IKEA: Furniture Retailer To The World
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IKEA: Furniture Retailer To The World



An investigation into emerging markets in South America for the retail furniture giant IKEA. This presentation considers key concepts in International Business, including market entry strategies, ...

An investigation into emerging markets in South America for the retail furniture giant IKEA. This presentation considers key concepts in International Business, including market entry strategies, cultural considerations and transnational strategy. Please visit http://www.kuszczakowski.com



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  • Full Name Full Name Comment goes here.
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  • What a great idea looking to move to chile and renovate be nice to get a new kitchen and bathroom BRAVO IKEA regards Larry
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  • Dear all,

    My name is Juan Boekemeyer and I´m from Chile. I saw your presentation and i think very interesting the idea to bring IKEA furnitures to Chile. Im going to Gotheborg next week for a business meeting and i would like to meet the main factory and if is possible to collect further details of your ideas.

    Expecting your comments

    Kind regards,

    Juan Boekemeyer
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  • As you are aware, IKEA is currently undertaking it’s annual strategic planning process and we have been engaged, together with other teams of consultants to look at opportunities for expansion in emerging markets.We’ll firstly provide you with some background to the task we’ve been set, then we’ll explain to you the analysis we’ve conducted and finally we’ll make some recommendations based on that analysis and outline next steps we think IKEA should take to follow through on some of our findings.
  • Enterprise value is determined by two things: profitability and profit growth.In the context of this presentation, we are focused on entering new markets.IKEA has a goal of growing at a rate of 20-25 stores per year, and this will inevitably mean that entry into new markets must be considered.We have therefore been asked to consider the possibilities for entry into the emerging market of South America.
  • The six emerging markets that we have analysed are: Argentina Brazil Chile Colombia Peru Venezuela
  • Analysis of the opportunities and risks of investing in a country must consider a number of factors.There are a number of models and frameworks that can be applied here.We’ve considered Shenkar & Luo’s micro-context and macro-context factors, which include:Cost/Tax FactorsDemand FactorsRegulatory FactorsSocio-political Factors
  • In our analysis we sourced information from a number of sources as shown here.These data sets have allowed us to consider cost/tax factors, demand factors, regulatory factors and socio-political factors.We’ll provide you with a handout that has the links to these data sets.
  • Looking at the six key emerging economies in South America, we’ve identified key factors relating to opportunities for a return and factors relating to risk.There are a couple of compulsory factors for each of our markets:1a. They had to be a member of the World Trade Organisation; and;1b. They also had to be a signatory to the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS)Given the IP within IKEA, the protection of IKEA’s rights is an important determinant when entering a new market.Based on our analysis, Chile was the only market in this mix that had a positive return/risk differential.i.e. Higher opportunity for return than risk.Some of the key areas where Chile outperformed the other markets where: Favourable forecast for 2011 market growth, at 6%. High market receptivity – a measure of how receptive the market is to international trade. Chile offered higher levels of investor protection compared to other markets. Low perception of public sector corruption.How does this compare to the markets outside of South America?
  • We’ve pulled together data on the Chinese market for comparison and, as we would expect, the opportunity for return is much higher when compared to Chile.The major difference between the two economies is the sheer market size in China, as one would expect.
  • Looking at a comparison of risk between Chile and China, we can see that the two economies are very closely matched on many determinants.Chile was perceived as a lower risk than China, based on our model.As mentioned earlier, the perception of Public Sector corruption in Chile is low.
  • Using the same model, we looked at the state of these markets in 2007 compared to 2010.The diagonal line is what I’m calling return-to-risk neutrality.Markets falling in the top left hand corner have greater risk than opportunity for return.Markets falling in the bottom right hand corner have greater opportunity for return than risk.We can see that risks in Venezuela and Colombia has increased significantly.Opportunity for return has been reduced in Argentina and Peru.Brazil has remained in a steady-state, with very little movement.The ideal movement we’d like to see from an investor’s point of view is increasing opportunity of return and reduced risk.That is, movement towards the bottom right hand corner of this graph.We can see that Chile has seen improvements by way of lower risk and increased the opportunity of return.We have included China on this graphic, to show that gulf that exists between the emerging markets in South America and the Chinese market.However, the Chilean market is trending in the right direction, which is an encouraging sign.Based on our analysis, Chile is clearly the stand-out emerging market in the South American context based.
  • IKEA has a history of entering new markets as an early-mover and took advantage of this in Eastern Europe but has had less success in Japan and the US in the 1980s.Given the current state of the Chilean market, any immediate movement by IKEA into Chile would be as an early-mover.Looking at the advantages and disadvantages of market entry timings...Ride the learning curve – Tesco’s expansion into Eastern Europe and Asia.Free-rider effects – KFC was the first to expose the Chinese market to fast-food, however McDonalds, as the later entrant has capitalised on the market in China.
  • As mentioned early, a move into Chile would constitute entry as an early-mover, are there are some key considerations to this, including:Supply chain – what level is the level of development of local or regional support industries.What is the availability of trained local workers? Can we source them and if not, how long will it take to train workers?What is the level of awareness and knowledge of customers? Do we need to consider educating our consumers about our products and brand?Important to ensure that we have an organisational structure that support growth.What are the cultural differences between us and Chileans and what are the implications?
  • The majority of the board and senior management are Australian, so we compared the cultural dimensions of Australia and Chile.We can see here, that there are major differences between the two cultures in the areas of level of: Individualism vs Collectivism Femininity vsMasculinityAustralia – Individualistic culture.Chile – Collectivist culture.Australia – Masculine society, with a greater emphasis on money and material thingsChile – Feminine society, where society emphasises relationships with people and overall concern for others.
  • Looking at the dimensions of Power Distance and level of Individualism. This graphic shows all the countries where IKEA currently has a presence and where data from Hofstede’s Model was available.On this graphic, Chile resides in a cluster with: Portugal Hong Kong Singapore China Taiwan Greece TurkeyThis is interesting, as there may be an ability to discover cultural implications of a move into Chile, based on lessons learnt from entry into these countries with similar cultures.This leads us into the question of market entry strategy.
  • IKEA has moved through the stages of applying International Strategies first with moving production in to Poland to reduce costs. Then in the 1980s – IKEA entered US market with a Global Standardisation Strategy. This was not initially successful because it did not provide for regionalisation or customisation of product offerings. They said it worked in Sweden it will work in America.IKEA has now shifted towards a Transnational Strategy, which is well suited when there are high pressures for Local Responsiveness and high pressures for cost reductions. This was evident when IKEA went in to China with different store configurations. Thus, when entering the South American market we recommend that IKEA adopt a Transnational Strategy ensuring that they are responsive to local requirements whilst taking advantage of any local economies and economies of scale that are available in the Region.
  • In the South American context, our research suggests that Chile is the preferred destination for investmentHowever, further investigation must be undertaken before an investment decision can be made. This will also confirm whether our proposals in relation to WHEN and HOW are correctAnd finally, the option to invest in Chile obviously needs to be considered in light of opportunities in other regions under investigation

IKEA: Furniture Retailer To The World IKEA: Furniture Retailer To The World Presentation Transcript

  • Furniture Retailer to the World Investigation into Emerging Markets in South America Alison Back  Andrew Kuszczakowski  Piero Sparapani
  • Introduction• Background & Context• Analysis• Recommendations• Action Plan
  • Current State• Sales of €23.8 billion in 2010• 700 million visitors annually• Business Model aims to provide quality products at low cost – Flat-pack, self-assembly format – Self-serve, out-of-town stores with lots of parking – Labyrinthine store layout – Collaborative, long-term supplier relationships – Flat org structure
  • Context: Enterprise Value Determinants Reduce Costs Profitability Add Value & Reduce Prices Enterprise Valuation Sell More in Existing Markets Profit Growth Enter New Markets source: Hill (2011)
  • Entering New MarketsKey Market Entry Questions: 1. Market Entry Location – WHERE? 2. Market Entry Timing – WHEN? 3. Market Entry Strategy Selection – HOW?
  • Worldwide Operations 316 stores in 39 countries
  • Market Entry Location (Where) South American Emerging Markets
  • Market Entry Location - Determinants Cost/Tax Factors Demand FactorsMicro-Context • Business start-up costs • Market size and growth • Taxation complexity • Market consumption Regulatory Factors Socio-political FactorsMacro-Context • Level of protection for • Country Risk investors • Level of perceived • Contract enforceability corruption adapted from: Shenkar & Luo (2004)
  • Location Determinants Analysis Cost/Tax Demand Regulatory SociopoliticalMarket Potential Index1 X XDoing Business Ranking2 X XIMF Forecast3 XCountry Credit Risk4 XHuman Development Index5 XCorruption Perceptions Index6 X1 Source: Michigan State University. globalEDGE MPI 2010. http://globaledge.msu.edu/resourcedesk/mpi/2 Source: The World Bank. Doing Business Raking 2010. http://www.doingbusiness.org/rankings3 Source: IMF. World Economic Outlook, Oct 2010. http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/text.pdf4 Source: OECD. Country Credit Risk, Jan 2011. http://www.oecd.org/dataoecd/47/29/3782900.pdf5 Source: United Nations Development Programme. http://hdr.undp.org/en/media/HDR_2010_EN_Table1_reprint.pdf6 Source: Transparency International. http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results
  • Market Entry – Location Analysis Venezuela Argentina Colombia Weight Brazil Chile Peru1. Acceptable (A), Unacceptable (U) Criteria a.Member of WTO – A A A A A A b.Signatory to TRIPS – A A A A A A2. Return (higher number preferred) 50 18 11 20 15 18 153. Risk (lower number preferred) 50 28 25 15 27 19 35 OVERALL -10 -14 5 -12 -1 -20 adapted from: Daniels & Radebaugh (2001)
  • Location Comparison - ReturnRETURN – 2010/11 Weight Chile China a. Market Size (current) 10 0 10 b. Market Growth Rate (current) 6 2 6 c. Market Growth Rate (2011 forecast) 8 5 8 d. Market Consumption Capacity (current) 8 2 5 e. Market Receptivity (current) 8 3 0 f. Tax Complexity 6 5 5 g. Business Start-up Costs 4 3 4 TOTAL 50 20 38 adapted from: Daniels & Radebaugh (2001)
  • Location Comparison - RiskRISK – 2010/11 Weight Chile China a. Country Risk Rating 4 1 1 b. Level of Investor Protection 10 4 5 c. Corruption Perception Index 6 2 4 d. Contract Enforcement 10 3 3 e. Human Development Index 6 1 2 f. Country Credit Risk 4 1 1 g. Trading Across Borders 10 3 2 TOTAL 50 15 19 adapted from: Daniels & Radebaugh (2001)
  • Return vs Risk Trends 2007 to 2010 TrendsIncreased Risk Argentina Col Ven Brazil Peru Chile China Increased Opportunity of Return
  • Market Entry Timing (When) Advantages Disadvantages • Pre-empt rivals • Pioneering costs (learning the • Capture demand early rules of the game)Early • Ride the learning-curve ahead • Changes to regulations mayMover of rivals diminish early mover • Ability to establish switching advantages costs • Risk entry into a market with • Ability to observe and learnLate established competitors from early entrants’ mistakesMover • “Free-rider” effects • Potential for higher barriers to entry source: Lieberman & Montgomery (1987)
  • Early Mover Considerations• Supply chain• Availability of trained workers• Knowledge of customers• Organisational structure that supports growth• Cultural Differences and Implications
  • Cultural Dimensions Comparison Power DistanceIndulgence Individualism Australia ChileLong-term MasculinityOrientation Uncertainty Avoidance source: Hofstede (2010)
  • International StrategyPressures for Cost Reductions Global Transnational High Standardization Strategy Strategy International Localization Low Strategy Strategy Low High Pressures for Local Responsiveness source: Hill (2011)
  • Market Entry Strategy Selection (How)Options Implications for IKEA • Contrary to successful Business ModelDirect Export • Free Trade Opportunities – MERCOSUR/Andean Agreementto Retailer • Low cost of entry in to marketsLicensing • Contrary to successful Business ModelBrand to • Loss of control - Brand RiskInvestors • Low Investment RiskJoint venture • Reduced Decision Making control - Strategic Riskwith local • Utilisation of Joint Venturers Local Knowledgeinvestor
  • Market Entry Strategy Selection (How)Options Implications for IKEA • Supply ChainWholly • Political Risk – NationalisationOwned • Investment Risk – high costs of setupSubsidiary • 100% Profit Returns • Total Control - Lower Brand Risk • Supply Chain • Lower profits than Wholly Owned SubsidiaryFranchising • Full Control of Strategy and Brand • Low Investment Risk • Franchisee Local Knowledge
  • Summary of Recommendations• Where: Chile• When: Early (First-mover)• How: Transnational Strategy Franchisee arrangement
  • Action PlanAction Timeframe Objective Action To determine Chile’s readiness for Engage a team to IKEA and the need for local undertake micro- customisation level analysis of the To determine the suitability and Chile market, 1 Immediately business conditions availability of supply-chain partners and the retail To understand the potential for furniture market in franchisees arrangements in Chile Chile To understand the cultural Engage a team to implications on organisational investigate the structure design lessons learnt from 2 Immediately the recent store To leverage corporate knowledge and ‘lessons-learnt’ from experiences in opening in Lisbon, similar markets Portugal (May 2010)
  • Conclusion• In the South American context, Chile is the preferred destination for investment• However, further investigation must be undertaken before an investment decision can be made. This will also confirm whether our proposals in relation to WHEN and HOW are correct• The option to invest in Chile also needs to be considered in light of opportunities in other regions under investigation
  • Questions?
  • ReferencesBush, J 2009, Why IKEA is Fed Up with Russia, viewed 28 February 2011, <http://www.businessweek.com/magazine/content/09_28/b4139033326721.htm>.Doz, Y & Prahalad, C 1984, Patterns of Strategic Control within MNCs, Journal of International Business Studies, vol 15, no. 2, pp. 55-72.Hill, C 2011, International Business: Competing in the Global Marketplace, 8th edn, McGraw-Hill, New York, USA.Hofstede, G 2010, Hofstede Dimension Data Matrix, viewed 19 February 2011, <http://www.geerthofstede.com/media/651/6%20dimensions%20for%20website.xls>.Inter IKEA Systems 2010a, IKEA - Facts & Figures, viewed 12 February 2011, <http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/index.html>.Inter IKEA Systems 2010b, IKEA | Our business idea, viewed 22 March 2011, <http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/our_business_idea/index.html>.Inter IKEA Systems 2010c, Inter IKEA Systems B.V. - Facts & Figures, viewed 14 February 2011, <http://franchisor.ikea.com/showContent.asp?swfId=facts1>.Inter IKEA Systems 2010d, Welcome to IKEA.com, viewed 14 February 2011, <http://www.ikea.com/>.International Monetary Fund 2007, World Economic Outlook - Globalization and Inequality, viewed 22 February 2011, <http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/text.pdf>.International Monetary Fund 2010, World Economic Outlook - Recovery, Risk and Rebalancing, viewed 22 February 2011, <http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/text.pdf>.Johanson, J & Vahlne, J-E 1977, The Internationalization Process of the Firm - A Model of Knowledge Development and Increasing Foregin Market Commitments, Journal of International Business Studies, vol 8, no. 1, pp. 25-34.Lieberman, MB & Montgomery, DB 1988, First-Mover Advantages, Strategic Management Journal, vol 9, pp. 41-58.Michigan State University 2011, Market Potential Index for Emerging Markets, viewed 19 February 2011, <http://globaledge.msu.edu/resourcedesk/mpi/>.OECD 2010, Historical Country Risk Classification, viewed 19 February 2011, <http://www.oecd.org/dataoecd/9/12/35483246.pdf>.Porter, M 1990, The Competitive Advantage of Nations, Harvard Business Review, vol 68, no. 2, pp. 73-93.Shenkar, O & Luo, Y 2004, International Business, John Wiley & Sons, USA.
  • ReferencesThe Economist Intelligence Unit 2008, EIU country analysis & forecasts: Country Reports, viewed 20 February 2011, <http://countryanalysis.eiu.com/country_reports.html>.The World Bank 2011, Historical Data - Doing Business - World Bank Group, viewed 19 February 2011, <http://www.doingbusiness.org/custom-query>.Transparency International 2010, Surveys and Indices - Corruption Perceptions Index, viewed 19 February 2011, <http://www.transparency.org/policy_research/surveys_indices/cpi>.United Nations Development Programme 2010, International Human Development Indicators - UNDP, viewed 19 February 2011, <http://hdrstats.undp.org/en/indicators/49806.html>.Waldmeir, P 2010, China push gives Tesco the edge, viewed 26 February 2011, <http://www.ft.com/cms/s/0/3cd96108-fe51-11de-9340- 00144feab49a.html#axzz1HEX4Cmag>.Wijers-Hasegawa, Y 2006, Swedens IKEA back in Japan after 20-year hiatus, viewed 26 February 2011, <http://search.japantimes.co.jp/cgi- bin/nb20060425a1.html>.Wikipedia 2011, List of parties to international copyright agreements, viewed 19 February 2011, <http://en.wikipedia.org/wiki/List_of_parties_to_international_copyright_agreements>.World Trade Organization n.d., WTO | GATT members, viewed 19 February 2011, <http://www.wto.org/english/thewto_e/gattmem_e.htm>.