India Profile
You should assume you are managing the international expansion of Ikea and, bearing in mind our changing world when it comes to trends, trade protectionism policies, bilateral and multilateral trade agreements, please analyse the potential of the Indian Market.
India has a population of about 1 billion with an average workforce of about 500 million. The country forms the 8th largest economy in the world regarding the GDP growing at an average of 8.6% in 2010 that have been increasing tremendously until 2013 that is slowed down. The high rate of the growth is facilitated by the countries dominance in agricultural production that accounts for about 60% of all the employees (Chavan et al., 121). The country has a large pool of labor force that works in the farms resulting into mass production. Additionally, the state is known for the vast pool of engineers hence making an innovation to be high.
The workforce through the developed technical education acquires advanced skills that tend to be absorbed by other industries from other countries (Dodd 105). The large population provides a comprehensive market base for both the local and the international products hence ranking it as the 3rd by purchasing power. India has the fastest developing economies and the 16th largest exporter and 8th largest importer in the whole world (Sharma et al. 69). The significant stride that Indian has made is as a result of the political stability in both the community level and the national level. The country for the gap of 30 years has realized government of the full majority that is steering the interest of all people in different sectors such as agriculture, education, and services. The stability has made the global world to pay attention to India.
IKEA is a Sweden based furnishing international company operating in over 42 countries. The company was built by Ingar Kampard in the 1940s with an idea of supplying a variety of well-designed home furnishing products at considerable low prices to Swedish(de Almeida et al. 21). Ingar contracted independent furniture makers to design products that could be sold as a kit and assembled in the customer’s homes. The system was favorable for transportation, as the furniture parts could be easily stuck into racks for mass production.
The company expanded tremendously especially from the 1950s until the beginning of the 1980s with an annual turnover of about 1.2 billion Euro. In the year 1984 to 2002, the company experienced the rapid development of about 11 billion Euro and then having the most significant expansion in the 90th. Through investing 100 % of the profits gained, the company opened the primary core business and stores in various countries(Gilje & Paul 740). IKEA opened the first Sweden store outside the Scandinavia in 1958, Switzerland in 1973, the United States in 1985, China and Russia in 1998 and 2000 respectively. After that, the company went global.
IKEA Company Profile
Currently, IKEA Company has about 70,000 employees of which 59,000 work in Europe, with retail business as the bulk of the business operations. The company operates about 165 retails stores in 22 countries with a total of 75% of the employees in those respective areas. Additionally, apart from purchasing from the outside suppliers, the company does its furniture production across all the countries that it has the operations. The organizational structure of IKEA is geographically explicitly organized for retail in Europe.
Yes, Sweden and India still enjoy trade agreements that were established in 1949 based on the strong shared (Chatterjee et al. 32). The relationship has ever been reinforced by the previous visit of the leaders from the two countries, such as way back in 1957 when the Prime Minister Jawaharlal Nehru paid a visit in India and the latest visit in 2015 by President of India in Sweden. During the l2015 holidays, the two leaders deliberated over huge issues such as political stability, strategic and defense cooperation’s, trade and commercial relations among others.
The trade between the two countries stood at about 2.2 billion in 2015, and they both agreed to facilitate it up to US$ 5 billion in 2018 through bilateral trade. India firms the 19th largest export market for the Swedish products and the third largest trade partner after China and Japan. (Sridharan & Eswaran 58)According to the recent trade statistic, Swedish exports product to India amounted to SEK 10,053 million in the first eleven months of 2015. The two countries have established Free Trade Agreements that have facilitated the investment in both countries that have been the base of the bilateral trade. The agreement will enable secure investment of IKEA in India as most of the barriers are scraped off. Policies such as double taxation are scrapped off
The reforms launched in the 1990s established the bilateral trade between the two countries. Among plans included, di-licensing of industries, and economic systems were liberalized. (Orlviciene, Gintare & Mantas 246)The trade reforms that were signed by the two countries addressed the anti-import bias hence allowed the investment and imports of products from other services. This forms a firm basis for the IKEA entry into India. The liberation of the FDI by the Indian’s government enables any forcing industry to be incorporated in India, hence allowing it to have the same market advantage like the local industries.
SWOT analysis stands for Strength, Weakness, and Threats. SWOT is an analytical tool used to audit strategic business position as well as the impacts of the environment, taking into account all the internal strengths, and outside negative factors that affect the business.
Sweden/India Trade Agreement
Internal Factors
Internal Factors entails all the aspects that affect the company from within such as management, capital stability among others. These factors are always in the control of the company.
IKEA is a recognized brand in most of the strong markets such as United State, Canada, China among others. The proper name can be widely spread in the Indian market easy making the products to pick up within a short period (Bergh et al 365). The democratic designs of the products offer considerable perfect match between the price and the quality hence creating customer loyalty in every market entry, outdoing potential competitors.
IKEA’s approach into new markets is very responsible, as each market is treated individually and proper market research is conducted through various expertise sent into the ground to have full information: this reduces the chances of the market failure. IKEA from the start practiced bulk buying from potential suppliers hence makes the company enjoy various economies of scales through delivering the products from the suppliers to the respective retail shops, cutting down the handling costs.
The major weakness of IKEA is the large size of the company that is widely spread across the world makes the management to experience issues with clients, employees, suppliers and respective governments that the business is located. The second weakness is the IKEA’s mission of providing quality products at low prices to various clients. The massive economies of scale facilitate the low cost. However, the company finds difficulty in ensuring the quality of products balance with the tagged prices. IKEA is going global experience communication problems between the management and the stakeholders in different countries. This is facilitated by the different cultural background of some employee in various countries, creating communication barriers.
External factors analysis includes the opportunities that offer positive aspects for expansion and the threats that affect the growth and development of the company.
IKEA’s recycling strategies provide the company with a future chance of having variable raw materials through the reuse of the same materials hence making the products to be environmentally friendly(Lu & Weisheng 1319). The low pricing of the excellent quality products make a large number of consumers to pay attention to the company, thus enabling for future strong revenue collection (Terme et al. 25). The lower product prices tend to attract a large number of customers especially the young who cannot achieve high product privacy. These young customers tend to grow to loyal customers in future. IKEA practice social responsibility across the world through the participation of the World Wildlife Fund, and drilling of the rules, and requirements of the international trade agreements that dictate free trade.
SWOT Analysis of IKEA
The stiff competition from various potential furnishing industries and new entrants tend to reduce the market share of the company hence decreasing the revenue collection. The ever-changing of human needs, feelings and behavior make the company have difficulty in fulfilling all the needs of customers, therefore, making some of the customers to be one-time-buyer. Different economic factors of various countries tend to fluctuate thus affecting the consumer’s expenditure that is directly linked to the company revenue collection.
Physical infrastructure
Physical infrastructure is the major problem that IKEA is likely to face in India. Based on the nature of the products that Ikea is dealing with, needs good support that will ensure that the product reaches the customer while still intact. The bulkiness of some of the home furniture will also require large trucks for transportation, an aspect that is facilitated by ethical standards of the road. However, this is not the case in India, as the country faces problems of the telecommunication, poor road standards and ports. The poor rules of infrastructure facilitated the drop of FDI from 0.03% in 2012 to 0.02% in 2013
Cultural Diversity
Cultural difference in India poses another challenging issue in doing business. Most of the Indians are of high patience that is propagated on the personal relationship and the existing top bureaucracy and sometimes accompanied by corruption (Adams & Nicholus 532). To get a person’s trust in India always take time, since most people tend to think that they might be conned, however, the present government is working in reducing the level of business corruption in the country.
The language communication also might offer some challenges since the country has more than 18 official languages with a total of 325 words; however in business, people get a better advantage since Hindi and English forms about 30% of the sum of the population. In most cases, the communication style is much different in India as they prefer the indirect statements such that are mediated in a polite way to show agreements and disagreements such as I’ II try or “possibly” than no (Haider et al. 111). Additionally, the communication in India is more hierarchical than in Swedish as information mostly goes one way from the top to the bottom.
Flexibility
Unlike in Swedish, the Indian business culture is always flexible in terms of time as most meetings do not still take off at the scheduled time(Rizwan & Mohammad 116). This time flexibility forces the IKEA management to ensure that every business meeting is attended to though might affect their daily scheduled conferences and operations due to delay and postponement.
The leading universal aspect that IKEA would concentrate on is the free and fair trade in Indians market. Indian’s business has developed in the last decade due to the global agreements that the country has engaged in(Shukla & Ajay 117). Among the global contracts include Free Trade Agreement (ASEAN), European Union, European Free Trade Association (ETTA) Thailand and Malaysia (that are separate from the FTA agreements with ASEAN)
The trade agreements offer huge advantage to the India trade and economy, such as enormous business tariffs. The deals tend to scrap off the taxation on the products and services between Indian and trading counterpart hence ensuring that technology, knowledge along goods and services pass into a country in reduced taxation or no taxation at all. This facilitates not only the goods passage but also foster agreement between trading countries.
Some theories have been developed to explain the operations of the free trade agreements between countries especially India and the counterparts, such as the Theory of Comparative Advantage .The theory was mostly advocated by Adam Smith when challenging the director of British East Indian Company, a mercantilism Thomas Mun’s method of increasing wealth and treasure of a country (Gehrke & Christian 798). According to Thomas, wealth and richness of a nation is increased through free trade among nations and the bottom rule of consumption must be adhered to, that is to: sell more to the strangers than you consume their goods.
According to Smith, a nation is more efficient at manufacturing one product, and another country is also active in producing a different outcome, hence with the combination of the two countries, two products are efficiently produced at an absolute advantage(Brakman et al. 72). The absolute advantage was then later developed by David Ricardo, who insisted that the comparative advantage of two trading nations in producing different products are more likely to benefit under the theory, in that each country will work more efficiently.
According to Ricardo and Smith, labor was the primary factor of production; however was s later developed to include other several factors of production such as capital. Economist theorist such as Bertil Heckscher, state that a country is only capable of exporting particular products that can be manufactured by the most possible factors and will import products that will require elements that are least available in a country.
The Comparative Advantage Theory, therefore, holds that even when a country has the capability of producing all the products being traded on, it can still hold a bilateral trade on the same products under different conditions that each state is capable of benefiting, therefore, and the most important thing is the relative efficiency. This theory is more applicable and advantageous to IKEA, as the company might find a similar furnishing industry from India, or India based furnishing company, therefore, through the use of the theory, the two nations are capable of doing business on the same products. The method is the basis of all the international trade, and derives its assumptions on the removal of trade barriers by each government, hence efficient production and increased output of goods and services that are advantageous to the customer and the nation as a whole.
IKEA Entry Strategy into India Market
Foreign market entries are different and unique and include direct investment, franchising, exportation and joint ventures among others (Lu & Wesheng 1320). The entry strategies of a company into an international market depend on the organizational factors and the host country factors. Some of the regulatory elements include the financial status available to foster the entry strategy and the level of expertise to facilitate the entry; on the other hand, the host country factors include the level of competition, political, economic and the cultural background of the targeted market. (Beerepoot et al. 1382)Therefore, it is imperative for every company to conduct considerable research on various factors, to enable make a critical decision on the best entry strategy. Otherwise, the company might fail. For IKEA, the most appropriate entry strategy will be indirect exportation, joint venture, and franchising.
The indirect exportation is the process by which a foreign firm agrees with an agent in the host country to facilitate the supply of product and services. The method is advantageous to IKEA since the agent will help in penetrating the Indian market that is based on the culture. Having an agent on the ground, IKEA is capable of identifying the potential opportunities and risk in different market segmentation, as well as the weakness of the competitor firms, such as those from India. By improving on the competitor weakness, IKEA will be capable of capturing more market in future.
Franchising is the most common foreign market entries for the most semi-independent business owner depart with a considerable amount of money to use a trademark of another well-established company to supply the product and services into the market. The franchising method is more appropriate to IKEA as the franchising company tend to have more knowledge about the market segmentation and the Indian consumer behavior. Using the experience from the franchising company, IKEA is capable of deciding on what product design, quality, and quantity can be supplied in the India market in specific periods. Additionally, the franchising market is capable of penetrating the Indian target market since the company understands the business culture more than IKEA.
The joint venture is also another appropriate option for IKEA to invest in India. The strategy will enable IKEA to divide the looming risk and enjoy the profits with a well-established franchise company in India. The approach works on the basis that each company neither does nor surrenders their competitive advantage as they jointly explore the new market.
Conclusion
From the case study of IKEA, it is evidential that small retail business has the capability of going global with proper foreign market entry strategies and being customer-centered. Provision of high-quality products with much prices have been the basis of the growth of the company since its creation and this has created enormous strengths over weakness
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