International Business And Competitive Strategy Plan For IKEA

Literature Review Synopsis

Discuss about the International Business and Competitive Strategy Plan.

The assignment is an attempt to understand the international business and competitive plan to venture into the foreign market and establish the business. This is three part assignment where the assignment 1covered the international business and competitive strategy practice with reference to the case study of IKEA, a Sweden based furniture retailer (Kale, and Singh, 2009). This is followed by assignment 2 where the literature related with the subject was reviewed extensively to understand the strategy, Industry best practices model models and plan for internationalization. Finally in the assignment 3 the basis for design, requirement and challenges and gap analysis was evaluated and market entry strategy and standardization v adaptation issues examined.

The theoretical background is derived from assignment 2 that explained the global standardization strategy, strength of global standardization strategy and competitive strategy. It also explained the industry best practices pertaining to furniture industry with examples drawn from players practicing them (Azevedo, 2013). It also assessed the factors of conceptual model implemented with regard to competitive environment, value chain, internationalization benefits and strategic choice.

IKEA is Sweden based furniture retailer founded in 1942 that specialized in Scandinavian designed furniture and other household goods. The company reached the maturation phase in the life cycle of the product by 60s and planned to expand to international market. At present the company has 230 stores spread across 42 countries globally supported by strong team of 70,000 employees IKEA. 2012). The company operates in Europe, America, Australia and Asia. The company works with the vision of providing affordable furniture to the largest base of customers without compromising on quality.

The company prefers to use wholly owned subsidiary as the preferred mode of market entry. It also wants to promote the standardization strategy compared to adaptation (Chung, 2003). This the problem situation faced by IKEA and this assignment aims to provide solution to that. 

There are different reasons that serve as the basis for the design of an international business and competitive plan for IKEA. When the company finds the domestic market reaching the saturation level or the company intends to improve the revenue and profit margin of the business it opts for international business. In addition to make the business venture in the international market successful it designs the competitive plan (Burdon, Chelliah, and Bhalla, 2009). The economic globalization is the market condition that prompts businesses to expand rapidly and venture into international market. This is further boosted by the breakthroughs made in the technology in the 20^th century whereby communication to the global client became easier. The global travel facility provided by airlines and email network facilitated the management of business from any part of the world.

Case Organization – IKEA

The international business operation provides scope to executives looking for reduction in the budget so that profit margin can be improved. For example a company can reduce overhead expenses by venturing into international market with currency deflation relatively and where the cost of living is low. In context to IKEA a Swedish based company it can taking advantage of these reduced overhead expenses by venturing into emerging market like India and China (Burdon, Chelliah, and Bhalla, 2009). IKEA should take into account the market size of furniture industry, the customer preference for furniture in that market, the competition from local and other global players in that market and external environment impacting the business decision in the identified market.

The requirement and challenges of international business and competitive strategy for IKEA is related with understanding the micro and macro environment in the international market. Based on this the company can handle the challenge of identifying the most suitable market entry strategies (Byrne, and Popoff, 2008). The other two assignments have conducted the environment analysis to understand the internal and external factors influencing the business decision in the international market. Porter’s five force model is used to understand the competitive landscape in the international market. IKEA used the transactional strategy to handle the challenge in the Chinese market by introducing balcony facility ies. This model helped to identify the competitive advantage of IKEA that can be used to expand the business in the international market as explained in assignment 1. The SWOT analysis is conducted to identify the strength, weaknesses, opportunity and threat. The strength of IKEA represents the internal resource capability and core competencies and it can be used to handle the challenges like internal weaknesses and external threat (Byrne, and Popoff, 2008). In addition the company can use the strength to take advantage of the company as explained in the assignment 1. The global standardization strategy as explained in assignment can provide the three primary factors used by modern company in the international market. They are elimination of sales personnel, ready-to-assemble (RTA) furniture manufacturing and global sourcing decision. In case of IKEA the RTA is used effectively in the international market.

In context to the industry best practice models it is observed that the sustainable business, safe working procedures and environment and effective supply chain are considered important aspect in the modern furniture industry. The gap analysis identified in IKEA with regard to the industry best practice is the robust supply chain model and it can provide major advantage to the company in the international market. The other gap identified is related with the safe working procedures and environment as observed in the competition company Herman Miller. They have implemented the industry best practice to promote effective relationship with employees of the company (Campbell,and Reuer, 2001). With respect to the industrial hazard related with the furniture industry the company designed health and safety policy to guide staff working in the wood working machine.    Based on the gap analysis it is observed that there is no such health and safety policy in IKEA to safeguard the employees working in the wood working machine.

Problems Situation

The gap analysis of IKEA also exposed the company should use workplace environment safety model as used by Haworth, another company in the furniture industry that adopts industry best practice to safeguard the human resources (Campbell,and Reuer, 2001). They provide proper safety training to new staff in using the various powered and non powered tools so that workplace hazard is avoided. IKEA should use such industry best practice to reduce the number of accidents and fatal injuries in the workplace.

The international market entry strategy is crucial decision to be made by the company in the process of venturing into the international market. The different market entry strategies differ from each other in terms of risk factor, control power and commitment of investment and the profit potential (Twarowska, and KÄ…kol, 2013). The various market entry strategies include exporting and importing, licensing, franchising, joint venture, strategic alliances and direct investments.

The most common strategy to enter international market is export and import. Export is process whereby goods produced in one country is sold in another country Export can be either direct export or indirect export. Direct export involves the parent company while indirect export there is no involvement of parent company as the sale is managed by agents. This provides less risk and return. It is not suitable for IKEA’s business model as the return is limited.

This market entry strategy has limited risk. In this the licensor provide patent, trademark,, know  how on product to the licensee where the later pays royalty to the former based on the sales volume (Twarowska, and KÄ…kol, 2013). It promotes technology transfer between two countries. IKEA will not share the technical know of its process so it will not be preferred method to enter international market by the company.

This market entry strategy resemble with the above licensing strategy except the fact that the franchise strategy has more involvement in the marketing programme and training apart from controlling. In this the franchisee pay to the franchiser fees and royalty for using the business format, trademark and act as semi independent owner. If licensing and franchising is compared it is observed that the later has longer duration and more rights and resources (Grant, and Baden 2004). It includes equipments, process, training support site approval and design and marketing support. This is more common in the food and restaurant business and KFC and McDonald is very successful example of this strategy. This model will not suit the IKEA’s business model for technical reason.

Basis for the Design of an International Business and Competitive Plan for IKEA

The joint venture related with international business resemble to licensing. The difference in this market entry strategy is that the international company own equity and management control in the foreign company. Thus there is partnership between home and host country leading to forming new company (Grant, and Baden 2004). This provided more control over operation and marketing and sharing the risk with the local company. It is preferred as it permits the better control and lower risk compared to other market entry strategies. But in context to IKEA it is not suitable as the company has no policy of partnership.

This is a market entry strategy that includes a range of cooperative agreement undertaken by company like formal joint venture, shared research and minority equity participation. In the modern business it is gaining importance and exhibit three distinct attributes. They are it is generally undertaken by companies in the nation with high industrialization (Klaas 2005). The strategic alliance is undertaken with the objective of developing new products and technologies compared to promoting existing products. Finally it is developed for short duration. One of the major objectives of strategic alliance is technology transfer. This market entry strategy also does not go with the strategy of IKEA.

This is market entry strategy where the international company undertake FDI (Foreign direct investment) in the production facility in the foreign market. This strategy provides highest commitment on the part of foreign company as it involves 100% stake. There are two kinds of strategy under direct investment and they are acquisition and Greenfield investment. In acquisition strategy the company acquire the existing company in the foreign market while in Greenfield investment the company develop indigenous project from ground level (Kale, and Singh, 2009). Acquisition is more popular and provides lower risk and quick entry compared to Greenfield investment. In fact Greenfield is process of process of forming wholly owned subsidiary and involves huge investment and complex in nature. On the other hand it provides complete control and better return to the international company compared to other mode of market entry strategies. It is also highly risky and time consuming.  IKEA prefers to establish the business as wholly owned subsidiary with the objective of total control and high profit.

Before the 60’s the process of globalization was unknown in the furniture industry and it is related to the nature of business. The furniture is a product whose value is low compared to its volume, involves relatively more transport cost and prone to damage in shipping. On the other hand the trade barriers on the part of government were also not favourable. But IKEA, a Sweden company founded in 40s became a leading player in the home furnishing market globally. The company was ranked 44^th out of the top 100 brands in 2002 by Interbrand leaving behind powerful brand like Pepsi (Slywotzky, and Hoban, 2007). In that year the company owned 160 stores spreading across 30 countries. This is based on the idea of the IKEA that the company would provide well designed product with wide range and functional products related with home furnishing with affordable price so that more and more people can by the product. This strategy helped to establish the business in the home market and it reached the market saturation phase in the life cycle of the product by 60s and company made the decision to expand to international market. It was supported by the research that Sweden is small market and it is logical for the company to expand the business to international market provided the business model of the company is good (Slywotzky, and Hoban, 2007). The internationalization strategy of IKEA to the Scandinavian and rest of European countries was made with the standardization strategy where the company does not consider the taste and preference of customers locally in the various country in Europe. Only minor changes made with the objective of cost control and the strategy proved a success in those markets for the company.

Requirement and Challenges of International Business and Competitive Strategy for IKEA

But the issue cropped up in the 80 when IKEA expanded into the US market where the company was challenged with several issues. The root cause of issue was identified as the failure of the company to consider the local taste and preference. The customer in US was different and liked large furniture and items related with household and this resulted in huge drawback to the internationalization strategy of the company (Chung,,2003). This is how the management of the company made the realization that the standardization strategy that was highly successful in European market needs to made flexible enough to match the taste and preference of the customer in the US market. Thus in 90s the company changed the strategy and opted for adaptation strategy to estabksih the business and it helped to improve the business by 2002 where the company gained 19% revenue from the market.  Thus the company now adopt the product to the taste and preference of the customers in the foreign market though the corporate and operational strategy is changed when the company find it essential for the success of the business.

Recommendation and Conclusion 

Based on the examination of market entry strategies to expand the business in the international market it is observed that the company opt for wholly owned subsidiary under Greenfield investment as the preferred market entry strategy to enter international market. It was the reason for the late entry of IKEA in the Indian market where the FDI in single brand retailing as allowed late and the company was a late entrant and lost business (Chung, 2003). Thus it is recommended that the company should explore other marketing entry strategy like Joint venture and strategic alliance as other alternative to enter international market where the FDI option is not available to take benefit of the first mover. It is agreed that it will provide less controlling and lower margin compared to the wholly owned subsidiary method.  It should also implement health and safety measures and supply chain process in accordance with the best industry practice as discussed in the gap analysis section like other player in the furniture industry Herman Miller and Haworth.

This assignment in accordance with assignment 1 and assignment 2 did not focus on presenting the internationalization strategy of IKEA in any specific international market rather it focussed on the various strategy and model used to evaluate the international market and discuss the basis for design, requirement and challenges, gap analysis, market entry strategy and issue of standardization and adaptation experienced by the company in the US market and lesson learned for future internalization strategy (Zou, and Cavusgil, 2002). Though the research included examples from different international market to explain the concept of international business and competitive strategy by evaluating the framework and model explained and evaluated in the previous two assignments.

The team reflection can be stated as the assignment explored the various facets of international business and competitive strategy by using the various model like Porter’s five forces, SWOT and Value chain to understand the international market (Zou, and Cavusgil, 2002).

References

Azevedo, A. (2013). Advances in sustainable and competitive manufacturing systems. Cham: Springer.

Burdon, S., Chelliah, J. and Bhalla, A., 2009. Structuring enduring strategic alliances: the case of Shell Australia and Transfield Services. Journal of Business Strategy, 30(4), pp.42-51.

Byrne, S. and Popoff, L., 2008. International Joint Ventures Handbook. Baker & McKenzie.

Campbell, E. and Reuer, J.J., 2001. International alliance negotiations: legal issues for general managers. Business Horizons, 44(1), pp.19-26.

Chung, H.F., 2003. International standardization strategies: the experiences of Australian and New Zealand firms operating in the greater China markets. Journal of International Marketing, 11(3), pp.48-82.

Grant, R.M. and Badenâ€ÂFuller, C., 2004. A knowledge accessing theory of strategic alliances. Journal of management studies, 41(1), pp.61-84.

IKEA. (2012). Welcome Inside: IKEA Group Yearly Summary FY12. Retrieved September 12, 2016, from IKEA website: https://www.ikea.com/ms/en_CN/pdf/yearly_summary/ys_welcome_inside_2012.pdf

Kale, P. and Singh, H., 2009. Managing strategic alliances: What do we know now, and where do we go from here. Academy of management perspectives, 23(3), pp.45-62.

Klaas Jagersma, P., 2005. Cross-border alliances: advice from the executive suite. Journal of Business Strategy, 26(1), pp.41-50.

Kling, K. and Goteman, I., 2003. IKEA CEO Anders Dahlvig on international growth and IKEA’s unique corporate culture and brand identity. The Academy of Management Executive, 17(1), pp.31-37.

Slywotzky, A. and Hoban, C., 2007. Stop competing yourself to death: strategic collaboration among rivals. Journal of Business Strategy, 28(3), pp.45-55.

Twarowska, K. and Kąkol, M., 2013. International Business Strategy-reasons and forms of expansion into foreign markets. Poland: Maria Curie-Skłodowska University, p.55.

Zou, S. and Cavusgil, S.T., 2002. The GMS: A broad conceptualization of global marketing strategy and its effect on firm performance. Journal of marketing, 66(4), pp.40-56.