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Evaluate the following 2 countries to identify which represents the most potentially attractive target market for Lidl’s future international expansion strategy:

  • Mexico
  • Norway
In order to evaluate which of these 2 countries represents the most potentially attractive target market, you are required to undertake a comparative PESTEL analysis of those macro-environmental factors of the 2 countries that are relevant to Lidl. 

Discuss the rationale for the selection of your chosen market. Your rationale should be justified with a more detailed discussion of your PESTEL analysis of the macro-environmental factors of your chosen market that you have presented in the appendix for Task 1. This discussion should explicitly consider the implications of the macro-environmental factors of your chosen market for Lidl.

Apply the 5-Forces model to critically analyse the competitive intensity of the industrial environment of Lidl in your chosen market. A SWOT analysis is not acceptable.

Analyse the firm’s internal environment in order to EITHER:

i) critically evaluate the resources and capabilities of Lidl and the competitive implications of these for the company when entering into your chosen market (this will require an application of the VRIO framework)

OR:

ii) identify Lidl’s internal value-adding activities and critically evaluate which of these will be most relevant in supporting the company to enter into your chosen market (this will require an application of the Value Chain model).

Critically evaluate the various modes of entry available to Lidl and recommend with justification based on the findings of your analyses in Tasks 2, 3 & 4 above the most suitable mode of entry that will enable this strategic international expansion to be a success for the company.

Task 1

The purpose of this report is to enlighten the readers about the information about the company Haier (China). The company is an electronic organization based in China. Haier is a collective multinational consumer electronics and home appliance company. The organization manufactures televisions, air conditioners, washing machines, mobile phones, microwave oven, and computers (Appendices 1.1). The below mentioned report evaluates details about the macro environmental analysis along with industry analysis. Internal analysis of the company is also discussed that further helps in evaluating the right mode of entry for the business. Further, more details about the report are discussed below:

Political: Norway comes under high developing countries present in the world that has a great industrial market for electronics and other appliances. Talking about the political factors that impact the business in the country, it should be noted that the country holds great political stability in the environment than any other developing country present in the world. The country hold no pressure with the monarchy and has evidence of the political satisfaction among the people of the country. Stable environment provides various growth opportunities to companies entering in the market of Norway. The political factor explains that the government has levied rules and regulations that help them to increase the control and decrease the level of crimes in the environment (Backaler 2016). 

Economic: The economy of the country is stable that helps the customers in effectively purchasing and spending income in buying goods. The people present in the country have adequate income in hand to spend on the goods that they want to attain. However, the GDP of country has depleted in last two years that has affected the economy of the country. The sound banking system and surplus from petroleum industry helps the country in significantly increasing economic value (Bertrand, et. al., 2014). In the World Economic Forum list, the country is listed on the 15th rank for the competitive economy among 131 countries (Appendices 1.4).

Social: The social factors of the country states that the people have great culture and social values in the behaviour that reflects in their actions as well. The people of the country are satisfied with the political actions and economic growth of the country. The society has behaviour of spending money on good that are used for necessity of life and not on goods is a part of their luxury. This states that the people does are like spending explicitly but they spend on goods that are actually required. This country known best to fulfil the demands of people for living a prosperous life (Balsvik, Jensen, and Salvanes 2015).

Technological: The people present in the country are very close to the use of technology in environment. People of Norway started using internet at an early stage that helped them to increase its potential in the target market. The Information Society Development Committee of the country states that every third person present in the society is using internet for his or her own good. Distribution channels have been created by the organizations using technology to increase the effectiveness of the supply chain. In short, it can be said that the market has optimum technological resources for the companies to use it and grow (Santa-Ana-Tellez, et. al., 2016).

Task 2

Environmental: the environment of the country is pleasant for the people to stay and spend their lives. The environment of the country is protected from some 50,000 islands that helps the mainland to not get affected with the storms coming from North Atlantic. Further, the country faces various changes in the climate as well. The coastal zone of the country generally faces cool summer and temperate winters. The Royal Norwegian Ministry of Climate and Environment is the ministry that looks after the environmental activities and monitor various degradation activities as well (Boateng, et. al., 2015).

Legal: The people of the country states that Norway has a system that one can easily rely on. The regulatory system of the country is efficient enough to help the people attain their rights and fight for it as well. The legal system of the country is something that one can easily trust on. These aspects give power to the people to fight for their rights and to the company to clear their corporate profile as well. The regulatory bodies work efficiently to maintain the legacy and accountability of the actions of the government (Zhou, and Jing 2018).

Threat of New Entrants: There is comparatively Low threat of entry of new competitors in the consumer electronics market. The companies in this market have already achieved excellence through their services and brand image as well. Further, there is huge investment cost in this industry that most of the investors are unable to invest. It is seen that the products present in this industry are costly and provide varied services to the customers as well. Also, obsolesce, repairing cost and installation cost is also very high that increase the management cost of the goods (Chakravarthy, and Yau 2015). Resulting to which, companies have to maintain a high working capital for the products. Apart from this, brand loyalty is an important aspect that affects the sales of the business. The customers only purchase the products that they have already used and have trust on them. They do not rely on products that are new in the electronic industry as word of mouth is the biggest advertiser in this industry.

Bargaining Power of Suppliers: There is comparatively Low bargaining power of suppliers in the market of consumer electronics. The product differentiation factor is very less in this industry as all the companies serve same time of product with that ultimately results in reduction in the power of suppliers in the target market. The air conditioner of LG comes with similar specifications to that of Haier due to which the suppliers are unable to attain the power in the market to lead. Further, there is very less that is near to negligible switching cost due to which the companies get a chance to switch between different suppliers in the target market. Also, there are large number of suppliers present in this industry that provide an option to the companies to choose (Jaruzelski, Schwartz, and Staack 2015).

Bargaining Power of Customers (buyers): The bargaining power of buyers is high in this industry as it depends upon the discretion of the customers to choose for product that they want to buy. Nowadays, customers get all the information that they want to internet, they have the power to surf online and compare the products according their requirements and features that they want. Thus, the customers are more informative and educated when they buy a consumer electronic product due to which they gain the power to choose the brand they want to buy according to their choice. Further, it should also be noted that the buyers are very price sensitive due to which the companies provide discount and offers to the customers to attract them. In addition to this, it should be noted that the switching cost of customer is zero due to which they can buy any product that they wish to buy in the market. Feedbacks and suggestion present online also in increases the power of buyers to make decision in the consumer electronic industry (Cowie 2016).

Task 3

Threat of Substitute Products or Services: There is presence of Medium degree of threat of substitution in the market. As the consumer electronic industry is a part of consumer goods industry that implies that the customer need to buy products in the market. There is as such no replacement of these products in the market. However, due to change in technology the threat for substitution of increases like, initially LCD TVs were used but with the change in time, LED TVs came into existence that made people to buy the more competitive product in the market. Further, it should be noted that the buyers have propensity to substitute the company if any firm provide high technologically advanced product in the market (Wang, et. al., 2016).

Competitive Rivalry: There is High degree of competitive rivalry in the market. Many companies have already managed to create a brand image in the market while others are slowly gaining their pace. So, it can be said that there are many organization present in the consumer electronic industry that are compete with each other in the target market. Further, continuous innovations present in the industry directly affect the level of competition in the market and aims to increase it as well. Intense competitive is environment is created when there is less specifications in the products and the companies are continuously aiming to attain innovation from the market. Powerful competitive strategies are used by the companies present in this industry that helps them to attract more people in the market. For instance, the company Samsung quickly launches their new products in the market by focusing on innovation and diversification, whereas Sony aims on quality and technology due to which they launches the products slowly (Liu 2016).

The resource and capabilities analysis of the company Haier explains that the company has received various resources and capabilities to attain competitive advantage in the target market. The company is currently successfully working in the environment by using these resource and capabilities only. The resource and capabilities analysis evaluates the factors with the help of which the company Haier can easily achieve competitive advantage in the target market. The resources of an organization successfully help them in achieving the determined success in the target market. Along with manpower, the resource plays a lead role in helping the organization to succeed in the target market (Steiber 2018). Also, in the consumer electronic industry, it is very important for the organization to attain competitive and innovative resource and capabilities with the help of which they can succeed in the target market. Further, there are two types of resources used in the company Haier that are tangible and intangible resources. The tangible resource refers to the those resources that can be seen or touched while intangible are vice versa. Initially talking about the tangible resources that are machineries, land, equipments etc. are successfully induced in the business process in such a way so that they can add value for the company. The tangible assets of the Haier help them to reduce the level of faults in the products manufactured by the organization. Further, the intangible assets of the company that are patent, goodwill etc. successfully deliver their value to increase the satisfaction level of the customers in the market. The brand reputation of Haier increases the level of satisfaction of the customers.

Task 4

Further, according to the resource based view theory, there are two critical assumptions that the resources are heterogeneous as well as immobile. Heterogeneous resources refer to the resources that are diverse in nature and are formed using differential skills and capabilities in the market. As Haier is a Chinese organization, so it adequately receives all the technological innovations before time that makes the resources of the company heterogeneous. Further, it is important for the resources to be immobile, so it can be said that to some extent the resources and capabilities of the company are immobile. As there is presence of low specialization of products in this industry due to which all the companies make use of similar resources to produce them, thus it can be said that the resources are immobile but to some extent (Garg, and Berning 2017).

Further, the below mentioned VRIO analysis explains the resources that are present with the company that can successfully help them to achieve the desired competitive advantage in the market of Norway. These resources will successfully contribute in the organization’s performance in Norway. Further, VRIO analysis of Haier is discussed below:

Resources

Valuable

Rare

Imitable

Organization

Advantage

Brand Management 

Yes

Yes

Yes

Yes

Permanent

Technological Expertise

Yes

No

No

Yes

Temporary

Quality

Yes

Yes

No

Yes

Permanent

Diversification

Yes

Yes

No

No

Temporary

Qualified IT Team

Yes

Yes

No

Yes

Permanent

Cost effectiveness

Yes

Yes

Yes

Yes

Permanent

Supply Chain Integration

Yes

No

Yes

Yes

Permanent

Customer Service

Yes

No

Yes

Yes

Permanent

Valuable: The resources used by the company are valuable as it helps them to attain economic pricing strategy with minimum expenses. With the help of this strategy, the company is able to attain the desired level of profits in the target market. Further, the Hi-End products of Haier yield greater profit for them in the target market. Thus, it can be said that the resources of the company Haier as they deliver the right amount of specifications into the products (Ben-Jacob 2016).

Rare: The fact should be noted that the resources utilized by the company as Haier are rare in nature. The rarity of the resources of the company Haier can be defined through success analysis of the company. Being present in such a tough and competitive market, the company has still managed to satisfy the customers and increase repetitive sale as well that shows that the resources used by Haier are rare (Appendices 1.3).

Imitable: Although all the organization present in consumer electronic good industry provide mostly same type of products and services to the customers in the market due to which, sometimes the rarity of the product reduces as it can be imitable. However, the technical support and the business structure of the company is something that cannot be imitable and this resource helps the company in growing (Yang, et. al., 2016).

Organized: The functions of the company are directly linked to the resources and capabilities of the company that successfully help them to produce output from the resources. Further, the company has surpassed many organizations like Whirlpool, GE etc. that shows great organization of work and resources.

There are various modes of entry present in the external environment that can be used by the company Haier to enter in the market of Norway. Some of the modes of entry are franchising and licensing, joint venture, strategic alliance, exporting, green field investment etc. Under the franchising and licensing investment strategy, the business comes into contract with another association to work together according to the given contract. Further, in the case of joint venture, the company align with other organization of the domestic country to help them to manage their actions in the new market (Bouyoucef, and Chung 2015). Strategic alliance refers to the cooperative agreement under which organizations come into contract with each to share each other’s resources and increase the growth level in the market. Lastly, exporting refers to the process under which an organization sells the goods in the market of other countries (Crainer 2015).

Task 5

However, as seen in the above analysis that the Norwegian environment is very peaceful and supportive for the foreign companies to come and expand their scope of business in their region, thus the company Haier should make use of the Green Field Investment process to grow and succeed in the external international market. It’s not just that the specifications of Norwegian environment support this type of expansion strategy but the company Haier also eventually make use of this strategy only while expanding their scope of business. Like in the case of India, the company spent 32 billion rupees to expand their scope of business in Greater Noida, India (Kadhar, and Raheem 2018). Green Field manufacturing strategy was used in India along with eight other countries including Poland and Philippines (Appendices 1.3).

Green Field investment strategy refers to the strategy of Foreign Direct investment under which, the parent company itself forms its operations in a foreign country from the ground up. In this type of investment strategy, the business venture starts everything from scratch, it does not make use of resources or assistance of any other association in the new market. The project is carried out own with the help of some existing and new employees of the company. This type of investment strategy is best for the business, as it already has varied resources in the market along with a high brand reputation as well, so it does not need any support of any other domestic brand to attract customers in the target market (Wang 2015).

Thus, the company should make use of Green Field Investment strategy to grow in the market of Norway. Initially, the company should identify the best location to operate their business in the Norwegian region and create a plan to set up a manufacturing plant in that region. Further, the company should aim to allocate the resources from nearby that will help them in developing the plant and then creating the resources. Afterwards, the company should employ people from thee domestic region to help them to succeed in the new diverse international market. So, in this way, the company Haier should make use of available resources as well as accurate strategies to grow in the market of Norway and succeed as well (Yong, and Yazhou 2017).

Conclusion

Thus, in the limelight of above mentioned events, the fact should be noted that the company selected from the Global Challenger Companies list of 2018 is Haier, China. This company is a part of consumer electronic goods industry and provides products like refrigerator, AC etc. The company is present is different parts of the world but still there is some scope left for the organization to grow and capture the worldwide market. Thus, the organization aimed to start operating its business functions in the market of Norway. The market of Norway is efficient for the companies like Haier to grow. Further, the above mentioned report evaluated details about the macro environmental analysis of Norway along with the industry analysis of consumer goods industry. The report also evaluated the resource and capabilities analysis of the company Haier with VRIO framework and lastly identification of accurate mode of entry as well. The entry mode selected for the company Haier is Green Field Investment. Further, the report successfully complies with the requirement of the assessment.

Macro-environmental Analysis

References

Backaler, J., 2016. China goes West: Everything you need to know about Chinese companies going global. Springer, Cham.

Balsvik, R., Jensen, S. and Salvanes, K.G., 2015. Made in China, sold in Norway: Local labor market effects of an import shock. Journal of Public Economics, 127, pp.137-144.

Ben-Jacob, T., 2016. The Haier Group: Improvement Upon Success. European Scientific Journal, ESJ, 12(1).

Bertrand, M., Black, S.E., Jensen, S. and Lleras-Muney, A., 2014. Breaking the glass ceiling? The effect of board quotas on female labor market outcomes in Norway. The Review of Economic Studies. https://academic.oup.com/restud/advance-article-abstract/doi/10.1093/restud/rdy032/5042274

Boateng, A., Hua, X., Nisar, S. and Wu, J., 2015. Examining the determinants of inward FDI: Evidence from Norway. Economic Modelling, 47, pp.118-127.

Bouyoucef, A. and Chung, S., 2015. The internationalization of Chinese multinationals in the Middle East and Africa: the case of haier. Review of Business & Finance Studies, 6(2), p.59.

Chakravarthy, B. and Yau, D., 2015. Leading Chinese Companies On To The International Stage. Perspectives for Managers, (191), p.1.

Cowie, K.A., 2016. Book Review—Shaking Things Up to Accelerate Growth. Global Business and Organizational Excellence, 35(3), pp.77-81.

Crainer, S., 2015. Haier calling. London Business School Review, 26(1), pp.24-30.

de Onzoño, S.I. and Ichijo, K. eds., 2018. Business Despite Borders: Companies in the Age of Populist Anti-Globalization. Springer, Cham.

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Garg, R. and Berning, S.C., 2017. Indigenous Chinese Management Philosophies: Key Concepts and Relevance for Modern Chinese Firms. In Transcontinental Strategies for Industrial Development and Economic Growth (pp. 43-57). IGI Global.

Jacob, W., 2016. Book Review: Regina M. Abrami, William C. Kirby & F. Warren McFarlan, Can China Lead? Reaching the Limits of Power and Growth.

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Kadhar, A.A. and Raheem, A.A., 2018. Growth And Performance Of Consumer Electronic Industry In India: An Overview. Paripex-Indian Journal Of Research, 7(8).

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Pallas, F., 2016. Haier: A Case Study on How One of China’s First Global Brands Keeps Expanding. In Multinational Management (pp. 55-74). Springer, Cham.

Santa-Ana-Tellez, Y., Bazelier, M.T., Mantel-Teeuwisse, A.K., Ekström, N., Andersen, M., Furu, K., Haukka, J., Karlstad, Ø., Vestergaard, P., Leufkens, H.G. and De Bruin, M.L., 2016. Uptake And Market Share Of Insulin Analogues In Five European Countries: Denmark, Finland, Norway, Sweden, And The United Kingdom. Evaluating Pharmaceutical Policies Using Cross-National Comparisons And Time Series Analysis, p.73.

Steiber, A., 2018. China’s Entrepreneurial Companies—And What We Can Learn from Them. In Management in the Digital Age (pp. 67-92). Springer, Cham.

Wang, J., Cheng, L., Jia, G., Zhang, R. and Yao, J., 2016. Haier Group—Interactive Design and Manufacturing for Intelligent Home. In Manufacturing Servitization in the Asia-Pacific (pp. 353-380). Springer, Singapore.

Wang, Y., 2015. The Overseas Development of Chinese Electronics Companies: A case study of Haier and TCL.

Yang, N., Ouyang, T.H., Hu, J.B. and Zeng, D.L., 2016. The strategy of e-commerce platform based on the perspective of resource orchestration: a case study of Haier. In Proceedings of the 22nd International Conference on Industrial Engineering and Engineering Management 2015 (pp. 629-637). Atlantis Press, Paris.

Yong, H. and Yazhou, H., 2017. Haier purpose: The real story of China's first global super company. Infinite Ideas.

Zhou, L. and Jing, R., 2018. Management After Acquisition Inside Multinational Companies from Emerging Economies: The Haier Experience. In Business Despite Borders (pp. 213-224). Palgrave Macmillan, Cham.

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