Ireland

County Meath

2005

1.1 Billion Euro

Figure 1: Performance of the Lidl

Source: (lidl.co.uk, 2019)

A table has been prepared for illustrating the answer on behalf of Lidl. This shows the specimen regarding the organisation of the international management of the company. The revenue generated from the company has been so tremendous (Wells, 2019) that the company has been able to emerge in newer markets like the US and Asia to hold the investment for long-term sustainability.

Adaptation of Lidl in different markets

The company became stronger by adapting to France as their first move. The people there love discounts, hence the brand brought in the strategy to give a discount on a daily basis, optimizing the cost-cutting strategy. Ireland and Portugal have been very concerned about the environmental consequence of businesses (Ahi et al., 2017). Thus Lidl adopted an international reputation for their ideal food dumping procedures and helping the environment with 100 percent use of eco-friendly electricity using solar energy. The products vary also in such different markets according to the consumer's preferences like bread and juice have higher demand in Paris, unlike the UK.

To present the evidence, several research papers have been analysed regarding internationalisation and what has been found is that a company primary needs to be settled in one’s own country, similar to Lidl in Germany. The next phase is that, to be internationalised, agent hiring over foreign lands for the purpose of sale is seen; some companies do open sales subsidiary (Kunday and Şengüler, 2015). All of this is true in the case of Lidl by having wholly-owned subsidiaries. That is why it is proven that Lidl has been internationalised.

Uppsala Theory and Lidl

The company Lidl has followed the theory and hence, the commitment of the management is low. The company has made international development from France. A country close to Germany is France, which has been penetrated as part of market development.

 

As the company have a hunch to grow abroad, the PESTLE analysis and the business environment analyses result in positive for them with a view of opening the brand there. The actions taken by the company Lidl in their plan of market development strategy towards the foreign lands comply with the Uppsala theory (Albertoni, Elia and Piscitello, 2019). Then the superior choice was to penetrate the market of Europe as market knowledge has been gathered due to their commitment decisions. To embrace this approach, the company has made market commitments to its current activities. The company has made the approach through developing the working environment and maintaining strategic corporate cultures (Oliveira et al, 2018). The Uppsala theory has been made with the management team of the development to take the opportunity to change through the change of present state.  The company has been internationalizing for long-term sustainability and the FDI has been made to acquire better margin from the investment in the Expansion.

Question: 2

Entry strategy: Wholly-owned subsidiaries

The management of Lidl has gone through the adjustment of Cost-Benefit analysis of all the modes of Entry in the business expansion. These are critical to deal. The company managed to hold the game theory to beat the market through its brand value against the competitors of local companies and the international giants like TESCO and Aldi (Deresky, 2017). The company has conducted the export business first hand. Then, it shifted the strategy to enter the market of France in a unique way.

Entry Mode

Advantages

Disadvantages

Franchising

  • Costs and risks are low
  • No control

Licensing

  • Fast entry is possible
  • Lack of monitoring

Joint Venture

  • Share loose risk
  • Using experience of local partner
  • Conflicts might take place
  • Profit sharing will take place

Wholly- Owned Subsidiaries

      Full control over the quality and the business

      Fast entry is possible

      Moderate Cost and risk

      Culture problem

      Strategic challenges over expansion

Figure 3: Entry strategy

Source: (Kristjánsdóttir et al., 2017)

The strategy is to expand the business with wholly-owned subsidiaries. The management team has been satisfied with leveraging and buying the local stores and companies, which was possible in Lisbon, Portugal; in the United Kingdom the strategy fully depends on taking a suitable position (Nalbandyan, 2017) of the point of selling. The lease agreement has been made against the landlord in some cases for several years and in some cases, the position is bought by Lidl like in London (lidl.co.uk, 2019).  The strategy of having one’s own chain of outlets helps the brand deliver the same quality of products across the globe. The management team can build scopes for saving cost brilliantly. Hence the scale economy has been sustained in the business.

Advantages from the strategy: The management allows the team to do the best following the leadership of management to bring forth a productive attitude among the team. That provides the opportunity to give promotions abroad and allows the company to hold the attention and the motivation of the employees. Lidl is a brand known for being the greatest discounter. Lately, it has given priority to the environment in an eco-friendly manner (Giachetti and Colapinto, 2018). With the procurement of the solar panels and the food wastefulness being checked, the brand has been boosted with significant value. Now, the basis of the strategy that has been chosen by the LIDL management is such that the sales and the long-term development of the brand across the globe have been painted through expanding in the world’s hub of business in the USA. The management will push the quality and the supply chain for the management of the company’s outlet as superior.  The management of the company has built the strategy of cost leadership on the products because of employee efficiency and hence the management of the company has been able to see the profitable side beating the international competition with the technique of blue ocean strategy (Deresky, 2017). With such advantages, the lack of strategy like failing to manage the employees and failing the brand as the scale of differentiation will be faced.

Competitive edge to face disadvantages

The Company has to face some disadvantages using this strategy where quality assurance could be the key issue. The management of the company has to manage employee performance and work schedule with (Rexhepi et al., 2017) the opportunity for Expert training. The company focuses on the investment as the management has to figure out the Net present value analysis and the internal rate of return of the project of the business expansion. That is why the business has won the bet of opening in the different markets of the world. The management has to take the responsibility of having situational leadership in the work environment and the management has to manage the failure of the business model as well. The market expansion in Norway failed due to employee management and the poor quality of the management of consumers. The managing strategy should be different at every outlet (Rodrigues, 2014) and it has to be interlinked with the supply chain. The Lidl has the reputation to go big and take risky opportunities as the management team gains real spirit after securing the Pareto optimal of the projects for the investors and the stakeholders. The agency problem is less of a concern in the Wholly-owned business model since the management needs the authority of the hierarchy.

Balancing challenges in the Market Expansions

Political challenges: The opportunity of the market has been challenged by factors such as red tape, strict regulation, and tax brackets. As the management is looking for the minimum sales price over every product, the strategy of cost leadership (Bartlett and Beamish, 2014) should be challenged too. That is why the management of Lidl should avail the strategy of expanding with Wholly- Owned Subsidiaries, as they will have full control over the business allowing moderate risk. The strategy will be beating this myopia through the Economies of scale strategy and the subsidiary supply chain while maintaining the Wholly-owned subsidiaries.

Economic challenges: The strategy puts additional investment on the new stalls and the management of the company will be agreed as the breakeven will be met within 2 years and the customer relation and retention will be kept through the strategic directions (Oliveira et al 2018) of the company. How the company has been targeting consumers through product proliferation in different countries has been identified. Uppsala theory has been used to show the analysis. The products and the promotion activities will be gathering the development strategy (Forbes.com, 2019). Currency risk and the management of the inflation might hurt the cost ratio, and to face this, the bulk purchase and economies of scale will push the company to gain the bargaining power of purchases from the suppliers. As the consumers are loyal in the new market for Lidl in US, this could be a promotional strategy to have them be the partner of the economic growth of the food industry.

Social Factors: The Company heats up the market with the everyday management of the discount. The price and the premium consumers are newer additions for Lidl and hence the company has been managing the development of the cultural shift (Kristjánsdóttir et al., 2017) of the products. The Perception needs to be changed through buzz creation like the market of Ireland in different ways as the US people are more casual than British. The industry is curious about the social changes as consumer preferences are changing over the time. The company does care about healthy products like soy milk, vegetables etc as the healthy trend has been started. That is the culture in the USA. Lidl does care about these factors to make a focus on customer oriented products in relation to social diversification. The culture of the targeted market is being researched too and these findings help Lidl to decorate the shop and store the goods accordingly

Techno-logical Challenges: Tesco and the Aldi have been using the SAP software and less human force compared Lidl as they are enforcing the credibility of artificially intelligence. Lidl focuses on building relationships (Nalbandyan, 2017) and hence, the employees should be productive and able to use the technology hand fully. Lidl’s strategies to grab the technological advantages are many as they are using the SAP software maintained by the German software company. The performance evaluation of the individual and the store are being maintained using ERP systems. The Software and the Tracing code in the JIT inventory system has been used to track the goods which enhance efficiency and the profitability.

Differentiation with the Wholly-owned subsidiaries: The Company has been making the strategic fit and the point of difference from its rivals for the sake of global competitions. Lidl has the same in mind. The foreign direct investment has been made through the management of acquiring wholly-owned outlets (Ahi et al., 2017). The management will have to be more concerned as the brand has the same outrageous contribution to the eco-friendly business model and the services with quality.

Question 3

For the sake of improving the internationalize strategy of Lidl, the safe model has been prepared to provide suggestions to the CEO, as the expansion in Norway was a complete failure due to the lack of strategy like failing to manage the employees and failing the brand as the scale of differentiation.

SAFE Model

Factors to be observed for Internationalizing the Brand

Suitable- The manager has to be legit about the position of the business expansion. And for that purpose, the US would be a great market for Lidl as middle and higher middle-class people will be attracted by the company’s selling and marketing strategies. The suitability has been found through the management of the consumer retention rate and with the cost-benefit analysis. And as far as the suitability concern, the management should take care of the joint venture (Rodrigues, 2014) that will allow the company to penetrate countries like Denmark, China, Japan, and India. These countries allow the strategy of the development of local ventures and hence to enter such markets will never be easy to see the management of the expansion.

Acceptable- The ideal model of the business expansion varies from country to country and here the company has been facing the Benefit analysis that shows the path of development of the newest market in the US with the Wholly-owned subsidiaries. The acceptability of the business model has to be right according to the manager’s choice. The mission of the company has always been the managerial criteria of the business through the Corporate social responsibility and social welfare through the wealth maximization of (Deresky, 2017) the brand. For that purpose the brand has worked to be the relentless partner of giving a hundred percent on the development of the company’s services and products. The takeaways for the CEO should be justifying the analysis on the basis of worst-case analysis to see whether other modes of entry could be more beneficial than this. Full control will not be at hand of the company, and so it should be given a second thought.

Feasible – the risk is taken and the return Lidl has been making should be tested with a minimum feasible basis by the CEO while the strategies are taken. The strategy of the creation of the blue ocean could be hard and like a mirage in some markets like Norway. Employee engagement in business expansion should be more useful and important than the regular time (Shen, and Paul, 2017). The expert team should be managed and given the task to implement the project.

Enduring – The daily basis coupon card and the gift voucher should be added with the discount opportunities. The challenges for the local company have been raised due to the management of globalization in the safe hand of the business tycoons. The international management allows better (Bartlett and Beamish, 2014) services and products in the free trade market of the world which is beneficial for the people and consumers. The point of selling should be used in the differentiation strategy to build the brand.

In addition to this SAFE model, I have made another model for answering the key points to address the burning questions regarding strategy to answer of when and how to improve Lidl’s internationalize strategy to manage the company for cultural differences.

Where to Use: The basis of the strategy that has been chosen by the LIDL management is such that the sales and the long-term development of the brand across the globe have been painted through (Whitley, 2014) expanding in the world’s hub of business in the USA. The management will push the quality and the supply chain for the management of the company’s outlet as superior.

When to Use: Tentative year for entering the USA market would be July of 2020.As the management is liable for the project implication and it has a direct impact on the shareholder's earnings and stock price, the foolproof idea and implementation plan should be checked, testing the waters.

How to improve Lidl’s internationalization strategy: For the CEO it would be challenging to address the freedom of the citizens of the US. The culture of the employees will be taken care of by the motivation theories. The people of the USA should be targeted with global integration which is covered with High intensity. At the same time the company needs to be more careful towards local responsiveness (Kunday and Şengüler, 2015). That agrees with the continuous research and the coupon based strategy. That is transnational strategy.

Conclusion

The necessary justification has been provided throughout the report and the management of the secondary analyses has been taken forward using the Library site of Brunel University of London and research sites. At first, the evaluation of the financial paper of the Lidl has been made to design the income table of Lidl from the different markets in which they are operating globally. How the company has been targeting consumers through product proliferation in different countries has been identified. Uppsala theory has been used to show the analysis. In the answer of question 2, the work has been carried on the modes of entry strategy and the wholly-owned subsidiaries are promoted as the best one through its chain based retail systems. The strategies of the company have been highly preferable in such new hosting market and suggestions are made to the CEO accordingly to emulate it.

References

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