Challenges Faced by IKEA in Contemporary Business

This essay discusses the challenges faced by IKEA in the contemporary business world, including differences in consumer expectations and the adoption of cross-cultural practices. It also explores the use of cross-cultural theories like Hofstede's cultural dimension theory to understand these challenges. Recommendations for IKEA to overcome these challenges are also provided.

Running head: CONTEMPORARY BUSINESS ISSUES
Contemporary Business Issues
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Introduction
With every year, there are new business opportunities for organisations in every
sectors. However, these organisations also face new issues and challenges that appear
because of the change in customer perspectives, the change in legislations and for new
technological development and innovations. The chosen organisation for this essay is IKEA.
IKEA is one of the well-known multinational furniture manufacturing companies, having its
head quarter based in Leiden, Netherlands (Kristensen 2018). It is present in 424 different
nations at present including Australia, Japan, Singapore, Canada, Hong Kong and India. It is
a private organisation and belongs to Retail industry. As per the year 2016, the company has
earned a total revenue of 40.906 billion dollars (Bragin et al. 2018). One of the main reason
behind why this company is so famous is its product price and the convenience that it provide
to its customers. However, it is currently facing some significant challenges in terms of
different consumer expectations and in adapting the other cultures while expanding globally.
This essay shall elaborate on discussing about these issues faced by IKEA in the recent years
by means of using cross-cultural theories like Hofstede’s cultural dimension theory. The main
aim of this paper is to briefly explore on the contemporary issues in the field of business and
management.
Body
Challenges faced by IKEA
IKEA is a typical example of multinational companies that have expanded their
operations into several different national markets (Wahlne and Jonsson 2017). The company
pays a very close attention to the cultures of the nations where it operates its business,
particularly when taking into consideration the employees in the foreign market. However, it
is to note that the company is facing some significant challenges in operating in the

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international markets. Two of the most significant are difference in consumer expectations
and adoption of other cultures.
Challenge in meeting consumer expectations
In terms of difference in the consumer expectations, the company faced issues as the
expectations of customers differ in different nations. For instance, it faced a lot of problems
in the U.S.A market (Schneider and Bermudez 2018). Americans prefer comfort over
anything. The beds supplied by IKEA were not too long as well as the kitchen cabinets of the
company did not fit the appliances. Also, the curtains that they used to sell here were too
short and the sofas were not big enough for the American comfort and the way they prefer
their home furnishing to be. Hence, the sales of the products started decreasing by 26% in the
U.S.A market (Martin 2016). Similarly, in the countries like Japan, the company has to
customise all its products and packaging as per the taste of the customers as earlier when
IKEA came up with the standardisation, it failed to overcome this challenge. Again, as per
Ehsan Ullah, Karlsson and Dada Olanrewaju (2016), India was the most challenging market
for IKEA today. It spent over 1.5 billion dollars in the Indian market but as per many of the
analysts, it has been claimed that the company is going to take several years in order to see a
significant returns on the investment that it did. It has already spend 750 million dollars in the
process of procuring the Indian sites for 4 different stores, including the huge outlet in
Hyderabad, India (Nandamuri, Mishra and Gnanamkonda 2019). However, as per the experts,
the company faces significant difficulty in balancing the act in between setting its product
prices low enough for attractive the price sensitive Indian customers and at the same time,
high enough for reeling in the status conscious rich Indians.
Challenge in adopting cross cultures

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Moreover, in terms of adopting the cultures of other nations, IKEA faced tough
challenges. For instance, while entering into the U.S. market, the business model that it had
been using then was not replicable in the market of U.S. IKEA soon realised that the local
U.S. culture was a challenging one and there was a need for adopting it in ensure success.
The business model that it was using in Sweden was suitable for the Swedish market but not
for the U.S ones. Therefore, it had to alter its business model and strategy and began selling
its products that were more suitable for the needs and tastes of the U.S market (Khamis
2016). It was customisation that solved the issue which was not allowing IKEA to become
successful in the U.S market. Similarly, when IKEA tried to enter into China, it faced the
same issue. In fact, the challenge was even greater here. Law was a significant difficult in
China. It is to note that in the Asian nations, especially in China and India, the challenge of
bureaucracy is significant. Presence of Redtape greatly discourages the foreign businesses
(Shah 2018). In order to meet the challenges in Chinese market, IKEA entered into joint
venture which helped it in overcoming the legal issues there. Gradually, it opted for changing
its pricing strategy to suit the local needs there and at the same time, changes its furniture
models and business style in order to match with the local choice. However, according to
Ehsan Ullah et al. (2016), IKEA’s main aim is to bring its values with it wherever it opens up
stores and this is something that calls for a key understanding of several different cross
cultural theories that have been developed by people like Geert Hofstede, Edward T. Hall etc.
Theories and concept
IKEA is widely known for its strong corporate culture. Its spirit of humility before the
task and cost-consciousness permeate the whole company. According to Hansen, Jensen and
Petersen (2016), it is challenging for IKEA to maintain the organisational culture and attain
successful international expansion. As per the Hofstede’s theory of cultural dimension, there
are four dimensions of culture and they are- power distance, masculinity versus femininity,

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individualism versus collectivism and uncertainty avoidance (Mazanec et al. 2015). Different
nations and companies are analysed by means of questionnaires and are then ranked with
certain scores that are later determined as medium, low and high or any variation in the
between. Power distance refers to the notion of how a particular society deals with inequality.
It is the level of acceptance by a society that is based on unequal distribution of power in the
organisations (Beugelsdijk, Kostova and Roth 2017). It is to note that the companies having
high power distance cultures, the employees there acknowledge the authority of their bosses
and at the same time, follow a chain of command. Uncertainty avoidance on the other hand
refers to the extent to which the people in an organisation or nation feel threatened by the
ambiguous situations present. Individualism on the other hand refers to the tendency of the
people to fend for oneself and their family. In the companies or countries where
individualism is valued, individual achievement and initiative are highly valued (Beugelsdijk
and Welzel 2018). Also, there are countries and companies who value collectivism (Huang
and Crotts 2019). This means, doing work and achieving goal by working collectively.
Furthermore, masculinity refers to the level to which materialism and assertiveness is valued.
It is to note that in the highly masculine societies, there is a constant conflict and stress in
between the family roles and jobs.
As per Al-Sarayrah et al. (2016), in order to have a valid finding, one need to have a
constant and continuous organisational culture and then should study the culture of other
nations. On the basis of Hofstede’s four dimensions theory, the organisational culture of
IKEA can be described as a small power distance. The company has comparatively flat
organisation where the hierarchy is hardly visible. The authority in company comes from
personality and knowledge and not from the status and title. As per Thi, Trang and Latt
(2017), the informal style of clothing that exists among the employees of IKEA is another
example of low power distance. The employees and the organisational managers at IKEA

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operate at same level and they park their cars and have lunch in the same place. Furthermore,
the way of hands on participation of the company managers in regular work also depicts low
power distance.
Moreover, establishment of a strong and powerful group cohesion along with its
employees is focused on from the induction that is basically applicable in the collectivist
societies (Li, Kristof-Brown and Nielsen 2019). In IKEA, the employees generally say “we”
instead of “I”. Hence, it can be said that there is a presence of collectivist attitude in the
people at IKEA. Moreover, there is a feminine culture in IKEA. The relationship in between
the employees and managers is open and honest. Also, there is a cooperation among the
colleagues and they encourage one another to work well. This fits well into IKEA and help it
in making decentralised decision making (Kwon and Farndale 2018). Notwithstanding these
facts, it is also to mention that the company is characterised by low certainty avoidance and
this is basically manifested in such decentralised decision making process. The employees of
this company are all encouraged for making their own decisions and are given complete
freedom with high responsibility. They are also given the freedom of taking initiatives.
Conclusion
The main aim of this essay was to analyse the challenges that IKEA faces in
contemporary business world. From the above analysis it is to conclude that culture is the
significant factor which influence all the businesses and it is a bigger challenge particularly
for the ones that plan to expand overseas. Undoubtedly, every business wants to grow
overnight by while trying in the international borders, culture can become a significant
hurdle. It is a factor that also affect the marketing strategy of a company. However, although
it is a fact that culture could be a significant barrier but if it is understood and well exploited,
it can surely be a facilitator.

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Recommendations
IKEA needs to embrace diversity and must work towards adopting the cultures of the
nations where it seeks for expanding its business in order to ensure business success. It
should hire diverse workers and it is obvious that diverse workforce will present challenges
for the company in terms of customers, region and communication but IKEA should just
accept those differences and completely embrace them over its entire business. It should
implement diversity training programs throughput its company. Secondly, it should promote
open communication in the workplace as it is something that will determine the success and
failure of the business, particularly in the international market. Thirdly, in order to overcome
the problem of difference in consumer demands, IKEA should conduct surveys on regular
intervals where it can take feedbacks from its customers, identify their needs and expectations
and make a segmentation from those analysis. Instead of focusing on individual customers,
IKEA should divide them in different target segments so that it could easily detect their
expectations and work on it in international borders.

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