Cross-Cultural Management: IKEA Australia & Sri Lanka Report Analysis

This report provides a comprehensive analysis of cross-cultural management challenges faced by IKEA, focusing on its operations in Australia and Sri Lanka. It begins with an executive summary and an overview of IKEA Australia, followed by an in-depth examination of the micro and macro environmental factors influencing its business. The report utilizes SWOT and PESTLE analyses to assess the company's strengths, weaknesses, opportunities, threats, political, economic, social, technological, legal, and environmental factors. A key section identifies seven critical cross-cultural and HRM issues that may arise between the two countries, considering factors such as employment practices, organizational culture, and Hofstede's cultural dimensions. The report concludes with recommendations for mitigating these challenges, ensuring effective management in a globalized context. The report underscores the importance of cultural intelligence in managing diverse workforces and achieving organizational goals.

Running head: CROSS CULTURAL MANAGEMENT
CROSS CULTURAL MANAGEMENT
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Executive Summary
Culture aspects tend to shape the behavioural patterns and ideologies of the individuals
across the world. Amalgamations of colleagues would facilitate in establishing norms, values,
and ideologies in the society. Organizations in recent times have been significantly thriving in a
global aspect at the rapid pace, and further give opportunities to understand about several
existing cultures. The following paper will cast light on the intercultural disparities which have
been evaluated through exploring significant areas of one of the leading retail companies which
has worldwide business operations (Australia and Sri Lanka). The report takes into account
various factors associated with the company’s micro and macro environmental analysis and
further highlights the fundamental cultural as well as HRM issues which may occur between the
two countries.

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Table of Contents
Introduction..........................................................................................................................3
Discussion............................................................................................................................3
Brief Overview of IKEA Australia..................................................................................3
Analysis of Micro Environmental Factors.......................................................................5
Analysis of Macro Environmental Factors......................................................................9
7 Key cross cultural and HRM issues may arise between Australia and Sri Lanka......10
Conclusion.........................................................................................................................13
Recommendations..............................................................................................................14
References..........................................................................................................................15

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Introduction
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.
Discussion
Brief Overview of IKEA Australia
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

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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

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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.
Analysis of Micro Environmental Factors
Swot Analysis
Strengths
 Global Brand Recognition
 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 46th position in the
world in the brand recognition and value in the Forbes list (Forbes.com 2018). The

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company’s value has been estimated at over $11 billion. Among 10 other enterprises
IKEA upholds a rank of 6th 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

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assemble further resulting to immense cost reductions which can further reportedly
transferred to the customer base (Twarowska and Kąkol 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).

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 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.

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Analysis of Macro Environmental Factors
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

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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).
7 Key cross cultural and HRM issues may arise between Australia and Sri Lanka
Australia being an autonomous Western democracy is recognized as a diversified society
and reveals immense undemanding characteristics while performing any business operations.

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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

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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.

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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

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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.
Recommendations
 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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