Norway Market Analysis

The primary purpose for this proposal is to identify the best market for Lidl discounter between Norway and Mexico. In finding out the details, the paper conducts a PESTLE analysis of both countries to determine the macro-elements that have a significant effect on this business in the new market. The conclusion for this analysis leads to Norway as the best, and although Lidl had opened a branch here and failed, the company should consider re-entering. Moreover, the paper has done porters five forces to determine what shapes the competition in the Norway market, and have concluded that entreating is difficult due to intense rivalry, but most of the other aspects such as the power of buyers and sellers are moderate. Substitution is weak for this market, and on this, the paper advice the company to formulate a better entry strategy. Again, the paper has used the V.R.I.O framework to identify the strength of Lidl, which could be used to offer a competitive edge in the market, and it has determined the company’s model of doing business as its strength. Nevertheless, although the paper has proposed Norway as the best market compared to Mexico, Lidl should not enter using its current model but should choose between either direct exporting or franchising.

Introduction

Lidl is a German grocery but operating in thirty countries with over ten-thousand outlets including the United States and the United Kingdom, and the company is currently owned by Dieter Schwarz who controls other stores such as hypermarket Kaufland. Lidl continues to look for new markets to venture globally to help extend its stores above the available ten-thousand, and in the last year, it had planned to open eighty by the middle of 2017 including Carolina, Virginia and the east coast of the U.S (Grützner, 2016).

The business offers discounts that enable it to sell its product at a lower price, and this trigger price wars with other competitors. Moreover, Lidl cuts off intermediaries, which helps it to keep the price competitive and cheap supply. Some of the products offered by this organization include red bell pepper, butter croissant, and pineapples among many others. Lidl has zero waste, and minimal staffing as it displays its products in a carton for customers to pick (Hanbury, 2017). The paper shall analyze the Mexican and Norwegian market through PESTLE, VRIO, the porter five forces and the entry strategy to the new market.

Body

Norway Market analysis

The market environment and customer satisfaction determine the survival of an organization. However, shifts in demand, technological changes, new entrants, and laws can pose a fatal threat to a business, and therefore, it is crucial to analyze the market conditions regularly to determine the appropriate strategy of running an organization. The macro factors that need analysis include political, technological, economic, environmental and social as they have a significant impact in almost all sections of a business.

Political force

The political factor can have either an adverse or positive influence on business depending on the means or abuse of power. Norway stands in a stable position politically as it has been a monarchy with entirely no opposition pressures; furthermore, this appears through the political satisfaction among the Norwegian population. Again, Norway boasts to be among countries with the lowest crime rate globally as it has little serious disputes. According to the World Bank (2009), Norway scored number ten among 181 global economies regarding ease of doing business, trading across borders and registering a property among others. Moreover, to the European Economic Area, Norway offers economic preferential tariff rates, although this does not apply to agricultural products that Lidl may use as raw materials (USTR.gov, 2013).

Economic forces

The economic factor involves environments that impact the purchasing power of consumers as well as the spending patterns (Kotler et al., 2018). The global economy faces slow growth, and the developed nations are the most affected (The world bank, 2018). However, although some challenges exist in the Norwegian government, the country remains confident to continue its positive economic growth as it is currently recording at 2.13-percent. The positive response emanates from different sectors, but the fisheries and the oil resources play a significant part (OECD Economic Surveys, 2018). The country has an unemployment rate of 2.4-percent, and the government plans to increase the spending of the oil resources to prevent the increase of this trend (OECD Economic Surveys, 2018), and this means that people shall have more money to spend, and Lidl shall have more benefit.

Technological forces

The use of the internet changes people’s style of living by increasing the level of spending. According to Statista (2016), a hundred percent of adults under the age of twenty-five years and those in the age bracket of thirty-five and forty-four used the internet. With such technological advancement, Lidl can manage to market itself online and reach a significant market at a reduced cost.

The legal force

Norway has better business regulations as well as the stable banking sector. Moreover, registering property is not complicated as compared to other world nations. According to the Global economy (2017), Norway is ranked at number fourteen as the best in doing business and registering property, to which Lidl shall have to undertake. Moreover, the Norway digital is more connected to the eNorway 2009 ActionPlan, and this focuses on three primary targets which include growth and innovation of firms and industries, people in the digital field as well as the user-adapted and coordinated public sectors. All these plans increase the legal ease of performing business and market accessibilities.

Social forces

Norway is among the most equal and inclusive country in the world, and this has helped to reduce poverty through job creation (SOCVS, 2016). Such an achievement happens through the application of different policies that range from education to innovation. The GDP per capita of Norway records at $89,741 although the cost of living is also intolerable (Corrigan, 2017). When starting a business in Norway, its crucial to understand that the country does not have a defined minimum wage, but a collective agreement protects the lowest paid worker.

Moreover, over fifty-percent of workers are members of specific unions, and this explains how the employment process is stable in this nation (Corrigan, 2017). Norway also has managed to close the gender gap in all sectors, where all people can equally access education and other social privileges regardless of social and gender status. The advantage of all these social features is that Lidl can manage to reach the market by advertising to people who can comprehend.

Environmental factors

Currently, the Norway government is advocating for clean energy and hydropower are replaced with solar and wind power (Smith, 2018). The idea behind this shift is the elimination of air pollution to which Norway is among those facing challenges of meeting the requirement of the Kyoto protocol. Therefore, Lidl needs to formulate a new packing material and avoid plastics to ensure that Norway meets its environmental plans of reducing emissions.

Considering the above market analysis of Norway, it indicates that the Lidl company can succeed in registering, marketing and running the business as long as the organization observes the stipulated rules of the nation.

Porters five forces

Porter’s five forces is an analytical tool for helping to understand the competitive environment for a business, as well as identifying some of the useful profitability strategies. The theory lies under five elements which include the power of buyers, the power of suppliers, new entrants, substitutes, and rivalry. These forces assist in understanding the business strength as well as its competitive position.

Buyer power

Consumers are more interested in the healthy through fresh food, and if possible, organic foods would be better for the company as compared to the convenience food. Another effect is the pricing model as the Norway market has large retail shops such as Norgesruppen which had a market share of 42.3-percent in 2016 based on the sale and then followed by Coop which had a market share of 29.4-percent in the same year (Statista, 2018). The price levels of most of these retail shops are infamously high as groceries cost over fifty-percent more as compared to the E.U average (Santander, 2018). However, these competitors make consumers to face no switching cost; meaning that Lidl has to develop a more attractive price scheme. Nevertheless, the buyer power is moderate as Lidl is a big company with a strong brand.

Supplier power

As currently constituted in Germany, Lidl has a wide range of suppliers, and this strategy guarantee stability; avoids price fluctuations as well as delivery delays, and eventually, the power of suppliers is reduced to a safe level. Moreover, in Norway, some retailers have already started to sell their brand products which have pushed suppliers to offer bonuses to the company they sell their products to. The information above indicates that supplies in this market are already weak and Lidl entering here would have a considerable advantage. The overall power of suppliers is moderate due to the increased brand imitation (Consumer international, 2014).

New entrant

Considering that Norway has big retail companies who commit to aggressive marketing, it is not easy to enter the new market. However, new entrants have low exit and entry costs in this industry of retail food; moreover, changes in the behavior of consumers gives new entrants an opportunity to enter successfully. Nonetheless, the new entrant needs to carry out some studies that can help develop a robust strategy, understand the habit of buying for the Norwegian customers as well as establish a means of dealing with the stiff competition in this market which includes providing a strong brand. Lidl had attempted to enter this market but failed after four years, and probably, the company did not consider some of the above strategies before entering the market (Achieva, 2017). However, due to the stiff competition, the growth rate may be slow, and this makes it unattractive to new entrants; the threats of new entrants are strong.

Substitutes

One of the significant substitutes for the food industry is the services offered by the fast food restaurants, delivery services as well as sit-down restaurants. For consumers, these food services are complements and not substitutes as many would have to prepare their meal back at home. However, the direct substitute for this industry is families and individuals who cultivate their food, while others grow in large scale, and besides supplying to shops, they also sell directly to consumers. Currently, this trend is not influential and cannot be a threat, but in the long term, retailers need to solve it as it can change consumer behaviors due to political and economic instability (Palmer, Sonnino, and Custot, 2016). But considering that Norway is controlled by a monarchy and has never had political opposition, instability may not happen, and therefore cultivation becomes insignificant. The information above indicates that the overall threat of substitutes is weak in Norway.

Rivalry

The Norway food industry has high competition due to the lack of switching cost for consumers. Moreover, large retailers have similarities in the basic products which pushes them into a competitive price war. Consumers encourage the same competition as they keep on comparing products from different retailers and rush for the lowest prices and special offers. The same industry has large retailers such as Norgesruppen who occupy a significant share of the market, and consumers trust them and their products. Therefore, the rivalry is intense but the market is accessible, and if Lidl shall venture into this market, then it has to come up with better strategies such as increasing the quality of its products and offer them at a relatively affordable price.

Buyer and suppliers have moderate power in the food market, and this can allow Lidl to succeed if it launches an appropriate market strategy. The entrant of new markets is strong, but this is the only significant challenge that Lidl would face, and therefore it should formulate an appropriate entry strategy. Substitutes are weak as for now, but the company should also develop a proper plan that can handle competition with some of the large retailers in Norway.

VRIO Analysis of Lidl

VRIO analysis focuses on the internal strengths of a company by identifying and evaluating resources, explicitly providing the information on what competitive advantage a resource offers to a company (Frue, 2017). VRIO refers to four criteria which include Value, Rarity, Imitability, and Organization (Chatzoglou et al. 2018).

Valuable: The most valuable strategy for Lidl is its placement, as the company focuses on areas where cheap food is required (Hanbury, 2017). Lidl also sells reasonable and appealing food to people of all levels of income. The strategy is valuable as it increases value to customers who could not have received these services due to cost. Moreover, the retailer also focuses on selling the locally produced items; for instance, seventy-percent of what the retailer sells in the U.K comes from local suppliers (Rahman, 2018). This value causes an increasing differentiation, and if Lidl enters a new market, other players fear for price wars. For instance, Lidl has already opened the U.S market, and its price is way below some of the vast groceries such as Walmart (Hanbury, 2017).

Rare: the strategy is rare since few companies are using it extensively, and this offers Lidl a much competitive advantage. Although some other companies use this strategy and cause parity, Lidl should strive to protect it as a valuable resource.

Imitability: it is considerably expensive to imitate this strategy as one has to sell the final product at a lower price as well as reach people in low-income areas. The approach becomes difficult for other new entrants due to social complexity and financial ambiguity, and this process makes the plan perfectly sustainable (Jurevicius, 2013).

Organization: Lidl organizes its strategy by identifying the source of resources and prefer getting them locally (Tench, 2016). Most of the products are then explicitly packed for Lidl. The top management in Lidl sets goals and make them a vision, and then design policies for achieving the goal. The company also allows managers to discuss behaviors standards and expectations and to send feedbacks concerning the ongoing performance. Then managers appraise the performance and conduct a review session with the workers, and finally, the Human resource decides on whether to employ or promote (Khera, 2018).

Lidl has a strength that if utilized effectively, growth becomes guaranteed as the company already have better resources such as experienced staffs and financial muscles. Only a few entrants can manage to raise the financial capacity required for this strategy, and this offers the uniqueness. Moreover, even if a new entrant manages to use the same approach and succeed, Lidl shall have captured a significant market share which would provide an undeniable command.

Modes of entry for Lidl

Lidl had entered the Norwegian food market, which practiced the oligopolistic structure with four participants who include ICA NorgesGruppen, Coop, and Reitangruppen. The four companies shaped the market condition as well as the customer perception, and this means that no new entrant would afford errors. However, Lidl did not consider this challenge and created a reputation for ignoring the labor unions as well as paying employees with less than the required minimum salary. Lidl also had close supervision for workers and provided poor working condition, and this made clients ignore the companies low price and started to see it as a foreign entrant who came to venture for its country with unfamiliar items. Eventually, the company was forced to sell its stores to Coop and exited the market (APFEL, 2017). Although Lidl had failed in the Norway market, it should consider re-entering with a better strategy such as direct exporting and franchising. While these approaches may become costly, benefits are expected to offset the cost. The following are the entry strategy that the company should utilize:

Direct exporting.

Direct exporting involves selling directly to the market using the available company resources; for instance, Lidl may establish a selling program and then turn to agents or distributors who can continue to represent the company interest in Norway. These people would become the face of Lidl, and therefore the retailer should handle them the same way it would deal with critical staff members. If Lidl adopts this strategy, then it would be responsible for researching the market, foreign distribution, shipment logistics as well as invoicing.

The advantage of using this method for the Norway market includes avoiding confusion and cost of intermediaries; the potential profit increases because of eliminating intermediaries, and eventually the company gain financial muscle which would give it a more competitive advantage (Wei et al. 2014). Moreover, using this approach would help the company to interact directly with clients, and build customer relations, which would then develop into a trust beneficial in assisting the organization to consolidate the market. Direct exporting would also help Lidl to acquire direct feedbacks, necessary for the improvement of the brand and customer satisfaction (Delaney, 2018). However, before engaging in this process, Lidl should acknowledge that the approach would require more time, money and energy since the path is much engaging. The Norwegian market is still feasible for Lidl as many people can afford to buy their products, and the economic and political elements are stable here.

Franchising

Franchising involves copy and pasting the concept from one market to another. The option is perfect where there exists no need for goods and services to adapt, and in this case, the food products distributed by other retailers fill the market, and customers are more engaged with this industry. Therefore, Lidl does not need people to adapt to consume its products. Moreover, Lidl is already a known brand globally, and thus it would become optimal if the company applies this strategy in Norway. The primary benefit of this approach is that it helps companies to use less capital, increase the rate of growth, reduce the risk as well as motivate the management among others (Siebert, 2015). The strategy would also have fewer chances to Lidl losing the franchisee since after she has succeeded with this brand, she will find it difficult to walk away from the primary company.

Franchising would also help the parent company to conquer the Norway market since high possibilities exist that franchisees would employ locals even in the management, who would relate well with Norwegians, which would then improve the client relationship (Ivanov and Mayorova, 2015). Nonetheless, some of the primary challenges emanating from franchising includes the risk of a poor reputation for the entire brand if the franchise creates an adverse distinction in a country like Norway. More methods applicable but not entirely fit for Lidl in Norway include licensing, partnering and greenfield investments among others.

Conclusion

The paper has analyzed PESTLE and concluded that Norway is the best market for Lidl to venture as compared to Mexico. Moreover, porters five forces have proved that it is difficult to enter into this due to intense competition, but it is also possible with a proper strategy. VRIO has also confirmed the company’s way of doing business as its internal strength and provided the advice that it should enter the Norway market through either direct exporting or franchising as their advantages exceed the power of challenges.

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Appendices

Appendix 1: Scorecard.

Factor

Norway

Mexico

Rank

% score

Rank

% score

Political stability.

14

91.7

154

8.3

Economic forces

28

35

15

65

Social

150-unequal

89

19-unequal

11

Technology

Index-3.52

Internet=69

56

13

Average= 34.5

Index-2.77

Internet=10

44

87

Average 65.5

Environmental

14

83.7

72

16.3

Legal

8

86

49

14

Total Score

419.9=70%

180.1=30%

Explanation

The scorecard uses percentages as they provide an easy and explicit comparison between two variables, where in this case, it is comparing the Mexico and Norway markets. The scorecard is calculated according to the global ranking when compared between the two countries. For instance, technology, Norway transportation has an index of 3.52 while Mexico has 2.77. To get the percentage representation of this, find the total between the two ranks: (3.52+2.77=6.29), then since Mexico would have the lowest description, interchange the figures and divide by the total and multiply with 100 (2.77/6.29) ×100=44, while Norway would have a score of 100-44=56. Follow the same procedure for the internet ranking and find the average between transport and internet. For Mexico, the total became 65 while Norway had 35. All the other scores follow the same procedure.

Norway is among the most stable nations in the world, and there exists a considerable stability difference between Norway and Mexico. According to the 2016 data from world bank, Norway was number fourteen of the most stable nation politically as compared to Mexico which was number 154 (The Global Economy, 2017). The political stability of a country influences the peace of doing business, as it does not call for regular closures; citizens have the freedom to buy, and this ensures a consistent and stable market.

Economically when measured on GDP, Mexico is above Norway as it is ranked number fifteen, while Norway is twenty-eight (Statistics times, 2017). However, per capita income is exceptionally high for Norway than Mexico. Economic stability offers a significant market share to businesses as more people have adequate income that makes them afford many of the items they want. Unlike developing nations where an introduced product only sells to a selected class of people, in Norway, any product can sell to most individuals.

Norway has a low population as compared to Mexico (The World Bank, 2018), 5,232, 929 by over 130,000,000 (Worldometer, 2018). An increased population means a considerable size of a market, and this indicates that Mexico is better placed for Lidl to invest when considering this aspect.

Again, Norway is ranked at number fourteen globally on the environmental index, while Mexico is at seventy-two (Environmental performance index, 2018). Here, every company doing business in either of the countries should adhere to the environmental factors. For instance, Norway plans to deal with clean energy and abolish others such as the hydropower systems to help reduce the greenhouse emissions (Smith, 2018). Therefore, Lidl shall have to consider eliminating all items that have a direct effect on the environment against what Norway demands.

Appendix 2: Comparative Pestle analysis for Norway and Mexico markets.

Norway

Mexico

Political

No opposition pressures

Lowest economy crime rates

Actions by the federal and local government affects many firms.

Poverty here is caused by the political economy.

Economic

Economic Growth rate of 2.13%

Per capita on purchasing power parity above $ 82,330.

Economic growth rate of 1.1

Per capita on purchasing power parity $9946

Social

Among the most equal countries.

Ranked 150 globally as the least unequal.

Healthcare is free for people below six years.

Education is free for international students.

Population of 5,232929

High inequality levels.

University education free for Mexican, but expensive in private universities.

Ranked number 19 globally as the most unequal.

High population of 130,000 people.

Technological

Transportation In