This is an ongoing research work which concentrated mainly on the business enterprise expansion technique for Swedish based multinational company IKEA, which is a giant furniture manufacturer and Retailer Company. Within this current research, there were few guidelines and recommendations prepared by the depth study on various factors which can ideal for the IKEA in their international expansion to few more countries. These issues might include like legal constraints, country and industry norms, competition from other relevant industries, restriction made by countries on the foreign industries.
In this research work we mainly concentrated on background history of IKEA using its international entry and exactly how it was made its name as a fresh brand for the product quality and product design to others. Carrying with the SWOT and Pestle analysis and entry mode in to the countries India and Pakistan for further expansion and the issues which could arise in the original stage of the brand entry and what are all the issues and competition they may get from local brands and suppliers. Followed with the necessary suggestion to boost and just how they can enter to make their presence felt using their entry mode.
Chapter 2:
2. 1: History and Summary of IKEA
Ingvar Kamprad started IKEA in Sweden in the year 1943. It had been started with initial service of selling stuff like, wallets, jewellery, pens, picture frames and etc. Later furniture joined in their product list in 1947 and followed in 1955 with personally designed pieces. In start of IKEA establishment, Ingvar used to visit the makers and suppliers of local or independent furniture for having them under his contract for supplying designs based on his order. All most all the models were used to be designed within an innovative manner in comparison to other manufactures and manufacture as mass produce and used to launch in to the European market for early venture and network. At affordable price IKEA used to supply Scandinavian designs with quality furniture. It expanded its stores there on by investing on new stores in 1950's.
The main theme behind the success and uniqueness of IKEA is supplying furniture's at an extremely cheap price on the market with the designer models. And its ideas also have variation of their business with others in conditions of company culture, business ideas and the entrepreneur. Their business idea was "help create a better everyday living". Based on this, IKEA use to design the merchandise with good quality, good function and good design at a very low price making customers to buy their products over and over, and reducing their competition share with these kind of strategies.
The IKEA was established when the country of Sweden was transforming into a society that rich and the indegent was similarly treated alike and their needs were taken care of. This is also the central theme of the vision of IKEA. The consumer is asked to take part in the proceedings of the concern. The number of the merchandise is also consumer friendly and also caters for the wants of an entire family so the need of each one in everyday activities is taken care of.
IKEA functions via a complicated net of suppliers distributed across the world. In the last decade, the IKEA was involved in the acquisition of a few of its own factories that are actually units of training that are involved in the setting of standards for the rest of the suppliers so that economy in production, quality of the merchandise and a knowledge on the surroundings are assured. The countries with which the IKEA has partnered are China, Russia, Slovakia, Poland and Romania. The IKEA means that the transfer of goods from the supplier to the consumer should be environmentally sustainable, effective in conditions of cost and also direct. To eliminate the wastage of space the IKEA encourages flat packs which plays a significant role in the creation of goods that cost less as it greatly reduces the price tag on the logistics.
At present there are over twenty five regional centres of distribution that are spread over 14 nations plus they have the duty of the supply of products to the stores of IKEA. The success and the competitive good thing about the IKEA is principally due to it wide experience in neuro-scientific retailing and leadership in expense issues and product differentiation.
2. 2: International Expansion Rationale
Globalization is an activity for increasing the economy by using the international marketing features (Yip 1995). The companies who want them selves as part in the globalization has to maintain certain strategies for reach the expectations of individuals from across the world from different nations with different cultures. All of these strategies are intended to meet the companies targets by inter linking one among (Bartlett and Ghoshal 1989).
Ghoshal proposed three main objectives that a firm has to satisfy. They are attaining efficiency, managing risks and learning, global integrations is the another effective objective that was another proposal by Kobrin (Kobrin 1991, Birkinshaw, et al. 1995).
Johnson and Wiedersheim-Paul (1975) introduced a four stage model for the international business the following no regular export, selling via independent agent, sales subsidiary, and production subsidiary. This model already discussed by Root
(1987) and Anderson (1993).
Most of the work out of this paper is dependant on the analysis from Korean carmakers' globalization and global strategy. Within this research we have developed two case studies on carmakers in Korea, Daewoo and Hyundai. They followed two different approaches for reaching globalization. Hyundai is one of the very most popular companies in Korean. It hits the advanced markets for make the globalization process achievement. Whereas Daewoo was diverse method for effecting the market like Hyundai the business trying different approaches to accomplish it's goals in the global market by attracting more consumers. The business want to focus on the tiny budget markets the companies orders increased slowly, according to the demand of the product the company delivered in to the market. In the entire year 19994 they have high capacity increases drastically. (Bowon)
The present research mainly focusing on describing the difference between the two approaches for accomplishing the globalization as well as the similarities meeting the targets.
Based on the findings of Keith W. Rabin, KWR International's president and the writer of the report, "To be able maintain a company outside of the house country, the business must do the study on the available local resources it requires a lot of time, human effort is necessary analysing it properly. Which means this makes every firm to determine a international capital quickly this can open to the organizations who is in the international market for a long-term". (CMP, 2005)
Robbins says "To do this goal the companies will have frequent business trips, seminars and marketing trips to make their firm for a worldwide reorganization. That may increase their product popularity world wide of the services will have a huge response so the organizations want to implement these strategies for international consumers and the new business achievements". (CMP, 2005)
Pestle analysis on IKEA.
Opportunities
Threats
Political
Both international and domestic business success
Flat packing of do-it-yourself
Few countries oppose giant companies to enter and become competitor for local organisations.
Economical
Customer loyalty aiming within their strategies.
Grew to Stitching Ingka from the ownership transfer
Lack of strategic direction on market performance.
Social
Opportunity for people and benefits to employees.
Well a head in charity services
New and local companies with the own designers and strategies
Technological
Using most advanced technology to serve its customers. Even in the peak timings with support from staffing and management as well.
Optimised supply chain management process.
New E-Commerce websites using their way of delivering products and in marketing strategies.
Environmental
As per their documentation and policies, environmental factor issues will be considering in implementation process.
In few of the countries local management many not follow all the policies to be implemented make a difference as drawback.
Legal
Based on the legal policies they were strict with those in implementation with the kind of work conditions, social and environment factors.
In few areas there could be people who can use these laws in getting benefit and refund policies implemented, even if it was mistake of these customers.
SWOT Analysis:
Strengths
Weaknesses
Recognition as a solid brand and image.
Products provider at suprisingly low cost.
Good at Their Marketing strategy.
Mass marketing with cheaper price of own designer products.
Fully trained staff and management teams.
Got own group of industries.
Previous product recalls made due to few problems in the product manufacturing.
Shipping to all or any places with less stores could cause problems.
Opportunities
Threats
Expansion Internationally
E-Commerce sales
Outsourcing from China
From Direct (Furniture stores) rivals and Indirect competitors
Rising price for shipping and product
Chapter 3: Type and Nature of the Investment
The iconic $ 31-billion Scandinavian home products giant, IKEA, has placed on hold its plans to create 25 showrooms across the country for an investment of around $ 1 billion. Within an internal communication IKEA told its stakeholders that Indian investment rules do not encourage it to go ahead using its investment plans at least not in the near future.
The country's norms on foreign investments in retail stipulate that the foreign company can hold no more than a 51% stake and must have an Indian partner. As IKEA's distinctive showrooms are like sprawling malls, with flat pack furniture, accessories, bathroom and kitchen items, they require high investment. And IKEA has so far been struggling to find an Indian partner with not simply deep pockets but readiness to invest a matching amount in a joint venture.
It's learnt that IKEA was hopeful of the guidelines being relaxed by the new government, but was jolted by Pratibha Patil's silence on the issue in her presidential address that outlined the UPA government's agenda. It could have lost heart completely when commerce minister Anand Sharma said that FDI norms are not apt to be changed in the near future, and made a decision to opt out of India.
When contacted, a high IKEA source confirmed the business's decision. However they were quick to add that India as market can not be ignored by IKEA indefinitely. "In a couple of years we have been bound to reconsider our decision, " they said.
IKEA decided its first showroom near Dwarka, at a location that's between Delhi and Gurgaon. It had also hired 25-30 people for this venture. Their fate now is not known. Otherwise, IKEA has been sourcing many materials from India and employs around 11, 000 in this operation, while it claims to be indirectly employing another 60, 000. This outsourcing business is estimated at around Rs 1, 900 crores.
India's retail market is estimated at over $350 billion, with organized retail accounting for 5% of it. An Indian financial think-tank optimistically projected early this past year that the market size could grow to $590 billion by 2012 and organized retail could be a meatier 16% of that market. The monetary downturn might have since dampened these projections.
Chapter 4: Country Selection
4. 1: India as a fresh Business Environment:
In order to consider India as one of the new business environment, it's better to go through the procedure for business setup in India and the way the government was encouraging the foreign companies. India is currently one of the speediest developing countries on earth. And it got lot of manpower who are skilled highly in comparison with every other country. It is one place where it provides enormous chance of the investment that would be buying. According to the research work on the Indian economy and other constraints, Indian stood at tenth put in place terms of world's greatest economies, first in terms of democracy, and fourth in conditions of buying power parity (Embassy of India, 2010a). And India Government system was federal and the energy was separated between State and Central Government.
For carrying the business functions in India, it supports with investor friendly, attractive and liberal climate. One of the world's major economies, India even got policies like transparent and liberal for the FDI (Foreign Direct Investment). By using Indian Government prior approval aside from few fields remaining activities/sectors 100% FDI was allowed below programmed direct route. India got simplified and liberalized control over forex. Beneath the above programmed direct route, basic requirement for the investors is to intimate the RBI (Reserve Bank of India) for the inward remittance inside 30 days of receipt.
Indian Economy: (Tushar, 2007)
Under current account Rupee was easy to convert as well. (Embassy of India, 2010a)
For non-residents, under capital account Rupee is simple to convert almost fully with their exchange.
For the investment created from outside was given exemption in fully repayable on FDI - dividends, profit earned and proceeds out of sales.
For Indian residents there have been few restrictions on incomes earned predicated on their capital account.
For the entire year 2007-08 Indian economy average growth rate was 9%. And from past three it was growing at the pace of 8. 8% p. a.
Exports increase by 25. 8% and imports by 29% for the year 2007-08.
The service industry grew by 12% and manufacturing industry sector by 8. 8% in 2007-08 period.
Most percentage of the family comes under middle income and got 55% population under age 25.
Indian economy was at prime growth period. The primary reason of domestic market growth because of the rise of per capital income and high monetary growth.
According to Indian Embassy, many researchers conducted previously on Indian growth and the ones analyses showed that it was aiming to attract many investors as a hot destination for his or her investment to be produced. Based on the analysis of Goldman Sachs, until 2050 Indian economy will continue to increase it's grown at the rate of 5%. And it may reach top fourth position by end of 2050 (Goldman, 2009). Few more points that have been the following: (Embassy of India, 2010a) (Tushar, 2007)
Stays at second devote the attractive destination - Predicated on the business enterprise Confidence Index of ATKEARNEY in the entire year 2007.
Based on OECD (2007) Indian can perform the growth rate of 10%.
According to Investment Report 2008 of UNCTAD's, for foreign direct investment attraction India stays at second place.
By 2050 India can reach 90% of US economy - Prince Water House Coopers Report, 2008.
4. 2: Pakistan as a new Business Environment:
Similar to many developing countries, Pakistan also targeting for the foreign investment for its growth of countries economical development. The investment can be through by transnational corporations or any other, but foreign investment is the key thing they looking forward to grow in countries development part. In order to develop their country, Pakistan wanted the FDI (Foreign Direct Investment) as a main source of capital, marketing access, managerial skills, technology. These are welcoming both foreign and local investors in all almost all of the sectors to develop further. To be able to welcome more investors for setting up their businesses, Pakistan was following a methods like double taxation avoidance, with fully protection to the foreign investments under regulations. For attracting more FDI, the policies were redesigned with the reorientation policies, deregulation and privatization of activities of economic, keeping much more reliance on the marketing force thorough out the country. Recent reforms of Pakistan economical policies were changed to maximum extent to giving benefit for any foreign investors; MNC's including investors who have been based in India as well by offering the conducive and unprecedented work at home opportunities. (State Bank of Pakistan, 2008)
Pakistan is one of the countries which changed the monetary achievement and reforms in recent times and made an agreeable environment in the business sector. Because of these changes it created a new situation with win-win for both consumers as well as for the investors.
The process of MNC's investment will contributes to sharing and development of new technology with bit training to expertise those belongs to that particular technical field. This makes effect on other small and supported industries to carefully turn up for delivering few products and service kind of what to the MNC's. And in addition supply of people who is able to contribute towards the company operations which contributes to impact in an optimistic way of development in almost many relevant fields by making use of new rules. For the supporting companies there could be applicable rules like regulations, liberal rules, rather than permitted to break the tax structure as well. The process of latest technologies like electrical and electronics make huge impact in developing countries especially by giving huge employment, and it reflects an increase in production with economy modernisation. (State Bank of Pakistan, 2008)
The way of several investors who ever trying conduct business in Pakistan will think in many angles prior to starting up. Most of the drawbacks and major concerns were like there will be frequent change of government, and their policies, corruption, government officials and their unfriendly attitude, lack of good decisions, insufficient proper maintenance. In addition to these higher priority was to the situation of law and order (Spend money on Pakistan, 2006). The existing trend was expecting that you will see defiant improvement in their services and attitude to the development with stability in situations. The neighborhood, foreign and business community, where keeping their hopes on the problem stability, because of the government repeated assurance by providing the benefits and unchanged policies for his or her benefits to raise the level at macro-economic. Many foreign investors were targeting mainly the sector. Even we can easily see from past few years many companies committed to this field majorly.
According to the ADB (Asia Development Bank), the Pakistan's economy was stable and it was better even after the post global recession and September attack. Even the conditions where improved even following the drought period for the agricultural sector. Even the inflation was reduced by 3% when compared to the prior year's economies fiscal year. Due to these prices stability took place and started moving on the development for future years in every forms. (Spend money on Pakistan, 2006)
When we take the monetary conditions in notice for the financial year 2001-2002 the export market goes downward the earnings was less in comparison to the expected price. Once the European Union markets picks up their exports then this situation will be changed for the other markets. This also affects the Pakistan's high trading business too. This export market will goes to position back after the petroleum prices hikes, investments of the clients increases. The improvement in the oil, textile prices will lead to the GDP of the united states and the improvements in the international business. This may also provides high security to the surroundings of the countries that happen to be developed already economically and technically. (Invest in Pakistan, 2006)
The difference in these figures might be $1. 3 billion for the year. The total amount can be increased in the first six months by asking loan help from the USA. Therefore the next six months probably won't improve the revenue with not more than $800 millions. The revenue of the united states will mostly effected with the initial planning and income from the starting of the year. Therefore the losses throughout the market of the first half a year of the year can not be full filled up with the benefits associated with the coming months more over it must provide the extra investments for the mobilization which was making difference in the Indian budget since 2001. (Invest in Pakistan, 2006)
If the Tax collections of the country can be increased if there tend to be more exports, transportation of the goods happens. Which also have less impact in the budget; this can improve the GDP by 5. 5 percent only.
Global Recession hasn't made its effect on the manufacturing factories, the new policies are invented to over come the drought in the harvesting areas so the economy of the united states shown increase with 3. 5 percent. The surveys says that there surely is a growth of the Pakistan economy also this may attained by the effected new strategies that are implemented within the last quarter of the entire year. The most recent changes in europe markets also made some changes in the monetary conditions of the courtiers that are depending in it. (Invest in Pakistan, 2006)
INDIA
PAKISTHAN
Political
New policies for FDI in retail industry in India.
Difference between political parties.
Many groups will agitate predicated on the new policies or statements of government.
Regulation of policies to attract FDI.
Difference between political parties and Army.
Problems with the human bombs and terrorists.
Economical
Variation of Tax across the country based on state.
Inflation
Spending of government and services.
Economy down fall
Inflation variation
Social
Low Income
Importance to local stores
Awareness of consumers
Low income
Local stores
Uncertainty
Technological
Moderate infrastructure
Use of technology but to limited extent.
Poor infrastructure
Distribution of less technology
Environmental
No one will bothers about the procedure how it goes, until any negative side affected.
Hard to keep as at each location different rules and regulation under implementation.
Legal
Controlled by the local, state, and central authorities.
Controlled by the courts and army.
Rules changes predicated on the party that holds the power
Chapter 5: Entry Mode to International Market
IKEA using its brand value can enter the Indian market with either of its ways. This can be such as a direct or indirect entry. Direct entry can make it keep all its investment by itself without depending on other major companies. This can lead it little bit tough to handle all its venture as insufficient handling things in India though it got enough international market experience as the guidelines will change from the western market. By joining with any organisation can make that entry mode easier with lesser risk. So that it can start focusing on its own way of marketing ways of expand. This may minimise the financial risk and will make simpler to handle the new distant market (Evans et al 2000). Jv can make IKEA more robust in India and you will be more towards the win-win situation. Both join partner and IKEA improve the relationship in India and make India as one of the cheap products supply centre of IKEA (Carpell, 2006)
Globalization in the new policy approaches that attracting the companies towards for improving their sales internationally. The changes in the transportation, communication are the part of globalization for making human life more risk free. You will discover two ways we can step in to the global markets. They are simply low or shared and the high and full control modes. The companies which wants them selves as part into the global has to understand the pros, cons of the two methods with special attention. (ICMR, 2009)
The high budget organizations have more effect on the market, prepared to take the chance while in the process of meeting the complicated needs of the customers, these are also can be self starter of the subsidies any other nations or they will offer services form an authorized company. The companies who are prepared to challenges are will give the assurance for an individual expectations. These companies can likewise have the control on the market so that it can control the fluctuations and are also strong enough for making their own ventures on the market. These businesses can also helps in reducing the barriers among the developed and the developing nations. (ICMR, 2009)
The collection of the mode is dependant on different factors of the firm that are influencing the firm internally. The companies who is having more interaction is more with other firms, working groups that firm will have high resources collecting of the information, the firm receive the latest updates rapidly compared to all the. This is actually the one most special feature for the companies those get excited about the global business. The business enterprise process is well informed if there are any common working groups they introduced each of them. (ICMR, 2009)
The companies overall growth and its own further existence will be rely upon the mode that it entered into the market. So it is important to collection of mode of a company while launching it in the global market. Japanese will wait for a long time in selecting the mode for analysing which method is most beneficial well suited for their firm to get the maximum benefits for the organization. They estimate the factors that are influence the business for developing business strategies. Most of these companies are select low entry mode for his or her high invested firms. (ICMR, 2009)
High control mode is adoptable only in hardly any cases. This is beneficial to the companies whose assets aren't exactly defined; the goals are not pre planned. This approach is best suited to the businesses whose tasks associated with less risk factor and while the high risk tasks are managed by the reduced control entry mode does apply. Their are five different forms are for sale to a firm exporting, licensing, joint venture, mergers and acquisitions, and establishing a subsidiary of their own. More research work must be done before selecting the mode of a company which is related to the entire performance levels of the company.
Chapter 6: Challenges/Difficulties in New Country and Necessary Suggestions:
IKEA's Perception of Indian market:
IKEA thinks they are some problems in the Indian market about its launching; the business also offers an thoughts and opinions that the marketplace is not still prepared to welcome it. However the supplier chain market like Reliance had made some changes on the IKEA's opinions proofing that the foreign goods will have a high demand and there is an analysis is necessary for opening the company in India this has to be done when all the circumstances in the united states are cooperative.
May maintain the next five to six years India will get ready for big retailers. The identical thoughts and opinions is expressed by the "IKEA India Property and Establishment Manager staff" lender in the "Technopak Retail Summit" They also told that they are satisfied with the huge investments that are taking place on the market at present, the companies are receiving the pay backs more than investments. There are also some polices that are effecting the Foreign direct investments in the united states, IKEA is not ready to change it is the business plans for a certain country. The lending company also stated that it is difficult to understand how an Indian company can open 200 subsides in a year; they might be repeating the same mistakes which were done by a local company called Reliance as giving proper respect to the foreign customers.
Bijou Kurien the CEO and president of Reliance groups have answered all the above mentioned queries from the IKEA lenders. The country provides diversity in the market by different retailers which is extremely hard by other country. He says that people don't say ourselves a national retailer but still the united states offers diversity for foreign consumers. We provides the business enterprise of the country provide products that are demanded over the globe. The same the united states will import goods that have high demands from the exterior the united states. (Business standard, 2008)
Corruption in India
In recent years this issue is discussed by the journal about the existence of Ikea in Russia. (Kramer, 2009)
In Russia there are more chances for corruption and the high bribes will takes place so due to this reason IKEA will cut-off its handles Russia according to a notice from Kramer (2009).
This Opinion has told by an 83 year old founder of the home furnishings retailer of Swedish company in a radio interview didn't spend some extra cash for selling their products in the united states. This will generate a terrific situation to the Russian government by encouraging corruption specifically for providing market to the products from outside of the country. Your choice took across the Russia because IKEA runs the business enterprise in several countries it is problematic for firm to spend some amount for selling the goods. It also takes off its new ventures in India due to the policies of store ownership.
Dmitrit A. Medvedev the president of Russia noticed that the corruption is one of the major problems that the united states was facing, eliminating this issue is one the important thing he want to attain in his period of time. Mr Medvedev made some new policies for the fire and health department to make some abrupt moves to learn the bribes in the department, which involves high exports from the business. The president wants to discrete the assets, income of the employees, their spouses properties also need to be revealed. (Kramer, 2009)
Karmer point outs that the business executives from the exterior of the country have involved with some secrete bribes in Russia. Those companies will hire attorneys who are expertise in solving the legal issues of the firm. The united states has a 147th place, out of 180 countries in bonding with countries like Kenya, Bangladesh and Syria to make Transparency International's corruption perception index.
Usually the cash bribes of the country were caught by the traffic police, the special kind of bike gloves were designed for storing the bills that are extremely huge. The administrative bribes are one dangerous thing happening in the country which has effects on the fire, tax, sanitary plus some department which can handle the business enterprise demands of the united states. Therefore the company expected similar kind of problems in the Indian market as the country is facing similar kind of problem of Russia in corruption and bribes in major departments.
Chapter 7: Conclusion and Recommendations:
India has a great value in the retail industry worldwide. So this is the great chance of IKEA to launch in India. All excellent results discussed in this research makes India becomes a leader in the carpets industry that have been handmade that provides more profits to the industry. There is a high competition from other local market as discussed, IKEA can protect its position with implementing new ideas, and there is a great demand from all other countries for Indian products. Making the export value increased at on a regular basis compared to other markets. By entering into India it can make its strong occurrence felt everywhere and geographically it's a big country to handle the operation. If the initial time frame passage can makes its more control over the market with their International and Localisation Business expansion strategies.
IKEA has to act carefully while maintaining its handles other markets, considering India; it has to make new deals with the country to exporting new goods. It's important to both for the IKEA and the country to establish the company in India.
The country will have its influence on the International market as well there may be increase in the demand for the products of India from outside countries
