Answer

Introduction

International strategy refers to a worldwide plan that is particular to a corporation or an organization whereby a model for international expansion is established precisely for commercial purposes. Notably, the concept of international strategy is specific to activities related to global companies within the private sector. Importantly also, regardless of the fact that international strategy operates on trading across borders, local market resources are usually the basis (Haberer, 2010). International strategy conducts trials and investigations to determine which foreign markets would be the most optimal recipients for domestic products. There are numerous international strategies that are applicable to variable global cultures and markets. However, despite the differences in international strategies they are all founded on the analysis of the new potential market. The success of any international strategy is dependent on the business’ entry method as well as consumers in the new market. Essentially, the company must have a growth projection which provides a sufficient answer to the ultimate query: ‘why here?’

Relatedly, Aldi denotes a top international discount supermarket chain that has more than ten thousand stores in about eighteen nations with an approximate turnover of over fifty billion euros. This paper provides an in-depth international strategy for Aldi to venture into New Zealand. There are various models used to conduct this analysis inclusive of PESTEL Analysis, Porter’s Five Forces, and VRIO Analysis.

1. Rationale (PESTEL Analysis)

There are several reasons as to why New Zealand is the most optimal choice of a future target market for Aldi. A macro environmental analysis through the PESTEL model emphasizes on this rationale. New Zealand currently has prevailing political stability in which the government executes a wide range of economic and social legislation, public works programs, and social safety measures among others. The rules and regulations in the country are rather strict which enhances the stability of the political system in the country. Regardless of the fact that labor in the country is considerably expensive and that lending rates are relatively high, New Zealand accords trade and business freedom to the companies that operate in the country. This factor eases the process of business. Notably also, elections in the country take place after every three years in which case each government may enforce new rules and regulations on the business sector. In the case of Aldi, this scenario could work considerably well to advance the company’s agenda. There is freedom of trade with minimal restrictions in New Zealand which is usually a desirable prospect for all businesses. The government only serves to dictate rules and regulations at the beginning of each term and a business is free to conduct its affairs only within the legal premises. This kind of profound political stability enhances business stability as well especially since one is aware that the rules and regulations regarding business may only undergo changes after three years unless in extremely dire circumstances which are quite rare.

With regards to economic factors, the gross domestic product of New Zealand is more than 185.8 billion US dollars. There was a continuous increase in the GDP between 2004 and 2008. A slight decrease occurred in 2009 after which it has been progressive ever since (Johnson, Scholes, & Whittington, 2005). Alternatively, the interest rate of New Zealand, as is regulated by the Reserve Bank of New Zealand, constantly fluctuates at 2 percent. Currently however, the interest rate is recorded at 2.5 percent. On the basis of unemployment rate, towards the end of 2012, the unemployment rate of New Zealand was recorded at 6.8 percent which was a drop from 7 percent in 2010. Consumer spending and government spending have been constantly increasing over the years. International trade is largely encouraged in the country of which exports and imports were valued at 3.22 billion dollars and 4.43 billion dollars by the end of 2012.

The social environment in New Zealand is also highly encouraging. People there are hardworking and balanced. Life is less stressful and out of 187 countries New Zealand is listed as the fifth for an average of long life, education opportunities, and decent living standards. There is a low crime rate and people are easy going. People largely engage in recreational activities such as sports, festivals, comedies, music, and films. Foods and wine are appreciated in their culture. All the social factors mentioned above present opportunities for Aldi to introduce new things into the market that New Zealanders could possibly embrace. Notably, New Zealanders are open and accepting people.

Regarding technology, New Zealand is one of the countries whereby clean technology is advanced. This present Aldi with a chance to advocate for this agenda and garner market support in the process; for instance through: clean transportation, using environmental technologies, and energy-efficient technologies among others. Generally, the country is rather advanced in terms of modern technology that would surpass the expectations of any company in a similar line of business as Aldi. Importantly, New Zealand has advanced infrastructure in the form of air transport, roads, and railway infrastructure.

From an environmental perspective, New Zealand has a fairly attractive environment which has served as a tourist attraction for several generations. Tourism can be good for Aldi’s business. Additionally, Aldi has the opportunity to create a mark and make a considerable impression by doing corporate social responsibility work in the form of environmental preservation as currently this is the primary agenda in the country.

Lastly, from a legal standpoint New Zealand promises considerable freedom to the private business sector provided the initial predetermined regulations and laws are adhered to. While some of the regulations may not be acceptable, such as the high lending charges, there is a certain stability to this system that should be attractive to Aldi. The laws do not change consistently except only after three years.

2. Opportunities and Threats (Porter’s Five Forces)

It is imperative to carefully analyze the opportunities and threats that Aldi might encounter in the New Zealand market. This analysis will enable the company to make the necessary preparation in relation to how to deal with various obstacles and exploit certain opportunities. In this analysis, the Porter’s Five Forces model will be deployed. Notably, it is the recommendation of this paper that Aldi ventures mainly into the grocery industry of New Zealand and subsequently this assessment is based on that particular industry.

The threat of new entrants into the industry is considerably high in New Zealand. The grocery industry is a potentially lucrative area for Aldi to venture into due to the progressive increase in population in New Zealand but more importantly, due to the high living standards and the health promotional behaviors (Aaker, 2014). The demand for Aldi’s products will undoubtedly be high. Regardless the lack of involvement of the New Zealand government in business affairs as well as the increased consumer and government spending are rather encouraging to new entrants. Notably however, due to the factor of high lending charges in New Zealand, smaller businesses would encounter several obstacles to entry into the market as attributed to economies of scale which mandates that a business has immense technology and capital to thrive. The biggest threat for Aldi in this case comes from other equally large or larger companies. 

Another factor relates to the buying power of consumers which is also rather high in the New Zealand market. The demand for grocery products is rather high in general. Considering the fact that groceries are medium or low involvement products, consumers have the power to bargain for high quality products as well as high service levels at the lowest prices. The likelihood that consumers would switch to the products sold to another company are highly elevated as the cost of switching is practically non-existent. Majority of the grocery products are either standardized of differentiated. Subsequently, the consumers pose a major threat to the company in the case that they integrate backwards and into the industry of the seller. There is no shortage of businesses selling grocery products. In this regard, the consumers have a high bargaining power unless Aldi is willing to take incredible measures to retain its consumers despite its considerably high costs.

Additionally, there is the aspect of supplier bargaining power. In the New Zealand market the supplier bargaining power is considerably low. For a supplier to remain relevant in the New Zealand retail industry, it is mandatory that one reduces costs and increases the quality of products. The most competitive and relevant companies in the market primarily concentrate on the reduction of costs which makes it such that the suppliers’ bargaining power is considerably low. Moreover, there are several big companies within the same industry that have competitive and effective strategies to minimize costs and increase efficiency. For instance, the Woolworth’s store that is already rather successful in New Zealand has a strategy called “Every Day Low Price” which encompasses the reduction of prices for several national brands by initiating the reduction of prices from the manufactures’ end. Relatedly, this presents an opportunity for Aldi to explore the New Zealand market using the method of price reduction due to reduced supplier bargaining power.

Furthermore, a threat is presented through substitution products. Essentially, the threat of substitution is rather high. There are other large scale shopping malls and supermarkets in New Zealand which would pose a major threat to Aldi’s business. This is because there is a much wider range of substitute products found in supermarkets. Additionally, the threat is higher if the supermarkets are local as they will be better-placed to offer both international and local brands at cheaper rates as substitute products for the ones Aldi would sell. This threat is reinforced by the large fast food outlets in New Zealand such as Subway and McDonald which could also provide the foods sold within the grocery industry. Importantly, considering that Aldi is a large company and therefore its prices are bound to be significantly higher than those offered by smaller companies, the threat of substitution is magnified.

Lastly, another threat comes from the competition factor. There are several companies in New Zealand, particularly in the grocery industry, that are just as equally positioned as Aldi and can therefore compete well in the New Zealand market through the provision of the most optimal qualities and for reduced prices (Verbeke, 2013). There is considerably little differentiation in the grocery industry and most of the products sold are easily imitation. In this regard, competition is bound to be intense and the consumer’s decision to purchase would be majorly grounded on the matter of prices and services (although to a smaller magnitude).

All in all, this analysis presents that the threats that Aldi would encounter in New Zealand are: competition and rivalry, increased buyer bargaining power, threat of new entrants, and threat of substitution. The single evident opportunity is that of reduced supplier bargaining power. From a business perspective, this opportunity, when exploited carefully and strategically, could minimize the other indicated threats. For instance, by utilizing the fact that suppliers have less bargaining power, Aldi could manage to reduce costs and subsequently prices. With the application of better and more competitive strategies, the company could manage to sell the products to the market at competitive lower prices which ultimately reduces the threat of substitution and competition.

3. Strengths and Weaknesses (VRIO Analysis)

There are certain aspects about the company, Aldi, which may be categorized as the strengths or the weaknesses and may subsequently support or challenge the expansion of the firm into the New Zealand market. Essentially, the strengths and weaknesses of an organization particularly and strictly relate only to the business’ internal environment.

The most initial factor in the VRIO analysis is value. Value dictates whether a company is capable of exploiting an opportunity or neutralizing an external threat with the resources and capabilities that it already has. There are certain resources and capabilities of a company that can either serve as strategic strengths or strategic necessities. On the basis of Aldi, strategic strengths are its most valued competencies and have established a longstanding competitive advantaged for the business. This has resulted in Aldi earning returns that are above average. One strategic strength that Aldi possesses is that it is one of the biggest food retailers in the world. This is a factor that is bound to attract more and more customers to the business should it choose to expand into New Zealand. It is human nature to crave affiliation with the best. Additionally, Aldi generally has a uniform pricing system. Pricing is a factor that highly matters to consumers, especially when it comes to products such as grocery which are easily replaceable. Therefore, the fact that Aldi has a uniform pricing system is bound to aid the company in ensuring that customers are drawn to the business. Moreover, Aldi has the advantage of having a reputation for providing quality low cost items. The issue of quality also serves to influence customers’ decisions positively in the reception of the firm into the market. The fact that Aldi is bound to provide more high-quality products that majority of its competitors that are already operating in New Zealand increases its chances of success into the market. Aldi is also a very large store with a variety of product for customers and this serves as a strength for the company. Importantly, Aldi has the necessary financial resources that are necessary to exploit opportunities and neutralize threats (Collis, 2009). Considering all the factors mentioned above, it can be concluded that Aldi is capable of exploiting its opportunities and neutralizing any external threats to the organization.

Organization provides another strength for the company. The company has a profound characterization of simplicity of operations. The firm has also organized itself with a private label sourcing which serves to identify its products as original brands in the market. Moreover, in comparison with other big retailers Aldi have a considerably low price which gives the company a competitive edge. The company has also proven over the years that it has a necessary understanding of the economics aspect of business which places it in a better position to make strategic investment decisions to exploit opportunities and neutralize threats.

The matter of rarity in the VRIO analysis aims to establish whether the resource/capabilities are controlled by a relative few or if majority of the business have a similar control. This factor presents a weakness of Aldi. As much as there are certain solid advantages to be acquired from being a large store and therefore having original brands, the fact still remains that the products that Aldi sells (grocery products) are largely available in the market. There is no shortage of businesses (big and small) selling grocery products. Therefore, the issue of stiff competition and easy substitution keep coming up as threats.

Imitability is also another factor that illustrates the weakness of Aldi. The products sold by the company are easily imitable as they are mainly grocery products. The aspect of quality still provides the advantage for Aldi although it can easily be argued that other business will not exactly endeavor to provide low quality products to customers either. Therefore, Aldi faces a major problem of dealing with the competition for its highly imitable products.

All in all, Aldi has more strengths than weaknesses. It has also the advantage of experience having operated in the same industry since 1913. Therefore, it is highly likely that should Aldi choose to venture into New Zealand it will succeed rather than fail due to the challenges it faces at the moment.

4. Modes of Entry

A company that is looking to expand into an international company is mandated to make an imperative strategic decision concerning which mode of entry would be the most applicable to that particular market. There are four primary modes of entry into a foreign market: exporting, joint ventures (strategic alliances and contractual agreements), licensing, and sole venture (foreign direct investments). Due to the fact that the selection of any of these modes of entry consumes considerable time and resources, it is virtually impractical for companies to change from one mode to another once they have already selected. The choice of which mode of entry to select is dependent on certain factors: size and growth of the market; the risk involved; flexibility; internal resources, capabilities, and assets; need for control; local infrastructure; government regulations; company objectives; and competitive environment.

With this in mind, the following are the options that are most applicable in the case of Aldi. The company could export, enter into strategic alliances; or engage in foreign direct investment. Entry mode selections usually have a compromise where exporting mode requires less investment and subsequently low risk/return selection (Morschett, Schramm-Klein, & Zentes, 2009). Exporting can either be direct or indirect. Direct exports requires that Aldi business sells its products to another customer in New Zealand who would be in charge of selling it to the market. Contrastively, indirect export denotes that Aldi sells its products to a buyer (distributor or importer) in the home country who would be in charge or exporting the product to New Zealand. This mode provides a company with operational control but fails to provide market control in the new area. Therefore, based on the fact that Aldi’s primary aim is to control the new market the mode of exporting is not suitable for the company’s international strategy.

Another option available to Aldi is the joint venture mode which mainly encompasses strategic alliances. Strategic alliances have become increasingly important over the past few decades as a strategy for competition in international marketing management. Fundamentally, a strategic international alliance refers to a business relationship that is established by two or more businesses to cooperate based on mutual interests and to share the risks associated with the achievement of similar objectives. Notably, strategic international alliances are a method of increasing competitive strengths and managing weaknesses. This option presents Aldi with an opportunity for fast expansion into the New Zealand market, access to innovative technology, and increased efficiency in marketing and production costs (Johnson, Scholes, & Whittington, 2015). The investment involved in the joint venture mode of entry is relatively low and therefore has the provision of return, risk, and control commensurate to the level of equity participation of Aldi, the investor company.

The final option suitable for Aldi is direct foreign investment. This denotes that Aldi could choose to manufacture its products in New Zealand and avoid the high costs associated with import taxes as well as avoid the costs of international transportation of products to the New Zealand market. In this case, Aldi has the option of investing in or purchasing a local company or establishing new operation facilities. This mode of entry requires a high investment and is characterized with high risk/returns alternative. Importantly also, it provides a high level of market control and general control over the business operations to Aldi as the investing company.

In consideration of all the three options, the recommendation is that Aldi select foreign direct investment. While it requires the largest investment of resources and has the greatest risk of failure, it also presents the highest prospect of returns. Additionally, Aldi would need to have absolute control over its business operations which indicates that the other options provided would be unsuitable to enable this element. Most important, the company needs to be in charge of the market aspect of the business so as to ensure that the brand is received acceptably well into the New Zealand market. The only option that provides this prospect is the direct foreign investment.

There are other advantages of direct foreign investment such as: stimulation of New Zealand’s economic development which serves to create a conducive environment for Aldi; provision of tax incentives; and usage of New Zealand’s raw materials among others.

Conclusively, New Zealand is a considerably good selection of a potential new market for Aldi. Besides all the reasons mentioned above, the country’s close proximity to Australia where the company already has successful business establishments increases the appeal of the New Zealand market. As is evident from the PESTEL and the Porter’s Five Forces models New Zealand has more advantages than it does weaknesses and is therefore a suitable option. Additionally, the VRIO analysis shows that Aldi is strongly suited to take on a new market. The suitable mode of entry for Aldi into New Zealand is foreign direct investment. All in all, international expansion is always a positive move for a company with the resources and capabilities to make the transition like Aldi.

Reference List

Aaker, D. A. (2014). Strategic market management. Hoboken, New Jersey: Wiley.

Collis, D. J. (2009). International strategy and competition. Oxford, Wiley-Blackwell.

Haberer, J. (2010). Strategic Management – Aldi Is Aldi being deprived of the German discounter-throne? München, GRIN Verlag GmbH.

Johnson, G., Scholes, K., & Whittington, R. (2015). Fundamentals of strategy. Harlow; Munich [u.a.], Pearson Education.

Johnson,G., Scholes, K., & Whittington, R. (2005). Exploring Corporate Strategy. England: Pearson Education Limited. Available at<http://www.efbl.org/upload/2065783-strategijski-menadment-corporate-strategy-2013-10-25.pdf>

Morschett, D., Schramm-Klein, H., & Zentes, J. (2009). Strategic international management: text and cases. Wiesbaden, Gabler.

Patel, S. (2013). A Global Country Study on MEXICO. Gujarat Technological University, Ahmedabad.

Timmons, C., Garelli, J., & Lichonovska, I. (2015). Considerations for entering the Czech Republic. Available at: <https://timmonsconor.files.wordpress.com/2014/10/kelloggs-project-pdf.pdf>

Verbeke, A. (2013). International business strategy: rethinking the foundations of global corporate success. Cambridge: Cambridge University Press.

Appendix

In order to decide which one of the three countries is the most optimal choice for a potential new investment area for Aldi, it is imperative to conduct a thorough analysis of the macro-environmental factors in each nation. For this purpose, a PESTEL analysis of Czech Republic, Mexico, and New Zealand will be conducted.

PESTEL Analysis of Czech Republic

1. Political

From a general perspective, the Czech Republic is perceived to be highly liberal and democratic. Regardless there is a considerable amount of conservatism in the country. Moreover, corruption is rampant in the country and particularly with regards to political parties. Oftentimes, this has resulted in supposedly unjust favors and uncompetitive activities within the business environment. Importantly also, the Czech Republic is one of the countries found in the EU although it is not a component of the monetary union (Timmons, Garelli, & Lichonovska, 2015). This indicates that the country has not acknowledged the use of the euro currency.

1. Economic

Economically, the average income for people living and working in the Czech Republic is seven hundred and fifty euros monthly. In addition, the minimum wage is 8,500 Czech koruma monthly (293 euros). Consumer spending constitutes 15% of the yearly income on necessities. Importantly, the population is mainly price-focused. Lastly, the unemployment rate in the Czech Republic is 7.8%.

1. Social

While previously health eating was not a primary concern in the Czech Republic, it is becoming increasingly important. For instance, white bread has been substituted for wholegrain bread. The people of Czech Republic are generally conservative and therefore may not be as open to outsiders as a foreign business would require them to be.

1. Technological

With regards to the quality of infrastructure, the Czech Republic is ranked at number nineteen in the EU. There are generally poor roads in the nation although advancements are underway. However, through means of air and railroads, the country is rather advanced.

1. Environment

 Environmental sustainability is a matter of concern in the Czech Republic and the government is highly involved. There are regulations to encourage people countrywide to adopt more environmental friendly measures. However, generally the population of the Czech Republic is rather neglectful of the environment.

1. Legal

There are various advantaged accrued to the Czech Republic due to its affiliation with the EU. For instance, there are no restrictions or regulations for exporting or importing food stuffs from other EU member countries. However, there are also various trade regulations that the Czech Republic is subjected to as a result of being a member country of the EU and any business established in the country will be required to abide by them.

PESTEL Analysis of Mexico

1. Political

Mexico is a federal republic whereby elections are held every six years. Generally however, the elections in the country are not up to the stipulated standards of global anti-corruption. This is a clear indication of political instability in the country as corruption is bound to destabilize any system. Basically, the social contract between the governed and the government is tampered and corruption is rampant in the country. The press does not have absolute freedom and human rights in the country are constantly abused. Reforms are hard to be enforced in the country as well.

1. Economic

There is a certain alignment between the economic trends of Mexico and those of USA. Mexico has a successful economy as per international standards and would be a good place to start a business based on this premise. Additionally, there is a close trade relationship that exists between Mexico and the USA which has boosted the general economic situation of Mexico due to the fact that the USA is arguably the largest economy in the world. The GDP of Mexico is at 1.16 trillion dollars and grows at a rate of 3.9% (Patel, 2013). Each region in Mexico has its own minimum wage. Furthermore, unemployment in Mexico is becoming increasingly alarming whereby the youth, who constitute the largest share of the population, are unemployed at a higher rate than adults including professionals who are extremely well-educated.

1. Social

Majority of the population of Mexico comprises the youth aged between fifteen years and twenty four years. The country has therefore always been perceived to be youthful. The media age is twenty seven years and subsequent life expectancy is seventy seven years. The future trends suggest that children will soon comprise part of the largest share of the population. Additionally, Mexicans do not particularly lead a healthy life which is the main product of Aldi.

1. Technological

The Institute of Science and Technology was established in Mexico in 2007. The country’s youngest generation has shown a progressive interest in the establishment and sale of applications for smart phones over the years. The Mexican governmental is also making large investments in technology, for instance, nanotechnology and biotechnology. The problem in technology is primarily found in the internet section, which is arguably the most important area of business for a company such as Aldi that needs to amass a significant following on social media platforms among others. The telecommunication sector is wanting as there is poor quality of infrastructure as well as high cost of accessibility. 

1. Environmental

Mexico is the eight largest country in the world. It is usually mostly dry with regards to climate with the inland northern regions and Northwestern Mexico being the driest areas. Moreover, Mexico City is considered to be the most polluted city on earth. The country’s population is reluctant to enforce environmental sustainability strategies.

1. Legal

Mexico operates under a very comprehensive legal structure whereby each area under the government is covered. Particularly, business taxation is given much importance in the legal system whereby any business enterprises in Mexico function under the federal corporate income tax, social security contributions, and tax on real property among others.

PESTEL Analysis of New Zealand

1. Political

New Zealand has impeccable stability in its government system. There is an increased chance of success for every government and business aligned as a result of solid rules and regulations in the country. A new government takes form in the country after every three years. Regardless, there are high lending rates which makes it such that companies have to pay high government taxes. Overall however, there is minimal government involvement in company business and operations and businesses are therefore able to operate freely.

1. Economical

The economic conditions in New Zealand are highly favorable with relativity to other countries. There are economic product rates which makes them affordable to the people. Additionally, both the inflation and unemployment rates in the country are considerably low and hence the GDP growth rate is high (Johnson, Scholes, & Whittington, 2015).

1. Social

There is a constant demand in the economy as the people of New Zealand are usually adventurous and ready to spend money to make better use of their leisure time. Life expectancy in the country is eighty one years which indicates that New Zealanders lead healthy lives. Additionally, tourism is also rampant in the country.

1. Technological

New Zealand has enforced its own education system which the OECD program runs for the purpose of International Student Assessment. It is perceived to be the seventh best education system worldwide. The literacy rate in the country is at ninety nine percent. Alternatively, substantial developments have been made in several technological products. Internet usage and IT technology have been advanced in the country in both rural and urban areas.

1. Environmental

New Zealand is situated at nine hundred kilometers from Australia and has a distinct environmental system. Both the country and the people are dedicated to the sustainability of the environment and endeavor to reduce pollution in the country. The latest technology for dealing with garbage for instance has been adopted in the country. Moreover, there are increasingly new initiatives committed to the conservation of the environment such as the preservation of rare bird species.

1. Legal

The change of government after every three years denotes that each government can come up with different rules and regulations. Generally however, New Zealand has a reduced crime rate. Corruption in the country is minimal in comparison with other countries. Apart from the high lending charges, the New Zealand government has dedicated itself to making the country’s legal system conducive and attractive enough for international business endeavors.

Based on all the research information provided, New Zealand was selected as the best country for Aldi to expand its business in. The country has a considerably macro-environment in comparison with Czech Republic and Mexico.