Foreign Market Servicing Strategies of Lidl

outside Market Servicing St posegies of LidlLidl is one of the surpassing orbicular discounter and owns round to the high schoolest degree 9000 retentivenesss in Germ each and tout ensemble over Europe. Lidl has get the better of its main(prenominal) competitor Aldi. Aldi is already victoryful in the coupled States.The in vogue(p) history of the fel impressionship Lidl was clouded by the observation scandal in 2008. This scandal damaged their plan. In the matter of the important topic corpo current Social Responsibility Lidl started a consider called ECO2LOGISCH. This project is about create stores that are energy-efficient and sustainable. In addition the alliance sells Fair-trade products.The aliment sell attention in Germany had a contribute growth in the past but the forecast for the application looks sizeable. The fellowship of super trade places, hypermarts and discounters has the soaringest merchandise contend in the nutrient retail manu concomi tanturing. The buyer and supplier advocator is agencyrate as hygienic as threats of raw(a) entrants and refillings are moderate. The rivalry in the application is very(prenominal) strong.The US pabulum retail labor in equivalence to the German one has a strong growth and the forecast is non slight significant. The category of super nutrient securities industrys, hyper commercializes and discounters has a major marketplace share of 80.2 %. With a crying(a) Domestic Product of $ 14.2 trillion in 2009 the Unites States are the second largest rescue subsequently the European Union. at that place is a very high-pitched variegation of income and on that pointby a problem of poverty occurs in the get together States.With predominating Strengths and Opportunities after the bone up abridgment, the united States satisfy all requirements to become the untested market Lidl should enlarge to.Lidl has possession, location and internalization services and in that respe ctby Foreign Direct direct is the silk hat mode of immersion. Given that Aldi apply Greenfield investing achieverfully to arrive the US market in 1776 and Lidl did use the same strategy to inflate to the European markets, Greenfield investment is the appropriate strategy to grave the bracing market in the united States successfully.IntroductionIn times of globalization and supranational blowup Lidl, who is one of the leading global discounter, should take about an elaboration overseas.The following report should discuss if the join States are the right expanse to fill out to and which mode of entry Lidl should use for the elaboration.In the set-back stairs the society Lidl itself sacrifice be analysed with a closer look at the Corporate Social Responsibility. After that the German food retail industry result be examined. Porters Five Forces Model depart be used for this. The next step is to analyse the food retail industry in the joined States. For this the in dustry itself go away be investigated and the PEST outline will give a closer look at the get together States. The SWOT analysis will demonstrate the Strengths, Weaknesses, Opportunities and Threats for Lidl by entering the US market. subsequently the mode of entry will be discussed and the terminal will give a final answer to the question, if the United States are the right field to stretch out to.The company LidlCompany overviewLidl is a German discount drawing string and is part of the Schwarz Beteiligungs GmbH (Holding company). The Schwarz group also owns the consumer markets Kaufland, KaufMarkt, Concord and Handelshof. The history of Lidl can be traced back to the beginning of 1930. At this point in time Josef Schwarz got universal partner of the Sdfrchte Grohandlung Lidl Co. He restructured it to a wholesale business which was whence destroyed in 1944. After ten years the business was rebuilt and in 1972 the headquarter was relocated to Neckersulm. After the dead o f Josef Schwarz in 1977 his son Dieter Schwarz assumes full state for the business. Dieter Schwarz bought the naming rights from Ludwig Lidl and from this point on the success started. Lidl first expanded in the region of Neckersulm and then to the whole re earth. After the success in Germany, Lidl started to expand internationally. Lidl now owns round about 9000 stores all over Europe and thereby has much(prenominal) than stores than its main competitor Aldi (Langer, 2004 Wikipedia Lidl, 2011).Corporate Social Responsibility out-of-pocket to the feature that Lidl is non a public company, it is very hard to beget any information about Lidl itself. In the history of Lidl it was always the casing that Lidl did not want to show any information about the company. For this innovation Lidl got the nickname Geheimniskrmer (mystery monger) (Langer, 2004).In spring 2008 Lidl got involved in a sorry scandal in Germany. Lidl was accused to observe their employees. This scandal damag ed the image of Lidl. Lidl Germany has apologized for this incident and has assured that they will promote immediate moves to prevent any of these incidents to happen again (Byrne, Skilly, 2008). After this incident, Lidl reformed the conditions of employment.A new project is called ECO2LOGISCH. This is a new store generation. The stores will be energy-efficient and sustainable. For font the new stores will be 100% estrused using the waste heat from the refrigerated sections. Lidl plans that from 2010 on all Lidl-stores should be build ECO2LOGISCH. With this project Lidl is the first food retailer in Germany who sets sustainable building services applied science as a standard (Lidl ECO2LOGISCH, 2010).In addition Lidl sells Fair-trade products and has few kind projects like a football club for kids.The food retail industry in GermanyThe food retail industry includes the sales of food and beverages. In Germany the category Hypermarkets, Supermarkets and Discounters has the highes t market share of 47.6% (see accessory 1).In 2009 the industry had a growth of 2.3 % and a note shelter of $ 234.8 zillion. In the past the growth was moderate with an average of 2.1 % (see Appendix 2). The forecast for the industry looks good. The growth should be unswerving and in 2014 the industry will have an expected abide by of 265.5 meg (Datamonitor (a), 2010, p. 10).With the help of the Porters Five Forces Model the food retail industry will be analysed in the following. In the analysis the buyers will be the end-consumer and the suppliers will be food manufacturers, farmers, and agricultural co-operatives. The players in this analysis will be supermarkets, hypermarkets and discounters.Buyer caterThere is one important change in the consumers demeanour to which the retailers have to respond to. Nowadays the importance of health gets larger and bigger. The convenience food becomes less important and consumers are more arouse in fresh and robust food.Another impor tant fact is the scathe. Because there is a wide regularise of large retailers in Germany the consumer faces no shift key cost and thereby the retailers have to have an cunning price scheme. totally in all the buyer power is moderate (Datamonitor (a), 2010, p. 15).Supplier powerThe big German retailers often have a large range of suppliers. With this strategy the retailers ensure stability. They avoid realizable delays in deliveries and price fluctuations. In addition to that some large retailers have started to sell own tick products. These two facts weaken the supplier power in the German food retail industry. Overall supplier power is moderate (Datamonitor (a), 2010, p. 17).New entrantsIt is not easy for new entrants to enter the market because of the aggressive marketing and price schemes of the large retailers in the industry. Nevertheless there are low entry and exit costs in the food retail industry and the changes in consumers behaviour gives new entrants a possible n iche to enter the market successfully. Besides the low growths rate makes the industry not that attractive to new entrants. In conclusion the threat of new entrants is moderate (Datamonitor (a), 2010, p.18).SubstitutesThe only material substitute to the food retail is the food service represented by fast foods restaurants, sit-down restaurants and delivery services. But for consumers the food service is more a complement than a substitute. A more direct substitute are individuals and families who cultivate their own food. This is no longer used immediately but in the long term possible because of the changes in the consumers behaviour and the threat of economically and politically instability. The threat of substitutes is therefore weak (Datamonitor (a), 2010, p.19). disceptationThere exists a high competition in the food retail industry. Main reasons for this are the not existing switching costs for the consumers. The resemblance in the basic products of the large retailers push es them into a competitive price scheme. This leads the price wars. These are encouraged by the consumers who are now comparing more and more. They have a look on special offers and the lowest price. The German food retail industry has a lot of competitors. Therefore in a conclusion rivalry is strong in this industry (Datamonitor (a), 2010, p. 20).The United States for intricacySince Lidl already expanded to whole Europe it is time to think overseas. Aldi, one of the main competitors, expanded successfully to the United States in 1976. Lidl already beat Aldi in Germany and Europe. Lidl has more stores all over Europe and has overtaken Aldi in the rankings. So the existence of Aldi in the US food retail market is no real threat for Lidl.The food retail industry in the United StatesThe US food retail industry in comparison to the German has a strong growth. The total revenues in 2009 had a value of $ 859.1 jillion and the average growth rate in the years from 2005 to 2009 was 5.3% ( see Appendix 3). The forecast is not less significant. By the end of 2014 the US food retail industry will have an expected value of $1,043.1 billion (Datamonitor (b), 2010, p. 10).In the US the category Hypermarkets, Supermarkets and Discounters has the highest market share of 80.2 % (see Appendix 4). universal the market share of the US food retail industry is 19.8 % billion (Datamonitor (b), 2010, p. 11).All these facts make the US food retail industry attractive for Lidl to expand to. To have a closer look at the real attractiveness of the US market for expansion a PEST analysis of the United States will be proceeded in the following.PEST analysis of the United StatesIn this section the political, economical, social and technological environment of the United States will be analysed.Overall the United States are one of the strongest powers humanwide since more than 50 years. Politically the United States have a strong position. In 2009 the democrat Barack Obama displaced the re publican George W. Bush. Barack Obama was inheriting a poisoned chalice because of the financial blank dummy and the great debates about the military operations in the Iraq and Afghanistan. Nevertheless the US has a great global influence and a strong participatory setup (Datamonitor (c), 2010).With a Gross Domestic Product (GDP) of $ 14.12 trillion the United States were the second largest economy in the world in 2009 after the European Union (CIA The World Factbook, 2010). In the years before the 11th of family line 2001, the United States had an economical boom, after that date the growth slowed down and they tangle into a recession. The congress passed bills to stimulate the financial market in 2008 and 2009. Because of this the public dept in the United States increased from 39.7 % in 2008 to 52.9 % of the GDP in 2009 (Datamonitor (c), 2010).The United States are facing a rapidly aging population. This can lead to a decreasing economic growth and thereby to rising tax ra tes and shortages in labour. The US have a very high diversity in the distribution of income. The Gini index was 45 in 2007 (CIA The world fact book, 2010). 1 per cent of the population belongs to the upper class and in 2009 these people owned 37.1 per cent of the entire property of the United States (Wikipedia Vereinigte Staaten, 2010). However, the United States have a remarkable education system and Barack Obama passed a new health service reform in 2010 (Datamonitor (c), 2010).On the technological front, the United States are a world leader in adapting and applying technology and innovations and they will stay in the position in the near future. But there will be a threat of competition in this heavens because of the continuing process of for example China (Datamonitor (c), 2010).SWOT analysis of the company LidlThe SWOT analysis brings together the analysis of the environment and the company. It identifies the Strengths, Weaknesses, Opportunities and Threats. SWOT is the basi s for the strategy development of a company. The main facts of the Strengths, Weaknesses, Opportunities and Threats will be discussed in the following. The whole SWOT analysis is provided in Appendix 5.Lidl has a high market share in the fast growing market subdivision of the food retailers. It has become a global player due to the fact that Lidl expanded successfully to Europe and owns round about 9000 stores. After the success in Europe there are no more obstacles for an expansion to the United States. Another important Strengths is the very good pricing which attracts many consumers.The main Weakness of Lidl is the damaged image because of the observation scandal and the intervention about minimum wages, which affects nearly every discounter. Additionally the low node loyalty represents another main Weakness. This is an issue because of the low switching costs for the consumers because of the high competition in the food retail sector.An Opportunity is that the category of sup ermarkets and discounters has a markets share of 80.2% in the food retail sector in the United States. Another Opportunity is the existing poverty in the Unites States. pathetic people are more interested in low pricing products.The main Threats are the competitors on the US food retail market. There is Wal-mart, who now starts to open smaller stores like in the store set of Lidl and there is Aldi, the main competitor in Germany. Aldi is a Threat and an Opportunity. Lidl already beat Aldi in the German and European market and Aldi was successful on the US market by using the same discounter specimen like Lidl. But Aldi entered the US market in the 70s and is now co-ordinated and accepted from the US consumers. This is a challenge for Lidl.In a conclusion the Strengths and Opportunities predominate and Lidl should start the expansion to the United States.Choosing the mode of entry to enter the US marketAfter decided that the United States are a good market to expand to, it is now time to think about the mode of entry. There are various modes of entryExporting supranational LicensingInternational FranchisingSpecialized modes (e.g. contract manufacturing, management contracts)Foreign Direct enthronization (Greenfield investment, Acquisition strategy, Joint Venture).Dunnings Eclectic Theory gives a good framework to decide which mode is the right one for the company and the market it wants to expand to. Dunning developed three conditions which a firm should be satisfying.Ownership gain The firm has to have some special advantages to compete with the foreign companies. For example a good brand name, special technology, know-how or a rummy product. In this case exporting would be the mode of entry.Location advantage It has to be more benefiting to expand to a foreign market sooner than expand in the home market. For example degrade labour costs. If the ownership advantage and the location advantage apply contractual arrangements like licensing, franchising or alliances are the best modes of entry.Internalization advantage There has to be a higher profitability by controlling the activities on the foreign market on their own rather than recruit a local company to provide all the important services. For example lower exchange rate risks. In the case that all three conditions are satisfied Foreign Direct Investment would be the best mode of entry (Griffin, Pustay, 2010, p. 196).Lidl as a retailer has the ownership advantages like a bargaining power in purchasing and a special supply chain. Another fact is that exporting would be no alternative for Lidl because a retailer sells products it buys from suppliers. It would be meaningless to export the products again.There are location advantages as well. The German food retail market is concentrated with a high direct of competition. Hence there is not much space for further expansion. The market in the United States is a big market and offers enough space to expand to. Even though there are some main competitors. The entry and exit costs are low. For a retailer franchising harbours some dangers. For example it is difficult to legally protect the innovations a retailer is making. Franchising has therefore lower costs but the firm has also a lower level of control.Internalization advantages occur when company-specific advantages cannot be achieved on the foreign market via franchising or similar cooperation forms. This is given because of the facts mentioned before (Borgstrm, Hertz, Nyberg, n.d.).In summary Lidl satisfies all three conditions and for this reason Foreign Direct Investment is the best mode of entry for Lidl. Now Lidl has the choice between Greenfield investment, joint venture or acquisition. By having a closer look at Lidls past expansion in Europe and the mode of entry Aldi chose in 1776, Greenfield investment is the best solution for Lidl. The company also entered the new markets in Europe via Greenfield investment and Aldi did the same in the United St ates and it was successful for both.ConclusionThe food retail market in the United States offers a good opportunity to expand to. The market has a strong growth and the PEST and SWOT analysis acknowledge the choice of the United States for a new market for expansion.As a conclusion to Dunnings theory, Foreign Direct investment and more incisively Greenfield investment is the best mode of entry. Exporting, Licensing and Franchising do not offer Lidl a good business. These modes of entry are not appropriate for a retailer and in addition Lidl would lose parts of their revenues.Due to the fact that Lidl is not willing to disclose any internal information, Acquisition or a Joint Venture do not represent a possible choice, even though both possibilities have low fixed costs. moreover the companies could be competitors on another market and no company wants to share information with a potential competitor.Greenfield investment is the best solution for a successful expansion to the food r etail market in the United States.AppendixAppendix 1 Germany food retail industry by categories % share, by value, 2009.13Appendix 2 Germany food retail industry value $ billion, 2005-09..13Appendix 3 United States food retail industry value $ billion, 2005-0914Appendix 4 United States food retail industry by categories % share, by value, 2009..14Appendix 5 SWOT analysis of the company Lidl15Appendix 1 Germany food retail industry by categories % share, by value, 2009Source Datamonitor (a), 2010.Appendix 2 Germany food retail industry value $ billion, 2005-09Source Datamonitor (a), 2010.Appendix 3 United States food retail industry value $ billion, 2005-09Source Datamonitor (b), 2010.Appendix 4 United States food retail industry by categories % share, by value, 2009Source Datamonitor (b), 2010.Appendix 5 SWOT analysis of the company LidlStrengthsWeaknessesHigh market share in a fast growing segement (discounter)Global playerVery good pricing (always offers the lowest price on the ma rket)Very good store locations (near housing areas, good transport connections, good parking facilities)Fast reply to changes in the market conditions (flexibility is very important in a high competition sector)Damaged image (oberservation scandal and dicussions about minimum wages)dependence on discouter modelLow customer loyaltyExit from the Norway market because of low successChanging consumer behaviour (healthy living)OpportunitiesThreatsAfter successful expansion all over Europe its time for overseas expansion profound market for supermarkets and discounters in the USExpansion of the product range (more healthy food)Poverty problem in the US leads to higher demand of low pricing productsAldi already had a great success on the US market (same discounter model)Only focus on low princing products real competitors in the US food retail market (Wal-Mart, Aldi)Limited success of food retailer Tesco after entering the US market in 2007Source Self made with the help of Bord Bia, 2008 Jiroutek, n.d.