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Analyze the Reasons for Ikea’s Delayed Entry into the Indian Market. Angela

Essay by   •  March 17, 2019  •  Coursework  •  1,637 Words (7 Pages)  •  4,544 Views

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1. Analyze the reasons for IKEA’s delayed entry into the Indian market. angela

There are various reasons why IKEA delayed entry into India’s furniture market. The first reason being, in the past, the furniture market were highly saturated with competitors from small family businesses and individual furniture craftsman, where they accounted for more than 80% of the market. India’s furniture consumers looked for value for their interior through careful craftsmanship, raw materials, and the unique fusion of India’s culture through their furniture. This was why only 10% to 15% of the market in India consisted of leading manufacturers and large sectors of businesses. It wasn’t till a few years after, India had a surge of a customer needing more stylish homes for middle-class families.

Furthermore, IKEA investment a considerable amount of time trying to enter India’s furniture market. However, the main barrier was India Foreign Direct Investment policy (FDI). The FDI in the beginning originally consisted of operating within only small shops and organized local retail locations and banned most multi-national brands. In 2011, the FDI restructured their policies to allow for more multi-national brands, like IKEA, to enter the market, however, this process of restructuring took another year. FDI also structured there new policies for 100% FDI only in the condition that brands to source at least 51% of their goods from India. These restrictions and rules prolonged their plans to open up their flagships in India. IKEA also made it clear that they would only enter India’s market when 100% FDI was allowed which wasn’t allowed to IKEA until January 2012.

IKEA was also faced with compromising their business model of the “experience of IKEA” due to the government adding an extra restriction that prohibited allowing home accessories and food cafes into their stores. This placed IKEA at a difficult position of potentially changing their model, however, after much back and forth of submissions and proposals disputing this policy, IKEA was allowed to continue their business model of the true IKEA experience with their Indian consumers.

2. Discuss the market entry strategy of IKEA for the Indian market. What are the advantages and disadvantages of adopting the wholly-owned subsidiary route in entering the market? angela

IKEA’s market entry strategy began with their suppliers. After being approved for the application from the CCEA, IKEA had ideas to further their ties with India by sourcing more of their supplies from the country. Originally, IKEA had strictly sourced their textiles and carpets from India. After the good news regarding their next stage into moving their flagships into India, IKEA had further ideas to source their steels, plastics, lighting and natural fibers from India as well.

IKEA had predicted that they would double their sourcing from India, which would entail for a larger labor force to keep up with the volume. The transition would ultimately improve the industry in India. IKEA’s prices would still remain low, which would differentiate themselves from other competitors.

IKEA used wholly-owned subsidiary as a market strategy to enter India so that the company would own the subsidiary and have more control. The entry to the Indian market was delayed because of a result of India’s FDI regulations which restricted the company to establish its stores in India. The firm had to make sure the store model fit consumer preferences, sourcing rules, and FDI regulations.

The advantages of adopting wholly-owned subsidiary are quicker decisions making (stakeholders are from the same firm) and low chances of conflicts (decisions are made internally). The disadvantages of adopting wholly-owned subsidiary are parent company absorbing losses by itself, higher expertise needed, and longer time to set up ( you have to understand the local economic and political environment before doing businesses).

3. Describe the key elements of IKEA’s globally successful business model. What are the sources of IKEA’s competitive advantage?

The key elements for IKEA successful business model are the products and IKEA experience. IKEA furniture is designed and built to be easy to use and assemble, with a  “do it yourself” strategy. This strategy, in turn, allows for lower costs, which would be reflected by the prices offered to the customer. Besides the product, IKEA also focused their business model to the experience of shopping in IKEA. IKEA knew they needed to offer more than just their furniture when developing a business strategy. Therefore, they developed other home accessories to complement their furniture goods, a convenient cafe, and a children’s play area to name a few. All of these additional features add to the experience of shopping for furniture in IKEA, which in most cases, cannot be found in any other competitors.

Besides their business model, IKEA also focused on several competitive advantages, allowing them to rise above the furniture industry. The first being, that they developed a strong business culture focused on independence, long-term approach, and continuity. The owner of IKEA, Kamprad, placed the company’s profit into various charitable contributions. Kamprad developed IKEA as a business to be a combination of a profit and non-profit business and put a considerable amount of funds from IKEA into various charitable contributions such as the INGKA foundation. The INGKA foundation is a charitable company associated with IKEA that has helped with tsunami victims in Indonesia, Sri Lanka, and India; along with various other contributions.

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