Franchising Challenges and Solutions
IKEA is famous and established furniture retailing company, which has its headquarters in Netherlands. The company provides good quality ready-made furniture items, kitchen appliances and home accessories, which are needed to fulfil the requirements of daily household activities (IKEA.com, 2017). The company possesses current revenue of more than 35 billion EUR, and it has reached a competitive position in the market, which has allowed the company to stay ahead of its competitors as well. To generate more revenue in business, the company wants to expand its market to Vietnam and the location will be in South Area’s Ho Chi Minh City (Fernández-Guerrero, Revuelto-Taboada & Simón-Moya, 2012). The furniture and household accessories are well designed and are available at an affordable price too. Franchising has helped IKEA to gain long term success as well as manage the trademarks properly for developing useful business methods and techniques within a particular region.
Franchising is an effective form of business, which allows the owner of a particular product or service gain distribution of products through dealer or franchisees. The rights are granted for becoming a franchisee in the markets. A strategic expansion plan is developed for setting priorities of ensuring future growth as well as put the focus on where the company wants to expand and when (Hill, Cronk & Wickramasekera, 2013). While managing the franchise, IKEA has evaluated the experiences and skills of people, gaining knowledge on the local market, manage corporate culture and values, manage financial strength and investments to penetrate markets and maintain a good large-scale retail environment format too (IKEA.com, 2017). The laws and rules introduced by Government are different, and this can create an impact on prices of products. The Government of Vietnam has put restrictions on any imported product that should be entering the market at a lower price in the exporting country. The value of currency and price escalation in exporting are other challenges faced by the management of IKEA (Hopkins, 2012).
Regarding marketing, IKEA, while expanding its business, tried to duplicate the existing business models and even the products offered. The customization of products was not done properly according to the needs and requirements of local people in Ho Chi Minh city, which created further complexities for the customers as they demanded bigger closets, beds and furniture (IKEA.com, 2017). Due to this, the company made several changes to the marketing strategy and delivered stylish, functional and good quality home furnishing products available at reasonable prices. This was a good marketing strategy, which helped to maintain a good competitive status in the market and aroused interests among customers. The hybrid marketing strategy is used by IKEA for staying ahead of competitors, targets the middle-class people and delivers differentiated products at a low cost (Jones & Penaluna, 2013).
Marketing Challenges and Solutions
The customers’ needs and preferences change from time to time, because of which, it has become essential for the company IKEA to set decent prices of products and services and ensure that the customers are kept satisfied. After the global financial crisis, the terms, which shared economy, peer-to-peer economy and collaborative consumption became widespread everywhere. With the focus on global expansion, IKEA tried to enter the market within Vietnam and could not understand the prices that could be set for fulfilling the preferences of customers (Keegan & Green, 2015). This enabled the company to change the prices of products and provide products and services according to the demands of customers. The GDP growth rate, rise in the rate of inflation, exchange rates also made it difficult for IKEA to set the right prices of products within the Vietnamese market (Londhe, 2014).
Vietnam is now facing crisis growth trends, which may affect the expansion of business for IKEA as well as create complexities for the company to take in good amounts of money regarding profit. Few of the challenges faced by IKEA while expanding the market to Vietnam include facing corporate entities, which might be unfamiliar to the companies from overseas, issues related to the construction permit, setting up proper electric connection, protection of shareholders, paying taxes, property registration (McKeever, 2016). The lack of pricing governance and policies also created a lack of visibility to understand the actual prices that could be set for keeping the customers satisfied. The company could not understand the segments of the market and failed to place its products by differentiating those from other products. This created a lack of awareness of customers and deteriorated the sales and revenue generation of IKEA (Poulis, Poulis & Plakoyiannaki, 2013).
Based on promotion, the marketing challenges faced are lack of generating enough traffic to the company’s website, failing to determine the rate of return on investments made, improper management web site. As the company introduced new stores in Vietnam’s Ho Chi Minh city, there was lack of proper outsourcing facilities, which prevented the company from managing the website with ease and effectiveness, which further reduced the efficiency of managing the website. The products were not promoted properly due to lack of knowledge among people about online shopping (Reiche, Mendenhall & Stahl, 2016). As it is a new business in Vietnam, so IKEA could not understand the culture of that place properly, which created further issues in promoting the products and services according to the demands and preferences of customers. The company had less capital while starting an international business in Vietnam, and the prices of products offered by the company were quite high compared to the other businesses present there (Sarasvathy et al., 2014). Thus, the company could not enter the market and failed to create a positive mindset among the customers too.
Production Challenges and Solutions
In Vietnam, there was a shifting of policies, unstable economic conditions, an improper infrastructure of the organisation, and limitations of enterprise management technologies, which created challenges and issues for IKEA (IKEA.com, 2017). Nowadays, it is not essential that the companies need to source the major talents from the home country to become successful in the foreign market and ensure successful business expansion. The production process challenges are related to the decision-making ability and corporate governance (Schaper et al., 2014). Without proper corporate governance, the production process efficiency might get reduced, thereby resulting in the lack of innovation too.
The need for an increase in production level, availability of products and services at lower costs have lead to changes in equipment, machinery, long term facilities and needs for human resources during the global expansion of IKEA. With the competitiveness of sea transportation costs, the risks of quality and safety decrease as well, thus creating a mindset among the Vietnamese people to look for products at lower prices (IKEA.com, 2017). The increased cost of wood and timber has created challenges for the company to determine the price, which can be set for the products to satisfy the customers. The suppliers who provided raw materials and resources demanded more money, which created more challenges for IKEA to enhance its production level (Terpstra, Foley & Sarathy, 2012).
The human resources refer to the workers of the company who have committed themselves to the achievement of organisational goals and objectives properly. The management of human resources is essential for the formation of a good and healthy culture within the workplace that can enhance the brand image and identity as well as respond to the changing business environment with ease and effectiveness (IKEA.com, 2017). The human resource management challenges faced by the company’s management include recruitment and selection of inappropriate individuals who do not possess relevant skills and knowledge, lack of training provided to customers and even failing to recruit individuals from that place, who have knowledge about how to sustain within the marketplace (Tian, 2016). IKEA faced other human resource management challenges like lack of communication between workers, which prevented them from understanding their individual roles and responsibilities properly. The management of change is considered as a major challenge for the personnel management because the HR is more focused on guiding the business and moving it forward to generate more profit (Verbeke, 2013).
Due to lack of leadership skills and knowledge, challenges are faced while managing the human resources and IKEA could not make the best selection and develop future leaders properly too. Companies like IKEA, while expanding the business to some other country can often lack the skills or expertise to engage and retain the employees within the organisation. This is another major challenge because it not only deteriorates the performance of the company but also results in lack of communication and lesser production value (Wild, Wild & Han, 2014). These are the major challenges or issues faced while managing human resources during business expansion by IKEA. Outsourcing activities also deteriorate, and many workers leave the company due to change in the posting from one place to another. The turnover of employees increase, and this is needed to be prevented as well (Fernández-Guerrero, Revuelto-Taboada & Simón-Moya, 2012).
There are various ways or approaches, which can allow the company to address the major issues faced by the management while expanding the market to Vietnam. Few recommendations have been provided for addressing the issues and resolve those as well.
- It is recommended to focus on HR professional training and development for understanding the change management issues and other challenges faced by personnel management while expanding business to Vietnam
- Development of leadership skills is recommended for dealing with the issues related to management of human resources and furthermore, makes the best selection of individuals within the workplace.
- Another action, which is recommended to be taken by IKEA for addressing the issues, could be HR effective measurement.
- The monitoring of various kinds of market segments in Ho Chi Minh is essential for determining the needs and requirements of people and checks the customers who are not satisfied with the products and services offered.
- The utilisation of data and statistics is needed to make informed decisions as well as address the challenges with ease and effectiveness.
- Training programs are recommended for the workers to enhance their skills, knowledge and expertise and make them capable of handling these issues effectively.
- The SWOT and PESTEL analysis should be done for determining the weaknesses, threats and the external factors too, which could create challenges for IKEA during the expansion of the market to Vietnam.
- It is important for IKEA to develop a competitive pricing strategy to penetrating the new market segments and offer products and services at reasonable prices, which can help the company to gain competitive advantage too.
- Involvement of internet technology is recommended for creating more customer awareness and increase brand identity, thereby will influence the buying behaviour of consumers and prevent issues regarding lack of sales of the company.
References
Fernández-Guerrero, R., Revuelto-Taboada, L., & Simón-Moya, V. (2012). The business plan as a project: an evaluation of its predictive capability for business success. The Service Industries Journal, 32(15), 2399-2420.
Hill, C. W., Cronk, T., & Wickramasekera, R. (2013). Global business today. McGraw-Hill Education (Australia).
Hopkins, M. (2012). Corporate social responsibility and international development: is business the solution?. Earthscan.
IKEA.com. (2017). IKEA.com – International homepage. [online] Available at: https://www.ikea.com/ [Accessed 19 Jul. 2017].
Jones, C., & Penaluna, A. (2013). Moving beyond the business plan in enterprise education. Education+ Training, 55(8/9), 804-814.
Keegan, W. J., & Green, M. C. (2015). Global marketing. Upper Saddle River, NJ: Pearson.
Londhe, B. R. (2014). Marketing Mix for Next Generation Marketing. Procedia Economics and Finance, 11, 335-340.
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Poulis, K., Poulis, E., & Plakoyiannaki, E. (2013). The role of context in case study selection: An international business perspective. International Business Review, 22(1), 304-314.
Reiche, B. S., Mendenhall, M. E., & Stahl, G. K. (Eds.). (2016). Readings and cases in international human resource management. Taylor & Francis.
Sarasvathy, S., Kumar, K., York, J. G., & Bhagavatula, S. (2014). An effectual approach to international entrepreneurship: Overlaps, challenges, and provocative possibilities. Entrepreneurship Theory and Practice, 38(1), 71-93.
Schaper, M. T., Volery, T., Weber, P. C., & Gibson, B. (2014). Entrepreneurship and small business.
Terpstra, V., Foley, J., & Sarathy, R. (2012). International marketing. Naper Press.
Tian, X. (2016). Managing international business in China. Cambridge University Press.
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Wild, J. J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited.
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