IKEA Funding and Financing

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IKEA Funding and Financing

  1. 1. Funding and Financing Options Expansion Plan To China Fransisca Katherina Rumambi G1200547C
  2. 2. AGENDA• The Objective• Case study: IKEA Group – Company Profile – Financial Performance – Current Funding and Financing Options• Funding and Financing Options for Expansion Plan to China• Key Learning To Choose Funding and Financing Options
  3. 3. THE OBJECTIVETo look at the various funding and financing options available for a company and their strategy for expansion to other countries CASE STUDY
  4. 4. IKEA: COMPANY PROFILE• Founded in Sweden in 1943 by Ingvar Kamprad• The world’s largest furniture retailer• Designs and sells ready-to-assemble furniture• Known with its modern architectural designs on various types of appliances and furniture• High quality and low price
  5. 5. IKEA: FINANCIAL PERFORMANCESource: IKEA Yearly 2011
  6. 6. Early Stage FAMILY Growth Stage DEBT FINANCINGIKEA: FUNDING AND EQUITY FINANCINGFINANCING OPTIONS Established Stage EQUITY FINANCING Mature Stage EQUITY FINANCING FRANCHISING
  7. 7. Early StageFAMILY• Family business initiated by Ingvar Kamprad• Borrowed funds on a formal and informal basis before approaching outside parties
  8. 8. Growth StageDEBT AND EQUITY FINANCING• Borrowing money from the bank and other commercial lender with guarantee (form of security to pay back)• Obtaining capital that involves selling a partial interest in the company to investors (angels investors through Stichting Ingka Foundation)• The equity investors invest their money as a part of ownership • Combined the debt and equity financing when financial performance showed improvement and more profitable
  9. 9. Established StageEQUITY FINANCING• Equity investors primarily seek growth opportunities• IKEA nurtures its success, good image and profitability to seek more equity investors
  10. 10. Mature StageEQUITY FINANCING AND FRANCHISING• To rising extra capital for growth• Expansion strategy and find new market
  11. 11. Franchising Arrangement• Franchisee pays Inter IKEA System (on behalf of IKEA Group) for the right to operate a local business under IKEA Group’s trade name• Inter IKEA System will bear with certain costs (architect’s work, establishment cost, legal cost, marketing cost and other support service cost)• Inter IKEA System will charge initial franchise fee to cover set-up costs• The regular payment of any IKEA stores that must be paid to Inter IKEA Systems as the franchisor is 3% of the revenue
  12. 12. IKEA EXPANSION PLAN TO CHINA• Long term commitment to make China the largest market in 15 – 20 years• Since its first foray into China in 1999, the revenue is more than 5.4 billion Yuan (US$850 million)• The revenue increase 21% year on year, much higher than its global business growth• The excellent enthusiasm of China IKEA Family Membership into 7 million• Desirable results that indicated IKEA should build more stores in China to fuel their future business
  13. 13. Expansion Goal To China • The search for new markets • China is one of new emerging market in Asia • China market is potentially attractiveFunding and Financing OptionFor Expansion Plan Joint Venture Business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity
  14. 14. KEY LEARNING• Must consider how much ownership and control it is willing to give up, not only in the present but in the future financing rounds• Should decide how leveraged the company comfortably be, or its optimal ratio and debt to equity• Should determine what types of financing are available to the company, given its stage of development and capital needs and compare the requirements of the different types• Should ascertain whether or not the company is in a position to make a set monthly payments on a loan
  15. 15. CONCLUSION To combine equity financing with other types, including entrepreneur’s own funds and debt financing in order to spread the business’ risks and ensurethat enough options will be available for later financing needs
  16. 16. REFERENCES1. Capdevielle, L, Li, M & Nogal, P 2007, A creation of competitive advantage by using differentiation of company’s strategy actions. The case study of IKEA Sweden with experiences on Chinese and French markets, University of Halmstad, School of Business and Engineering.2. Euromonitor International 2009, Company watch: IKEA not recession proof but retains ambitious expansion plans, Euromonitor International, viewed September 17, 2012, <http://www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/ResultsList. aspx>.3. IKEA Yearly Summary 2011 (2012), viewed September 17, 2012, <http://www.IKEA.com/ms/en_CN/about_IKEA/facts_and_figures/yearly_summar y.html>.4. Inter IKEA Systems B.V. 2009, IKEA group stores, IKEA Group Corporate Site, viewed September 17, 2012, <http://193.108.42.168/?ID=11>.5. Jonsson, A 2008, ‘A transnational perspective on knowledge sharing: lessons learned from IKEA’s entry into Russia, China and Japan’, The International Review of Retail, Distribution and Consumer Research, Vol. 18, No. 1, pp. 17–44.
  17. 17. THANK YOU

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