Introduction
Strategic management is a critical component of the company’s management as it provides specialists with tools to analyze the existing environment and make a correct decision about the future of the company and opportunities for its growth. Because of the increased complexity of the modern business environment and the existence of multiple factors affecting the work of organizations, the selection of the appropriate option for development becomes a challenging task as it is vital to consider all alternatives to evaluate the market (Dess, 2018). Under these conditions, strategic decision-making acquires the top priority as the fundamental element of companies’ functioning and evolution. The given paper is devoted to the analysis of IKEA, as one of the global leaders in the sphere of ready-to-assemble furniture and its strategic decision to enter the Chinese market with the primary goal to expand and generate additional revenues.
Background
The choice of the company for the analysis is justified by several factors. First, IKEA is a well-known international brand that is famous for its furniture and has stable positions at the international level. It also means that information about the corporation’s functioning is available to individuals, and it can be found in the company’s annual reports and statements. Second, at the moment, IKEA functions in 52 countries around the globe that demonstrates its successful strategy and approach to management (IKEA, 2017). It is mainly focused on furniture and homeware sales and their delivery to clients. At the same time, there is also a restaurant and some food shops often located in the firm’s stores to meet clients’ needs. IKEA emphasizes its approach to furniture stressing the fact that all pieces sold by the company can be easily assembled by clients and help to create high comfort levels in dwellings.
The company was founded in Sweden in 1943 by Ingvar Kamprad and in several decades transformed into one of the most influential players in the market. In 2018, the company reported annual revenue of around 38.8 billion euros, which was higher than in the previous year (36.3 billion) (IKEA, 2018; IKEA, 2017). It means that the corporation continues to evolve. The brand is owned by not-for-profit and for-profit corporations, and there is a division of the corporate structure into two fundamental parts which are operations and franchising (IKEA, 2018). Inter IKEA holding is the owner of Inter IKEA Systems, and, at the same time, Interogo Foundation owns the given company (IKEA, 2018). The founder, Ingvar Kamprad resigned from the board of directors in 2013, and his son Mathias Kamprad became the chairman of the corporation (IKEA, 2018). The complexity of the corporate structure comes from the scope of activities performed by the firm and its size.
Today, IKEA is mainly focused on sales of furniture in different parts of the globe and the promotion of its goods. Being one of the industry leaders, it continues to evolve and constantly looks for new solutions or effective strategies. The corporation occupies the niche of low-priced goods or products that are available to the broad category of clients (IKEA, 2018). It also sells compact or flat-pack solutions for in-home assembly for clients to be able to make all needed procedures on their own (IKEA, 2018). The company also designs and offers decorations for rooms and other spaces that can help to follow a particular style and create the desired atmosphere (IKEA, 2018). In such a way, IKEA’s main activities can be related to the sphere of furniture and decoration.
Selected Decision
A strategic decision discussed in the given paper is IKEA’s entry into the Chinese market in 1998. The given process became one of the critical steps in the evolution of the brand, its transformation into a strong global player, and the generation of competitive advantage. Regardless of multiple obstacles, fears, and negative experiences of other companies, IKEA accepted the decision to start operating in a completely new environment to expand its target audience and create the basis for future growth. Due to this solution, in 2018, the company’s revenue in China comprised $2.1 billion, with a 9.3% growth year-on-year (IKEA, 2018). The given solution became a result of the in-depth analysis of the market, internal and external factors that might impact the company, risks, and opportunities. For this reason, it is taken for the proposed case as its evaluation will contribute to a better understanding of the basics of strategic management.
The decision had a positive effect on the work of the company. It helped to generate additional income because of the appearance of new outlets and clients who could buy IKEA’s products. The company has strong confidence in the success of the entry and Chinese market overall. With the further growth of the well-being of the local population, the firm will experience growth and an increase in sales (Rotharemel, 2016). For this reason, the decision to enter the market and become one of its leaders could be considered a successful step towards the further evolution of the brand and its empowerment.
In such a way, the proposed case study revolves around IKEA as one of the leaders in the furniture retail industry. It is a giant multinational company that operates in 52 countries around the globe and benefits from sufficient strategic management. The brand’s decision to enter the Chinese market will be investigated to improve the understanding of the essentials of strategic management. To accomplish the task, the paper has specific sections, such as:
- Key People
- Planning
- External Factors
- Internal Factors
- Power Structure
- Values and Corporate Culture
- Stakeholders
Conclusion and Recommendations
Following the given outline, it is possible to investigate the selected solution and discuss the factors that impacted the decision-making and success of IKEA.
Key People
The entry into the Chinese market was considered by IKEA as one of the possible options for the future evolution of the brand. As with any significant strategic decision, it was discussed by the board of directors and CEOs who were responsible for the growth of the company and its growth strategy. The founder and the chairman of the corporation, Ingvar Kamprad, was one of the persons who supported the idea of international expansion and entry to the Chinese market regardless of the existing risks and the negative experience of Home Depot’s, a company that failed to successfully operate in the given location (Lingxiu, 2017). In such a way, the given decision can be described as a collective solution achieved via negotiations and consultations with the main internal stakeholders responsible for strategic decision-making.
Planning
The discussed decision can also be taken as a planned step that resulted from the strategy of the company and its need for international growth. By the end of the 20th century, IKEA entered a phase of its stable evolution and managed to create a solid resource base sufficient enough to enter fast-growing areas that were associated with some possible risks (Lingxiu, 2017). The Chinese market, because of multiple opportunities linked to it and because of the tendency towards the increase in the level of income peculiar to local populations, was one of the possible options for a new project. For this reason, the decision to go globally and open stores in China is a result of the in-depth investigation of the most important factors that might impact the company in the region, pros, and cons, along with possible risks and costs of the expansion.
External Factors
Entry to the new market presupposes consideration of the external factors that would affect the company. These include the macro environment, the state of the target market, and competitors (Bartlett et al., 2008). For IKEA’s entry, the existence of a beneficial environment was vital for the final success of the project. The PESTLE analysis demonstrates the main issues that affected the discussed decision:
Political – China was interested in attracting foreign companies to boost the evolution of its economy and became a significant player at the global level
Economical – the state entered the phase of its fast economic growth characterized by the increase in the middle class with a stable income, which was considered the targeted audience for IKEA (Lingxiu, 2017)
Social – the rise of the middle class preconditioned the shift in people’s mentalities towards and their buying behaviors. They started to appreciate Western-like goods and furniture (Zhuoqiong, 2019)
Technological – China had a developed industrial sector that was able to support IKEA’s functioning. Moreover, it was a base of raw materials which contributed to the improved logistics (Lingxiu, 2017)
Environmental – IKEA was able to benefit from the given factors because of the appropriate climate, availability of raw materials, and peculiarities of the population (Morrison, 2006)
Legal – the Chinese government introduced a set of regulations promoting improved cooperation with the international brands and inviting them to the country by simplifying the existing legislation and adapting it to the needs of global corporations (Lingxiu, 2017).
In such a way, the existence of these factors impacted IKEA’s decision-making and preconditioned the desire to enter the selected area. The overall positive regulations and the desired peculiarities of the target audience became the major aspects that justified the need for the new entry and demonstrated multiple options for growth.
Internal Factors
Internal factors can be determined as inner threats and weaknesses of the organization that impact its decision-making and its abilities for the extension or initiation of new projects. For IKEA, consideration of these aspects was vital for the final decision whether to enter the Chinese market or not. At that moment, the company held stable positions in the targeted market segment and was able to devote significant costs to new ventures. The basic internal factors that impacted decision making could be outlined by using the SWOT analysis:
In such a way, IKEA benefited from stable positions in the market; however, the inability to affect Asian markets was one of the basic weaknesses of the company. Considering the given information, the company accepted the decision to employ its weaknesses to enter the Chinese market as one of the possible ways to eliminate existing disadvantages and contribute to the further evolution of the brand. It turned out to be a success as the company managed to achieve its goals and generate stable revenue.
Power Structures
Another important element of decision-making was IKEA’s power structure and its impact on strategic management. Like any organization, the brand experienced serious institutional pressures such as normative and coercive ones (Cavusgil et al., 2008). It has to shape its ideology, values, and approaches to meet the requirements of local clients and ensure a high level of their satisfaction to avoid failures and create the basis for further growth (Campbell, 2004). Thus, normal and social norms peculiar to China impacted alteration in the value proposition, pricing, logistics, product, and promotion. For the given area, the focus was shifted towards the quality and Western-like appearance of products as it could attract clients (Chu et al., 2013). At the same time, stylish and functional products had to be adapted to the size of apartments typical for the Chinese middle class to be popular among them (). IKEA also employed different approaches to promotion as local social media such as Weibo had to be engaged to affect broad populations and popularise products (Chu et al., 2013). Finally, raw materials and other required products were provided from the local factories built in Shanghai to minimize the cost of logistics and avoid spending on imports.
The given set of measures contributed to the reduction of the institutional pressure and the effective employment of power structures that were available at the moment. IKEA managed to avoid problematic issues that might be associated with the local culture and demands and adjust its functioning to the clients’ preferences. The brand’s value system was one of the factors that simplified the task as it presupposed the focus on people’s needs and increased flexibility of products to ensure high levels of comfort and satisfaction among customers (IKEA, n.d.). In such a way, appealing to its vision and mission statement, IKEA managed to align the improved cooperation between power structures, reconsider its organizational behavior, and enter the new market.
Stakeholders
Finally, the given entry considered the interests of all stakeholders involved in the process and their possible influence on outcomes. These include the Chinese government, IKEA itself, clients, and employees. The decision to start operating in China contributed to the massive financial investment and creation of new working places, which was vital for the local economy and the market (Pettigrew, 2014; Zhuoqiong, 2019). At the same time, the brand benefited from the emergence of new clients and the increased influence on Asian markets that were taken as the most promising areas for expansion (Lingxiu, 2017). Finally, clients acquired an opportunity to buy high-quality and low-cost products that could meet their demands to comfort. This balance between stakeholders created the basis for the successful entry of IKEA’s success.
Conclusion
Altogether, analyzing the data provided above, it could be concluded that IKEA managed to accept the strategic decision that contributed to its further growth. Several factors impacted decision-making. First of all, SWOT and PESTEL analyses demonstrate the existence of positive external and internal factors. IKEA had a stable position within the industry, and the Chinese market was also characterized by a beneficial environment. The growth in the level of income and interest for foreign investment created the basis for the given entry (Clegg et al., 2011). Additionally, the power structures of the company and its organizational culture helped to minimize the institutional pressure and adapt its functioning to meet clients’ needs. In such a way, IKEA’s entry into the Chinese market is a result of the in-depth analysis of these factors and the positive forecasts.
Analyzing the situation, it should also be stated that the need for entry was the only possible decision regarding the conditions mentioned above. IKEA’s major weakness was its weak presence in Asian states, while this region possessed outstanding strategic importance. For this reason, the plan to open stores in China was an effective solution vital for the company and its future evolution. In terms of the outlined external and internal factors, no other result seems possible as IKEA devoted significant resources to planning and investigating the market, which resulted in the overall success of the project. Today, the brand remains one of the leading furniture retailers in China, which evidences the correctness of the decision.
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