IKEA's Market Entry Strategy: Challenges and Success in India

This report provides an in-depth analysis of IKEA's international business strategies specifically tailored for the Indian market. It examines IKEA's market entry, supply chain management, and adaptation to local consumer preferences. The report details the challenges IKEA faces, including intense competition, low-cost strategies of local vendors, and adapting to the Indian business environment. It also explores IKEA's attempts to overcome these challenges, such as local sourcing and in-house assembly support, and assesses its potential for success in India. Furthermore, the report covers the company's retail layout and international strategies, highlighting its plans for expansion and the importance of understanding the Indian market's nuances. The report concludes with an evaluation of IKEA's prospects and the strategic adjustments required for long-term success in India, considering factors like e-commerce growth and the company's learning curve in a new marketplace.

Competitive strategy

EXECUTIVE SUMMARY
Plans that guide commercial transactions which take place between organisations in
different countries is known as international business strategies. It allows the firm to sell a
standardised product worldwide.
Ikea is a Swedish multinational retail company that designs and sells ready to assemble
furniture. It has its own restaurants all over the world and its taste is cross culture. Recently it has
shifted to Hyderabad, India in 2018. For this the company has adopted international strategies to
hold its place in the country for longer period. The following report will cover strategies adopted
by them for expansion. Apart from this it will describe challenges faced and steps taken to
overcome those problems.

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................1
Ikea's first store in India.........................................................................................................1
Ikea applied following international strategies in India for the expansion of market:...........1
Consumer preference in India................................................................................................3
Difficulties to compete in India with intense low cost competition.......................................3
The company will Strike a balance between low price and quality using internal strategies 3
Difficulties faced by Ikea in India..........................................................................................4
Ikea made attempts to overcome challenges faced by it........................................................4
Local competition and steps taken to defeat them..................................................................4
Will Ikea will succeed in India?.............................................................................................5
Plans for Ikea's success...........................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCE...................................................................................................................................7

MAIN BODY
Ikea's first store in India.
IKEA, world's largest furniture retailer company which came to India on 9th August 2018
in Hyderabad's Hitec City. The company expected its store to attract 7 million visitors annually.
It has been determined that in India, Ikea will look to sell products according to the needs of
local market. It will offer pressure cookers along with its iconic Billy bookcases. The
organisation has conducted big research on how its product will be received in India. Its stores
are situated on the edges of cities, but it doesn't take it as a problem. It is exploring more Indian
natural fibres as part of its international plans for more sustainable raw materials (Alänge,
Clancy and Marmgren, 2016).
IKEA which is well-established and lucrative brand revolutionised its supply chain
operations and optimized its products in cost effective manner. Ikea has compelling and
competitive high quality with low pricing products’. Main aim of Ikea is to provide functional
and trendy products which are manufactured in cost-efficient manner so that common public
could afford them. In India, Ikea started its three-step retail strategy. Firstly, it will build brand
name in India by large formatting of stores. Secondly, it will adopt e-commerce strategy. Lastly,
it will experiment with new market formats. Their first step is to start small and pop-up stores
and will further try to explore various parts of the country. Ikea wants to step up with quality
strategy at different workshops in metro cities (Burnett, 2017).
Ikea applied following international strategies in India for the expansion of market:
Supplier Network: Ikea regularly working for optimizing supply chain management and
developing products. It resulted in seeking vertical FDI. In India, it has been sourcing for its
stores and presently has 48 suppliers. With these suppliers they support entrepreneurship and
innovation that helps in creating competitive capacities and invest in the advanced technologies
(Govind, 2017).
Low Cost Strategy: Ikea cuts costs so that it could compete with its competitors in market. They
accept challenges then they keep an eye on its price and then cut down their prices to half. Thus,
regulations placed by government, foreign retailers are restricted to open stores in various
markets. Many laws were in favour of domestic entrepreneurs who started their operations and
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saved their time for it. Then, some bureaucratic requirements made business difficult after
allowing entry of such MNC's like Ikea (Cosmo and Yang, 2017).
Supply Chain: Ikea has efficiently outlined many operations with local suppliers of India in
order to manage advanced supply-chain so that shipping costs could be minimized by offering
flat-packaged products. Similar products could be sold in operating markets by replicating
complete supply chain value across countries. But there were issues related to sustainable
development in India. Compulsory solutions are applied at store levels in order to describe
handbook that provide proper instructions. The company has opened its first store with the
investment of $1.5 billion in it. Indoor furniture of India rose up to CAGR of 10.9% in between
2012 to 2017. In the future, it is forecasted to rise up to 3.8% till 2022. Ikea will help in making
changes in home furnishing and traditionally controlled by general market. There will be a
renewal in home furnishing industry by the entry of Ikea. It has also brought acute changes in
Indian customer demands and priorities. Since, Ikea is doing work from years’, partners would
be more aware of its design standards and quality. It has earned 350 million euros from India
already. It will also plan to focus on its website to attract more customers instead of partnering
with other in local market (Gancarczyk and Gancarczyk, 2017).
Retail Layout: There is identifiable giant blue & yellow Ikea stores across all markets. This
retail company entered India 28 years ago to begin and source goods for their special stores but
then too, they don't own front store presence in the country. India changed some policies in 2011
for store openings around nation. Entity returned India with an investment plan of 105 billion
rupees i.e. $1.6 billion which opened across 25 fresh stores all across the nation. It settled
headquarters in Gurgaon in order to create Ikea-activity based space globally. It has its plans to
open retail stores in Mumbai in 2019. Ikea is ready with its many e-commerce services and not
only prepare signature big-box shop but initiates small level stores. Company is building
4,30,000 square feet store in Navi Mumbai which will assist residents of eight various municipal
corporations (Hyland, 2017).
Thus, with these international strategies and investment policies Ikea will set up a robust
plan and specific innovations in India. Organisation will acquire huge parcels of land on the
suburbs and outskirts of large cities. It was having different vision when entered and it had
foundation of setting 100-200 years. Executives of Ikea experienced six years for strong
foundation. In this struggle time, Ikea invested huge amount of resources, money and time so
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that it can understand the market properly. Their prices are lower as compared to Indian
standards and are moving towards reducing more prices. Ikea has long term plan for this it has
invested 1000 Corers in single store in order to secure correct price level. To work at global
supply chain, they are putting efforts with a range of suppliers for new collection like flat-line
furniture, couches, mattresses etc. For all these establishments Ikea has to follow local rules that
are responsible for advancement of India and are essential within five year of investment. In spite
of huge investment of around 190 million dollars this company is not allowed for selling its
commodities online in the whole country (Jacobs, Chase and Lummus,2014).
Consumer preference in India
Ikea's business idea is to offer a wide array of innovatively created, stylish home
furnishing at low prices so that many customers will able to afford it. Also, now it has been seen
that India has become more open to spending on quality products. With increase in the influence
of international brands, preferences of customers are shifting to better quality. The company has
also geared up to tap this opportunity coming from changing consumer buying behaviour. In
India with high standard of living and justified disposable incomes, families are willing to buy
premium products which is an advantage for Ikea (Kim, Banks and Shah, 2017).
Difficulties to compete in India with intense low cost competition.
It has been determined that India might be considered as most challenging market for
Ikea. Henrik Elm, company's global purchase development manager says, that whatever they will
learn from India, will take it to China, Russia, Europe- new markets. Especially the biggest
challenge is low pricing competition that's need to be taken into account by them. He further
states in this context that, the idea around democratic design is that their focus is not only on
price, but on its form, its identity, high functionality, nature friendly and quality products.
The company will Strike a balance between low price and quality using internal strategies
Ikea believes that they cannot negotiate the low price if the description or construction of
a product is wrong from the starting. Henrik Elm states that, many of the goods have 80% cost
already defined at the drawing table, so the low price it created by smart design & using low
weight raw materials. They have hollow constructions in legs of table, and similar styles in
bookshelves & wardrobe systems. Apart from this, they have good quality that is accomplishing
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& exceeding demands of the customer. With this they keep developing of the product, with
quality and low cost (Klotz and Lynch, 2014).
Difficulties faced by Ikea in India.
General Motors (GM) recently exited the Indian market, by shutting down their
manufacturing facility serves a potential warning for Ikea, and other multinationals as well.
Because of the lack of variety in its product line, poor distribution and inadequate service, GM
faced a failure in taking the distinct Indian landscape when try to expand into the country. There
are many other multinational companies who struggles to adapt in India. For example, GM failed
as it was unable to take into account price sensitivity of consumers in relation to their car
selection. Ikea met with a difficulty regarding synergizing company with local culture, while
trying to select the city for their first store. Other major barriers include the heavy paper work,
poor transportation facilities, and insufficient governance. The shifting of official procedures,
government corruption, and taxes were specifically serious issues. Company also faced various
issues with workers who wanted to work overtime to collect more salary (Legro, 2016).
Ikea made attempts to overcome challenges faced by it.
The company identifies strategic challenges and tried to overcome those issues. One of
the biggest problem for it was that its prices, considered low in Europe and North America, were
higher than in China. Furniture prices set by local stores were cut down as they have access to
cheaper labour & raw materials. The firm asked regarding increase the proportion of locally
sourced materials that would help to overcome import duties, which would otherwise make it
difficult to keep low prices.
Company's newly introduced India websites offer popular products at lower prices than
in the US, Therefore, it has taken an unusual step of setting up a 150- member in house task
force to helped with assembly. Further it plans to open more than 25 stores across India by 2025
(McNamara and Descubes, 2016).
Local competition and steps taken to defeat them.
Ikea's competition in India involves start-ups Pepperfry and Urban Ladder, which provide
extra services such as free delivery & furniture assembled on site at no extra pay. However, the
overall market is controlled by miscellaneous vendors selling ready-made or order based
furniture.
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The company plans to maintain the original Swedish logo and to target lower middle
class people. It further, decides to hire Indian managers and retail workers so that they will be
able to communicate with guest. They plan to start one store in Mumbai and expand depending
on sales and revenue.
Will Ikea will succeed in India?
With a growing middle class, India could be a big opportunity for the company, but it is
also a market with much quirkiness. Another reason for Ikea to see more opportunity growth in
India is emergence and development of e-commerce. Its experience of entering in new
marketplace has provided a heavy learning curve. This will further will help company to handle
itself in India. However, it is also true that India is not lucky for multinational companies. For
this the company has international strategical plans for the Indian market (Rouquet, Goudarzi
and Henriquez, 2017).
Price sensitivity is another reason for which people will actually shop at Ikea as Indians
are very price sensitive. The country likes everything western, so the hall room furniture store of
the company will be a hit. Firm promised that the country is likely to be the least expensive
market worldwide. It has been determined that the company has always been a destination store.
Its large variety & the need to visit it at most once or twice a year makes it viable for a customer
to make a trip.
Plans for Ikea's success.
The company plans an advertising attack in the run up to the Hyderabad launch. It will
also introduce an Ikea club to provide classes on things like home furnishing, laying the table
and makeover of homes. Its advertising campaign will move into high gear when it launches the
Ikea catalogue, one of major marketing tool across the world. It policy is to maintain complete
transparency with its partners, which often helps them with financing, as well as selecting
machines to improve efficiency and cut down cost (Riley, 2016).
At the end, the company is all about the new experience, an outing for families, a child's room
that makes learning fun, and some hearty meals at the restaurants.
CONCLUSION
The report concluded that, IKEA which is well-established and lucrative brand
revolutionised its supply chain operations and optimized its products in cost effective manner.
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Their first step is to start small and pop-up stores and will further try to explore various parts of
the country. Ikea wants to step up itself with quality strategy at different workshops in metro
cities. Apart from this, it concluded that, its experience of entering in new marketplaces in
different countries has provided a learning lesson. These lessons will further help company to
handle itself in India.
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REFERENCE
Books & Journals
Alänge, S., Clancy, G. and Marmgren, M., 2016. Naturalizing sustainability in product
development: A comparative analysis of IKEA and SCA. Journal of Cleaner
Production. 135. pp.1009-1022.
Burnett, R., 2017. Global strategies and local markets: explaining Swedish music export success.
In Global Repertoires (pp. 9-19). Routledge.
Cosmo, D. E. and Yang, K., 2017. A Further Strategic Move to Sustainability-A Case Study on
IKEA. Journal of Strategic Innovation and Sustainability. 12(2). pp.39-47.
Gancarczyk, M. and Gancarczyk, J., 2017. Proactive international strategies of cluster
SMEs. European Management Journal. 30. pp.1e12.
Hyland, F., 2017. Challenges faced by second language doctoral student writers in Hong Kong
and their writing strategies. Australian Review of Applied Linguistics. 39(2). pp.158-180.
Jacobs, F. R., Chase, R. B. and Lummus, R. R., 2014. Operations and supply chain
management (pp. 533-535). New York, NY: McGraw-Hill/Irwin.
Kim, J., Banks, C. J. and Shah, J. A., 2017. Collaborative Planning with Encoding of Users'
High-Level Strategies. In AAAI (pp. 955-962).
Klotz, A. and Lynch, C. M., 2014. Strategies for research in constructivist international
relations. Routledge.
Legro, J.W., 2016. Rethinking the world: great power strategies and international order. Cornell
University Press.
McNamara, T. and Descubes, I., 2016. Can IKEA adapt its service experience to India?. Emerald
Emerging Markets Case Studies. 6(1). pp.1-14.
Rouquet, A., Goudarzi, K. and Henriquez, T., 2017. The company-customer transfer of logistics
activities. International Journal of Operations & Production Management. 37(3). pp.321-
342.
Online
Riley, J., 2016. Can Ikea Succeed in India? [Online]. Available Through:
<https://www.tutor2u.net/business/blog/ikea-expands-into-india>.
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Govind, D., 2017. Ikea to follow three step retail strategy in India. [Online]. Available Through:
<https://www.livemint.com/Industry/a8SVLF8lze2g7gfjf4sfKN/Ikea-to-follow-threestep-
retail-strategy-in-India-CEO-Juve.html>.
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