UNIVERSITY OF SALFORD

STRATEGIC INTERNATIONAL BUSINESS

MANAGEMENT
TERM 1 MIDTERM ASSIGNMENT
By Syed Humayun Naqvi
SECTION 1
IDENTIFYING ESTONIA AS POTENTIAL MARKET FOR LYDIL BASED
ON PESTEL ANALYSIS
1. Modern Estonia is a democratic republic which has some ethnic strife but
has peaceful political system in place. Its borders are surrounded by
Finland in north, Russia in east and Latvia in south.
2. Estonia is located on a busy trading route between East and West and has
excellent ports infrastructure. It is called the strategic hub of Northern
Europe.
3. Estonia is connected by sea through the ports of Heltermaa, Muuga-port of
Tallinn and Roomassaare to name the major ones. Its ice free ports are
deepest in the Baltic Sea. Since ages Estonia has been the part of Silk
route from Asia to Europe. From Estonia 50 Million consumers can be
reached within 24 hours and 300 Million within 48 hours. It has four free
trade zones and free transit shipping system. Estonia is expanding its trns
Atlantic trade route and had been doing business with Russia for over 200
years.
4. Railway communication between Baltic Sea and Asia originates from
Estonia. The rail guage is compatible with Russia, CIS and Central Asia.
5. Estonia has had a market economy since early 90s and is amongst the
highest per capita income. Its close proximity to Scandinavian countries,
its strategic location between east and west and highly skilled labor force
has given it strategic advantage in economy.
6. Estonia received 3.4 billion euros from various European Union Structural
Funds. Major sum of EU aid will be used in energy economies,
entrepreneurship, administrative capability, education, information
society, environment protection, regional and local development, research
and development activities, healthcare and welfare, transportation and
labour market. Estonia has lowest government debt in entire Europe.
7. International organisations like World Bank, World Economic Forum and
others have acknowledged Estonian economy as following:
a. 1st in International Tax Competitiveness Index
b. 8th in Index of Economic Freedom 2015 - Wall Street Journal/The
Heritage Foundation
c. 2nd in Internet Freedom - Freedom House 2015
d. 16th in Ease of Doing Business Report 2016 - World Bank

e.

30th in Global Competitiveness Report 2015-2016 - World Economic

Forum
f. 23rd in Corruption Perceptions Index 2015 - Transparency
International
8. Estonia has some of the highest international credit ratings in the region.
Standard & Poor: AA-; Moody's: A1; Fitch IBCA: A+.
9. The population of Estonia is 1.3 Million however the per capita income of
its citizens provides good buying capacity.
10.
Many stores operating in Talinn, the capital participate in the Value
Added Tax (VAT) refund program in which non-European citizens may be
entitled to reclaim a portion or all of the tax paid (depending on the total
purchase price).
11.Estonia has a blend of an ancient history and modern high-tech services.
Hospitality of the east and liberal economic environment of the west are
its advantages. 53% of its population has secondary education and 36% of
the workforce has higher education.
12.Estonia has to offer a progressive business environment with an efficient
and compatible infrastructure. Mobile communications , internet
applications and e-business applications are among the most progressive
in the world
13.Estonia offers a business environment of openness and technology. The
large number of foreign investors and world renowned companies are
operating in Estonia like Ericsson, ABB, Kuehne and Nagel, Stora Enso,
Symantec, Stoneridge, Vopak EOS, Deutsche Post DHL and many others.
More than 65% of Estonians work in service sector. 55% of the work force
is fluent in more than one language and major foreign languages are
Russian, English and Finnish.
14.In Estonia, the EU subsidies are equally applicable to local and foreign
companies and local and foreign businesses are treated equally.
15. As far as technology is concerned it would be interesting to know that
Skype was invented in Estonia. Banking sector is 99% digital and it takes
only 15 minutes online to open a company. The first M parking system in
the world was also introduced in Estonia. All small villages and towns are
covered with internet coverage and people are very much open to use
new technologies. All Estonian towns and villages are covered by a
network of public Internet access points.

SECTION 2
ANALYSIS OF LIDL WITH FIVE FORCES MODEL

Introduction
1. Lidl is a privately held company which was established in retailing industry
in 1930. Its Headquarters are in Germany and it has 10000 stores mostly
spread in 28 countries Europe. It presence in the retail industry is in the
shape of Discount Stores, Hypermarkets, Supercentre and Superstore.. In
2013 it generated revenue of 6335 Billion Euros and employs 315000
employees.
2. Lidl is part of part of the Schwarz Group, the fifth largest retailer in the
world. In 1930 it was developed into a general food whole seller. The first

discount store of Lidl was opened in 1973. By 1977 Lidl had 33 discount
stores.
3. In June 2015, Company announced that it would be starting its operations
in USA. First Lidl store is likely to be open in USA in 2018.
Porters Five Forces Model
1. The Threat of Entry
a. Estonian market has two major retail giants which are Cwwop
Estonia and Maxima Group and Selver.
b. Cwoop is hundred percent owned by Estonians. It has 250 chain
stores, 293 food and convenience stores. It has 4400 employs and
uses 3 logistics centers. Cwoop has 480000 loyality program cards.
c. Cwoop is a market leader in Estonia with market share of 20.2%. It
generated a net sale of 464.5 million EUR in 2014.
d. This company relies heavily on customer loyality and its mission
states Everyday goods from nearby, affordability, offering
contentment and joy.
e. Maxima is another retail market giant operating in Lithuania,
Latvia, Poland and Bulgaria. It is the largest Lithuanian caital
company and largest employer in Baltic states as it has 508 stores.
It offers 3000 to 65000 brands depending on size and location of
stores.
f. Maxima chain in Estonia grew by 13.3% in 2011. In 2015 it opened
its first store in Estonian capital Talinn. It has a total of 75 stores in
Estonia and has 4000 employees.
g. Maxima accounts for 18% of retail market share in Estonia and has
a turnover of 0.4 billion EUR as of 2014.
h. Selver is a subsidiary of Talinna Kaubamaja and has chain of super
markets and hypermarkets. It was established in 1995Selver gross
sales in 2010 were 300.2 million EUR.
i. Selver has a share of 17% in the Estonian retail market.
j. Leaving aside the above mentioned three giants, the retail market is
fragmented thereby opening space for Lidls entry. Although the
competition is tough but grocery retailing continued to see healthy
growth in 2015.
k. Lidl with its 86 years experience of retailing in 28 countries in
Europe can take strategic advantage by positioning itself as one of
the worlds largest retailers, entering into Estonian market.
l. Estonian economic policy of encouraging foreign investment and
relaxed taxation, customs and shipping facilities make the entry
comfortable for Lidl.
m. Threat level for entry is moderate to low.
2. Threat of Substitutes
a. Being the seller of goods of daily and routine nature, there are no
threats of substitutes as far as product is concerned.
b. Hyper and super stores from other retail giants in Estonia pose a
threat as the substitute but they do not hold a major consumer
market share and Lidl will have lot of opportunity to expand by
offering the same products taking advantage of economies of scale.
c. Threat level of substitutes is moderate to high.
3. The Power of Buyers

a.

Cwoop , the biggest competitor is hundred percent owned by

Estonians. It has 19 consumer cooperative societies and has 480000
loyality program cards.
b. This buyer segment has strong loyalty with Cwoop and gives the
later a substantial market share.
c. Other than Cwoop the consumer market is almost operating on
benefit and value attraction thereby giving an opportunity to Lidl to
offer value added services by providing a wider range at cheaper
costs. Therefore there are no switching costs involved
d. Keeping above in view, the threat from power of buyers is moderate
to low.

4. The Power of Suppliers

a. Because of the diversity involved in the products which is in
thousands, there no particular suppliers/groups which can have a
power to sway the market.
b. Like Maxima, Lidl can also take advantage of its international
suppliers distribution channels spread all over Europe.
c. The threat level perceived from suppliers is low.
5. Competitive Rivalry
a. Competitive rivalry in Estonian retail industry intensified in 2015.
More discount schemes were offered. It resulted in lower margins of
profits for manufacturers and suppliers.
b. The disposable income saw an increasing graph thereby increasing
consumer base.
c. ETK Group (Cwoop) maintained its leading position. It has been
cashing on its customer loyalty programs and has the vision of
largest satisfied membership and largest number of loyal
customers.
d. Overall the retail industry is in Estonia is seeing growth and predict
more growth in the future which will benefit new entrants in Estonian
retail industry.
e. There is low differentiation in retail industry which makes
competition more tough for the retail giants in Estonia.
f. Maxima with its international presence enjoy credibility and can
further expand its operations due to fierce competition or due to the
threat of a new entry like Lidl.
g. The already established companies like Cwoop, Maxima and Selver
have not much of a difference in market share so there is already a
fierce rivalry ongoing.
h. Threat level is high.

SECTION 3
VRIO ANALYSIS OF LIDL
Valuable

1. Lidll is a German discount retail chain operating in 28 countries of Europe

(except Baltic). In Europe, the company has an image of supermarket
attracting the middle and lower middle class. It is best known for
attracting low spending consumers. Exception to this was made in UK
where the low costs offered by Lidl were perceived negatively and to be
associated with poor only. To counter this image, Lidl had to raise its
prices.
2.

The retailer provides customers with quality products at the best prices
possible, clean and tidy stores, and pleasant shopping experience.

3. Lidl takes advantage of different criteria to segment its market. This

includes demographic, geographic and psychographic. It is a retailer
targeting mainly low-income individuals and families.
4. Lidl takes advantage of economy of scales, stocks few leading brands and
mainly offers its private label brands, which encompass food as well as
non-food products. The retailer has a narrow product assortment, offering
few items in each category, but a broad product variety.
5. Lidl being a hard-core discounter has an average store which would be a
self-service grocery store with reduced personnel and limited customer
service and basic displays.
6. Lidl currently differentiates itself in the market by offering a unique
assortment of high-quality products at a low market price.
7. Lidle chose the location of their stores in low-income areas where cheap
food items are more required
Rare
1. Staffing is kept to the bare possible minimum so as to reduce the cost.
2. Lidl's customer service has built a niche for itself. In fact, its moneyreturning policy, as well as video archive for non-food products, gives Lidl
rare advantage.
3. Lidl tries to offer low prices by means of a no-frills strategy. The ideal Lidl
store is a nice place to visit which is clean and simple. Food items are kept
in their original packing and pallets with consumers doing self-service. The
company sells economical gourmet goods imported from different
European countries
Inimitable
1. As a hard-core discounter, Lidl's average store would be a self-service
grocery store with reduced personnel and limited customer service, basic
displays.

2. Lidl's customer service is at the moment inimitable. Any competitor who

will try to imitate this would have to deviate from theor basic operational
strategy which would cost them in the shape of major human resource
downsizing and retaliation from employee unions.
3. The company largely benifited from the EUs health and quality standards
by utilizing free movement of people, goods, services and capital. While
establishing itself in Spain, on-going economic crisis has greatly favoured
Lidl, turning a formerly poor-people supermarket chain into one of the
best options for anyone looking for a good value-for-money ratio

Organization
1. Lidll aims to employ well prepared staff and who are committed to their
corporate strategy. It aims to provide professional skills to its staff. As part
of Corporate social responsibility obj, the company collaborates with
several charities, defining itself as a staunch defender of fairness and
equality.
2. Lidl group has ambitions to protect the environment, creating green
stores and using clean renewable energy in their distribution centres.
3. Lidl has been in news and under fire from various trade unions for
breaching various EU regulations and the way it has been treating its staff.
Issues were ranging from working hours to workers' right to privacy. Any
such claims have been denied by company officials and have generally not
had any legal consequences for the company, but for a couple minor
sentences, such as that of an Italian court in 2003 for anti-trade-union
practices.

SECTION 4
EVALUATION OF MODES OF ENTRY INTO ESTONIAN RETAIL
INDUSTRY
1. A mode of entry into an international market is the channel which
organisation that want operate in international markets employ to gain
entry to a new international market. The choice for a particular entry
mode is a critical determinant in the successful running of a foreign
operation. (European Journal of Science, 2011).
2. In this paper a PESTEL analysis of ESTONIA has already been done which
has adequately covered following aspects of Estonia :
a. Political

b. Policies favourable to foreign investment

c. Low level of corruption at governmental level.
d. Stable security environments
e. Low entry barriers and regulations for foreign investment
f.

Well-developed and successful free market economy system

g. Well-developed and efficient infrastructures

h. Sociocultural and technological
3. The Estonian Retail industry is rapidly growing sector. The growth can be
attributed to the growing Estonian economy, increase in purchasing power
and the changes in consumption pattern of the Estonian population. The
changing consumption pattern, in turn, primarily remains driven by higher
standard of living, growing middle-class population, greater proportion of
working women and development of organized retail. However the land
still comprises of small towns and suburbs.
4. Despite the rapid growth, the Estonian retail industry remains fragmented.

5. CAGE Framework
a. Cultural Distance. Lidl would be opening its first store in Baltic and
therefore can feel some cultural distance. Though Lidl is operation
all over EU but Baltic despite part of EU has some distinct culture.
Lidl has to make strategies to bridge this distance which should not
be much of a challenge for an 86 years old retail group.
b. Administrative and Political Distance. Operating in Estonia would be
much easier for Lidl as compared to operating in Asia. Being part of
EU and sharing many market features and consumer trends, would
make this venture not a leap of faith but a dive into something
familiar.
c. Geographical Distance. Estonia is a gateway to Asia for the rest of
the Europe. Its excellent port facilities in deepest of Baltic Sea and
efficient road and rail network would make it much accessible from
the Headquarters in Germany.
d. Economics. Being part of EU the group and Estonia will have much
in common. Though Estonia fares very well in per capita income but
still Lidl will have much to offer to the middle and lower class of
Estonia.

6. Mode of Entry
a. The organizational development of Lidl with its 86 years life and
decades of international presence, the most recommended mode of
entry into Estonian Retail Industry is through Foreign Direct
Investment. It will give following advantages to Lidl :
1) Deployment of full resources as the host country has very
favourable economy to welcome FDI by Lidl.
2) Full strategic and operational control in Estonia would allow
Lidl to expand itself by keeping pace with the market and
help in grabbing its chunk of market share.
3) Almost 50% of Estonia comprises of small towns and a FDI
will give opportunity to have green field investment. It would
allow Lidl to display its niche in simple, low cost and
efficiently resourced retailing.
4) For mainland like capital, acquisition can be resorted to which
will save the time and on the other hand would give
competitors less time to react.

APPENDIX
PESTEL ANALYSIS FOR ESTABLISHMENT AND OPERATIONS OF
LYDIL IN CANADA
Political
1. Canada has a long history of issues related to national unity. Since the
union of upper and lower Canada since mid-nineteenth century. Its broadly
between French speaking and English speaking regions. However country
is democratic and very stable politically.
2. Canada has seen dramatic boost in its economy after 1999 when it signed
US-Canada Free trade agreement followed by signing of 1999 North
America Free Trade agreement. Us is Canadas largest trade partner and
foreign trade investor.
Economy

1. Canada is a member of the Organization of the Economic Cooperation and

Development (OECD) and the G-8. Canada is amongst the top ten trading
nations in the world.
2. 75% of the countrys population is employed in service sector generating
70% of its GDP.
3. Canadas industry contributes 28% of its GDP.
4. From 1985 to 2006, Canada saw foreign investment on its soil rising from
rose $100-billion to $550-billion.
5. In a 2012 survey, the top challenges faced by retailers were increasing
costs of doing business (22%) and attracting new customers (17%).
6. To counter these challenges, half of the retailers resorted to wide product
offerings whereas almost 40% went to devise new marketing strategies.
7. Also contributing to the year-over-year increase were gains at electronics
and appliance stores (+4.9%). Margins have trended upwards since the
second quarter of 2015 in this subsector, reversing the downward trend
observed since 2008.
Social
1. Median total income of a Canadian family in provinces like Quebec and
Ontario is approximately USD 75000 annually.
2. Approximately 4.4 million Canadians live below the "poverty line," that
point below which people spend approximately 55% of pre-tax income on
food, clothing, and shelter. Canada has been criticized for making no
substantial development in raising the poverty level.
Technology
1. As per a recent survey, Canadians are online at an average of 44 hours
per month which is almost double of rest of the world average.
2. James Gosling of Canada invented the JAVA programming language.
Waterloo, Ontario-based Research in Motion developed the BlackBerry
smartphone. IBM Canada, is ranked among the top 10 biggest corporate
spenders on research and development.
Environment
1. The Government of Canada is taking action to help reduce the overall
levels of air pollution. Air pollution is subject to a number of regulations
developed and implemented under the Canadian Environmental Protection
Act (1999).
2. Despite the e conomic and industrial growth the environmental indicators
have shown improvement with each passing year since last two decades.

These reductions were achieved by implementing of regulations, actions

and technological improvements.
3.

Regulations specific to air pollutants under the Canadian Environmental

Protection Act, 1999 (CEPA 1999) include, but are not limited to, the
following:

a. Off-Road Compression-Ignition Engine Emission Regulations (amended

2012)
b. Off-Road Small Spark-Ignition Engine Emission Regulations (amended
2012)
c. On-Road Vehicle and Engine Emission Regulations (amended 2014)
d. Benzene in Gasoline Regulations (amended 2011)
e. Contaminated Fuel Regulations (1991)
f.

Gasoline and Gasoline Blend Dispensing Flow Rate Regulations (2000)

Legal
1. In Canada, like other developed countries its a violation of federal and
state law for any company, including retail businesses, to make false or
deceptive claims with advertising regarding products and services.
2. Each state of the country has consumer protection laws in place, with the
goal of preventing businesses from using misleading marketing campaigns
as a means to drive sales numbers.
3. Its illegal for companies to deceive consumers by misleading them
through false discount claims.

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