Managing International Trade – Lidl in Ukraine Assignment Sample

INTRODUCTION

International trade refers to the process of exchanging goods and services within countries. This includes import and export of all the consumer goods, machinery and raw material within the international market place. This report will include all the information related to the entry of Lidl in Ukraine.  This company and country has been selected as Lidl is targeting over enhancing its market reach and currently company is not having its presence in Ukraine. Further, it has been identified that there is 1.3% growth rate of retail organization in Ukraine due to which Lidl is planning to establish its operation in the country (Growth of retail sector in Ukraine, 2024).

Lidl is having effective growth prospect which is the best time to expand in new country that aids in overall development of the business entity. It has been identified that purchasing power of people within Ukraine is very low that result into increasing demand for affordable goods. Further, consumers within country prefer trustworthy and quality products. In this context, Lidl could leverage customer’s trust by offering high quality product at an affordable cost that result in enhancing overall profitability. The current report is based on describing the three main trade issues that are faced by Lidl while expanding into Ukraine market. This expansion will help in overall development of the business entity. Get professional assignment help online in Ukraine to excel in your international trade assignments with expert guidance

Background Information of Ukraine

Ukraine is the second largest Eastern European County which shares its border with Slovakia, Poland and Hungary.  It follows a semi presidential political system that includes three branches of government that are Prime minster, unicrame legislative and an executive. Currently, the country is going through conflict with the Russia which is negatively impacting the overall economy. Agriculture is the major sources of income for Ukraine through which country has generated over 27.8 billion pound. Ukraine is having GDP of 655 billion pound in year 2023 and there is 5.3% GDP growth rate within country (Financial condition of Ukraine, 2024).  The current trade issue in Ukraine is related to the implication of new trade restriction by authority, reduction in the purchasing power of consumer and unstable political environment.

Retail sector and market gap in Ukraine

The retail sector is contributing high towards the overall growth and development of the country and there is constant growth in this sector. Market share of Ukraine’ retail sector is 25% to 30% and ATPB- Market is major organization which is opening large number of discounted stores across country. However it has been identified that consumer is having high demand for European item and private label product which defines the growth prospect for the Lidl (Ali et al, 2023). Further, there is high population growth within Ukraine that results in enhancing overall demand within the country.

Government support and investment criteria:

As the Ukraine economy is deteriorating due to conflict with Russia, government has provided effective support to European companies to eatable within the country. Government have offered various incentives that encourage European organization to invest in country which aids in enhancing employment rate and promotes economy growth (Bertalero, Rosa and Dalla Chiara, 2020).  Along with this, Ukraine has initiate trade agreement with EU which support in deceasing cost, smoother business transaction and overcoming regulatory barriers.

 From the above information, it has been identified that Lidl will able to successful establish in Ukraine as there is high demand for company’s product and effective government support.

Background Information of Lidl

Lidl is the Germen based multinational retail organization that was established in year 1932 by Josef Schwarz. Firm’s headquarter is present at Neckarsulm Germany and it is operating through more than 12000 stores across 31 countries (Description of Lidl, 2024). Lidl offers large number of product and services that includes groceries, clothing and household item. The mission statement of Lidl is to enhance customer’s satisfaction by offering high quality goods and services through quality control process and continuous product development. Organization is having revenue of 125.5 billion pound and provides employment to 376000 workers across globe. 

Unique selling proposition of Lidl (USP)

The USP of Lidl is to provide high quality product at an affordable price which aids in attracting the large number of customer. Lidl offers various private label items which ensure effective cost and quality control. Further, firm is having efficient supply chain that aids in reducing the operational cost and offers product at competitive prices. Along with this, organization is involved towards weekly promotion by providing special offers that result into attracting large number of customers.

Lidl‘s competitor:

There are large numbers of retail organization in Ukraine which create a huge competition for the Lidl. Auchan, ATB and Novus are the three main competitors of Lidl within Ukraine (Bilovodska et al, 2021). Among the all ATB- market is the leading competitor of Lidl as it involved towards offering the wide range of product at affordable price which supports in attracting price sensitive consumer.

Differentiation strategies:

Following are various strategies of Lidl that aids in creating competitive edge and suppressing ATB market within Ukraine:

• Exclusive product range: Lidl is involved towards providing unique private labelled product that is not available in Ukraine that assist in influencing the large number of customers (Differentiation strategies of Lidl, 2023).
• Aligning with European Quality standard: Lidl’s operation and product are carried out while complying with the Europe quality standard which ensures product quality and aids in attracting quality conscious consumer (Calinescu, Likhonosova and Zelenko, 2021).
• High operational excellence: Lidl is initiating effective customer services practices and provides an effective layout of stores that help in enhancing customer’s experiences and support in creating competitive edge.

ANALYSIS OF KEY TRADE ISSUES

While establishing or entering into new country, each organization faces large issues which restrict them to easily attain their goal. There are large numbers of political, economical and social challenges which a business entity face while entering into the new country (Darvas and Martins, 2022). In this context of Lidl entering into Ukraine, there are large numbers of Trade issues which are faced by the company. The three major trade issues for expanding into Ukraine are as follows:

Globalization and comparative advantages

Globalization refers to the process of growing interdependencies of world’s culture, economies and population by initiating cross border exchange of goods and services, investment, information, technology and people (Doratiotto et al, 2023).

The above diagram depict that globalization is political, social, ecological and environmental integration of the various countries. Comparative advantage implies to the capability to produce particular good at the lower cost than other partners. This promotes more export as other countries will be involved towards ordering it from other places rather then producing the same. Following are various advantage and disadvantage of the globalization and comparative advantage for Ukraine and Lidl:

Advantages of Ukraine:

High economy growth: Currently, Ukraine is facing high financial issue due to war with Russia that has resulted in negatively impacting on overall country’s economy. Due to globalization, Ukraine is able to invite other European country to expand their operations in the country which aids in overall economy growth (Gossler, Wakolbinger and Burkart, 2020). Further, due to the comparative advantage of Lidl, other company in Ukraine will also develop competitive spirit which helps them in working more efficiently leading to high economy growth.

High standard of living: Globalisation has reduced the level of overall poverty within the country aids in enhancing the overall standard of living. It has been recorded that there is a 35% reduction in poverty after globalisation as accessibility of country’s population has increased by the globalization. Along with this, due to comparative advantage customers are able to gain product at lower cost which enhancing the purchasing power of individual results in higher standard of living.

Disadvantage for Ukraine:     

Inaccuracy in managing local company: Ukraine has recorded that over 126 retail organizations have been shut down in the previous year due to incapability in managing stability in the competitive environment. With the establishment of Lidl in the country, it will create challenges for other local company to manage their stability which creates negative impact on overall economic condition of the country (Irtyshcheva, Kramarenko and Sirenko, 2022). Comparative advantage for Lidl will result into offering goods at lower prices than others which lead to attracting large number of customers and creating issue for other firm in managing profitability.

Losing of local jobs:  It has been identified that due to the continuous shutting down of the local organization. There is an increasing the rate of job loss within country that result in reducing overall purchasing power of individual within Ukraine.

Advantage for Lidl:

Enhance profitability: By the application of theory of comparative advantage, it has depicted that Lidl will able to enhance its overall profitability due to introduction of globalization. Based on the theory, it has been identifying the Lidl will able to cut down its operational cost due to effective supply chain which help in providing goods at cheaper cost than other Ukraine’s firms (Theory of comparative advantages, 2023). Further, due to low operational cost, manager in Lidl will able to attract large number of customer result in attaining economies of scale.

Accessibility to new technology: Due to globalization, Lidl will able to get access to new production techniques that are used within Ukraine result in higher operational efficiency (Kozioł, 2022). This will help Lidl in reducing operating cost that aids in enhancing overall profitability of the business entity. This technology could be used by Lidl in their other stores which will assist on enhancing overall performance of the business entity.

Broader talent pool: Globalization will also help Lidl’s manager in attracting highly skilled and talent employees towards the organization. This will help organization in effectively attaining their goal leading to successfully entering into Ukraine market.

Disadvantage for Lidl:

Introduction in new traffic: Due to introduction of globalization, many local firms have been negatively impacted due to which government has established various new traffics and restriction (Lin et al, 2023). Ukraine has also established a higher tax rate for the international companies which will aid in enhancing country’s income and also support in maintain stability of other local businesses.

Lack of trust and confidence: Lidl will face issue in gaining overall trust and confidence of the customer which impact on overall profitability of the business entity. At the initial point, customers are not able to switch their preference over other company which creates issue in managing profitability of the business entity.

Ineffective political stability: On the basis of constructive theory, It has been identified that company could effectively undertake international expansion, if there is adequate political relationship between the countries (Theory of constructive, 2023). This theory depict that international, relation, neoliberalism are crucial aspect for successfully entering into new country (Makarenko et al, 2023). It has been identified that Ukraine is facing huge political instability which creates issue for Lidl‘s manager to formulate effective strategies and policies that are aligned with government regulation.

Production, outsourcing and logistics

Production implies to the process of converting raw material into the finished goods and services which is ultimately delivered to the customers. Outsourcing refers to the business practices in which organizations hire other firm to handle operation, perform task and avail services on behalf of the company (Makarewicz, 2023). Logistics implies to the process of acquiring and managing all the resources of the business entity.  It also includes storing and transporting form’s product so that customer’s requirement could be fulfilled in cost and time effective manner. For entering into Ukraine, Lidl requires huge amount of investment which creates financial issue for the business entity. Lidl will faces issues in identifying the most optimum supplier for their product and manager also face issue in hiring most optimum employees that could effective carried out production process. Following are various advantage and disadvantage of production, logistics and outsourcing on the overall benefit of economy and Lidl:

Impact on country

Advantage for Ukraine:

Develop economy: Lidl is generally sourcing their all food product from local farmers and suppliers that help in enhancing their financial position.  Further, Ukraine’s population is highly depended on agriculture and with the increase in demand for food product, farmer will able to increase their earning.

Reduce wastage:  After evaluating Lidl’s operational efficiency on the basis of the absolute advantage theory, it has been depicted that company is utilizing adequate method and technology in their production process (Theory of absolute advantage, 2024). This indicates that Lidl will able to carry out their all their operations with less wastage that result in enhancing overall sustainability of the business entity. This will support in safeguarding country’s resources and creating sustainable development within country. 

High employment rate: Lidl has not shifted towards using robots in their stores rather depends on the human resource for carrying ouit their task (Mazur, Pantsyreva and Zatolochnyi, 2020). This will help in creating huge amount of employment opportunity in the country leading to enhancing overall financial position within country.

Disadvantage for Ukraine:

Impact on sustainability: It has been identified that Lidl is unable to carry out their operation in a sustainable and environment friendly manner which negatively impact on overall natural resources of the country (Melnyk et al, 2022). In this context, Lidl has been claimed for using low quality raw material in their production process which creates high amount of carbon emission that negatively impact on overall environment of the country.

Ineffective growth: Aspect fruits and vegetable, all the other textile, food product and hard goods are outsourced by Lidl from 13 Asian countries. Due to this, there is reduction in growth rate o local suppliers that negatively impact on overall economic development of the country.

Impact on company

Advantage for Lidl:

Creating competitive edge:  Lidl is involved towards sourcing various food products from other countries with the aim of reducing overall cost. This outsourcing of food product will help in offering product and services at lower cost than competitor’s results in creating competitive edge in the company (Onyshchenko, Maslii and Ivaniuk, 2020). Further, Lidl is using effective production technology which assists business entity in effectively carrying out their operation leads to attracting large number of customers.

Reducing cost: It has been depicted that Lidl is effectively managing its logistics and has adequate warehousing and distribution services which help in managing overall cost of the business entity. With the help of logistics management software, Lidl is able to optimize supply chain which assists in reducing overall cost and support in attracting large number of customers.

Disadvantage for Lidl:

Reduce profitability: Lidl is unable to decrease carbon emission and initiating activities in a sustainable manner which results in reducing overall profitability of the business entity (Palea, 2020). Due to ineffective production process, Lidl is unable to sustain positive image in their industry which results in decreasing overall financial position of the business entity.

Decrease in efficiency: It has been determined that due to international expansion, Lidl requires high amount of time to identify most optimum supplier and managing logistics which leads to reducing overall efficiency of the business entity.  Reduction in operational effectively will lead to increasing per unit cost of the production that eventually result in enhancing price of product for the consumer.

Issue in managing loyalty:  Outsourcing most of the crucial activities results in erodes company’s loyalty as it reduces the growth opportunity for workers (Pererva et al, 2021). Further, outsourcing from other countries will depict low growth for Ukraine’s population which result in reducing overall trust and confidence of people within the country.

Exporting, importing and countertrade

Exporting refers to the process of in which the production and consumption countries are different. In this context, it refers to the method in which goods are produced in one country and sell out and consume in some other country. This process support countries in expanding their market reach as customers are able to use product and services all across the countries. Importing implies to the process in which foreign goods are consumed in the home country (Povorozniuk et al, 2023). Countertrade is the opposite of international trade in which company exchange goods and services in return for other good rather than currency. For successfully establishing the business in Ukraine, Lidl needs to import large number of raw material form UK and other Asian countries. Further, firm is also involved towards exporting its goods and services to Russia. Along with this, Lidl is also involved in countertrade within Chinese company Xiaomi with the aim of exchanging electronic product. This importing, exporting and countertrade initiated by Lidl has huge impact on overall working of the business organization and country which could be understood through following points:

Impact on Country:

Advantage for Ukraine:

Enhance product availability: As Lidl is involved towards providing large number and variety of goods and services through exporting and importing it will result in fulfilling needs of country’s population (Shkarupa, Karintseva and Kharchenko, 2022). Lidl will able to offer adequate product according to consumer’s needs and support in promoting innovation by providing all the required resources leading to overall economy development of the Ukraine.

Improve Economic condition: with the help of import and exports, Lidl is able to expand its operation in large number of countries that result in improving overall profitability of the business entity. High export form Ukraine will help in managing the deteriorating economic condition and support in overall growth of the country.

Disadvantage for Ukraine:

Increase risk of trade deficit:  More than two third of Lidl product are sourced from British supplies and other Asian countries which will result in increasing import as compare to export. This will result in creating trade deficit and also result in weakening domestic currency.

Non fulfilment of domestic demand: It has identified that Lidl has exported product and services of over 500 million pound to other stores in UK with the aim of fulfilling demand (Shpak te al, 2020). However, high export to other stores results in inefficiency in fulfilling the demand of local people which creates dissatisfaction within the population.

Negatively influence local business: High amount of imports and dependencies on supplier of other countries leads to reducing demand within Ukraine that slow down economic growth within the country. Lidl is highly concentrated over sourcing the required product form cost effective company and importing the same which creates issues in managing profitability of the business entity.

Impact on Lidl:

Advantage for company:

Attaining economies of scale: Firm is rigorously involved towards exporting its product and services in other countries which results in enhancing overall demand. This increases in demand for goods and services help business entities in attaining situation of economies of scale that result in decreasing per unit product cost of the Lidl. This will help company in enhancing their overall profitability which ensures higher stability in the industry.

Increase firms’ profitability: It has identified that Ukraine is having effective relationship with Brazil which provide opportunity to Lidl to offers it product and services to their country also (Wong and Swanson, 2022). There is less number of trade restrictions while dealing with brazil which help firm in effectively enhancing its market reach and support in boosting overall profitability.

Disadvantage for company:

High regulations: It has been identified that due to war Russia, country has put various restriction on the import and export of goods within Ukraine. This creates issue for Lidl to effective carry out the counter trade and exports and import procedures that negatively impact on overall profitability and financial position of the business entity.

High upfront cost: Increasing rate of export and import result in boosting upfront cost which result in creating issue in managing overall expenses of the Lidl (Yatsenko et al, 2020). Exporting and importing result in enhancing administration cost, marketing cost and transportation cost for the business entity results in making product expensive for the customers. This increases the prices of goods and services leads to losing significant amount of customer that negatively influences firm’s financial position.

CONCLUSION

To sum up the report, it has been identified that there is high growth rate of retail industry in Ukraine which result in establishment of Lidl in the country.  It has been identified that there is high need of low cost high quality product in the country indicting effective expansion decision of the Lidl.  There are crucial trade issues which are faced by Lidl while expanding into Ukraine which includes globalization and comparative advantages, production, outsourcing and logistics and the exporting, importing and counter trade. This expansion will help in managing overall economic growth of the Ukraine by providing effective employment opportunity. However, ineffective working of Lidl result in creating sustainable issues within country that leads to negatively impacting country.

Further, Lidl will able to create competitive edge and reduces overall operational cost which aids in enhancing profitability of the business entity. On the other hand, due to ineffective quality of raw material and technology firm is unable to operate in efficient manner that creates negative impact on the Lidl. For effectively expanding operations in Ukraine, Lidl should lay more emphasis on following the countries’ regulation which helps in avoiding any type of legal obligations. Along with this, Lidl should operate in a sustainable manner so that negative impact on Ukraine could be reduced and firm’s operation could be carried out in an ethical manner.

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