PESTEL Analysis of Mexico and Norway

Introduction

A comparative analysis of the macro-environmental factors that influence business activity was done to have a clear overview of the Mexican and Norwegian business environments. Business environments differ in different locations, and how the markets are receptive to international businesses Morrison (2009: 243). The PESTLE analysis reveals how political, economic, social, technological, legal and environmental factors influence businesses in different countries. The PESTLE analysis brings to the fore the different factors beyond the company's influence. According to Morrison (2009: 244) paying attention to political, economic, social, technological, legislative and ethical environment aspects can help the managers in their decision making and a company to come up with competitive strategy.

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Political Environment

Mexico is a Federal republic governed at three different levels i.e. the federal union, the state government and the municipal government. Mexico is also a multi-party state. Mexico experiences many social challenges but the political situation is stable. One of the major challenges facing the political class is curtailing poverty and corruption. Drug conflicts remain the biggest threat to both political and social stability (Kesseli, 2017). However, the government's reform agenda in Telecommunications, Economic competition, Financial, Tax, Labor, Education, National Criminal Procedure Code, Appeal Law, Political-Electoral, and Transparency is expected to create a more dynamic environment for competition, improve the country's economy, create more jobs job opportunities, and to take on corruption and violence (Kesseli, 2017).

Economic Environment

Mexico and Norway have many similarities as well as many differences. However, Mexico is preferred over Norway in terms of investment in the supermarket chain. According to the International Monetary Fund World Economic Outlook (2017), Mexico is the world's 15th largest economy and is predicted to be 5th largest by the year 2050. It is the second largest economy behind Brazil in Latin America, and the economy continues to grow at an annual rate of 2.4%. According to Kesseli (2017), Mexico has a good geographical location because it is located between the USA and South America, which lowers its cost of trade. Furthermore, Mexico has a wide free trade network including the North American Free Trade Agreement (NAFTA), the European Union, and Japan. Compared with Norway, Mexico's labour force educated but less expensive has a huge population of 112 million inhabitants and plenty of natural resources (Kesseli, 2017). As per the World Bank Report, the economic situation in Mexico is stable with a low inflation rate. In Mexico due to the increase of the income taxes, the public sector revenue has had a strong performance.

Social-Cultural Environment

Social change can influence the demographic patterns, habits, and preferences of a people (Gupta, 2013: 35). The social-cultural aspect has an effect on the demand and supply. For example, demographic factors influence business operations. As compared with Norway, the population of Mexico is huge (more than 20 times bigger than Norway). Mexico has approximately 122 people in comparison to 5 million Norwegian inhabitants. Mexico City alone has almost 21 million people living there, which is 4 times the entire population of Norway. According to the World Factbook (2016), approximately 80% Mexicans live in urban areas which make accessibility to most inhabitants easier. With a youthful population whose median age is 27 years, the potential growth is enormous in Mexico.

Technological Environment

Mexico has recently embarked on reform agenda to improve the telecommunication system. This is in cognizance of the fact that a good telecommunication system has an influential effect on the country's economic and social development (Gobierno de La Republica, 2016). Part of the economic development is to have good and modern communication infrastructure. Until recently, telecommunications and broadcasting were concentrated in certain regions such as the State of Jalisco, and specifically, Guadalaraja City (often compared to Silicon Valley). The structural changes are expected to increase competition in technology and open up the rest of the country to technological advancement (Gobierno de La Republica, 2016). Due to government subsidies and affordable talent, Mexico has good possibilities for investments that are reliant on technology.

Legal Environment

Mexico's greatest legal challenges include complex customs for the service sector, lack of transparency in customs, and inefficient government bureaucracy that if considered the third biggest problem in Mexico. The bureaucratic red tape is deterrent to foreign businesses which require better legislation that can support foreign investments (Morrison, 2009: 244). The complex and less transparent customs in Mexico are likely to affect the company's operations in the country. However, Mexico's legal system has its antecedents in Civil Law which is a system of law widely practised in the world. The company may require employing the services of a Mexican attorney for legal interpretation.

Ethical Environment

The increasing pressure for big companies to act more socially responsibly has made ethical environment scanning important for potential investors in foreign countries. Mexico has ratified 78 International Labor Organization conventions and 7 of the 8 fundamental labor rights conventions. This in addition to the local laws, the company must observe these laws.

Five Forces Strategy Analysis of the Supermarket Chain Industry in Mexico

Michael Porter (2008) proposed a tool for analyzing a business's competitiveness in any industry. Porter's five forces of competitive advantage is a useful tool in determining the competitiveness of a company as well as the attractiveness of a sector or industry. In Mexico, discount supermarket chains continue to provide exporters worldwide with access to the Mexican markets. According to United States Department of Agriculture (2017), the retail environment in that country is increasingly competitive signaling demand due to fierce competition, fast expansion plans, increased consumer demands, and the need for new value-added services offering an interactive and unique shopping experience. Existing supermarket chains are developing increasingly sophisticated distribution systems.

Threats of Entry

The retail market in Mexico is the second largest in Latin America after the Brazilian retail industry. This attractiveness increases the threat of new entrants into the Mexican Discount Retail Industry, particularly from the huge scale and low prices supermarket giants. However, entry is tricky for smaller companies who do not have the capability to compete with large companies. It has been argued that many small discount retailers are compelled to exit because they do not have the capacity to reinvent their stores in keeping with the way the retailers shop. As the new entrant, however, LIDL itself will face stiff competition from large and established retailers already existing in Mexico. According to USDA, the large discount retailers operating in Mexico are also some of the largest in the world. DHIL will have to face off this competition in its establishment in Mexico.

Intensity of Rivalry

As suggested in the foregoing section, LIDL will face stiff competition from large and established retailers already existing in Mexico. This competition will originate mainly from U.S retailers who have established their operations in Mexico. Beside Walmart Mexico y Centroamerica (albeit its recent image crisis in Mexico), other U.S. retail chains include Baskin-Robbins, Burger King, Cold Stone Creamery, Costco, Victoria's Secret, Starbucks, McDonald's, as well as local chains such as Casa Ley and Controladora Comercial Mexicana. However, due to the size of the market, LIDL is likely to have a successful entry into the Mexican market.

Threat of Substitutes

The threat of substitute commodities in the Discount Retail Industry is high because the retailers keep basically the same kind of products at very comparable prices. As there are already existing discount retailers in Mexico consumers are not compelled to purchase from a single discounter. In other words, unless the customer has a specific preference for a particular chain, more often than not, the store will receive customers as long as it is conveniently located for the customer. Secondly, the intense industry rivalry means that the competitors will always advertise to the clients about their price offers so that they know where to find the cheapest deals. This will provide LIDL with an opportunity for price matching for customers within the surrounding area. This strategy lessens the chance of losing the customer due to discounts offered elsewhere.

Bargaining Power of Buyers

A plethora of discount supermarket chains in Mexico implies that the freedom of choice for consumers is very high. Additionally, the switching costs are very low for the discount retail industry customers because of the rapid spread of discount outlet malls, which further increase their bargaining power. Reports show that consumers nowadays have less time, money, and patience for the whole shopping experience. For example, it is argued that the increased responsibilities of women in their occupations in addition to undertaking family chores have dramatically reduced mall visits. Increased inclusion of women in economic development is responsible for the reduced mall visits as this means they no longer have the luxury of time. Besides being economical, the customers are increasingly stressed out and may most likely be intolerant to the imperfections of the store. The low switching costs have led to consumers buying only from retailers who can offer exactly what they want at a fair cost.

Bargaining Power of Buyers

There has been an emerging trend where discount retailers produce many of their consumable items ranging from dog food, crackers, over-the-counter drugs to health and beauty aids. In this regard, there are very few items in the market that the discount retailers cannot make and they will always get the products from another supplier of comparable quality if they encounter a problem with their primary suppliers. Some discount retail companies carry their own exclusive label for household products such as tissue paper, water, aluminum foil, cleaners, and health and beauty items just to mention but a few. Nevertheless, the bargaining power of suppliers can be substantial for specialty products. Specialty items experiencing a certain wave among consumers may not be substituted easily, hence, reliance on their suppliers. Regardless, neither discount retailers are never at the mercy of their suppliers. In other words, the bargaining power of suppliers is low in the case of insufficient substitutes.

Lidl Value Chain Analysis

This is related to the association of key value-adding activities with the support activities. This framework is a strategic assessment tool firms used to individualize strengths and weaknesses in value-adding processes.

Inbound Logistics

Lidl's lean inbound logistics function demonstrates the discount retailer's overall cost leadership strategic management. Lidl uses economies of scale as well as the leadership position in many European and American markets as bargaining powers to procure goods from suppliers at low cost. Lidl buys large quantities of materials to produce its product brands to save and reduce cost thereby creating competitive advantage. In addition, the discounter is always updating the vendor lists as well as upgrading the ordering system and processes in order to enhance...