International Expansion Strategy For Aldi: Identifying The Most Attractive Target Market Essay.

Aldi (https://www.aldi.com/) is the common brand of 2 leading German global discount supermarket chains operating across 19 countries globally. The company is looking to further expand internationally.

Using Aldi as a case company, produce a report that addresses the 5 following tasks:

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

• Czech Republic

• New Zealand

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 Aldi.

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 Aldi.

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

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

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

OR:

1. ii) identify Aldi’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).

A SWOT analysis for either option is not acceptable.

Critically evaluate the various modes of entry available to Aldi 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.

In today’s competitive business environment, international expansion is the best and most appropriate strategy, which has been implemented by multinational organizations. This report aims to identify the most attractive international market, where Aldi can run its business operations profitably. First, it compares two countries, i.e. New Zealand and Czech Republic, by evaluating macro-environment of each country via PESTLE analysis. Moreover, it includes Porter’s 5 forces analysis that evaluates the competitive intensity of the industrial environment of Aldi in chosen market. After that, it includes the discussion about internal analysis of the company by the use of VRIN framework. This internal analysis describes the resources and capabilities of Aldi while entering in new country market. At the end, the report discusses about different modes of entry, which are available to Aldi (Clemens, 2009). In addition to this, the most suitable entry mode is recommended, which will allow Aldi international expansion to become successful in new country market.

Aldi is well-established brand of two leading supermarket chains with more than 10000 stores in over 18 nations. It is a Germany based organization that is operating its business processes all over the world. The organization has become a powerful retailer by implementing effective business and marketing strategies (Aldi, 2017). Now, the company is planning to further expand its business in new country markets, i.e. New Zealand and Czech Republic. The attractiveness of both markets is analyzed by using PESTLE analysis. Below-table compares different factors in both countries, i.e. New Zealand and Czech Republic.

Factors		Czech Republic	New Zealand
Political		· In Czech Republic, the political situation is slightly unable. · In this country, the affairs of corruption decrease the trust in international market. · Fluctuations in exchange rate Score: Less Attractive	· Stable government and strong rules and regulations · Implementation of various food safety standards from government · In New Zealand, any company can enter, if it provides employment to local people (Bailey, Price, Pyman, and Parker, 2015). Score: More Attractive
Economic		· After the crisis, there is slow economic growth in the country. · Higher instability in exchange rate and commodity prices · Minimum wage is higher than neighbouring countries (Belás, Demjan, Habánik, Hudáková, and Sipko 2015).  Score: Moderate Attractive	· Economic growth rate in NZ for 2018 is estimated at 3%. ·  In the country, fuel prices are high that have adverse impact on retail and manufacturing industries. · Inflation rate is low Score: Attractive
Social		· Highly educated population · People are interested to shop at supermarkets. · Most of the customers are price sensitive.  Score : Less Attractive	· The estimated population of this country is 4.69 million · Increase in population is creating more opportunities for retail stores and supermarkets   · Changes in lifestyle increase the demand for retail and grocery products. Score: More Attractive
Technology		· In the country, there is availability of tech materials · The people are very much interested in online shopping for retail products. Score: More Attractive	· An advanced education system · In NZ, there is the demand for online shopping. · Aldi can expand the business by implementing new and upgraded technology in its processes and business activities (Harris, 2017).  Score: More Attractive
Legal		· Legal system which prohibits employment discrimination. · Restrictions on imports. Score: Not More Attractive	· The government of country has curbed the corruption from society, so the people are having basis facilities · Better place to start business due to scope of business growth. · Profit margin may be low as they need to pay excess lending charges.  Score: More Attractive
Environmental		· Requirement of more measures to save the environment and resources. · Difficulties in selling products due to global warming (Belás, Demjan, Habánik, Hudáková, and Sipko 2015). Score: Not Attractive	· The population of country is aware about changes in weather and climate. · Government initiatives to control the pollution, which will be beneficial for retailers. · Various technologies to deal with pollution. Score: More Attractive
Total Score	Less Attractive than New Zealand			All Factors are attractive for Aldi’s business expansion

After conducting PESTLE analysis (Appendices 1), it has been analyzed that New Zealand is more attractive country for Aldi than Czech Republic. There are different micro-environmental factors, which indicate the attractiveness of New Zealand market in context of retail organization (Ho, 2014). The attractiveness of this country can be justified by discussing the below factors;

When an organization plans to expand its business in any country, it needs to consider its political environment and stability, which can give its more strength to operate business. New Zealand is the country, where the government is stable and Aldi may have more opportunities to get success due to strict laws and regulations in the country (Chatterjee, 2017). In this country, political system is very strong and changes in policies have been occurred after every three years. So, Aldi needs to be aware about these changes to expand and established its business in New Zealand. For Aldi, it is the best political system, which will assist the organization in becoming more innovative and efficient.

Task 2

Economic factors in New Zealand are also attractive for Aldi’s business expansion. This country has a globally competitive and stable economy and experienced significant economic growth in last 33 years. As discussed above, country has an open political system that has given rise to a more efficient economy. In this country, rate of inflation is lower than other countries and people can afford to buy grocery items from supermarkets. By the expansion of Aldi, people will be able to buy all the commodities like; rice, sugar and others from one place. It will assist the organization to generate more profit through their business operations and trade. In the beginning, Aldi needs to invest more money to earn future profit by sale of its products. Apart from this, rising fuel prices can affect the business of Aldi in this country (Clemens, 2009).

In New Zealand, the estimated population is 4.69 million and most of the people are highly educated. This is a good sign for Aldi to expand its business in this country with its retail and grocery items. There is an increase in the population of the country, which will create more opportunities for supermarkets and retails stores (Abraham, 2012). In addition to this, changing lifestyle can increase the demand of grocery products. In this country, it is very easy to target the appropriate customer segment for its product offerings.

New Zealand has an advanced education system, so the people are able to adopt the technology changes. People prefer to do online shopping for their grocery items as they are using smartphones and advanced technology (Renton, Daellenbach, and Davenport, 2016). In this country, Aldi can expand its business operations by executing updated technology. Technology factors are positive for Aldi, because the government has provided IT services and people in rural and urban areas are excessively using internet.  

In this country, government changes after every three years and every new government makes new laws and regulations. So, Aldi needs to be aware about these changes in laws and regulations. Government of New Zealand has implemented Food Safety Standards, which are applicable on supermarkets and grocery stores. Thus, the organization needs to focus on product and service quality. Apart from this, there are some positive aspects of legal environment, like; government has removed the corruption from community. It is the better place to initiate business, but organization may face heavy lending charges.

Task 3

New Zealand is situated at 900 kilometers away from Australia, which is profitable for the companies, expanding business in New Zealand. The government of country has adopted various technologies to deal with pollution issues. Aldi has to follow environmental regulations in NZ, which are imposed to protect people’s lives (Dumas, La Rosa, Mendling and Reijers, 2013).

By analyzing above factors, it is clear that why New Zealand is more attractive than Czech Republic country. Aldi should expand its business in this country by considering above factors.

Porter’s five forces analysis is one of the most important frameworks that can be used by Aldi to evaluate the competitive intensity in New Zealand retail industry (Porter, 2008). Five forces of this model are stated below;

In New Zealand, intensity of competition in retail and supermarket industry is very high. In this country, Aldi may face direct competition from already existing domestic and international super market brands like; Countdown supermarket, Lidl, Pumpkin Patch, Dick Smith, Foodstuffs, Progressive Enterprises etc. From them, Foodstuffs and Progressive Enterprises are making efforts to increase their market share in retail industry. Countdown Supermarket chain is continuously lifting sales with increase in number of customers. It has sold goods and units by using different strategies such as price drop and price lockdown. With increase in number, the supermarkets have experienced the growth with 3% CAGR. Thus, Aldi needs to enter with effective strategies and expansion plan, which will enable it to deal with intense competition (Euromonitor International, 2017).

Threat of new entrants is low in retail and supermarket industry in New Zealand. In this country, Aldi will not have the threat of new entrants as it needs huge investment to become more competitive and develop brand image. As discussed above, the industry already has various leading players in the industry, so new players have to offer something exceptionally to create its brand value. Aldi is already operating its business in Germany and other countries, so it can enter in New Zealand market easily.

In grocery retail industry, the threat of substitutes is low for food products and moderate for the non-food products. The products, which are available at Aldi Supermarket, they can be found on any nearby retail and convenience stores. Thus, the major substitutes for food retail supermarkets are small convenience stores, organic shops etc. Apart from this, Aldi may have benefits by offering quality products at comparatively lower prices (Euromonitor International, 2017).

Task 4

Bargaining Power of Suppliers (Low)

Bargaining power of suppliers is comparatively low in NZ retail and supermarket industry. Supermarkets have more bargaining power than their suppliers, generally forcing for discounts and terms due to buying power scale. In this country, the suppliers favor large orders from biggest players, thus they will not be willing to give discounts to Aldi supermarket chain. Aldi needs to develop better relationships with its suppliers, so that it can avoid the situation of stock out and stock excess (Ododo, Mulholland, and Turner, 2015).

The bargaining power of buyers in food and retail industry is high as there are so many players, which are operating their business successfully. All of the leading players are offering identical products and services and product offering have minor differentiation. So, the switching cost is low and customers can shift from one retail organization to another. For Aldi, it can be proposed that it should enter in New Zealand market by adopting lower pricing strategy. In this country, people are price sensitive and they get attracted towards lower pricing and with accessibility of online shopping (Warner, 2010).

Thus, the above analysis states that Aldi will have highly competitive environment in New Zealand supermarket industry. The existing players in this industry are adopting effective strategies and understanding the price competitiveness among these players. Aldi should also execute effective strategies, so that it can differentiate its products and services from other competitors (Khan, 2011). The analysis shows that there are so many players, which already have a well-established retail and supermarket business in New Zealand. So, Aldi should expand its business in New Zealand by adopting effective entry modes. This market will be beneficial for the company and it will be able to increase its sales and revenues.

VRIN framework is a significant tool for internal analysis that is used to evaluate that which capabilities and resources of the organization are working as its competitive strength. This model includes resources and capabilities of an organization, which have characteristics of VRIN like; Valuable, Rare, Inimitable and Non-substitutable. Below table shows VRIN analysis of Aldi in New Zealand.

Tangible Resources	Valuable	Rare	Inimitable	Non-substitutable	Competitive Outcome	Performance Implications
· Retail Stores · Opening Hours · Product and service differentiation · Lower costs of labour · Use of Manual systems	Yes No No Yes No	No No No Yes No	No No No Yes No	No No No Yes No	Competitive Uniformity Competitive disadvantage           - Sustainable Competitive advantage Competitive disadvantage	Average return Below average returns         - Significant returns Not enough returns
Intangible Resources	Valuable	Rare	Inimitable	Non-substitutable	Competitive Outcome	Performance Implications
· Image as one of the biggest retailers · Human Resources · Relationship with suppliers · Reputation in offering customer service	Yes No Yes No	Yes No No No	Yes No No No	Yes No No No	Effective Competitive advantage Competitive disadvantage Competitive Uniformity Competitive disadvantage	Better Returns Below average returns           -            -
Capabilities	Valuable	Rare	Inimitable	Non-substitutable	Competitive Outcome	Performance Implications
· Purchasing Power · Higher wages to employees · Lower pricing strategy · Better quality products · Distribution Potential	Yes Yes Yes Yes Yes	Yes Yes Yes No No	Yes Yes Yes No No	Yes Yes Yes No  -	Competitive advantage Effective Competitive advantage Effective Competitive Uniformity Competitive Uniformity	Better returns          “ “          “ “ Average returns Average returns

From the above analysis table, it can be stated that the resources of a company are valuable if they support organization in enhancing customer perceived value. There are several resources, which are possessed by Aldi while entering in New Zealand. Tangible resources of organization are retail outlets, opening hours, product and service differentiation, lower costs of labor and use of manual systems. Table shows that some of its resources are valuable and some are not valuable. By using retail outlets and lower labor costs, the company will be able to create its value and gaining competitive advantage in New Zealand market (Porter and Heppelmann, 2014).

Task 5

This factor of VRIN framework shows that how rare and limited are the resources and capabilities of organization. At Aldi, there are various resources and capabilities, which are rare like; purchasing power, labor cost, relationships with suppliers etc. These resources and capabilities will assist the organization in establishing competitive parity (Pantano, 2014).

The companies, which have valuable and rare resources, they are very expensive to imitate. There are so many resources and capabilities at Aldi, which cannot be copied by others. They are able to attain competitive advantage in this new country market (Kelsey, 2015). The strategies and business model of company is not unique and it can be imitated by other organizations in New Zealand. By the use of these resources, the company will make efforts to maintain its market share in this industry.

At Aldi, there are only few resources and capabilities, which are non-substitutable. For this company, it is very important to manage its resources and organization culture in other country. Under tangible resources, lower costs of labor cannot be substituted by using any alternative resource. Moreover, Brand image is another intangible resource, which company needs to maintain in this country. There are some capabilities like; purchasing power, higher wages and lower pricing strategy, which cannot substituted by organization.

Thus, the above analysis indicates that there are some resources and capabilities of Aldi, which functions as strategic requirements and strengths (Low, 2016). The organization owns various competencies, which will enable it to create effective competitive advantage and generate significant returns.  These resources and capabilities will lead the organization in establishing a brand image in New Zealand and increasing its customer base.

When any organization plans to expand its business operations in international market, it needs to determine an effective market entry mode, so that it can stay establish its business successfully. Entry modes into foreign market are the major channels that are employed by an organization to get entry in international market. Under this process, a company considers various alternatives or modes, but identifies that these options are diverse (Ang, Benischke, and Doh, 2015). By choosing one most appropriate mode, it finally enters into targeted country market. To enter into New Zealand, Aldi will consider different market entry modes, which will assist the organization in establishing its business in the country. Some of available entry modes for Aldi Organization are evaluated below;

One of the most important entry modes that can be used by Aldi, while entering in New Zealand is Greenfield Investment. Greenfield investment is a type of international expansion, where funds are invested in a market to start business operations from the ground up. It is a type of Foreign Direct Investment (FDI), under which parent organization develops its operations in new country market from base. Under this strategy, Aldi can construct its new facilities and retail stores and build new distribution centers and offices. By using Greenfield investment as their market entry strategy, the company will be in good position to use its firm specific benefits. This entry mode can be both advantageous and disadvantageous as well. One of the major reasons to choose this mode is lower costs of transportation (Dudoviskey, 2012). It can be noticed about Aldi that it offers only local products in the market, in which they have expanded to. Thus, it will offer local products of New Zealand to its population. It will assist the organization in avoiding the disadvantages from exchange rate fluctuations. Apart from these benefits, company may have more risks in Greenfield investment than any other entry mode like; joint venture.

International franchising is the process of expanding local business into foreign nations and markets. It is a complex method that needs considerations of different factors, like; adaptability, feasibility and advantages vs. risks. Aldi can adopt this entry mode for entering into New Zealand market. Under this, it will make an agreement with a well-established brand and sell its grocery products and services using that brand’s trademark. It will assist this organization in identifying new markets and new customers (Gunnarsson, 2011). It will be able to enhance its selling potential and brand presence in New Zealand supermarket industry. However, it is an effective mode of entry for Aldi, but it is more expensive than other strategies.

In addition to above entry modes, Aldi can adopt strategic alliance to enter into New Zealand market. Strategic alliance lies between two firms in the form of merger and acquisition. Under this process, two companies join together to get mutual profits. Aldi can develop strategic partnership with already established retailers like; Countdown, so that it can get enough resources, distribution channels and production potential in this new market (Harrison, 2011). The agreement between two firms may include both offline and online retailing.

After evaluating different entry modes, it can be stated that Greenfield Investment is best strategy to expand business in New Zealand. The country will have various advantages due to this strategy as Aldi will create a new opportunity for retail shopping. By using this strategy, government in host nation can give some encouragements like; legal support, tax relaxation etc. This entry mode will help the organization in gaining government support in New Zealand.

Conclusion

From the above analysis, it can be concluded that it is very important to choose a right market and right mode for business expansion in international market. Aldi is planning to expand its business in new markets, i.e. New Zealand and Czech Republic. After conducting PESTLE analysis, it can be stated that New Zealand is more attractive for Aldi than other country. The organization should expand its business through Greenfield investment strategy. It can be stated that retail and supermarket industry in New Zealand is very competitive, so that Aldi should enter by implementing effective strategies.

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