MK415

International Business M

3/23/2023

Student Name: Dinko Kolev

Student №: 201903227

Class Coordinator: Dr Eleni Tsougkou

Word Count: 3600 words

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Executive Summary:
This report addresses the potential internationalisation strategy of the discounting retailer, Aldi.
Initially the report provides an overview of the company, its historic background, internal
processes, values and current markets. Furthermore, the report thoroughly discusses the
marketing mix of Aldi. Subsequently, the report touches upon the three spheres of national
institutional framework: the political system, the economic system and the legal system.

With intent of showcasing Aldi’s available resources, the report undergoes a resource-based
view of the company. Additionally, Aldi’s capabilities are being discussed with implications to
the chosen foreign markets. Furthermore, in order to address particular questions regarding
Aldi’s available resources, the VRIO framework would be implemented.

An emphasis is being put on particular cultural dimensions by considering Hofstede’s cultural

dimensions. Particular emphasis is being put on how designated cultural dimensions would affect
Aldi’s potential entry.

The potential international market entries will then be discussed with Bulgaria and Romania
being considered as suitable future market prospects for Aldi’s aspirations for
internationalisation.

Potential market entry mode strategies would then be discussed by emphasising on particular
advantages and risks of adopting designated entry mode strategies.

Finally, the report is concluded by showcasing which particular foreign market would be more
appropriate for Aldi to enter and which entry mode strategy would be more suitable for the
chosen country.
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Contents
1. Company background.........................................................................3
2. Marketing mix – 4Ps...........................................................................4
2.1. Product...........................................................................................4
2.2. Price...............................................................................................4
2.3. Place...............................................................................................5
2.4. Promotion......................................................................................5
3. National Institutional Framework.......................................................6
3.1. Political systems............................................................................6
3.2. Economic systems..........................................................................7
3.3. Legal systems.................................................................................7
4. Resource-based view and capabilities.................................................8
4.1. Capabilities....................................................................................8
4.2. VRIO Framework..........................................................................9
5. Hofstede’s cultural dimensions.........................................................10
6. Potential international markets..........................................................11
7. Market entry mode strategies............................................................12
8. Conclusion and recommendations....................................................12
8.1. International market entry............................................................12
8.2. Entry mode strategy.....................................................................13
References:..............................................................................................15
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1. Company background
Discounting retailers such as Aldi have gained immense popularity within European countries
the U.S and Australia (Schmid et al., 2018). Aldi has climbed up the ladder of leading retailers
by challenging competitors with clever discounting strategies and quality product offerings
across borders (Lebensmittel Zeitung, 2015). Aldi has been established as a result of the
economic shortfall after the second world war with intend to provide consumer with basic goods
for reasonable prices (Lucian, 2010)

Aldi is situated in nine European countries offering affordability and reliability to consumers.
The company is highly committed to sustainability practices and strategies that prove Aldi’s
ethicality and organisational efficiency. Furthermore, company’s core values in all international
locations are revolving around simplicity, consistency and responsibility towards consumers.

Aldi as a retail store has been found in Germany in 1913 and with an expansion program, the
store had created fifty retail stores around Germany with prospects of internationalising into
other European countries. Interestingly, Aldi has revolutinised the retailing industry by
introducing self-servicing methods which later on have been adopted by other retailers (Aldi
Corporate, 2023). German discounting retailers have spread around European countries and have
taken major share of the retailing business in distinctive markets. Aldi’s discounting strategy is
established on the idea of achieving high sales volume from distinctive range of low to medium
quality products. Although the concept of providing low to medium quality products does not
correspond with the German ideal for delivering quality services, discounting retailers are
changing the status quo by thriving on international markets. By complying with the idea that
low to medium quality products appeal to a wide range of consumers on international markets,
Aldi has achieved international success and is broadening its prospects to enter future developing
markets (Wortmann, 2004).
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2. Marketing mix – 4Ps

2.1. Product
When determining Aldi success on foreign markets the variety of low to medium quality
products offered for relatively lower price than competitors’ prices, has been stated as a primary
factor determining the success of the retailer (Wortmann, 2004). Interestingly, the German model
for quality production has shifted with the rapid growth of FDIs towards emerging markets
which are not renowned for their quality centered production. In that essence, German
companies have redefined their strategies and internationalisation approach by developing cost
reduction strategies that correspond with existing competitors on international emerging markets
and complying with the idea to produce goods at the place where you sell those products
(Herrigel, 2015). German discounting retailers have utilised the concept to the point where over
fifty percent of revenue comes from foreign market sales (Schmid et al., 2018). Furthermore,
maintaining branded products on Aldi’s shelves is not an indigenous process that the retailer is
utilising. For instance, Aldi is stocking identical in appearance and quality products as
replacements of renowned branded items (Emsell, 2011; Hanson et al., 2016).
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2.2. Price
Aldi as a discounting retailer is striving to achieve the lowest feasible prices while providing the
highest possible quality. Maintaining discounted prices for different items is a strategy that has
contributed for the rapid development and growth of retailers such as Aldi (Stanciu et al., 2019).
By remaining consistent with their low prices and low-to-medium quality products, Aldi has
influenced competitors’ strategies and promotions. Furthermore, Aldi as a discounting retailer
has adopted the concept of developing the product price offering in accordance with the product
provided on shelves. Throughout the years, Aldi has stuck with their principle of providing
limited line of fast-moving essential products which are not necessarily representing high-end
brands. Furthermore, Aldi has simplified the restocking and presentation of products in stores, by
advising employees to keep the items in their boxes. These internal processes combined with the
low-sales margins has resulted in Aldi supplying these products at discounted prices, which is
resulting in higher customer satisfaction (Wortmann, 2004). Additionally, in order to maintain
lower prices, Aldi does not accept credit cards on tills with the intent of not being charged by
credit card providers for every transaction (Emsell, 2011).

2.3. Place
Discounting retailers such as Aldi are strategically placing their stores in suburban areas in cities.
Moreover, locating stores in low-income suburban areas allows discounting retailers to reduce
costs related with a specific location. Interestingly, rental fees in remote city areas are relatively
lower than locations that other competitors are utilising (Schmid et al., 2018).

The company identifies competitors’ locations in the designated area and applies systems to
further evaluate areas which are suitable future store locations. Aldi’s management makes use of
geographic information system and considers factors determining stores’ locations. Furthermore,
the discounting retailer allegedly chooses areas compliant with company’s standards and
characteristics. Interestingly, the strategy that Aldi has utilised on the UK market, considers the
affluency of designated zones within a chosen city. Moreover, the company considers other
variables such as the average distance potential consumer will be willing to travel until reaching
the store (Benoit and Clarke, 1997; Dolega, Pavlis and Singleton, 2016).
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2.4. Promotion
As part of the overall company strategy, Aldi is capable of maintaining the lowest possible prices
by reducing costs by excluding various variables and methods of promotion that other stores
utilise as tools for attracting future consumer. Aldi as a discounting store has endured in all its
international location by adhering to its core standards and values. Interestingly, the concept of
discounting and mass customer processing through Aldi’s stores has been the primary
advertising model used by the company since the early 60s (Schmid et al., 2018).

Interestingly, commonly utilised practice in designated discounting retailers internationally, is

the promotion of locally distributed products has increased in popularity and has been utilised as
a practice in designated discounting retailers internationally. The strategy has found success in
areas with vibrant local product development such as Eastern Europe (Stanciu et al., 2019). For
instance, an intriguing tendency could be observed in the consumption preferences of Romanian
consumers. Customers tend to prefer locally developed products due to an impression that these
products are fresher and tastier (Ardelean, 2014). In addition, discounting retailers have
gradually developed close relationship with local farmers with the intention of enlarging the
product offering and complying with consumers’ preferences (Stanciu et al., 2019).

3. National Institutional Framework

When considering current strategies that Aldi is utilising on its international locations,
designated areas of the macro environment have to be addressed. Furthermore, the factors
determining the future market entries for Aldi would be observed in the context of the countries
considered as prospects for future development.

3.1.Political systems
The political system in a country could determine whether a business succeeds on a market or
undergoes a number of obstacles when aspiring to develop on the foreign market. Furthermore,
the political environment in a country governs the way a business would operate and how the
entity would interact with governmental bodies within the chosen market (Peng and Meyer,
2019).
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Both Bulgaria and Romania as potential market entries for Aldi hold similar opportunities and
challenges. Bulgaria is a democratic country with unitary parliamentary government (Bradford
Jacobs, 2023a). As a primary political risk that firms could encounter when entering the
Bulgarian market, is the uncertainty when it comes to electing a ruling governmental body. The
political hesitancy that could be encountered for approximately two years has resulted in five
consecutive parliamentary elections in such short time span (Euronews, 2022a; Nikolov, 2022).

Romania’s political system is democratic, and country’s governmental system is considered to be

parliamentary republic which is considered to be semi-presidential (Bradford Jacobs, 2023b). In
the unpredictable times surrounding Eastern-European leaders, Romanian ministers have
reportedly resigned due to public pressure and allegations (Euronews, 2022b).

Both countries are considered to be experiencing corruption issues within major governmental
institutions which could be viewed as the primary concern for future direct investments in the
country (Transperancy International, 2020; Bradford Jacobs, 2023a; Bradford Jacobs, 2023b).

By understanding the political factors in Romania and Bulgaria, Aldi can develop strategies to
mitigate risks and capitalize on opportunities, ensuring a successful market entry.

3.2.Economic systems
Primary European markets for Aldi are Germany, Austria, France and Italy, which are
coordinated market economies (Aldi, 2020). CME could be characterised with the developed
mechanisms by which designated economic entities functionally operate within the country
(Peng and Meyer, 2019).

Bulgaria as a potential market for Aldi could be opportunistic from an economic perspective.
Bulgaria is an open market economy. Even through reformation times and crises, the country has
marked economic growth of 4.4 and 4.5 percent in 2021 and 2022, which is a signal for future
development. Interestingly, differentiation between the certain classes within society is evident.
Although the average wage has increased substantially throughout the years, so has the inflation
rate reaching over 17 percent in 2022 (World Bank, 2023).

Romania is considered to be an open mixed market economy which implies that the country has
a freely functioning private sector combined with centralised governmentally regulated bodies
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(Global Edge, 2011). Similarly to Bulgaria, even though the country has reached over fifteen
percent inflation rate in the first quarter of 2022, the country has marked economic growth of 5.5
percent in the last quarter of 2022 (World Bank, 2022).

3.3.Legal systems
The legal systems has to be considered before entering a foreign market. The legal system of a
country consists of its rules and regulations and governmental bodies that are processing and
applying these regulations (Peng and Meyer, 2019).

Major issue within both Bulgarian and Romanian markets would be that legal instances in the
countries are vastly time-consuming. Furthermore, the judicial system in both countries is
considered to be insufficient and non-efficient. (Global Edge, 2011; Global Edge, 2023).

Bulgaria has a mixed legal system and in order to attract foreign direct investments into the
country, the country has developed designated legislation which provides foreign companies
with tax incentive schemes and other various benefits.

Romania has adopted a civil law system that has been primarily influences by the French model.
The country’s legal system has developed various legislations that serve in the power of foreign
investments into Romania. For instance, there is an official law that serves to protect foreign
investors’ property in the country and allow them not only to own properties in Romania but
develop business operations within the country with freely moving capital (European Justice,
2023).

Interestingly, both Romania and Bulgaria have previously signed two-sided treaties with
countries such as Germany, which could serve as an additional protection and reassurance for
any future investments that Aldi could opt into (Invest Bulgaria Agency, 2023).

4. Resource-based view and capabilities

The resource-based view of a firm considers all resources available to a company that could
allow the firm to gain competitive advantage in a designated market. For instance, it is
mandatory to distinguish between primary resources available to a firm and company’s
capabilities to utillise those resources in order to achieve aims and objectives. (Peng and Meyer,
2019).
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4.1.Capabilities
Operations and logistics: Aldi is renowned for reducing cost from various instances and
operation within the organization. Supply chain optimisation serves as a primary differentiating
factor between Aldi and other retailers. Aldi has purposely developed supply chains with
manufacturers with the intentions of sourcing products directly from manufacturer’s warehouses
to the stores. These practices have ensured product cost reduction and high-quality product
standards (Schmid et al., 2018; Stanciu et al., 2019).

Marketing and Branding: Aldi as other discounting retailers has created an image for
supplying high-quality but at the same time, discounted private label branded products. The
private label products of Aldi have proven to replicate other branded products effectively while
providing the highest possible quality for the lowest feasible price (Hanson et al., 2016).

Corporate culture: Aldi is renowned for maintaining strong corporate culture primarily based
on process optimisation and cost reduction strategies which directly reflect on the supply chain
management operations. Optimisation of internal processes has shaped an identity for Aldi’s
employees to comply with company’s values and standards which is a primary reason for
company’s continuous growth in the retail industry (Schmid et al., 2018).

4.2.VRIO Framework
In order to access Aldi’s resources accordingly, the VRIO framework would focus on certain
aspects of the firm. The framework is based on exploring company’s value creation processes,
the rarity of company’s operations, imitability of the product offering and organization of the
firm (Barney, 2014).

Value: Aldi's resources provide value to the company's business model, which is based on
offering high-quality products at low prices. The company has a unique supply chain system that
allows it to source products directly from manufacturers, reducing costs and ensuring high-
quality standards (Aldi US, 2023). Aldi heavily invests in technology optimisation with intent of
further developing its operations, from supply chain management to in-store processes, which
results in further product cost reduction (Pereira, 2022).
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Rarity: Aldi's resources are rare in the sense that its business model is not easily replicated by
competitors. Its supply chain system is unique and difficult to replicate, requiring significant
investment and expertise. Additionally, the company's private label brands are exclusive to Aldi
stores, making them rare in the market (Pereira, 2022). Furthermore, privately labeled products
are highly valued by consumers since these products are strictly exclusive to Aldi stores.
Providing customers with high-quality, store-labeled products at a discounted price,
differentiates Aldi from competitors and allows the company to compete with local retailers even
on foreign markets (Aylward, 2019).

Imitability: Aldi's resources could hardly be replicated. The company's supply chain system
requires significant investment in logistics and technology, which may be difficult for
competitors to replicate (Pereira, 2022). Additionally, the company's private label brands are
developed in-house, making them difficult for competitors to copy (Aylward, 2019).

Organization: Aldi's resources are well-organized and integrated into the company's operations.
The company has a strong corporate culture focused on efficiency and cost-cutting, which is
reflected in its operations and supply chain management (Wortmann, 2004). Additionally, the
company has a highly centralized decision-making process, allowing for quick and efficient
decision-making (Garrett, 2019).

Aldi's resources provide significant value to the company's business model and are complicated
for competitors to replicate. The company's unique supply chain system and private label brands
are key strengths that allow it to offer high-quality products at low prices.

Furthermore,

5. Hofstede’s cultural dimensions

Hofstede's cultural dimensions theory is a framework used to understand how different cultures
differ in their values, beliefs, and behaviors. There are six cultural dimensions in this theory:
Power Distance, Individualism vs. Collectivism, Masculinity vs. Femininity, Uncertainty
Avoidance, Long-term vs. Short-term Orientation, and Indulgence vs. Restraint (Hofstede
Insights, 2022).
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Designated cultural dimensions are considered to be more suitable in the context of the retail
industry.

Individualism vs. Collectivism: Both Bulgaria and Romania are considered collectivist cultures,
which implies that retailers should consider the importance of group and family’s well-being in
consumer decision-making. Retailers should build relationships with their customers, particularly
through word-of-mouth marketing, as recommendations from family and friends carry
significant weight. In collectivist culture must approach any potential conflicts or customer
complaints with sensitivity to avoid damaging the reputation of the individual or group (Hofstede
Insights, 2023).

Uncertainty Avoidance: Bulgaria and Romania both score relatively high on the Uncertainty
Avoidance dimension. Therefore, retailers should recognize that customers may be hesitant to try
new products, particularly those that are not familiar to them. Retailers should consider offering
guarantees or warranties to help alleviate customers' fears and provide reassurance. It is also
important to establish a strong sense of trust with customers by providing consistent quality,
reliability, and transparency (Mind Tools Content Team, 2022).

Indulgence vs. Restraint: Bulgaria and Romania score relatively high on the Restraint dimension,
which means retailers should recognize that customers may be more reserved in their spending
habits, particularly on non-essential items. Retailers must appeal to customers' desire for
moderation, emphasizing the practicality and functionality of their products rather than luxury or
extravagance. Retailers should also focus on providing value for money, as customers in these
cultures may be more inclined to save and budget. Aldi as a retailer providing the highest value
for money with its unique product offering would be ideal for both the Bulgarian and the
Romanian markets.

In summary, retailers in Bulgaria and Romania must prioritize building relationships with
customers, provide reassurance and transparency, and appeal to customers' practicality and desire
for moderation. Understanding the cultural dimensions of these countries can help retailers tailor
their marketing strategies and product offerings to better meet the needs and expectations of
customers.
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6. Potential international markets

Interestingly, German production has found tremendous success on emerging markets. For
instance, growth opportunities have been utilised in Brazil, India and certain Eastern European
countries. Romania and Bulgaria could serve as potential international markets to enter with
endless opportunities for growth and grocery shopping consumers willing to experience western
brands’ standards. Furthermore, with Aldi already establishing grounds in China and
experiencing immense growth in the past couple of years, unexplored emerging markets in
Eastern Europe could become an opportunity for future direct investments in the form of
greenfield investments (Schmid et al., 2018). Furthermore, Romanian and Bulgarian markets
combined are favourable markets for discounting retailers. Lidl as a competing discounting
retailer has recently entered both markets and by 2016 has been ranked third amongst
competitors on the Romanian market that have established grounds on the market for more than
a decade. In 2019 Lidl has already opened more than 244 stores in Romania (Stanciu et al.,
2019).

7. Market entry mode strategies

Aldi, as already well-established discounting retailer on various international markets, may
consider several entry modes to enter the Bulgarian and Romanian markets.

Greenfield Investment: Aldi could choose to establish its own operations in Bulgaria and
Romania, by building its own stores, distribution centers, and hiring local staff. This option
provides Aldi with complete control over its operations and allows it to tailor its operations to
local market conditions (Schmid et al., 2018). However, it is also the most expensive and risky
option, as Aldi will have to navigate regulatory hurdles, build its brand from scratch, and face
strong competition from established local players such as Lidl, who is already well established
on both markets.

Joint Ventures: Aldi could also consider forming a joint venture with a local partner in Bulgaria
and Romania. This would allow Aldi to benefit from its partner's local knowledge, distribution
network, and established relationships with suppliers and customers. It would also reduce Aldi's
risk and capital expenditure. However, it may also present challenges such as managing cultural
differences and aligning goals with the local partner (Hargrave, 2022).
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Franchising: Another option for Aldi is to enter the Bulgarian and Romanian markets through
franchising. This would allow Aldi to leverage local entrepreneurs' expertise and knowledge of
the local market while retaining some control over the brand and operations. Franchising also
allows for a faster entry into the market with lower costs compared to other entry modes.
However, Aldi will need to carefully select and train its franchisees to maintain consistency in
brand and customer experience (Hayes, 2021).

8. Conclusion and recommendations

8.1.International market entry
To determine which market is more suitable for Aldi to enter, we need to consider various
factors such as market size, growth potential, competitive landscape, consumer behavior, and
regulatory environment. Based on these factors, we can then evaluate whether the Romanian or
Bulgarian market is more appropriate for Aldi to enter.

Romania has a larger population than Bulgaria, with over 19 million people compared to
Bulgaria's 7 million. However, both countries have seen steady economic growth in recent years,
and their retail markets are expected to continue growing. Romania's retail market has reached
8.3% growth in 2019 and has reached €45 billion in gross sales in 2018, while Bulgaria's retail
market has reached €6 billion at the end of 2022 (Todorov, 2022). Therefore, both markets offer
significant growth potential for Aldi.

Both Bulgaria and Romania have highly competitive retail markets, with established local
players such as Kaufland, Carrefour, and Lidl. However, Aldi's reputation for quality and low
prices may enable it to carve out a niche in these markets. Additionally, Aldi's experience in
other Eastern European markets such as Poland may give it a competitive advantage in the
region.

In terms of consumer behavior, Bulgaria and Romania are both collectivist cultures, with an
emphasis on family and group decision-making. Consumers in both markets are value-conscious
and tend to prioritize practicality and functionality over luxury. Aldi's focus on low prices and
efficiency may appeal to consumers in these markets.
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Based on the above evaluation, it is difficult to determine which market is more suitable for Aldi
to enter, as both Bulgaria and Romania offer significant growth potential and similar consumer
behavior. However, Romania's larger population and larger retail market size may make it a
more attractive market for Aldi in terms of potential revenue growth. Ultimately, Aldi will need
to conduct further market research and analysis to determine which market is the best fit for its
business strategy and goals.

8.2.Entry mode strategy

By opting into greenfield investments Aldi would have to establishing a new operation in
Romania which could be a high-risk, high-reward strategy. Aldi would need to invest heavily in
building its own stores, warehouses, and supply chain network. The advantage of this strategy is
that Aldi would have complete control over its operations and brand, and it could tailor its
strategy to the specific needs of the Romanian market. Greenfield investment would enable Aldi
to build its own stores and supply chain network from scratch, which means that it can design
and build facilities that meet its specific needs and standards. This would also allow Aldi to
integrate its operations and supply chain network with its other operations in Europe. Although
this strategy may be time-consuming, it would allow Aldi to establish strong presence on the
Romanian market and building loyal consumer base.
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