Strategic Options for IKEA in Brazilian Market - Case Study Example

The successful business regardless of its nature bears the idea behind its operations, which is embodied and reflected in the chosen direction. The past century has been marked by the globalization challenges and respective shifts within the business environment. As a result, the various business aspects received massive theoretical and scientific elaboration, conceptualizing the mechanisms and systems to be applied (Yohn, 2015). The strategic planning represents the significant scientific field, reflecting the organizational-wide procedure of determining the business paths, steps and decisions congruent with the selected direction, appropriate amount and manner of resources allocation, necessary for the plan fulfillment (Duran, 2013). Furthermore, strategic planning involves long-term business perspective, which implies having the clear vision of business goals, objectives and desired outcomes (Yohn, 2015). On an initial level, the strategy defines the two business dimensions – “what” and “how”. The former dimension reveals the selected route and the target of the business and the latter describes the concrete measures, systems and processes, ensuring the coherent performance.

Basically, at the primary stage, the business needs to detect its environment, and in this respect, the mission statement mirrors the necessity of the company within the market and the grounds of its existence. The sense of mission plays a crucial role for the business as it is the driving force for the team, stimulating the coherent work and commitment. The role of the stakeholders in defining the organizational direction can be interpreted by the basic task, assigned to the company by the society (Duran, 2013). Business and society are the inseparable phenomena, and therefore, the manner of their interaction has the determinant characteristics. Thus, the stakeholder involvement in the direction planning provides the chance of increasing the positive response in the result, as the views and perceptions of the environment have been considered in advance. The term ‘ participatory planning’ explains the stakeholder engagement, which implies regarding the public values and concerns as the basis for the initiatives broader consensus.

The business of any origin does not operate in isolation, and external environment generates certain circumstances, which can present opportunities as well as the threats for the company (Yohn, 2015). For this purpose, the strategic audit is the appropriate tool to be used, which is intended to reflect the company’s state in terms of available resources and capabilities as the necessary force, empowering the company to take the advantage of the opportunities and timely respond to threats.

The experience of IKEA perfectly exemplifies the strategic management success, which is indicated by company’s profitability, competitive position, brand image, reputation and increasing presence in the global market. For over 73 years, the company has grown from the small retailer into world’s leader, operating 381 stores on the territories of 47 countries, with over $23 billion revenue (Yohn, 2015). IKEA managed to conserve and bring through the years its core values, and company’s success can be explained by the unaltered prerogative of being flexible and able to adapt to the environment (Duran, 2013). However, despite the company’s status and popularity, its ubiquity is contingent and Brazil remains one of the areas untouched by IKEA (Chen, 2013). In order to elaborate the appropriate strategic options, it is essential to fulfil the IKEA’s strategic audit and the results are to be juxtaposed with the pre-established economic, political, legal and industry prerequisites of Brazil.

VALUE CHAIN

IKEA’s operations involve product development and design, manufacturing process, logistics, retailing and distribution. The IKEA’s strategy feature implies the price tag development, which precedes the production. Basically, IKEA product developers directly collaborate with the suppliers in order to ensure the low price starts from the ground up. The effective utilization of the raw materials is targeted at the production equipment maximization, and the emphasis is made on using the power of scientific advance and technological innovations (Duran, 2013). Basically, the company’s management recognizes the necessity of the efficient production process, beginning with the factory up to the customer; in this respect, much effort is made in pursuit of waste minimization, environmental awareness, implied by self-assembly and flat-pack practices. Analyzing IKEA’s value chain, it is essential to admit the flexibility presence as the core attribute throughout the cycle, which can be traced in the product customization for the foreign market, and this peculiarity contributes to the growing customer base.

CAPABILITIES ANALYSIS

Leading, directing and controlling functions of the effective management involve the full usage of the company’s resources. Assessing IKEA’s capabilities, it can be assumed, that the company has been successful in using the strategic arsenal in order to maintain its competitive position (Yohn, 2015). One of the core capabilities is reflected in the leaders’ manner to conduct the business. According to the management style and the competitive advantage, integrity is vested in all the activities (Duran, 2013). Moreover, the IKEA’s management is focused on the high degree commitment in terms of corporate value and diversity promotion within its workforce (Chen, 2013). The deep in– depth insight of the corporate priorities ensures the decision-making process and strategic direction alignment through due consideration to the business effect on the stakeholders, the importance of which has been mentioned above.

Among the IKEA’s key sustainable competencies, emphasis on the external and internal customer fairly occupies one of the first positions as it greatly contributes the customer loyalty. The company’s staff as the most valuable asset is provided with due inspiration, motivation, guidance and mentoring; and much support is given in order to recognize the corporate mission.

Ultimately, the capability that is crucial for the competitive advantage sustainability is the ability of the IKEA management to variegate and differentiate the company’s strategy, which empowers the business to be dominant in the global market space.

STAKEHOLDER ANALYSIS

In pursuit of the IKEA organizational goal, the management is practically sharing the same position with the company’s customers, as they both are equally contributive to the objectives attainment (Yohn, 2015). The IKEA leaders, equipped the abilities and skills of effective managers have provided the company with the present-day status – the world’s leader of household furniture. Basically, the efficient management as the spine of the company has launched the chain reaction, building the trust and customer loyalty and further – the competitive position (Duran, 2013). Well-trained workforce plays the role of the intermediate within the uneasy task to meet the requirements and needs of the shrewd customer and connect the company with its target client. The additional force embodied in the suppliers and other stakeholders is to be deemed as the complementary factor, contributive to the IKEA’s successful performance.

SWOT

Strengths

The decades of Scandinavian reticence and frugality and ethical business approach, IKEA has managed to create a strong brand image, being at the forefront in terms of its global operations in context of household furniture. Among the most notable strengths of the company, it would be essential to mention the profitability on the worldwide scale and strong reputation of the high-quality product company (Duran, 2013). As far as ethical aspect is concerned, corporate social responsibility is vested throughout the company’s operations and ethical priorities are cemented in the IKEA’s strategy, along with the product differentiation and cost leadership.

The leading position of the company is also to be determined by the effective allocation of the product on the global market space (Yohn, 2015). Furthermore, the capability of diversification must be considered one of the core strengths, as private food label launch in 2005 has extended the company’s impact and the scope of the business.

Weaknesses

The giants of global business along with their strong points are not able to avoid negative aspects and weaknesses, which are essential and are to play the role of motivation. One of the aspects that are seen as the company’s weakness refers to the IKEA’s design and creativity dimension, which is exposed to fluctuations and might falter due to a number of reasons. Furthermore, IKEA faces the deficiency in terms of different regions product portfolio.

Opportunities

The perspective of further dominant position of IKEA in the global market is available, due to the efficient marketing strategy and superb management – this aspect presents the opportunity for the company in the long run (Duran, 2013). Additionally, the company displays concern over the local communities condition, and their needs are greatly supported by continued company’s innovations and developments; this approach contributes to IKEA’s competitive advantage, thus the sustainability of this activity presents an undisputable opportunity. The constant new product development, revenue resources diversification and low-cost leadership increase the company’s chances for the further flourishing and successful international expansion.

Threats

The exposure to threats is represented by the possibility of the stronger company emergence, provided the product portfolio is more diversified and the price is the lowest within the market. However, the furniture industry requires the competing companies to provide the latest trends, otherwise, the industrial difficulties are unavoidable (Yohn, 2015). The enhancement of the present-day Ikea’s operations by minimization of the threats and maximization of the strong points is implied in the ability to impose or utilizing the system of strategic management.

IKEA IN BRAZIL

Brazil along with its controversial nature represents an attractive market for IKEA due to a number of reasons. The investment in this area is seen as opportunity due to imported furniture high value, and the tendency is expected to be positive in the nearest future (Brazilianfurniture.org.br, 2016). Furthermore, the cheap labor force in contrast with North America and Europe and market peculiarities provide high chances to succeed in Brazil (Duran, 2013). Basically, the Brazilian furniture companies are characterized by the small size and are family-owned, and their target audience is specifically the southern population of Brazil. Thus, a large market share is still left for the foreign companies like IKEA to make the investments (Yohn, 2015). Moreover, the trade system of Brazil has undergone liberalization and has become more competitive and open. The proximity to raw materials is considered the most significant reason to expand into Brazil, as the land is occupied by million hectares of forest. According to the cost leadership stated in the company’s mission, Brazil must be regarded as the potential partner due to the fact, that wood supply with its production and distribution low cost is an attractive factor (Duran, 2013). Nowadays, the tax rates for the furniture import does nor exceed 15 percent, which is considerably low, and this aspect is rather an encouragement for IKEA for the operation integration to Brazil. The independent surveys indicate, the average Brazilian consumer tends to rely on renown brand names, which can be regarded by IKEA as a perspective.

However, Brazilian environment with its superficial advantages bears underlying stumbling blocks, which dictate certain complex manoeuvres. The franchising model with its centralization imposes complications in terms of dealing with cultural sensitivity, logistics mechanisms and arising demographic tendencies. Basically, in a case of Brazil, it is vital to find the equilibrium between the centralization and autonomy degree.

As far as entry mode is concerned, strategic alliance appears to be the most appropriate in context Brazilian furniture market reorganization (Yohn, 2015). Generally speaking, IKEA can benefit from the Brazilian competitive market, absorbing the demographic diversity and culture, and strategic alliance provides an opportunity to enlarge the partner involvement level (Duran, 2013). Potential Brazilian partner, based on the internal business condition knowledge, is empowered to mitigate the process of entry while the Scandinavian headquarters is responsible for know-how, standards, assets and resources. Nevertheless, the promising economic conditions are somewhat overshadowed by the political dimension, which is far from being characterized as stable.

The fluctuations in the Brazilian political environment, specifically during the elections, can destabilize the internal situation and impact the other spheres practically overnight (Yohn, 2015). Thus, realizing the inability to forecast influential factors, the strategic alliance in Brazilian context contains risks connected with the management and controlling function (Duran, 2013). Moreover, the potential collaboration with Brazilian partner is subject to detailed analysis as the obvious cultural distinction can become the cause for the serious conflicts and discrepancies.

Ultimately, taking into consideration the IKEA’s position and expansion experience, the thoroughness of partner selection process is not to be compromised, as high levels of bribery and corruption can bear serious obstacles and provide more losses rather than benefits. Consequently, the pros and cons are to be adequately juxtaposed and assessed.

CONCLUSION

To sum it up, the case of IKEA within the Brazilian market is expected to fail due to the conceptual incompatibility of the franchise system and the particular environment (Pearson, 2015). The centralized control imposed by IKEA is sure to result in undesired outcomes, and IKEA is required to fulfill the process and policy adaptation considering the drastic demographic and cultural difference (Duran, 2013). Weighing up the existing entry modes, the strategic alliance presents the most suitable form for the business expansion in Brazil, regarding the industry features (Yohn, 2015). Perceiving Brazil as a new sourcing area for IKEA, the Brazilian market is viewed as an opportunity, however, Brazilian furniture industry directions demand surveillance, regarding the company’s objectives and goals.

On the whole, the overall business environment of Brazil promising rather than not, especially in terms of economic tendencies. Nevertheless the inability to forecast the political sphere, severe criminal situation and poor transportation system, are the factors which may be damaging for the well-established IKEA’s mechanisms. Moreover, the renown company’s flexibility might have the opposite effect and lead to the irreversible consequences for the company’s image and reputation.