Managing Cross-Cultural Challenges: A Case Study Of IKEA Australia And Sri Lanka

Background of IKEA Australia and Sri Lanka

Discuss about the Cross Cultural Management for Technological Innovation.

Workforce in recent times has become immensely diverse and multicultural. The advent of globalization has led several nations across the world to encourage opportunities related to trade and investments. However, this has led to the elevated rate of growth of development in the areas of trade, finance, sales, marketing and technological innovation. With the increased rate of mobility, businesses have been undergoing a persistent requirement for suitable cross-cultural management that would facilitate them to manage associations with the employees. Organizations, in order to attain higher performance level have been essentially underpinning factors of ‘cultural intelligence’ that would assist in the process of cost and time reduction (Zutshi et al. 2016). Furthermore, the concept of ‘cultural intelligence’ ascertains an enhanced communication among teams, recommends effective solutions for innovation and expertise in a global context and further aids to the improved performance management in diversified teams (Bamber, Bartram & Stanton 2017). The report intend to cast light on IKEA Australia and further analyse its key macro and micro environmental factors and challenges influencing Sri Lanka which is regarded as the host nation. In addition to this, the paper will identify the essential cross-cultural as well as HRM challenges that have the probability to arise between the home (Australia) and host countries (Sri Lanka). Lastly, this report will provide a set of recommendations in order to maintain any issue or dilemma. 

IKEA a globally recognized as a home furnishing retailer has been growing at a rapid pace since 75 years. The company is known as the world’s largest retail organization has received great degree of recognition for its Scandinavian style. The company has its operations in four continents across the world along with Europe, Asia, Australia and the USA. It has noted that for Australia, the first IKEA store was opened in Sydney in 1975, whereby the nation has comprised of around 10 stores located across the four states of Queensland, New South Wales, Victoria and the Australian Capital Territory (Ananthram, Nankervis & Chan 2013).  With the commencement of its business in the year 1958, IKEA has been persistent to situate immense emphasis on assimilating innovation, expertise, operations and sustainability across its fundamental functioning along with its external supply chain strategy and associations. The fundamental concept of IKEA is established on a threefold framework that incorporates, “The Visio”, “The Business Idea” and the “Human Resource Idea” (Wickramasinghe 2007). However, in addition to the company’s threefold vision, one of the fundamental pillars of IKEA’s trade operations is related to the conceptualization of democratic design and framework. It is important to note that in the sustainability report of IKEA in 2017, the company has revealed that the People and Planet Positive Strategy has guaranteed related to the principal global business whereby, they comprise of distinctive targets and ambitions in order to attain greater level of sustainability. The Living Local Community Program of IKEA is administered by IKEA Australia catering to all of its domestic stores. However, the significance of the local community sustainability is not executed in developing nations, but further occurs in the organization’s local consumer as well as producer markets (Brown et al. 2016). The program has been known for supporting non-profit enterprises in order to submit several schemes for that potential to achieve up to $8000 worth of goods and further aid from the employee base in executing recent, innovative, physical frameworks for the organization. It is significant to recognize that the predictable population-density elevates in cities over the recent years, the focus of the company is designing furniture as well as home appliances which is appropriate for the collective and compact living circumstances, which people have been seeking to embrace for a collective lifestyle (Abrahamian 2013). The company is considered to be at the vanguard for a new era of Sustainable Materialism as well as for a consumer group that has comprised increased sustainability knowledge and awareness about the way they influence the company’s surrounding environment. 

Macro Environmental Analysis of IKEA

Strengths ·         Global Brand Recognition Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper ·         Financial Strength ·         Business Strategy ·         Enormous variety of products	Weaknesses ·         Control Standards ·         Environmental Concerns ·         High Raw materials costs
Opportunities ·         Environmental Sustainability ·         Saturated Market	Threats ·         Changing Legislative Power ·         Advanced Technologies

Strengths

• Global brand recognition– IKEA is in recent times has attained 46^th position in the world in the brand recognition and value in the Forbes list (Forbes.com 2018). The company’s value has been estimated at over $11 billion. Among 10 other enterprises IKEA upholds a rank of 6^th in the retail sector.
• Economic Strength- The profits and revenues of the organization has been estimated around €32 billion in 2016 whereby, its financial earnings for the same year have been € 14 billion (Jary and Wileman 2016).
• Business Strategy- One of the fundamental strengths of IKEA is its distinctive purpose and vision that is to add importance to its customers regardless of the market circumstances (Krishnan et al. 2013). However, this focus of the company has been interpreted into a coherent as well as well-defined business planning along with an effective approach towards the retail industry, which has been pioneering in the minimalism factors and attaining an influential position in the market.

• Enormous variety of products- Another fundamental strength of IKEA is associated with its distinctive idea into a range of products which the customers themselves can assemble further resulting to immense cost reductions which can further reportedly transferred to the customer base (Twarowska and K?kol 2013). Thus, IKEA with its unwavering focus on factors related to cost leadership has been able to emerge as the leading furniture retailer in the world.

Weaknesses

• Control Standards- IKEA with its diverse trade operations often undergo challenges to control standards and principles across various locations. However, the company aims to execute standardized quality across its broad product range and its operative regions (Grant 2016).
• Environmental Concerns- IKEA in recent times has been undergoing challenges in corresponding as well as articulating its environmental regulations to its consumers and stakeholders.
• High Raw materials costs-  The essential statute of IKEA relies on the retaining cost reduction, however the elevating raw material expenditures  have been posing challenges to the company to maintain its organizational standards (Marchi, Maria and Micelli 2013).

Opportunities

• Environmental Sustainability- IKEA, with its ‘green’ business model, has attained immense opportunity in regards to developing greater customer base that is environmentally mindful and prefers environmental sustainable goods (Abrahamian 2013).
• Saturated Market- Nations such as Sri Lanka, India with vast population demand unique and distinctive solutions to the company’s spatial utilization issues. Thus it is crucial for the company to focus and further develop marketing strategies in these nations (Blomé 2015).

Threats

• Changing Legislative Power- The shifting government laws and taxation regulations may pose unconstructive impact on the price range of IKEA products.
• Advanced Technologies- The emergence of advanced technologies as well as online shopping, DIY has been considered as an essential driver of strategic achievements which is no longer regarded as an USP factor of IKEA (Stoma, Dudziak and Maj 2014). Thus, the company may be losing its fundamental achievement factor of DIY products. 

PESTLE Analysis  

(Wickramasinghe 2007)

• Political- The rate of corporate taxation impact revenues has been resulting to the decline of the after-taxation income. Furthermore, excise and trade barriers imposed by the government of Sri Lanka have elevated the costs of a range of products which are imported from other nations. The investment decision of IKEA to invest over Rs 10,000 crore in Sri Lanka is anticipated to be effective to other shareholders who have developed uncertainty regarding the shifting government’s directives on foreign direct investment (Munasinghe et al. 2017). However, the FDI in retail industry has triggered severe political issues and has been perceived as a threat to the local traders of the nation.
• Economic- IKEA’s business operations have directly been influenced by economic factors. The unpredictable commodities along with raw material costs in Sri Lanka have produced outcomes of the increasing buying expenditures for IKEA (Visser and Tolhurst 2017). Furthermore, the elevating petroleum prices will pose effects throughout the supply chain of the company resulting to overall circumstances of rising costs, thus leading to declined level of competition.
• Social- With the progressive venture of IKEA into the unrecognized markets of Sri Lanka, there can be a vital significance of social factors for the organization. Asian countries are considered to be encouraging cots consumption in the situation of economic certainty (Abrahamian 2013). Thus it can be anticipated that the customer base of Sri Lanka may be showing less interest towards purchasing furniture.
• Technological- The Company is implementing quality technology and systems in order to encourage effective scheduling, business patterns and recruitment. Furthermore, the system has facilitated IKEA in a position to guarantee the appropriate employee base and distinctive trading techniques at each store (Bamber, Bartram & Stanton 2017).
• Environmental-Sri Lanka has been manipulated by well-established caste system which has prohibited the authority towards business preferences (Ananthram, Nankervis & Chan 2013). This has transformed and urban regions of the nation are more inclined towards the liberalised initial cast affiliation in comparison to the rural regions.
• Legal- The distributors must provide a well-established and protective working environment and further pay to the localized standard as well as recompense for the overtime (Ananthram, Nankervis & Chan 2013).

Australia being an autonomous Western democracy is recognized as a diversified society and reveals immense undemanding characteristics while performing any business operations.

1. Human resources management issues- In Australia, an employment offer stated verbally may be regarded as a valid offer from companies for the purposes of creating a obligatory offer once received acceptance from the employee’s end (Zutshi et al. 2016). However, a properly documented offer letter with employee approvals is immensely recommended. Furthermore, documented offer must incorporate the date of commencement of the employment, the stated designation, properly structured remuneration and other vital factors of the employment relationship which is not established to Australia’s employment legislation, the Fair Work Act, 2009 (Cohen 2017). On the contrary, Sri Lankan small medium enterprises comprise a low level of HRM superiority and application. Over 90% of SME’s does not consist of HR departments and have further rated the efficiency of the implementation of expertise HRM practices as less than large enterprises. Sri Lankan companies tend to recruit skilled employees instead of providing proper training post recruitment.
2. Organizational cultural issues- On the basis of Hofstede’s IKEA’s organizational culture have been signified by small power distance. The company based on considerably flat organization whereby the level of hierarchy is barely recognizable. The company encourages in creating well-established group cohesion with its employee base is stressed on the phase of induction which is in comparison to Sri Lanka which is recognized as a collectivist societies (Helmreich and Merritt 2017). The managers’ practical experience in regular business operations of IKEA Australia demonstrates low power distance that has its existence in the company in contradiction to the Sri Lankan IKEA enterprise.
3. Marketing and communication issues- IKEA in order to enthuse Australians to undergo contentment and satisfaction in daily life at home, has recently released summer retail program under its platform with the slogan of ‘The Best Day’ in order to encourage customers visit to IKEA (Ananthram, Nankervis & Chan 2013). However, on the contrary cultural impact on the execution of marketing strategies in Sri Lanka during the globalization era (Moran, Abramson and Moran 2014). IKEA Sri Lanka must aim to balance the company’s global strategies as well as local techniques to establish enduring customer relationships and capture consumer value while handling diversified cultural base.
4. Foreign laws and regulations- The Australian Trade Commission (Austrade) is known as the Commonwealth Government’s national ‘gateway’ organization to encourage trade and investment into Australia (Zutshi et al. 2016). Austrade further facilitates coordinated administrative assistance in order to encourage, gather and facilitate FDI and further encourage companies such as IKEA to enhance their business in global markets and further provide recommendations to the Australian Government on its business. On the other hand, Sri Lanka is regarded as a challenging nation with strict FDI legislatives in order to have any business operations with increased rate of transaction costs resulted due to unstable economic policy circumstances (Ananthram, Nankervis & Chan 2013).
5. Currency rates and universal payment methods- Australia has obtained immense recognition for promoting the best exchange rates associated with foreign currency services than Sri Lankan Exchange (Wickramasinghe 2007). The country offers comprehensive Currency Exchange services to an array of consumers including banks and other commercial trades like IKEA. The Sri Lankan exchange in comparison to the former, provide Business- to- Business global Money Transfer services to the corporate cliental base.
6. Political problems- A fundamental loss of competence to business has been witnessed in Australia due to property destruction. The major shutdown in South Australia has resulted to the collapse of authority to the entire state (Brown et al. 2016). On the other hand, the Sri Lankan government in recent times has acquired private companies which have been formerly privatized with ‘Underutilized Assets Act ’ (Wickramasinghe 2007).
7. Environmental issues- Sri Lankan government and international environmental organizations have been effectively focusing on problems over the years by developing national parks, reserves as well as sanctuaries which in recent times, has encompassed over 15% of the total area of the nation in 2014 (DeRosa 2013). In comparison to Sri Lanka, the Australian Government directives administer the evaluation procedures along with the approval of national environmental as well as cultural issues.

Conclusion

With the rise of globalization, cultural disparities are compelled to undergo changes within the workforce. However, managers as well as employees must honour other cultures prevailing within the workforce further facilitating the organizations to eliminate the disparities and amalgamate by resulting to the accomplishment of organizational aims in an effective manner. Organizations with cultural diversities have taken cultural differences as positive factor and assists in establishing synergies. The report has effectively focused on the overview of IKEA, the leading furniture retail company with its business operations in Australia and Sri Lanka. In addition to this, the paper has further identified the micro as well as macro level analysis on IKEA by conducting SWOT and PESTEL analysis of the organization. Furthermore, the company has explicitly demonstrated the essential cross-cultural and issues related to HRM while conducting business in Australia and Sri Lanka by highlighting seven significant factors such as Human resources management issues, Organizational cultural issues, Marketing and communication issues, foreign laws and regulations, Currency rates and universal payment methods, Political concerns and Environmental issues. Lastly, this paper have provided with certain recommendations in order to manage these issues in the future.

• Organizations must acknowledge the significant existence of cultural differences which includes disparities in ideologies, principles, interpretations and assessments related to social circumstances and well-established cooperation.
• Effective strategy of the suggested procedures must entail efforts to find shared solution, mutual comprehension along with the generalization of the complex and demanding process of showing different attitudes towards different cultures.
• Furthermore, managers as well as employees reduce the potential issues by managing the effects of cultural differences but not by diminishing the disparities by themselves.

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