PESTEL Analysis of Mexico and Norway
Discuss about the Continuous Supplier Performance Improvement.
Currently, marketing is becoming highly competitive and it is very difficult for the companies to sustain its competitive advantage in the market. Global business expansion of companies is one the suitable strategies that can be used by multinational companies. The objective of this report is to identify the suitable international market for the business expansion of Lidl that is a German supermarket chain. Now, company is seeking for the global expansion. For this purpose, two countries are selected i.e. Mexico and Norway (Jansson, 2011). Both countries are evaluated by PESTEL analysis. Along with this, the report also focuses on five forces analysis of the selected market so that the competitive situation of that particular market can be analyzed. Further, the report also includes the internal analysis of Lidl by the Value chain analysis. By value chain framework, the resources and capabilities of the company can be analyzed while entering in the new market. At last, various modes of entries in the new market is analyzed that will allowed the company to expand the business in the new market successfully.
After conducting the PESTEL analysis, it is observed that Mexico is the suitable country for Lidl as compared to Norway. There are some micro-environmental factors that reveal that Mexico is the suitable country for the retail business expansion. The attractiveness of the country can be discussed based on the following points-
For a company, it is important to focus on the political environment and stability of the country while expanding the business at the global level. The country has good political tie-ups with the developed countries like Australia. There is the stability in the political environment of the country. The political factors have significant impact on the business operations of retail companies as government has imposed various regulations and policies like tax and lawsuits. Laws related to labor unions also have an impact on the business. Political stability is the cause of increment in the market share of the companies (Eia Beta, 2015).
Mexico has strong economic environment and the country has its GDP rank 12th in all over the world. The government of the country has done lots of work in order to enhance the transparency in the economy. Further, for enhancing the trade, the country has signed many Free Trade agreements with the developed countries and its key relationship is with NAFTA. There are some factors that are favorable for business expansion in the country i.e. geographical benefits as the country is close to US market, initiatives of government to enhance the industry to create the jobs and availability of cheap labors. Apart from this, the banking system in the country is maturing with the faster rates for providing business credits at the competitive charges. There are a variety of credit rating companies that provide funds to the businesses (Depersio, 2015),
Five Forces Analysis of Retail Market in Mexico
The household incomes of people in the country are increasing and people are spending on luxury products and services in daily lives. It is observed that around 18% of total populace is under the poor quality line. Customer segments in the country generally have a preference of lavishness products and they are always willing to spend the amount for it. Along with this, the country is always ready to adopt new technological changes coming across the world. Cities are well urbanized and are ready to adopt new culture (Roger, 2013).
In Mexico, there is strong telecommunication network which is helpful in business operations. Mexico is considered as one of the top 20 countries in the use of internet and digital media. There are handset systems also that are increasing continuously. Such type of communication system is helpful for the endorsement of business. Further, in case of transportation, there are well developed railways and road networks in the country. With the increased household incomes, people prefer air travel that is again making the transport services strong (Kotler & Gary, 2010).
The country is facing various environmental challenges because of rapid industrialization. The pollution is one of the challenging factors currently. For dealing with these environmental challenges, the government of Mexico is taking various initiative plans so that carbon emissions can be reduced effectively. In the energy sector, the government is also taking initiatives for renewing the energy sources.
Mexico actively participate in the World Trade Affairs by various forums i.e. NAFTA so, the legal system of the country is going to modernization and liberalization. Foreign companies have various options while setting the business in the country i.e. share purchases, joint venture and wholly owned subsidiaries. For taking guidance in the business, there is a Federal law which can be said ‘The General Law of Commercial Companies’ made by government of the country. Along with this, labor rights in the country are also protected by labor laws.
There are some drastic changes in the retail industry of Mexico during last few years and make the entrance of overseas companies easy in the country. The foreign companies bring various new concepts like discount stores, price clubs and supermarket chains. Small companies are still facing strong competition but they are more attracted towards new trade concepts (Luffman & Kenny, 2009). For analyzing the retail sector of Mexico, it is important to understand this in terms of Porter’s five forces.
Value Chain Analysis of Lidl
In the retail industry, there are various players coming from the foreign countries. So, it is not easy for the new the new entrants to establish the business in the industry as it requires huge capital investment. The existing companies have already captured big part of the market and created barriers for the new entrants. Due to complicated financial plannings, the growth of retail sector is limited.
In the retail sector, the threats of substitute products are high. The reason is that there are limited numbers of players in the retail sector. There are big chain retail stores that have sufficient room to display utmost products and brands. At the same time, the small players are also trying attract the customers. So, the local companies can create a threat for the big companies by providing substitute products at the cheaper rates. These small companies can also make transforms in the modern retail conceptions (Marcer, 2012).
In the retail industry of Mexico, there is strong competition amongst the companies. In order to attract the customers, companies are using various innovative strategies like discounts on products and better customer services. Retail segment is one which has various brands in one store so; they are giving selection of alternatives to the customers. The local companies have advantage due to longer presence in the market. In order to enhance the competition in the market, companies are adopting various strategies like aggressive advertisements and promotional offers etc (Jurevicius, 2013).
In the retail industry, bargaining power of suppliers is very low as they are not able to differentiate among various retailers. The buying behaviors of the customers are vibrant and they may switch to the retail stores based on different factors like promotional offers and proximity of stores. Only loyal customers for the brands cab give advantage to the specific suppliers. So, the bargaining power of the suppliers is low in the retail industry (Joshi, 2009).
Customers are important part of the success of any business. Customers have strong bargaining power due to the strong competition among the companies. Customers are always ready to use new products and brands so there is high switching cost and the products are accessible at the competitive prices. The promotional offers and discounts provided by various retailers have significant impact on the buying decisions of the customers. So, it is important for every company to analyze the activities of the buyers.
Inbound Logistics of Lidl
So, based on the above analysis, Lidl has to face high competitive environment in Mexico retail industry. The existing retail companies have adopted various strategies in order to create barriers for the new entrants. The company needs to differentiate the products by the effective strategies so that competitive advantage can be achieved in the international market. Based on the analysis, it is observed there are many companies that have strong brand image and well-established business in Mexico. So, Lidl should expand its business in Mexico by appropriate entry modes. This market would be profitable for the company in terms of sales and revenue. Further, it is also analyzed that most of the foreign companies enters in the Mexican retail industry by the process of joint venture. By this, they get benefits the experience of the local market. The big players in the country are able to capture by the strategy of price differentiation.
Value chain analysis is the analytical framework that is helpful in identifying the business operations that is able to create competitive advantage and value in the business. Given figure of describes the value chain process of the company Lidl.
The inbound logistics operations of Lidl are complex and include the supply of various products to Lidl stores in all over the world. Economies of scale are the key source of value creation for the company due to large scope of its operations. The company is making continuous investments in order to enhance the capacity of logistics. Further, the inbound logistics and restructuring initiatives of the company includes the simplification of supply chain management and development of international logistics systems. The products are packaged and sent to various distribution centers. Strong relationship with the suppliers is also key sources of value added by Lid in the inbound logistics.
Customers are able to buy the products from various distribution centers of Lidl. Further, online sales channels are also used by the company in order to distribute the products. Apart from this, there are retailers and wholesalers that are main source of value of Lidl’s outbound logistics. The company is selling and distributing the products in the licensed stores. Further, cost-effectiveness and flexibility of deliveries are the key source of value for Lidl’s outbound logistics. The supermarket chain provides home delivery options while purchasing the products online. Company also provides home delivery of products purchased from the physical stores of the Lidl (Glowik & Smyczek, 2011).
Outbound Logistics of Lidl
In the market, the company has strong presence on various social media platforms. The products are promoted by various channels i.e. Facebook, Instagram, Twitter and YouTube. Company is focused on building strong image at the global level. By various digital strategies, company is able to build strong distribution network. High level of activity on the social media channels is one of the strong sources of value for Lidl. Further, the marketing strategy of the company tries to connect the brand with wide range of products, competitive prices and best quality products and services. The company is using both online and offline channels for the sales of the products (Jeannet & Hennessey, 2010).
Lidl provides effective customer services in order to remain competitive in the market. This is the primary activity of the company that is adding value in the brand image of the company. Employees have positive attitude for their job role and they always greet the customers in the polite way. Along with this, they are always ready to provide superior customer services. Further, company has adopted cost leadership business strategy so that customers’ services of highest standards can be provided (Schnaars, 2010).
HRM is the important part of the company covering all the business activities including recruitment to management and development. The objective of the company is to increase various training programs and recruitment process so that customers can be entertained by well trained and well recruited staff. Training is provided to the staff so that they can be motivated and encouraged to enhance the customer service quality (Hill, Jones & Schilling, 2014).
This is the downstream activity that has ability to provide new and innovative product range in order to meet the customers’; needs and demands. This is the key for Lidl to achieve competitive advantage in the market. Capital investments in the technological innovations are basically a long term process for the company but by the innovations, company is able to provide better services to the customers (Seshadri, 2009).
Company needs to analyze the market entry mode while planning to expand the business operations in the global market. By the selection of effective entry mode, company can be able establish its business in the market successfully. There are various methods by which a company can enter in the international market. Company can consider various modes or alternatives for entry. By selecting one of the most suitable entry methods, company can easily enter in its targeted country. In order to enter in Mexico, Lidl will focus on various entry modes that will be helpful in establishing the business successfully in the country. Some of the appropriate entry modes for Lidl are discussed below:
This is the process of expansion of local business into the international market. This is a complex process as there is the need of various factors i.e. feasibility, adaptability, and benefits and risks. This method can be adopted by Lidl in order to enter in Mexican market. In this process, the company will make an agreement with an established company or brand and will sell its products by using the trademark of that brand. It will be helpful for the company to identify new customers and markets. Along with this, it will also enhance its brand image in Mexico retail industry. This is an effective mode for Lidl to enter in the Mexican market.
Lidl can advertise its products straight to the customers in the Mexican marketplace. The most crucial factor in this alternative is delivery of services. The product can be bought online or offline methods and provided that in material form to the customers. But in such case, after sale services can be a big issue for the company. If there will be any issues in the product that need to be changed then it will go back to the company and that would be inconvenient as well as costly option (Wild, Wild & Han, 2014).
There are various benefits of joint venture for Lidl in Mexico. The company needs to need to focus on the variations of local market. The company can choose a local company that high level of knowledge of the country so that their experience can complement to each other. By the joint venture, the process of delivery of service can be handled easily. The process of joint venture should be agreed in such procedure that the process of business operations should be managed by Lidl. The collaborator company should focus on after sales services. Further, Lidl can also provide important skills and training sessions related to effective customer service in order to keep up its brand image (Lymbersky, 2009).
Joint venture is a cost efficient method as it is focused approach. This will focus on establishing the brand image by Lidl and some business actions can be done by the local company. The only risk in such case can be related to the partner if the partner company defaulting on any of the compulsions. So, joint venture can be considered as an option if both the partners manage it carefully.
By this mode of entry, Lidl may focus on direct ownership process in the country. In this method, company can face various challenges due to lack of knowledge about local market and legal policies and frameworks. But on the other hand, the company will be free to operate as per its principles and policies and can pertain innovative developments. For the long term, this mode can be considered as most effective. But, due to challenges at the initial level, this may not be the most favorable option for Lidl in Mexican market. Along with this, it is the most expensive method also (Jansson, 2011).
So, based on overall discussion, it is observed that joint venture can be suitable option for Lidl while entering in Mexico. By this, thee country will get various benefits as Lidl will create various opportunities for the retail shopping. Government of the country can also provide the support in terms of tax relaxation and legal support etc (Deitz et al, 2010).
Based on the above analysis, it is concluded that every company should analyze the markets while expanding the business at the global level. Lidl is seeking for the business expansion in Mexico and Norway and based on thee PESTEL analysis, it is analyzed that Mexico is the suitable country for the business expansion. Apart from this, it is also analyzed that at the initial level, joint venture is the suitable mode of entry in Mexico as there is the lack of knowledge about the market in Lidl.
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