Introduction
Globalization has changed the way businesses operatein the world. Due to stiff competitions and continued changes in the trading policies, large multinational companies are opting to locate their operations in countries where there are fewer impediments to entry. Various factors such as technological changes, increase in demand for products and services, among others, have compelled the companies to expand their territories. Although the move is perceived helpful regarding increase in sales and consequently improved profit, it comes along with costs. Some of the expenses are compliance and charges associated with setting physical infrastructure to facilitate the works. Before deciding whether to enter a particular market or not, it’s paramountto identify the market gap.
The rationale for Choosing Norway as Viable Market
The nature of the market impacts both the local companies as well as the multinationals. According to Zekos (2003, p.245), the political environment has much influence on how the businesses perform in a particular arena. In his research, he identified the people in leadership make policies that influence investment priorities. Norway has enjoyed peace for quite some time. Some commentators such as Standing (2011, p.263) opine that the monarch state of leadership has reduced the complications and struggle for power, which is witnessed with a multiparty system. The Norwegians have accepted and embraced the ambiance of calmness that is currently observed. Due to stable political environment; favorable industry policies have been set by the people in power to increase the level of productivity in the country. For example, the new entrants enjoy incentives, since they are perceived to raise the revenue and lower the rates of unemployment. Far and above, internal security is anaspect that cannot be ignored. The risks of operating in unprotected site predispose the organization into a myriad of challenges such as lack of labour, decreasedsales, theft among other (Dikova and Van 2007, p.1014). Domestically, the government is giving critical priorities to tax reforms such as lowering of corporate tax and VAT. Furthermore, there is a paradigm shift from continued reliance on oil as the principal income earner, by recognizing other areas such as service and retail industries.
The economic performance of Norway is among the best performing in the world. According to the report released by World Bank in the year 2016, the indicative report cited the country as one of the hubs to do economic ventures (Durnev 2010, p.90). Thiswas attributedto the high influx of foreign multinationals such as Statoil, Norse Energy among others, which have excelled due to predictable economic activity. Currently, the nation is shifting from the GDP funded by the oil production, to embracing other contributors such as retail business, agriculture, and service industries. The move has contributed to the lowering of unemployment rates, which stands at 2.4%. The consequences are improved standards of livings and increased purchasing power. According to Han (2016, p.183), the GDP of this country is growing an average annual rate of 6.7%. Furthermore, due to well performing economic sectors, inflation rates have decreased from 1.6% to 2.2%. The environment is attractive to any business that wants to set the base in the nations. One critical area that has not fully grown is retail businesses, and a company that can come up with a unique idea would significantly benefit. The figure below illustrates the GDP performance of Norway (Ogendo 2018, p.78)
Figure 1: The GDP of Norway (Ogendo 2018, p.78)
Technology cannot be separated from the operations of the business if essential achievements have to be made. It encompasses the use of modern machines in production, processing of transactions and digitization of routine jobs. The business benefits from the decreased operational costs, and consequently heightening the returns. Norway is one of the countries which have embraced the use of internet and built information technologies that have eased the communication between the customers, suppliers and the relevant providers of services or products (Morgan 2009, p.170). As a way to enter this market, Lidl would compete favorably with other supermarkets such as Bunnpris, 7-Eleven, Coop Mega among others, by using the current technology. Far from that, more modern ways, distinguishable from what is currently available would be needed, to ride on top of the rivals (Rathert 2016, p.870).
Furthermore, one aspect that attracts or scares away the foreign companies from conducting businesses in a foreign country is the rate of corporate tax. Deng (2009, p.83) defines it as the standards tax that organizations pay to the government, to continue their services in the host country. Norway has an average rate of 24%, which is not too high for a new entrant. Additionally, Lidl would amply fit in the country due to its policy of encouraging customers to come with their bags for shopping. This goes in line with the Norway stringent measure to go green. Although the country has enjoyed the peaceful political climate and favorable economic cycles, the population growth rate is slow; estimated to stand at 0.7 %( Ogendo 2018, p.84). The figure indicates that the population that is served by both local and MNEs is little. The demand is not so high, as it would be compared to the country such as Mexico. However, with the strategy of quality and low prices, Lidl can easily divert the customers from other supermarkets which offer similar products.
Competitive intensity of the industrial environment of Lidl in Norway
The company that can retain the loyalty of customers wins, in a sophisticated market scenario. One of the largest grocery stores,Norgesruppen, topped the list of most profitable at the end of the year of 2017. It recorded 42.3% of the total sales of all the retailers in Norway (Ogendo 2018, p.79). However, the prices of foods and other commodities are too high. It is attributed to the low rates of inflation; hence, the amount of money in circulation is too high. Rathert (2016, p.878) indicated that the rate of unemployment is 2.4%, which signifies that the country is doing well, regarding disposable income. Entering this kind of a market by lowering the prices of goods, would significantly impact the markets. Customers are attracted to places where they spend less, for quality (Al-Habash et al. 2015, p.689). Lidl has a culture of maintaining top quality products, which would significantly influence the direction of the market in Norway.
Threats of entering a new market impede the plans of a business to expand in new locations. The Norwegian government has improved the IT infrastructures and funded acquisition of modern technologies and internet, which have made it easy for the companies to sell their end products (Arslan and Larimo (n.d), p.324). One way that organizations have benefited is through marketing. It’s easy to reach out to the customers with little costs, as opposed to traditional promotional strategies. It is estimated that 55.1% of the people in the ages 20-29, use internet intensively (Beleska-Spasova and Nguyean 2016, p.265). This is the bracket that comprises of heavy buyers, hence a good target for any business to familiarize their products. Realizing that threats from the cyberspace are transnational; the government has joined hands with other countries such as U.S, to fight the aggressors. The cooperation among the various states has enabled the country to provide incentives, to foreign companies, contributing to the increase of GDP (Chen and Johnson 2010, p.3). However, the governments offer tariffs to the local companies as a means to promote the local brands.
The population of Norway stands at 5.303 million as per the statistics of the year 2017(Ogendo 2018, p.83).This is not a high figure, compared to the number of retail businesses, which sell groceries and other home-based product. However, much has not been achieved in this nation due to various factors. One, the customers are charged high prices, for the products which sell at lower costs in other countries. The lifestyle of the citizens is improved due to high purchasing power. This has made the natives insensitive to the high prices. Any entrant that would lower the costs below the current ones would tremendously make huge returns. Another force model which determines the suitability of the market is the capacity of suppliers. The country has not invested heavily in farming, because about 3% of the total land is used for crop production (Blomkvist and Zander 2010, p.1540). Due to the limitation of the outputs in agriculture, there would be stiff competition on the procurement of stocks. The farmers would, therefore, shift their attention to the client who would offer high prices. It is one of the areas that is forcing the retailers located in Norway to charge high rates for what they offer. Furthermore, there is no uniqueness of the products offered in the various outlets. A common strategy of products branding is used in almost all the large retail businesses, as indicated in the table below (Ito 2015, p.87)
Table 1: The branding system of various retailers in Norway (Ito 2015, p.87)
Far and above, threats of substitution do not apply in this kind of a market. The data indicates that retail business contributes insignificant amount to the GDP of the country. It shows that little changes are happening, and people have not been exposed to differentiated products. A company such as Lidl, that offers a broad range of products far from the foods, would significantly impact the economy of Norway. The figure below shows the performance of various sectors, and their contribution to the economy (Ogendo 2018,p.80).
Figure2: Contribution of differentareas to the GDP (Ogendo 2018, p.80)
Lidl’s internal environment
The resources, both financial and physical are paramount in enabling the business to extend its services in local and foreign markets. Organizations can withstand the market forces, due to substantial policies and the culture of performance, which could be unique in the economy they operate in (Brouthers and Werner 2003, p.1240). The Lidl culture is costly to imitate in the sense that it workson the basis of offering low prices to the customers. Most of the retail supermarkets in Norway charge high rates, due to the difficulty of accessing enough supply, and lack of additional strategies to lower costs. One way that Lidl has managed to overtake the competitors in the countries where it operates is through constant innovations and creativity, which keeps the customers always wanting to shop with them. For example, the products are displayed in custom boxes, instead of stocking them on shelves. It saves on cost since a few employees will be required to replenish the stock (Buckley et al. 2007, p.500). The savings are transferred to the customers in form of low priced goods. Again, the company provides the clients with assortments of goods such as kitchen gadgets, toys, power tools, home décor among others. Diversified products delight the customers, who feel valued by the management. Consequently, Lidl has been able to build loyalty among customers, which is difficult to break, giving it a competitive edge among other retailers (Cui and Jiang 2010, p.770).
Continually changing external markets can lower the value of the company’s resources (Sartor and Beamish 2014, p.1073). The company has an internal culture of ensuring all the products that are sold to the customers meet their demands and tastes. To ensure they retain the high-end command in the market, 90% of the products they receive from the suppliers contain a private label. The company has a good structure testing regimen that makes sure that every product received meets the standards (Manea and Pearce 2006, p.243). It gives the management direct oversight over the product integrity. Some of the quality controls performed by the company arechemical analysis and sensory testing. There is no retail business in Norway that conducts testing of the products. Most of them stock the goods right from the supplier, without ascertaining the safety of their use.This is a good entry mark into the country since the customers would feel safer to consume products which are tested at the point ofsale (Liang et al. 2012, p.125). Furthermore, it would reduce conflicts with the Norwegian Food Safety Authority, hence decreasing hefty fines which come along with violation of the set standards.
The rarity of products and services increase the market advantage temporarily. According toLau et al. (2010,p.270)businesses that provide different functions from the rivals benefit for a while, before other copy and implement a similar or more improved alternative. However, the pricing strategy is difficult to override, which is the main secret that has been upholdingLidl(Kabiraj and Sinha 2014,p.740). Again, their differentiation approach is a bit different from others. To them, they offer curated products, instead of selling all versions. The selection is highly evaluated based on the likes of the people.Considerable time is saved, which could have been wasted sifting through unwanted brands.The strategy could work well in Norway, where similar businesses focus on offering multiple products, without considering the aspect of customer’s taste (Jones 2014, p.190).
The organizational structure of the company has conferred benefits to both the customers and the business itself. The policy of “bring your own bag” has increased the awareness of environmental protection and also saved the company the costs of buying shopping bags. Furthermore, adopting a standard layout of the different stores makes it stand out and easy to locate, in case an individual changes the geographic location (Durnev 2010, p.89). Additionally, it embraces the creation of jobs to the locals, by buying their produces, instead of importing.Lidl has revolutionized grocery shopping because it integrates all aspects of economy, customers and suppliers experiences. Although it might fail to compete ahead of the local companies due to the layout plan, Lidln could capture the suppliers throughreasonable prices for the products. Again, regular changes in their offers might improve the sales. The business fits well in Norway, due to the uniqueness of its low pricing and high regulatory policies.
Modes of entry available to Lidl and recommendation
Multinationals can establish the existence in a new environment by evaluating the various methods of entry that are available (Dimitropoulou et al. 2009, p.134). To arrive at the best decision on the right path to choose, it’s always paramount to study the internal environment of the business and the macro factors of the host country. In the case of Lidl entering the Norway market, several entry modes can be explored. One way that can be adopted is export. This is the most common entry strategy, where a foreign company manufactures the products in a familiar place and then transferred to another country (Duanmu 2006, p.170). It allows the company to achieve the economies of scale. Furthermore, it’s cost-effectivethrough decreasing the transportation costs and reduction of the tariffs. Exporting requires little investments compared to other modes of entry. New products in Norway face stiff competitions from the locally produced goods. The government offer incentives to companies that sell natives products, which might cost the new entrant to venture the market. Again, Norwegians have more trust in what is manufactured in their own country.
Another mode is franchising, where the company allows another business to run under its logo and brand (Hennart 2009, p.1440). The qualities of products are similar to those of the mother company. Also, the franchisor supplies all the products and makes regular quality checks, to retain the brand name. Lidl could use the local investors, who are not well established to sell their products. Similar strategies have been used by large businesses such as McDonald’s, Burger King, among others (Han 2016, p.183). This mode of entry is cost-effective,and the company has greater control of the investment. Again, it enables quick development of the international market. However, a searchfor the appropriate franchisee is expensive regarding cost and time. Similarly, more advanced promotional methods are needed to market the brand to the locals, who might be resistive.
Moreover, joint venture entry is whereby a hosting company invites the foreign business, to do business in partnership. They share stock ownership and decide which entity takes management control (Herrmann 2005, p.290). Also, theyagree to access each partner’s skills and resources, hence improving the performances of the two companies. The entrant overcomes the government restrictions,and the risks of failure are minimized.Additionally, access to local expertise and contacts are improved, since the host company understands the market well. However, loss of control and cultural differences might impede development.
The strategic alliance is another way that Lidl can offer the products in Norway market. It is also referred to as non-equity joint venture, meaning that the companies in partnership do not commit alliance (Hodnett and Hsieh 2012, p.849). The agreement involves two companies, each bringing a particular skill or resource (usually complimentary). Typically, it encompasses technology, the process of production or distribution. However, every company retains its management. Finally, the company can establish the bases in Norway through a wholly owned subsidiary. It is buying of a locallybuilt up business, instead of building a new one. It eliminates the starting of manufacturing and distribution from scratch. An established company gives immediate market presence and mitigates the costs of marketing. The figure below illustrates the differencebetweenthe joint venture and strategic alliance (Liu et al. 2005, p.110).
Figure 3: Differences between a strategicpartnership and Joint venture (Liu et al.2005, p.110)
Lidl, being a chain of supermarkets offering groceries and other products at a lower price, can enter the Norway market through the franchise. As indicated in the previous paragraph, local businesses have a high command of the market. Again, the companies understand the local market well than a foreign entity, which might lack the expertise to analyze the tastes of the customers. Norway offers incentives to local companies to promote the products which are produced within the country. Due to this, industries pay less corporation tax compared to new entrants. One way that Lidl can minimize such costs is to identify an activefranchise, who can sell on their behalf.
Conclusion
Competitions in various economies are necessitating the businesses to expand in foreign countries. Any business that aims to enter a new market should be able to consider both micro and macro environments that affect the chances of the company to grow. Political, economic, environmental, technology, legal and social factors are vital in establishing a new segment. Norwayis one of the potential countries which have attracted MNEs, due to stable economic environment and political stability. The policies in the state favor both local and international businesses. Also, competitive intensity of a given nation is dictated by how well the entrant can uphold the value, offer rare products, and the nature of the organization. Lidl stands out regarding pricing and regulating the goods that are supplied, through rigorous testing. The strategy has enabled it to retain a superior brand, over the known grocery stores in the world. Some of the selected modes of entry for this company are exports, franchising, joint venture and strategic alliance. However, franchising is the optimal option, due to the reduced costs of marketing and compliance. It’s important to study the demands of host country before making any entry decision.
Appendices
| PESTEL ANALYSIS OF NORWAY | |||||
| IMPACT ON BUSINESS SCORE | TOTAL | ||||
| Description of Factors | High(10) | Medium(8) | Low(5) | ||
| POLITICAL | The country enjoys political stability because it’s ruled by monarch. There is no pressure of multi parties struggling for power and political satisfaction among the masses is achieved. The internal security is enhanced, because the government enjoys ambient environment to conduct its mandates. It is seen as one of the most secure country in the world, scoring top ten among the 181 economies in World Bank report released in the year 2017. The nation continues to make reforms based on internal trade policies. For example, if a business is trading on agricultural products, there is need to get acquainted with the differences between raw materials and finished products. Price reduction applies to the commodities which are domestically produced. | 10 10 | 8 | 28 | |
| ECONOMIC | The nation has stable economy, due to favorable political environment. It boasts of the sizeable petroleum surplus and also a well to do stock exchange market. The GDP is 6.7, and it’s one of the country with lowest unemployment rate of 2.4% The inflation rates rose from 1.6% to 2.2% for the year ended in 2017, which was the highest value recorded for that fiscal year. The figures oscillate at varied values depending with the markets cycles. Foreign direct investment is the entry of multinationals in a different nation. The country attracts divestments from various industries such as oil, manufacturing, retail, banking, among others. In the year 2016, Norway recorded the highest negative FDI inflow of -$5.3 billion. | 10 | 8 8 | 26 | |
| TECHNOLOGY | Changes in technology have impacted the operations of the businesses in the Norway. The statistics show that every third person has an access to internet. Among the age group 15-19, the usage of internet stands at 82.5% while the bracket between 20-29 is 55.1%. Moreover, companies are using online platforms as means of distribution. However, some businesses have not embraced the use of websites for marketing purposes. | 8 | 8 | ||
| LEGAL | Norway has a legal system that can be relied upon, based on the policies that regulate the various sectors of the economy. It is projected that the tax incentives will continue to increase as the time progress. The corporate tax stands at 24%, with an average of 34.26% from 1981 to 2018. On the other hand, the standard rate of value added tax is 25%. | 8 | 8 | ||
| ENVIRONMENT | Pollution is one factor that various governments take serious considerations on, due to the challenge of global warming. Norwegian government has strict measures against the water pollution. The public takes keen considerations on green issues, and uphold the ethical disposal of wastes. | 8 | 8 | ||
| SOCIAL | The United Nations estimated that the Norway’s population stands at 0.07% of the total word population. Furthermore, the statistics affirm that the annual population rate of growth is estimated to be 0.7%. The slow pace of increase of population mitigates the demand and supply. Additionally, Norway unemployment rates stands at 2.4%, which is an indication of better living standards among the populace. Again, the corruption rates are too low, and the country was ranked among the six least corrupt countries in the world. | 8 | 5 | 13 | |
| TOTAL | 91 |
| PESTEL ANALYSIS OF MEXICO | |||||
| IMPACT ON BUSINESS SCORE | TOTAL | ||||
| Description of Factors | High(10) | Medium(8) | Low(5) | ||
| POLITICAL | The major cause of poverty in Mexico is the political class, which is insensitive of the well beings of the citizens. There is proliferation of political instability that discourages expansion and growth of businesses. The internal security of the businesses is not guaranteed. With the projection of poverty levels hitting 44% of the population, it sends a signal of low purchasing power. World Bank notes that the country needs to create legitimate policies for new entrants. The government has not employed succinct policies to facilitate developments. The political class adjusts the trade policies to favor their motives. | 8 | 5 5 | 18 | |
| ECONOMIC | The economy of Mexico is not stable due to the negligence of the leadership. The estimated GDP growth rate stands at 4.0%, with continued weakening of the exports. The inflation rates in the country are estimated to stabilize at 3.76%. This is a decline from the year 2017 value, which was 5.85%. The movements in the economy are unpredictable, and the value could go higher in the coming years. The foreign direct investments increased by $5902.4 Million in the year 2018. This strengthened the GDP from the previous year | 8 8 | 5 | 21 | |
| TECHNOLOGY | The adoption of modern technology is slowly being integrated into the various sectors of production in Mexico. There is penetration of internet that is replacing the traditional DNA marketing, presenting better opportunities for growth of both local and foreign businesses. Cooperation between the country and United State has enabled to solve problems in transportation, healthcare, among other areas. | 8 | 8 | ||
| LEGAL | The policies under which a business operates in, determines its progress. Mexico has longstanding standards that scare away the investors in terms of compliances. Being the member of powerful regulatory bodies such as OSHA, businesses find it hard to comply with all requirements. There is little tax incentives to attract the investors. The corporate tax is 30%, and a standard VAT of 16%. | 8 | 8 | ||
| ENVIRONMENT | Environmental section provides insight on the maintenance and protection of the surrounding. Mexico is known for taking keen interest on the environment and natural resources, especially on the boarders where there is high population due to industrialization and population surge. | 10 | 10 | ||
| SOCIAL | Mexico is among the populous countries in the world, with a total population of 127.5 million. The annual increase is estimated to stand at 1.3%. The situation has contributed to the unemployment rate of 3.8%, which has increased the incidences of crimes. Furthermore, businesses face corruption with the judiciary. Most of the Mexicans perceive the court as the impediment to the justice. | 8 | 5 | 5 | |
| TOTAL | 70 |
