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IKEA has managed to expand globally as a furniture retailer despite different market dynamics and economic conditions. For a company to internationalize, it has to develop knowledge in overseas markets. It must also balance its raising commitment of resources to foreign markets. Thus, in the internationalization model of Uppsala, there are the change aspects on one side and the state aspects of the other side. In the Uppsala model, a firm starts to invest in a few nearby countries, which in the case of IKEA, are countries in Europe.
After successful expansion into countries that are slightly different in geography and other market or economic attribute, the firm gains momentum to invest in more countries with unique features for its target market. The company is using general knowledge and market-specific knowledge. With general knowledge, it considers the right marketing method to use or the types of customers that it should be targeting. With market-specific knowledge, the company seeks to keep its focus on current business. This knowledge concerns business climate, cultural patterns, the structure of the market system, and similar factors that affect the operability of the market (Vahlne and Johnson 189).
The Uppsala model is a theory defining the way a firm like IKEA would intensify its activities in foreign markets, which in this case are Brazil, Serbia, and India. The company has to consider its lack of foreign market knowledge and then work towards getting more customers network relationships with competitors, customers, government, and suppliers. Besides, it must also collaborate moderately with other firms in profitability and growth. When IKEA began internationalization, it was explorative. This strategy was used for the formation of the company until the 1980s when it failed to penetrate the Japanese market. After that, it uses rapid replication of its existing knowledge until the mid-1990s. After that, the company has been flexible with its replication strategy and has managed to codify the IKEA Idea Concept and Concept in Practice principles for easy replication and modification in new markets (Johnson and Foss 1080).
IKEA has a strong Swedish culture and must quickly fit into the Serbian cultural context. Its expansion into Serbia will be moving into familiar territory in Southern Europe. It has to make a significant investment in building its stores and establishing a marketing model that fits the country. It will be exporting its building culture to Serbians who are in a country that seeks economic prosperity. The company would build in Belgrade, the capital, where it can reach the highest number of customers with its population of more than 1.2 million people. There is solid growth in the retail sector as per capita spending increases. However, the level is still lower than that of Western Europe. IKEA can continue to use its global theme adapted to local marketing conditions such as socio-economic factors (Bord Bia 4-7).
The food retail sector is the dominant industry within the retail business sector, implying that the retail furniture business will have to rely much on promotion to grow. Besides, Syrian state authorities have discretionary authority over price change for basic goods as a way to manage inflation, which is very high compared to the rest of Europe. Given the level of knowledge for the company in Europe, an on-site production facility will be necessary when moving into Serbia.
Current plans are to build a factory and a store in the capital city and allow the customer to drive in and shop. The assembly model that has worked in the rest of Europe will work well with Serbia as it helps to knock down costs and make furniture affordable. The target consumers for Serbia are middle class with relatively high disposable incomes. They are likely to be young couples and families as well as Singles well exposed to global culture and willing to try out different furniture for their homes and home offices.
Poor economic performance for Serbia in the past led to limited investment from outside. However, the government is initiating attractive investor policy to entice more inflows of foreign direct investments. It serves as a major opportunity for IKEA to enter the country with its establishment.
Brazil is very populous and, therefore, has huge market potential. It is the fifth most populous country in the world. It is also the seventh-largest economy in the world in GDP and has high social inequality with extensive bureaucracy. Therefore, its market conditions will be very different from what IKEA is used to in its home country where social inequality is not rampant. The country has a tropical climate, and that dictates most of the furniture items that the population prefers.
The country’s culture is also different from that of Western Europe. It has the majority of African and European descendants forming its population, and the official language is Portuguese. Thus, it will be important for IKEA to learn the language for doing business, which points to a need for hiring local staff. The government is working strategically to reduce social gaps. It might, therefore, implement policies that limit the ability of companies to cut wages and other benefits (Bueno and Domingues 59).
Thus, IKEA will have first to establish its presence and then learn from its interaction with regulators and government. There is also a strong expatriate community working in various industries in the country where foreign firms have interests. With a high population and abundance of raw materials, Brazil is suitable for a factory production investment. However, its government policies and its local business rivalry in the raw materials such as timber will affect their lucrativeness to a new entrant like IKEA.
The retail furniture business is not part of the restricted industries where foreign investors cannot invest freely. The restricted areas are banking, financial, and telecommunication services (PWC 17-18). Unlike many developed countries where long-distance travel is by rail, Brazil still depends much on the road, and this can affect the cost of products to customers as they incur high transportation costs. Middle-class Brazilians are status-conscious, which offers a high opportunity for retail sales by IKEA. Brazil’s rapid urbanization and industrialization are helping develop its furniture industry, and the market is attracting international companies besides IKEA (PWC 18).
From its lessons in Japan’s initial failed entry, IKEA understands that Asian countries have unique cultural needs of the business. They do not require an individualistic approach to business and take the time to develop relationships with brands in retail. These factors will be important to consider in the Indian context. Given the high context culture of India, IKEA may not fully be able to form an independent, thriving business. It needs local partners and must consider getting into a joint venture. A licensing agreement would be useful too, but it will limit the opportunities for the company to exercise its knowledge after operating in the country for a while.
The company needs to find suppliers and customers who can offer feedback that helps it rapidly adapt to local marketing conditions. It also needs access to well-connected supply chains that can help it deal with the Indian government bureaucracy. India has relatively low labor costs and high availability of high-quality labor. It can serve as a good production location for IKEA.it has high social inequality, and its high population ensures that there is a substantial middle class, which can afford IKEA’s furniture offerings.
Indians live in extended family homes and manage furniture differently. The large families per home also affect the overall demand for furniture. Many Indians also do not own luxuries, which in other parts of the world are basic assets. These include cars and furniture. Religious and traditional ceremonies are a huge priority for the majority of Indians, and they affect shopping seasons in the country.
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Thus, IKEA should make its promotional events flexible to accommodate the different holidays, which provide opportunities for shopping (Figueira-de-Lemos, Johanson, and Vahlne 143). In India, competitors to IKEA will be local informal furniture builders whose labor costs are low and allow them to charge relatively low prices. The furniture market remains unorganized, with 85 percent of the furniture coming from a small geographic area. Between 2013 and 2017, the demand for furniture is expected to have grown by 15% as the market becomes more organized. It offers room for learning and brand establishment (NSDC ii).
Bord Bia. “Serbia Market Overview.” Bord Bia. 2008. Web.
Bueno, Janaina Maria, and Carlos Roberto Domingues. “Internationalization Strategies of Emerging Companies: A Comparative Study of Brazilian Cases.” Future Studies Research Journal: Trends and Strategy 3.2 (2011): 59-64. Print.
Figueira-de-Lemos, Francisco, Jan Johanson, and Jan-Erik Vahlne. “Risk Management in the Internationalization Process of the Firm: A Note on the Uppsala Model.” Journal of World Business 46.2 (2011): 143 – 153. Print.
Johnson, Anna, and Nicolai J Foss. “International Expansion Through Flexible Replication: Learning from the Internationalization Experience of IKEA.” Journal of International Business Studies 42 (2011): 1079-1102. Print.
NSDC. “Human Resource and Skill Requirements in the Furniture and Furnishing Sector.” National Skills Development Corporation. 2013. Web.
PWC. Doing Business in Brazil. 2013. Web.
Vahlne, Jan-Erik, and Jan Johnson. “The Uppsala Model on Evolution of the Multinational Business Enterprise – From Internationalization to Coordination of Networks.” International Marketing Review 30.3 (2013): 189-210. Print.