Challenges of International Business Strategy: A Case Study of Ikea

This report analyzes the strategies of Ikea to discuss the challenges of international business strategy and methods to tackle these issues. It explores the concepts of standardization and adaptation in global business and their impact on key business functions. The case study focuses on Ikea's success in the furniture industry.

Final Project
• Course Name and Code: International Business Strategy
(MMB040)
Title of paper being analyzed: International Business And
Business Strategy

Introduction:
International business strategies are increasing in complexity, inflated by intense
competition and technological development. It is a highly researched topic in
academia and not surprisingly so. With globalization all businesses small or large
have one goal: to expand consumer profile and increase market share, which is in
alignment with consumer behavior. Levitt (1983) claims that technology has the
power to influence human choices and that is the reason why products from different
parts of the world are appealing to consumers, despite cultural differences. He argues
that modernization has shifted consumer choices form being influenced by culture,
rather it has created a homogenous consumer culture. But research also shows that the
differences in culture, aesthetic, literacy and other socio-economic factor are far more
influential on consumer behavior and motivates international companies to use
adaption strategy (Horska, Ubreziova, & kekäle, 2007). The challenges that comes
with international business are vast. Within all these obstacles one company that has
managed to achieve more than expected is the most well-known furniture brand: Ikea.
When venturing to international markets business have a variety of strategies to
choose from, some gaining global success such as Ikea and others have failed
drastically such as Walmart’s failed operation in Korea. This report will analyze the
strategies of Ikea to discuss the challenges of international business strategy and
methods to tackle these issues. This report aims to indulge into the more dominant
issues that also impacts the scope and intensity of key business operations.
Company profile:
Ikea is a Swedish home furnishing retailer that was founded in 1943. Today it is the
most well knows furniture brand offering over 10,000 products worldwide (Ikea,
2019). Ikea is popular for its Scandinavian accents, unique flat pack concept, store
layout and most importantly their affordable prices. There are over 433 Ikea outlets
worldwide across 52 countries (Franchisor ikea, 2019). Ikea is strong in its vision and
aims to apply this in all their stores worldwide: to offer customers with functional
furniture at an affordable price.
Adaption vs Standardization
The initial decision that a business must make when planning international ventures is
between standardization and adaptation. To understand the challenges of the two
strategies we will first analyze the differences and features of the two strategies and
the overlying concept that goes behind them. Twarowska & Kakol (2013) discuss the
impacts of an organization’s choice between: international strategy or globalization,
which is only the umbrella under which lies numerous decisions that heavily influence
efficiency of key business functions in international markets (Drahokoupil, 2014).
International strategy is when a parent company maintains little control over
subsidiaries whereas globalization is when the parent company aims on implementing
a single business model or strategy worldwide but also practices adaptation to local
market. The key differences between the strategies are level of centralization, rate of
product standardization or receptiveness of local market and competitive response
(Yip G. 2002). For businesses that apply the international strategy are loosely
involved in the decisions and operations of other locations. There is no aim to
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coordinate the strategies implemented in different locations as opposed to a
globalization strategy
Adaption vs Standardization (continued)
where business across the world are tightly knotted by a singular vision which could
be adaptive or standardizing. A common objective is set for all locations but also
ensures that the objective evolves around local requirements. We will look further
into the practices of standardization and adaptation, along with the challenges faced
by Ikea.
Standardization:
In plain words standardization is to limit something to match certain standards. This
concept has been popularly applied to international business strategy in the sense of
standardizing products, business functions and overall strategy. Levitt, T (1983) is
known for strongly supporting a standardization approach. He advocates for an
increase in homogenization and gives examples of successful brands such as
McDonalds and Coca-Cola who have standardized their products and marketing mix
in several international ventures. There are advantages of standardization, economies
of scale being the most substantial (Cavusgil et al., 1993). Reduced costs give
companies competitive advantage. Moreover, companies can invest more on research
and development of a standardized product rather than products that vary in different
location which would require more resources, time and money (Kotabe, 1990). As
markets around the world start looking similar many researchers have been supporting
standardization, Mesdag (1999) even claiming that standardization is an essential
global concept. However there still is the dominant obstacle that standardization may
fail to overcome: culture. Mooij (2018) who discusses Paradoxes in global marketing
says how the concept of ‘think globally and acting local’ is also something that is
influenced by the person’s cultural background, cleverly pointing out that just because
everyone worldwide is drinking Coca-Cola doesn’t mean their choices are becoming
homogenous. Using the internet as an example Mooij (2018) explains how the one
product that is assumed to have increased globalization is used differently across the
globe as per local preferences, so we can imagine the impact of local preference to
common products.
When IKEA initially started expanding across Scandinavian and European countries,
they maintained standardized products due to the cultural similarity and their lack of
local responsiveness did not affect them (Kling K., Gofeman I. 2003). But
standardization was soon not going to be effective for IKEA worldwide. When Ikea
opened stores in Germany, they struggled with their desks for a reason that clearly
signifies the impact of culture. German’s were used to a 5-legged table as opposed to
Ikea’s 4-legged table (Damien & Carole, 2007). They also faced challenges with their
flat pack concept in Japan and struggled with American consumer’s preference for
bigger furniture. Ikea however was smart enough to quickly make flexible
adjustments to their standardized products and realized the need to adjust around local
preferences. Carnegy (1995) emphasizes the importance of receptiveness from
multinationals towards local market and the above instances of Ikea prove that no
matter how successful a business might be at home it can still fail due to strict
standardization. Even if we keep culture aside any businesses long term objective
should not be reducing cost through standardization, but the goal should be long term
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sustainability from increasing market share as a result of identifying and fulfilling
consumer demands worldwide (Theodosiou and Leonidou, 2003). Ikea seemed to
have similar goals and to satisfy Japanese consumers Ikea offered home delivery and
assembly service.
Standardization (continued):
To have the adaption for the costumer market at the local levels does not have the
requirements to make the change in the core strategy in term of values and the
operation of the company. The firm have proper requirements to make the proper
standardizations in term of value and core strategy’s by offering the futurities quality
in term of wide ranges at the affordable prices.
To have proper implementing of the standardization have entailing the company in
order to gains the respective popularity by introduction the modified products form
oen respective location to the different countries. This have resulted to make the
prospect popular among the customer following the different regions as per the
change in level of preference. As there is difference in preference of the customer of
France and Ameriace in order to have to maintain an aesthetic and when it becomes
popular brands become household names around the world. This is regarding the
different brand to have the gaining the global consumer preference despite of any any
level of cultural difference which is being confirmed with the coined fragmentation or
bricolage operation which are considered to be interchangeable to have development
of profile and preference from other cultures along with their personal identity
especially consumption. The IKEA have the adaptation of the mains objective in term
of implementing of the standardized products, store concept, advertisement strategies
and overall business function. There can be explanation to be scessful global brands
such as Starbucks, McDonalds and Nike create the illusion that these international
brands could erode cultural barriers.
As per the view of (Yip 2002), there is clear level of explanation in terms of global-
local paradox which is considered to be the concept as there supporting the different
facts es as people have the major level of leasing in term of the different cultures
tiring out to be conscious regarding the development of owe culture in permeant
manner. In addition to that’s cultural barriers and socio-economic barriers will
always be an obstacle of implementing a purely standardized strategy.
Adaptation
As per the view of (Kotabe, (1990), there is masking the interesting level of
distinctions between the adaption and customizations to have the compulsory
modifications in term of business operations as the discretionary modification of
products to make it more suitable for local users. There are the significant level of two
approaches to be more expensive on different locations means adjusting the marketing
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mix which consists of product features, marketing, pricing, design and every other
key business operation. Thi is entering in term of international markets to have the
offering the locals consumers to having modify there according the local level
preferences. There is more level of expensive adaptions have the requirements
expensive adaption requires higher level of synergy with parent company. There is
need to have maintained of the constant level of communications in term of the
allocations with the aimed the translating the common strategy s which is very
challengingness. This have the higher change of the gaining a larger market share
over standardization and long-term profitability.
There is believe in the differences in culture, preferences, lifestyle, and values of
consumers across the world. On the other hand, as per the view of there (Medina, J. F.
and Duffy, M. (1998) have the large amount of the entertaining the idea of cultural
convergence across the globe which he explains is creating homogenous consumer
behavior. There is need to have the understandability in term of proving their success
to the peruse to all the over the world from many different countries are demanding
products that remain standardized. On the other hand, the () have also stated that’s
there is a plausible claim as culture to be dominant factor behind consumer’s lifestyle
choice, preferences, taste and attitude. A lack of responsiveness to local consumer
preferences is one of the main reasons why international businesses fail
Impact of Strategy on Key Business Functions
As per the (Kling K., Gofeman I. (2003), Key business operations are considered to
be the functions of a business which arevital to its survival. There is need to have their
selection of the between international strategy and globalization for the key business
operation will have there falling the same approaches in order to have usage if there
are standardized products, but their advertisements vary from location to location. On
the other hand, as per the view of the no standardization in their business operations
and allow subsidiaries to run as local businesses. The concept is complex as
intimidating challenge of international business strategy to determination whether
business to have the full control over subsidiaries, which is costly and unfeasible for
some business functions such as human resource management and production. This
have the claiming HRM best practices are not always transferable to other countries
because of cultural differences. There are several ways that this issue can be
approached. According to Drahokoupil (2014), this have the international business
which is usually choose in order to give different subsidiaries more control over the
tangible aspects of the business such as people and machinery. There is need to have
there more level of intangible factors to have organization, research & design,
finances or learning and development are controlled by the parent company. Research
also suggests that subsidiary managers should be involved and more active in
centralized decision-making process. Their involvement would immensely help
understanding the degree of differences in the key business operations (Birkinshaw
and Pedersen, 2010).
Ikea practices product standardization with exceptions to modification for some
products and does not adapt its products to local influences. They do implement
control over the products that are available in different stores, according to cultural or
local preferences. Ikea’s pricing strategy is influenced by purchasing power and
adaptation to local competition, subsidiaries are given the power to manage pricing.
The company the using the catalogues are published in 25 different languages and
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sometimes they feature local information in them. There is a common trend in their
marketing strategies: the combined use of strategies
Ikea’s pricing strategy is influenced by purchasing power and adaptation to local
competition, subsidiaries are given the power to manage pricing. Their stores are
standardized but their distribution strategy is again a mixture of standardizing and
adaption. Ikea uses their catalogues as the main point of promotion alongside other
channels of promotion. Their. Their approach is best explained by Anna & Nicolai
(2011), who researched globalization through flexible replication. Their study
observed that Ikea’s degree of replication is based on hierarchy, smaller factors such
as marketing a
Impact of Strategy on Key Business Functions (continued)
and pricing are kept flexible and can vary in Ikea stores worldwide based on local
preferences. But fundamental business functions such as value, concept and vision are
standardized and implemented in a uniform manner worldwide (Anna & Nicolai,
2011).
Communication and knowledge sharing:
Literature on internationalization has always stressed the driving role of
communication and knowledge sharing between head office and subsidiaries (Vernon,
1966). Jonsson & Elg (2006) discuss the importance of knowledge and knowledge
sharing for internationalizing retailers. In their study they categorize types of
information that can contribute to positive results of internationalizing: market
information, internationalization information and corporate knowledge. to
comprehend the challenges of cross border communication we will discuss Ikea’s past
internationalizing attempts. From previous discussion its visible that Ikea tries its best
to maintain standardization unless impossible. As a result, when they started setting
up in Russia, Ikea did minimum market research and based their movement on the
fact that Moscow has a good population and therefore their product would not go
unnoticed. They struggled to make a place for themselves in Russia initially but to
tackle the issue the Russian regional manager took the initiative to onboard people
who were part of Ikea’s previous internationalization ventures. Ikea faced a similar
issue previously due to lack of knowledge sharing when they were setting up in
China. They implemented a poor recruitment strategy- to recruit young Chinese from
universities. Ikea-Russia representative explains that because of the
internationalization knowledge gained from the Chinese venture, it was easier to
understand and tackle the Russian problem. They learnt that because of the intensive
standardizations, in order to build a good Ikea, they had to bring in people who know
Ikea instead of taking in local staff immediately, thinking it will help understand the
market (Jonsson & Elg, 2006).
Product orientation in Global Advertising Strategy:
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Global marketing is a well-researched topic that as the challenges and potential of
advertisement beyond national borders are vast. As difficult it is to implement a
global advertisement campaign, the goal of gaining higher market share world wide is
much stronger. International business is usually divided between local preference and
global product. Mooij (2018) observes that local markets are people oriented but the
more global a company becomes; they increase their product orientation. He discusses
how majority advertisers focus on the product rather than the market and venture off
to find the singular product that will appeal to consumers worldwide. They could
justify themselves by saying its expensive to adapt a different marketing campaign for
each location. However, at the end they probably have to make adaptions such as
translating text, adding subtitles or doing voice over to make Ads resonate in all
locations. But translation does not uncover perspective. There is always a risk of
having failed concepts or misunderstood advertisements due to ignoring local
viewpoint and just focusing on global marketing. With the increase in social media
influencers and information sharing companies are always at a risk of getting their
reputation tainted. There is a long history of product advertisements being
misunderstood due to ignorance of internationalization knowledge. Mooij (2018)
strongly argues that global homogenous markets is mostly a concept in the minds of
western marketing
Product orientation in Global Advertising Strategy (continued):
professionals. To think that the youth, the rich or businesspeople have the same
lifestyle and preferences seems inaccurate. He gives the example of an Indian
teenager living in Delhi or Bombay who may wear Nike shoes but are still going to
have cultural values as simple as removing those Nike shoes before entering their
homes (Mooij, 2018).
If we look at Ikea, they have a completely different marketing strategy that is based
on their concept. Their concept as mentioned before is to produce high quality
functional furniture at a low price. This concept clearly resonates in their products,
store layout’s and catalogues. Ikea is not on a quest to look for the one product that
will be globally demanded without adaption. They of course consider consumer
preference but above all, their marketing strategy revolves around their concept which
is why their catalogues provide solutions to small spaces, shared spaces, affordable
and multifunctional furniture’s. If Ikea was product oriented, they would have focused
on the furniture alone and not how it provides a solution. They would create
expensive furniture based on local preferences, with cultural accents and traditional
design. Ikea’s dominant advertisement method is by catalogue, unusual but it is the
core of their marketing strategy and accounts for over 70% of their marketing budget.
Ikea has saturated households around the world with their products and therefore its
more challenging to distinguish themselves in new light. Ikea has implemented
several different campaigns to always offer something new to consumers. In China for
instance it’s difficult to print and distribute catalogues because of cost. Some of their
campaigns in China were therefore more unique such as transforming elevators and
inviting Chinese journalists to Sweden. Ikea has also shown product-oriented choices
in China such as making the beds shorter and having a section for balcony furnishing
(Lewis, 2005).
Conclusion:
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Globalization is a challenging concept but researching and studying the consequences
of different strategies can helps businesses understand the application of these
strategies. From the above report we can observe even though Ikea implements a
standardized approach they are always found mixing other strategies when
circumstances demand for it. These strategies should not be studied as dichotomy
where a business must choose one. Schuiling and Kapferer (2004) suggest a third
strategy that combines a standardized and adaptive approach which I agree is the most
plausible strategy that allows for experimentation also. It is clear that Ikea has
succeeded as they were able to balance the two strategies. The other major factor that
is visibly the spine of Ikea’s business vision is their singular objective of providing
products that are affordable to the majority and functional. They target this objective
across the world and translate their values throughout the organization instead of
having different targets or objectives for each location, which I believe can be the key
to success in internationalizing as it resonates most with the experimentation concept.
At the end of the day the operations and structure of businesses are drastically
different from each other, any one way is not going to work for everyone, therefore
best practice is always moderation, middle ground and experiential learning.
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