International Business Report: IKEA's Market Entry Strategies

This report provides a comprehensive analysis of IKEA's international business expansion strategy, focusing on its approach to entering new markets. The report begins with an executive summary, followed by an introduction to IKEA's business model and its transnational strategy. An industry overview of the home furnishing retail sector is presented, highlighting key players and market trends. The core of the report analyzes the potential of four emerging markets: Brazil, Ukraine, Estonia, and Vietnam. Each country's market is evaluated, considering opportunities, threats, and the competitive landscape. The analysis includes PESTLE analysis, Porter's Five Forces model, and Hofstede's cultural dimensions to assess the political, economic, social, technological, environmental, and legal factors influencing IKEA's potential success. The report also examines IKEA's modes of entry for each country, concluding with a discussion of the pros and cons of each market entry strategy. The report references relevant academic literature and provides insights into IKEA's global expansion challenges and opportunities.

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Executive Summary
The report discusses Swedish furniture giant IKEA and its expansion strategy. IKEA has
marked its presence in many countries and are appreciated by customers. The strategy it follows
is trans-national. It mostly follows two modes of entry either direct or through franchising. The
report stresses on the point that it is necessary for IKEA to expand its reach because its two
major markets i.e. North America and Europe are facing economic downturn. The company
looks on multiple aspects before entering into any country. The paper discusses its entrance into
four major potential countries: Brazil, Ukraine, Estonia and Vietnam. The customers in these
countries might get IKEA product through indirect channels. But still there is no store presence
in any of these regions. The discussion highlights the furniture and flooring industry overview. It
also discusses the opportunities and threats in each country followed by countries’ comparison
through PESTLE Analysis and Porters’ 5 force model. The cultural aspects are analyzed through
Hofstede’s cultural dimension model. In the end, modes of entry of IKEA are discussed for the
countries. The paper finally concludes the discussion with analyzing pros and cons for each
country.

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Table of Contents
Introduction.................................................................................................................................................3
Analysis.........................................................................................................................................................4
Industry Overview........................................................................................................................................ 4
New Markets................................................................................................................................................... 5
Brazil.................................................................................................................................................................................................... 5
Ukraine................................................................................................................................................................................................. 6
Estonia.................................................................................................................................................................................................. 7
Vietnam................................................................................................................................................................................................ 8
PESTLE Analysis............................................................................................................................................ 9
Political and Legal Environment.................................................................................................................................................. 9
Economic Environment................................................................................................................................................................... 9
Social Environment....................................................................................................................................................................... 10
Technological Environment........................................................................................................................................................ 10
Environmental Factors.................................................................................................................................................................. 10
Porter’s 5 force Model............................................................................................................................... 11
Brazil.................................................................................................................................................................................................. 11
Ukraine.............................................................................................................................................................................................. 11
Estonia:.............................................................................................................................................................................................. 12
Vietnam............................................................................................................................................................................................. 13
Hofstede’s Cultural Dimensions............................................................................................................. 13
Modes of Entry............................................................................................................................................. 15
Conclusion..................................................................................................................................................15
References..................................................................................................................................................17

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Introduction
IKEA is Swedish Company and is one of the world’s largest furniture retailers. The
company’s main focus is on marketing products at low prices. IKEA has brought up innovations.
For example flat packs which helps in reducing production and transport costs (Johanson &
Mattsson, 2015). Another is the “showroom-warehouse” concept which provides reduction in
retailing costs. IKEA relies on long term relationship with its suppliers. Currently, IKEA’s
supply network is spread across entire world. It has become increasingly complex with time. Its
main strategy is to design and purchase products that lead to low production and transportation
cost. Along with low cost, other major goals for IKEA are reasonable quality, adequate product
functionality and appealing designs (Fragouli, 2016). IKEA depends on the functioning of its
entire network of suppliers.
IKEA follow transnational strategy in order to maximize global strategy. The factors like
deregulation, economic growth, high disposable income and rising housing market have created
opportunity of growth for IKEA (Khamis, 2016).. It is also necessary to understand, its two
major markets i.e. Europe and North America have fierce competition in furniture retail industry.
There is growing pricing pressure and increasing customer demand environmental awareness. In
order to reduce such risks associated with such regions, it is necessary that IKEA considers
diversification strategy into other markets efficiently and promptly. By doing this, IKEA can
take advantage of opportunities present in the new markets which are no longer present in the old
market. IKEA generally follows franchising model to enter into new market. Ukraine, Estonia,
Brazil and Vietnam are some regions on IKEA’s expansion radar. There exist both opportunities

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as well as threats in entering the market. This paper analyzes these regions where IKEA might
find success.
Analysis
Industry Overview
The home furnishing retail sector includes floor coverings, furniture and household
textiles .The sale of furniture dominates the global home furnishing retail sector. IKEA has the
largest share in this area. In the existing markets, due to slow down of economy, IKEA is facing
difficulty of getting new stores and low confidence of consumer. Also the furniture industry is
facing a lot of competition from other worldwide players like Tesco, Bed Bath & Beyond,
Woolworths, Asda, Federated Department Stores, Homebase, B&Q, Argos, Next and M&S.
The buyers are taken as end-users, and manufacturers of furniture, floor coverings and
household textiles as the key suppliers. Retailers of furniture, floor coverings and household
textiles are the players of the home furnishing retail sector (McNamara & Descubes, 2016).
There is fluctuation in prices in this sector due to increase in competition through economies of
scale and by providing value added services to the consumer. In addition to this is the Internet
that has helped businesses to enter into new market. It has enabled the consumer to be more
informed. This makes difficult for retailer to increase the prices. Customers’ preferences are
given importance. The strong reputation is created by Brand Image. Retailers are likely to
purchase from multiple domestic and foreign manufacturers, thus reducing dependency on one of
the suppliers. Smaller companies generally compete by targeting a particular segment and
providing large number of products. However, low cost companies like IKEA, can deliver low
profit products to the market and generate enough sales to cover the cost. Logistics is one of the

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most important aspects in this industry. IKEA’s strong brand image boosts its growth in different
markets. In order to expand into international market, it has to carry out different market
positioning in different countries.
New Markets
Brazil
The North American furniture market is going through tough times; South American
market has shown strong growth (Ito & Parker, 2015). IKEA’s first store was opened in Santo
Domingo, Dominican Republic. The size of the market and environment of Brazil are lucrative
to many international furniture companies. The growth of middle class population acts as an
opportunity for potential customers. With increase in internet penetration level in Brazil and
consumers’ attention to eco-friendly products is positive sign for IKEA. The consumers who are
digitally active spend a significant amount of time on the internet. So IKEA has large
opportunity in terms of online marketing and sales. Government policies have increased national
minimum wage from 5.57 USD per hour in 2010 to 5.82 USD in 2012 (Sanches & Srisuma,
2018).This has created large consumer base for retail sector. Banks are encouraged to give
credits to poor. The amount of consumers that IKEA can target has grown. Brazilian consumers
are becoming more aware about the eco-friendly aspects taken care during production and
assembly of the products. IKEA is leading company in CSR. When creating their products,
IKEA takes the environment into consideration. They make sure that their products must be
produced under acceptable working conditions by suppliers responsible for their environment. It
focuses on areas such as offering sustainable products and reducing their carbon footprint. IKEA
could thus be a great match for the thriving eco-friendly trend in Brazil.

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Brazil has very high tax policies for imported goods. It is around 75% of greater FOB
cost (Bremann, 2017). There are local competitors like TOK & SLOK which provides tough
competition to IKEA. Logistic is another problem in Brazil .The country is big and internal
transportation is expensive. There is strong bureaucracy in Brazil. Protectionism is common in
this country.
Ukraine
IKEA was planning to enter into Ukraine market. It planned to build a store near Kiev in
2005. However, it was unable to buy land due to disputes with local authorities. Since then,
minister of economic development and trade is trying to push IKEA to reconsider the decision of
halting the trade with IKEA. He insists on the need to restore investor confidence in the Ukraine.
The main obstacle in the path of IKEA is corruption in Ukraine. IKEA is known not to give
bribes. This untapped market does not have significant solvency of population. The population is
under recovery of economic turmoil.
On the positive side, Ukraine’s position has been improved in the ranking of doing
business. The government has also simplified foreign exchange regulations. It could however
change the strategy of foreign brand. It is related to regulation of payment when importing
goods. It also considers protecting overall rights in Ukraine. Another problems related to Ukraine
is, flourished grey market. Here the new brands have to compete with those people who don’t
like to pay taxes and VAT (BULAKH, 2017). Another area of concern is not significant number
of partners available here who will help to develop the business. The MNC companies like
Starbucks and Pizza Hut have faced this issue. It is necessary for the MNCs to develop the local
players to understand the market well. There is one issue with the PayPal service, users can only

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spend money but cannot receive. So in case of return, customers might face issue with online
transaction. To develop an optimal business platform, it is necessary to ensure a number of
factors: create conditions where there are sufficient warehouses and full operation of payment
systems (Melykh, 2015). The main condition for all these brands is minimal risk.
Estonia
Swedish furniture retail giant IKEA is continuing plan to expand in Baltics. The first
Baltic location targeted was Lithuanian capital of Vilnius. The store was opened in 2013.The
another Baltics area targeted are Estonia and Latvia .The main reason for entrance is sales
growth is healthy in Lithuania's capital city. This allows IKEA to open store in other Baltics
country. IKEA attracts shoppers in search for affordable design furniture and accessories from
neighboring countries. IKEA still considering its decision because it fears that investment may
not repay within a reasonable period of time. The Estonia market is small and has conservative
taste of consumers (Smith, 2016).
Earlier IKEA is reported to order Estonian furniture and interior design products. It has
signed contract with Estonian companies like Wendre for the supply of items like blanket and
pillow. This will provide employment opportunities in Estonian Market. Wendre is one of the
key textile suppliers to IKEA. Thus, IKEA in partnership with Wendre can easily flourish in
Estonia market. The government is also aligned with the necessary requirements like necessary
adjustment to transport infrastructure (Dascălu & Dumitraşcu, 2016). It is necessary to have
smooth connection with the stores. These stores will provide large employment to people.
Coming over to economic overview, there is steady growth of GDP, private consumption
expenditure is grown. There is also positive sign of retail sales which has continued to grow in

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Estonia. According to Ministry of Finance Forecasts, average nominal monthly gross wages in
Estonia will grow by more than 5% per annum during 2017-2018.Small local players have
capital available , so they would be attracted by favorable investors like IKEA.
Vietnam
IKEA is also interested to expand in Vietnam and Philippines. It already has stores in
other Southeast Asian areas like Malaysia, Singapore, Indonesia and Thailand. Vietnam is
already producing home wares for IKEA. Many enterprises are outsourcing partners to the
company. The main aim of Swedish brand is to dominate the world furniture market. IKEA
products have captured interest to the customers of Vietnam through portable channel. Vietnam
is one of the ideal destinations for foreign furniture makers. It is the largest wood exporter in the
area (Jin & Scheepens, 2016). Wood product export turnover stood very high. This acts as an
advantage for Swedish giant. IKEA could be benefited in multiple ways by opening its store in
Vietnam and shift part of production there. Vietnam is market of more than 90 million people,
thus in foreseeable future IKEA has opportunity to gain more customers. Vietnam has more
feminine society so IKEA needs to adapt appropriate strategy to succeed there. Chinese and
Vietnamese markets are very similar. So IKEA, when entering Vietnam, can learn from
expansion to China. In Vietnam, the young middle class is educated, is aware of western styles
and have relatively high income (Narayanan & Steinberg, 2016). The products and services
offering suit the demand of target customers. Vietnam does not have any big brand providing
furniture. When IKEA moves to this country, it won’t face many competitors.
However, the access to cars in Vietnam is rare. It may disturb distribution system or a
solution where customers can take their goods on their vehicles. So IKEA may need to invest on

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the development of more sophisticated distribution system that provides home delivery. Also
Vietnamese customers are sensitive to “Made in China” products. Vietnamese consider the
quality of material used.
PESTLE Analysis
The following section compares four regions in their political, economic, social,
technological, environmental and legal aspects for the retail furniture industry.
Political and Legal Environment
The poverty situation is high in Brazil. The Country is open for foreign direct investment.
Labor laws are less favorable to business (Dix-Carneiro, 2018).There are high imports tariff.
Ukraine encourages trade and foreign investment. It also has low tax rates. It has high corruption,
weak business freedom and property rights. The political environment of Estonia is stable. The
communication and transport infrastructure is developed. But logistic cost is high. Vietnam is
also political stable country. It attracts more trade due to strategic location. However, it has weak
infrastructure (Anton, 2015).
Economic Environment
Brazil has strong exports, rising purchasing power increased investment and high
commodity prices which captures investor’s attention. However, the country has high debt.
Ukraine has high inflation rate, rising GDP, increasing disposable income, rising discount rate
and FDI. It is powerful energy producer. Estonia depends heavily on foreign trade. The
economic environment in Estonia is built in a way that local parties can take advantage of

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globalization (Bennett, 2015). Estonian market is price sensitive and small. Vietnam has account
surplus. It has low foreign reserve.
Social Environment
Brazil has high income gap (Fischer & Kassem, 2017). Social status is meaningful for
middle class. Also the customers have limited credit options. Ukraine has significant population
decline and population aging. Also there is rapid urbanization in Ukraine. .Estonia has lower
wage level compared to many other European countries but it is growing. Vietnam has shown
increase in household consumption. It is very important to consider cultural dynamics of
Vietnam.
Technological Environment
Technological penetration is low in Brazil but is growing, so IKEA can expect online
sales and marketing in some time. There is dramatic increase in the usage of internet. The
majority of software companies are located in Kyiv. The production processes are less automatic
in Estonia but technology is rising. The technological environment in Vietnam is continuously
growing. This provides opportunities to many countries.
Environmental Factors
Brazil has dense forest in the northern region like Amazon Basin which can be used for
wooden furniture. So IKEA can use this opportunity by maintaining sustainable practices.
Ukraine is interested in regional environmental issues (Diez & Zvirgzde, 2016). Vietnam is
facing environmental issues and there is weak enforcement of Law on Environment protection
and Development (Laurell & Axelfelt, 2014).

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Porter’s 5 force Model
Brazil
1. Threat of new Entrant (High)
There is lack of brand strength in country. So it is easy for new businesses to enter into
the market.
2. Threat of substitutes (Low)
There is no substitute to furniture and floor coverings retail market.
3. Threat of Rivalry (Moderate)
There is large number of retailer of different sizes. The economic downturn has increased
the exit barriers.
4. Bargaining power of Buyers (High)
There is high competition from local players and also cost of switching is low.
5. Bargaining power of Suppliers (Moderate)
IKEA has network of suppliers. So in all, it does not depend on the single supplier. But if
IKEA enters through any strategic alliance than dependency on partner rises up.
Ukraine
1. Threat of new Entrant (Low)
Government has eased the regulation but due to high corruption in the country, the
market is less attractive to new entrants