IKEA's Globalization Strategies - Essay Example

? IKEA's Globalization Strategies and its Foray in Asia IKEA is one of the largest furniture retailers in the global market known for its best quality designer furniture products rendered at affordable prices. The company Swedish by original now endeavors to take the global market place starting from the European markets and gradually marching to the Asian markets. However in such endeavor the company counters large number of challenges pertaining to cultural differences with the Asian nations like China and Japan. The paper in that regard endeavors to understand and reflect the various challenges faced by the company in such markets and also the strategic actions taken by the company to counter such problems. The paper further incorporates separate strategic models like Ansoff and BCG Matrix to understand the company’s strategic potential. Similarly the factor test is conducted for the company in regards to Asiatic countries like China and Japan to understand the impacts of the different political, social, economic, cultural, legal, environmental and technological factors on the operation of the global furniture retailer, IKEA. The paper also reflects on the performance parameters of the company in regards to its sales, financial position and human resources potential. Such performance analysis would help one to understand its operational dynamism required to gain control over international markets. Graphs and figures along with theoretical discussion is incorporated to help in conducting a more reflective understanding of the strategic activities of the company in international markets. The analytical paper would help in rendering a clear understanding of the process through which the furniture retail company IKEA emerges out to be a global company meeting the diversified needs of people spread along various regions around the globe. Contents Introduction 4 Marketing Strategies of IKEA 5 Marketing Mix of IKEA 5 Performance Analysis of IKEA 7 Evaluation of IKEA based on the BCG Matrix 11 Evaluation of IKEA based on Ansoff Matrix 13 PESTLE Analysis of IKEA in regards to its foray into Asian markets 15 Fishbone Analysis of IKEA 18 Conclusions 20 References 22 Introduction The furniture retail company IKEA has a potential history behind its emergence and its spontaneous drive for gaining leadership in the foreign markets. IKEA emerged as the brainchild of Ingvar Kamprad who through his business acumen gradually made the company emerge as the global leader in furniture retailing. Moreover Ingvar started developing on some key strategies pertaining to designing the products, assembling the final merchandise and reaching out to the different showrooms located along various areas. Further the furniture retailer also works in the development of different catalogues which helps in enhancing the shopping experience of the consumers. However amidst these strategies the company further dreamt of marching to gain control of international markets. In this foray IKEA first focused on gaining control of several European markets. The European markets were attempted in the first case for the company being Swedish in nature happened to share the like cultural mix with the European nations. Thus the attempt to gain the views of the consumers gained success in the first attempt. However when the same expansion strategy was carried out in regards to the Asian markets the strategy countered a huge challenge. It was found that Asiatic countries like China and Japan shared several cultural differences which were needed to be addressed first to let gain an effective international base in these nations. In countries like China IKEA had to render great amount of transformation in its policies pertaining to human resources and marketing activities. These policy changes helped the company in gaining large market share in China. Similarly in country like Japan the company in order to gain a larger market share had to adapt to a new culture of changing the pricing structure of its products. The company had to reduce the prices of its different products without compromising on the quality to gain an increase in consumer mindset. Moreover while operating in Japan the company had also to alter its staffing policy. The furniture retail company was required to recruit Japanese store managers and sales staff to help suit the local culture. Again IKEA in the course of its operation in the Saudi Arabian region had to work in the form of joint collaboration with existing Saudi Arabian companies pertaining to this trade. The joint collaboration only helps them to exist in the Saudi Arab Emirates. 12Thus it is found that IKEA had to take resort to large scale modifications in its business policies to help exist in the foreign regions. The question that comes to mind in this regard is that what kind of challenges were faced by IKEA in its course of expansion moves into the Asian markets and the potency of the business strategies taken by the company to counter such challenges. Marketing Strategies of IKEA The paper now proceeds to unveil the secrets of trade of IKEA which enables the company to gain potential market in several European countries and how it would be able to build up its potential market in Asiatic countries. In order to unveil the business secrets help of some business analytical tools would be taken like Marketing Mix, Performance Analysis, Ansoff Matrix, BCG Matrix Analysis, analysis based on PESTLE factors pertaining to the Asiatic countries and also through conducting a Fishbone Analysis. Marketing Mix of IKEA IKEA in order to gain a potential market along the global sphere strategizes on its four marketing mixes pertaining to product, price, place and promotion. These marketing mixes are rightly targeted to help the company achieve larger market share in foreign nations. The marketing mixes are so designed as to help the company position itself as one of the leading furniture retailers helping the consumers gain quality products at affordable prices. Further the company also stresses on rendering the consumers large number of product assortments so as to help them choose among a large number of options. Optimization of the strategies in marketing mix is conducted to help in the expansion of the brand name of the company. Products of IKEA are manufactured in such a manner as to render to the consumers a large number of usages. Furthermore the products being sophisticated in nature appeals to the tastes of different types of consumers and also helps in making optimal use of the floor space. Owing to the production of new and spacious designs the products of IKEA are highly acclaimed by the consumers. In regards to setting price for the products it is found that the management body of IKEA through the efficient management of the supplier chain functions becomes able to reduce the price for the products. Thus the company management through maintaining an effective relationship with the suppliers together with buying the products in a bulk nature contributes to the lowering of the price parameter of the products. The scientific packaging of the products on a flat basis helps in reducing the costs related to the transportation and thereby helps in reducing the cost of the products to be delivered to the consumers. In relation to the third ‘P’ Place it is found that IKEA again through the opening of large number of stores in different localities helps in reaching to large consumer bases. The stores are created and designed in such fashion as in helping the consumers in gaining access to large number of options and assortments all in one place. This practice thereby helps in enhancing the convenience factor related to shopping. Again the stores focus on helping the consumers get access to large number of options which in turn attracts the consumers to choose rightly from the different choices made available. Finally evidence also reflects that the last ‘P’ Promotion is effectively used by the furniture retailer to effectively and efficiently communicate the message of the brand to large number of consumers. In regards to the promotional element the company is found to expend largely on designing catalogues in various languages and then circulating them over to large number of stores located in various regions around the globe. Activities concerning public relations are carried out by carrying out press releases to help communicate any new product offerings or new launches to the consumers. This process helps in brand enhancement of the company. With the advent of internet the furniture retailer takes its enhanced support in designing its own site to help reach consumer bases spread along remote areas. The consumers can get a view of the different products and thus can effectively choose between the different options. 3 Performance Analysis of IKEA The performance analysis of the furniture retailer would be conducted based on both evaluation of the profitability and operational parameter and also on the understanding of the cooperation potential of the worker base in the concern. The analysis in this case is mainly based along the 2010 period. It is evident that the corporate philosophy of the company in helping the consumers gain the right product and right quality at affordable prices helped the concern achieve an increment in the sales figure by around 7.7 percent during the 2010 period. Speaking on the operation mode it is found that the company during the 2010 period had been able to open around 12 different stores along various regions. Further the management focused on replenishing the existing stores and also in bringing in new ones for helping in meeting the changing needs of the consumers. Again speaking on the price paradigm the company was able to reduce the price set for the products by around 2.6 percent during the 2011 period. In terms of human resource management it is found that the company works in encouraging workers spread along different hierarchies to take part in decision making and in endeavoring to produce new products and processes. This fact helps in ushering new opportunities to the internal people to perform in a more motivated fashion. Further the company having spread its outlets in large number of countries embraces a large diversity of different types and culture of workers. These people are encouraged and trained to adapt to the business and company policies so as to help the concern gain increased productivity. In terms of sustainability the company works in fulfilling large number of responsibilities along the social sphere through making considerable investments in global organizations like the World Wildlife Fund and in Save the Children. Social and environmental audits are carried out by the store to help in creating a greener image. Similarly the furniture retailer also focuses on reduction of carbon dioxide emission in the atmosphere and thus helps in saving the environment. Speaking on the financial side the performance analysis reflects an increase in the gross margin levels of the company from 44.6 percent during 2009 to around 46.1 percent during the 2010 period. Though the rate of taxation increased for the company from 13.2 percent during the 2009 period to around 17.6 percent during 2010 the net revenue for the company increased along the same period by 6.1 percent by recording a figure of 2.7 billion Euros during the 2010 period. Further financial analysis made in regards to the assets of the company shows that the value of the same enhanced from around 37.1 to around 41.3 billion Euros along the stated period. This enhancement in the value of the assets of the company owes to the large scale investment activities conducted in procurement of properties and in gaining cash and convertible securities. The value of the equity assets of the company was also recorded to arrive at a figure of around 22.8 billion Euros during the close of the 2010 period. Portfolio valuation of the securities is also found to reflect an increment in the valuation which increased from 2.5 billion to around 15.2 billion Euros during the same period. The above statements thus reflect a healthy financial position for the furniture retailing company and a healthy performance matrix. The same can be reflected through the use of different diagrams which can be rendered as follows. 4 Figure 1 (Source: IKEA, 22) Figure 2 (Source: IKEA, 23) Figure 3 (Source: IKEA, 24) Figure 4 (Source: IKEA, 25) Evaluation of IKEA based on the BCG Matrix The BCG Matrix or the Boston Consulting Group Matrix is designed to compare the performance of one Business Corporation in relation to other business corporations in the same business arena. This comparison reflects the process in which the business corporation in question in relation to other business houses appears to make optimum utilization of the resource base. The BCG Matrix is based on the designing of four grids which are named as Cash Cows, Dogs, Question Marks and Stars. In case of Dogs the competency of the business organization is quite low. Thus the business house reflects little endeavor to flourish and also the market share of the business house are low. The grid marked Cash Cows reflect such business corporations which though reflect a high market share yet such business corporations fail to counter large amount of business growth. Business Corporations falling in the grid known as Question Marks are quite questionable in terms of their existence. It is because such business houses reflect a very low share in the market and also show dicey moves in regards to their business growth. Finally the business corporations falling in the category Stars are such that both have a very high market share and also reflect a huge potential to grow. 5On the basis of the four grids any business corporation can be evaluated in regards to the different competitors. The Boston Consultancy Group matrix is shown in the following area. Figure 5 (Source: Griffin, 255) In regards to the above discussion the position of the furniture retail store IKEA would be conducted. Data obtained along the 2010 period reflects that the furniture retail store IKEA has diversified nature of market shares along different global regions. In regions like Europe the furniture retailer reflects a market share of around 79 percent. Again in regards to the North American region the market share would reflect a market share of around 15 percent. The business corporation however in regards to the Asian and Australian countries reflects a very low market share of around 6 percent. Thus in regards to the European regions the furniture retailer falls in the grid ‘Stars’ owing to its very large market share and continuous endeavor to grow. However in regards to the Asian and Australian markets the business corporation falls in the grid of ‘Question Marks’. It is because IKEA in regards to the Asian nations is found to reflect a low market share. However the company reflects an increasing endeavor to grow in such areas through countering large number of strategies to incorporate the cultural diversity of such areas. Thus the evaluation of IKEA based on BCG Matrix reflects a dual position in regards to the global interface both along European and Asian countries.6 Evaluation of IKEA based on Ansoff Matrix The next tool that can be used to evaluate the position of IKEA in regards to its internationalization strategy is the Ansoff Matrix. The Ansoff matrix can be used to understand the strategy the firm can take in regards to expanding its market base in regards to both existing and foreign markets. It is found that the company in regards to expanding its market in existing countries needs to take resort to the market penetration strategy in which generally the company resorts to lowering its price structure of the products. Again the company can also penetrate the existing market through conducting large scale development in its product mix. Such developments rendered in the products helps them to attract new consumers in the existing market. Similarly when the company targets a new market the company works to develop the market using large number of promotional activities. Such promotional activities help in developing a larger area for conducting the sales of the existing product base of the company. However the company can also work in diversifying into other related areas other than its existing business to gain hold of a larger market sphere. Diversification helps in enhancing the potential or the productivity of the company to compete against its competitors.7 The above discussion can be reflected through the use of a diagram as follows. Figure 6 (Source: Mercer, 171-172) The furniture retailer IKEA can be best analyzed in regards to the Ansoff Matrix for it takes resort to large number of strategies to counter its expansion into foreign markets. It is found that the company in order to fit to new cultures brings about new policies pertaining to the designing of new stores to the developments made in regards to the product or commodities. Opening up of new stores and conducting a large number of promotional activities like holding of press meets and designing of new catalogues helps in developing its field in the new market areas. The developments of new markets reflected in the Ansoff Matrix are well incorporated by IKEA in regards to its expansion strategies. The company also countered large number of diversification strategies wherein goods are produced to fit in local cultures and also the price was set to meet local tastes. Diversification strategies were also carried out in regards to changes in the transportation and logistics process wherein flat type of packaging process was carried out. This new packaging process helped in reduction of transportation and logistics cost and thereby helped in lowering down the price of transportation and logistics. Again new types of designs were largely brought out to help create new markets for the products of the company. Thus through the strategies of developing new products to the mode of developing in new markets helped the company to gain control of new markets. In regards to its international activities it is also found that some local furniture companies like Fly located in France endeavored to replicate the design and business methodologies of the company but failed to fully imitate the business and operation structure of the global furniture retailer. 8 PESTLE Analysis of IKEA in regards to its foray into Asian markets The PESTLE Analysis of IKEA in regards to its foray into Asian countries would be conducted along the markets of China and Japan. In the first case the analysis would reflect on the political, economic and social factors in regards to both the countries so as to give a picture of the socio-cultural competencies the company had to face while endeavoring to operate there. Speaking in regards to the Japanese context it is found that political factors in the country aimed to counter the different social and economic setbacks that streamed up in the country owing to the rise of the financial crisis in Asia. Moreover the government of the country had to take strong steps against the rise of terrorist power and threats and also from the impacts rendered by political upheavals in countries like Iraq. The government of Japan also highly supported the deregulatory policy which helped the rise of private companies and also called for rapid internationalization of several companies. This favorable political atmosphere helped IKEA to gain a strong foothold in Japan. Speaking on the economic front the rise in the deregulatory regime in the Japanese markets helped in the ushering of Foreign Direct Income into the country thus creating opportunities for several industries to rise. More specifically in Japan the home furnishing sector earned great help from the government in regards to the rise in the deregulatory regime and also in the revision of the legislation concerning the home retail industry. The political, legal and economic atmospheres pertaining to Japan largely contributed for the rise and growth of retail sector in the country. Speaking in terms of the social and cultural concepts the management of the furniture retail company IKEA noticed that consumer attitudes and mindset in Japan shared common likings to the Swedish people. Thus IKEA successfully gained ascension to the Japanese economy through the opening up of showrooms reflecting designer products at affordable prices. Low price structure and designer elements lured the Japanese consumers largely thus carving out a large market for IKEA. Moreover the Japanese consumers also preferred the introduction of packages pertaining to the furniture products which are rendered by the furniture retailer. The furniture products were produced in such fashion as to help in the generation of adequate space in the Japanese rooms. 9 The furniture retailer IKEA by dearth of using environment friendly technology in the production of furniture reflected the use of sustainability measures and practices. In the technological front the company used ultraviolet radiations for helping in the fastening of assembled units and also set up separate benchmarks like E1 to monitor the environmental standards of the products produced. Similarly the optimal utilization of the transportation resources helped the company to reduce the impact of pollution in the natural environment. These technological and environmental practices of the company helped it to gain popularity in the Japanese markets.10 In regards to the country of China the furniture retailer IKEA happened to obtain a large number of opportunities which helped in the steady growth of the company in the region. China which was previously viewed as quite conservative in its trade activities happened to alter and modify a lot owing to its ascension to the World Trade Organization. It is found that ascension of China to the global trade body largely altered its business and trading sphere helping the country gain the opportunity of huge flow of foreign direct investment. Moreover in the business sphere retail companies were encouraged to conduct activities like mergers and acquisitions which helped in the steady revival of small and sick retail units. In regards to the economic factors the region of China reflected large scale transformation in the demographic landscape wherein the rise of middle and high income classes was recorded in a frequent manner in different regions. Especially the rise in middle level income groups reflected a huge rise in the regions like Shanghai which led to the possession of large number of properties in the form of residents. This increase in the residential property led to the demand for furniture and other home furnishing products thus contributing to the rise in the furniture retailing activities in the stated region. Furniture retailers thus gained the opportunity to open large number of shops and retail outlets in such regions. Other economic factors like the huge availability of cheap labor in the Chinese region also prompted the growth of furniture retailing in the region. Commenting on the social sphere it is found that the rise in the per capita income of the Chinese people has largely contributed to the increase in the furniture stores in the region. Similarly the economic factors also contributed to the rise in export activities in the region and side by side encouraged the furniture manufacturers and dealers to gain the advantage of high quality imported products. Import taxes being reduced to zero helped in the rise of furniture retailing in the region. Thus IKEA is also found to counter large amount of competition from local brands like MeiKe Xinjiang, Richman and again Land Bond Guangdong to name a few. To fit into the Chinese culture the brand had to increasingly promote it as a cost effective one for several communication barriers led to the spreading of a misconception in which the Chinese consumers viewed IKEA as a very costly and westernized brand quite against their own culture. IKEA in its nature of operations in China is found to take special care in regards to protecting the natural environment through the introduction of safer technology and also through the increased use of safe logistic system. Moreover the company also takes part in large number of environmental activities pertaining to investing for the cause of wild life in the region. These practices tend to create a favorable image of the company in the eyes of the Chinese people so as to continue its business in a successful manner in the region. 11 Fishbone Analysis of IKEA The Fishbone Analysis deals with the cause and effect relationship among several variables which tend to render an impact on the process of manufacturing or delivering products and services to the ultimate consumers. The main causes or variables which tend to produce an effect are like the people or employees working in the concern, the process through which the business is carried out, and the different resource bases like machineries and the manufacturing plant involved in the production or servicing functions. Optimal utilization of the stated variables can help in producing desired effects for the running of any business corporation. Effectiveness of the fishbone analysis can be had with the increase in the number of variables linked with it. The rise in the number of variables is treated in the fishbone diagram as branches or other sub-branches emanating out in regards to the business process and this helps in rendering increased specification to the effect obtained.12 The fishbone diagram can be reflected in the paper as follows. Figure 7 (Source:Gordon, 70) IKEA also operates based on efficient manpower which are trained to render the best designs to the consumers. Moreover the company takes into count a diversified pool of people who are trained based on the company’s philosophy to help in enhancing the productivity of the markets. Incorporation of best technological processes makes the products friendly to both the environment and to the society at large. Conclusions IKEA which had a very humble beginning under the entrepreneurship vision of Ingvar Kamprad emerged to be one of the leading furniture retailers in the world. The company gradually after gaining much local publicity in Sweden endeavored to take over the world. It started spreading its branches among several European countries which started running successfully owing to the same cultural environment. However the company countered a challenge when endeavoring to enter the Asian markets owing to cultural variance. Countries like China and Japan are analyzed in the paper to provide a detailed understanding of the nature of challenges faced by the company and strategic actions taken thereby to counter such. Strategic tools are incorporated in the paper like Ansoff and BCG Matrix to reflect on the internationalization activities of the company. Moreover the marketing mix elements of the company relating to its production, pricing, distribution and promotional activities are also analyzed to understand its business potential in gaining larger markets. Similarly the two countries China and Japan are analyzed on the basis of factor analysis pertaining to political, economic, social and cultural, technological, environmental and legal factors to understand its impacts on the activities of the business organization to gain potential markets. The paper in turn signifies the main problem areas which needed to be effectively tackled by the company in regards to seeking an effective market in the Asian countries. IKEA is found to have largely adapted to the changing cultural needs of the Asian countries through rendering changes in the business policies pertaining to production, packaging and pricing actions. Such initiatives were taken by the company to help render quality goods to the consumers at affordable prices. This practice helped the company penetrate larger market areas. Local warehouses were also designed to help in reduction of logistics and transportation cost which again helped in protecting the natural environment. All such practices helped IKEA gain a formidable position in the Asian markets. References Daft, Kendrick, M., and Vershinina, N, Management-International Edition, Cengage Learning, EMEA, 2010. IKEA, About IKEA, 2011, November 1, 2011, http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/history/index.html IKEA, IKEA Marketing Strategy, 2010, November 1, 2011, http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_info.html IKEA, Welcome Inside: Yearly Summary FY10 IKEA Group, 2010, November 1, 2011, http://www.ikea.com/ms/de_AT/pdf/yearly_summary/Welcome_inside_2010_update.pdf. Griffin, Ricky, W., Management, Cengage Learning, 2010. Mercer, David, Marketing, Wiley-Blackwell, 1996. Palepu, Krishna G., et al., Business analysis and valuation: text and cases, Cengage Learning EMEA, 2007. 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