The IKEA group majors in selling Scandinavian designed accessories and furniture. The company sells a wide variety of furniture for bedrooms, kitchens, children rooms, and living rooms. As in August 2014, the company was operating in 50 countries across the world. Ingvar Kamprad founded Ikea in 1943, and it initially majored in selling picture frames, table, pens watches, jewelry, nylon stocking and table runners. According to Christopher, (2006)In 1947 the company started stocking furniture made by local manufacturers in its stores. It was to later launch its first furniture catalog in 1951, and then it set up a furniture warehouse by 1953 by 1955 it had already started its furniture design. The company began experiencing massive growth when it began expanding its business into the rest of Europe and other global markets. By 2000 IKEA had a lot of store across the world. One of the group’s main agenda is to offer a good and well-designed furnishing products at an affordable to price . Thus the company aims at providing quality products to customers at affordable prices.
The company is mostly using resource-based approach when trying to invest in emerging markets. According to All Business, (2015), the Resource-based approach includes view the firms’ resources and capabilities and later coming up with the best plan. According to Carlsson (2016), This theory views firms as an institution made of many resources. The way these resources are combined is what makes the company stand out from the rest. This means that the first thing that should be done by examining the internal environment of a firm.
Resources in a firm are made of organizational processes, firm attributes, capabilities and all assets. They are considered as all inputs that make up the IKEA Company. According to Carlsson, (2016) not all resources that make up an organization are relevant some are not relevant. Based on All Business, (2015) argument For the IKEA Company to be competitive in its emerging markets it should pot ray the following four attributed. These are commonly referred to as VRIN characteristics
A VRIO framework is a tool used to range the strengths and weakness of a firm. This framework is usually made up of several questions to be asked concerning the firm.
IKEA global expansion strategy was established in the 1940s by its founder. Further, the company has continued with this vision up to date. This vision stated that the company should sell typically Swedish product wherever it ventures in the world. The company decided what to produces and later offered it to customers without doing much research. The company always demonstrated its Swedish roots even when doing advertisements in the international markets. It has continued to maintain some culture all cross its stores globally. It continued to maintain a level of standardization because it wanted to offer its customers a Swedish experience. It believed that localizing the business would not have made the company unique instead it would have made it just one among many others in the industry
The IKEA company it mainly targeted the global middle class who had some shared habits. However, the company realized that for it continues being relevant in the market it had to localize. Thus it started making its advertisement based on a cultural heritage of each country which differed significantly across different markets. Because of some cultural differences, IKEA has faced some cultural challenges such as different tastes, many demand, and social culture.
India is made up of 1.295 billion people with 7.3% GDP growth and $2.049 trillion GDP. It also happens to be the world’s fourth-largest economy and world largest democracy. It is expected that India will have the largest workforce in the world. It has also been said that 10 million people usually migrate to towns and cities each year in India. The government has also put some strategies which have helped in transforming India into a global manufacturing hub. Since its liberalization inn1992 the economy of India has been in the process of integrating with the global economies thus attracting investors from all over the world. The government has been running camping of ‘make in India’ thus giving an opportunity ton many firms to make direct investment in India. Also, the government has come up with many initiatives which are meant to foster innovation, facilitate investment and protect intellectual property.
Political Factors
This is the degree to which a government intervenes in the economy. They include
Ikea decision to invest in India came at a time when the Indian government want to suspend some rules on foreign companies venturing in the Indian market. Thus this is the right time for IKEA to invest in India.
The economic factor they include
Ikea strategy mainly targets middle-class consumers. However, the product will still appeal to those people with a high income because of the design and also quality. The company must always make sure that it products go at the lowest prices in the markert. price changes of raw materials and commodity p in India may make the purchasing cost for IKEA to rise. This is likely to bring about the high prices of products to consumers. The rising fuel industry is also expected to affect the IKEA bringing about rising in prices
Social factors
Most of Asian society happen to be savers than spenders, and in such an economy people might be unwilling in buying new furniture thus opting to save for just in case of anything.
Technology Factors
Some technological factors that may affect how the IKEA functions in India include automation technology, R&D activity, and the rate at which technology is changing. These factors can as well determine barriers to entry or even outsourcing decisions.
Radio Frequency Identification Device technology can be of great use to the IKEAs’ supply chain. If adopted it is likely to bring about less inventory for the supermarket which brings about a lower cost for the company and translates to lower price.
Environmental Factors
They include factors like climate weather and climate change. Environmental factors can greatly affect industries such as insurance, farming, and tourism. Being aware of how climatic change usually affects the operation of companies and the products they typically offer. On the other hand, the government put various measures to try and protect the environment they usually impose regulation meant to protect, prevent and control pollution. In India, the government has collaborated with other NGOs working to control the Mother Nature.
Legal Factors
Safety and health Laws legal compliance of IKEA is usually effectively implemented with the most applicable and relevant laws that are based on environmental Social and working conditions.
What IKEA considered when venturing into the Indian market
IKEA considered very many factors before venturing into the Indian market. But they were already present in the market because they had warehouses ‘suppliers and production. It was easy for them to enter the Indian market because they had some operation otherwise they would have begun from scratch. Miller, (2010) states that IKEA was always sourcing from India for the last 28 years thus venturing into the Indian market became very much accessible. Before venturing into any market, IKEA company must do some market analysis about how many people live there and also how much they earn. The company also have to check on how people live their life at home. This is because one of the companies agenda is to give people the best home experience. Bengtsson, (2010 pg., 59) states that one of the significant challenges for IKEA when venturing into new markets are coming up with home furnishing which is of great interest to the local people. Artisan, (2017) argues that People across the world have different tastes thus coming up with a product that fits each person becomes an enormous problem.
Mode of Entry in the Indian country
IKEA commonly uses franchising to enter into different markets. Business Week, (2005) argues that IKEA international happens to be the owner of the IKEA brand, and other legal assets. IKEA Franchise in many countries. ICMR India, (2010) states that the IKEA group happens to be a franchise that has most of the stores in Asia Europe, and the United States. However, the company has to do a lot of advertising in India to attract customers.
India Furniture Industry
The furniture industry in India can be thought to be non-organised because it is made up of a small percentage which is about 05 percent. However, this percentage has been increasing in every year. The furniture industry happens to be organized in different categories why handicraft category is considered as the primary category. The wooden furniture is also a significant category in the non-organised furniture industry and deals with demand for home items of furniture. Order for household furniture’s is commonly affected by various factors such as interest rates, disposable income, and employ level
The five forces analysis
Barriers to New Entrants
According to Kumar, (2010), barriers to entry can be explained as reasons that could hinder various companies from venturing into the market. The following are the barriers to enter the Indian furniture market .
Cost of capital requirements
ICMR India, (2010) argues that the capital needed to venture into the furniture industry could be very high making it difficult for companies to venture into this market
Experience and knowledge
Since furniture is usually considered as a shopping, good .customers need to select what they want. According to Bartlett, Dessain& Sjoman, (2006 pg., 89) companies’ reputation is very important in this industry. Imported furniture is booming in India thus designs are also critical. Leggett, (2014) states that One must have a good relationship with his customers and suppliers to succeed in this market. Being able to maintain value chain and healthy relationship with customers will ensure sustainability of accompanying in this industry. According to Times (2010) developing relationship will require one to have knowledge and experience in this field which can be easily acquired or collected while operating in the market. Given this factor, it is, therefore, easier to note that the furniture industry in India is bests for those companies that have been in the market for so long.
Legislation
The legal part is not that important in the Indian furniture industry. Instead it offers excellent opportunities to newcomers like lower tariffs.
The bargaining powers of suppliers
Artisan, (2017) states that the capabilities of suppliers are equal to the power of buyers in this industry meaning that it can squeeze profitability out of business. (ICMR, 2013) Argues that Suppliers can use their bargaining power by raising prices of goods or even offering the low-quality product. In the Indian furniture Industry, the bargaining by customers happens to be very low. The modern design furniture quickly transforms to become the trend. The manufacturer is also said to come up with products according to instructions given by customers this has greatly hindered the supplier power
The bargaining power of buyers
IKEA, (2017) argues that In the Indian furniture industry, the bargaining power of a buyer is usually very high. The buying process usually includes shopping or buying for products one the customer has decided; he goes ahead to purchase the product from a retailer or a supplier. Product design usually becomes a trend in the market. Bengtsson, (2010 pg,26) argues that manufacturers have to meet the requirements of customers, Porters suggests that retailers power become vital if they can be able to convince their buyers to purchase their product
The Threat of substitute products or services
Mellahi (2017) states that the higher the substitution rate, the less profitable a business is. Wooden furniture happens to be the dominant product traded in the Indian furniture industry. According to Times ( 2010), Wooden furniture can significantly be substituted with non-wooden items of furniture such as plastics or aluminum. Aluminum stands to be the significant substitutes of wooden product in the Indian furniture industry. However, wood products are still preferred because they are much cheaper as compared to the aluminum products
Rivalry among existing competitors
There can be the fierce rivalry between companies competing in the industry. The more aggressive the competition, the more unprofitable that business seems to be. ICMR, (2013) states that for a company to be more profitable, it needs to know its competitors.
Number of Rivals
The furniture industry in India does not have the intense rivalry because there are very few firms in the industry. Dalvik, (2011 pg78) foreign companies play a very significant role in this market because of the growing interest in imported products for customers.
The industry growth
Slow growth usually brings about increasing competition. From various research, we have found out that the slow growth in the Indian furniture market has brought about an increase in the growth of furniture industry every year thus rivalry is not expected to be that high.
Product differentiation
Dalvik, (2011) states that Product differentiation plays a significant role in protecting the company and also helps the customers to identify a product efficiently. In the Indian industry design usually make a product different from any other, and it also makes the product a trend.
From the five force analysis, we can see an excellent opportunity for the furniture industry in India. According to Business Week, (2005) IKEA venturing in India happens to be quite a promising idea. The IKEA Company should consider hiring an interior designer to visit people in their homes and apartment could make the company have more sales. An experienced interior designer will help build a lot of sales for the company. Many customers usually do not have a clue of where to get some of this products. This interior designer should have cat logs when they are visiting the customers. Having an interior designer will make the company make more sales because he can quickly push the product on people.
Conclusion
IKEA is a company that has contributed significantly to making furniture fashionable disposable and cheap. It continues to show innovation in different product design. It has come up with varying strategies of expansion in Indian. It hopes to succeed in the Indian market despite some cultural differences.
List of References
All Business, 2015. IKEA brings the picture to life. [Online] Available at: <https://www.allbusiness.com/company-activities-management/operations-supply/10574219-1.html> [Accessed 29 August 2018].
Artisan, 2017. IKEA Furnishing the world. [Online] Available at: <https://career.3.forumer.com/a/ikea-furnishing-the-world_post184.html> [Accessed 29 August 2018].
Bengrtsson, S. (2010). Ikea the book: Designers, products, and other stuff. Stockholm, Arvinius.
Business Week, 2005. How the Swedish Retailer became a global cult brand. [Online] Available at: <https://www.businessweek.com/magazine/content/05_46/b3959001.htm> [Accessed 29 August 2018].
Bartlett, C. A., Dessain, V., & Sjoman, A. (2006). IKEA’s global sourcing challenge: Indian rugs and child labor (A). Boston, MA, Harvard Business School.
Christopher, Y.A., 2016. IKEA idea challenges consumer behavior. The Columbus Dispatch. p.1.
Carlsson, M. (2015). Strategic sourcing and category management: lessons learned in Ikea. https://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=1042803.
Dahvlvig, A. (2011). IKEA Edge. Blacklick, McGraw-Hill Publishing.
ICMR India, 2010. IKEA’s Global Marketing Strategy. [Online] Available at: <https://www.icmrindia.org/casestudies/catalogue/Marketing/IKEA’s%20Global%20Marketing%20Strategy%20-%20Marketing%20Case1.htm#Promotional Strategies> [Accessed 29 August 2018].
ICMR, 2013. IKEA’s Cost Efficient Supply Chain. [Online] Available at: <https://www.icmrindia.org/casestudies/catalogue/Operations/IKEA%20Cost%20Efficient%20Supply%20Chain-Case%20Studies.htm#Managing_Supply_Chain>[Accessed 29 August 2018].
IKEA, 2017. The Values that characterize IKEA. [Online] Available at: <https://www.ikea.com/ms/en_GB/about_ikea/press_room/values.pdf> [Accessed 29 August 2018].
Leggett, K., 2014. Service = Brand, Part 2. [Online] Available at: <https://evergance.wordpress.com/2009/08/> [Accessed 29 August 2018].
Kumar, S., & Kumar, S. 2010. IKEA-Case Sunday. [Online] Available at: <https://www.scribd.com/doc/21712419/iKEA>[Accessed 29 August 2018].
Miller, M.P., 2010. IKEA with Chinese Characteristics. The China Business Review.
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Mcnamara, T., & Descubes, I. (2016). Can IKEA adapt its service experience to India? Emerald Emerging Markets Case Studies. https://nls.ldls.org.uk/welcome.html?ark:/81055/vdc_100033241185.0x00001b.
Mellahi, K.( 2017). Global Strategic Management.
Times, 2010. IKEA SWOT analysis and sustainable business planning. [Online] Available at: <https://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-business-planning/introduction.html > [Accessed 29 August 2018].
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