'Analysis of Internationalisation Strategy Tesco and Lidl Essay\r'

'Question 1:\r\nGlobalisation has, in the finale few decades, been one and solo(a) of the dominant trends in sell. Retailers al some the globe argon striving for high spherical nutriment food mart shargons. The food retailing industry which has an oligopolistic trade, curiously, has bullnecked competition although, with a few large star signs peremptory the mart. Among them Tesco and Lidl are one of the major atomic number 63an retailers. Tesco is the UK’s largest retailer with 28.7% commercialise place share, which is 11% to a greater extent than its at hand(predicate) rival, ASDA (Statista.com, 2015), and is the 5th largest retailer in the origination (Deloitte, 2015). And Lidl is the of import(prenominal) retail chain ( beting for more than 70% of its sales) of Schwarz group, which is the quaternate largest retailer in the world (Deloitte, 2015). both(prenominal) of these firms are based in Europe with Tesco being a British firm and Lidl a German.\r \nThese firms are standardised not only in their r plainues and trade shares and as closely as in the generic dodge they ware adopted. In terms of line of credit operation, both firms decipher Porter’s cost attractionship system. However, Tesco in wish manner incorporates the variediation synopsis (Baroto et al., 2012), hence pursuing a hybrid system combining the two, era Lidl altogether follows the no-frills cost attractorship dodge (Geppert et al., 2015). Both these firms capture internationalistized in contrasting countries close to the globe. Lidl has in general foc apply its internationalization in the European foodstuffs, while Tesco, in auxiliary to expanding in diametrical easterly European countries, has a worry started its operations in drastically una analogous food commercializes such as South Korea, China, India and The USA.\r\nHowever, they pass water followed different strategies in their dashs of entrance into conflictin g trades, with different levels of advantage. The decision to and the outcome of internationalization for these two firms befuddle depended on different factors ilk government regulation, availableness of the factors of convergenceion, their art operation strategy and so on. unrivalled of the main criteria for internationalisation for firms is to have some take of competitive advantage, in severalise to overcome the threats and difficulties usually associated with entering into a rising contradictory market (Vernon 1966). Lidl being a discount ho use has a big advantage in terms of price compared to different supermarkets and hypermarkets. As a result of its no-frills strategy, Lidl chiffonier heartyly reduce costs in different stages of its logistics and supply chain. Entering into a new uncouth has a lot of challenges and firm surface is one of the things a firm must consider when choosing a country for internationalisation. If the firm does not have of impo rt market share in its internal market, it result find it difficult to maintain its operations in overseas markets. In Lidl’s case, they have make a real beefed-up domestic help market and at that placefore, had a strong foundation for further expanding upon to foreign markets.\r\nFrom Lidl’s previous Foreign straight Investments, it is evident that that the firm has adopted both learnedness strategy as salutary as Greenfield investment. However, it has loosely revolve abouted on Greenfield investments (Nayak, 2011). Greenfield investment, which entails starting the operations from scratch, gives firms more freedom in selecting their stage business strategy in terms of choosing suppliers and managing logistics etc. This market entry strategy allows firms to fully utilize their attach to-specific advantages (Ando, 2005). One of the reasons Lidl chooses this strategy as their international mode of entry, is because of its consistency with their business sticker. Lidl, like other hard discounters, follows a global measure strategy (Bartlett & Ghoshal, 1989), where majority of the decisions are do by the corporate headquarters, in things like sport of product assortment, externalize of store outlets or policies and procedures and there is truly little topical anaestheticisation (Geppert,2015). This allows Lidl to implement its stimulate strategic model into a new business in a foreign market.\r\nHowever, in addition to underlyingizing the strategic aspect of the business, they also condense some physical aspects of it. â€Å"A global retail strategy relies on standardization to achieve economies of plateful and of replication. This means that in different countries similar product lines, dispersion system, communication, service level and store design are used” (McGoldrick 2002). Lidl’s business strategy includes a regularize supply chain which allows it to efficiently operate its business in different c ountries and also provides an economies of scale. Upon entering a foreign market, they set up regional distribution centres (RDCs) to service a signifi send awayt number of their stores in a certain region. They reference point their products (except perishables) by dint of their headquarters in Germany and those products are distributed by means of the RDCs to their respective regional stores. Each of the RDC is linked to a regional management headquarters and they supply around 60 and 120 stores (Geppert, 2011). Through this kind of even FDI, Lidl operates in its foreign markets just as it does in its domestic market. Also, the fact that Lidl has expanded into countries that are geographically closer makes this strategy and business model very effective.\r\nThis strategy is also consistent with the gravity model of bilateral trade which states that volume of trade is reciprocally relative to the distance between the countries and directly proportional to the size of the econ omies. Lidl’s in operation(p) countries are geographically closer to each other and they, as a result, incur less transaction costs, which allows a discounter like Lidl, to adhere to its cost leadership strategy in its foreign markets as well. Moreover, Germany’s central emplacement in Europe as well as it being the largest thrift in Europe increases the prospect and efficiency of trade. Furthermore, due to Lidl’s superior of internationalisation strategy, factor abundance plays an integral role, especially in terms of record and space. Greenfield investment requires land to work out new stores or the availability of already built stores.\r\nâ€Å"Discounters’ stores are standardized not only in neighbouring markets, but worldwide, which allows for efficient in-store processes” (Warschun, 2011). Therefore, Lidl which follows a similar standardization strategy, requires specific sizes of land and stores in different parts of the country it wan ts to expand to. An exception in this case is Sweden, which is geographically a bit farther relative to other countries. Lidl, establishing a Greenfield investment, built their bear warehouse in South West of Sweden, however, the warehouse was still served by the same logistics firm used by Lidl in Germany, Pape (Nyberg, 2007). This still allowed for the standard distribution process to be implemented, as Pape is already beaten(prenominal) with Lidl’s business model and distribution modes.\r\n regime policies, in both domestic and foreign markets, also have a signifi behindt effect on food retailers and their decision to internationalise. In 1968, a retail planning policy was devised in Germany in indian lodgeing to protect the small stores by limiting the size of stores outside city centres and special zones (Geppert et.al, 2015). This helped discount stores like Lidl by stopping bigger competitors from introducing huge supermarkets and hypermarkets. As a result, Lidl gained a signifi jackpott portion of the market share in the German food retailing market. This strong position in their domestic market meant they had the resources and the motivation to expand into other markets and a strong domestic straw man also benefits Lidl’s modify business model. Since then, Lidl has expanded rapidly, mostly in European markets, and the number of Lidl stores in Lidl’s major operating countries can be seen from the table below.\r\nThe table higher up shows that the total number of stores Lidl had in 2011 in its foreign markets is three times its number of stores in Germany, its domestic market. This shows that Lidl’s endeavours in foreign markets have been winnerful as majority of their international efforts have resulted in a emolument. Lidl doesn’t publish country-by country profit figures, although, its turnover in the UK in 2012, which was £202 million, increasing by around 40% in the five age since the nook hit (Gib b, 2013), shows that it is making a profit. In 2012, Lidl’s overall profits were up by 37% (Kantarretail, 2012). This can partly be attributed to the recession, because of which the pray for cheaper discounted goods increased, however, it can also be attributed to Lidl’s mode of entry into new markets and its business strategy which takes into account the topical anaesthetic culture of the community and country in its foreign markets. For example: Lidl locally sources its perishable food products in the UK locally and uses it as its marketing strategy to attract local consumers and to create a kind brand image.\r\nSimilarly to Lidl, Tesco also has a very strong presence in its domestic market as it is the market leader in the UK. existence among the top five retailers in the world, Tesco has stores in heterogeneous countries in Asia and Europe. After achieving rapid maturation and gaining the highest market share in the UK, the move to enter foreign markets was p art of Tesco’s disciplined international growth strategy (Tesco Annual Report, 2014). Tesco has also adopted flat Foreign Direct Investment in most of its international expansions, usually getting existing retailers in foreign markets and implementing its own business strategy like undercutting competitors and introducing own brand products and its club card scheme and so on (corporatewatch.org, 2004). For example: Tesco’s acquisition of American company K-mart’s stores in Czechoslovakian Republic in 1996 (tescoplc.com) and it currently has more than ccc stores there (Tescopoly.org) Tesco’s first attempts at internationalisation were not very successful as their acquisitions of relatively small supermarket chains in Ireland and France were divested soon aft(prenominal) acquisition (Geppert et al., 2011).\r\nTesco, then changed their strategy in acquisitions by acquiring larger foreign firms rather than smaller ones. In addition to the acquisition o f K-mart in 1996, they acquired 26 S-Mart stores in Hungary in 1995, and ventured into the Irish market once more in 1997, this time acquiring the market leader Associated British Food (ABF) (Geppert et al. 2011). As they grew Tesco has favoured large hypermarkets for its international stores rather than supermarkets, since in most countries it is easier to get planning permission for these than it is in the UK. (corporatewatch.org, 2004). One of Tesco’s main strategy in internationalisation has been to get wind the market and operate in accordance with the local obtain culture to build better relationship with the consumers as well as suppliers. This is much easier to achieve in choosing acquisitions or joint ventures than through Greenfield investments.\r\nThrough acquisitions, as a result of the knowledge of local usance and associations on part of the acquired firm, the investing firm can take advantage of pre-existing business meshwork with suppliers and distribution chains. It also takes over the brands (in some cases), the spirit and the existing market share of the acquired firm and this can result in a stronger market presence very speedilyly (Marinescu & Constantin, 2008). Therefore, using an entry strategy suitable with a lot of market research, Tesco has had success in its foreign expansion in European markets. Some examples include its operations in Hungary, where they strongly focus on local suppliers and 85% of their sales are through local products and In India where they operate a scheme to donate to local charities and organisations (tescoplc.com). The following table with Tesco’s number of stores in 2011, shows that unlike Lidl, Tesco has more stores in its stem market compared to all of its international investments and the proportion of sales is higher in its domestic market as well since it brings in about two thirds of its total revenues from its plaza market (Thomas et al., 2013).\r\nContrary to its success in the European markets, Tesco has recently suffered some major setbacks in internationalisation in Asiatic markets like Japan and China, and the US. Tesco entered the US market in 2007 and instead of using their tried and tested approach of acquisitions or joint ventures, they prefer to adopt a different strategy and entered the market by establishing a new wholly owned subsidiary as a Greenfield investment. This meant that they did not possess the local knowledge about the market and consumer behaviour. In addition, they initially filled their management positions with mostly British expats instead of hiring locally (Silverthorne, 2010). Competing as a new business in a highly oligopolistic market requires a strong strategy and considerable market research and knowledge about the consumer base so, a lack of that meant Tesco could not entice American consumers. Moreover, their clock of internationalisation was also unfortunate as recession had seriously effected Tesco’s cho sen states of California, Nevada and Arizona.\r\nTesco is estimated to have made more than £1 billion in accumulated loss (Finch & Walsh, 2012). Similarly, also in China in 2013, Tesco had to fold its unprofitable business into a state-run company as a minority partner; this was attributed to a difficulty foreign companies like Tesco, have in negotiating with suppliers and regulators in a fast- growth(prenominal) but tricky market. Furthermore, Tesco also withdrew from the Japanese market in 2012 in a â€Å"move that follows decisions to… focus on investing in its British home market” (Thomas et al., 2013). Tesco’s exit from Taiwan can be credited to low factor abundance, as all the most attractive sites for expansion already been developed or were held under future schooling option by hybridizing, who had been a well-established retailer in the country. In addition, the highly complex land ownership system was a hindrance for Tesco’s as it obs tructed the transfer its skills in site location analysis and property development (Lowe & Wrigley, 2010). However, Tesco has had success in Asia, with Thailand, and South Korea, which is its largest foreign market.\r\nTesco outperformed its global rivals Wal-Mart and Carrefour in South Korea and they were forced to exit the market leaving Tesco as the dominant international retailer there (Lowe & Wrigley, 2010). Tesco had entered both South Korea and Thailand through joint ventures rather than acquisition, this key difference helped the firm massively as the partnerships with local firms offered Tesco the knowledge of local business/regulatory conditions and consumer culture, plus it provided the opportunity to build upon the ‘local’ appeal, especially in South Korea where Tesco had partnered with Samsung and the use of the name, Samsung-Tesco, proved to be vital (Lowe & Wrigley, 2010). Tesco’s failures in internationalization in some of the Asian an d the American markets does show to some extent that geographical distance might have played a part even though the size of the economies touch on were quite large. The culture of these markets were very different and as per Krugman’s love of variety model, singulars’ tastes are even more diverse, and Tesco could not adapt to these vastly different markets. In these kind of markets, a joint venture, like it adopted in its Korean and Thai markets, seemed to be the preferable option.\r\nComparing and analysing the strategies of Tesco and Lidl’s shows that, in order to have a successful internationalisation and afterwards continue to have a strong foreign market, the firms must be strong in its domestic market. Both firms use different primary strategy to enter into foreign markets but their internationalisation strategy suits their respective business strategy, as Tesco’s opts for quick growth and seeks to be a market leader in all of its markets usually by acquiring large existing retailers, while Lidl opts for greenfield investments in order to maintain its cost leadership and utilize its standardized supply and distribution chains. Both firms use even FDI, which does decrease international trade as their go are usually aimed at host country, however, individual governments welcome Horizontal FDI as it boosts the local economy by providing jobs as well as increases competition.\r\nIn Tesco’s case, it has recently turned its focus on its home market, as it has been losing market share in the UK and two thirds of its revenue come from the UK, however Lidl is growing more internationally and plans to open more stores in its already existing international markets like the UK (Butler, 2014). The world is very small now, especially with the ability to restate technology easily and the power to move freely between countries. However, the strategies these two forms have used and their posture in different countries show that, although there are fewer differences in consumer cultures and market structures, these differences still exit and play an important role in the success and failure of firms.\r\nThe ability of a firm to understand the consumer culture is key when it comes to internationalisation. Furthermore, the gravity model does bring to an extent even in the case of internationalisation of firms, as evident from Tesco’s failure to soak most Asian markets they entered compared to their successes in most European markets they ventured into. Tesco’s success in Thailand and Korea shows that a enounce venture with a locally established company would be the ideal mode of entry into unsettled markets. And a firm’s Internationalisation strategy must also be consistent with its business strategy in order to have a consistent growth in the foreign market after a successful entry.\r\nReference:\r\nBaroto, M. B., Abdullah, M. M. B. and Wan, H. L. (2012) ‘ mark Strategy: A New Strategy for competitive Advantage’, International Journal of clientele and Management, 7. inside: 10.5539/ijbm.v7n20p120. Bartlett C.A., Ghoshal, S. (1989): Managing across Borders. The Transnational Solution. Boston., Mass: Harvard Business School press Butler, S. (2014a) ‘Lidl launches £220m UK store expansion class’, The Guardian, 27 June. useable at: http://www.theguardian.com/business/2014/jun/27/lidl-launches-store-expansion-programme (Accessed: 7 April 2015). Corporate Watch (2004) Tesco Plc, Corporate Watch. forthcoming at: http://www.corporatewatch.org.uk/company-profiles/tesco-plc#international (Accessed: 9 April 2015). 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