International Expansion Of Aldi: Is China A Viable Option?

Situational Analysis

You are the international marketing manager for Aldi. As Aldi continues to grow in Australia, you are searching for a new market to continue your international expansion. China is being considered as the next location. Is this a viable option for Aldi?

Aldi is an internationally known brand that is famous for offering great discount to the customers amongst various supermarket chains. This chain has its business in more than twenty countries. The brand sells a varied range of products including groceries, everyday collections, wines, special buys and garden products. Having its first store launched in the year 1913, the brand has so far gained immense popularity and is considered to be one of the biggest supermarket chains in the global market. Recent data indicates that the organization has gained USD 70 billion of revenues in one financial year with the international retail market share of approximately 6.9% (Dujak, Franjkovi? & Šebalj, 2014). The company also employs thousands of people on a global scale. In order to analyse the present situation of Aldi, it is necessary to look at the specific strengths and weakness along with the forthcoming opportunities and threats.

It is noteworthy to mention that Aldi is a discount store which has low pricing as its main USP in the market. The primary reason behind Aldi’s survival is the low price rate that they are capable of offering to their consumers. Most of the products that are sold by Aldi are offered at a significantly low price range than any other conventional supermarket chains in the global market (Rahman, 2015). This strategy has made them develop as a highly successful brand in the retail business. In addition to that, like any other discount supermarket chain, Aldi has also built a strong ecosystem that has contributed in altering most of the crucial parameters in the food retailing business. The brand also offers a positive shopping convenience by setting up its stores at multiple locations and offers a variety range of products which helps the customers to buy their necessary products without wasting a long time in the queue. Aldi also enjoys a great support from its existing customer base as they offer a wide range of retail products within affordable price range. The brand also offers few products on rotational basis and informed to the customers through advertisements (Sivalingam, 2015). The major component of Aldi product mix is the regular merchandise that covers up 25% of their product range. Along with the discounted product range, the brand also offers the premium brands without any significant discount which indicates that they also target a wide range of customers with different preferences.

Strength

Like any other discount stores, Aldi is also dependent on the volume of sales due to their low margin. It is also seen that the brand has indulged unethical business practices like treating their suppliers in a bad way and price discrimination in order to ensure consistent profit margin (Moutinho & Phillips, 2018). It can also be said that the organization requires greater employee satisfaction in order to survive in the competitive market. It can be seen that the employees have to work in multiple shifts and in some countries they are paid a lot lesser than any other brand in the market. This indicates to a great dissatisfaction among their employees which results into higher attrition rate.

It should be mentioned that the requirements of the consumers are developing which gives them a higher propensity for spending for the products they need on a regular basis. The consumers are ready to pay premium prices for the products and services, therefore discount stores like Aldi has a high chance to offer good quality service to their target consumers. They can also expand their product range to meet the expectations of customers (Rahman, 2015).

Aldi tends to face huge competition in the global market as there are numbers of retail companies in the market. Also moving of organizations like Amazon into groceries give potential threats to the brand.

As Aldi is planning to enter the Chinese market, it is necessary to analyse the present situation of mainland China in order to find out the potential issues that can rise while expanding its business.

Currently China is one of the most powerful economies in the entire world. It is the 4^th largest land area around the globe that secures a permanent place in the Security Council of United Nations. Communist Party of China is the ruling political organization in the country and it enjoys an almost stable political scenario however a major area of concern is the major lack of the political freedom in the country (Bereda, Paduch-Cichal & D?browska, 2017). Therefore there are major questions rising regarding the openness of the political system of China. However it is noteworthy to mention that the stable political environment offers enhanced infrastructure and cheap labour.

Being the 2^nd largest economy in the world with nominal GDP, China is also considered as the largest economy in the world on the basis of the purchasing power of the customers (Cai et al., 2016). There have been several economic reforms that have strengthened the economic growth of the country. It has also seen that the country has shifted to a market based economy from a centrally planned one with a GDP growth of 10% on an average. However, the rapid economic development has also portrayed several challenges such as fast urbanism, higher inequality and significant damages in the environment. It is beneficial for the international brands to expand their business in China due to the major availability of labour at a cheap price (Fields et al., 2018). However, many indicate that the rapid economic growth has increased its labour prices as well. The standard income tax rate for corporate is 25% however the government has reduced the rate to 15% for various qualified businesses.

Weakness

China is the country with most population in the world with almost 1.4 billion people. Therefore it is a massive market for the industries like retail. There is a major increase in the spending power of the consumers of China in the recent times. With a higher literacy rate, 96.4%, the population considers luxury items to be a major sign of being successful. The country has also lifted more than 68 million people from the poverty level. The country aims to eradicate absolute poverty within 2020 (Kotabe & Helsen, 2014).

China also has the largest online population in the entire world. It has also set its vision to be an international leader in the technological sector. The government has launched several programs like ‘mass entrepreneurship and innovation’ in the year 2015. This also indicates that the country emphasizes on spending more on entrepreneurship and making it an innovation driven economy (Ortega et al., 2015).

There are various rules and regulations in the country that regulates the employment and business practices in China. The country encourages foreign direct investments as well.

It can be found out that the fast economic development in China has affected the natural environment in various ways. The air and water pollution are on rise along with the increased rate of deforestation, industrial wastage and brings major changes in climate (Hu & Xie, 2014). However the government has taken several initiatives in order to address the significant environmental concerns.

Other than the previously applied theories and concepts, few other international marketing theories can be applied for understanding the way of business expansion of Aldi in China. Considering Porter’s Five Forces Analysis, it can be said that the bargaining power of the buyers are low in China due to that lack of information amongst them. Therefore there is also low cost of change for consumers in China. The bargaining power of the suppliers is higher therefore it impacts the final cost of the product to a great extent. The growth of the retail industry in China is high; therefore there is high rivalry in the market along with higher switching costs (He et al., 2016). There is also a higher probability for changing and a higher threat of substitute products and substitutes in the China market. Also, several other international brands are targeting the China market for their expansion as well which indicates to higher competition in the market. Therefore the company has to ensure that they offer maximum services and products at a minimum price for capturing this new market. However, from the above analysis it can be found out that the organization may have to face several challenges in China such as lack of controls over the inventories and no such central control over the organizational operations (Wang et al., 2017). The controlled operations only take place at the store level; therefore Aldi has to pay extra fees to the suppliers as well. However at the same time, Aldi gets a more dynamic market with a higher employee turnover and can utilise the part time workers in different operational segments.

Opportunity

From the previous analysis, it can be understood that Aldi require proper strategies t entry the new Chinese market. China is considered to be one of the profitable and attractive economies around the world in terms of the foreign retail chains. This is due to the continuously developing economy and developing size of consumer market. Therefore Aldi can utilize several market strategies for employing so that they achieve success within the complicated retail market in China. Therefore the recommendations for the market entry strategies of Aldi are as follows:

At first, the organization should ensure that they partner with the domestic businesses within the retail market so that they can deal with the high end products. This is because the domestic organizations are at the same level with the foreign organizations and they can ensure the supply of the important resources that are available in the market. Therefore Aldi can be beneficial of the government relations and the existing business network that the local organizations already have. In long term, Aldi can also be offered of a partnership with the government which will make sure than the agitated competition in the retail market is curbed and it can also provide a huge market entry for Aldi in the Chinese market.
Aldi can also apply another strategy in order to ensure that it is offered various services from the third party resources to their counterparts in China. It is worthwhile to mention that in order to achieve success in the complicated Chinese economy; the retail business should have a strong support from their competitive and efficient business partners. Therefore, the company can utilize third part service in terms of managing logistics, distribution of products, wholesale service etc. This will also help them to get attractive government partnerships later.

Therefore it can be said with a perfect combination of both these strategies, Aldi can ensure that they get their desired success in the Chinese market. It should also be mentioned that the market of China is mostly driven by its cultural differences; therefore Aldi can take advantage of its varied choice of products and incorporate that in their business strategy while expanding in Chinese market

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