International marketing determines the process of practising business performances International boundary in order to improve business functional areas and extent marketing areas. This study is based on the analysis and evaluation of IKEA global market expansion process. The major focus areas of the study are the background of IKEA, Business expansion in foreign markets, the concept of franchising strategy, merger and acquisition, the reason for not accepting mergers by IKEA and appropriate recommendation for developing international marketing after organisation. The aim of this study is to understand the importance and significance of business merger and acquisition in order to expand business functional areas in the foreign market in a significant manner.
IKEA is one of the most famous multinational furniture companies which have headquartered in Sweden. The company has several branches in different parts of the world and used to sale different designs as well as ready to assemble furniture. Since 2008, IKEA has been marked as the largest furniture shop in the world (Ikea.com, 2020). The main mission of the company is to provide the best services to the people with the most affordable range of price. The entire team of IKEA holds the principle to serve the people in such a way so that they can renovate their home as per their choices and also based on their dreams. The company has set its vision to create a better environment for everybody and to be on the topmost lists of companies across the world (Ikea.com, 2020).
The values of the company are mainly togetherness so that every employee within the organisation can work together to serve the best products for the customers. The cost-consciousness of the company has helped to become the most popular across the world within a very short range of time (Ikea.com, 2020). The main objectives of this company are to provide the furniture with good quality, durability, with most fascinating designs and most importantly under an affordable range of price so that everybody can buy the products easily (Ikea.com, 2020). This objective along with the company’s mission and vision helps the employees to grow in the proper direction and to retain the image of the company in the world’s market base.
3. Ikeas expansion in a foreign market
Globalisation and expansion in the foreign market are one of the most important factors in the business strategy. Every company needs to expand its business in order to gain more profit and to retain its position in the market. IKEA is not beyond this strategy and thus it has also expanded in different foreign markets and has undergone globalisation to earn more profit rate. IKEA has started to emerge in the foreign market by initiating low-cost production in Poland in the early 1960s (Economist.com, 2011). After that, the company has also emerged in different parts like in different European countries, Australia, Canada. IKEA has also entered into the world’s third-largest consumer market that is in the United States which was completely different from the European market strategy (Thamhaksa et al, 2008). Up to this second phase of IKEA journey of expanding in the foreign market has helped the company to earn huge revenue and also to get famous easily.
According to Pan, (2007), in the third phase of the expansion journey of IKEA, the company started to enter in the market of China and Japan, where the main problem has hit the company. As per the company’s statement, the company has the dream to emerge in the region of far Asia but somehow, in different sectors of Malaysia, Hong Kong, Shanghai, Beijing, the company has the smallest showrooms. It has been also reported that the company gains only 3% from this entire region and thus it has been marked as one of the serious problems for a company to expand in the foreign market (Economist.com, 2011).
Figure 1: IKEA’s number of stores and revenues
(Source: Ikea.com, 2020)
In the China market, the consumers have not accepted the DIY strategy (Do-It-Yourself) of the company most preferably. Along with this, as mentioned by Chen, (2006), it can be observed that the company has lost its confidence level after entering into the Chinese market. The similar adverse situation can also be observed in the Japan market. Japan market has been marked as the most established market for consumers and as mentioned by Pan, (2007), most of the companies thus set up the market in this region. IKEA has also followed this trend but was badly failed in the first attempt.
On the second chance, the IKEA opened the own store again in the market of Japan without undergoing any franchise arrangements. However, IKEA again experienced a negative outcome in Japan’s market which also affects the company’s profitability rate (Edvardsson and Enquist, 2002). Like China’s customers, Japan’s customer’s has also not accepted the DIY strategy of IKEA Company and along with the market condition of Japan was not favourable for the growth of the company (Thamhaksa et al, 2008). IKEA has adopted the franchisee strategy in order to get success in the globalisation process and also to enter into the foreign market.
Franchising strategy is mainly referred to as the most advanced business strategy that helps to get and also to retain the customers easily that will help to enhance the profitability of the company easily. As mentioned by Friesl and Larty, (2018), this can be defined as the strategy that helps the customers to get a rough idea about the company’s quality of products and the services provided. It also helps future customers to easily get attracted and thus as argued by Wu, (2020), this helps to increase the profitability rate of the company. On the other hand, as argued by franchising strategy can be defined as the methods to distribute the products of the company in worldwide basis and also by maintaining the needs as well as demands of the customers.
Franchising strategy has been referred to as the most well-known strategy for expanding the business on different parts of the world. There are several advantages of franchising, which are described as below-
- This helps to initiate the business with the name of the original franchisor company. As mentioned by Sandybayev, (2017), this helps to reduce the risk of getting failure and along with this, also allowed the company to get success easily.
- Franchising strategy helps to reduce the risk factors associated with the company while entering into a completely different market place.
- According to López‐Bayón and López‐Fernández, (2016), a franchisee has the brand recognition along with the name and thus it provides the start power to the company to get success easily.
- Franchisors are able to buy a bulk of products easily and can easily supply all those to a different franchisee. Thus as argued by Alnassar, (2017), it helps to reduce the inventory cost and the supplier costs easily as compared with the independently running company.
- This strategy helps the company to get market assistance easily. As mentioned by Mishra et al, (2019), if any company wants to emerge in the foreign market, it will help to analyse the market condition effectively. This helps to understand the key success factors as well as associated risk factors that may affect the progress of the company.
5. Critical evaluation of IKEA franchising strategy to expand into a foreign market
IKEA has been one of the most famous multinational furniture companies and the company has 325 stores in 38 different countries of which 287 stores in 26 different countries with franchisee store (Ikea.com, 2020). IKEA has some of the stores have been owned by INGKA Holding, a non-profit corporation and the other approximately 38 stores were run by another franchise company under one of the Dutch company, a profit corporation (Ikea.com, 2020). The company has undertaken wholly-owned subsidiaries as the franchisee strategy that helps to expand in the foreign market (Ikea.com, 2020).
Figure 2: IKEA franchise stores in different countries
(Source: Economist.com, 2011)
IKEA started to punch with one of the established firms in the host nation and with the help of this firm, IKEA used to promote its different products in the host country. Habitat Retail Ltd. has been marked as one of the franchisee centres of IKEA that helps the company to expand in the UK, Spain, Germany, France and many more areas. As argued by Fragouli and Nikolaidou, (2019), this franchisee strategy of IKEA has helped the company to easily establish in the new market zone. It helps to provide standardization, easy control over the market and ultimately a smooth entry in the new host market to enhance the productivity of the company. As commented by Parboteeah and Cullen, (2017), this strategy helps the company to get a rough idea about the markets situation and also helps to identify the risk factors associated with the company. Thus as mentioned by Friesl et al, (2018), this evaluation and for proper interpretation helps the company to minimise the risk easily and to get established in the market effectively.
As per the rights mentioned in the franchise agreements the franchisor can use the trademark of the actual company and can also utilise the company’s thought for business purpose. As mentioned by Mishra et al, (2019), this franchising strategy has helped the company to get its objectives easily and also to expand freely in the market. The franchisor helps the company manage the business and also develop the business in the new market area by emasculating the risk factors. All the profits earned by the franchisee will directly go to the franchisor and thus the main franchisor company can experience high profitability rate. These entire scenarios can also be observed in the case of IKEA, where the company was able to gain a huge amount of profit by introducing this franchisee strategy in the market. However, as mentioned by López‐Bayón and López‐Fernández, (2016), the wholly-owned subsidiary strategy may cause risk to the IKEA Company. The high expensive choice of the company has been highly contradicted because as argued by Friesl and Larty, (2018), this may result in huge financial risk for the entire company.
The whole owned subsidiary strategy that has been followed by IKEA as the current franchisee strategy has some of the risk factors. As a result of this several questions have been raised against this strategic decision of the company. As mentioned by Sandybayev, (2017), if any of the stores failed due to the effect of surrounding market region, the company has to bear the cost of the entire stores set up and also responsible to bear the loss amount. For example, the failure in the expansion in the Japan market as well as in China has been marked as the most unexpected incidents. As argued by Mishra et al, (2019), the improper market condition along with the consumer’s different demands has made to experience failure in that market. This has affected the foreign expansion strategy of IKEA and thus it is also important to undergo details analysis of the local market before undergoing into the expansion. Along with this, the company can also go for the Joint venture strategy in order to overcome all the issues and to experience high profitability rate.
In international business, a merger is associated with business agreements deals within the organisation of companies in order to form a new company. According to the view of Kim and Lee, (2020), business mergers are practices in order to improve business performances and expand the business areas by collaborating with different companies. In order to merge with another company, the company must consider all its internal and external stakeholders in a significant manner. In addition, business merger processes have different legal and corporate stages in order to perform in the actual field. As per the view of Garg, (2019), the major benefits of merging one organization with another are the easy entry to the international markets and brand equity. Practices of the business mergers with an international organization can help to enter in the foreign markets in easy procedures without any trademarks and legal procedures. In addition, this process greatly contributed to the procedures for raising brand equity by improving the weakest section of the business operations and supply networks in a significant manner.
Business acquisition is the procedure of acquiring an organization in order to build the weakness or strength section of the organization in order to develop their business performance and practices. According to the view of Alon and Lattemann, (2016), business mergers and acquisition are similar to each other with slight differences. Business acquisitions and mergers are very important for the small and local business groups in order to improve their functional areas by implementing new and significant strategies and approaches for dominating the global markets (Hoy et al, 2017). Acquisition and mergers are one of the most significant procedures to dominate the international markets by investing and entering in the areas of the international market by a regional organization in a significant manner.
The organization IKEA has ignored different business merger and acquisition offers from global furniture companies in order to expand your business functional areas by collaborating. On the other hand, IKEA has denied all business mergers and acquisition requests. The following are the major reason for IKEA not accepting merger and acquisition:
7.1. Existing big franchise network
IKEA has developed an International expansion plan based on the Inter IKEA System BV. One of the major reasons for not accepting multiple merger and acquisition requests from different business organisations by IKEA’S are the existence of big franchise networks. According to the view of Hult et al, (2018), the organisation focuses more on developing Francis network instead of investing time and money in business managing and acquisition processes.
The major reason for practising franchising by the organisation are the easy carry of basic items, freedom of selecting own designs, selection of marketing areas, independence in functional products and quality and logistics standards. According to the view of Eteokleous et al, (2016), the easy carry and transportation process of basic items greatly contributed to the process of maintaining supply networks and operational areas of the organisation in a significant manner. However, this process helps IKEA to maintain the associated organisation in a significant manner in order to achieve organisational and corporate goals effectively. According to the view of Eteokleous et al, (2016), the freedom of selecting own designs helps the internal structure of the organisation to develop creative and innovative designs in order to impress the Global customer in a significant way. On the other hand, franchising strategy greatly contributed in the process of maintaining high logistic standards and quality of different products and services offered by the organisation to the Global market (Morgan et al, 2018).
One of the major reasons for ignoring different merging and acquisition proposals by IKEA is the existing brand image and equity. According to the view of Kotler et al, (2018), the organisation has retail stores in different corners of the world and it performs joint ventures with different groups and organisations as per their organisational principle. The major franchising organizations used by IKEA are the Al-Futtaim Group, IKANO group, House mark group and others. As per the view of Morgan et al, (2018), the existing brand image and brand equity of IKEA are sufficient to ensure the corporate sustainability of the organization and help in the business expansion process in an effective manner.
The brand image and equity of IKEA have greatly helped the organization to enter the marketing areas in a significant manner. As influenced by Rosado-Serrano, (2017), this process also helps to participate in the areas of the oligopolistic market in a significant manner.
The concept of trademarks and different policies of IKEA has been controlled by the inter IKEA system and Dutch Company. Different policies associated with the IKEA’S holdings and IKEA’S group has affected the marketing areas in a significant manner. According to the view of Kotler et al, (2018), the experiences with the trademarks policy and laws is one of the major reasons for IKEA not accepting the different mergers and acquisition proposal. The business mergers and acquisition process can greatly affect the individual organizational structure, marketing principles, franchising strategy and trademarks policy can be greatly affected. As influenced by Rosado-Serrano, (2017), the individual organizational structure of IKEA’s is based on the organizational principles and ethical considerations of IKEA’S and mergers and acquisition can put a negative impact and interferes in the internal structure. The practice of business merge can put a negative impact on the marketing principles and existing franchising strategy of IKEA to a great extent. As per the view of Zajko and Bradač Hojnik, (2018), this process can interfere with business practices and performances of the organisation affecting their business objectives and corporate strategy. In addition, acquisition and merging with different International brands can put a negative impact on the existing Trademark policy of the organisation and affect the business practices and performances in a significant way. As influenced by Rosado-Serrano, (2017), this practice can put a negative impact on the existing brand image and Trademark policy of IKEA.
In order to ensure the business expansion of the Ikeas, the following recommendation can be adopted by the organization:
Figure 3: Recommendation
(Source: Rosado-Serrano, 2017)
Effective market selections: One of the most significant ways to improve the business practices and foreign marketing process of the organization Ikea, the marketing areas must be selected effectively. As influenced by Rosado-Serrano, (2017), the effective market selections by evaluating the retail process and available opportunities of the competitive advantages can greatly contribute to the process of improving international marketing experiences. In addition, the opportunity of the competitive advantages by participants in the international competitive market can help in expanding business areas and establishing brand equity in a significant manner.
Identification of the innovative entry mode: Identification of the innovative market entry mode in order to enter in the marketing areas of different countries is one of the most significant approaches for foreign markets. IKEA must identify the most profitable and potential market entry strategy in order to survive in the international market. As influenced by Robson et al, (2018), merging and acquisition with the most potential market can help the organization to get easy entry in a different country in an easy way. Entry in the areas of the new market can help to develop the most significant brand image in the international market.
Identification of the potential collaboration organization and marketing strategy: One of the most significant ways to improve the existing international marketing process, identification of the potential collaboration organization can help in the process of achieving organizational development. As per the view of Koh et al, (2018), the marketing strategy must be selected based on the organizational structure and corporate sustainability for ensuring survival in a significant manner.
Understanding the structure of the market: Analysis and evaluation of the market structure is one of the most significant processes before entering the marketing areas by the organization. The characteristics and nature of the monopoly and oligopoly marketing structure are different and proper marketing research is necessary before entering the functional areas in order to ensure the organization development. As per the view of Zajko and Bradač Hojnik, (2018), the identification and researching of the different marketing structures can help an organization to plan the entry and exits of the marketing process in a specific manner.
Use of joint venture strategy: The implementation of the joint venture strategy as a specific franchise strategy can contribute to the process of business development and growth in a significant manner. As per the view of Gorovaia and Windsperger, (2016), the consideration of joint ventures in the business process can help to collaborate with different organizations in a significant manner.
From the above discussion, it can be concluded that the international marketing process is very challenging and in order to survive in the international markets, the organization must stop effective strategy and approaches. They discussed areas of the study are the background of IKEA, Business expansion in foreign markets, the concept of franchising strategy, merger and acquisition, and reasons for not accepting mergers by IKEA. In addition, the appropriate recommendation for developing international marketing after the organisation has also been focused on the study. The background of the IKEA has a focus in the business areas and marketing process of the organization along with the organizational structure. The business expansion in the foreign markets has focused on the major aspects and consequences of international marketing practices. On the other hand, the concept of franchising strategy, merger and acquisition has been discussed in order to understand their major components and importance in the international market. However, the recommendations have been developed based on the business expansion process of IKEA to achieve success in the corporate objectives.
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