International strategy
Justification for the Selection
The most appropriate country for the ALDI Company to expand is Mexico. Following the PESTEL analysis, Mexico market is more suitable for the ALDI Company. However, it is important to consider why this market is more appropriate compared to others. Following the proposed Neoliberal State Model to guide the political operations of the Mexico, it is expected that more growth opportunities will be perceived to the Mexicans (Vargas-Hernandez and Noruzi, 2010). This is an outstanding chance for the ALDI Company to move in Mexico and ensure that it is among the organizations that will utilize such opportunities. In this case, ALDI will have a chance to supply its functional food to the Mexicans (Vargas-Hernandez and Noruzi, 2010). In addition, the government has provided the incentives to support the private and international investment in the attempt of encouraging international participation in the country. This clearly indicates that the process of moving in by ALDI Company in this country will be simplified, as the government is willing to support their participation.
Mexico is ready for any integration of the international organization. This implies that the process for the foreign investors to set up their businesses in Mexico is simplified by facilitating the process of acquiring the relevant documents and any support needed. With the increasing figures of GDP, it is likely that Mexico will continue growing, an instance that is important for the location of business in this region (Vargas-Hernandez and Noruzi, 2010). Increasing GDP is important to the businesses in determining the market prices for the products, which in the case of Mexico implies that most of the people will be able to purchase basic goods. In this case, locating ALDI in this country will assure its optimum sales following the fact that it supplies functional foods, which are basic needs of the people; thus fast moving commodities. Moreover, inflation rates in Mexico have remained below 10% for over five years, which implies that ALDI Company will be established without worries of incurring excessive costs or suffering insufficiency of money values in the market (Vargas-Hernandez and Noruzi, 2010).
Another important factor that favors the choice of Mexico is a large number of population. With over a 110 billion number of people in Mexico, it implies that there is a ready market for the ALDI products in Mexico (Brandes and Brandes, 2012). Despite the existing suppliers in the region, locating ALDI in this region implies that there is a chance for the diversification following the huge number of people in this country. Besides, the is a high demand for quality health and education in Mexico following the poverty levels in Mexico a phenomenon that will favor the establishment of ALDI Company as it will provide products and services that will help improve the health status of Mexicans (Brandes and Brandes, 2012). Moreover, establishing this company in this region implies that there will be the creation of job opportunities that will be essential in fighting the poverty by attempting to reduce the unemployment rate.
Technological changes are evident in Mexico following the attempts of eradicating poverty and improving the quality of life. In this case, new innovative methods are being implemented in Mexico where the government has sponsored some technological projects as a way of finding the best production methods. Moreover, communication in Mexico is being facilitated by laying more infrastructures meant to facilitate and improve the production of goods. New technological and scientific policies have been laid and passed as a way of equipping organizations with the ability to compete favorably at the national level as well as at the international level. By opting to move into this region, ALDI Company will have the opportunity to enjoy the developing technological facilities that will increase its efficiency (Brandes, 2015). This will include the effective use of the electronic commerce where they can conduct their businesses anytime and ensure that supply can take place at any region following the enhanced transport and communication system in this region.
Additionally, the suitable market for ALDI Company in Mexico is the environmental factors that support its establishment. The Mexican government has pushed for the environmental policies that ensure that organizations have achieved sustainability. In this case, the government requires the organizations to participate in the Environmental Protection policy that regulates the behaviors of the organizations. This suits ALDI Company whose aim is to supply beverages and food to people; thus the need for engaging in green products that will assist in adhering to these policies (Brandes and Brandes, 2012). Consequentially, Mexico faces legal issues such as crime rate, drug trafficking, and economic problems, which are the major illegal activities in Mexico (Vargas-Hernandez and Noruzi, 2010). As such, establishing ALDI Company in Mexico calls for strict adherence to its laws and avoid their violation. Also, ALDI will have to be aware of the increased drug use and consumption in Mexico; thus the need for abiding by the health policies to ensure that their beverages are not misused as other drugs.
It is important to evaluate the threats and opportunities that ALDI Company will face once it enters into its newly identified market in Mexico. In this case, it is important to carry a Porter’s five forces model analysis of this new market to identify the possible flaws and effective ways of improving them, while at the same time attempting to understand the strengths that lie within this market.
Competitive Rivalry: High
ALDI faces the higher competition of its products and services because it provides products used on a daily basis. Both local, national, and international stores located in Mexico attempt to provide similar products to their customers. In the attempt to differentiate themselves, ALDI offers their goods at a lower price yet of high quality. Moreover, ALDI’s competitors at home market, Germany such as Wal-Mart Stores has as well identified such market in Mexico, implying that similar competition it faces in the home market is similar to one it will face in the foreign market (Gerhard and Hahn, 2005). This is the same case as the competition that ALDI will face for the already established retail organizations in Mexico, such as H-E-B. According to Raven and Lunsford (2015), H-E-B plays a significant role in pushing the economic development of Mexico where it has more than 350 stores in Mexico and Texas. Moreover, H-E-B is salient for its sustainable moves that have been achieved by any grocery company in Mexico. This follows its leadership in community leadership, corporate culture, socially and culturally responsible, and executive stewardship as well as providing quality products and services. Therefore, this confirms the fact that rivalry competition of the ALDI is high in Mexico, which calls for new strategies to ensure that it stands out of such competitors.
Threat of Entry: High
The fact that ALDI operates within the grocery industry and the growing population of the Mexicans implies that the future of operation in this market is high. However, ALDI will face stiff competition in this market such as Wal-Mart and HEB stores (Gerhard and Hahn, 2005). Following the continuous increase in population and geographical expansion in the modern grocery market, it is likely that more competitors will move into this new market.
Threat of Substitute: Medium
Following the fact that ADLI has not specialized in any product or services, it is more likely that the products that it offers can be found in other stores in Mexico (Ochoa, et al. 2010). This is important, especially when compared to its competitors who are well-established in this market as well as those aspiring to join the market. Nevertheless, ALDI has ensured that despite the fact that its products can be found in other stores, it is distinct to others in the case of quality and price of these products. Moreover, ALDI has its products that are limited, which are the ones that are different from other stores; therefore, other products can be found in other stores (Brandes, 2005). H-E-B provides substantial products in the same case as the ALDI with more added advantage such as lower prices, excellent services, and friendly shopping experiences; thus establishing a unique business lifestyle in Mexico that is not focused on the profit (Raven and Lunsford, 2015). This is a clear indication of the potential substitutes that exist in this market that tend to increase this threat.
Buyer Power: Medium
In the world of retail, there exists intense competition; thus if ALDI offers its goods at a higher price, customers will opt to shop at other retails stores (Brandes, 2005). Despite the fact that ALDI is renowned for lower prices and quality products and services, it does not guarantee the control over its buyers. Some of the retail stores in Mexico such as H-E-B Grocery Company has dominated the retailing market due to its excellent services inclusive of lower prices and high-quality services. In addition, H-E-B has already achieved sustainability within the area of operation in Mexico by offering its customers with outstanding services; thus establishing a group of loyal customers. In the case of the products that ALDI produces on itself, it does not have total control on their price as customers can opt to go for their substitutes from other stores (Raven and Lunsford, 2015). However, ALDI will acquire a substantial part of the market. This is evident following the high population in Mexico. This implies that it is most likely that ALDI will have a share of customers who will turn out to be their loyal customers following the provision of quality goods at a considerable price.
Supplier Power: Low
Following the expansiveness of the Mexican market, it is clear that there exist numerous suppliers who can provide ALDI with the necessary resources. Moreover, it is evident that Mexico has a large number of suppliers both large and small meaning that ALDI will have freedom to choose the best suppliers that suits their needs while having freedom to switch among these suppliers depending on the organization’s decisions. With such a fact, suppliers in Mexico tend to decrease their cost and improve the quality of products as a way of facilitating their operations (Bussey, et al. 2014). Most of the retail stores have established their vendors and suppliers in Mexico to avoid the fluctuating prices of temporary suppliers. For instance, H-E-B has established their suppliers “they set themselves up to be vendor and the supplier of goods strengthening their supply chain” (Raven and Lunsford, 2015, pg. 3). This is a clear indication that ALDI will have power over the suppliers in this market, which is an advantage to its operations.
VRIO Analysis
To determine how effective ALDI will face these threats and utilize the opportunities that come forth in the new market, it is important to evaluate the strengths and weaknesses of this firm. An effective way of executing this sub-section of the study is by carrying a VRIO analysis for this company. VRIO analysis is an effective tool for evaluating the internal condition of a firm. VRIO being mnemonic stands for four questions that aim at evaluating the resources of the firm as well as its ability to compete with its competitors. In this case, these letters stand for value, rarity, imitability, and organization.
Value
This feature of the framework attempts to answer whether the firm is in a position of exploiting the environmental opportunities. In the case of ALDI Company, it effectively exploits the opportunities that come up from its environment. To achieve this, the company contains a small number of products in its stores approximately 700 products, unlike its competitors who have at least 25,000 products. To perceive the upcoming opportunities, ALDI sells more of each product, unlike its rivals. This implies that any opportunity of new resources that show up is exploited by ALDI to ensure that they can negotiate lower prices from their suppliers while maintaining the quality of these opportunities. This has enabled ALDI to label its products in defeated brand products in most of the taste and competition tests (Brandes, 2015). Moreover, the simple and small supply chain have enabled ALDI to remain agile. ALDI has a tendency to locate its outlets on the side streets and in the suburbs in real estates that are not expensive (Brandes and Brandes, 2012). This is an effective approach to establishing a competitive advantage against its rivals, who have huge stores and located in a single region. Due to the simplicity of its startups, ALDI incurs low capital; thus facilitating the way it blankets the markets (Brandes and Brandes, 2012). With such strength and strategies at the place, it will be easy for the ALDI to venture into the new market in Mexico. The low startup cost will enable ALDI to establish many stores at more convenient places in Mexico that will utilize the local resources from a variety of suppliers.
Rarity
This factor evaluates whether a firm has a resource that is rarely owned or controlled by other firms. One of the effective strategy used by ALDI is storing goods on pallets instead of shelves (Brandes, 2005). This move is efficient in saving money and time for its customers. In this case, customers take away with themselves the shopping carts required to return them to the designated areas, a practice that saves time and energy of ADLI’s employees when serving their customers. Many checkout lines are used in the ALDI’s stores, a strategy used to reduce the wait time during the ultimate shopping times (Brandes, 2005). This is a rare practice of available in another retailer; thus winning more of the customers. Another rare practice present in ALDI is the use of standard price in all of its outlets, unlike other retailers. This is important in reinforcing the image of the company in the face of the customers; thus establishing a group of loyal customers. Using such strategies in its new market will be an effective move, as it will provide new and unique tactics that other retailers are not using in this market.
Imitate
This factor attempts to answer whether firm others can imitate the practices of a firm. In the case of ALDI Company, this is a key threat to its operation following the increasing number of the retailers (Brandes, 2005). Competitors are carrying similar differentiation practices, a phenomenon that will be hard for the ADLI to effectively operate in Mexico. For instance, H-E-B is a dominant grocery company providing quality products at a considerable low price. This is a clear indication of the high level of imitation of the ALDI’s strategies by the increasing number of retailers.
Organization
This factor aims at evaluating whether there exists procedures or policies that support or prevent the exploitation of the rare and imitable resources by other firms. From the analysis of the factors of VRIO framework, it is evident that ALDI has a policy of keeping its outlets small a way that is disadvantageous for other retailers to imitate. The fact that ALDI operates with small number facilitates the way these small businesses are managed, controlled, and evaluated.
Mode of entry
Entry mode refers to the institutional arrangement that enables a firm to enter a foreign country with its technology, resources, human skills, and management for business. Throughout the study, it has been made clear that Mexico is concentrated with the number of retailers. This is true because already well-established firms have ventured into this market with H-E-B Company taking the largest part of Northern Mexico. The higher concentration implies that rivalry among these competitors is high. As such, any organization desiring to venture into this need to come up with effective strategies that will ensure that it will perform well despite this competitiveness. At this point of the study, the mode of entry appropriates for the ALDI Company in entering into is this new market is important. The mode chosen for ALDI should exploit its strengths and opportunities while reducing its weaknesses and threats for it to perform well in the international market.
The first most effective mode of entry is indirect exporting. This refers to the process of sending goods abroad for sale and trade. In this case, ALDI can produce its goods in its home market and transfer them to the host country where the method reduces the risk levels to the lowest levels while having the least control of the market (Brandes and Brandes, 2012). To facilitate the process, ALDI can make use of many intermediaries in Mexico to assist in marketing and selling of its products. Another viable mode of entry of ALDI is through licensing. Licensing represents a contractual transactional between two firms where the licensor provides the foreign company, the licensee, with proprietary assets in exchange for a royalty fee. In this case, ALDI will have more control over its goods by deciding the production and selling mechanisms in the foreign country. ALDI will have to find the most appropriate company to enter into a contract within this method, which will ensure that it meets its goals in the foreign country.
Franchising is yet another available entry mode for ALDI in this new market. ALDI will use the franchisers brand name as well as the marketing support to market and sell its goods. This is important especially when a well-known company in Mexico is used as the franchisor. Through the understanding of the home market operations, the franchisor determines the appropriate site, operating procedures, advertising, layout design, and training program for the ALDI Company; implying that ALDI will pass over the control of its operation to the franchisor. This is an appropriate method for initiating good operations in the foreign country for over a specific period that the two will sign the agreement.
Contract manufacturing is another applicable mode of entry available and more convenient for the ALDI in the new market. This is an effective strategy for production of ALDI goods will be done in Mexico under the contraction of a specific manufacturer. The role of the manufacturer will only be restricted at manufacturing only while ALDI will take the rest of the roles such as marketing, making sales, and identifying the location and management of the company at the foreign nation. This method is suitable for ALDI due to the increased levels of flexibility and control that it will have from the manufacturers as switching of manufacturers is possible.
International joint venture is another key mode of entry applicable to the ALDI Company in this new market. This strategy is important following the overcrowding of the domestic retailers and international ones in Mexico who are already doing well. Through joint ventures, ALDI together with other interested retailers will join forces to create a partnership or cooperation in moving into this new market (Laksiri, 2013). Getting into a joint venture will assist ALDI to mitigate the investment risk of this new market and increase the expansion markets in this foreign country. Moreover, this strategy is crucial in reducing competition between the uniting firms as well as in facing the giant organizations that are well-established in this market.
The International joint venture will be the most appropriate mode of entry for ALDI in this new market in Mexico. First, the use of this method will reduce the investment risk and the total investment. The interested parties in this instance will provide different capabilities where they will attempt to complement each other (Laksiri, 2013). As a result, the investment risk for ALDI will be shared among the partners of the joint venture while at the same time help in eliminating many barriers such as lack of knowledge of the retailing industry in Mexico, limited access to the distribution and supply channels, and elevated urge of capital (Durmaz and Tasdemir, 2014). An important consideration for the ALDI to make in this case is to identify the appropriate partners who will complement their capabilities and ensure that they will improve their activities and operations when joint unlike if they were separated. The contributions of each of these members should be unique in a way that each of the firms will take time before attaining what the other provides when united (Fernandes, Gouveia, and Pinho, 2014). With ALDI prominent on the provision of quality goods at a lower price yet in small outlets, it needs to identify a partner who will facilitate its expansion to large operations following the high population in Mexico and existing giant retailers in Mexico. This will be easily fulfilled following the goal of the joint venture, which in this case will be to facilitate the cooperation of the partners and result in a win-win case.
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