HI6006 Competitive Strategy: IKEA's International Expansion in India

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HI6006 COMPETITIVE STRATEGY
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Executive summary
Different business organizations face different issues regarding the wide expansion of
the business organization at the international level. The complete assignment is in the
format of a business report which analyzes the case of IKEA in terms of the
international level business strategy. Various effective concepts at the strategic level are
being illustrated effectively & efficiently for expanding the business in India. The
importance of the general environment has also been analyzed along with the
corporate-level strategy at the international level. Different challenges faced by IKEA in
the country of India have also been identified effectively which can be resolved with the
help of standard recommendations provided to the company for achieving the defined
organizational goals & objectives. Various advantages, as well as the disadvantages,
have been demonstrated in relation to the different types of entries at the international
level.
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Table of Contents
Executive summary..........................................................................................................2
Introduction...................................................................................................................... 4
A brief summary of the case............................................................................................ 5
General environment....................................................................................................5
International corporate-level strategy in India...............................................................6
Current challenges faced by IKEA in India.......................................................................7
International entry modes along with advantages & disadvantages.................................9
Conclusion..................................................................................................................... 10
References.....................................................................................................................11
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Introduction
IKEA is a “Netherlands-based Swedish Company” which has been expanded in 44
countries around the whole world, including the countries of UK, US, Russia, Japan,
China & Australia. It was founded in the year 1943 in Sweden. Though it is the largest
retailer of furniture in the whole World, it did not enter in India until the year 2013. The
main purpose of the case study is to identify & also examine all the crucial factors
towards the success of IKEA along with proposing the strategic actions in order to
sustain the competitive advantage for the longer period of time. The complete cases
study involves the effective strategies for the expansion of business at the international
level along with the construction of the corporate structure to protect the different
families from the huge amount of taxes. All the customers of IKEA are being provided
with the unique & innovative experience of shopping along with making them all the
products available at the least amount of prices, higher level of quality, modern &
innovative designs & with many more features.
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A brief summary of the case
The case study of IKEA demonstrates the importance of the general environment &
other essential elements for expanding the business in the country of India. The
international strategies are also being enhanced in the effective as well as in an efficient
manner. The most appropriate choice is also being made for the international entry
mode along with their respective advantages & disadvantages.
General environment
Following are the factors of general environment which are being analyzed effectively
that may impact the business operations of IKEA in the country if India:
Environmental factors Elements
Demographic factors The lower level of household income, the
large size of population, dense population
in different cities & large gap of the
income.
Economic factors On the basis of all the economic factors, it
has been analyzed that India is one of the
fastest growing economies in the world,
which is the major advantage for IKEA in
terms of its expansion.
Political or legal factors Major issues of corruption, difficult policies
of FDI & certain issues of regulation &
politics
Social & cultural factors In the country of India, readymade
furniture is preferred more by the people
along with shop assistants. Cultural
differences are also being found out from
other developed countries.
Environmental factors The high level of availability is being found
of renewable energy.
From the above table, it has been analyzed that the factors of the general environment
are completely different from other countries in which the wide expansion of IKEA has
been enhanced. The substantial cost has to be incurred by IKEA while entering into the
Indian market (Gifford and Nilsson, 2014). Each & every segment of the general
environment is to be addressed carefully by IKEA in order to enhance sustainable
success in the business.
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International corporate-level strategy in India
The main aim of the International strategy is to enable the business organization of
IKEA to sell all its organizational products & offer organizational services outside the
domestic market. Following are the main reasons because of which it is necessary for
IKEA to purse & implement an effective international strategy:
 Yielding the new & innovative business opportunities in the international markets.
The staying of IKEA in Sweden would have resulted in the limited size of the
market, because of which it may not have become the largest retailer of furniture
in the whole world. Therefore, its expansion was very essential in other countries.
 Securing all the limited available resources effectively. A lot of resources have
been required by IKEA in the least amount of prices. All the resources which are
needed by IKEA can be secured effectively & efficiently with the help of
implementing the most appropriate international strategy at the lower level of
prices because of the level of volume purchased by IKEA from the different
suppliers (Lechner and Gudmundsson, 2014).
 Enhancing a greater level of potential in terms of the demand for the
organizational product. Because of the huge & wide level of business expansion
in different parts of the world, it has been identified that the growth of IKEA in
terms of revenue has been increased positively since the year 2001.
 Higher demand for branded products at the global level. Usually, the
standardized designs have been implemented with the concepts of DIY & flat
packs (Beamond, et.al. 2016).
The three types of corporate level strategies are being found at the international level
including the global strategy, transnational strategy & the multi-domestic strategy. In the
whole case, it has been analyzed that with the help of global strategies, IKEA can
effectively enhance its expansion in the country of India. The global strategy of IKEA
includes the following elements:
 Effective utilization of renewable energy
 Offering unique & innovative furniture to all the customers along with the high
level of shopping experience
 Enhancing the concept of DIY
 Implementing the effective decisions at both the strategic as well as the operating
level in the centralized form
 Large space for retail
 Considering the standard services such as beverages or food along with the
playhouse
 Providing furniture in flat packs
 Sourcing at the global level
 Emphasizing more on the economies of scale
It has been identified & founded that among all three, the transnational strategy is the
best for IKEA because the retail space in the country of India is very expensive & it may
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not be feasible for the company, the utilization of renewable energy is also very
challenging in India, some of the organizational products & services are being prohibited
in India, wide level of sourcing requirements have also been found out from the
Government of India, readymade furniture are being preferred more by the customers
and the taste along with the cultural preferences are not constant among the people
living in India (Jia, et.al. 2014). It has been identified that the overall cost of real estate
is very high, lack of availability for the retail space & also the overall efficiency of the
store is not at all appropriate. Therefore, it has been recommended that IKEA needs to
develop & enhance the “India-specific strategy”.
Current challenges faced by IKEA in India
Following are some of the challenges faced by IKEA in the country of India along with
the effective recommendations:
The availability of retail space & its cost: On the basis of case analysis, two effective
choices are being available with IKEA including the city & outside the city in the context
of retail space & appropriate location. The major challenges faced by IKEA include the
cost of real estate, availability of real estate & the efficiency of storing energy. In terms
of the retail space, it is essential for IKE to develop a specific strategy in the context of
India. The benefits will be enhanced to IKEA from the smaller level of retail space.
Supply chain issues: The outside location of IKEA will trouble the customers for
driving out for the longest time & going to the store as the people of INDIA have smaller
cars & compact homes in the city. Therefore, because of all these reasons, storing of
IKEA outside the city will be the major issue. Apart from these, other issues have also
been identified such as the lower levels of car ownership & patchy roads. Hence, the
appropriate location for storing IKEA will be best in the city or near the city ( Kahn, et.al.
2014).
Hiring activities & vendor negotiations: IKEA can effectively encourage its image in
the eyes of people living in India with the help of providing the proper training &
education, conducting & investing towards the charity & maintain the long term public
relations effectively & efficiently. Because of the high level of requirements of the
government on sourcing, there will be a major issue of vendor negotiation. Finding the
best vendors will be very crucial for IKEA who can help it to produce & offer higher
quality products.
The policy of Do It Yourself: It has been identified that the concept of DIY may not
work in the country of India as they prefer readymade furniture. The prices have to be
kept lower in India by IKEA for selling the maximum number of organizational products
& offering people with higher quality services.
The anti-corruption policy of IKEA: The issues can be faced by IKEA from the set-up
of Indian Bureaucracy. But this issue is to be resolved by IKEA within itself as it will be
very difficult for IKEA to change the government of the country (N. Bolton, et.al. 2014).
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Unpredictable reception of IKEA’s products: The liking of the Indian people cannot
be predicted in relation to the products offered by IKEA. But, through looking at the
IKEA’s success, it can be said that the people will enjoy the products of IKEA & its style
of furniture. IKEA needs to increase the level of awareness of its brand among all the
customers by conducting effective events & getting involved in the different activities of
the charity. Also, IKEA can promote its brand with the help of sponsoring movies &
different TV shows.
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International entry modes along with advantages & disadvantages
Five types of entry modes are being identified at the international level including
exporting, strategic alliances, licensing, acquisitions & the new wholly owned subsidiary.
Among all these, IKEA’s choice is the “new wholly owned subsidiary”. As IKEA is the
privately-owned company, it builds up & develops its own space of retail & also
implements the most effective & appropriate global international strategy. The “new
wholly owned subsidiary” also called as the “Greenfield Venture” under which the
business organization directly invests in the market of another country with the help of
establishing the new wholly owned subsidiary.
Its advantages include:
 Allows for the maximum level of control
 Has the highest level of potential returns
Its disadvantages include:
 High level of cost
 Involving of complex processes
 Carrying a higher level of risks
Hence, because of the higher level of need & requirement for global expansion &
integration, the effective strategy of “new wholly owned subsidiary” is being pursued by
IKEA. With the help of this effective strategy, a stronger presence can be secured by
IKEA in the wide level of different international markets.
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Conclusion
It has been concluded that the effective implementation is very essential of the most
appropriate corporate strategy at the international level in order to expand the business
of IKEA in different parts of the world, including the country of India. All the factors of the
general environment have been analyzed effectively & efficiently of India in accordance
with the benefits that can be accessed to IKEA. The corporate level strategy has also
been identified & executed by IKEA at the international level for enhancing the wide
level of expansion. Als, the various challenges faced by IKEA have been identified in
the effective & in an appropriate manner along with the standard recommendations that
will be executed. In the end, different modes of international entry have also been
identified along with certain advantages & disadvantages.
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References
 Gifford, R. and Nilsson, A., 2014. Personal and social factors that influence pro‐
environmental concern and behaviour: A review. International Journal of
Psychology, 49(3), pp.141-157.
 Lechner, C. and Gudmundsson, S.V., 2014. Entrepreneurial orientation, firm
strategy and small firm performance. International Small Business Journal, 32(1),
pp.36-60.
 Beamond, M.T., Farndale, E. and Härtel, C.E., 2016. MNE translation of
corporate talent management strategies to subsidiaries in emerging
economies. Journal of world Business, 51(4), pp.499-510.
 Jia, F., Lamming, R., Sartor, M., Orzes, G. and Nassimbeni, G., 2014. Global
purchasing strategy and International Purchasing Offices: Evidence from case
studies. International Journal of Production Economics, 154, pp.284-298.
 Kahn, B.E., Chernev, A., Böckenholt, U., Bundorf, K., Draganska, M., Hamilton,
R., Meyer, R.J. and Wertenbroch, K., 2014. Consumer and managerial goals in
assortment choice and design. Marketing Letters, 25(3), pp.293-303.
 N. Bolton, R., Gustafsson, A., McColl-Kennedy, J., J. Sirianni, N. and K. Tse, D.,
2014. Small details that make big differences: a radical approach to consumption
experience as a firm's differentiating strategy. Journal of Service
Management, 25(2), pp.253-274.
 Musso, F. and Francioni, B., 2014. International strategy for SMEs: criteria for
foreign markets and entry modes selection. Journal of Small Business and
Enterprise Development, 21(2), pp.301-312.
 Mudambi, R., Piscitello, L. and Rabbiosi, L., 2014. Reverse knowledge transfer in
MNEs: Subsidiary innovativeness and entry modes. Long Range Planning, 47(1-
2), pp.49-63.
 Ferreira, M.P., Santos, J.C., de Almeida, M.I.R. and Reis, N.R., 2014. Mergers &
acquisitions research: A bibliometric study of top strategy and international
business journals, 1980–2010. Journal of Business Research, 67(12), pp.2550-
2558.
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