Global Marketing

Market entry strategy of IKEA and its marketing implications. 1.1 History IKEA was founded by Ingvar Kamprad a native of Sweden in 1943, when the founder, at the age of 17 was given money by his father in return for doing well in his studies. This money was used to start up his own company, IKEA, which stood for his initials and the first letters of the farm and village in which he grew up. The company initially sold basic items such as pens, picture frames, table runners, wallets, jewellery, nylons stockings and watches, at a low price. Furniture was first introduced into the IKEA range of products in 1948, and due to a positive response, the product line increased in size. Customers were allowed the ability of viewing and touching the furniture that was previously only viewable through catalogue. IKEA opened a showroom in Sweden to create a competitive advantage, due to a price war with their main competitor, so that customers could determine whether they were getting value for money. Finally IKEA made the decision to design its own furniture due to competitors trying to make suppliers boycott IKEA products. The “flat-packs and self assembly” concepts arose when an employee disassembled a table in order to prevent damage during transport. In 1963 the first IKEA store outside of Sweden was established in Norway. From this point on, IKEA began to spread like a wild fire, first to Denmark, then Switzerland, Germany, Australia, Canada, Austria and Netherlands. Many alliances were struck up with different suppliers in order to introduce new products, together with new concepts, which led to cost-effectiveness. One example was an innovative, multifunctional seat/recliner, which was made by utilizing a denim, a raw material from another industry, which could be obtained at a low cost. In 1980, together with the new furniture concepts being born at certain intervals, IKEA was looking to expand to further markets, and did so through franchising. To ensure continuation and long term independence of IKEA, the founder created a new ownership structure and organisation. The major portion of IKEA was donated to a foundation, while the right to franchise the IKEA concept worldwide remained with the IKEA group of companies. In the 1990’s, the IKEA market expanded not only geographically, but in terms of target market. The company began to design furniture that catered expressly to children. A website was launched to cater to the many markets that were now open, and the children’s line was enhanced on consultation with experts on with experts to develop play areas, room settings, and baby areas within the stores themselves. Kitchen-ware and kitchen areas were another concept developed in this period. IKEA also began participating in a number of forestry projects to ensure sustainability, by taking responsibility for developing acceptable practices and policies in countries where IKEA works. 1.2 Industry background Traditionally in Europe, children inherited their furniture from their forefathers. However, modernization and globalization in both developed and developing countries have changed consumer buying patterns. Recently, younger generations are more prone to purchase low costing, portable contemporary furniture and home furnishing products. As a result, global retailer IKEA has intentionally designed their products to cater to this target market, further reducing costs by streamlining operations with local suppliers. In fact, IKEA is a model example of a company that has redesigned an industry in relation to how its supply chain operates. IKEA has successfully implemented its strategic business models in numerous countries in Europe, North America, Asia Pacific and Russia/Ukraine. 1.3 Company background IKEA is a world renowned furnishing company reputed for selling Scandinavian-style furniture and other home-based goods. The company has 230 stores, with operations carried out in over 42 countries with well over 70 000 employees. The stores themselves can host 410 million shoppers per year. It is a Swedish based company built on the idea of offering a wide range of well-designed, functional home furnishing products such low prices, that a majority of people will be able to afford them. The IKEA group is currently solely owned by the INGKA Foundation through a holding company, unlisted on any stock exchange. The vision at IKEA is to “create a better everyday life for the many people”. The main business of IKEA supports this vision, by the manufacture and selling of a wide range of home furnishing products at an affordable price. Since then of IKEA is to make good quality products at an affordable price, the company has succeeded in development of cost-effective and innovative production methods. This has been the company’s focus since its inception, and the company has succeeded in doing so by making the maximum use out of raw materials, and adapting the products to meet people’s needs. Currently, in addition to the historical additions to the IKEA range, customers can now shop online. Other innovations include the boards with patterns created on them directly, called “print on board”, in addition to a concept known as “product recovery concept” where returned products are repaired instead of being thrown away where possible. The majority of the operations occur within the retail business; while IKEA does purchase from external suppliers, in addition the company produces its own products through their industrial group known as Swedwood. IKEA sells from 8,000 to 10,000 home furnishing products from kitchen cabinets to candlesticks. Products have a "democratic design", which according to Kamprad, “was not just good, but also from the start adapted to machine production and thus cheap to assemble.”. IKEA manager Gillis Lundgren adds that IKEA “finds ways to alter the design of furniture to save on manufacturing costs”. Product development undergoes a rigorous process, overseen by a product strategy council, which consists of select senior managers who establish priorities for IKEA’s product line-up. Once prioritized product line-ups are determined, product developers analyze prices, thereby reducing the price point by 30% to 50%. When the target retail price for the proposed product is set, the company selects a manufacturer to produce it, and distributes a description of the product’s specifications and target cost to its suppliers, encouraging them to compete for the production package. This process may take as long as 3 years, even though IKEA replaces a third of its product line every year. According to “about 90% of all products were sourced from independent suppliers, with 10% being produced internally”. Before shipping, all products are placed in “flat-packaged” boxes, to reduce transportation costs for both IKEA and the consumer (i.e. more items can fit into a crate, which means fewer delivery journeys, and reduces warehouse costs and damages. In other words, IKEA’s main driving force is to provide customers with trendy functional products with minimalist lines, that are manufactured cost-efficiently with suppliers, and priced low enough so that most people can afford them. Moreover, IKEA “measures strengths by utilizing Key Performance Indicators (KPI) which help assess the progress of its vision and long-term goals by setting targets and monitoring progress” 1.4 Aims - Mission & Vision IKEA is world renowned for combining competitive low pricing with high quality products, within an appealing store setting. In fact, IKEA’s corporate slogan is “Low price with meaning”, and Vision Statement is “To create a better everyday life for the many people.” IKEA aims To make a profit To develop a strong and vital range To offer outstanding prices To improve their meeting with customers To continue to reduce prices and retain quality To attract develop and inspire To take responsibility for their suppliers, workers and for the environment To retain the strength of the brand name IKEA Objectives IKEA intends to extend their corporate strategic models when entering Serbia, Croatia, South Korea, Russia, China and India. They want to extend their business worldwide as a multinational brand. The main objectives of IKEA are- Provide outstanding value for money Improve offers and discounts to push sales 10% volume growth per year Improve on product quality To maintain, develop and expand their customer base To establish IKEA as a key player in the furniture market 2.1 SWOT Analysis IKEA's goals of sustainability and environmental design are central to its business strategy. It has launched a new sustainability plan to take the company through to 2015. This will combine social, environmental and economic issues. IKEA uses SWOT analysis to help it reach its objectives. This is a strategic planning tool. It helps the business to focus on key issues. SWOT is the first stage of planning and looks at the Strengths, Weaknesses, Opportunities and Threats involved in a project or business venture. Strengths and weaknesses are internal aspects. This means that they are within the control of the business. They may refer to aspects of marketing, finance, manufacturing or organisation. Opportunities and threats are external factors. This means that they are outside the control of the business. These may include the environment, the economic situation, social changes or technological advances, such as the internet. Strengths 1.      Attractive product design 2.      Market leadership 3.      Solid financial position 4.      Vast, yet focused product range   Weaknesses 1.      Weak presence in Asia 2.      Damaged reputation due to a series of incidents 3.      Competitive advantage difficult to sustain 4.      Lack of flexibility due to its size Opportunities 1.      More emphasis on CSR 2.      Increasing presence in developing countries 3.      Formation of strategic collaborations 4.      Adding premium range of products into portfolio Threats 1.      Decline in demand due to increase in consumer income 2.      Unsustainability of ‘democratic design’ concept 3.      Emergence of competition from Asia 4.      Global economic and financial crisis A business can create opportunities and counter threats by making the most of its strengths and addressing its weaknesses. For example, one of IKEA’s key strengths is its strategic aim to use no more material than necessary in the production of each item. In addition, it develops its product plans to increase its use of waste or recycled materials. • One particular table, the 'norden' table, uses knotty birch wood. The knots in this wood usually mean it is rejected by other retailers and manufacturers as unsuitable for use. However, IKEA has made the knots part of its design feature. • 'Ogla' chairs are made using wood waste from saw mills and LACK tables use a ‘sandwich’ of stiff card between wood sheets to reduce the amount of solid wood needed. Strengths Strengths could include a company’s specialist marketing expertise or its location. They are many aspect of the business that adds value to its product or service. IKEA’s strengths include: • a strong global brand which attracts key consumer groups. It promises the same quality and range worldwide • its vision – ‘to create a better everyday life for many people’ • a strong concept – based on offering a wide range of well designed, functional products at low prices • a ‘democratic design’ – reaching an ideal balance between function, quality, design and price. IKEA’s ‘Cost Consciousness’ means that low prices are taken into account when each product is designed from the outset. These strengths contribute to IKEA being able to attract and retain its customers. One way IKEA measures its strengths is the use of Key Performance Indicators (KPI). KPIs help IKEA to assess the progress of its vision and long-term goals by setting targets and monitoring progress towards these. An example of one of IKEA’s KPIs is the percentage of suppliers that are currently IWAY approved. The IWAY is the IKEA Way of Purchasing Home Furnishing Products. This guideline defines the social and environmental requirements IKEA expects of its suppliers. IKEA has strengths right through its production processes: • Increasing use of renewable materials – IKEA improved its overall use from 71% in 2010 to 75% in 2012 to 85% in 2015. • ‘Smarter’ use of raw materials – IKEA increased the use of recycled or reclaimed waste products in energy production across all stores from 84% in 2012 to 90% in 2015.InternalHel+ Hinder - • Volume commitments – IKEA believes in creating long-term partnerships with its suppliers in order to achieve this. By committing to buying large volumes over a number of years, IKEA can negotiate lower prices. This also benefits the suppliers because they enjoy the greater security of having guaranteed orders. • Economies of scale – for instance, bulk buying at cheaper unit costs. • Sourcing materials close to the supply chain to reduce transport costs. • Delivering products directly from the supplier to IKEA stores. This slashes handling costs, reduces road miles and lowers the carbon footprint. • Using new technologies – for example, IKEA’s OGLA chair has been in its range since 1980. The chair has changed through the years to reduce the amount of raw materials needed. Opportunities A business uses its strengths to take advantage of the opportunities that arise. IKEA believes that its environmentally focused business conduct will result in good returns even in a price sensitive market. As the company states: ‘There is a true business potential for IKEA in providing solutions that enable customers to live a more sustainable life at home. IKEA is developing effective solutions for customers in order to support them recycling or reusing used products, aiming at no products ending up at landfill and the recycled materials used in producing new IKEA products.’ Some of the opportunities that IKEA takes advantage of through its sustainability agenda are: • a growing demand for greener products • a growing demand for low priced products. Trends in the current financial climate may result in consumers trading down from more expensive stores • demand for reduced water usage and lower carbon footprints. IKEA has a number of areas of focus to its work with sustainability, each of which it supports in various ways: 1. Solutions for a sustainable life at home – IKEA gives online tips and ideas for this. 2. Sustainable use of resources. IKEA aims for zero waste to landfill, wastewater treatment and programmes to reduce its use of water. 3. Reducing carbon footprint. IKEA aims to reduce energy use, use more renewable energy, cut its use of air transport and reduce packaging. Its green transport initiative includes an aim to reduce business flights by 20% in 2020 and 60% by 2025. 4. Developing social responsibility. IKEA’s policy includes support for charities such as the World Wildlife Fund, UNICEF and Save the Children. 5. Being open with all its stakeholders. This involves building trust through good communication with consumers, co-workers, key opinion formers and the press. Being sustainable is a central part of IKEA’s image. Weakness IKEA has to acknowledge its weaknesses in order to improve and manage them. This can play a key role in helping it to set objectives and develop new strategies. IKEA’s weaknesses may include: • The size and scale of its global business. This could make it hard to control standards and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA’s supply chain, affecting consumer views of IKEA’s products. The IWAY code is backed up by training and inspectors visiting factories to make sure that suppliers meet its requirements. • The need for low cost products. This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices. • IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task. IKEA produces publications in print and online (for example ‘People and the Environment’) and carries out major TV and radio campaigns to enable the business to communicate with different target audiences. Threats If a company is aware of possible external threats, it can plan to counteract them. By generating new ideas, IKEA can use a particular strength to defend against threats in the market. Threats to IKEA may stem from: • social trends – such as the slowdown in first time buyers entering the housing market. This is a core market segment for IKEA products • market forces – more competitors entering the low price household and furnishings markets. IKEA needs to reinforce its unique qualities to compete with these. • economic factors –the recession slows down consumer spending and disposable income reduces. IKEA addresses these issues in many ways. It manages weaknesses and threats to create a positive outcome. Social trends: IKEA is building online help to guide customers to a more sustainable life. Here it can focus on home improvement in the slowing housing market. It supports customers with tips and ideas on its website to reduce their impact on the environment. This will also save them money. Staff are trained on sustainability, both on what IKEA is doing and how they can take responsibility to become sustainable for themselves. Market forces: IKEA is large enough to enjoy economies of scale. This lowers average costs in the long run through, for example, better use of technology or employing specialized managers. Economies of scale also give a business a competitive edge if cost savings are then passed on to customers in the form of lower prices. This puts up high barriers to entry for smaller companies entering the market. Economic factors: IKEA’s low prices create appeal amongst its customers in tough financial times. It is vital to keep prices as low as possible when the retail sector is depressed. IKEA’s pricing strategy targets consumers with limited financial resources. Its products will also appeal to those with higher budgets through good quality and design. The company must ensure that it is always recognised as having the lowest prices on the market in the future. Communication plays an important role here. 2.2 International Process IKEA follows the focused cost leadership strategy. Young buyers in search of stylish and fashionable furniture and household accessories at a low cost are IKEA's targeted market segment. For these customers, the firm offers home furnishings that combine good design, functionality and acceptable quality at low prices. IKEA has been successful in almost all countries, because of public awareness of the IKEA brand. Companies go international for a variety of reasons but the typical goal is company growth or expansion. When a company hires international employees or searches for new markets abroad, an international strategy can help diversify and expand a business. Overseas operations are often attractive to executives seeking to reduce their budgets in order to increase profit. IKEA’S INTERNATIONALIZATION STRATEGY - ADAPTATION AND STANDARDISATION PROBLEM The furniture industry is an example of an industry that did not lend itself to globalization before the 1960s. The reasons for that are its features. Furniture has a huge volume compared to its value, relatively high transport costs and is easily damaged in shipping. Government trade barriers also were unfavorable. But IKEA – company established in the 1940s in a small village in Sweden, has become one of the world’s leading retailers of home furnishings. In 2002 it was ranked 44th out of the top 100 brands by Interbrand, topping other known brands such as Pepsi. In 2002, it had more than 160 stores in 30 countries. How did IKEA achieve it? The IKEA business idea is: ‘We shall offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’ By the early 1960s the Swedish market was saturated and IKEA decided to expand its business formula outside Sweden. They noted: ‘Sweden is a very small country. It’s pretty logical: in a country like this, if you have a very strong and successful business, you’re bound to go international at some point. The reason is simple—you cannot grow any more’ IKEA’s internationalization strategy in Scandinavian countries and the rest of Europe has not paid significant attention to local tastes and preferences in the different European countries. Only necessary changes were allowed, to keep costs under control and IKEA’s low responsiveness to local needs strategy seems to work well in Europe. The first challenge came when IKEA entered the US market and faced several problems there. The root of most of these problems was the company’s lack of attention to local needs and wants. US customers preferred large furniture kits and household items. As a result of initial poor performance in the US market, IKEA’s management realized that a standardized product strategy should be flexible enough to respond to local markets. Thus IKEA redesigned its strategy and adapted its products to the US market. In several industries firms with effective strategy do not have to change their core strategy significantly when they move beyond their home market. IKEA does not significantly change its corporate strategy and operations to adapt to local markets unless there is a compelling reason for doing so. IKEA’s strategy demonstrates that even the most successful formula in the home market can fail if multinational companies do not respond effectively to local business realities. 2.3 Globalization of IKEA IKEA’s main corporate strategy focuses on offering customers low priced contemporary designed, functional products. Through its “steely competitiveness”, and “relentless cost-cutting”, IKEA strives at lowering prices on all products. To achieve this, IKEA spends considerable time on product development (constantly finding new ways to manufacture products cheaper), and strengthens long-term relationships with their suppliers. Strategic global outsourcing of product manufacturing has enabled IKEA to effectively reduce prices on their product, leading to international expansion. Moreover, productive internal competitiveness developed among the retail outlets and supply chain distributors. However, during expansion IKEA has encountered various pitfalls in building supply networks. For example, in Eastern Europe, after the fall of communism, new managers of manufacturing companies did not have loyalty to IKEA, and often “tore up contracts, tried to raise prices, and underinvested in new technology”. As a result, IKEA adapted quickly by purchasing a Swedish manufacturer, Swedwood, thereby giving IKEA a low-cost supply source, inside knowledge about the manufacturing process in “IKEA’s International Expansion” Eastern Europe, and the ability to help suppliers adopt new technology and drive down their costs. Another example of IKEA’s corporate strategy in building relationships with suppliers is in Vietnam, where IKEA has expanded its supply base. Vietnam suppliers offers low-cost labor and inexpensive raw materials, while IKEA provides the prospect of forging a long-term, high-volume business relationship, and advice on locating the best and cheapest raw materials, setting up and expanding factories, choosing what equipment to purchase, and strategies to boost productivity through technology investments and management process. It appears evident that IKEA has adapted to international markets, while remaining true to its business concept. In other words, IKEA is a concept driven company, where it is essential to manage operations, and share knowledge the IKEA way, regardless of the location of the retail outlet. Open communication is vital to IKEA’s operational systems. For example, whenever a problem occurred, both external and internal networks are utilized to find speedy resolutions. This corresponds with research arguing that it is important to build good relationships in order to enable the sharing of knowledge. Other competencies such as purchasing raw materials in bulk at cheaper costs (e.g. wood), streamlining decision making, maintaining delivery schedules and filling available manufacturing capacity with suppliers, mastering new technology in furniture production, and effective advertising methods (e.g. product catalogues and wacky promotions) have all contributed to IKEA’s distinct competitive advantage in the furniture industry. 2.4 Target Market Segmentation IKEA's main consumers are classified as young, middle class, and upwardly mobile, who prefer low-priced but trendy furniture and household products. Moon describes IKEA’s target market in the US as “someone who traveled abroad, liked taking risks, liked fine food and wine, had a frequent-flier plan, and was an early adopter of consumer technologies”. Recently, IKEA has developed its product plans to increase its use of waste or recycled materials due to their customers increased demand for eco-friendly products. It is however important to note that the average age and income level in most developed countries is expected to rise, while IKEA's target segmentation of young, low- to middle-income families is expected to shrink. Therefore, IKEA may need to adjust their STP strategies accordingly. 2.5 Market Entry Strategy Market entry strategy is when introducing new products to new/existing market which can cause an impact on the market from their time of entry. A market entry involve a combination of factors that determine firms’ foreign market entry decisions, which consist of cultural aspects, Location costs, internalization, financial variables, competitive strategy and the cost of doing business abroad Entering a new market is one of a firm's most important strategic choices, it requires strong commitment concerning financial and managerial resources and a variety of research methods in several fields such as country size and the level of development, trade and infrastructure as well as competitive advantages, market assessment and timing of entry. In choosing market expansion strategies, companies face several elements that can cause a variety of competitive conditions in different markets over time; these challenges could appear in different forms such as firms that gain fast rate growth through short product life cycle can develop entry barriers against competitors and increase profitability. On the other hand choosing few markets for accelerated growth can lead to increased market share and indicate a powerful competitive state. Since its origins, IKEA has adopted a number of international strategies including ‘international’, ‘global’ and ‘transnational’. IKEA initially adopted an international strategy with its expansion into nearby Norway. However, in the 1980’s IKEA adopted a global strategy in the United States, offering a standardised product range, as offered in Europe. It was discovered that this strategy did not work well as the product range did not meet the needs of the American market. For example, the sizes of glasses being sold were not big enough for the local consumer’s wants. Thus, IKEA adjusted its strategy and began to apply a transnational strategy, producing products that were customised to the wants of the local US market. Having learnt from mistakes in the United State, IKEA adopted a transnational strategy to enter China.  In entering the Chinese market, IKEA had moved away from its traditional store layout and choice of location, as well as making changes to its product range to suit the local market. The application of this transnational strategy into China has been successful, with IKEA boasting 4 stores by 2008. The cultural cluster shows that Chile and China are closely paired. This shows that Chile and China have collectivist and high power distance traits. Therefore, there may be a need to consider the market entry strategy, taking into consideration the cultural similarities between Chile and China. There may be an ability to apply any lessons learnt from entry into China to a move into Chile. We suggest that customisation and localisation of product offerings will be mandatory in any move into Chile, together with pressures for cost reductions. For this reason, IKEA took a transnational strategy in Chile. A wholly owned subsidiary can be achieved through setting up a new business in Chile or buying out an existing retailer (as was undertaken in England with the purchase of Habitat).This is a highly expensive option that would expose IKEA to significant financial risk if not successful. There are political risks of entering in to the market wholly in the form of nationalisation threats or corruption/bribery. An option for IKEA may be to establish a production facility in region. There has been recent success in establishing production facilities in Mexico and this presents IKEA with an opportunity to investigate this for the purpose of building supply-chain partners in the region. There may be opportunities to investigate central production facilities that could service the South and North American markets. Offsetting the high financial risks are the possibilities for a return of 100% of generated profits. Not only does this option provide IKEA with full control of the business, rewards and brand, it also provides it with strategic flexibility across its global business. The strategy that we recommend for entering the Chilean market is for IKEA to develop franchises. Franchises not only provide IKEA with full control of brand and strategy, but it is also a low financial investment risk whilst allowing IKEA to benefit from local knowledge. This allows IKEA to ease its entry in to the market as well as assisting with gaining momentum in the market. The key implications are the issue of sourcing a supply chain, as mentioned previously and there will also be lower profits returned than a wholly owned subsidiary set up. Even though our recommendation is to enter into franchise agreements, IKEA will need to makes assessments of this strategy relative to tax arrangements and legislation (e.g. distribution of profits) before making a decision. 2.6 The competitive environment Competitors of IKEA are mainly the local competitors, who copy the idea or counterfeit the goods of IKEA. In US, IKEA would face competition from Pottery Barn, Sears, Minimalista. In UK competition for IKEA would come from Tesco, Next. While in Sri Lanka, Damro would be the main competitor for IKEA. Globally, the main competitor is Wal-Mart though prices are lower at IKEA. The competitors offer differentiation in terms of styles and functions. Conrin has a low cost strategy; Cratel & Barrel offers a higher priced furniture in a box; Ethan Allen targets a more exclusive market; Wal-Mart is classified as less stylish, general store must-have-items. IKEA has proved to be more successful in delivering both high quality at a less price to the customers rejecting on weak competitors.   2.7 The Industry Environment Porter’s Five Forces Threat of New Entrants There are little or no entry barriers, but intensity of competition may scare off potential entrants. The required initial investment is not substantial and economies of scale can be used easily. To compete effectively with IKEA, the competitor must invest a greater amount, develop long-standing relationships with clients, and select suitable and competitive locations for outlets for which much patience and capital is required. It is relatively difficult to establish in major cities and gain the reputation of IKEA, establishing a vast supply chain and creating a unique brand name. Due to less regulations, the threats of new entrants are high, with no immediate threat because of the intensity of competition. Bargaining power of suppliers The bargaining power of suppliers is considerably low. IKEA has succeeded in managing and maintaining long and well-established relationships with suppliers across the globe. IKEA has been recorded to have 1380 suppliers in as many as 54countries, 21% of which are established in China in 2014. IKEA also possesses their own manufacturing company, Swedwood Manufacturer which manufactures its own designs. Therefore suppliers possess less bargaining power, and can be compelled to meet the terms of IKEA rather than vice versa. Bargaining power of buyers There are a number of retailers with a direct price-war occurring, while there are many entities who are importing from China involved in direct competition with IKEA. Consumers are faced with many choices and alternatives, and there is great amount of bargaining power at present with the buyer, due to greater choice. The buyers themselves have a substantial degree of influence over IKEA's product line and direction; for example, as mentioned in the history, IKEA developed the concept of “flat packaging” at a buyer’s suggestion, making it convenient for the buyer. Threat of substitute products No specific product can substitute the furniture, but IKEA needs be updated with the latest trends, to avoid losing their name for style. Through simplicity of design and innovative technology, IKEA can follow any new style fairly well and rapidly and move each the product into its stores. Ever since the inception of the concept of furniture, styles and trends in that sense have undergone much change. Since the current trend is “going-green”, many firms are following this concept. However, the demand for basic, functional furniture has remained relatively constant, therefore there is less threat of substitutes in the near future. Rivalry among competing firms  This is a highly competitive industry, characterized by other low priced furniture producers such as Galiform of England and retailers such as Wal-Mart of the United States In addition to local competitors. Due to the competition worldwide, IKEA has wisely attempted to compete by entering the China and Japan, markets which pose the largest competition. Many retailers are present, and a number of them import products from China selling at a low price signifying intense competition. IKEA in the China market Currently, Asia generates only 6% of IKEA’s total revenue; however, IKEA sees major growth potential, especially in China. China is the 2nd largest economy in the world, with GDP increasing over 10% yearly. IKEA has been allowed to exceed and expand its source of products in China, thereby ignoring the usual sourcing guidelines (same products from outside China). Producing goods locally to substantially lower prices is key to IKEA’s success in China (as much as 70% lower than IKEA stores outside China). Nearly 20% of all purchase volumes are made in China. Chinese consumers often use IKEA stores as a “social venue” or weekend family outing (often browsing or taking naps on some of IKEA’s products). However, IKEA’s GM in China indicated that, “Over the last 10 years, we’ve seen a very big change in the number of visitors that become customers,” he said. “Most people buy something today.” Moreover, IKEA customizes showrooms according to Chinese living patterns and standards. For example, many Chinese people live in small apartments with balconies, therefore, IKEA has added model sets and special balcony sections in the stores to show how to furnish your balcony. Local entrepreneurs have capitalized on home transport services for IKEA customers along with home assistance in assembling the furniture (especially since China does not have a Do-It-Yourself culture. In addition, promotions and marketing are often internal, due to the costs and distances involved in distributing catalogues. IKEA has realized the need to adapt its organizational structure and competencies to fit with strategic partners within their networks. For example, the organizational structure in China was developed differently than the standard IKEA organizational set-up, mainly due to Chinese cultural tenets. According to research on IKEA franchising in China, a certain amount of discontent was reported that HQ was not always very interested in knowledge coming from IKEA in China because of a lack of interest in the Chinese market. However, HQ had announced that China, Russia and Japan would probably be among the most important markets for IKEA in the future. IKEA in Japanese market Even though IKEA had entered Japan and failed 30 years earlier, in 2002, the IKEA Group established IKEA Japan KK. Immediately, IKEA faced challenges in differentiating against local competitors Mujirushi Ryohin (Muji) and Nitori who were well-entrenched (numerous national stores), inexpensive (due to low-cost imports from developing Asian countries) and popular local brands (especially among IKEA’s younger generation target market). This mature and saturated market created difficulties in attracting IKEA’s target customers . Japanese consumers were very “quality oriented” and traditionally viewed high priced products as being of high quality. However, many Japanese customers are “in the process of embracing the concept of value". In addition, IKEA has localized its modern designs to include richer and darker wood products packaged in aesthetically pleasing boxes, which are preferred by their Japanese clients, and customized showrooms (small scale apartments) display fitted IKEA furnishings (thereby changing consumer buying patterns). Large retail outlets offer home delivery and assembly services, since the Do-It-Yourself culture has not yet been widely accepted in Japan. In fact, IKEA is developing a service where old furniture is transported away, to make way for new IKEA furniture . Regardless, these strategic challenges must be rectified to meet IKEA’s targeted potential sales volume, in order to fulfill its goal in opening 8–12 outlets (first stores in Tokyo) with 46 stores in the next 33 years . IKEA in USA market Initially, IKEA had challenges meeting American customers’ needs. For example, stores weren't large enough (thereby offering the full IKEA experience), and many were in poor locations, beds were not long enough and did not fit American sheet sizes, bedroom wardrobes not deep enough, kitchen cabinets did not fit US size appliances, sofas were too hard and not big enough for American comfort, curtains were too short, product dimensions were in centimeters rather than inches, and kitchenware was too small for American serving-size preferences (e.g. glasses). In addition, prices were too high since IKEA was sourcing many of the goods from overseas, priced in the Swedish kronor, which was strengthening against the American dollar. Therefore, IKEA had to localize products, find modern, larger store locations, and outsource goods from local lower-cost suppliers (lowering transport costs and currency devaluation). Fortunately, American consumption patterns also changed towards an interest in contemporary design, and the idea of disposable furniture (IKEA’s main product line). As a result, IKEA started promoting with a series of “quirky hip advertisements” aimed at their American target market (i.e. young, married couples, college students) . IKEA in Sweden IKEA’s first store in Sweden, the first in the world, was opened in 1959 in Älmhult, in Småland. IKEA today has 17 stores in Sweden and IKEA is a big part of home decoration in Sweden – and has been so for many years. IKEA’s statement in the business mission that they make furniture for ‘the many people’ is very true in Sweden, very penetration of their products are very high, much higher than in many more markets. Accordingly, IKEA is well-known in Sweden, i.e., Swedes have knowledge about IKEA products, stores and the company, many Swedes have had IKEA furniture for generations. This is from a company perspective also a challenge, not just a good thing as IKEA becomes associated with boring furnishing styles of older generations. IKEA is still in Sweden seen as innovative with very good prices. While ‘the many people’ is an accurate description of consumers of IKEA in Sweden, in actual marketing work it is a bit smaller. It is women 20-49, often with children. In addition, an important target group in recent years has been +55 years that think they have done enough home furnishing, have no kids in the home and have a good financial situation. In Sweden the stores are fairly small and carry only 6-7 000 of the available products in the general assortment. While there is no adjustment made in the assortment to the Swedish market, adjustments are made to the local market by the stores (in terms of marketing and the local competition situation) who have the authority to adjust to local competition and have during the latter years received and developed more marketing initiatives than previously. Price (as a marketing tool) is central in Sweden as IKEA is known for its low price. This is done by have a low price promise and the aim is to have a low in comparison to competitors in different areas. Sourcing for all the larger and transport wise heavier and bulkier products are done in Europe (and Sweden itself is one of the larger sourcing countries for IKEA outside Asia). IKEA in the UK IKEA has a fairly long history in the UK, having entered the market in 1987 and now has 17 stores in the UK. Expansion plans include a further 7 stores in the near future. The UK is one of IKEA’s major markets, the second to third one in size after Germany and the USA. Overall the assortment in UK stores are not different from anywhere else in the IKEA world. The beds sold at IKEA are bigger than the normal UK size but that is something that IKEA tries to make a point of (so no adjustment has been made here). 2.9 Corporate Social Responsibility of IKEA Responsibility beyond home furnishing The IKEA vision is to create a better everyday life for the many people. This includes doing what IKEA can to help create a world where we take better care of the environment, the earth’s resources, and each other. IKEA knows this continuous improvement is a never-ending job, and that they are sometimes part of the problem. But they work hard to be part of the solution. IKEA’s position on sustainable wood sourcing IKEA only accepts wood from high conservation value forest or intact natural forest if they are verified as responsibly managed. As the world’s largest home furnishing retailer, IKEA has a long-term perspective. Their aim is to supply affordable well-designed home furnishing products to our customers. For that reason they source globally. When IKEA is sourcing globally, there is a lower amount of certified wood available. To put this into perspective, today only around 7% of the world’s managed forest areas are FSC certified so availability is an issue. This is why IKEA have decided to address the challenges as opposed to working around them. Since IKEA is big and operate in many countries, IKEA, through their demands, can influence the global timber trade in the countries where we source. Their long-term aim is to contribute to better forestry worldwide. IKEA have set up our own forestry organisation within IKEA that works with sourcing across 48 different countries. They have special projects in challenging areas such as China and Russia to help increase the amount of certified forests and improve the standards of forest management. In fact IKEA partners with WWF, the global conservation organisation to combat illegal logging in these areas. Our partnership started in 2002 and of the 1.7 million hectares that are certified in China, 1.4 million have been achieved with technical support provided by WWF, funded by IKEA. It has also helped increase the certified forest areas in Russia from 3.2 million to over 25 million hectares in September 2010, making it the world’s second largest country by certified forest areas after Canada. In a short space of time, IKEA have come a long way with increasing the availability of FSC accredited wood. Over the last three years, we have increased our use of FSC accredited wood by 16% (so trebled the proportion). Currently 24% of the wood used in IKEA solid wood products comes from FSC-certified forests, and we expect to reach 35% in 2015. Renewable energy IKEA UK has invested in a 12.3 Megawatt (MW) wind farm in Huntly, Aberdeenshire in North Scotland. The wind farm consists of seven turbines, each generating 1.75MW, producing a combined 24,700,000 kilowatt hours of electricity per year. This is equivalent to the electricity consumption of five IKEA stores, or 30% of the company’s total electricity consumption in the UK.  This investment is IKEA UK’s first step in this area, and marks a further move to secure access to renewable energy production for the IKEA Group. The acquisition has increased the total number of wind turbines owned by the IKEA Group to 67. John Sauven, Executive Director, Greenpeace UK said: “The new IKEA wind farm is transforming words into action in a powerful way. It’s part of IKEA’s 100% renewable electricity plan that should be a beacon for other companies to follow. IKEA are providing a powerful voice to those who believe a better energy future for the world will come through energy efficiency and clean, renewable energy. Together, governments, organizations and individuals can change the way the world generates and uses energy.” IKEA has also invested close to £4 million in fitting over 39,000 photovoltaic (solar) panels to the rooftops of 10 IKEA stores3 to turn sunshine into electricity. This will provide on average 5% of each store’s electricity needs, or almost enough energy to power around half of one of the company’s 18 UK based stores with solar energy alone. Everything we do makes a difference A home furnishing product goes through many stages from the time a product is designed to the day it’s no longer wanted by a customer. IKEA calls this the life cycle of a product. At IKEA, they are making improvements at every stage, and adding them to a list – a never-ending list. What if we all changed one lightbulb? If every IKEA customer replaced an ordinary 60-watt bulb with an energy-saving bulb, it would be like taking 750,000 cars off the road in terms of CO2 emissions. Imagine all the good we could do together with more actions like this. A more sustainable life at home A better start for 100 million children IKEA Foundation supports programs that improve the lives of children in need through health, human rights and education. IKEA Foundation Soft toys fund projects IKEA customers contribute to improved education for millions of children in Africa, Asia and Central and Eastern Europe through the annual soft toys campaign. Customer involvement Why we work with partners IKEA can accomplish so much more on social and environmental improvements when they work with experienced partners than when they work alone. That’s why they also cooperate with WWF, Save the Children, UNICEF and many others. 2.10 Criticisms of IKEA One may start criticizing Ikea as soon as he gets home, trying to assemble the chair or shelving unit he brought with him from IKEA store. A newspaper in New York followed an Ikea customer home to watch her assemble her new chest of drawers. Armed with a guide that provided pictures as instructions, the customer felt that an engineering degree would have been helpful, with assembly taking about two hours and two people. Ikea's reputation for furniture quality is also not stellar, with the disposable quality of some items likened by analysts to inexpensive fashion retailers like H&M and Old Navy. Other people start griping about Ikea before a store even shows up nearby. While many citizens have started blogs and online petitions to bring the store to their area, those who face an Ikea in their neighborhood aren't always thrilled about the traffic and neighborhood transformation that a big box store brings. Ikea often faces local activists' protests when store plans are announced. When the company opened a store in Moscow, the city government even blocked completion of an overpass that would direct customers to the store  3.1 Recommendation Throughout the case, one thing was common, IKEA before entering into International Market did not do “necessary homework” in order to conduct a better business due to which it always did mistakes first, learnt from its mistakes and then made changes to change according to the new culture they were operating in. The recommendations given below are solely based on the main issue identified: We classify IKEA’s recommendations into two main categories: 1.  Internal Management Issues 2. External Market Issues   Internal Management Issues:  Change in Internal Management: The management style of IKEA is quite informal. This type of management style may work in Scandinavian and European countries. But this will not work in different part of the world. When a company is going global, it needs to modify its business style a little bit according to the countries culture. IKEA, for example does not maintain any formal hierarchy, it works completely based on teams (as a family), with no proper designations even for senior managements, as well as no formal clothing, and is egalitarian. But for instance, if it operates in America it needs to change a little bit because Americans are more formal and suited at work place, focus on hierarchy, and believe in pay for performance. So these things are needed for IKEA to be considered when they are operating on a global scale. This point leads us to our next recommendation which is IKEA should have- A Strong Human Resource Management Team: As the point is about going international, and as it is about international business, it is not clearly mentioned in the case whether IKEA is centralized or decentralized. But if IKEA opens new corporate offices in whichever new country they want to run business then for its successful operations overseas it can have a good HRM team. This team will help IKEA realize the key cultural differences among countries and help adapt management strategies which would best suit them. For example: Equality in terms of race, gender, religion and others is fair. But when it comes for better performance it needs to consider which employee is better than the other. Reward or pay employees according to performance. Have a good ranking of employees within the company; allow them to have cars or other benefits so that employees stay in the company for longer terms. Unlike IKEA which does not have any proper internal management. Which means a strong HRM team will not only help IKEA improve its internal management structure and culture, but it will also help IKEA identify the best HR practices to be followed in international market like polycentric approach, geocentric approach, ethnocentric approach or whether to adapt region centric approach.   Change in Leadership Style: Due to Kamprad, IKEA is suffering from Icarus Paradox issues. So we suggest there should be a leader or a successor for IKEA who could help in bringing change for the corporation according to the fast and ever changing ways of conducting business in the 21st century. A leader who has a good vision, who can help align corporate level strategies with ever changing global business, one who is flexible and can one who considers employees and top management views while making better decisions for the company unlike Kamprad whose fragility was a part of IKEA’s DNA, and a man of his own word and principles who was quite autocratic and did thing what he thought was best for the company. That is IKEA needed a more decentralized form of management to be a better global competitor.  External Market Issues:  Focus more on customer wants and preferences: Unlike any successful company, IKEA needs to focus on customer wants rather than simply focusing on lowering costs by setting up price tags and designing furniture’s. When IKEA started operating its business in United States of America, it faced problems as it was not aware if what Americans wanted or preferred. They first followed what they used to do in Scandinavian market due to which its sales went down initially. But later when it came up with customized advertisements for younger demographics like married couples, college students and 20 to 30 something singles, due to which later within four years IKEA’s revenue doubled from $600 million in 1997 to $1.27 billion in 2001. This was the result of its focus on what young American customers wanted.   Stronger Research and Development Department: IKEA spends too much time and money on finding the right suppliers who can get aligned with their lower cost strategy. Instead they may put this same amount of time and money doing research and development before going for any international business. Like if they before entering American market, had already researched on things like American bed in king, queen and double size unlike Europeans who measure beds in centimeters. They prefer larger sofas, deeper wardrobe drawers, long curtains, large glasses and others. If IKEA focused on customer research and development on the first place then they would have made profit since they have entered American market. Product Innovation IKEA is having a product strategy but in order to have a competitive advantage in the market IKEA could become a more customer focused company in certain countries. This could help them come with more customer focused and more innovative products which might result in a higher competitive advantage in many different new markets they wish to operate in future, or are currently operating in.   IKEA could go for Related Businesses: As mentioned earlier in opportunities, IKEA could go for related new business like interior designing solution options for its customers or even offer new cookeries products to them, or they could also go for a complete product solution services for their customers. For example: if a customer is willing to buy furniture from them, then they could offer customer an additional service like give them a solution that is how they can redecorate or change their home interior according to the choice of their furniture they are purchasing. They could provide such service options Online on their websites as well. These extra services or customer solutions might not bear extra costs for businesses like IKEA which has generated good amount of profit over the years.   Outdoor Advertisement: Since IKEA is been going for a low cost strategy they can change/extend their marketing strategy. We all know giving ad on TV is very expensive and this price heavily fluctuate on the length of ad and timing. If IKEA want people to listen to their ad they have to show their ad products before/after/between news or any popular TV show, which will cost money at a certain rate. They can draw paint/graffiti on public transportations or cab or subways. Because most of IKEA's target customers are average middle class families and these people use public transportation like bus/subway; so this marketing strategy will capture attention of maximum target audience at a much cheaper way.   3.2 Conclusion As it is about all about operating in International Markets, and International Business, we do not know which strategy will best suit such multinational companies that is we do not know whether a Global standardization, or Internationalization, Transnational, or Localization, which international strategy is going to work in which corner of the world. All we can conclude by saying is that before entering into a new market a firm should do its “necessary homework’s” unlike IKEA which always did mistakes first and then learnt from it. This will save millions and billions of dollars of a company and this will also help sustain in the long run and secure its competitive advantage in the global market as well. In conclusion, IKEA has strategically designed their products to cater to their target market (i.e. younger generational families), while further reducing costs by streamlining operations with local suppliers. In addition, they have pursued a global expansion strategy of primarily entering countries going through periods of high GDP growth (i.e. China, Eastern Europe) or those developed countries with niches within the home furnishing industry (i.e. US, Japan). 25