Principles of International Business

This article discusses the challenges faced by IKEA in entering the online sales channel and the competition it faces from other online retail giants. It also provides recommendations for IKEA to boost its online presence and customer interaction.

Running Head: PRINCIPLES OF INTERNATIONAL BUSINESS
Principles of international business
Student’s Name
University Name
Author’s Note

2
PRINCIPLES OF INTERNATIONAL BUSINESS
Table of Contents
Introduction to the issue...................................................................................................................3
Descriptive discussion.....................................................................................................................3
Advantages/disadvantages of different approaches.........................................................................5
Recommendation and conclusion....................................................................................................6
Reference List..................................................................................................................................8

3
PRINCIPLES OF INTERNATIONAL BUSINESS
Introduction to the issue
IKEA has recently decided to enter the online sales channel along with their physical stores. This
is because the customers are not happy anymore to drive out to their out of the town stores for
buying flat pack furniture. This is why it has been experiencing a drop in their sales. As a counter
strategy to this business issue, IKEA planned to develop itself into a multi channel sales brand
where the customers go to buy their products online as well as in the city centres and the big box
stores. As informed by Arestav and Åström (2018), the company has planned to launch a new E-
Commerce application for this purpose which will be incorporating elements like place,
augmented reality function and 3D visualisation of furniture in various home settings. However,
in the context of online marketing and sales IKEA will be facing significant competition from
Amazon and other popular online retail market chains. Like IKEA has developed market in Asia
Pacific, Europe and North American market, Amazon has strong retail presence in the online
sector of all these places including other Geographic locations like China, India, and other
potential Asian and European markets as well. The branding and positioning of Amazon is much
stronger than IKEA. Hence this can be considered to be a serious market threat for the furniture
manufacturing and selling organisation. In fact, Lin et al. (2017), states that Amazon has their
two personal furniture brands, who will give serious competition to the IKEA, in the major
business locations, where they want to open their ecommerce channels. Again, in addition to
Amazon, Fredman and Nilsson (2015), informs that IKEA will also be facing competition from
Flipkart, the emerging ecommerce brand from India as well as Otto from Germany.
Descriptive discussion
Evolving with the changing needs of the customers, IKEA could not cope up with the
marketing trends in spite of having highly distinguished as well as trends product lines. The

4
PRINCIPLES OF INTERNATIONAL BUSINESS
furniture of IKEA are supposed to be most scientifically designed and most comfortable. Their
material is also of the finest quality and that is why the furniture of the company is highly in
demand among the users. However, the sales channels of the company are not competent
enough. The customers are not willing any more to drive down to the out of town box stores of
IKEA in order to purchase furniture. It needs mention that IKEA mostly do not support in home
installation other than the complex fitting furniture (Albinsaad 2016). However, the customers
have to travel to the stores of the company in order to select the product that they are willing to
buy. ON the contrary, the rise of ecommerce began to pose serious threats before the company,
where the major market players in the ecommerce domain like Amazon, Harvey Norman, Otto,
Flipkart, PepperFry and others are also developing furniture brands of their own. The main area
of concern for IKEA was that the company did not have online sales channels that could
facilitate their customers with the benefit of selecting the latest designs of IKEA sitting at the
convenience of their homes. Between the financial year 2015-16 and 2016-17 the company
recorded an annual sales profit of 3.1 billion Euros and the sales of IKEA for the same markets
in the financial year 2017-18 have been 20% lesser, statistics shows that market that IKEA has
lost, have been drastically consumed by the online market giants (Niu et al. 2018). In this
context, Larisa and Tîbîrnă (2017) have opined that it is very easy for the company to open a
portal for online sales in various countries. However, the main lag that would come up as a
challenge for the company is the lack of their digital service technology and spaces like
ecommerce hubs and warehouses.
Meegahapola and Perera (2017), identified that in order to come up with a infrastructure as wide
and encompassing as Amazon in America and Europe, a minimum of 6 years will be required at
the least. In order to highlight the intensity of the situation, it should be specif3oef that IKEA

5
PRINCIPLES OF INTERNATIONAL BUSINESS
have already come up with an alternative online sales channel, which are sales through their
personal website. In the year 2018, the company also came up with their own mobile application
for flourishing their ecommerce platform. Initially the online service of the company was
concentrated up to provision of 3D catalogue only (de Regt and Barnes 2019). After that in the
year 2019 the company came up with their augmented reality application that allows the users
the chance of place the 3D image of their furniture from the application anywhere in their room
and they could also zoom in or zoom out the images over the mobile application only. This
application helped to lift the market value of the company, initially.
As discussed by Joshi et al. (2017), after the discovery of the new application of IKEA, the
regular basis customers of the company were excited over the fact that they could shop their
furniture from their homes. However, the results of introducing a new application did not go as
the company would have expected it to be. Nevertheless, the customers of IKEA were not
accustomed with online shopping. However, when they started to explore the app of IKEA, They
grew interest over the other ecommerce sites also. As an outcome, they started to explore and
buy the products of other ecommerce brands also and this brought about market segmentation.
Hence, the recent trends show that the sales of IKEA have dropped by 0.2% already compared to
that in the previous quarter of the last year (O’Byrne 2018).
Advantages/disadvantages of different approaches
Advantages of the launch of augmented reality app
 The greatest advantage is that the customers were easily and quite rapidly made aware of
the brand presence in the ecommerce sector

6
PRINCIPLES OF INTERNATIONAL BUSINESS
 The company could understand the customer preferences in depth as they selected the
filters over the app while searching customers
 The facility of getting their products customised as per their will helped to enhance
customer loyalty.
Disadvantages
 There are only 100 styles of products that the customers can visualise with augmented
reality.
 The acquaintance of the customer segment of IKEA with ecommerce platforms also
exposed the competitor online brands like Amazon, Otto, eBay and other before them.
 This brought about segmentation of the customer base of IKEA which comprised of
women aged between 25 to 44 years.
 The smaller bandwidth of the application makes it crash frequently
Recommendation and conclusion
IKEA have faced competition from the big online brands only. In terms of product
preference, they lay ahead of most of the big local brands of their most poised markets. Hence, in
order to come in the same line of competition, the organisations have to create a strong brand
presence. They have to develop an online strategy that would allow the customers to assemble
their products over the virtual projection. This will create value for their customers as this
innovative service quality is not offered by any other market competitors. The brand loyalty of
the customers will also be ensured as an impact of implementing this strategy.
The second recommended strategy is to invest in content marketing. They need to
incorporate visual content marketing over Facebook, YouTube, and SnapChat and other similar

7
PRINCIPLES OF INTERNATIONAL BUSINESS
online channels that promote visual content. This will enable the customers to know about their
market innovations. Lastly, it is recommendable that IKEA have to focus on creating an
experience and not simply a product for the customers. IKEA can create customers experience
by offering heavy discounts and most innovative products designs over their online platforms
that will not be available over any other ecommerce channels. This will help to achieve high
word of mouth publicity. Hereby, it can be conclude in the end that IKEA represents an
impressive case where a global company can leverage e-commerce to boost sales and customer
interaction.

8
PRINCIPLES OF INTERNATIONAL BUSINESS
Reference List
Albinsaad, H., 2016. How e-commerce affects the trading system. Int J Sci Technol Res, 5.
Arestav, A. and Åström, S., 2018. Bridging the digital and physical worlds: The deployment of
augmented reality in a retail setting–a case study on IKEA.
de Regt, A. and Barnes, S.J., 2019. V-Commerce in Retail: Nature and Potential Impact. In
Augmented Reality and Virtual Reality (pp. 17-25). Springer, Cham.
Fredman, M. and Nilsson, S., 2015. The preferred Complex Purchase Process in-store–A case
study on IKEA.
Joshi, H., Agarwal, V., Ghodke, A., Gupta, D. and Gaikwad, S., 2017. Proposal of chat based
automated system for online shopping. American Journal of Neural Networks and Applications,
3(1), pp.1-4.
Larisa, D.G. and Tîbîrnă, L., 2017. E-commerce: concepts, perspectives and challenges (No. y:
2017: i: 5: p: 33-42, pp. 1-52). Center for Studies in European Integration (CSEI), Academy of
Economic Studies of Moldova (ASEM).
Lin, P., Kong, X., Li, M., Chen, J. and Huang, G.Q., 2017, August. IoT-enabled manufacturing
synchronization for ecommerce. In 2017 13th IEEE Conference on Automation Science and
Engineering (CASE) (pp. 401-405). IEEE.
Meegahapola, L. and Perera, I., 2017, September. Enhanced in-store shopping experience
through smart phone based mixed reality application. In 2017 Seventeenth International
Conference on Advances in ICT for Emerging Regions (ICTer) (pp. 1-8). IEEE.

9
PRINCIPLES OF INTERNATIONAL BUSINESS
Niu, B., Liu, Y., Liu, F. and Lee, C.K., 2018. Transfer pricing and channel structure of a
multinational firm under overseas retail disruption risk. International Journal of Production
Research, pp.1-25.
O’Byrne, R., 2018. Selling online. MHD Supply Chain Solutions, 48(5), p.18.