Having only operated in the western culture, the Chinese market was one that IKEA had little to no experience of. Changing dynamics of consumer behavior and strong heterogeneity in terms of customers made it difficult for IKEA’s managers to predict future market trends in China. Before entering the Chinese market, IKEA had to consider, high import taxation, complex government regulations, complex consumer buying behaviors, and strong competition.
The paper will evaluate IKEA’s market entry strategies, routines & firm specific-advantages. Using Verbekes model to identify IKEA’s early expansion into foreign markets will give the reader a clearer overview of IKEAs international operations. Looking into the Chinese market with the use of Porters Diamond model, while considering IKEA's various approaches to become successful in such an economically strong market, will give the reader some practical insights of the difficulties that can arise while expanding into foreign markets.
Table of Contents
1. Introduction
2. Background & IKEAs current approach
2.1IKEA’s firm specific advantages (FSA)
2.2 IKEA’s Strategy
2.3 Expansion/entry Strategies
3. Ikeas expansion to China
3.1 Approach
3.2 Difficulties
3.3 Outcome
4. Outcome, results, or conclusion
Objectives and Research Focus
This paper examines the international business strategy of the Swedish retailer IKEA, specifically focusing on its foreign expansion processes and the challenges encountered while entering the Chinese market. The research explores how IKEA adapts its standardized operational models to navigate culturally distinct business environments.
- The evolution of IKEA's firm-specific advantages (FSA) and supply chain management.
- Evaluation of international market entry strategies and the "flexible replication" model.
- Analysis of the unique challenges IKEA faced during its expansion into China.
- Strategic adjustments made to overcome cultural barriers, local competition, and government regulations.
Excerpt from the Book
IKEA's early foreign expansion
After IKEA was forced to outsource the production to polish manufacturers due to a supplier’s boycott in Sweden in 1950, the company benefited from cheaper production and consequently sustained an even stronger low-cost strategy.
Shortly after, the company started its foreign expansion into European markets in 1963 deprived of any local adaption to these markets. As IKEA’s former president mentioned that IKEA “don’t spend much money or time on studies...use our eyes and go out and look, and say it will probably do quite well here...quite often we stick to our opinion”10. IKEA’s managers have had a strong belief and passion for their products & the history of IKEA and its founder. The uniqueness of IKEA’s products has never been put in doubt, Ingvar Kamprad created his own market among people who had never been able to afford new furniture. He had turned to those who lived on very little11. IKEA could capitalize on a niche market which was present across the globe by further reducing costs by streamlining operations with local suppliers12. In other words, IKEA’s main driving force is to provide customers with trendy functional products in a minimalistic fashion, that are manufactured cost-efficiently with suppliers, and priced low enough so that most people can afford them.
The Swedish company first focused on the European market, using the same products and operational formulas as in its home country by using their intuition, resulting in high numbers of market share and overall sales. IKEA has taken the concept and planted it in many different countries. Since the concept has been unique and together with the Swedish touch, according to Anders Dahlvig, “IKEA stood for something different from
Summary of Chapters
1. Introduction: Outlines the origins of IKEA under Ingvar Kamprad and the fundamental philosophy behind its democratic design and cost-efficient supply chain.
2. Background & IKEAs current approach: Discusses the internal mechanisms, such as supplier networks and standardized retail layouts, that define IKEA's competitive advantage.
2.1IKEA’s firm specific advantages (FSA): Examines how the company leverages economies of scale and standardized processes to maintain global dominance.
2.2 IKEA’s Strategy: Details the evolution of IKEA's international expansion strategy from rigid replication to a more flexible model.
2.3 Expansion/entry Strategies: Explores the transition toward broader international supplier networks and the use of "IKEA ambassadors" to maintain organizational culture.
3. Ikeas expansion to China: Reviews the economic and social factors that necessitated IKEA's entry into the Chinese market starting in 1998.
3.1 Approach: Describes the Joint Venture strategy employed by IKEA to comply with local laws and address cultural distance.
3.2 Difficulties: Analyzes the hurdles IKEA faced, including high import taxes, consumer preference differences, and challenges with the "do-it-yourself" model.
3.3 Outcome: Highlights how IKEA shifted toward local sourcing and production to overcome barriers and improve profitability in China.
4. Outcome, results, or conclusion: Synthesizes how IKEA successfully evolved into a true multi-national enterprise by balancing global standardization with necessary local adaptations.
Keywords
IKEA, International Expansion, China, Firm Specific Advantages, Supply Chain Management, Joint Venture, Globalization, Retail Strategy, Operational Routines, Cultural Adaptation, Low-Cost Strategy, Market Entry, Hofstede, Porters Diamond Model, Knowledge Sharing
Frequently Asked Questions
What is the primary focus of this study?
This study analyzes the international expansion strategy of IKEA, with a specific focus on the obstacles and successes experienced during the company's entry into the Chinese market.
Which central topics are discussed in the book?
The core themes include IKEA's internal operational routines, firm-specific advantages (FSA), international market entry strategies, and the challenges of adapting to non-European cultural environments.
What is the main objective of the author?
The objective is to provide a clear overview of how a multinational enterprise successfully navigates international expansion by leveraging internal knowledge sharing while adapting to local economic and cultural dynamics.
Which scientific approach does the paper utilize?
The author uses business strategy frameworks such as Verbeke’s international projector model, Hofstede’s 5-dimension cultural model, and Porter’s Diamond Model to evaluate IKEA’s performance.
What does the main body cover?
The main body covers the history and foundational strategies of IKEA, its shift toward flexible replication, and a detailed look at the difficulties and outcomes of its Chinese market entry.
Which keywords characterize this work?
The work is defined by terms such as International Expansion, China, Firm Specific Advantages, Cultural Adaptation, and Global Supply Chain Management.
How did IKEA change its strategy for the Chinese market compared to its earlier European expansions?
While IKEA initially relied on rigid replication, in China, the company had to adopt a more localized approach, including local sourcing of materials and adjusting store locations to be more accessible by public transportation.
What role does the Hofstede 5-dimension model play in this research?
It is used to visualize the significant cultural differences between Sweden and China, particularly regarding power distance and individualism, which explains why IKEA faced difficulties with its traditional organizational culture in Asia.
How does IKEA maintain its competitive advantage in China?
By establishing local supply chains and factories in China, IKEA was able to significantly lower prices, overcome high import taxes, and tailor its product range to better fit the needs of the Chinese consumer.
- Citar trabajo
- Alex Bremann (Autor), 2017, International Business Strategy. IKEA's Foreign Expansion into the Chinese Market, Múnich, GRIN Verlag, https://www.grin.com/document/374774
