IKEA Strategy in Arab Countries - Report Example

IKEA strategy in Arabs countries of Introduction IKEA is best known as an international furniture retailer headquartered in Netherlands. The company operates in 43 countries. IKEA has successfully internationalized its business in overseas locations by devising country specific marketing and product strategies (Markeline, 2014b). This paper focuses on IKEA’s strategies in Arabian countries. It covers the environmental analysis of the Arabian market by using PEST model and a SWOT analysis has been done over the PEST model. Moreover, this paper also highlights the marketing strategies of the company in the Arabian countries. SWOT analysis of the PEST factors Political Strength Weakness Stability within the government. Accession of Arab countries like UAE, Saudi Arabia in the WTO Continuity of Policies A proper democratic setup is absent. High tendency of clampdowns Opportunities Threats Close relationship with the European countries particularly UK. Lack of internal security. Disputes with some of the neighbouring countries. The political structure of the Arab countries varies among them. Countries like UAE and Saudi Arabia has a relatively stable political system, with a highly centralized government system. Contrarily, in countries like Syria, Libya, Iraq, etc, the political system is quite unstable and disputes are frequent. IKEA has expanded its business operations mostly in politically stable countries like Qatar, UAE, Saudi Arabia, etc (Markeline, 2014a). The company has also ensured that it maintains a good relationship with the local government to avoid any political confrontation. Moreover, the accession of some of the major Arabian countries to the World trade organization has made it easier for the foreign firms like IKEA to commence business in these nations. The centralized control of the government has been increased by lack of democracy. It can exert significant pressure on a foreign country in terms of limiting their business activities. The high levels of clampdowns often pose as a challenge to the overseas companies. In order to commence seamless business activities, IKEA has always tried to maintain a good relationship with the political authority and has followed all the trade laws of the country (Markeline, 2014c). IKEA also faces certain threats from the political structure. The lack of internal securities in some countries may make it potentially dangerous for the company to conduct its business activities. Moreover, the political disputes among the neighboring countries can also influence the operations of IKEA mostly in terms of customer footfall and cutting off the supply chain. However, IKEA can leverage the good relationship between UAE and the European countries and can have prospective opportunities in its expansion in the country (Carnegie, 2008). Economic Strength Weakness Countries like UAE, Qatar and Saudi Arabia has a fairly strong economic structure, with sound banking systems. Customers have high affordability. Saudi Arabia leverages from the Oil sector, while UAE and Qatar has become global business centres. Countries like Syria, Iraq has a much weaker economic condition. Unemployment problem is quite persistent. Opportunities Threats The economic conditions show an upward trend. Overseas ties can eventually improve the economic condition. The economy of UAE and Saudi Arabia is over dependent on the oil sector. Political disputes has eventually degraded the economic condition of countries like Iraq, Syria, etc. The economic condition of a nation largely affects the business activities of a firm as it reflects the affordability of the customers. The robust economic condition of countries like Saudi Arabia and UAE helps the company to easily sell its products to its target customers. Due to the high affordability, the company can easily sell highly priced products to its customers (Carnegie, 2013). These countries have also become one of the major global business centres, which is responsible for increasing the economic conditions of the customers. Moreover, being one of the major tourist spots, IKEA has potential business opportunities in the hotels and restaurants. However, a contrasting scenario is evident in countries like Syria, Libya, Iraq, etc, where the affordability of the customers are quite low, which as a result has posed to be a challenge for the company (US Department of State, 2013). Therefore, IKEA has avoided its expansion in weaker economies. This strategy has helped the company to focus at its target group that would yield the desired revenue. However, the economic structure of UAE and Saudi Arabia is highly dependent on the oil industry, which may act as an economic weakness. Depending on one sector is limiting the prospect of the countries’ to prosper in other sectors. Any probable down turn in the oil industry can put a severe impact on the national economy and will eventually be reflected in the business activities of the firm (Carnegie, 2013). Social Strength Weakness High social security systems in the economically developed Arabian countries. Population of young citizen is quite high, particularly in Saudi Arabia. The Arab countries are characterized by a collectivist society. Increasing adoption of westernized cultural practices. Lack of freedom of expression Sudden changes in the cultural practices are looked at with skepticism. Gender inequality. Opportunities Threats Evolution in the cultural trends towards westernization. Improved education system. Highly male dominated society Cultural practices are highly dependent on the religious practices. Orthodox behavior is quite common. The social structure and the cultural practices of a nation largely determine the consumer behavior and preferences. The societies of the Arab countries are highly collectivist in nature, which as a result leads to large sized families. IKEA has recognized this social factor and has designed its furniture so that it can be compatible with large families. Moreover, the large young population of the countries offers prospective opportunities for the company. IKEA furniture has been designed in such a way that it will attract the young generation. As the company operates in a male dominated society, it has also redesigned its promotional activities in such a way that it targets the male members of the family (Afuah, 2007; US Department of State, 2013). The highly orthodox behavior has complied IKEA to go beyond its values to remove certain female oriented advertising contents before publishing them in the Arab countries (The Guardian, 2015). However, it has been evident that despite of the orthodox nature of the society, there is a growing trend towards adoption of western culture, particularly in the UAE and Saudi Arabia. This will eventually help IKEA to run its business operations seamlessly in the Arab countries by introducing new promotional activities and furniture design. Technological Strength Weakness Financially strong countries have the ability to pursue technological development. Rise of social media and internet usage Technological education is low Opportunity Threat Emphasis on research and development Rising level of piracy. Countries like UAE and Saudi Arabia has developed a fairly high technological advancement. This as a result, has allowed IKEA to easily manage its supply chain and seamlessly run its business activities. The company also utilizes the increasing popularity of social media and high internet usage to communicate with the customers (Markeline, 2014a). On the other hand, in the poorer economies the lack of technological advancement poses as a challenge to the company. Marketing Strategy of IKEA In order to ensure a successful business operation in the Arab countries, IKEA need to strike a proper balance between globalization and localization. IKEA is one of the well established international brand, but in order to successfully run a business in a foreign country the company needs to understand the social and cultural trends of the nation. In the Arab countries, the cultural background is quite different from that of the country of origin of the company (Afuah, 2007). Therefore, the marketing strategies that were successful in the other countries may not prove to be fruitful in Arab countries. Thus the company needs to follow the local culture and design its product and communicational strategies accordingly. IKEA needs to address the collectivist social culture and design television commercials consisting of large families using IKEA products and deriving value from them (Analoui & Karami, 2009). At the same time, IKEA needs to incorporate the new product development that will create a differentiating factor to distinguish itself from the local furniture companies. The sole dependence on the localization may cause brand dilution and low brand recall, therefore it must integrate certain international elements to make the brand stand out from the rest. The balance between the globalization and localization will help the company to successfully make a close relation with the customers and it will also allow the customers to relate their culture with the value proposition of the company. Moreover, by acknowledging the social trend, IKEA will also be able to make product designs that will attract the target customers of the Arab countries (Dess & Lumpkin, 2009). References Afuah, A. (2007) Business models: A strategic management approach, 4th ed. New York: McGraw-Hill Analoui, F. & Karami, A. (2009) Strategic management in small and medium enterprises. London: Thomson learning Carnegie. (2008). Arab Political Systems: Baseline Information and Reforms. Retrieved from http://carnegieendowment.org/2008/03/06/arab-political-systems-baseline-information-and-reforms Carnegie. (2013). Economic Turmoil in Arab Countries—Can Partners Help? Retrieved from http://carnegieendowment.org/2013/03/18/economic-turmoil-in-arab-countries-can-partners-help Dess, G. & Lumpkin, G. (2009) Strategic Management: Creating Competitive Advantages. 6th ed. London: McGraw-Hill Education. Markeline. (2014a). Saudi Arabia. Retrieved from www.marketline.com Markeline. (2014b). Ikea Group. Retrieved from www.marketline.com Markeline. (2014c). United Arab Emirates. Retrieved from www.marketline.com The Guardian. (2015). Ikea apologises over removal of women from Saudi Arabia catalogue. Retrieved from http://www.theguardian.com/world/2012/oct/02/ikea-apologises-removing-women-saudi-arabia-catalogue US Department of State. (2013) Country Reports on Human Rights Practices for 2013. Retrieved from http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/#wrapper Read More