IKEA Company: Retail Internationalisation Development

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Table of Contents

Introduction
IKEA Internationalisation Experiences
Utilized Internationalisation Models
Entry Modes
IKEA’s Examples of Localisation
Global Consumer Behaviour Trends
Regional Consumer Behaviour Trends
Analysis of Implications
Conclusion
Reference List

Introduction

Nowadays, consumers in different countries share some common characteristics, interests, and preferences due to rapid globalization and the influences of information technologies on individual and community lifestyles worldwide. It is also valid to say that a lot of enterprises and brands offering similar products and services have emerged as the number of barriers to international trade decreased throughout the last century.

However, in this situation, neither consumer behaviors nor retail brands did become entirely homogeneous. On the contrary, in order to attract customers, companies that internationalize their businesses should now put even greater efforts than before to differentiate and adapt their services, products, and operations to local markets. Based on this, the present paper will focus on the analysis of IKEA’s internationalization experiences and strategies. During the course of the discussion, recent trends in consumer behaviors and internationalization methods will be evaluated.

IKEA Internationalisation Experiences

IKEA is one of the most famous furniture retailers with a distinguishable brand style and a value-driven, consumer-oriented approach. It has 313 brick-and-mortar stores in 38 states/regions, including Canada, Russia, the United Arab Emirates, and other countries to which IKEA group expanded its operations since the 1960s, a few decades after its establishment in Sweden (Inter IKEA Systems B.V., 2018).

The company’s internationalization process started from geographically proximate European countries – Switzerland and Germany, – where modern Scandinavian furniture design was particularly popular (Consulenza Direzionale, n.d.). Nowadays, IKEA’s expansion activities are especially active in the Asia Pacific region. The retailer is interested in the Indian and Chinese markets because the growth of the middle class is pronounced there, and the brand primarily targets individuals from this social group (Qingqing, 2018).

Overall, the company aims to open approximately 500 stores worldwide and attain a rate of €50 billion in sales by 2020 (Kowitt, 2015). It is clear that with an ambitious growth plan like this, the choice of the entry modes and strategies is of great strategic significance and can define the overall success of the business in regional markets.

Utilized Internationalisation Models

The history of IKEA’s international expansion makes it clear that it initially implemented the Uppsala internationalization model. This entry mode starts with the expansion into the markets with short cultural and business distances (Siebers, 2015). Such an approach affords a sufficient level of control over international operations because the number of uncertainties in culturally proximate markets is relatively low, and companies may successfully apply their previous experiences and knowledge to a new situation (Cruz et al., 2017).

At the same time, culturally disparate markets are associated with a significant psychic distance, which implies “the distance between the home market and foreign market resulting from the perception and understanding of cultural and business difference” (Siebers, 2015, p. 320). When a substantial psychic distance is present, a more cautious entry mode must be implemented.

Entry Modes

For example, IKEA took into account significant cultural and business differences between the European and the Chinese markets. It implemented a step-by-step approach by entering such large cities as Shanghai and Beijing first (Lingxiu, 2017). Moreover, during the initial stages of expansion in China, it used the joint venture entry mode (Lingxiu, 2017). Joint venturing helps to reduce uncertainty, as well as financial and regulatory risks, through cooperation with local businesses, access to their resources, and learning from their experiences (Barua, 2014). However, it is characterized by a reduced level of flexibility and control over operations (Barua, 2014).

Considering these disadvantages and the overall IKEA’s global marketing strategy focused on excellent supply chain efficiency and brand image development, it is valid to assert that the wholly-owned subsidiary mode is preferable for IKEA regardless of the fact that it requires a considerable resource commitment.

IKEA’s Examples of Localisation

Nevertheless, IKEA’s internationalization experiences were not always successful. For example, the retailer failed to consider cultural and business differences between the Swedish and the US markets at first. It did not conduct a thorough environmental analysis and explore the implications of cultural diversity and breaking the step-by-step internationalization rule when entering the American market (Consulenza Direzionale, n.d.).

As a result, it had experienced a few difficulties when developing a cost-efficient supply chain and struggled with the competition, but the main problem was a slow adaptation to local consumer interests and lifestyle peculiarities (Consulenza Direzionale, n.d.). For instance, “the European-style beds sold by IKEA were slightly narrower and longer than standard American beds, and customers’ existing mattresses and sheets did not fit the beds” (Consulenza Direzionale, n.d., p. 5).

In a similar way, the company also revealed that the preferences and product choices of consumers in China differ from those in Europe due to the small sizes of local apartments. Thus, Chinese buyers mainly looked for functional and modular furniture solutions (Chu et al., 2013). By making appropriate changes in product designs, the retailer managed to increase sales and to draw greater consumer interest in both of these regions.

The presented examples demonstrate that IKEA utilizes the localization strategy of internationalization. Localization means adaptation – “the mandatory alteration of domestic target market-dictated product standards – tangible and/or intangible qualities – as to make the product appropriate to foreign environmental conditions” (Haron, 2016, p. 2). It is worth noticing that the alterations made by IKEA were primarily tangible.

They were dictated by the features of the physical environment in local homes. In some countries that are characterized by distinctive cultural practices and customs, IKEA also introduces culturally relevant products to its local portfolio. For example, it sells rice cake makers in its Indian store (Laursen, 2018). However, one may say that the company strives to maintain the intangible product qualities, defining consumers’ interactions with and experiences of purchased furniture, the same across all countries.

Global Consumer Behaviour Trends

IKEA’s endeavors to develop a uniform global image and transfer its profound retail experience to international markets support the abovementioned assumption. It also adds the same customer values to its products and services across all regions – they include design, innovation, and affordability (Inter IKEA Systems B.V., 2019). For instance, not only does IKEA’s flat-pack, assemble-it-yourself technology allow reducing storage and shipping costs, but also creates values for consumers through price reduction (Perry, 2015). It is possible to assert that this type of standardization activities provides advantages for IKEA by distinguishing the brand from its global and local rivals.

Regional Consumer Behaviour Trends

As part of the effort to create a strong, standardized, global value chain, IKEA takes into account modern consumer behavior trends that largely define the degree of demand for certain intangible and tangible product qualities. Some of the most important trends that progress across the majority of the international retail markets include the digitalization of shopping experiences, the utilization of technological advancements, and the environmental friendliness of products (KPMG International Cooperative, 2018; Deloitte, 2018).

According to IKEA’s statement on its official website and evidence derived from secondary sources, the company is dedicated to environmental protection and implements several sustainability initiatives across the supply chain activities, including product design and shipping (Inter IKEA Systems B.V., 2019, Key Figures; De Marchi et al., 2017). Based on this, it is valid to say that the retailer acknowledges the needs of environmentally-conscious consumers from different countries. It also indicates that IKEA analyses consumer behavior trends and strives to modify its core strategies and optimize its value chain in accordance with them.

Nevertheless, in different markets, some consumer trends are more prominent than others. For example, recent data provided by Zion Market Research (2018) demonstrates that the demand for green furniture solutions is especially high in North America, while European consumers become increasingly interested in high-tech, innovative, premium products. Additionally, consumers in the mentioned geographic areas often expect extra conveniences from retailers and value a personalized approach (Alliance Data, 2018).

At the same time, consumer behaviors in the Asia Pacific, the Middle East, and Africa are defined by the growth of the middle-class population that pays attention to such traditional values as quality, affordability, functionality, and appealing design aesthetics (Zion Market Research, 2018). It is possible to say that the differences among consumer trends in these distinct regions are related to the overall cultural and social environmental influences, as well as the level of market maturity.

Analysis of Implications

It is clear from the evidence derived from the market research that in order to boost sales and expand operations in regional markets, companies must adapt their products, services, and strategies to specific consumer behavior trends. For example, since IKEA concentrates on cost leadership and mass production of furniture, it may be difficult for the company to grow further in the mature European and North American markets by using the same methods as before.

The retailer may need to develop a new product range, add some premium options, and innovate its current furniture offers to meet the preferences of local consumers. However, the introduction of luxury and pricey items would be contradictory to IKEA’s overall vision and mission “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” (Inter IKEA Systems B.V., 2019, Vision and business idea, para. 1). For this reason, the retailer currently seeks other ways to mitigate the impending risks.

In European markets, IKEA strives to make shopping experiences of contemporary, technologically savvy customers as convenient and exciting as possible. For instance, in Germany, it stopped the expansion of the conventional stores and is now vastly investing in the development of the e-commerce segment and, in particular, optimization of online platforms and improvement of digital services (Koelnmesse GmbH, 2018). It is worth noticing that while the focus on digitalization may lead to favorable outcomes in some emerging markets like China as well because it has been associated with a significant e-commerce growth rate in recent years (Marinova, 2017), it would not be as effective in others.

For example, Laursen (2018) states that in India, a considerable part of the middle class is “still just over the poverty threshold” and, therefore, they are not reluctant to spend money for extra conveniences (para. 6). For this reason, IKEA may implement its long-practiced internationalization approach thereby keeping a standard range of services and Swedish designs while also customizing some of the offers to local tastes to stimulate consumers’ interest, build brand familiarity and trust.

Conclusion

The findings of the discussion reveal that consumer behaviors have not become completely homogeneous throughout the course of globalization. While some common trends defined by targeted consumers’ demographics can certainly be observed in the global retail market, regional markets are still characterized by distinctive features linked to overall social, cultural, economic, and other environmental factors. Thus, when entering a culturally distant country it can be beneficial to localize at least some services, products, and strategies in order to increase business success and achieve the desired growth.

The advantages of localization are demonstrated in the example of IKEA’s experiences as the brand always adapts to consumers’ interests and needs in specific regions. At the same time, the implementation of its traditional marketing and supply chain activities is important for IKEA. The company does not betray its core values and unique style no matter which country it enters but finds the right balance between adaptation and standardization.

Reference List

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Barua, D. 2014. Market entry mode strategies – a study of Bangladesh mobile telecommunication market for foreign companies. Diva Portal. Web.

Chu, V., Girdhar, A. and Sood, R. 2013. Couching tiger tames the dragon. Business Today. Web.

Consulenza Direzionale. n.d. Case history. IKEA’s global history: furnishing the world. PD For. Web

Cruz, E. P., Ramos, C., Queiroz Falcão, R. P. and Amaral, S. S. 2017. The Uppsala model as an attempt to explain the Brazilian immigrant ventures in Orlando, Florida. Journal of Business Diversity, 17 (1), pp. 79-92.

De Marchi, V., Di Maria, E. and Ponte, S. 2017. The greening of global value chains: insights from the furniture industry. Copenhagen Business School. Web.

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Haron, A. J. 2016. Standardized versus localized strategy: the role of cultural patterns in society on consumption and market research. Journal of Accounting and Marketing, 5 (1), pp. 1-4.

Inter IKEA Systems B.V. 2018. About the IKEA Group. IKEA. Web.

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Kowitt, B. 2015. How Ikea took over the world. Fortune. Web.

KPMG International Cooperative. 2018. Global retail trends 2018. Web.

Laursen, L. 2018. Ikea opens its first store in India and bets localization will win over the middle class. Fortune. Web.

Lingxiu, J. 2017. IKEA marketing entry strategy in China. Web.

Marinova, P. 2017. This is only the beginning for China’s explosive e-commerce growth. Fortune. Web.

Perry. 2015. IKEA: cutting costs, creating value. Digital Initiative. Web.

Qingqing, C. 2018. IKEA’s experience in China may help it grow in India. Global Times. Web.

Siebers, L. Q. 2015. International retail marketing and emerging markets. In: Goworek, H. and McGoldrick, P. J. eds. Retail marketing management: principles and practice. London: Pearson Education, pp. 311-330.

Zion Market Research. 2018. Global furniture market will reach USD 472.30 billion by 2024: Zion Market Research. GlobeNewswire. Web.

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