Aldi and Lidl International Expansion

With Greenfield investment a company will set out to establish a new business venture from the scratch. Both Aldi and Lidl are example of businesses that entered new markets and started their business from scratch. Other ways in which business could engage n FDI is through mergers and acquisitions or through joint ventures (Hennart and Park, 1993). The degree of doing business however varies greatly between the above three stated strategies. Green field investment has been relied on heavily by Aldi and Lidl as their main market strategy when they are entering new markets. Another reason for the company to utilize Greenfield investment could be due to the companies facing little or no competition in these markets. Thus finding companies to buy can be difficult (Arnold and Quelch, 1998).

Due to this argument, in addition to the fact that Aldi and Lidl discounting retailing business concept they were adhering to was comparatively new during the time they were expanding. There were also no retailers utilizing this business concept in the markets Aldi and Lidl were targeting where they could have formed joint ventures with together. As Greenfields involves setting up businesses in manners in which the investors perceive best. Over the years the advancement of technology had made it possible required to conduct business overseas. The telecommunication and information technology and the internet has greatly improved the ease of venturing into new and emerging markets (Guillén, and García-Canal, 2009). Barriers to entering international markets have been reduced from 1995 greatly after The World Trade Organization establishment.

The competition from sectors like the financial service, the telecommunication and transport formed the costs down thus favoring companies that were looking for direct foreign investments prospects. (Guillén, and García-Canal, 2009. Majority of the above factors combined together were responsible to selecting Greenfield investment to be the two companies’ main market entry strategy (Griffin and Pustay (2007) pp. Moreover, the two company’s managements may have settled on Greenfield investment due to its low transportation which could suit their investments. From the excerpt, they were offering the local products in the market they were expanding into. For example, in UK, Lidl did supply about 90 % of the poultry and meat from the producers in United Kingdom and the vegetables and fruits also from the local famers during their respective seasons.

This is also realized in the other countries these businesses ventured into. When Aldi’s general floor space was compared with respect to Sainsbury’s or Tesco’s, Aldi was found to have a lesser floor space. Aldi also invested in branding their own products, investing in their store decoration, their stores architectural design created an impression in the potential consumers’ opinion in the United Kingdom’s market. Unlike other stores, Aldi stoked merely a thousand products. These products also were of a few variety and choices. Aldi, in its defense, stated that the strategy was adopted as the supermarket realized that the more the products stoked, it equated more overhead costs (Arnold and Quelch, 1998). The discounters appeared to have committed mistake due to them not considering the different geo-demographical interest changes between the new United Kingdom market and the old German market.

In the old market, the German customers didn’t view the shops’ products as of lower quality as was perceived by the United Kingdom’s market customers. Although in the United Kingdom, the perception was due to the products prices, the brand name and size, and the affluence. Aldi had currently corrected the concerns and were now supplying products which were of the higher end with additional customers’ services to an increasing customer base in the United Kingdom. The market growth shares of Aldi’s though looked to have reached an end. The site development limitations also great made it tough for Aldi to enter these market (Arnold and Quelch, 1998). Aldi did faced criticism from its competitors, like Migros and the local supermarket.

The price cuts Aldi was offering on its products came at a cost which negatively affected the economy. Herbert Bolliger the boss of Migros, he stated that these price cuts would cause market imbalance which would affect both the employees and the producers. Bolliger also mentioned that these prices will have a great impact on the countries’ economy and that majority of the taxpayers’ money will thus be used to benefit those that are unemployed. These increasing prices could cause Aldi to start losing it loyal brand of customers and consequently a major portion of its market share to their close rivals. Aldi changing its products range will mean that the old products would be removed. These old products are those which the company’s products its main customers had grown to get accustomed to.

These will greatly affect its customers causing it to lose its client base. Removing them will also affect Aldi’s Corporate Social Responsibility where the discounter would include the local suppliers will need to be changed so that the company will keep up providing even better brands of products. When Aldi opens a single or double outlets at a given time, it could reduce loses when it decides to pull out of these new markets. The disposing costs will thus be in control and may not affect the general Aldi profitability. This is evident when Aldi was venturing into the Switzerland market. They had decided in opening stall in parts of Switzerland which had a German speaking population before it expanded to the other areas, this enabled them to scrutinize the company’s potential growth in those areas.

Lidl’s internalization strategy- fast and pushing strategy The German company employed this strategy which is similar to the trial and error method. Their strategy- fast and pushing strategy- back fired. In Lidl’s part while the trial and error method worked best to Aldi’s advantages in Poland (2007). Aldi did record a profit of about 759 million euros in this market. This will justify the expert opinion on the fast and pushing strategy. When it had gotten a market hold before the competitor, in this case Aldi, it made great use of the fast mover advantage and succeeded in this count. Through internalization, the channels of distribution could be toned down to minimize in the costs of doing business by leaving out the extra business intermediary and maximizing on the economies of scale during production (Bartlett, et al.

c. With internalization Aldi can secure the ability to select the most preferred site that will favor its business expansion. As china and India are currently the most populous in the world. Due to this this markets are increasingly attracting many firms and businesses that want to explore their new unexploited markets (Li, 1995). Access to new customers. The major reason why companies decide to compete in the international markets is because they want to access new customers. In the United States has the largest economy, their population only measure for about five percent of the total world population. Thus, companies internationalizing so that they could access the remaining ninety-five percent has greater incentives, especially for the companies which their home market has been saturated.

The Chinese and the Indian market in are thus increasingly becoming attractive to these companies due to their big population (Li, 1995). There is optimum resource utilization when business internationalize. With international businesses there is reduced wastes of the natural resources. Thus the international businesses will strive to utilize these natural occurring resource to minimize wastes. j. The people living in the regions where a business has internationalized to will experience an improved level of living. There is also mutual confidence as these international business will be depending amongst themselves due to the international business interdepending non them for the raw materials (Li, 1995). n. International businesses have created employment opportunities in the new markets they are venturing into. When the majority of the people are employed, it will consequently boost the economy of that country and raise the residents’ standards of living when they deal with e international businesses.

o. The political risks involve the governments’ abilities to disturbance or to interfering with these businesses so that they can harm its operation within a country (Chang, 1995). With unstable governments that are characterized with acts such as uprising and demonstrations will make it difficult for businesses to operate. They also impose constant new taxes and regulations which will affect the business daily activities. In some cases, the firm’s assets to be seized by a strong government. The process is called nationalization (Li, 1995). If currency exchange rates were to change such that the euro became weaker relative to the South Korean won, this would make a Kia more expensive for European buyers. c. Cultural risks. The cultural risks refer to the potentials for a company’s that is operating in a country to struggle due to varying languages different culture and norms and the diverse customer preferences.

This was visible UN the United Kingdom when the two companies underplayed the cultural norms in the United Kingdom and expected that business would continue as was in Germany. This will reduce the business efficiency and increases the products prices. Accompany might overlook the market structure of a new country hence, starting a new business that might not be able to access raw materials as was initially. f. Various governments have implemented laws, regulations and customs which are following different countries, thus they have a direct impact in their exports and imports. The developing countries will be unable to compete with the developed countries when they are under the control of the international businesses. Consequently, the international peace will be compromised.

k. Identical in their respective countries, in addition their other aspect which may not be suitable to the varying cultures, atmosphere and traditions. New indecency in these business is always seen when they are they created in the name of cultural heritage. l. , et al 2005) There are other formidable markets that Lidl has not ventured into, this include china, India, brazil and Russia. The markets have experienced a high middle class growth which are greatly demanding for the heavily discounted products. If these emerging markets could develop their retail markets further, Lidl joining them if it proves to be profitable ventures (Chang, 1995). Presently Lidl has been navigating a rough terrain between its employees and its companies’ suppliers. This has in the past led to several controversial issues which has tainted its business image.