Global marketing management - Essay Example

? of the of the Part A Yip (2003) pointed out that discussion about internationalization and global environmental forces is incomplete without mentioning the role of industry market contexts which can force a Multinational Corporation (MNC) to alter its internationalization strategy. However, market context of a MNC can be decided by understanding role of competitive forces such as supplier activity, entry barrier created by stringent foreign investment policy of local government, consolidated nature of market due to presence many players with equal resource capability, presence of substitute products and nature of the demand of buyers. Actually, market context is broader application of five force framework presented by eminent management scholar Michael Porter (1980). Yip (2003) pointed out that five force framework comes at later stage of international strategy determination by any MNC because competitive position of a international firm can be changed in country-by-country manner due to different environmental forces. For example, suppose an international company wants to expand its business in a new market where it is not operating, in such context, the company should try to understand the macro-environmental forces in the first place in order to estimate potentiality of its international strategy. Hence, it can be surmised that Porter Five Force framework is the internal environment analysis of the industry but international companies need much broader strategic framework which can assess the macro environmental forces such as political situation of the country, economic condition, social & cultural issues, technological advancement, legal proceedings and environmental issues of a particular country. In such context, Van Witteloostuijn and Boone (2006) pointed out that PESTLE (P-political, E-economic, S-social, T-technological, L-legal and E-environmental) is the most comprehensive framework to assess global environment of a company. However, PESTLE is little check-list type of framework and global companies use the framework to check whether there is opportunity or threat exist for them in the macro-environment. Kaufmann and Van Witteloostuijn (2012) argued that PESTLE is not a complete theory which measures all the forces in environment. For example, PESTLE doesn’t measure the impact of information, demographics and ethics variables in the macro-environment. Importance of PESTLE can only be realized if it is applied for practical purposes otherwise the model might be viewed as another management utopia. For example, suppose a multinational company X of Europe wants to expand business in a Latin American country but they do not have any knowledge about the environment of the country. The multinational company X can face six different challenges such as, 1- P- unstable political environment which can disrupt their operation in the country or even create confusion regarding entry strategy, 2- E- poor economic growth of the country might result lack of purchasing parity of consumers which negatively affect the demand for the product of company X, 3- S- lack of understanding of socio-cultural context of the country can create problem for the company X to design effective product-marketing strategy and 4- T- lack of technological growth and infrastructural support in the country can hamper the potentiality of internationalization strategy of X. Kaufmann and Van Witteloostuijn (2012) stated that companies can use PEST instead of PESTLE to measure global business environment in those cases where environment and legal proceedings play very little role. Research scholars such as Porter & Siggelkow (2008) and Heijltjes & Van Witteloostuijn (2003) stated that international companies should try to understand the global business opportunities in terms of both macro and micro environmental context. Ghemawat (2004 & 2007) pointed out that ignoring market need while developing globalization strategy is probably the greatest mistake that can be committed by an international company. The eminent research scholar postulated the CAGE framework in terms of cultural, administrative, geographic and economic dimension of a foreign country. Supporting the CAGE framework, Grant (2010) stated that the model plays excellent role in measuring national idiosyncrasies in different foreign countries. Distance between the home country of the MNC and the foreign country can not only be measured by the CAGE model but also the model serves well as strategic fit for the company to decide its international strategy. The CAGE model can be explained in the following manner; Table 1: CAGE Model Cultural Distance Political Distance Geographic Distance Economic Distance Distance between countries Multinational companies need to hire local personnel to handle its operation in foreign countries. Hiring local personnel and using their suggestion can help an international firm to cope with social and cultural norm of a foreign country. International companies need to measure stability of political environment in the country and also check the foreign investment policy of the government before deciding the entry strategy. Geographic remoteness of the foreign country needed to be considered by the international company. Lack of road transport and geographic remoteness of the foreign country can increase logistic cost of MNCs. Unequal distribution of per capita income in the foreign country can create problem for the international firm to decide product pricing strategy using standardized pricing model. Many MNCs from developed country face such kind of pricing dilemma while expanding business in emerging markets. Distance between Industry Nature of the industry expectation might be different in foreign country. In many cases, international companies shut down foreign operations due to its inability to cope with social-cultural orientation of the people in foreign country. Local political parties can even oppose the expansion strategy of the international company. Fluctuation in shift of political power balance in foreign country can severely affect the industry growth in foreign country. Geographical distances can create problem for food industry to preserve the freshness of their food product in foreign countries. Environment harshness and lack of infrastructural support can increase cost of operation in particular industry in foreign country. Economic uncertainty can negatively affect the industrial growth in foreign countries. Slow gross domestic product (GDP) growth of a particular country can affect its industrial output. (Source: Ghemawat, 2004 & 2007) Part B The researcher has selected IKEA as the international company and Indonesia has been selected as destination foreign market. Till date, IKEA has not started any business in Indonesia but the furniture retailing giant has announced that they would enter Indonesian furniture market within 2014 (Cahyafitri, 2012). Hence, this is the ideal situation to assess the existing market opportunity in Indonesia which can help IKEA to design plausible marketing strategy for penetrating Indonesian furniture market. The researcher will assess the macro and micro environmental opportunity in Indonesia with the help of theoretical frameworks that have been mentioned in the part A. However, there will be two possible limitations in the macro-environmental analysis such as, 1- the researcher would use economic data of specific period in order to reduce outlier intervention effect and 2- there is no scope for conducting primary research hence the researcher will only use secondary data to analyze the environment of Indonesia. First, the study will briefly describe the resource capability of IKEA in order to create basal plane for further analysis. IKEA- Business Matrix IKEA is a multinational furniture retailer having presence over 35 countries and the company is headquartered at Delft, Netherlands. The company was established by Ingvar Kamprad during 1943 and in the last 70 years, the furniture retailing giant has expanded its operation by establishing more than 300 stores across the globe (IKEA PS, 2012). Euromonitor International (2009) reported that IKEA generally earns annual revenue of than €20 billion from its global operations. IKEA offers customized furnishing solution to customers and the company also offers functional home furnishing and readymade furniture which can satisfy the need of price sensitive customers. IKEA targets customers like low-middle income families, students, couples and young professionals who are ready to assemble the furniture parts by themselves or transport the furniture parts from the IKEA retail shop to home without seeking help from the company. The researcher has selected PESTLE and CAGE model discussed in the part A in order to understand the macro-environment forces while Porter Five Force frameworks. External Environment Table 2: PESTLE-Indonesia Factor Nature Impact on IKEA Political Although Indonesian government has opened up the economy for foreign investors but the foreign investment policy of the government is not transparent. Political tension between ruling and opposing party is creating barrier in the path of economic liberalization. IKEA has the opportunity to use the open economic policy of Indonesian government to enter in the country but widespread corruption in the country can create problem for IKEA to enhance profitability in its operation. Economic Economically, Indonesia is far more stable than most of the Asian countries. The country has average GDP growth rate is over 6% and per capita income is growing at a rate of 7% and present per capita income is US$3,900. IKEA will get the opportunity to cater the need of customers who have sufficient per capita income and ready to spend extra money buy customized furnishing solution. Economically, expanding business in Indonesia has the potential to be successful in future. Social Muslims are the largest community and minor communities include Indian professionals, wealthy Chinese businessmen etc. These community groups prefer religion wise customization in the product. For example, Muslims prefer green shades in the product while Chinese customers prefer animal symbolization in the product. IKEA needs to customize their product portfolio as per requirement of religion groups during festival seasons such as Dewali, Ramjan and Chinese New Year. The company can also offer seasonal discount schemes in order to attract particular community of customers. Technology Technological growth in the country is less than 2% and infrastructural support is also very poor in Indonesia. Growth of online retailing is slowly picking up in the country while government is still not ready to increase investment in technology development. Poor technological support will increase the cost of operation for IKEA in Indonesia. Lack of transportation infrastructure would definitely create logistics and supply chain problem for IKEA. Environmental Indonesian government has ordered both local and foreign companies to reduce the green house gas emission by 25% but as of now, government still not formulated ant sustainable environmental policies. IKEA is known for its corporate social responsibility (CSR) activities and environment sustainable programmes hence it is expected that the company would reduce green house gas emission as per government requirements. Legal Indonesian government has failed to formulate transparent intellectual property (IP) right law in order to reduce widespread counterfeiting activities. Corruption and counterfeiting will create chances for illegal copying of IKEA product portfolio which will definitely decrease competitive advantage of IKEA. (Source: Central Intelligence Agency, 2013) Table 3: CAGE-Indonesia Cultural Distance Political Distance Geographic Distance Economic Distance Distance for Industry IKEA is a European country while they need to choose Indonesian partner such as PT Hero Supermarket, Graha Vinoti Kreasindo (GVK) etc who can help them to understand the cultural and social orientation in Indonesia. Same as political factor mentioned in PESTLE. Transportation in Indonesia is plagued by harsh geographical orientation and urbanization is still at its growing phase in the country. IKEA needs to establish warehouse and inventory facilities within 20km to 30km distance from the stores in order to reduce the transportation cost. Per capita income of the country is still low when compared to per capita income in developed nations. Hence, IKEA needs to adjust its prices in order to remain relevant to larger section of the society in Indonesia. (Source: Wisesaputri, 2009) Internal Environment Table 4: Porter Five Force-Indonesia Force Nature Impact on IKEA Buyer Power Switching cost in the industry is high and absence of global furnishing retail brand like IKEA will decrease switching option for customers. On the other hand, collectively buyers can influence retailers to adopt customization in product-pricing strategy. Overall, buyer power is moderate in the industry. IKEA needs to customize its product-pricing strategy in order to attract Indonesian customers. IKEA can use its global brand image in order to create initial hype in the market. Supplier Power Supplier power has been largely decreased due abundance of suppliers in the country. Large furniture retailers’ bargains heavily while purchasing raw material in bulk. Hence, overall supplier power is estimated as low. Although IKEA uses central supply model for its business operation but using low cost supply from local supplier will improve their operational margin significantly. Threat of Substitute Online retailing can be potential substitute of brick and mortar retailing. However, the demand for online retailing is still pretty much low in Indonesia. Threat of substitute is assessed as low. IKEA offers wide range of furniture products to customers hence there is low chance of getting exact substitute of product portfolio of the furniture retailing giant. IKEA has also integrated e-business strategy in order to compete with online furniture retailers. Threat of New Entrant Setting up furniture retailing chain is capital intensive process and international players need to establish partnership with local players to enter furniture retailing industry of Indonesia due to government norms. Hence, attractiveness of furniture retailing industry in Indonesia is pretty much low for small level new entrants. Threat of new entrant is assessed as low. Lack of threat of new entrant will decrease the competitive pressure on IKEA up to significant level. Industry Rivalry Furniture industry in Indonesia is growing at growth rate of more than 9%. Intrinsic rivalry in the industry is pretty much high due to presence of players like Garant Mobel Indonesia (GMI), PT Cahaya Sakti Multi Intraco etc who offer similar kind furniture products with 50% market capitalization. Hence, industry rivalry has been assessed as high. IKEA will face intensive competition from local players and the company needs to use its global resources in order to design a formidable marketing strategy. (Source: Wisesaputri, 2009) Part C Global companies need to use both strategic and tactical elements while designing global marketing strategy. Same condition can be applied to IKEA because any marketing plan is bound to fail if it is decided with the inclusion of social and cultural context of the country. Strategic marketing element of IKEA in Indonesia can be explained in the following manner. Table 5: Strategic Global Marketing of IKEA in Indonesia Customer Segment Age Group Demographics Consumer Purchase Behaviour Students & Single Professionals 20-25 years Major universities and companies are located in cities like Jakarta, Surabaya etc. Hence, IKEA should open its stores in above mentioned cities in order to target students and bachelor professionals. Due to lack of financial resources, these customer groups are ready to self assemble or self-transport furniture parts in order to buy high quality and customized furniture without spending too much money. Family Customers 25-35 years Capital city Jakarta is preferable location for family centred customers hence IKEA should initially open its store in capital city in order to achieve maximum brand exposure. Family customers prefer to buy large and customizable furniture which can accommodate maximum number of family members and can also work play material for children. (Source: Wisesaputri, 2009) Tactical Global Marketing of IKEA in Indonesia Strategic marketing audit has helped the study to understand the fact that IKEA should target students, couples, working professionals and family members in Indonesia but at the later stage they can look for business customers. Part A and Part B of the essay have been significantly helped the researcher to understand the business environment of Indonesia. In such context, 4P’s of global marketing mix of IKEA can be recalibrated in accordance with Indonesian environmental and furniture industry dynamics. Product and Price IKEA has already entered Singapore and Malaysia through joint venture with local players and furniture retailers (Ikano Group, 2008). IKEA should follow the same strategy in Indonesia in order to decrease operational and financial risk associated with expanding business operation in unknown country. Another important thing is that there is hardly any difference exists between Indonesia, Malaysia and Singapore when it comes to culture and demographic aspect hence following growth strategy in Singapore and Malaysia will help IKEA to design product mix in accordance to demand of Indonesian customers. Taking help of the research York of Ying (2005), it can be said that IKEA should design products as per seasonal and communal requirement. For example, offering green shaded furniture during Ramjan and Eid al-Fitr would definitely help IKEA to attract Muslim customers. On the other hand, the company should increase the size of the furniture in order to attract family customers in the country. IKEA should offer the assembling and transportation facilities with its furniture products in order to target wealthy Chinese family customers. Recalibration of forward and backward integration of the logistics and supply chain activities will definitely decrease value chain operation cost for IKEA. Decrease in value chain cost would help IKEA to follow competitive pricing strategy in order to penetrate in Indonesian furniture market. Place and Promotion IKEA should start its promotional campaign in the form of TV commercials, print advertisement and social media advertisement at least 3 months prior to start of its store operation in order to generate brand awareness among customers. In the initial stage, the company should open three stores in Jakarta and other important business hubs in Indonesia. The company can even open promotional display stores in major shopping centres in Jakarta in order to generate awareness among customers. The furniture retailing giant should use local procurement of resource model in order to decrease cost of distribution channel. During operation in Indonesia, IKEA should use electronic displays and seasonal sales promotion techniques in the form of discount, gifts and cash back offers in order to engage and attract customers. The company can also use co-branding strategy by establishing partnership with international Airlines in order to attract business customers. Under the co-branding strategy, business travellers in the Airline will get opportunity get free shopping point in IKEA stores. Conclusion IKEA needs to change its rigid European mentality while penetrating in Indonesian furniture market in order to adjust with fluctuating industry environment in Asia. Changing the business value system will not only help IKEA to understand the requirement of Indonesian customers in better manner but also help the company to formulate a formidable global marketing strategy. References Cahyafitri, R. (2012). IKEA furniture stores to open in Indonesia. Retrieved from http://www.thejakartapost.com/news/2012/03/27/ikea-furniture-stores-open-indonesia.html. Central Intelligence Agency. (2013). People and Society: Indonesia. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/id.html. Euromonitor International. (2009). Furniture and furnishings stores - Indonesia, Euromonitor International. Retrieved from http:// www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/ResultsList.aspx. Ghemawat, P. (2004). Distance still matters. Retrieved from http://mbi.dirkjanswagerman.nl/static/files/MBI/Module%2021/Distance%20still%20matters.pdf Ghemawat, P. (2007). 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