Explain objective, the general agenda for the project
“all in one roof” for all home goods
Variety of store formats allow for penetration into different demographics.
Add economic environment. ADD TABLE
Strong GDP growth rate (3.5%)
Ikea To South Africa Presentation Final
IKEA vs. CarrefourWhat platform will work the best in Sub-Saharan Africa? Nick Abbott Alex Cardelle Danielle Rossi Daniel O’Sullivan
Target Countries: Cameroon Ghana KenyaSouth Africa Tanzania
Advantages of an IKEA Platform• Flat-packing distribution • IKEA’s global brand concept of techniques reduce costs providing “Scandinavian• Designs all products in Sweden furniture at Asian prices” has but utilizes suppliers in India proved easily adaptable and and China to manufacture culturally acceptable products worldwide• Customers browse lightly staffed showrooms, collect product choices, load/transport themselves, and self-assemble at home – keeping costs at a minimum
Advantages of a Carrefour Platform• Store formats include hypermarkets, supermarkets, discount stores, and convenience stores• Stores offer a wide-range of products food and non-food and services. One-stop- shopping experience
Business Environment• South Africa and Ghana have the most efficient legal environment of the 5 countries• Cameroon, Kenya, and Tanzania have low ratings of gov’t effectiveness, political stability, regulatory quality, and IP protection• Kenya and Tanzania possess large trade barriers to entry such as high tariff rates and business costs of crime
Retail Environment• Cameroon’s government has implemented supportive retail polices such as tax incentives and exemptions for mass-consumed products• Central banks in Kenya and South Africa have kept lending rates low to influence growth• Ghana’s government has been working to increase FDI with greater democratic reform• South Africa and Ghana had the strongest retail environments because of high urbanization rates, higher consumption rates and healthy level of competition in retail, all important factors for Carrefour and IKEA.
Cultural Environment• All 5 countries exhibit • Each of the 5 countries high-context attributes places family at their• Ghana’s power distance is highest priority the highest at 73% - • South Africa’s culture is lowest is South Africa at the most materialistic 43% • Businesses are• South Africa has the hierarchical highest individualism at • African culture is very 60% - the rest of the traditional countries are around 20%
SOUTH AFRICA + IKEAWhy we chose this combination
South Africa• High income demographics of major cities – Johannesburg/Cape Town GDP per capita of $31,500 (PPP)• Very low tariff rates (6.3% for wood/paper products)• Pertinent, reliable infrastructure for importation/distribution• Most “westernized” of the countries and would be a good fit for western firms such as IKEA
IKEA’s Unique Strengths in South Africa • Already increases in consumer demand for IKEA • South Africa is a young nation and IKEA typically targets young families with modest incomes • No similar firms in South Africa that specialize in modestly priced, trendy, ready-to-assemble furniture
IKEA’s Unique Strengths in South Africa • Vertically-integrated structure allows IKEA to be its own supplier • Low capital investments needed – will open only a few warehouses in select urban areas
Franchising• IKEA has successfully franchised in other emerging markets such as Eastern Europe, Russia, and the Dominican Republic• No incentive or government requirement to find local partner in South Africa• High failure rate of international strategic alliances is an unnecessary risk
Target Consumer• IKEA will target middle and upper classes in urban areas• Middle classes value upward mobility and buy products based on convenience and quality• Upper classes value pragmatic products, are brand conscious, and are typically located in urban areas• Young families who value low priced, quality furniture have the most viability as consumers
Product Development• In order to be successful in South Africa, IKEA will have to adapt its store model to actively serve specific South African needs• South African homes are smaller than those in western nations which means IKEA needs to carry products that will fit the reduced square footage• Extensive tool sections will reduce shopping trips by allowing consumers to buy everything they need for assembly• In order to cater to the multilingual country, IKEA will provide sales persons able to meet the needs of varying customer language.
Management Strategies• Decentralized organization with centralized corporate culture to be passed on through management training• Important that IKEA pass on the company philosophy which is key in providing a consistent image worldwide• IKEA managers need to consider problems for more than one national group of employees• IKEA will need to make adaptations of the domestic model to motivate workers. This may require managers to be more involved in the personal lives of workers such as living arrangements.
Promotion Strategy• Today, consumers in South Africa are easier to reach due to a huge increase of mobile phone use• IKEA’s promotion strategy will focus on wide use of mobile phone advertising• Furthermore, the use of m-commerce and the up-rise in internet retailing via mobile phone will allow IKEA to reach South African consumers effectively
Promotion Strategy• South Africa may not respond to advertising the same as in developed markets• Studies in South African single-female households suggest purchasing behavior is affected by their perceptions about their independence and their cultural beliefs and sensitivities.• IKEA will need to connect its company and its products to consumers and win the hearts of the people
Competition• South African furniture retail market is concentrated and is dominated by a small group of retail chains – JD Group, Lewis Group, Ellerine Holdings, and OK Furniture• IKEA will compete using price leadership strategies, given its competency in cost-efficiency by leveraging its superior supply-chain management abilities
Other Pursuable MarketsBusiness/Office Supplies• Large increases in FDI and increases in start-ups• Quality, low-cost office furniture will be in demand• Only minor adjustments in store layout• IKEA already has experience in market• Operation will not cannibalize other markets within IKEA
Conclusions• South Africa, especially its cities of Johannesburg and Cape Town, would offer IKEA an exceptional opportunity in entering the African continent.• The income-viable populations within Johannesburg and Cape Town suggest sufficient market size to support a store in each• Both cities contain sufficient highway infrastructure to support the projected daily attendance to the stores
Only the beginning!• South Africa is only the foot in the door to future operations in Sub-Saharan Africa (long term)• Next step: Ghana?