IKEA's Mexico Launch: News Analysis of Business Strategy and Expansion

This report provides a comprehensive analysis of a news article concerning IKEA's expansion into Mexico, focusing on the strategic challenges and opportunities the company faces. The analysis identifies eight key themes, including globalization, competition, location, business expansion, communication, business model, offerings, and business strategies. It examines how IKEA's traditional business model is challenged by the Mexican market and the need for adaptation, such as revising its business model and offerings. The report explores the impact of globalization and competition from online retailers on IKEA's expansion strategy, highlighting the importance of location selection, communication, and adaptation of offerings to suit the Mexican market. The analysis also discusses the importance of business strategies, including standardization and adaptation, in achieving successful business expansion. The report concludes by evaluating the prospects of IKEA's Mexico launch and its potential success.

NEWS ANALYSIS

Table of Contents
INTRODUCTION...........................................................................................................................1
Research and Background......................................................................................................1
Causes.....................................................................................................................................6
Consequences.........................................................................................................................8
Opinion.................................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
News refers to the information about a specific topic or a particular subject matter.
Furthermore, this information is published as well as broadcast using print and television media
to communicate the same to audiences, that are the general public of the local, national or
international localities (Hou & et. al., 2015). It is a necessary activity which enables citizens of a
community or nation in being aware about the happenings around them. Furthermore, news
could also help them in gaining education about several factors and elements which are
necessary to be acknowledged.
However, it is necessary to analyse the news in order to appropriately evaluate various
factors which require effective insights. Furthermore, analysing news is an important part to
research as it allows in identifying several themes within the research and determine more
effective aspects within the news to study further. The following research is based on the news
article related to IKEA developing its Mexico Launch plans by targeting the capital as well as
major cities. IKEA is a Swedish-Multinational organisation which deals in ready-to-assemble
furnitures, home accessories as well as kitchen appliances. This editorial piece is about how
competition in United States and Europe influence the company in expanding its business
operations within Latin America. Further, the news article effectively focus on the change which
the company is willing to implement in relation to introduction of its operations and offerings
within the Mexico. However, the most prominent question, which the analysis would be
answering is that, 'While setting up operations within Mexico, will the strategy of changing
business model by IKEA would prove successful?'. Furthermore, the analysis would be covering
a detailed research and background with development of eight major themes from the news
article. In addition, it would also be including major causes, along with consequences of the
expansion and personal opinion in relation to the news article (Kovanović & et. al., 2015).
Research and Background
IKEA is seeking an opportunity to grow its business operations in Latin America and has
targeted its Mexico City, along with Monterrey and Guadalajara. The reason for the same is that
these locations are considered to be quite effective for the company in selling its offerings at a
consistent as well as progressive rates. Furthermore, the whole focus of the firm is on expanding
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its business operations within these locations. However, the firm is aiming its development in the
overall country.
From the article, however, there are several themes in relation to this news which are
required to be explored to further develop the scope of this research. These themes are
effectively identified below:
Theme 1: Globalisation
Globalisation refers to a procedure which is performed by organisations in order to
operate on international levels. Moreover, it also refers to effective integration of global
economies which results in enhance interconnectedness and interrelation of several domestic and
national markets. With developments and advancements in Information and Communications
Technologies (ICT), it has become quite easier for different markets to deal with each other and
facilitate trade on a much wider scale. Further, containerisation has made it possible as well as
convenient for these companies to import as well as export higher quantities of goods. The legal
structure of international trade has made it quite structured and easier for these companies to
trade within international borders. Another aspect which paved the way for the same was the rise
in social media which increased customer awareness in respect of different companies as well as
their offerings within the market. As for IKEA, the firm has a firm global image and deals in
several international markets adopting effective strategies to influence customers. Expanding its
business in another international market of Mexico would be providing the company a better
market position globally and would be helping the firm in attaining higher profits. Moreover, if
the company detects market gaps in respect of the products and services it is planning to deal,
IKEA would be able to establish itself firmly within the market of Latin America, thus, gaining a
better competitive advantage as well as higher customer base.
Theme 2: Competition
Competition, within business environment, refers to the phenomenon of presence of
companies or businesses which deals in similar offerings and influence the operations of other
organisations within the same field. These companies possess the power to completely influence
the decision of customers in preferring their products and services. Furthermore, with rise in
integration and fusion of global economy, an organisation is required to effectively formulate set
strategies through which they enhance their sustainability within the marketplace. With rise in
access to technology to different parts of the global economy, the world has witnessed a rise in
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online business practices and trading. Online markets and organisations provide their customers
with facilities of choosing from a wide range of choices, home delivery as well as instant and
safe payment for their products, thus, enhancing the convenience for their consumers. Moreover,
they provide facilities like replacements and regular servicing, which have further developed the
online market in Europe and US. Following are the statistics showing rise in E-Commerce within
the European Market.
Illustration 1: Ecommerce in Europe was worth €534 billion in 2017
(Source: Ecommerce in Europe was worth €534 billion in 2017, 2018)
With such rise in online markets within these countries, IKEA, who adopts a traditional
model in these countries is facing tough competition. This makes it necessary for the firm to
expand its operations beyond these countries for staying ahead of the competition and ensure
sustainability. However, IKEA must carefully choose the locations on which the firm is willing
to operate further.
Theme 3: Locations
Another prominent issue which influences expansion of business is the location. Business
ventures are required to determine the most suitable locations after undertaking a brief market
analysis. Choosing a location is very necessary as ineffective markets lead to ineffective results.
For instance, if a business venture sets its franchisee up in a market which is hostile to its product
or against their preference, it would cause a major backdrop in the firm's sales and profitability.
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Moreover, it is also necessary to determine that what are the market opportunities in the locations
related to finance and business expansions. As an example, IKEA effectively established itself in
centre of Paris, which develops its scope for gaining a stronger customer base, as well as
effectively enhance the overall image of the company. As for Latin America and Mexican
market, there are several opportunities which could be acquired by IKEA within Mexico City as
well as Monterrey and Guadalajara. One such advantage is that, the company would be
experiencing reduction in its operational costs which is an advantage for carrying out its
functions effectively. Further, the competition in these locations is comparatively lower than
countries like US and Europe, which is a major advantage for IKEA (Why It Can Be Easier To
Start A Business In Mexico, 2018). Moreover, as per the rules and regulations of the country,
getting work permits in Monterrey and Guadalajara is very easy and quick. Thus, for business
expansion, these locations are quite favourable for the firm.
Theme 4: Business Expansion
This refers to the factor of expanding the business operations and offer one's products and
services in new markets. With globalisation at its peak today, business expansion is very crucial
for multinational companies to gain a wider market share. However, there are different models
and techniques which companies adopt in relation to expand their businesses in different
locations. The first method is franchising, where the company opens its outlets and lends its
resources to companies referred to as franchisees, who are responsible to run their businesses. It
is one of the most preferred and opted method which multinational companies adopt in order to
establish their business operations internationally. Another method which firms adopt to expand
their business are joint ventures, where companies get in agreement with other organisation of
their stature and nature and they together share their resources and run their businesses. As for
IKEA, franchising seems to be a viable option as the company is renowned globally, which
makes it convenient for the firm to set up a franchise in Mexico City, Monterrey and
Guadalajara. However, to further develop a strong hype for its expansion, the company must
communicate to enhance its awareness in the public.
Theme 5: Communication
Business Communication refers to flow of information within and outside of a business
organisation. It is crucial as it allows the business to gain knowledge about several useful aspects
which could be important for the company in expanding its business and launch itself in foreign
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markets. There could be several media types which could be opted by the company to
communicate, like print and television media. As for IKEA, the company must use all the current
media types in relation to increase the awareness of its launch in Latin America (Vargo, Guo &
Amazeen, 2018). With rise in internet access, social media platforms like Facebook, Twitter and
other official websites of media houses could be used by the firm. However, their spokespersons
must be aware of what information they are letting out in media. For instance, the decision of
marketing manager to keep the information about number of stores as well as timeline reserved
with the firm is effective to ensure that its strategies could not prove ineffective by interference
of outside forces. Further, to increase the scope of success, IKEA must revise its business model
to ensure effective launch within the country.
Theme 6: Business Model
The overall idea, concept and working of a company collectively refer to as a business
model. It is necessary for organisations as these models determine the extent up to which their
business would be successful. In addition, revision and modification of model is essential to
compete and sustain within the business environment for a long term. IKEA's traditional model
of vast warehouses on the outskirts of the city is effectively challenged by Mexico's dense capital
area and scant open spaces. Thus, the company is required to revisit its business model to choose
the best alternative that is fit for the purpose. For instance, the example as per the news article
related to the company changing its model in Paris by operating at the centre of the city, is a
strategy which could be well adopted in Mexico as well. This would allow the company to
overcome the challenges and set itself up effectively within Latin America. However, business
model of a company also requires emphasis on the offerings which are indicators of success and
failure of an organisation.
Theme 7: Offerings
These refer to the products as well as services which are provided by an organisation to
satisfy the needs of the market. It is the most crucial aspect and are the reason for its existence
(Williams, Harte & Turner, 2015). However, these offerings are required to be modified as per
the market needs which are necessary for an effective establishment as well as consistent growth.
IKEA is famous for its furnitures, however, as per the Mexican market, which is rich in food, the
company is required to set up new product ranges to enhance its suitability within the country.
For the same, the company could offer eatery services to its customers in the country, which will
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be in accordance with customer preferences and would suit its changing business model. This
would also lead the company in formulating several effective strategies.
Theme 8: Business Strategies
These refer to the plans and tactics which help an organisation in gaining a competitive
advantage. Moreover, these elements are necessary for a company for progressive growth within
other markets. With expansion in business, there are two prominent strategies, such as,
standardisation and adaptation (Fletcher & Nielsen, 2017). The former refers to selling existing
products in existing manner within other markets. This reflect that organisations would be
sticking up with their business models in their establishment in foreign markets. However, the
latter refers to adaptation, alteration and modification of strategies in respect to the new market.
For IKEA, this business strategy is one of the most effective strategy for the firm in order to
enhance the scope of its success. If the company would be developing its strategies according to
the Mexican market, it would surely succeed for long run, thus, enhancing its effectiveness and
gaining better competitive advantage.
Causes
It is important for every company to assess the external environment which specifically
includes competition as strategies needs to be changed and modify as then only it would be
easier for them to perform better (Hamborg, Meuschke & Gipp, 2017). The main reason behind
entering into Mexico is high number of competitions in the market due to which profit margin of
the company is decreasing with a significant rate. For instance, if there are larger number of
competitors in the market for the same potential customer by providing same products then it
automatically leads to price war between companies. To attain market leader position in the
market in terms of customer and market share companies prefers to lower down their cost with
the aim of getting higher attracted customer in the future. But on the other side, it only affects
company in a negative way as profits margin is decreasing which leads to low profitability and
lower revenue in the future.
IKEA was facing high number of competitors in the US and UK region as they have face
with the names like Ashley furniture industries, Steel case, Williams – Sonoma, rooms to go etc
(Top 10 Furniture Manufacturers in the USA 2018, 2019) So it can be said that it is essential for
IKEA to spread their business in to cities and country which they have never been as it will
attract more customer and more revenue for the company. So to reduce the institutional risk in
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the competitive market, getting into Mexico would bring attractive results for IKEA as they have
more than 20 million population in the country with untapped market.
Apart from the physical store of furniture, after the emerging model of technology or
online model positive and negative aspects has been created on Ikea traditional model of
business. For instance, by using online platform to sell the product, it would be easier for Ikea to
reach more customers in the market due to which higher profitability would be generated in the
future. But on the other hand, more competitors are increased in the market as companies can
also deal with the customer without being physically present there (Kwak & AN, 2015). It can be
said that technology brings smoothness in the business operations by increasing competitions in
the market.
So it can be said that increase in number of services provider of furniture in the market is
affecting traditional model of business in Ikea as it would be hard for them to deal with the
rivalry intensity due to ineffective model. So to cope up and protect their brand name in the
market, Ikea decision of entering into Mexico like Mexico City, Guadalajara and Monterrey is
favourable for their profitability. As more untapped customers could be faced by the company so
that they can convert them into potential customers. Main benefit which Ikea would obtain into
new countries is modern furniture design with inexpensive or price according to customer ability
to pay. So according to news, main aim of Ikea is to enter in to market like Latin America Chile
which will ends up in Colombia and Peru in 2020 so that higher market share would be gained
by them.
It is not easy for any of the company to perform well if they are conducting their
business activity far from the city area. IKEA's has followed one of those business model where
bring their couches and all other related material from their ware house (Esau, Friess & Eilders,
2017). The biggest problem in front of the company is that how they can perform their task on
regular basis because it will not be easy for them if they conduct their business activities from
outside the city. If company will try to work from outside city were more than 20 million people
stays then they have to manage additional fund because they will require huge amount of capital.
Even company will not be able to delivery each and every item to their customer on time because
it is found that when any of the organisation manages their business activity from ware house
then they have to face various kind of issues on regular basis. Also, IKEA is facing problem
because of their traditional marketing strategy which is one of the those causes due to which they
7

are required to change marketing strategy. Even they are not able to satisfy their customer which
the products which are available in their store so it will be important for IKEA to being their
warehouse near to the store.
It will be crucial for IKEA that they change this business model because this is not
allowing them to earn maximum amount of Profit as per their planning and policies (Lane &
Kim, 2015). So, it will be important for them to introduce new plans and policies because that
will tell that how they can perform well in their sector. When company will get the chance to
explore their work for the market area then it will be beneficial for them because in that
condition they are allowed to work as per their willingness and through which they can manage
their day to day activity easily. The reason behind changing the concept of traditional market is
simple because they is not working as per the plans and policies in modern days but those
policies were very effective few year back. Even traditional marketing policies are not allowing
them to interact with each and every customers but if they will shift towards city side then it will
be effective for them were they can easily work as per the desire of customer. In the end, it can
be understood that, if IEKA will be able to work as per their new plans and policies then they can
easily achieve their target in short period of interval. But, before that it will be crucial for them
that how can be enter into the market and they will be able to do that then they can easily
succeed to compete within the market (Niemi & Pitkänen, 2017) .
Consequences
Any decisions which are taken to operate different functions of a company, majorly affect
stakeholders in both negative and positive manner. In context with IKEA, it is going to make
changes in operational for launching business successfully in Mexico. For this purpose, to make
changes it concerns more on some specified theme as discussed above. It includes business
strategies, offerings, business model, communication, expansions, globalisation, competition and
location (Burscher, Vliegenthart and Vreese, 2016). Therefore, concerning on these major
themes, it has taken various decisions to create modification in policies and strategies for
launching business successfully at Mexico marketplace. In this regard, such alterations may
affect its stakeholders which include customers, employees, government, local communities,
suppliers, business partners, shareholders, competitors and suppliers. To identify such
consequences related to impact of these stakeholders, in terms of long-term, short-term, good and
bad manner, an analysis can be done in following manner:-
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Government: Regulatory bodies also concern on every decision or policy of a company which
are made to operate its business. The purpose behind this is to determine how ethically such
entities are operating their businesses. In this regard, they monitor and track on financial
performance of company on regular manner. This would mostly help in developing economy of
a nation because when organisations run business in ethical manner at international marketplace
and generate higher revenues. Through this process, such companies become liable to pay high
taxes to government that ultimately helps in building effective infrastructure as well as other
facilities for local societies. In this regard, expansion of business of IKEA in Mexico
marketplace affect government of such place also. Therefore, if this company can secure
government as a long-term customer than it will help in getting support of regulatory bodies to
run business at new marketplace. But if changes made in business policies impact negatively on
business of respective company then under such condition, government of new country also
faces loss to gain international currency. This would affect economical development as well.
Employees: They are playing most important role in a company in running business successfully
in desired manner. With efforts and contribution of workers, organisations gain opportunity to
achieve its major goals and objectives in set period of time. Therefore, changes in business
policies will impact on working processes of employees both in negative and positive manner. In
this regard, in context with IKEA as it wants to launch business in Mexico and make some
changes to win high competitive advantages (Fletcher and Nielsen, 2017). So, it majorly affects
its employees also because when new technology will implement within business then this may
hyper their working processes. For this purpose, by getting training to work on new technologies
give them opportunities to enhance skills and knowledge more effectively. This would help in
making their career more bright to gain long term profitability. But to launch business at new
place, IKEA will give employment to new workers also. This would create issues like conflicts
between existing and new employees due to different background which may affect their
performance negatively.
Competitors: Emergence of business of new companies mostly affect on established companies
present at same marketplace negatively. Expansion of business at global level therefore, affect
competitors of IKEA also which includes Walmart, TESCO, Amazon and more. Therefore, any
changes in pricing strategies of IKEA will affect policies of such companies also. It will assist
such competitors to develop more effective strategies to retain their customers for longer period
9

of time. But advantage point of expansion of IKEA for Walmart, Tesco and more is to gain
opportunity to formulate more strong strategies to run business successfully at international
marketplace.
Shareholders: It includes those stakeholders who make investment in business of a company
and share profits as well. They play the most crucial role in taking decisions to make policies and
strategies for running business successfully. In addition to this, they also concern on who is
appointing as members in Board of Directors, who made rules and regulations by considering the
interest of all stakeholders (Young and et. al., 2017). In this regard, the decisions which are
going to take by employers of IKEA for launching business in Mexico affect its shareholders
also. It has evaluated through news article that this location will prove beneficial for respective
company to generate high profitability. The reason behind this is presence of customers who are
belong to good status and willing to get innovative furnitures on any price rate as per their status.
Therefore, it will help in enhancing its sales performance and get high return on investment,
which will satisfy its shareholders most appropriately. But due to presence of high competition at
such location, any change in business model may impact negatively on IKEA also, because
under this condition it has to offer products on less rates. This may affect short-term plans which
are made to get adequate amount on ROI.
Customers: For every business organisation, the most important stakeholder group is customers.
They are the ones for whom the products and services of an entity is made. They are the ultimate
user of offerings of entity and are found to be largely concerned about the pricing and quality of
products offered by the entity. In this regard, the expansion of IKEA in Mexico tends to have a
positive impact upon the customers as the people of Mexico can now avail the offerings of
company. The negative impact upon customers is that they get concerned about the quality of
products that the entity will offer during the initial stage. The short term impact upon customers
will be that that they will be willing to buy the products sold by entity keeping in mind the track
record the position and loyalty of people towards the brand over years (MaLaughlin, 2017).
However, in the long term, the customers will purchase the offerings of the organisation only
when the quality and price of these goods are in accordance with the expectations of people.
Suppliers: These are the personnel who provide the necessary resources to an
organisation for manufacturing its products as well as effectively executing the day to day
10

activities. They are the ones who are significantly affected by the operations of business. When
IKEA expand its operations within Mexico, this will raise opportunities for the local suppliers of
Mexico to tap the advantage of supplying high quality resources to this international company
and gain recognition within the local markets to supply materials to such a large scale
organisation operating at a global level. The adverse impact of the expansion will be upon those
local suppliers who do not get a chance to supply materials to IKEA. Further, the short term
impact of expansion of company into Mexico will be that the suppliers will get increased
opportunities, thereby getting a scope to facilitate business growth and expansion (Van de
Kauter, Breesch and Hoste, 2015). The long term impact of entry of IKEA in the new country
will be that there will be reduced unemployment in the country owing to the fact that for
supplying high quality resources to IKEA, suppliers would need skilled personnel who develop
such materials.
Local community: This consists of the local people who are affected by the conduct of
business in the modern world. When IKEA expands into Mexico, there are equal chances of
success and failure of entity within the new country. In this regard, when the furniture offered by
entity in the new country is liked by the population of that place, the revenues as well as profits
of enterprise will significantly raise. In such instances, the likelihood of company will be to give
a large contribution in Corporate Social Responsibility (CSR) activities. This will result in
welfare of local community and the company will gain from recognition received from
government as well as customers. The short term impact of this will be that the community will
gain from the high revenues and profits earned by IKEA. The long term impact will be that
increased sales and profitability would mean higher initiative undertaken by company to
eradicate global issues such as poverty, unemployment as the company would invest in such
large scale issues which will significantly provide assistance to the local communities.
Business Partners: A change within any operations or functioning of a company tends to
have a large scale impact upon the partners of business. In this relation, IKEA is planning to
expand its business operations within Mexico by bringing about a change in its business model.
Business partners of IKEA are concerned about the possible consequences that this expansion
will have upon the company. In this relation, the good impact upon the mindset of business
partners of IKEA is that they will have also have opportunities to promote their offerings along
with the expansion of IKEA in new geographical location (Corbett, 2016). The adverse impact
11

of this would be that if company does misleading claims or gets involved in negative publicity,
then it will also have a bad effect upon the goodwill and position of IKEA's partners across the
global market. The short term consequence upon the business associates of IKEA will be that
they will try to tap the advantage of gaining a high share in marketplace by attracting the new
customer base of IKEA within Mexico.
Opinion
After analysis of the causes and potential consequences, it is essential to present an
opinion which is necessary to effectively analyse the potential outcome for the same (Cortis, K.,
& et. al., 2017). Furthermore, it is also important for the company as it would help in the firm in
analysing the potential ways and strategies which could help IKEA in setting itself up in Latin
America. Further, providing an opinion would help the firm as well as researchers in evaluating
whether the strategy adopted by the firm would be effective or not.
It is necessary that strong arguments are presented for the same which would further
develop the scope of its analysis. After analysing all the themes, possible causes as well as
consequences, the opinion which would be fit for IKEA's situation is that it must change its
business model from its traditional one to a more modern one of operating in the centre of the
cities it is planning to launch itself into. Further, this strategy would be successful enough for the
company to sustain itself more competitively in the future (Neuendorf, 2016).
One of the major arguments for this opinion is that, having stores within the city would
help the company in getting more customers than in their traditional models. It is because
accessibility would be provided to their service users which was not provided in their traditional
models (MaLaughlin, 2017). As analysed from the article, one potential cause for this change in
business model is the dense capital area and scant open space within the country. Such open
provides the firm to set up itself within the centres of these three locations. Further, with easy
and quick access to IKEA, customers would not hesitate to approach the company for acquisition
of their necessary products.
The business changing business model of the company is also focussing on using Virtual
Reality as an effective tool for increasing customer satisfaction (Ikea vows ‘transformation’ as it
reshapes business model, 2019). This raises another argument in favour of the company and its
changing business model. This argument is that with such advanced use of technology within
Mexico, the firm would help customers in gaining insight to what product would they be
12

acquiring. This would be establishing an appropriate communication channels where customers
could communicate any modification they require in the design of their furnitures, thus, this
changing business model would be successful for the company in long term, as it would further
reduce competition for the company in Latin America.
However, there is one argument which might causes roadblocks in the company and its
practices. Its that, the changing business model might not be quite effective to beat competition
within Latin America from firms like Amazon. This company is a potential threat for IKEA and
it is evident that it could further cause the firm hindrances in establishing itself more firmly
within Mexico (‘Amazon is a threat’ but Ikea’s digital chief says she has a plan, 2019). This
could probably be a major threat for its business strategy and its new business model might fail
in relation to its competitive and progressive establishment in Latin America.
All these arguments are necessary and crucial to be analysed to determine and answer the
question that whether its strategy of changing business model would be successful in the country
(Malik & Pfeffer, 2016). As per these arguments, a firm and strong opinion with respect to the
company and its strategies, would be that this strategy of the company of changing its business
model would be successful for IKEA in Mexico if used in a competitive and effective way.
Seeing its benefits for the customers and its tactics of setting up in the most prominent cities, this
strategies would further arise the scope of its success and enhanced market share. As for
competition, the company would be required to make new and appropriate plans in relation to
gaining a competitive edge in the market form companies like Amazon. One such strategy is to
give personalised services, which the company would be giving by use of Virtual Reality. All
these aspects and elements are highly favourable for the organisation and its strategy and could
contribute to its success and re-establishment as a market leader (McGinty & et. al., 2016).
CONCLUSION
Thus, it is concluded from the above analysis, that News analysis is a major aspect which
contributes towards gaining a better insight about a certain subject matter. Research and
background analysis helps in identification of several themes which could be further evaluated
within the news analysis. Causes and consequences are effective in relation to determine aspects
like what led to the rise of the question of the analysis and what possible consequences does it
present for the stakeholders. Lastly, it is essential to present an opinion which reflects as to
whether the answer to the question after an in-depth news analysis is effective or not.
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