Introduction
IKEA is a Swedish international brand that deals with home furnishing to offer quality designs and comfort to people worldwide. The Company was formed in 1943 by Kamprad, and its headquarters are in Delft, Netherlands. IKEA deals with home accessories, kitchen appliances, decoration, and home services. IKEA’s idea remains to bring quality interior designs with maximum simplicity and affordability to all its clients worldwide with a mission of establishing a better standard of living for the people. Currently, the Company focuses on cost management, ongoing product development, and operational details that enable it to offer its furniture at relatively low prices compared with its competitors (Pang et al.,2022).
The Company operates in more than 445 locations globally with over 231 000 employees. According to Meadows et al. (2022), It works under Jesper, the chairman and the CEO of the INGKA holding together with Jon Abrahamson, currently the CEO of Inter IKEA holdings globally. The 2019 to 2022 business strategy is cost-effectiveness which helps it gain a competitive pricing advantage. Its global operation and product diversity give the IKEA company economies of scale with a vast product selection. However, due to its global coverage, it has several competitors, including Wayfair, SEB, and Bed Bath and Beyond, which design and sell home furniture, accessories, and appliances (Behl, R., 2022). Despite the challenging business environment due to the effect of the Pandemic and the increase in inflation rates, the sales from the Company increased this year at a rate of 6.5 % compared to 2021. IKEA’s total retail sales for FY22 increased to EUR 44.6 billion from EUR 41.9 billion in FY21. The Pandemic has continued to offer a different insight into home life, where most businesses are operated from home. Thus it necessitates reasonably priced house furniture and solutions for the IKEA company (Ikea.com, 2022).
Global driver’s analysis for Home furnishing companies in India
The idea of globalization requires the transformation of the business from a nation to a globally competitive base which needs to be managed and operated in an integrated and coordinated manner (Abels., et al.,2022). According to the YIP model, there are four drivers for globalization: competition, Market, government, and Cost (Benevolo et al.,2020).
Market drivers
Entering the furnishing industry in India has advantages due to its rising market and high population (Noshir and Madgavkar, 2016). According to WEF, the world’s largest market economy has a stable economy and a high macroeconomic stability grade. The WEF projects that India’s consumption expenditure will rise to between $5.7 and $6 trillion by 2030, providing huge growth potential for the Company to expand to the country. In India, customers can only buy local products, but they are willing to buy international products due to global market expertise. Thus they are likely to buy furniture from any foreign company operating in their country (Bhaskar et al.,2021).
Growth technology has led to worldwide customers due to similar consumer wants and rising tastes and preferences for the new client base (Businesswire.com, 2017). Furnishing industries comply with a worldwide standardization policy to keep their products, services, branding, and marketing methods “similar” everywhere. The Company can keep design and furnishings pricing low for India’s new market (Peng, Y., 2022).
Cost drivers
India’s economy is among the fastest-growing. Due to its expanding transportation network, growing number of transportation networks, and plans to develop railways, India is becoming a global transportation center. India’s large logistics industry promotes GDP growth and the Make in India program of new home furnishing market entry (Versa et al.,2021). Most companies apply the cost-effectiveness strategy that helps them to operate competitively. The Company can destabilize competitors where the low-price technique will boost sales in the Indian market (John,2022).
Coordination, expanding markets with low production costs, and I.T. sector renovation in India assist home furnishing companies to communicate and transfer quickly throughout the supply chain, enhancing cost-effectiveness. This provides the Indian furniture firm with a global reputation for inventive and contemporary design. Manufacturing in the country lets the Company adapt and work with supplier coordination. (Lin, 2019). Flexibility to adapt to market opportunities simplifies manufacturing and delivery hence low cost (Lectra, 2019).
Competitive drivers
Global supply chains, growing MNEs, and foreign collaborations are increasing FDI in many Indian markets (Cuervo-Cazurra et al.,2023). Most worldwide home furnishing companies are driven by their competitive strategies in different countries. Thus, the Company understands the worldwide system needed to compete in India. For instance, IKEA will use the Blue Ocean Strategy in India to eliminate competitors, cut costs, and generate new consumer value (Lauer, T., 2019). The furniture industry targets middle-class consumers who sell its items cheaply and create a cost-effective supply chain to ship them. The industry could design better products for Indian consumers’ customers. Thus, quality, convenience, and cost-effectiveness are powerful competitive drives that necessitate studying the Indian market to produce appealing furniture. India’s competitive advantage comes from combining unique expertise to make quality custom designs.
Government drivers
The foreign home furnishing industry can operate in India due to its business-friendly trade legislation (Das et al.,2020). The government also allows businesses to participate in open market systems, supporting World trade organizations like the WTO. The FDI government reforms contributed to foreign home furnishings companies entering India. Investments in India have surged since 1999 when the economy opened. India received $27.37 billion in FDI in the first four months of F.Y. 2021-22, up 62% over the same time in 2020-21 ($16.92 billion). Furthermore, India has stable political and business-friendly tax policies (Talukdar, P.,2021). The Indian government is also investing extensively in R&D to boost new technology. Thus, home furnishing companies must differentiate their items and generate excellent trends to increase sales.
International entry strategy
IKEA’s expansion to different parts, including India, requires the Company to identify the most strategic entry mode. The Company needs to analyze its Eclectic Paradigm to identify if FDI will be beneficial and the appropriate method of entry to choose to enter the market. This will involve the OLI framework, which includes ownership, location, and internationalization advantage (Bruin, L.,2016). The Ownership Benefit for IKEA is its global size, where it is the largest furniture retailer (Kremer, K., 2019). On the other hand, its location in India is another advantage. Its excellent geographical location in the country enables access to IKEA’s distribution and supply chain center in Mumbai, reducing logistics costs and enhancing its accessibility to other Indian markets. Lastly, the internationalization advantage where IKEA, as a wholly-owned subsidiary in India, would be able to protect its distinctive core competencies without incurring additional resources to fulfill its strategic goals (Jonsson, et.; al,2017).
Most Appropriate Entry Strategy
Franchising
According to Bahia, G. (2022), Franchising in the Company requires the B.V. systems to evaluate the potential IKEA franchisees who are granted the right to run an IKEA store and sales channels following the IKEA franchise processes and procedures. IKEA franchisees pay an annual fee of 3% of their net sales to Inter IKEA Group (Ikea.com, 2020). In exchange, they have access to IKEA’s trademarks. In addition, they are authorized to promote, produce, R$ D and sell IKEA products and run IKEA stores and other sales channels.
Advantages
Business assistance – IKEA’s franchise expansion in India will provide market expertise and operating assistance, building a secure foundation for the brand due to increase sales and economies of scale. This allows low prices and a wider Indian market reach (Kamprad, I.,2020). Franchising will also facilitate all business startup processes in India, encouraging participation and collaboration. This aids market expert communication where sharing knowledge is essential for corporate success and simplifies operations.
Brand recognition – IKEA’s franchise expansion into India will make brand recognition easier than beginning from scratch because a brand and consumer base building take time. Thus, when you launch a franchise with the IKEA logo, customers will know what to expect. Franchisees build a strong brand and knowledge link, lowering the risk of failure. Franchises have proven their business model, ensuring demand for their furniture and design services. (Bilousova, et al.,2022).
Lower risks -IKEA will work with solid and well-known enterprises that have proven the franchise’s economic strategy in numerous markets. IKEA will also be positioned to franchise loans to start and grow the firm due to its lower risk (Bui et al.,2022). Popularity boosts revenue due to tremendous return on investment.
Disadvantages
Restricting regulations- One of the most disadvantaged aspects of Franchising in India is adhering to the franchise agreement’s restrictions, which exerts more influence on the Franchisee’s business and decisions. Based on the franchise agreement, the franchisor can exercise influence over constraints implemented to ensure uniformity between franchises and the brand (Mehdipour et al.,2021). In addition, to the benefits, the initial cost required to join the agreement is prohibitive; hence it can be challenging to acquire the necessary capital. (Dermonde et al.,2021).
Possibility of conflict-Fransinsising is possible when there is a disagreement between Franchisee and the franchisor (Arman. et al.,2019). The Franchisee has limited ability to impose the agreement without appealing an expensive legal procedure in case of a problem. Therefore, before entering into business with a potential franchisee, the franchisor should conduct a thorough business screening, during which the franchisor should assess the Franchisee’s personality and management style. Furthermore, IKEA may view this lack of privacy as a drawback of franchise ownership, hence a risk for the business (Makhrenskii, B., 2021).
Globalization
Ikea’s sales and performance growth contribute to globalization’s high growth. IKEA is a global furniture manufacturer that operates on an international scale. With outlets around the globe, it is necessary to adjust its strategy to nations where the European methods failed to allow growth from Swedish (Stadalninkaitė, I., 2019). The process of globalization is the expansion of ideas, goods, and services across the globe, characterized by free trade to allow easy access to foreign resources to optimize returns and benefit the common good (Talani, L.S., 2019). IKEA stores share their décor and furniture designs globally, making the Company familiar and more trustworthy to most of its customers. By offering quality products, it has become one of the most profitable furniture companies globally. IKEA is proud of its policy of cost reduction and its global strategy that necessitates the globalization of its production margin. By establishing production facilities in the countries where it operates, IKEA reduces the delivery and manufacturing expenses that would otherwise make global operations unsustainable (Alaali et al.,2020).
IKEA’s global success factor is one of its well-known strategies: one design fits all, where furniture produced in the U.K. can be found in the U.S., China, or India. Despite the challenging economic period characterized by the price increase, withdrawal from the Russian market, supply issues, and low customer trust, IKEA grew commendable results in 2021-2022. According to the statistics, in its most recent fiscal year, 2021-2022, Ikea’s global sales increased by 5.6% to 39.5 billion euros (Stockman, 2022). However, despite the growing rate of IKEA globalization, there are many underlying benefits and challenges exposed by the growth.
Advantages
Access to Emerging Indian Markets. Globalization enables IKEA to grow into new areas in India, reaching new customers and boosting its revenue. Domestic demand in Swedish can, over time, therefore, expand internationally; they can sustain growth by satisfying foreign demand (Imamov, M. and Semenikhina, N., 2021). Compared to FY21, when many stores were closed due to the Pandemic, IKEA’s sales increased by 13%. The retailer reports that 822 million people visited its stores in the fiscal year 2022 compared to 775 million in the fiscal year 2021. With its prices remaining relatively stable over the year, IKEA has shown continued growth in the market in the recent past. For instance, IKEA developed retail operations in south America’s new markets, incorporating the first store and online channel. The IKEA store in Santiago, Chile, opened on August 10 202, and expansion into Colombia and Peru will continue in the future is anticipated in early 2023. In addition, the Philippines became a new IKEA market, and the first IKEA stores opened in Estonia and Oman. In fiscal year (F.Y.) 2022, a total of 38 new IKEA retail locations opened throughout the world with the introduction of numerous new products.
Furthermore, it helps to spread technology and innovation. For IKEA to succeed in India, it is required to use the production techniques employed in Swedish, which will lead to sharing the technologies and a technological structure to interact worldwide. E-commerce enables IKEA enterprises to sell things globally via Amazon.com.Similarly, a centralized knowledge repository enables businesses to rapidly share information and build different solutions due to access to skilled labor. For example, the design and furniture industry will require the industry to learn about the trending designs that will help capture the tastes and preferences of the emerging market. Digitalization is creating new opportunities for the retail furniture sector in the global industry. IKEA uses the possibilities to create good relationships and continue offering their customers the best experiences globally (Yun et al.,2022). For instance, due to the global market for the IKEA company, it has brought a famous catalog of opportunities by 2021. A wave of acquisitions has taken place with the rollout of Ikea’s new strategy, including that of Geomagical Labs. “Ikea has invested over $200 million in acquiring 23 companies to contribute to the sector and realize the Company’s long-term vision (Research-Methodology, 2022).
Globalization has also enhanced international cooperation and business tolerance, thus leading to brand awareness and boosting the Company’s competitive position. There is improvement in the partnership, which creates a conducive environment for IKEA in India to capitalize on their economic advantages and exchange their products for other resources from Swedish (Pennesi, F., 2022). Globalization enables businesses to locate untapped, specialized talent. For instance, globalization enables corporations to explore tech talent in booming markets such as Berlin, Finland, and Canada. Again, International PEO enables businesses to legally employ foreign workers without establishing a separate legal corporation, making global hiring easier.
In addition, IKEA will expose its stakeholders to various cultures and network with others from around the world, which will help them learn and be diverse in business operations in the new markets, which, intern leads to economic development (Postelnicu, C., 2021). For instance, when opening a market in America, the taste and preferences of their clients will ultimately differ from those in a country like India. Therefore, Ikea needs to identify the distinction by dispatching representatives to Indian houses to understand Indian consumer purchasing behavior and preferences.
Lastly, globalization for Ikea company has significantly impacted the price of its furniture. Due to global market reach, IKEA will explore the least expensive means of production, which will help reduce the furniture product price, hence exposing the customers to more purchasing options. As a result of globalization, the living conditions of developing nations have improved (Ng, I., 2019). The World Bank reports that extreme poverty has decreased by 35% since 1990. In addition, the first Millennium Development Goal aimed to halve the poverty rate from 1990 to 2022. This. Since then, approximately 1.1 billion people worldwide have escaped extreme poverty.
Disadvantages
One of the significant problems that IKEA will face is increased competition in the global world. Even though free trade can boost a country’s prosperity, it also raises competition. Simultaneously, the growth in available options affects purchasing patterns since customers anticipate high-quality products at affordable rates. This implies that IKEA must continuously adjust to satisfy customer needs (Sağbilge, M., 2021).
In addition, IKEA will cause an inequitable trade. Operating in India can cause the business to import most of its raw materials from Swedish, leading to imports exceeding its exports. This results in a capital shortfall, which the Indian nation must make up by either borrowing funds from overseas lenders or allowing foreign investment in its assets. Although FDI contributes to economic growth, it can be dangerous, particularly for emerging nations, putting Indian nations in a vulnerable financial position. Besides, globalization can lead to severe domestic Job Loss in Swedish. Unemployment is higher for workers whose talents are no longer in demand, especially for those who were doing roles done by IKEA before expanding and struggling to adjust to the changing job market (Gotama et al.,2021).
IKEA’s globalization leads to Challenges in Global Communication-IKEA companies need to set up an internal communication strategy before branching out from the headquarters because international personnel probably operate in a different time zone and speak a different native language (Kádá et al.,2020). For example, IKEA’s expansion from the U.K. to India or China exposes the Company to a different language setup. Due to global expansion, IKEA will need to use digital technology that incorporates software to remove barriers to international communication. These communication difficulties will also create a barrier for a new customer base in the new market. Therefore IKEA must adapt its marketing techniques to communicate the benefits of its furniture to a foreign audience in a manner that connects with them.
Conclusion
IKEA’s continuous growth and success in different countries accelerate the need to expand in new markets. In the analysis, India is one of the countries where the Company needs to expand its operation due to its business attractiveness. From the YIP model of globalization, IKEA utilizes cost–an effective strategy, a conducive environment, and its global competitive strategy to expand in the new Indian market. Establishment in the market has significant advantages for the Company, which not only does it gain new market but also helps it boost its sales, building a substantial competitive advantage.
However, for the Company to succeed in the new market, it is necessary to analyze the most suitable entry mode. According to the OLI framework, IKEA maintains substantial ownership and geographical advantage. A decreased internalization advantage due to a need for more cultural and political market expertise. During this period, it is recommended that IKEA enter India via franchising. This strategy is used to acquire new cultural practices, market knowledge, and first-hand knowledge of the requirements. This will help tap the more advantages of globalization.
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