Analysis of Internationalisation Strategy Tesco and Lidl Essay

Question 1 sphericisation has, in the last a couple of(prenominal) decades, been one of the dominant trends in retailing. Retailers around the globe ar assay for higher global trade sh ars. The nutrition retailing industry which has an oligopolistic trade, especially, has wholesome competition although, with a few boastful unattackables dominating the commercialise. Among them Tesco and Lidl atomic number 18 one of the major europiuman retailers. Tesco is the UKs largest retailer with 28.7% market share, which is 11% more than than its closest rival, ASDA (Statista.com, 2015), and is the 5th largest retailer in the world (Deloitte, 2015). And Lidl is the main retail chain (accounting for more than 70% of its sales) of Schwarz group, which is the 4th largest retailer in the world (Deloitte, 2015). Both of these coc chance oneds are based in Europe with Tesco being a British level and Lidl a German.These firms are akin non only in their revenues and market shares sca rcely also in the generic schema they gather in take. In damage of seam operation, both firms follow Porters cost leaders strategy. However, Tesco also incorporates the diverseiation strategy (Baroto et al., 2012), and then pursuing a hybrid strategy combining the two, while Lidl solely follows the no-frills cost leadership strategy (Geppert et al., 2015). Both these firms fetch internationalized in different countries around the globe. Lidl has mainly focalizationed its internationalisation in the European markets, while Tesco, in addition to expanding in different eastern European countries, has also started its trading operations in drastically different markets such as southernmost Korea, chinaware, India and The USA.However, they have followed different strategies in their modes of gate into contrasted markets, with different levels of success. The decision to and the outcome of internationalisation for these two firms have depended on different factors homogeneou s g overnment regulation, availability of the factors of production, their duty organization organization operation strategy and so on. oneness of the main criteria for internationalisation for firms is to have got some sort of competitive advantage, in order to overcome the threats and difficulties usually associated with interposeing into a pertly international market (Vernon 1966). Lidl being a discounter has a spacious advantage in terms of price compared to other supermarkets and hypermarkets. As a result of its no-frills strategy, Lidl can significantly reduce be in different stages of its logistics and summate chain. Entering into a youthful country has a lot of challenges and firm size of it is one of the things a firm must consider when choosing a country for internationalisation. If the firm does not have significant market share in its domestic market, it will find it difficult to adduce its operations in foreign markets. In Lidls case, they have build a v ery fast domestic market and in that respectfore, had a strong foundation for further expansion to foreign markets.From Lidls preceding Foreign Direct Investments, it is evident that that the firm has adopted both acquisition strategy as salubrious as Greenfield investment. However, it has mostly focused on Greenfield investments (Nayak, 2011). Greenfield investment, which entails starting the operations from scratch, gives firms more freedom in selecting their stock strategy in terms of choosing suppliers and managing logistics etc. This market foundation strategy allows firms to fully enforce their company-specific advantages (Ando, 2005). One of the reasons Lidl chooses this strategy as their international mode of initiation, is because of its consistency with their business influence. Lidl, bid other hard discounters, follows a global standardised strategy (Bartlett & Ghoshal, 1989), where majority of the decisions are made by the corporate headquarters, in things ilk variation of product assortment, design of store outlets or policies and procedures and there is very little topical anesthetic anestheticisation (Geppert,2015). This allows Lidl to apparatus its own strategic simulate into a new business in a foreign market.However, in addition to centralizing the strategic aspect of the business, they also centralize some physical aspects of it. A global retail strategy relies on standardization to acquire economies of scale and of replication. This means that in different countries similar product lines, distribution system, communication, service level and store design are used (McGoldrick 2002). Lidls business strategy includes a standardized supply chain which allows it to efficiently operate its business in different countries and also provides an economies of scale. Upon entering a foreign market, they set up regional distribution centres (RDCs) to service a significant number of their stores in a certain region. They source their prod ucts (except destructibles) through their headquarters in Germany and those products are distributed through 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 horizontal FDI, Lidl operates in its foreignmarkets 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.This strategy is also arranged with the gravity model of bilateral alternate which states that volume of trade is inversely proportional to the distance between the countries and directly proportional to the size of the economies. Lidls operating 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 intimately . Moreover, Germanys central location in Europe as well as it being the largest economy in Europe increases the prospect and efficiency of trade. Furthermore, due to Lidls choice of internationalisation strategy, factor abundance plays an inherent role, especially in terms of land and space. Greenfield investment requires land to build new stores or the availability of already built stores.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 wants to expand to. An riddance in this case is Sweden, which is geographically a bit farther relative to other countries. Lidl, establishing a Greenfield investment, built their own warehouse in South West of Sweden, provided, the warehouse was still served by the same logistics firm used by Lidl in Germ any, Pape (Nyberg, 2007). This still allowed for the standard distribution process to be implemented, as Pape is already familiar with Lidls business model and distribution modes.Government policies, in both domestic and foreign markets, also have a significant effect on food retailers and their decision to internationalise. In 1968, a retail planning policy was devised in Germany in order to protect the small stores by hold in 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 significant 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 expandinto other markets and a strong domestic presence also benefits Lidls centralised business model. Since then, Lidl has expanded rapidly, mostly in Europea n markets, and the number of Lidl stores in Lidls major operating countries can be seen from the tabulate below.The table above 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 Lidls endeavours in foreign markets have been successful as majority of their international efforts have resulted in a profit. Lidl doesnt publish country-by country profit figures, although, its turnover in the UK in 2012, which was 202 million, increase by around 40% in the five years since the recession hit (Gibb, 2013), shows that it is making a profit. In 2012, Lidls overall profits were up by 37% (Kantarretail, 2012). This can partly be attributed to the recession, because of which the demand for cheaper discounted goods increased, however, it can also be attributed to Lidls mode of entry into new markets and its business strategy which takes into account the local anaesthetic culture of t he 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 friendly brand image.Similarly to Lidl, Tesco also has a very strong presence in its domestic market as it is the market leader in the UK. Being among the top five retailers in the world, Tesco has stores in various countries in Asia and Europe. After achieving rapid growth and gaining the highest market share in the UK, the lam to enter foreign markets was part of Tescos disciplined international growth strategy (Tesco Annual Report, 2014). Tesco has also adopted Horizontal Foreign Direct Investment in most of its international expansions, usually acquiring living retailers in foreign markets and implementing its own business strategy like undercutting competitors and introducing own brand products and its club brainpower scheme and so on (corporatewatch.org, 2004). For ex ample Tescos acquisition of American company K-marts stores in Czech Republic in 1996 (tescoplc.com) and it currently has more than 300 stores there (Tescopoly.org) Tescos firstattempts at internationalisation were not very successful as their acquisitions of relatively small supermarket chains in Ireland and France were divested briefly after acquisition (Geppert et al., 2011).Tesco, then changed their strategy in acquisitions by acquiring larger foreign firms instead than smaller ones. In addition to the acquisition of K-mart in 1996, they acquired 26 S-Mart stores in Hungary in 1995, and ventured into the Irish market again 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 Tescos main strategy in internationalisation has been to understand the market and operate in accordance with the local shopping culture to build better relationship with the consumers as well as suppliers. This is much easier to achieve in choosing acquisitions or crossroads ventures than through Greenfield investments.Through acquisitions, as a result of the knowledge of local customs and associations on part of the acquired firm, the investing firm can take advantage of pre-existing business network with suppliers and distribution chains. It also takes over the brands (in some cases), the reputation and the existing market share of the acquired firm and this can result in a stronger market presence very quickly (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 Tescos number of stores in 2011, shows that unlike Lidl, Tesco has more stores in its home 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 home market (Thomas et al., 2013).Contrary to its success in the European markets, Tesco has recently suffered some major setbacks in internationalisation in Asian markets like Japan andChina, 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 own subsidiary as a Greenfield investment. This meant that they did not possess the local knowledge about the market and consumer behavio ur. 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 measure of internationalisation was also unfortunate as recession had seriously effected Tescos chosen states of California, Nevada and Arizona.Tesco 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-growing but tricky market. Furthermore, Tesco also withdrew from the Japanese market in 2012 in a move that follows decis ions to focus on investing in its British home market (Thomas et al., 2013). Tescos exit from Taiwan can be credited to low factor abundance, as all the most attractive sites for expansion already been positive or were held under future development option by Carrefour, who had been a well-established retailer in the country. In addition, the highly complex land ownership system was a hindrance for Tescos as it foreclose 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.Tesco 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, asset it provided the opportunity to build upon the local appeal, especially inSouth Korea where Tesco had partnered with Samsung and the use of the name, Samsung-Tesco, proved to be resilient (Lowe & Wrigley, 2010). Tescos bereavements in internationalization in some of the Asian and the American markets does show to some design that geographical distance might have played a part even though the size of the economies involved were quite large. The culture of these markets were very different and as per Krugmans love of variety model, individuals 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.Comparing and analysing the strategies of Tesco and Lidls shows that, in order to have a successful internationalisation and subsequently continue to have a strong foreign market, the firms must be strong in its domestic market. Both firms use different primary election strategy to enter into foreign markets but their internationalisation strategy suits their respective business strategy, as Tescos 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 Horizontal FDI, which does decrease international trade as their services 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.In Tescos 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 replicate technology easily and the power to move freely between countries. However, the strategies these two forms have used and their effectiveness in different countries show that, although there are fewer differences in consumer cultures and market structures, these differences still matter and play an important role in the success and failure of firms.The ability of a firm to understand the consumer culture is key when it comes to internationalisation. Furthermore, the gravity model does hold to an extent even in the case of internationalisation of firms, as evident from Tescosfailure to penetrate most Asian markets they entered compared to their successes in most European markets they ventured into. Tescos success in Thailand and Korea shows that a Joint venture with a locally established compa ny would be the ideal mode of entry into risky markets. And a firms 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.ReferenceBaroto, M. 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