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IKEA Company’s Global Strategy Essay

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Updated: Jul 30th, 2021

Abstract

The paper identifies the types of products that are produced by the Philippines and its neighbors. Countries in the region produce similar products in agriculture and manufacturing industries. Most of the countries have to compete for exports. IKEA is a global leader in furniture retail. It has been most successful in North America and Sweden. It has ventured into China, Japan, and UAE among other countries. Its success in China follows its strategy to match the business environment in China. It had failed in Japan because its self-service principle did not match customer preference. In the UAE, it has many competitors especially in Dubai. There are few research materials on IKEA’s competitors in the UAE.

Philippines and its neighbors

The Philippines lies as a separate group of islands in Southeast Asia. Its neighbors include Taiwan, Vietnam, Cambodia, Brunei, Malaysia, Thailand, and Indonesia among others (see Appendix A).

Philippines’ exports comprise of semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil and fruits. It mainly exports to Japan (19%), US (14.2%), and China (11.8%) among other countries. It also imports from US (11.5%), China (10.8%), and Japan (10.4%) among other countries. The economy relies on agriculture (11.8%), industry (31.1%), and services (57.1%). It has a labor force estimate of 40.42 million people. The Philippines has an emerging outsourcing sector (World Factbook 2013).

Thailand relies on exports that include electronics, agricultural products, automobile and parts, and processed food. The GDP of Thailand comprises of 12.3% agriculture, 43.6% industry, and 44.2% services. Agricultural products include rice, cassava, rubber, corn, sugarcane, coconuts, and soybeans (World Factbook 2013).

Malaysia industries include petroleum and natural gas, rubber and palm oil, pharmaceuticals and medical technology, electronics and semi-conductors, and timber processing. Agriculture comprises 11.4% of the GDP. Industry and services constitute 40.2% and 48.3% respectively. It has a labor force of 12.9 million people (World Factbook 2013).

Brunei is a small-sized country closest to the Philippines. It mainly relies on oil and natural gas reserves. Crude oil and natural gas account for 60% of GDP and 90% of exports (World Factbook 2013).

Taiwan is a country that relies mainly on international trade. The main export products are electronics, machinery, and petrochemicals. Taiwan has been reporting a large trade surplus because of its trade with China. Agriculture comprises 2% of the GDP. Industry and service sectors have 29.8% and 68.2% respectively. Taiwan has a labor force of 11.34 million people (World Factbook 2013).

By examining the data, it is clear that most of these countries produce the same products with a small difference in Taiwan and Brunei. Most of them produce rice, palm oil, rubber, tea, coffee, and timber as common products. In the industrial sector, most of them produce electronics, semi-conductors, electrical appliances, automobile parts, textiles, petroleum products, and natural gas as common products. These companies must compete for markets for a majority of products.

Management issues to consider

There is a need to seek power back-up system because the Philippines has unreliable power supplies. The business environment in the Philippines is affected by “inadequate transport network and unreliable power supplies” (OECD 2012, p. 102). Businesses that operate in countries with an unreliable electricity supply need to have a self-supply option (The World Bank 2013).

It may be necessary to carry out additional training on skilled labor. Graduates emerging from colleges tend to have inadequate skills to match industry requirements. Those who are unemployed though holding a college degree account for more than 20% of graduates (OECD 2012). Companies may need to upgrade the skills obtained in college to meet their production requirements.

Starting a business in the Philippines may take up to 35 days and requires completion of 15 procedures. The Philippines occupies the 170th position out of 189 countries in the global ranking on the ease of starting a business. Malaysia is ranked 16, Thailand 91, and Vietnam 109 (The World Bank 2013). Construction permits are more costly and may take up to 77 days to obtain. Registering property may take up to 39 days and costs 4.8% of the property worth.

Business may be easier to start if owner’s equity is used as the source of finance. The Philippines is ranked 86 out of 189 countries on the ease of obtaining credit (The World Bank 2013).

It is easier to import and export goods in the Philippines. The cost of exporting and importing goods is also lower than the average cost of international trade in OECD countries.

IKEA case study

Standardization approach or adaptation approach

IKEA has used a standardization approach in many of its features. Burt, Johansson & Thelander (2008) discuss that most IKEA stores carry between 7,500 and 10,000 different items depending on the size of the store. IKEA stores appear to have the same external appearance. The store formats appear in three different sizes. Stores are situated on the outskirts of major cities. IKEA emphasizes low cost as its key marketing strategy. Customers are required to pick products by themselves as a way of lowering labor cost. As a result, IKEA is able to maintain lower costs. Most of the features about IKEA are standardized.

In some countries, IKEA is forced to drop some of its standardization ideas to meet local requirements. Burt, Johansson & Thelander (2008) explain that stores in the UK have to be built in a different way according to the laws in the UK. In China, IKEA uses catalogues as its main advertising tool. In Sweden and North America, it mainly uses television advertisements. Burt, Johansson & Thelander (2008) explain that IKEA had to drop its basic outsourcing principles to suit the market in China. On the global market, only 23% of products are produced in the country of sale. In China, about 50% of the products are produced in China. It was a shift to match the low cost goods in China. Burt, Johansson & Thelander (2008) explain that prices in China dropped by at least 30% and in some cases by up to 90%.

Its standardization strategy is useful because it reduces the time and effort that companies use to build a brand. Customers visit IKEA with the perception that its products are of standard quality all over the globe. Its standardized restaurant and childcare services have a strong customer attraction in China.

Biggest retailers in UAE

Natuzzi is a retailer of Italian origin dealing in leather furniture. It opened a large on Sheikh Zayed Road in Dubai. Safita Trading stores plenty of furniture from India and Far East. Lucky’s, Pinky’s and Khan’s also store furniture with Indonesian and Indian styles. Feshwari is recognized for making furniture according to a customer’s specification. Competition also comes from other global retailers such as Home Center and Global Furniture Solutions (Quinn 2006). They are IKEA’s competitors because they sell similar products targeting the same market. Some of the products also act like substitutes. IKEA main advantage is its low cost strategy. They are many other small retailers within the UAE.

IKEA in China

IKEA is performing well in China. Olivier (2013) explains that IKEA made sales amounting to 540 billion RMB in 2012. It represents a 21% increase in sales from the previous year. Wang (2011) claims that IKEA intends to expand from 8 stores to 15 stores by 2015. IKEA is perceived as a stylish brand for high middle income earners in China. Kamprad decision has paid off because IKEA has experienced growth in China but IKEA had to make changes to match the Chinese market.

Its main challenge in China has been the low cost products from competitors and competitors who copy its products. Olivier (2013) claims that TMall, a major competitor, offers products similar to IKEA at a lower cost. TMall had a 300% growth in sales in 2012. The relatively lower incomes in China made the company to change its strategy on outsourcing.

IKEA in Japan

Initially, IKEA had entered Japan in 1974 and left in 1986. The Japanese customers wanted to be served when the enterprise stuck to its core principle of self-service. Competitors were offering an extensive customer service even though they were charging higher prices. Customers preferred to be serviced rather than a relatively lower price back then. The perception of customers has changed after the difficult economic times experienced in the past decade. IKEA has also changed its stand on customer service after its new entry in 2006 (Tekenaka 2012).

IKEA opened its first store in Chiba in 2006. It has added several stores in different locations in Japan. In terms of visibility, IKEA ranks sixth after Nitori, MUJI, Tokyu Hands, LOFT, and Otsuka in their respective order. In terms of buying experience, it ranks third after Nitori and MUJI (Takenaka 2012).

Reference list

Burt, S, Johansson, U, & Thelander A. (2008). Standardized marketing strategies in retailing? IKEA’s marketing strategies in China, Sweden and the UK. 1st Nordic Retail and Wholesale Conference in Stockholm 6-7 November, 1-25.

Quinn, D. (2006). Dubai: The complete residents’ guide. Dubai: Explorer Publishing.

OECD (2012). Southeast Asian Economic Outlook 2011/12, 101-110. Web.

Olivier, S. (2013). Web.

Tekanaka, Y. (2012). . Web.

The World Bank. (2013). Doing Business 2014: Philippines. Washington, DC: The World Bank.

Wang, H. (2011). Why Home Depot struggles and IKEA thrives in China [Press release]. Web.

World Factbook. (2013). Web.

Appendix

Appendix A

IKEA Company's Global Strategy IKEA Company's Global Strategy
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