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Class: EL1702Group: 3

IBI101 - Introduction to International BusinessLecturer: Nguyen Mai Lan

<b>Strategies and Structure of IKEA</b>

MEMBER LIST:1. Hoàng Khả Vy - SA1700052. Phạm Hoàng Phương Thảo - SA1700063. Nguyễn Phan Quỳnh Thư - SA1700164. Nguyễn Huỳnh Phong - SA1700785. Nguyễn Việt Dũng - SA170105

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1.1 Affordability and Variety: A Winning Formula...5

1.2 Experiential Marketing: Creating a Destination...5

1.3 Sustainability for a Green Future...6

2. Company’s organizational structure...6

3. Operation activities in foreign markets...7

3.1 Market Research...7

3.2 Production & Logistics...8

3.3 Marketing...8

3.4 Competitive Advantage...8

3.5 Success and failure in Asia markets...9

III. Introduce the new foreign market...9

1. Skilled labor and supporting Industries...9

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IV. Difficulties the company may encounter, strategy to penetrate with long-term vision and detailed

action plan/solutions, and detailed evaluation of different entry methods...11

1. Difficulties the company may encounter when entering Vietnam’s market...11

1.1 Cultural and price sensitivity...11

1.2. Supply Chains and Logistics...12

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<b>I. Introduction1. Company’s background </b>

History: IKEA is a household-Swedish-based company formed in 1943 by Ingvar Kamprad. Thename is an acronym for 4 words (Ingvar, Kamprad, Elmtaryd – his family name, and Agunnaryd – thischildhood village) (Quito, 2022). The company has many notable remarks since its establishment:

1943: 17-year-old Ingvar started to sell stationery and build his company.

1958: The first IKEA retail store was opened in the town of Älmhul and introduced theflat-packaging method.

1963: IKEA became an international retailer after the first store in Norway and has beenexpanding till today.

Size and Global Reach: As of 22 January 2024, there are 471 IKEA stores globally in 63 marketswith the distribution as follows: 281 in Europe, 81 in Asia, 73 in North America, 11 in Ocean, 4 in Africa,and 3 in South America (How We Work – IKEA Global, n.d.). The 2023 revenue of IKEA hits 47 billionEuros ($51 billion) and has been annually increased by an average of 10% from 2001 to 2023 (IKEAAnnual Revenue 2023 | Statista, 2024). There are also approximately 219,000 employees worldwide, theannual customer visits reach about 860 million in 2023 (Number of IKEA Employees Globally 2023 |Statista, 2024).

Core business, major product categories: IKEA’s core business is to sell furniture, householdappliances, decorations, and other home services. The company’s major product categories span manyaspects of the customers’ needs, the category is as follows: Furniture, Storage & Organization, Kitchen &Appliances, Bed & Mattresses, Lighting, Home textiles, Home Décor, Kitchenware & Tableware, Baby& Kids, Flooring, Bathroom, Outdoor, Plants & Planters, Home improvement, Laundry & Cleaning, Petaccessories, Home electronics, Smart home, IKEA Food & Swedish restaurant, and Winter holidays(Products, n.d.).

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International business: IKEA’s international business model is the combination of costleadership, product uniqueness, and a strong brand image to achieve worldwide success. The costleadership strategy allows IKEA to efficiently manage the supply & production chain and not to mentionthe flat-packaging technology (turning the product into parts for the customer to assemble, cutting storingand shipping expenses). The Scandinavian features in IKEA’s products make them stand out morecompared to others, not to mention the diversified category of products that can meet even the most nichecustomers. Having made a name internationally for almost a century, not only that IKEA products’quality, cost, and services are famous in the global scene, but their fast-adapting attitude allows them togain trust and favor from markets around the world (Tayade, 2023).

<b>II. Strategy and structure of IKEA1. Company’s strategy</b>

1.1 Affordability and Variety: A Winning Formula

IKEA prioritizes affordability, making designer furniture accessible to a broad customer base(O’Neill, 2023). This focus is evident in their pricing strategy, which leverages economies of scale andefficient manufacturing processes to deliver cost-effective products. A cornerstone of IKEA'saffordability is its flat-pack furniture design (Dudovskiy, 2023). This allows for efficient packaging andtransportation, reducing costs. The iconic Billy bookcase exemplifies this strategy. Its simple design, flat-pack format, and affordable price make it a popular choice for budget-conscious consumers.

Their extensive product catalog offers a wide range of furniture and homeware items to cater todiverse styles, needs, and budgets. They release around 2,000 new products every year, ensuring theircollections are constantly evolving to keep pace with changing customer preferences and design trends(IKEA, 2023).

1.2 Experiential Marketing: Creating a Destination

IKEA goes beyond simply selling furniture; they curate an in-store experience that fosterscustomer engagement (O’Neill, 2023). Their stores are designed to be more than just retail spaces; they

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are destinations that inspire and engage customers. IKEA's showrooms are meticulously designed toshowcase furniture in real-life settings, sparking decorating ideas for customers (O’Neill, 2023). Thisexperiential approach allows customers to visualize how products might enhance their own homes.

IKEA offers various in-store amenities, including restaurants, childcare facilities, and homeplanning services. These services enhance the customer experience and encourage longer dwell timeswithin the store (Dudovskiy, 2023). For example, the one-way traffic flow within IKEA stores, whilesometimes criticized for length, ensures customers encounter a variety of product categories, potentiallyleading them to discover unexpected purchases.

1.3 Sustainability for a Green Future

IKEA has placed a strong emphasis on sustainability (IKEA, 2023). This commitment resonateswith environmentally conscious consumers and positions IKEA as a forward-thinking company. IKEAactively integrates eco-friendly practices throughout its operations, which includes sourcing materials likebamboo and recycled wood, alongside implementing energy-efficient manufacturing processes. Thisfocus on sustainability strengthens IKEA's position as a leader in the furniture retail industry, appealing toenvironmentally conscious consumers. For example, the Kungsbacka kitchen series utilizes recycledwood and paper-based materials, demonstrating IKEA's commitment to environmentally consciousproduction.

<b>2. Company’s organizational structure</b>

IKEA operates through a complex yet strategic organizational structure. IKEA stores around theworld are owned and operated by independent franchisees, not IKEA itself. IKEA utilizes a franchisemodel, with Inter IKEA Systems B.V. acting as the franchisor and individual IKEA stores operating asfranchisees (Dudovskiy, 2022). This model allows IKEA to expand rapidly and adapt its offerings to localmarkets.

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Source: “IKEA Organizational Structure – overview,” by John Dudovskiy, 2022

The structure creates a separation between the franchisor (Inter IKEA Systems B.V.), the brandowner (IKEA of Sweden AB), the product supplier (IKEA Supply AG), and the product manufacturer(IKEA Industry Holding B.V.). This separation is designed to protect the IKEA brand and concept and toensure that IKEA products are manufactured to a high-quality standard. Inter IKEA Systems B.V. ensuresconsistent brand presentation across franchises, while IKEA of Sweden AB focuses on productdevelopment and design. IKEA Supply AG sources products according to IKEA of Sweden AB'sspecifications, and IKEA Industry Holding B.V. manufactures these products to the required qualitystandards.

IKEA has a presence in over 50 countries with its stores. The franchising model and thegeographically separated but functionally integrated structure allow IKEA to maintain global reach whileremaining adaptable to local contexts. IKEA franchisees can tailor their product assortment andmarketing strategies to meet the needs of their local customers.

<b>3. Operation activities in foreign markets</b>

3.1 Market Research

Before entering a new market, IKEA conducts extensive research to understand consumerpreferences, purchasing habits, and living space configurations (Dudovskiy, 2023). IKEA meticulouslyresearches typical home sizes, layouts, and cultural influences on furniture use. This research helps IKEAtailor its product offerings and store layouts to the specific needs of Southeast Asian consumers.

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3.2 Production & Logistics

IKEA operates a complex production and logistics network to supply its stores worldwide. Tomaintain affordability, IKEA likely sources furniture from factories situated strategically within SoutheastAsia and neighboring regions, taking advantage of the region's manufacturing capabilities andcompetitive labor costs (Haghdadeh, 2022). This approach optimizes transportation costs and allows forquicker response times to local market demands. Countries like China, Malaysia, and Thailand withestablished manufacturing bases are probable production hubs. However, IKEA also faces challenges inmanaging this network, including ensuring efficient transportation of bulky furniture items acrossSoutheast Asia's diverse infrastructure landscape.

3.3 Marketing

IKEA's marketing strategy in Southeast Asia emphasizes its core brand values of affordability,functionality, and Scandinavian design. IKEA doesn't employ a one-size-fits-all marketing strategy.IKEA understands the importance of cultural adaptation in Southeast Asia, the company tailors itsmarketing campaigns to local tastes and cultural nuances, using a combination of traditional and digitalmedia channels (Dudovskiy, 2023).

IKEA also leverages its iconic brand image and its customer experience through its stores toattract customers (Lightfoot, 2022). IKEA stores themselves serve as a key marketing tool. The iconic in-store experience, with its room displays and self-service concept, allows customers to visualize howIKEA furniture can transform their living spaces, fostering a sense of inspiration and connection with thebrand.

3.4 Competitive Advantage

IKEA's competitive advantage in Southeast Asia stems from several key factors. The company'slarge-scale production allows for economies of scale, resulting in lower prices for consumers(Haghdadeh, 2022). IKEA's signature flat-pack furniture design allows for efficient transportation andstorage, reducing costs and making products more affordable (O’Neill, 2023). This, coupled with the self-

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assembly model, fosters a sense of accomplishment and personalization for customers. Additionally,IKEA offers a diverse range of home furnishing products at various price points, catering to a broadcustomer base (Prajwal, 2023). This product variety allows customers to find furniture solutions that alignwith their budget and style preferences. IKEA's unique self-service shopping experience and its focus oncreating inspiring room settings differentiate it from competitors. Furthermore, IKEA's commitment tosustainability resonates with a growing segment of environmentally conscious consumers in the region.

3.5 Success and failure in Asia markets

The company has successfully expanded its footprint across the region, with stores strategicallylocated in major cities throughout Thailand, Malaysia, and Singapore.

IKEA's core value proposition of stylish yet affordable furniture resonates strongly with manyAsian consumers, particularly in rapidly developing economies. The rising middle class in these regionsprioritizes both functionality and aesthetics in their homes, making IKEA's offerings highly attractive.Additionally, the concept of the "IKEA experience" – which goes beyond just furniture sales andincorporates showrooms, restaurants, and play areas – caters perfectly to the growing emphasis on leisureand family time in Asian households.

However, IKEA's expansion hasn't been without its challenges. A major hurdle has beenovercoming cultural misunderstandings. The company's initial "one-size-fits-all" approach backfired insome markets. For instance, IKEA's initial foray into Japan in the 1970s proved unsuccessful. In Japan,IKEA's furniture sizes were often too large for the typical compact living spaces (IKEA Museum AB,2024). This highlights the importance of understanding local preferences and adapting product offeringsaccordingly.

<b>III. Introduce the new foreign market</b>

There are 5 main factors to consider when the business wants to enter the new market.

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<b>1. Skilled labor and supporting Industries </b>

Availability of skilled labor: Vietnam boasts a plentiful labor force, with the government aimingfor 30% of the workforce to be educated by 2025 (Khanh Linh, 2023).

Supporting Industry: Although Vietnam is willing to welcome more supporting industries, theystill have not developed their whole potential, most of them are small and medium-sized enterprises,facing many difficulties in the market, technology, human resources, capital...The Vietnam government istrying to provide more benefits and support for this industry (Viet Duy, 2023).

<b>2. Trade barriers</b>

Vietnam participates in numerous organizations of Free Trade Agreements (FTAs), leading toreduced tariffs and optimized import/export processes. This is a potential market for internationalbusinesses to expand and develop. However, Vietnamese regulations can raise hurdles for foreignbusinesses. These include quotas on certain imports, designed to support domestic industries, andlicensing requirements that can cause delays and extra costs. Overall, these measures make importinggoods to Vietnam more challenging and expensive (Tổng cục Hải Quan Việt Nam (n.d.).

<b>3. Exchange Rate Expectation</b>

The exchange rate is forecasted to remain high in the first 6 months of 2024 because of negativeexternal factors such as low external demand and concerns over China’s economic slowdown. However,there's a chance of the exchange rate coming down in the latter half of the year. This is because centralbanks in major countries might stop raising interest rates and even reduce them. Vietnam's centralexchange rate rose 1.08% to VND23,866 on December 30, 2023, from VND23,612 on December 30,2022, according to the State Bank of Vietnam (SBV) (Tri Duc, 2024).

<b> 4. Transportation Costs </b>

On the one hand, Vietnam's nationwide infrastructure improvements help transportation in thecountry become easier. On the other hand, many factors, such as fuel, labor, and salary, lead to the cost ofthe logistic fee increase. Even the transport industry in Vietnam faces a complex outlook in 2024, with

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