IKEA India Entry Strategy Essay

IKEA originated in 1943 by a 17 year old Ingvar Kamprad using his entrepreneurial skills exchange items let egress of a compile and continued to expand where his stores is located in much than 30 countries periodly. IKEA sells piece of article of article of piece of piece of furniture and early(a) household intersections at a very pitiful price so that every wiz clear open up them. IKEA is always looking to economise m unriv completelyed and save(a)y on their packaging, be, and any some other opportunity they get to save m adepty. As a team we thought it would be most beneficial for IKEA to enter into India specific ally Mumbai, India. India is one of the most emerging countries and gives IKEA a spacious opportunity. As a team we feel IKEA should implement interior designers that help tribe decide which furniture properly fits in their house hold. The interior designer get out be extremely k straightwayledgeable and accommodating when helping quite a short dec o tempo their piazzas.India is an emerging country with one of the largest democracies in the valet. India has one of the largest creations in the World which is a great opportunity for IKEA. One problem with the coarse population is the wide array of income ranging from the very wealthy all the way down to the lower fork who whitethorn work for as little as a dollar a day. The furniture application in India only consists of .05% of its GDP which is a nonher reason IKEA has a great opportunity to be self-made in India. India has a large opportunity for FDI (foreign direct induement) because of the current stinting conditions and the rapid growth direct of the country in terms of GPD and other economic indicators.IKEA in India will maintain the original Swedish logo and plans to target people in India in the lower middle class and above. It is estimated that there atomic number 18 between 30 and 300 million people that would fit into IKEAs target market. IKEA plans to start as one store in Mumbai and expand depending on sales and revenue. IKEA will need to occupy man mountrs who be experienced help with the opening procedure to check over that everything is make right. It is essential for IKEA to hire Indian managers and sellworkers as they will be able to make a connection to the guests that foreigners might not be able to make. People of India understand how life works, what people want, and how they do stock. IKEA will need to cover all aspects of product line in terms of employment from sales people all the way up to covering management and everything in between.IKEA must promote and market their opening properly so that people ar aw ar of the store locating and what it has to offer. Advertising and promotion is very important for them and utilizing social media could be a large attri more(prenominal)overe to their selling campaign. IKEA is going to issue common stock and other aspects of business to go through that they stinkpot aff ord the transition into India. There are umteen an(prenominal) a(prenominal) challenges that IKEA may face in this process, solely through careful compend and marketing research they can overcome any adversity that may come their way.COMPANY OVERVIEWIKEA was established in 1943 where 17 year old Ingvar Kamprad started a local catalog selling household goods with money that his father had given him. Kamprad ran a very favored business and discrete to open selling furniture at a low price. Kamprad established a name for himself fit very reliable, dependable, and offering a good growth at a low price. In 1965, one of the biggest stores was opened where people of Sweden lined up outside the doors waiting for the store to open. Kamprad ran a very successful business expanding globally and penetrated the market in the United States in Pennsylvania in 1985.IKEA is considered to be one of the Worlds top furniture retailers generating more than $12 million in profit in 2002. IKEA sell s furniture and other miscellaneous products at a very low price allowing numerous people to grease ones palms their products. IKEA sets an initial benchmark in regards to the pricing and then cut the prices by more than 20-50% to ensure guests of all social classes can purchase there items. IKEA understands that only allowing the upper class to purchase their product eliminates a large amount of potential nodes. IKEA as well tries to attract to college students who areon a blind drunk budget, but need to purchase furniture for dorm rooms or apartments. IKEAs mission education isThe IKEA Concept is based on offering a wide range of head intentional, functional home furnishing products at prices so low that as many people as possible will be able to afford them. Rather than selling expensive home furnishings that only a few can buy, the IKEA Concept makes it possible to serve the many by providing low-priced products that contribute to helping more people live a better life at home.IKEA will continue to sell their products at a low price as long as people continue to assemble their own products. A huge difference between IKEA and other stellar(a) furniture retailers is that IKEA does not assemble products for their customers which keep their cost low. IKEA is very price conscious and always trying to keep costs down. An example of keeping costs low is the flat boxes they use for their products which minimize shipment costs and also production costs. IKEA managers impart been ingenious to make employees aware of exceeding costs that are harmful to the company such as closure lights or computers off that are not in use.IKEA currently operates in 42 different countries all over the world, selling products at low affordable prices for everyone. When IKEA began going inter topic they ran into rough problems as they did not do marketing research to learn intimately what the customer wants. An example is in Philadelphia, USA where customers complained o r so furniture not fitting with the American lifestyle. IKEA scrambled to gather information to regain their position in the inter peopleal market. IKEA learned a lot of lessons about entering internationally realizing there are many changes that need to occur to succeed internationally. After this mishap in the United States, IKEA developed a marketing research team which has led to their success in the other countries around the world that they entered.IKEA maps there stores out properly to ensure that people spend money while there. They often stick out furniture at the get downning of the store with a pathway leading customers throughout the store to date everything. If acustomer wants to purchase a particular item they write down the code and give it to the workers in the warehouse. At the end of the journey throughout the store customers also will be given the opportunity to purchase smaller items such as pens, pencils, paper, and other miscellaneous products affiliated with furniture or household goods. This is a beneficial marketing and strategic planning for IKEA to maximize their profits by the layout of their stores.INDIA COUNTRY ANALYSISIndia is the worlds largest democracy and is the second most populous country. It is one of the most diverse nations with numerous cultures, religions and languages. It is winning long strides with a progressive pace in terms of highly improved rate of literacy, health and life expectancy and majority of its citizens have been less affected by poverty, when contrastd to the past.In the past decade, India has false out to be a major player in the economic arena. For a while now, it has been increase at a rate of around 8% and is the second fastest maturement nation, second only to China. A great amount of credit for this growth is attributed to the policies adopted by the Indian government and the youth, which forms a huge part of the population. With this growth, India is on the brink of a makeshift. It has give out a major market for many companies and has paved way for huge corporations to set up their businesses and invest heavily. postage stamp ANALYSISIn business, PESTLE analysis is very important. Originally designed as a business environmental scan, PESTLE analysis is an analysis of the external macro-environment in which a business operates. These are agentive types which are beyond the harbour or influence of a business, however are important to be aware of when doing product development, business or strategy planning.PESTLE stands forP- PoliticalE- EconomicalS- SocialT- TechnologicalL- court-orderedE-EnvironmentalFor businesses to be set up, let us look at the PESTLE analysis of India.POLITICALIndia is the biggest democracy in the world. It is a federal official re frequent. The political situation in the India is more or less stable. Most of its democratic history, the federal presidential term of India has been led by the (INC) Indian National Congress. State politic s has been dominated by several national parties including the INC. The Bharatiya Janata Party (BJP), the Communist Party of India (CPI), and various regional parties are the other major players on the Indian political scene. In the 2009 Indian elections, the INC won the biggest number of Lok Sabha seats and formed a government with an confederation called the United Progressive Alliance (UPA), supported by various left-wing parties and members opposed to the BJP. Ideological rock of political parties, influence of party forums, civil guild etc. causes a political environment that promotes stability. In India, many political factors affect the business environment. For example, Bangalore established itself as the most important IT centre of India in general because of political support. The major factors that affect the political environment are-Taxation polityIndia has a well developed tax structure with a three-tier federal structure, comprising the coalescence Government, the State Governments and the Urban &Rural local anesthetic Bodies. The major power to levy taxes and duties are distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are Income Tax, Customs duties, Central Excise and Sales Tax and attend to Tax. The principal taxes levied by the State Governments are Sales, Stamp Duty, State Excise, Land Revenue, and Duty on entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties, Octroi Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc.PrivatizationPrivatization reduces the political interface in the management of enterprises, leading to improved efficiency and productivity. India has adopted privatization in a big way. Most of the publicly owned enterprises have now been privatized. For example, a great part of the Indian Railways has be en privatized which has improved the quality of attend to a great extent.DeregulationAfter the reforms of 1991, the Indian government adopted a policy of deregulation. It has loosened its control on most industries which has helped the industries grow.ECONOMICIn order to solve economic problems, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of Indias development plans wereInitiate rapid economic growth to raise the standard of living, reduce unemployment and poverty establish self-reliant and set up a vehement industrial base with emphasis on forbidding and basic industriesReduce inequalities of income and wealthAdopt a socialist pattern of development based on equality and prevent exploitation of man by manAs a part of economic reforms, the Government of India announced a refreshful industrial policy in July 1991. The broad features of this policy as fol lowsThe Government reduced the number of industries under compulsory licensing to six.Disinvestment was carried out in case of many public sector industrial enterprises.Policy towards foreign corking was liberalized. The share of foreign equity participation was change magnitude and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.Automatic permission was now granted for technology agreements with foreign companies.Foreign Investment Promotion Board (FIPB) was setup to promote and transpose foreign investment in India. The economic factors in India are improving continuously. India has the third highest GDP in terms of purchasing power parity. Foreign direct investment in India rose 13 percent to $50.81 billion in the outgrowth 11 months of 2011 from a year earlier. India is a very attractive speech for investing as can be seen below.The Indian Economy is also witnessing a boom in the Retail sector. Almost 60percent of the consumers are willing to try out new products and services. or so 44 percent of Indians are willing to invest in the stock market as the available incomes are going beyond the level of savings. The attitudes and thinking of consumers has also changed compared to the previous year because of a reducing in the dependence on male member or shopper. tally to a survey, Indian consumers are willing to spend more on home improvements (38%) and leisure holidays (37%). The Total retail market of India is Rs. 19.48 lakh Crore of which Rs.0.126 lakh crore is organized. The organized market is growing at a rate of 28% and is expected to come to Rs. 0.206 lakh crore in 2011-12. The organized retail market share to total GDP is 2.1% and to that of private ingestion is 3.4%. Organized retail share to total retail market is 6.5%, which is estimated to touch 8.1% in 2012-13.SOCIALChanges in social trends can impact the pray for a firms products and the availability and willingness of individuals to work. In India, for example, the population has been ageing. This has increased the costs for firms who are committed to pension payments for their employees because their staff is living longer. It also means some firms have started to recruit older employees to tap into this growing labor pool. It describes the characteristics of the society in which the organization exists.Literacy rate, customs, cheers, beliefs, lifestyle, demographic features and mobility of population are part o the social environment. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario India is the second most populous nation in the world with an approximate population of over 1.1billion people. This population is divided in the interest age structure 0-14 historic period 31.8%, 15-64 years 63.1% and65 years and above 5.1%.TECHNOLOGICALNew technologies create new products and new processes. MP3 players, computer ga mes, online gambling and high definition TVs are all new markets createdby technological advances. Online shopping, head off coding and computer aided design are all improvements to the way business is get dressede. Technology can reduce costs, improve quality and lead to innovation. These developments can gather consumers as well as the organizations providing the products.India, in the past decade, has witnessed a technological growth unparalleled. With the advent of Information Technology, India has become the most favored finishing for IT projects. This has helped in creating employment and raised the standard of living of many. Most of the government projects are now been carried out in consultation with private partners who bring in high-end technology. For example, the Bandra-Worli Sea Link project in Mumbai was done in collaboration with a Chinese firm which helped the project technically.LEGALThese are related to the lawful environment in which firms operate. In recent years in the India there have been many noteworthy legal changes that have affected firms behavior. The introduction of discrimination and disability discrimination legislation, an increase in the nominal wage and great requirements for firms to recycle are examples of relatively recent laws that affect an organizations actions. Legal changes can affect a firms costs and demand. This consists of legislation that is passed by the parliament and conjure up legislatures. Examples of such legislation specifically aimed at business operations including the Trade mark Act 1969, subjective Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act 196.ENVIRONMENTALEnvironmental factors include the weather and climate change. Changes in temperature can impact many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness, this external factor is becoming a s ignificant issue for firms to consider. The growing desire to entertain theenvironment is having an impact on many industries such as the travel and transportation industries (for example, more taxes be placed on air travel) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities. India has also realized the importance of these necessities and the government has laid down several norms for companies which they must stay to if they need to run their businesses.INDIAN FURNITURE INDUSTRYINDUSTRY OVERVIEWThe furniture manufacture in India is considered as a non-organized sector as it represents a small percentage (about 0.5%) of contribution to the formation of GDP. Moreover, the production is increase every year. The furniture fabrication is categorized into various categories amongst which overstepicraft production is the major category which accounts for about 85% of the total furniture p roduction in India.The wooden furniture is the major part of this non-organized sector, which caters mainly to home furniture demand. Demand for household furniture is easily affected by economic conditions such as disposable income, interest rates, employment level and income growth. The total size of the Indian furniture exertion is estimated at around INR 900 billion. Eighty five percent of this falls into the unorganized sector. The furniture market is growing by 12-15 per cent per annum. In fact, around 300,000 workers are held by the furniture perseverance.FIVE FORCES ANALYSISTHE BARRIERS TO naked as a jaybird ENTRANTSBarriers to entry explain the different criteria that could act possible barriers for companies to venture into new markets. For the Indian furniture market, the following could be the barriers Cost of capital requirementsThe capital required to set up a furniture business could be pretty heavy and companies would have look for investors in order to meet the h eavy capital requirements. Experiences and knowledgeSince furniture business, in term of manufacturers and retailers, is considered as a shopping good which needs more time in excerption so reputation is significant for the companies. Consistent with Imported furniture in India are booming, design becomes the first criteria in selecting furniture. This is influenced heavily by reputation and strong relation with customers and suppliers. How to begin and maintain the relationship along the value chain will help ensure survival in the furniture business. Developing relationships require knowledge and experiences which can be acquired and collected during operating in the market. This implies that this factor favors the companies already in the market. LegislationThe legal aspect is not much of relevance for India furniture industry in terms of an impediment. Rather, it provides the opportunities of lower tariffs for the new comers.THE BARGAINING POWER OF BUYERSIn India the bargaini ng power of customers in furniture market is high. Most of the time in furniture buying process is spent in looking and shopping products and once consumers decide what to buy, they will buy from retail or wholesale stores. Furthermore, designed furniture increasely becomes to the furniture trend in Indian market. Product design is mostly in hand of retailers or wholesalers since they meet the need of consumers who come totheir shop therefore they know styles in the current trend. Porter suggests that retailers power become significant greater over manufacturers when they are able to influence consumers purchasing decisions. In case of India furniture market, the ability of retailers to shape future market significantly increases the power of the buyers.THE BARGAINING POWER OF SUPPLIERSThe power of suppliers is in the same direction as the power of buyers in the experience that it can squeeze profitability out of the industry. Suppliers can use bargaining power over participants in an industry by raising prices or reducing the quality of goods or services. In Indian furniture industry the bargaining power of customers in furniture market is low. The modern design furniture speedily becomes a furniture trend. Manufacturers produce furniture in various styles given by interior designers or retailers. This can lower the supplier power.THE THREAT OF SUBSTITUTE PRODUCTS OR SERVICESThe stronger the substitution in the industry less profitable the industry is. Wooden furniture is the main product in Indian furniture industry. The potential substitution of tropical wood products is the obvious non-wood products. Aluminum or plastic products may be a substitute for wood products. The threat of the substitute aluminum is gradually high since the demand for aluminum product is gradually growing with the current prospects of Indian economic development in the coming decades. To compare with wood the advantage of aluminum is mainly its durability, high flexibility, easy maintenance and no rust.RIVALRY AMONG existent COMPETITORSRivalry among existing firms can be fierce. For a company to improve its competitive position, knowledge of its industry situation and its rivals is essential. The more the rivalry is intense, the less that industry is profitable. Number of rivalsThe competitive environment in India furniture industry seems to be low in the terms of intensity since there are not many companies in the industry. However, foreign competitors through foreign investment play an important role in the industry because of the growing trend of import furniture. The industry growthPorter argues that slow industry growth leads to increasing competition since firms in the industry are inevitable to seek their expansion. From empirical findings, we found out that furniture market in India is growing positively every year. This implies that competition in the industry is not believably to be severe Product differentiationIn an industry, product differenti ation plays a significant role in protecting from competitors as customers have preferences and loyalty to particular sellers according to Porter. In Indian furniture industry, design makes product differentiated and design rapidly becomes trend. This means competition in this industry tends to be weak as a lot of design options are available which can generate product differentiation to meet the customers specific needs.INDIA A GREAT PLACE TO INVESTIndia has a very stable political environment which has been suitable for foreign investors and its policies over the last few years have been successful to attract FDI in various sectors This shows that India is a fruitful market for companies planning to invest and enter this market. India is an important member of WTO which urges it to abide by its rules and regulations. India has the second largest population in the world which makes it a huge economy as it also has a rapid and stable economic growthwith low inflation rate and stron g rupee value. India also has a cheap labor as compared to other developing countries. These indicators clearly signify India as a suitable place for the investors to invest. We have noticed that imported furniture is flooding in the market and growing up rapidly every year.The government policy of allowing 100% FDI in single brand retail is an added motive and enhances opportunities for foreign players in entering into Indian market. The ability of retailers to shape future market is increasing, however, buyers bargaining power is exerted very little as it doesnt appear to be one single buyer who purchases large volumes of furniture and suppliers bargaining power is also low as most of products are in hand of retailers in view of product design. Competitive situation in Indian furniture industry is not too intense due to the high growth of the industry and a small number of companies in the industry.3. IKEA IN INDIAFrom the previous part, PESTLE and Five-Force analysis shows the gr eat opportunity for the furniture industry in India. This time, with strong global presence and reputation itself, IKEA should really enter India for further profitability, by the large population and adjuvant business environment. This part we will explain the IKEA project organized in India by site selection and company strategy.IKEA entering India seems to be a quite promising idea, and as a team we have thought of another aspect that could prove to be quite profitable for IKEA. We feel that hiring interior designers to learn peoples homes or apartment building and help them with the process could generate more sales. An experienced interior designer who is knowledgeable can help sell products and also make recommendations for the customers. Many customers who dont have a good sense of fashion can be left clueless when trying to shop for furniture or other household accessories. The interior designer will have a catalog with them when they make the initial visit, browsing with the customer. The customer has to pay a flat rate for the interior designer and then what ever they want to purchase. By allocating an interior designer IKEA could make more money because sales people have a tendency to pushproducts on people and create more sales for the company.3.1 SITE SELECTIONAccording to the India government (2012), India consists of 28 states and 7 Union territories. separately state has a unique demography, history and culture, value and language (India government, 2012). Using this information it is important that the first store implemented into India is essential for further success.Similar to China, India established the Special Economic Zones Acts (SEZs) in 2005 (Rawat, Bhushan and Surepally, 2011). The authors also point out that in investing there, a company will be given a variety of friendly business conditions e.g. incentives and tax exemptions. Supporting by Dohrmann (2008), SEZs will support business and will particularly enhance the competitive ness of export-oriented activities. IKEA might not be a direct exporter, but we see future potential that IKEA could establish the regional factory in India with the centre location connecting Asia and Europe and other branches.There are a number of states that have been part of SEZs, e.g. Andhra Pradesh, Chandigarh, Gujarat, Maharashtra, Tamil Nadu etc. (SEZ India 2012). Our first location or destination for India is the Western part specifically Mumbai, one of Indias most intensive business hubs and residents, locates (Figure X). We plan to settle a store in suburbs which is near Mumbai, possibly between Pune and Mumbai. The reason why we select this district is its favorable business environments which possibly encourage IKEAs performance immensely. This derived from the advantages of land value, SEZs discriminatory treatments and Mumbai economy.Land valueReal estate and land value are one of main priorities in establishing a new store. Although IKEA might have plenty of capital , we need to ensure the investment will be made in order to continue to be lucrative and profitable.According to The Economic Times (2011), _ keeping prices in the Delhi NCR region have escalated between 10-45% in the last one year.,_ whereas Mumbai, on the contrary, the land value is subjected to fall 30% and even more as the developer was forced to sell the estate (Thakur, 2011). Therefore, IKEA had better started from less-costly country and when the firm keep progressing well, settling around New Delhi or Kalkatta can really be considered.SEZsSince Maharashtas has become SEZs, it attracts MNEs and foreign investors for certain. Rawat, Bhushan and Surepally (2011) exemplify that Duty free was allowed for import procurement of products and materials for development, operation and maintenance. Also, the company will benefit from many types of tax exemptions, for example, an exemption from export income 50 or 100% (under conditions), from Central Sales Tax, service tax and state sa les tax. Therefore, under SEZs Act, it is not only support cost-effective strategy for IKEA but also lead to future investment of the company in the region, for instance, establish the manufacturing site or regional assemble activity.c. Mumbais developing economy and increasing population gives IKEA incentive to start business there.Mumbai is illustrious as Indias major financial and commercial capitol as generates 6.16% of national GDP (The Financial Express, 2008). other emerging companies located in Mumbai will establish competition, but also ensure that business continues to grow. Furthermore, it was be among the fastest cities in India for business start-up (MMRDA, 2009) which would allow our company to continuously grow.Regarding Demographic data, Mumbai is the largest city in regards to population. According to the 2011 census, the population of Mumbai city was more than 12 million (Figure Xb), (national population, 1.21 billion) and it has been increasing over time (BBC, 2011). Besides, in canvas to other major cities i.e. Delhi, Kolkatta and Chennai, Mumbai represented thegreatest growth over three decades (Figure Xc).