Essay: Deliveroo entry into Sweden – PESTLE/Porter’s Five Forces

PESTEL

A PESTLE analysis will be used to analyse the macro-environment in Sweden. A PESTLE analysis breaks down the political, economic, social, technological, legal and environmental factors of a country which would have an external impact on business in that country.

Political factors

• Sweden is a constitutional monarchy ruled by the governmental parliament, similar to the UK. Sweden has been a member of the EU since 1955 and been a member of the United Nations since 1946. Sweden’s current dominant political force is the Social Democratic Party. This information suggests that Sweden is a country with excellent international relations.
• The similarity between Sweden and the UK’s political system would offer a familiar setting for Deliveroo as they are already well established in the UK. However, Sweden would offer more political security as they currently have no plans to leave the EU.

Economic factors

• Sweden, like the UK, has opted against adopted the euro as their national currency. This offers more economic stability as non-euro countries can increase interest rates in relation to inflation to avoid an economic crisis. Non-euro countries can also devaluate their currency, which combats cycles of economic challenges.
• There is no statutory minimum wage in Sweden and salary levels for highly skilled staff are relatively low to OECD standards. This is beneficial for Deliveroo as currently in the UK they do not meet the minimum wage standards through a technicality, which has caused a backlash. (The Swedish Trade and Invest Council 2018).
• Sweden’s GDP per capita is among the highest in the EU and has low inflation. This is beneficially for a company as it shows there is a demand for products and services. (Forbes.com, 2019)

Social factors

• Swedes prioritise punctuality – this is beneficial for a company such as Deliveroo.
• The UK and Sweden do not have a wide cultural difference that would affect business. Expected working hours in Sweden are identical to the UK, which are on average greater than the rest of Europe.

Technological factors

• Sweden is home to some of Europe’s largest tech companies and its capital is second only to Silicon Valley.
• Today nearly 95% of Sweden’s population use the internet, with more than 60% of the country having access to super-fast-fibre-optic broadband with speeds of 100 megabits per second. This is beneficial to a company like Deliveroo as the company’s business is run solely through the internet.
• Sweden’s government are heavily invested in furthering the technology in the country, this is another benefit for Deliveroo as the company’s main focus is on upgrading their technology

Environmental factors

• Sweden is a very environmentally friendly country and have environmental regulatory frameworks in place to urge businesses to take steps to reduce emissions and promote a more efficient energy usage. Sweden’s views on the environment are similar to the views that Deliveroo share. Deliveroo should not run into any issues regarding environmental factors.

Legal factors

• The legal system in Sweden is based on statute law and has far more in common with a common law system rather than a civil law system.
• There are no specific foreign exchange controls or currency restriction in Sweden.

The PESTLE analysis shows that the current market in Sweden is suitable for Deliveroo to enter, the next step in determining if Sweden is the best option for international expansion is to complete a Porter’s Five Forces analysis to assess the level of competition and the difficulty of entering the market.

Porter’s Five Forces

The threat of new entrants

• The threat of new entrants in the food delivery service in Sweden is similar to the UK. In Sweden, the foodservice industry is valued at $220m which is experiences a 17.4% growth year on year. The value of the industry is relatively low but the percentage of growth is attractive for new businesses.
• The costs to enter the delivery service are relatively low as companies like Deliveroo do not require stores and most of their business is via the internet. The price to set up a fully functioning website is between £2,000-£8,000.
• New entrants would have to compete with the huge presence of companies such as Delivery Hero and Foodora.

Bargaining powers of buyers

• Deliveroo has a rating system available to their customers, if customers are not happy with the service, they can leave a bad review, bad reviews would deter people from using the service. This suggests that buyers have significant power regardless of the low population in Sweden.

Bargaining powers of suppliers.

• Sweden has a lower population to the UK this means there is a lower number of suppliers. This, in turn, means suppliers would have more power than suppliers in the UK.
• Deliveroo already has a good reputation in the UK, this may persuade suppliers to partner with the company.

Threat of substitutes

• The threat that Deliveroo would face from substitute competition in Sweden would be the same as in the UK. The main substitute competitions are drive-through services and orders via the phone. Drive-through services are not that common in Sweden which means there is not a huge threat. Ordering via the phone is less common in Sweden as the country is more tailored to a digital approach.

Rivalry between competitors

• Sweden currently has three main businesses that directly compete with Deliveroo, these are Foodora, Delivery Hero and UberEats. The market is very competitive in the food delivery service this is causing companies to expand their approaches. UberEats have recently decided to include delivering groceries to their list of services this would give customers more reason to use their service.
• UberEats have also begun to invest in dark kitchens, which are overflow food preparation spaces which are rented out to restaurants that need extra kitchen capacity this will allow restaurants to expand to more rural areas. (Lewin, 2019)

Overall, Sweden’s market is very appealing to a business such as Deliveroo as Sweden’s macro and microenvironments are similar to the UK’s. The analysis shows that the market is growing at a substantial rate which means that Deliveroo’s main rivals would also be assessing the country for expansion. Sweden’s political stability, as well as its drive for technological advancements, are two key benefits of expansion for Deliveroo.

(b) Suggest the optimal rate of international expansion in the chosen country (Small or Large-scale expansion)

To assess whether Deliveroo should enter the market on a large or small scale, the positives and negatives of both expansion modes should be analysed.

Large scale

If Deliveroo chooses to enter the Swedish market on a large scale it will make it easier for the company to attract customers and distributors as they will have more resources committed. A large-scale expansion will also give customers confidence in the business as it shows the business is committed to the market and will be around for a long time.

However, if Deliveroo focusses on a large-scale expansion in Sweden this may limit the number of resources the business has to pursue other expansion ventures. Furthermore, if Deliveroo has not analysed the market correctly they could potentially make significant losses.

Small scale

If Deliveroo chooses to expand in Sweden on a small scale this would give the business more time to learn about the country’s market which reduces the risks of making losses.

However, the lack of commitment to the expansion would make it more difficult to build and develop the brand internationally.

The optimal rate of expansion

The most beneficial rate of expansion for Deliveroo would be on a large scale. Sweden has a similar macro-environment to the UK this means that there is a lower risk of losses as the company is already successful in a similar market. Also, Deliveroo has recently received an investment of £468m from Amazon to focus on international expansion, this means that they have access to a vast amount of resources. (Gerrard, 2019).

(c) Suggest the most suitable entry strategy and entry mode for entering that particular country.

Entry strategy

In modern-day business, globalisation is a key part of growth. Many businesses in 2019 have expanded internationally to increase revenue and build a bigger brand. The method of which companies decide to expand differs on the nature of the business. When discussing entry options in relation to international business there are four main strategies these are: global standardisation, transnational, international and localisation.

The most suitable entry option for Deliveroo is a globalisation strategy. The globalisation strategy sees the world as one united market rather than separate markets for each country. The goal of this strategy is to standardise a service to achieve a high level of economies of scale. The main headquarter, based in the parent country, will direct the marketing for the world market. The globalisation strategy is similar to a home replication strategy as the company operates similarly in each country it enters. As Deliveroo is a delivery service there is no real adaptation required as it is a basic service that does not differentiate based on culture. With Sweden being an environmentally conscious country, companies such as JustEat may need to adjust their strategy to meet emission guidelines. However, as Deliveroo is already an environmentally friendly company the business’s model would be accepted into the Swedish market.

A globalisation strategy is much more suitable for Deliveroo compared to a strategy such as a multi-domestic one. This is because the costs are significantly cheaper as new marketing strategies and products would not be needed. (Lymbersky, 2010).

It could be argued that Deliveroo should take a transnational approach, which is a middle ground between multi-domestic and globalisation. The argument for this could be that Deliveroo would have to target different types of restaurants to partner with depending on a countries culture. For example, Sweden is a more health-conscious country than the UK. This means Deliveroo could benefit more from partnering with healthy restaurants rather than a typical takeaway. However, the key service that Deliveroo is offering does not need to be altered.

Entry mode

A business has access to a number of different entry modes to choose from when it chooses to expand internationally. No one entry mode that is objectively superior to the rest, the choice of entry mode is based on the type of business and its goals. There are five main modes of entry these are: exporting, licensing, franchising, joint venture and a wholly-owned subsidiary.

The most suitable mode of entry for Deliveroo would be a wholly-owned subsidiary. A wholly-owned subsidiary is where an organisation enters a foreign market with 100% ownership. The two ways a wholly owned subsidiary can form is either through acquisition or greenfield operations. The process of acquisition is where a company purchases a foreign organisation that already has a presence in a country, whereas a greenfield operation is where the company sets up as new.

The best way for Deliveroo to enter is by setting up a greenfield operation as it will want to promote its brand name. Wholly owned subsidiaries can carry more risk than the other entry modes mentioned however if successful it results in higher profits. In addition to this, a company that enters a market as a wholly-owned subsidiary has significantly more control than a company that uses another entry mode.

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