A price standards. Aldi is now classed as

A firm which intends to engage in FDI has to make decisions about which
forms of FDI should they take. The previous research on entry modes suggests
that an MNE entry mode choice has to be determined in terms of several factors.
These include firm, industry and country specific variables (Siripaisalpipat
and Hoshino 2000), for
example, Aldi has analysed the gap in the UK market and decided to compete with
other supermarkets with the strategy of lowering the price standards. Aldi is now classed as one of the cheapest supermarkets in UK, thus
known as UK’s fifth largest supermarket (Guardian 2017).   

 

In terms of the ownership advantage of
Aldi, the organisation has charged for plastic bags since
the 1990’s on their first branch opening in the
UK. The company donates all the money generated from carrier bags to the RSPB
for three years since July 2012 which raised £2 million for charity (Independent 2016). This gives Aldi a competitive advantage
as it builds the company’s brand representation through the use of being
socially and economically friendly. This fits into Dunning’s ownership specific advantages in which the firm has an
innovative process and method in terms of their attempt to raise money for
charity. This raises awareness for the charity and improves customer
relationship which can increase sales and profit. Furthermore, they encourage
people to use less plastic bags for environmental benefits. Aldi is different
to other supermarkets such as Tesco as they were the first to raise the amount
from 3p to 5p (Independent 2016) in order to encourage a more sustainable
environment.

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Organising ownership advantage with complimentary assets can be
explained in terms of the size and structure
of the firm, Aldi provides a different
experience to Tesco and Asda as it is bright, spacious and decorated with
small, dimly-lit shops with narrow aisles and sparse shelves (BBC 2014). Unlike
other mainstream supermarkets, Aldi offers a friendly and comfortable
environment for the shoppers as their organisational aim was to create
convenience through the small and compacted stores they build. This ownership
advantage is clear and evident through consumer analysis. Consumer preference
patterns show that shoppers prefer small stores as they are more consumer
friendly (Ker et al 1982). To support this, the small environment stores
attract middle class customers, thus the supermarket has altered their stock to
cater their shoppers such as increasing luxurious items including “cut-price
fresh lobster tails and serrano ham” (BBC 2014). The link between the attraction
of the supermarket, products and customer satisfaction is significant. The
chain sells a fraction of the items bigger supermarkets do, focusing on a
single own brand variant of any given product.

In addition to firm-specific
advantages, a firm which wishes to compete successfully in foreign markets
requires some degree of international management capabilities. As a firm
expands the operation overseas, a firm has learned more about how to cope with
the different environments in terms of the economic, political and legal
systems, as well as the cultural distances (Siripaisalpipat and Hoshino 2000). Aldi has been adapting well in the
international stage, majority of their stores abroad sell local products in
order to adapt into the host country market. To support this, Aldi has no
concern about Brexit in UK, and believe that it will not have any impacts on
the business as stating that the majority of their products are British
product, which mean they don’t import their products and instead working with
local suppliers where again it is one of their key selling point that they
offer lower price.

https://ac.els-cdn.com/S0922142599000250/1-s2.0-S0922142599000250-main.pdf?_tid=8e6e0f96-0032-11e8-bb8d-00000aab0f6b=1516707966_10c8044ef4a362686d2886a11a3d175a

 

Identify core competencies is important for the business. Aldi has
focused on pricing, in order to offer their customers with a competitive price.
This results the company in leading the price position. Aldi has focus to bring
in private brand product, by getting supply from local suppliers. The benefits
of this is that Aldi can negotiate directly with suppliers instead of hiring
agency.

 

A firm which lacks necessary resources and wishes to
engage in international expansion may need a cooperative relationship with
other firm in a specific host country. The partner need in an international
joint venture is the need for the contributions of the local partners in a
number of aspects such as capital, human resource market access, local
knowledge and bargaining power (Beamish, 1987). For example, Aldi has partnered with Alibaba
to enter their digital platform in china.  

 

 

Based on resource base view, Barney argued that sustained competitive advantage derives from the
resources and capabilities a firm’s control that are valuable, rare,
imperfectly imitable, and not substitutable. These resources and capabilities
can be viewed as bundles of tangible and intangible assets, including a firm’s
management skills, organizational processes and routines, and the information
and knowledge it controls. (https://www.researchgate.net/profile/Mike_Wright7/publication/228558289_The_Resource-Based_View_of_the_Firm/links/568a297008ae1975839d39fa.pdf). Aldi is working with local small
suppliers directly and it has aided Aldi to reduce their product price lower
for customers, as Aldi suggests “Supplier relationships are key to everything
we do” (Aldi 2018). This results other firms to find it difficult to compete
with Aldi in terms of pricing which gives Aldi the competitive advantage.
Furthermore, it is more sustainable as Aldi are using local suppliers rather
than importing from other countries, this is beneficial as it reduces costs and
it shortens transport commodities which lowers Co2 emissions. This therefore reduces
environmental impacts to the environment which gives Aldi a competitive
advantage that links to sustainability. Additionally, using local products can
develop relationship with local supplies, this benefits the local economy.  

 

“The firm’s domestic recombination capability, which may
have led to a dominant market share and superior expansion rate in the home
country market, as the firm engaged in product diversification or innovation,
and thereby increased its geographic market cover-age domestically, may not be
adept enough to confront the additional complexities of foreign markets.”
(Verbeke, 2013). In domestic, Aldi remain the key player of discounter retailer
in Germany, despite sale declined. However, Germany is still the main market
for Aldi, which has generated 39% of total company sales (Passport, 2017). The
company has planned to invest more in abroad, as international expansion has
been a success for the company in recent years. UK, US and Austrian has been
achieved rapid growth and generated more sale for Aldi. Aldi is adapting well
in foreign markets such as UK, US and Australia. Aldi has tried to approach
local consumers with label product instead of brand name, and encourage
consumers to purchase their products by working with local suppliers and low
costs. To expand further, Aldi is looking at the
Romanian market for future expansion (Rudolph et al 2012), this explains why Aldi is
entering other markets globally as they are engaging in product
diversification. However, entering a new market can be a risk to the Aldi and
take away resources that could be used to make strategic investments. A
frequently unforeseen consequence of global expansion is
that healthy markets,
especially the home market,
are put at risk by this diversion of resources (Aaker et al 2010).

 

2.3 Location Advantage:

 

Dunning’s
eclectic Paradigm: For firm to engage in FDI three conditions must exist

 

Aldi began to
expand to the UK in 1990 and now they have more than 500 stores located within
UK (Telegraph 2013). This explains the reason why European companies locate
their businesses in the UK, as organisations do not need to pay duties for
import or export of goods and products within the European Union, thus
companies based in the UK have the potential to reach 500 million consumers
across Europe (GOV). This provides location specific advantages of entering the
UK for business start-up due to convenience and the demand of food retailers in
UK that are cheap and fit with the consumer preferences. This further explains
why Aldi sell relatively cheaper products than their competitors do in order to
achieve competitive advantage. Aldi is labelled as one of the cheapest
supermarkets in the UK and they have the title of UK’s fifth largest
supermarket (Guardian 2017). According to Dunning’s eclectic theory that
“foreign countries have location advantage that make it more efficient to
locate production there as to opposed at home” (Devinney 2013: 14). Location
specific advantages are significant in terms of decision making on production
of a product, for example, the lack of resources can lead Aldi unable to
sell products fit for the location and the local consumers, which could cause a
decline in sales and profit. Complex
products are not ideal for businesses entering the UK; however, outsourcing due
to lack of resources can form the base for a long-term secure business (Dolcemascolo
2006). Furthermore, Devinney supports
the issue with the lack of recourse in a location and suggests that the
location advantages are wide and complex. These advantages include resource, production factors, tax,
regulations and gaps in the market within the specified location (Devinney
2013). Aldi has achieved both competitive and comparative advantage by locating
their branches in locations with recourses, which are capable to help Aldi
perform as a supermarket.

 

Secondly, the
choice of products are important in link to the location as UK supermarkets
lack luxury food products for example, Wagyu beef that is known as a delicacy
in international countries. Through analysis, Aldi has chosen to target middle
class consumers through the marketing gimmick of luxury products for an affordable
price. This gives them ownership advantage, as they are different; supermarkets
such as Marks and Spencer’s offer luxurious products for a high price, which
gives Aldi the advantage in terms of their competitors. Aldi takes
opportunities and threats, acts upon them in order to succeed, stocking lobster
tails and Wagyu beef, which created an uproar for shoppers (BBC 2014). The fact
that UK supermarkets do not import many international goods and products sets
the opportunity for Aldi to counter.

 

Investment
development is a factor to consider with Dunning’s theory as it assumes that foreign
companies change with the level of country development, which therefore affects
the flow of inward and outward Foreign Direct Investment (FDI). Inward flows correlate with the improvements of the country’s
location advantages; outward flows interact with the development of domestic
firm ownership advantages (Kaliszuk and Wancio 2014). The development of the economy and
competitiveness of the home country leads local firms to develop ownership
advantages, which allows them to expand internationally. In which for Aldi,
they have achieved this and invested in UK due to the strong economy analysis.
UK is a popular destination for FDI in Europe; attracting the highest number of
FDI projects (total of 1,988 projects), thus receiving the most value of FDI
net inflows within Europe in 2014 (GOV). Economic development and modernization
can increase the attraction of
capital investment and technical cooperation, to increase trade with foreign
countries (Kan 1998).

This shows that UK benefit from foreign
investment and that foreign investment has great potential to support the
government aims. Aldi analyzed the strength of UK as a location for business
expansion and investment.

 

2.4 Internationalisation:

 

The last part of dunning’s framework is internalisation that is known
as the most important key part. International advantages influence how a firm
chooses to operate in a foreign country, trading off the saving in
transactions, hold-up and monitoring costs of a wholly-owned subsidiary,
against the advantages of other entry modes such as exports, licensing, or
joint venture. (http://users.ox.ac.uk/~econ0211/papers/pdf/fdiprinceton.pdf)

 

Aldi’s focus is working directly with small suppliers instead of going
through agents or third-party companies. This allows them to cut down their
outgoing costs and extend the benefits to their customers. Aldi has chosen to invest
abroad because the company believes there is a potential market and an
opportunity for growth. Aldi has determined FDI due to the model of their peak
at their home country and applied this in monitoring the search for a good
location when choosing to expand internationally. Aldi invested into the UK
market based on the free trade within Europe which cuts down import taxes and
preserves the UK economy. 

 

Aldi choose greenfield investment for their new market entry strategy,
as the company has the ability to keep business costs down. A greenfield investment is the initial establishment of a fully owned
substantial operations undertaken by the company (Shenkar, Luo 2008). https://books.google.co.uk/books?id=ppXWE0rUVWEC=PA303=greenfield+investment%5C=en=X=0ahUKEwju8sHK6fvYAhVqDMAKHQlTAeYQ6AEILzAB#v=onepage=greenfield%20investment%5C=false

 

Following this concept, Aldi has been extremely successful in their
foreign market so far as there are few retailers who use the same business
strategy as Aldi. Their success in the UK market is evident as Aldi has become
a threat to the 4 biggest supermarkets in UK, as reports have shown that their
has been a decline in sales. By choosing greenfield as their main market entry
due to low transportation costs, Aldi has risen to become a key player in the
UK market.

 

Barlett and Ghoshal’s idea that large MNEs are making a mistake when
they adopt the two simplifying strategies of homogenization (treating all their
subsidiaries the same) and centralisation which means making all their
strategic decision at central headquarter (Verbeke, 2013). It is essential for
the organisation to make the right decision in FDI as firms tend to make a
mistake.

 

“The decentralized multi-centre MNE, recognising that each host country
operation needs to build upon its own distinct location-bound FSAs, transfers
only core routines; in the area of financial management and administrative best
practices to each host country” (Verbeke, 2013: 21). Aldi is recognised as a
decentralised organisation and this has benefited Aldi immensely. Since Aldi is
divided between two owners, this means that ideas are shared between both
companies. This structure played a key role in the success of their venture
into foreign markets, since Aldi is a small sized corporation, decentralisation
allows the local managers to take part in decision making thus they are able to
obtain more ideas. In the UK, a majority of Aldi’s products are British which
accumulates for around 70 percent of their total sales. Despite Brexit’s
concerns, the company is still extremely confident about its growth in the
upcoming years. In addition, sources state that one of their key advantages is
pricing, creating a price gap as high as 30 percent in comparison to their
competitors. 

 

 (http://www.thisismoney.co.uk/money/article-4281918/INTERVIEW-Aldi-boss-insists-77-UK-products.html
).  

 

Based on a classification of subsidiary roles in the MNE & B&G,
Aldi is recognised as a strategic leader. The company has identified the needs
of discount retail in the UK, therefore has used low costs products to enter
and sustain their hold in the market.

 

 

 

3.1 Ethics:

 

The ethical dimensions of Aldi’s strategy in expansion to UK includes both
internal and external factors. In terms of external, the company focuses on
building cooperation and transparency with suppliers as well as ensuring they
comply with the ethical standards, with the Aldi Social Assessments (Aldi
2018). This provides an accurate analysis of the issues affecting the
production facility and counteracts audit fraud issues. However, issues may
arise in terms of the supply chain standards unable to meet Aldi’s social
standards in production. For example, “millions
of pounds had been stripped out of the fresh produce sector through poor supply
chain practices” (Guardian 2015). This shows evident of ethical issues within
the supply chain, which could cause environmental issues. Aldi’s strategy of
selling products at a lower price has made Aldi UK’s fifth
largest supermarket (Guardian 2017). However, in terms of my recommendations,
Aldi must consider the factors within the supply chain that could cause a
downfall of their reputation. This is why Aldi concentrates
on environmental
sustainability including the store design and transportation of goods. Aldi has
up to 60 stores in Queensland and each has an EcoBiz certification, which
ensures the minimization of waste and emissions (Aldi 2018). This further links
to the environmental issues caused by expanding to the UK.

In terms of the
products, Aldi stocks own-brand food and beverages leading to excessive control
within what the products contain. This creates social and environmental
benefits for the society and forms a standard of health policy. Furthermore,
Aldi’s products are low in price, this however can cause negative impacts as it
can cause other companies to decrease their prices in order for competition,
which may involve decreasing costs and production within the supply chain. This
means that Aldi’s business strategy could affect the UK supermarkets and public
life.

The Internal aspects
of the ethical dimensions cover employee welfare and working conditions. Aldi
employees suffered from a decrease of wages due to the weakening of pounds from Brexit. It lead
to the increase of import costs (Guardian 2017). This shows the negative
impacts caused from Aldi’s strategy to implement in the UK, thus causing a bad
reputation for Supermarkets within the UK. However, reducing employee wages is
a standard procedure in terms of business strategies as Friedman suggests that
the only responsibility of a business is to maximise profit (Friedman 1970).

4.1 Conclusion

To conclude, Aldi has
been very successful in terms of FDI. A rapid growth of Aldi’s market share is
evident in UK, which shows that Aldi is a leading retailer. Aldi used their low
cost advantage over the competitors to achieve competitive advantage through
their firm specific advantage of low price and luxurious private label products.
Furthermore, Aldi uses local suppliers which is why the costs are low and
sufficient, thus benefits the company as it increased middle class consumers as
mentioned in section 2.3 regarding the location advantage. Finally, the
internalization of Aldi shows that they have foreseen the market gap in UK and
explored the opportunity defined for their strategy to succeed as indicated.
Aldi has achieved the three dimensions in terms of their business strategy with
evidence of their success in the UK market.