In order to conduct business expansion in the new market, it is necessary for organization to undertake effective strategies so that their objectives can be fulfilled effectively. . Along with this, it also helps business entities to attain high sales and profitability by expanding business in an effective manner. However, it is crucial for firm to make effective decision regarding locating its business in the overseas market and at the same time, it is also necessary to be consider the rules and regulations of government so that business can be easily expanded (Grant, McLeod and Shaw, 2012). Also, management of firm is required to take leadership action so that potential of market should be analyzed before entering into specific market. The current study is based on a case study of IKEA that undertakes strategies to expand and become profitable in Chinese market. Further, business is also planning to enter into Indian market and for that, it is focusing on assessing the advantages available in the market of India.
Question 1: The Decision To Locate Overseas Should Be An Informed Process. Describe And Assess The Methods And Tools Available To a Business When Making The Choice Between Different Locations.
It is essential for organization to make effective decision regarding locating business into the overseas market and thus, it should be an informed process. However, IKEA needs to undertake an expansion plan by informing others who are related to the business operations at the time of enlarging the business. IKEA is a Swedish low cost furniture brand which adopts different strategies so that they can expand business effectively and become profitable in China as well (Hoványi, 2006). Therefore, in order to locate business in the overseas market, it is essential for firm to plan suitable strategies so that they can gain attention of Chinese consumers and their preference towards furniture products can be identified. Also, business is required to determine the availability of local competitors and their pricing strategy so that it can give tough competition to them. However, business also faces certain issues while entering into China market such as local competitors copied its design and sold at low prices that affects the sales of firm. Further, local suppliers also refused to supply raw materials to business and importing from other countries incurs high import tax that ultimately results into increase in prices that affects sales of furniture in market (Kouropalatis, Hughes and Morgan, 2012).
In addition to this, management of IKEA should need to identify all the factors regarding the overseas expansion so that appropriate strategies could be developed and implemented in order to achieve organizational goals. Also, it is significant for IKEA to adopt an effective informed process so that they can effectively locate its business operations in the overseas market such as India and China (Miles, 2002). Thus, before starting activities at different places, management of firm is required to determine various factors such as price, product, value proposition, store location, promotion and logistics. However, all these factors need to be considered by IKEA at the time of making choice for locating business at different locations. Also, firm should analyze market conditions prevailing in the country and assess the taste and preference of consumers while buying the furniture items. Main decision of positioning business in the international market is taken by management and owners that is related to inform other individuals regarding the choice of selecting different places where business is going to start its operations. For instance, here, business is planning to launch its activities in Chinese market and later in Indian market so that choices and preferences of consumers should be identified in order to attain organizational goals (Morgan, Strong and McGuinness, 2003).
However, informed process is a crucial element for firm as it helps them to obtain permission from different individuals before conducting business operations in the overseas market. Therefore, management needs to ask employees and also involve them in decision making process so that crucial strategies could be developed in regard to determine the market where firm is planning to launch its business operations. In addition to this, it is also significant for firm to ensure that applied strategies would result into profits and attain desired goals in an effective manner (Paswan, Blankson and Guzman, 2011). Here, research and development department of IKEA plays a crucial role in determining the choice of targeted consumers in both the markets i.e. China and India and after that, identifying the market conditions that are prevailing in the country. Decision of international expansion is crucial as it needs to be informed to other people working in the organization so that they could make proper planning of strategy implementation that helps in achieving positive outcomes in form of high sales and profitability. There are different methods and tools such as Porter Five Forces present with business in order to implement at the time of expanding business activities in the international market i.e. India and China. As both the destinations are developing in nature, therefore, it is essential for IKEA to identify consumer’s choices regarding different factors such as product quality, features, price, promotion, value proposition etc. in order to attain success (Ireland, Hoskisson and Hitt, 2011).
Following are the different factors present with the business while making the choice of expanding business within different locations i.e. China and India. These are as follows-
- Value proposition- Chinese consumers aim to obtain good quality furniture in western style. Therefore, IKEA needs to develop its brand image in the market in order attract middle class people to buy furniture products and enhance sales and profitability. On the other hand, Indian people also like to buy the furniture of good quality and that too at affordable prices. Thus, firm needs to keep this in mind that both the nations are developing economy and thus, it should focus on this aspect as well as build furniture accordingly (Kim and Mauborgne, 2013).
- Product- At the time of launching business within Chinese market, marketing team of firm is required to analyze the requirement of Chinese consumers in terms of product features that should be flexible in nature so that they can be best suited as per the needs of local market. For instance, IKEA management should determine the size of apartments in China where people live and thus, firm should produce furniture for the same so that best result can be attained. While, within Indian market, needs of people are different. They want unique design product that looks like international brand and due to this, people purchase it for their homes and decorate it with that (Knapp, 2001).
- Store location- Within China market, IKEA locates its stores in the outskirts of city i.e. next to the rail network or metro stations because most of the people use public transport. While, in India, company is planning to start its operations in Shopping Mall because huge number of people visit there and thus, they can attract towards products and services of business (Kourdi, 2010).
- Price- After viewing the spending pattern of consumers both in Indian and Chinese market, it is essential for IKEA to produce its furniture at affordable prices so that different consumers can purchase it (Lafley, 2013).
- Promotion- In China, firm promotes its products through advertising on Chinese social media and micro-blogging website i.e. Weibo that is one of the social media tools is used so that large number of people can be attracted. While, in Indian market, company promotes furniture through exhibitions and trade shows. Also, it adopts television and internet sources to promote its products and services (Langabeer and Napiewocki, 2000).
- Logistics- In China, company purchases raw materials and products from the local market in order to save taxes and reduce cost because firm needs to sell products at low cost in this market. On the other hand, in Indian Market, IKEA faces challenges especially in relation to distribution and logistics due to different rules and regulations of government and more intervention of political parties (Pinnington and Scanlon, 2009).
Furthermore, Porter Five Force tool can be used by business in order to evaluate the best choice for starting business operations among different locations and thereafter, expanding firm within the international market (Thorpe and Morgan, 2007). In case of IKEA, description of Porter Five Forces is as follows-
- Rivalry among firms- It is high within the international furniture market as there are varied range of competitors available such as Walmart stores, Argos etc. Thus, it is essential for IKEA to provide best quality furniture so that they can gain high market share and overcome competitors (Hansen and Smith, 2006).
- Threat of new entrants- It is low as entering of new customers in furniture industry requires huge investment. Thus, current market condition is saturated and also expertise is required to become successful furniture seller at international level.
- Bargaining power of buyers- It is high as the competition is stiff and thus people possess varied range of choices offered by furniture industry at international and national level (Kambil, 2008).
- Bargaining power of suppliers- It is low as there are wide range of suppliers available in the market and thus IKEA develops strong long term relationship with its suppliers and satisfy their needs in order to attain desired goals (Marren, 2007).
- Threat of substitutes- It is also low as there are not so many products and services present that can substitute the need of furniture offered by IKEA. Therefore, it possesses strong brand image and achieves high market share (Marren, 2012).
Question 2 Overseas Environments May Differ From a Business's Domestic Environment. Considering The Political, Economic And Cultural Framework, Discuss How Overseas Environments May Differ. Explain
How Such Differences May Present a Risk To a Business Organization.
It can be assessed that expansion of business in the international market always differs from domestic market environment. For instance, availability of political factors, cultural factors and economic conditions prevailing in the economy of international market where firm is planning to operate its business. However, decision of involving business into international market depends on the size of firm's domestic market, its brand image, production capacity, financial performance as well as other resources which are required by firm to operate into foreign market (Trim and Yangâ€Im, 2008). In regard to this, if firm is able to meet all these requirements then IKEA is able to place on an internationalization scale that ranges from domestic market to overseas market. Further, business also becomes relevant to the domestic culture as well as managers and employees are aware regarding the buying behavior of consumers in the market. While, it becomes difficult for firm to determine the culture of international market where they are going to establish and attain results beyond national boundaries. Here, firm is also emotionally sensitive to their consumers in the domestic market but on the other hand they require time to understand the needs of international consumers and thus work effectively in the overseas environment (Wilson and McDonald, 2001).
In addition to this, expanding business to international market is an exciting task while in certain cases it is also challenging. But, it is essential for organization to earn profits and grow exponentially so that organizational goals can be attained effectively. For instance, IKEA carries out its operations both in international and domestic market and thus builds a brand image of firm in both the market so that its sales can be enhanced. Further, when business plans to expand beyond the boundaries at that time it requires to recruit skilled employees with efficient knowledge so that they can acquire best results (Casadesus-Masanell and Ricart, 2009). Thus, it is crucial to understand the differences among the domestic and international business that helps in attaining success. At the same side, when business starts working in different cultures, people need to understand both social and business culture and then provide relevant products to consumers so that their needs could be fulfilled. Also, advertising activities differ from domestic market to international market. Understanding all these consequences helps firms to enter into new market and work efficiently in order to attain goals (Jones, 2002).
While, entering into international market, IKEA ensures that level of competition is high and thus it is essential for the management of firm to develop their skills and expertise so that best results can be attained both in international and domestic market. Following are the different factors such as political, social and cultural that impact business operations while expanding business into the international market (Nickols, 2012). These are as follows-
Political factors- It states that political environment differs from place to place. Therefore, at the time of international expansion in different countries such as China, IKEA faces serious consequences because here as per the government laws, business is required to involve local entity into operations and then, jointly carry out activities. Therefore, IKEA is required to involve Chinese people to understand the needs of local consumers and then produce product accordingly. However, political stability of the environment is also crucial as it helps firm to grow and expand (Grant, McLeod and Shaw, 2012).
Social factors- IKEA is required to determine social trends prevailing in the country because at the time of expansion, firm needs to reflect to the lifestyle of people. For instance, IKEA is found in Sweden market and thus it reflects Swedish lifestyle in its product range. Thus, it becomes difficult for firm to reflect to the country's product range and satisfy the needs of people (Miles, 2002).
Cultural factors- Furthermore, culture differs from one country to another. Thus, it is essential for business to value culture where they are going to work. For instance, at the time of enlarging business operations to China, firm aims to determine the needs of consumers regarding flexible furniture because they have small apartments to live in. Therefore, firm plans to develop products according to their need in order to sustain in the international market (Kim and Mauborgne, 2013).
Economic factors- IKEA faces issues at the time of operating in international market such as recession, high inflation rate, interest rate and wage rate . Therefore, it is crucial for firm to cope up with such challenges and thus develop the position to work in the international market (Knapp, 2001). GDP is another factor which can affect the business practices of IKEA. It represents the economic performance of the country. A significant change in the GDP, whether up or down generally has a significant impact on the stock market. This influences the stock performance of the company. Hence it is very essential that economy must perform in good manner for the benefit of the business. A bad economy usually means lower profits for the companies which in turn also lowers the stock prices. This also puts an negative impression on the minds of the investors.
Further, it can be stated that differences in economic, social and cultural factors arise due to working in both the international and domestic market. For example, differences within such type of factors affect business operations in the form of failure to company. Therefore, it is essential for enterprise to hire skilled and trained employees from the same culture where firm is going to expand so that they can implement the needs of consumers effectively and attain success (Kourdi, 2010). Thus, differences in such factors at the time of working domestic and international may assess the risk of losing market share as well as product can also be failed in the market.
It can be concluded from the above essay that IKEA is required to determine marketing condition of the place where firm is planning to expand its operations. Also, they should involve each member of business into decision making process by adopting informed process so that overseas expansion can be don effectively. In regard to this, IKEA plans to expand its operations in China and India which are considered as developing economies. Therefore, firm should produce low cost affordable furniture so that sales can be enhanced. Further, functions of business differ in between international and domestic market. Thus, such differences arise risk of failure in the international market.
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