A Swedish multinational corporation, IKEA makes and sells a wide range of products, including furniture, home decor, and kitchenware. When it comes to furniture retailers, it has a distinguished history. Most of IKEA’s products are pre-packaged and unassembled to make things easier for customers. In addition to furniture and accessories for the home and workplace, IKEA sells a wide range of kitchenware and other household essentials. IKEA’s website, accessible from any of the firm’s retail locations, allows customers to order a significant chunk of this wide variety (Neve, 2018). Marketers at the firm want to offer a wide selection of high-quality products at reasonable prices to a wide variety of potential customers, including cutting-edge technology, well-designed efficient models, and valuable home furnishings. Travelling, drinking and eating well, flying regularly, and maintaining the newest consumer technology are some of IKEA’s most likely customers (Garvey, 2019). IKEA’s mission is to make people’s lives better, which is why so many people shop there. For furniture merchants, IKEA has a significant advantage over those charging premium prices. At an accessible price, IKEA has established itself as a producer of fashionable, cutting-edge products of high quality and dependable performance. Models will be challenging to capture and recreate shortly because of the foresight of IKEA into market demand. As IKEA’s success has grown, so has the number of enterprises that have sought to mimic it. The main challenge is the unavailability of retail space to set up the company in India. Other challenges noted are stiff competition and difficulties for IKEA to enter the market.
Introduction
Design and manufacture of pre-assembled furnishings such as beds and tables are the primary focus of IKEA’s business model. In terms of furniture sales, the firm is the world’s largest. In 1943, a Swedish entrepreneur saw an opportunity to provide consumers with modern, environmentally-friendly furniture at an inexpensive price point, and so he started IKEA. Across 155,000 people work in IKEA’s 328 locations in 43 different countries worldwide. Customers may quickly assemble Ikea’s flat-packed items, which are identifiable by their Scandinavian appearance, and the business can be called for assistance if needed. Because the firm has an extensive product range of roughly 9,500 flat-packed items, the expenses of packaging and delivery are reduced significantly (Neve, 2018). Stores like IKEA have a one-of-a-kind design that is also quite useful. As a showroom, customers are supposed to walk through the store and pick up the products they have picked from the warehouse at the end. In order to save space, the items are packed in a manner that does not need assembling the furniture. The company’s worldwide success is credited to its revolutionary global business strategy worldwide. IKEA’s three-pronged strategy has allowed it to make furniture that meets the demands of its customers in a wide range of locations throughout the world. This paper will discuss the case study of IKEA in India and identify the main challenges facing the company in India.
Pertinent IHRM Issue/Problem
The SWOT method may evaluate the company’s internal challenges that may arise when it enters developing economy areas. Sustainable resource usage, adaptability to new markets and consumer expectations, and a sensible pricing strategy allow IKEA to sell its items at affordable prices because of its environmental consciousness. There is a wide range of items available, as well as a clear vision and objective, as well as a focus on innovation in order to solve issues. Lack of research on consumer behavior in the market segments and reliance on price strategy as the key to gaining customers are some of the company’s weaknesses. Discovering new markets in Asia, establishing strong footholds, and revising present marketing tactics to attract new clients are all possibilities (Neve, 2018). Threats include a lack of understanding of the local values and a lack of opportunity to incorporate them into the company’s branding strategy due to the characteristics of the new market’s culture and customer behavior.
Discussion and Analysis of IHRM Issue
Even though IKEA has been operating in India since the 1980s, the company was only granted permission to open stores in May of that year. The delay in IKEA’s entry into the Indian market is primarily due to the Indian Government and laws that prevent IKEA from entering the market on its terms, an entirely subsidiary (Sestu & Majocchi, 2018). This problem lies under succession planning in IHRM. The Swedish company’s introduction into the Indian market was delayed due to several circumstances. India’s strict Foreign Direct Investment (FDI) rules were the first obstacle to the entry of single-brand merchants like IKEA into the Indian market. The primary goal of this conservative strategy is to protect and promote home businesses against foreign competition. This is partly due to the significant concentration of tiny family firms and independent furniture makers in the past, who accounted for well over 80% of the market share (Sestu & Majocchi, 2018). Consumers in India were looking for high-quality furniture that reflected the country’s rich cultural diversity while also being made with high-quality materials and craftsmanship.
As a result, giant corporations and well-known brands dominated just 10% to 15% of the Indian market (Sestu & Majocchi, 2018). After a few years, the number of middle-class parents looking for more premium housing alternatives in India began to rise. In addition, IKEA has invested a significant amount of time and money into the Indian furniture market. In the end, India’s attitude toward FDI was the most critical roadblock (FDI). Most of the world’s largest corporations were initially forbidden from participating in foreign direct investment (FDI). Even after revising their policy in 2011, the FDI required another year to open up the market to other multinationals like IKEA. Only brands that obtain at least a 51 percent of their goods from India are eligible for 100% FDI under new FDI laws (Sestu & Majocchi, 2018). They were forced to delay opening their flagship stores in India because of these restrictions and laws. When it came to India, it made plain that it would only enter the market after it was permitted to accept 100 per cent foreign direct investment, which did not happen until January of 2012 (Neve, 2018). The Government’s additional limitation prohibiting the entry of home accessories and food cafés inside IKEA stores put the company’s business model of the “experience of IKEA” in jeopardy.
However, after several back and forth opinions and ideas, IKEA was allowed to continue its business strategy of the actual Ikea experiences among its Indian clients. Regulations that took effect in 2012 mandated that IKEA purchase 30% of its items from India’s smallest, most local businesses before entering the country’s market in 2013 (Garvey, 2019). To protect small and medium-sized enterprises in India, the government has mandated that multinational organizations like IKEA work with Indian suppliers. In order to foster fair competition and economic growth, this cautious approach was used. IKEA would have gotten a better deal on its products from overseas suppliers if the government had not imposed this restriction (Goel & Garg, 2018). If these little Indian enterprises had lost their market share, they would have gone out of business. The FIPB’s refusal to accept IKEA to sell quasi products and operate cafés in India also contributed to the delay in their arrival. Integrating a restaurant within the IKEA experience is an essential component of the chain’s mission. Providing food and other goods such as a playground for children is a realistic option for customers who often drive an additional mile to reach the mega shop.
IKEA’s foray into the Indian market was also threatened by the lack of space, the preferences and habits of Indian customers, and the notion of self-assembly furniture. The problem is based on performance management in the IHRM guidelines. However, because enormous property investment in India is rare, the Swedish store opted to wait until it found the appropriate location, preferably adjacent to a highway with sufficient visibility, before entering the market (Wei & Zou, 2019). Furthermore, the typical middle-class customer IKEA sought was too small to fit any furniture, regardless of its flat geometric form. As a result, IKEA was capable of overcoming these remaining “threats” to its worldwide business model by doing market research and analyzing unique customer behavior.
However, when Juvencio Maeztu’s business began operating in India, it did not initially study the market to comprehend its size and potential for growth. The company’s top brass believed that pricing would be the most significant influence on demand for their goods. In order to boost sales in India, IKEA introduced low-cost items. Some other players in the Indian market might impact the company’s success. These competitors compete on price and product quality, including Nobilia, BP Ergo Limited, Forte Furniture Products India and Sleek International (Wei & Zou, 2019). IKEA did not take the time to learn about Indian culture before making its furniture purchases. Compared to the country’s estimated population of 1.21 billion people, the study’s sample of 150 households was relatively small. Amid an ongoing scarcity of heavy-vehicle drivers, Ikea has difficulty supplying around 1,000 different product lines. Covid and Brexit, according to the firm, are to blame for the product shortages in select locations, including those of beds.
An owned subsidiary is IKEA’s method of entering the market. Since the Swedish furniture giant does not acquire or interact with local enterprises when entering worldwide projects, it does so as a stand-alone company. Patents and copyrights, two significant intangible assets in the entertainment sector, make adopting an owned entrance an excellent strategy. Other advantages include speedy business operations, absolute control over critical commercial activities, innovation is protected, and the company may benefit from existing processes in the host country and cheap labour (Garvey, 2019). A wholly-owned subsidiary entrance strategy is not always the most crucial choice. Both the Government and other businesses and the people in the area are either unwilling or unable to assist. In areas where cultural and political risk is high and linguistic gaps are significant, wholly-owned subsidiaries are less likely to be chosen. This is the type of environment that IKEA encountered and continues to confront as they entered the Indian market. It might be difficult for a corporation to have adequate infrastructure to realize its goals because of the regulations in the host market, which is the most significant drawback of an owned entrance approach.
The availability and expense of retail space were a big problem for the corporation when opening its outlets. The average size of a store in India is more than 350.000 sq ft. 606.000 square feet is ample space for its most prominent locations (Wei & Zou, 2019). Any mall in India would have been unable to accommodate such an ample space. For IKEA’s 2006 goal of 100 % guaranteed renewable energy use, its shops have to be powered by wind or solar electricity (Garvey, 2019). Wind turbines and solar panels provided power for its stores in Europe, Sweden, France, and 40 other countries. Additionally, the ability of Indian property developers to achieve such rigorous energy criteria was skeptical at best. Initially, IKEA intended to establish nine shops over seven years. Analysts believe that IKEA is more likely to open independent suburban stores because of the current space restrictions. The cost of real estate in India is prohibitive. The availability of retail space and the efficiency of stores are significant concerns. They cannot slash and burn their worldwide model in the United States. Although other industry insiders believe IKEA will choose suburban locations. According to Style Spa’s deputy managing director, obtaining such big swaths of property would be extremely difficult and expensive (Garvey, 2019). If IKEA wants to purchase enormous land tracts for its purpose, it will have to work with landowners outside the city to do it. Some experts thought it would be more difficult for the firm to acquire large amounts of land through public or private sales.
In order to make purchases from IKEA, buyers had to drive significant distances to the suburban districts of major cities. Compared to Western nations, Indians have smaller automobiles and residences, making it more difficult for shoppers to store and transfer their goods. This issue lies on compensations and benefits in the IHRM. Customers may find it more difficult to shop at IKEA if the firm decides to move its shops closer to urban areas, which would raise its start-up costs and complicate the purchase of the products (Özbilgin, 2019). That is all I can say. No matter how popular IKEA’s do-it-yourself model is across the world, Indians prefer ready-made furniture or having their carpenters make it. As a result, Indians would be surprised to learn that there were no shop employees to help them navigate the store. As a result of this customer behavior, analysts believe that IKEA’s DIY model might thrive (Li & Fleyeh, 2018). IKEA’s anticipatory posture was expected to hinder the company’s growth in India even further, Russia is a good illustration of this. Because of this approach, the firm could only open 14 outlets in 12 years. Based on studies from the World Bank and Transparency International, corruption is perceived to be less prevalent in the country. A 95th and 132nd place finish for India in the rankings (Li & Fleyeh, 2018). As a result, this suggested that the corporation would have challenges with the Indian bureaucracy. The future of the corporation, according to observers, was in the hands of the next generation of customers, whose reaction to its products was unsure of what to expect.
The corporate structure of IKEA safeguarded the firm from family squabbles, and its succession guaranteed independence, long-term attitude, and continuity. The firm concentrates on budgetary control, operational details, and ongoing product development by using flat packing and allowing customers to put together their purchases themselves. Starting with cost efficiency for a long-term-oriented company structure, IKEA achieved a competitive edge (Özbilgin, 2019). As a result, it lowered pricing, including packaging costs. Even if its competitors cannot match its brand recognition, it will have a significant edge over them. As a result, labour costs for IKEA items are far lower than if they were created at its headquarters in Sweden.
International Human Resource Management is a significant focus for IKEA, which uses innovative HR techniques and strives to profit from the growth of each employee. As an employer of choice, the firm has won several significant honours worldwide. Organizational goals are in line with the company’s IHRM approach. The company’s goal is to make its products as inexpensive as possible to the broadest potential audience (Özbilgin, 2019). IKEA is an equal opportunity employer since it places no restrictions on who can apply or work there. IKEA does not prejudice recruiting, hiring, or employment terms and circumstances. In order to enhance the company’s performance, necessary to identify problem areas and implement solutions. Creating and adhering to detailed performance plans is essential for running a business. That would be an excellent idea for IKEA and improve the factors of solid performance and extend top performers. Human resource concerns may be addressed by integrating all employees into the company’s management structure. Training in diversity and creating employee satisfaction programs tailored to the needs of the company’s employees are all options available to the company’s management. Good selection criteria should deal with the firm’s personnel acquisition issues. Employee retention and turnover issues may be addressed by ensuring that workers are financially satisfied and achieving their expectations.
Conclusion
IKEA India’s goals and objectives included expanding operations, becoming a prominent furniture supplier and producer, generating low-priced items, and tripling its activities. However, the group could not achieve its goals because of a lack of information regarding Indian activities. The firm was unable to sustain functioning and strive towards double its performance due to the complexity and diversity of the market (Wei & Zou, 2019). The company’s concentration on price strategy and the absence of a distinct market sector threatened the company’s long-term viability in India. Pricing, supply chains, and manufacturing were all adversely affected. The company’s most significant difficulty was the lack of retail space that matched its worldwide operational plan regarding size, locality, and accessibility.
Unless a thorough market study is undertaken, a company is more likely to encounter misunderstandings and even distrust. Due to IKEA’s lack of market research, it will need to alter its marketing strategy and create a new brand image to capture the general public’s attention (Hitt et al., 2019). It was in 1975 that IKEA Group entered the Indian market to increase performance and gain control of the business from the present investors. It is no secret that many of the newest startups are taking design cues from IKEA’s furnishings. It can compete on a global scale with other furniture retailers, IKEAin Sweden has developed new cooperative approaches to boost its items’ worth. For example, IKEA collaborates with other countries to improve their furniture’s existing design to fulfil customers’ tastes better. When it comes to worldwide competition, Ikea’s price strategy is one of its most successful tools. To the rest of the world, it is recognized that its furniture is accessible to those of a lower social level. Aside from that, the company’s competitive strategy to increase sales to its clients includes always coming up with new inventions to manufacture distinctive and exquisite furniture (Sestu & Majocchi, 2018). While designing its furniture, Ikea considers local customs and customs from across the world and applies them to the final product. IKEA gained a competitive edge and will be able to keep pricing competitive by using the GreenTech idea. Customers were enticed to walk the whole length of the store because of the one-way counterclockwise arrangement. Customers like and appreciate the convenience of on-site dining options and child care facilities (Özbilgin, 2019). Planned promotion techniques include high-profile marketing campaigns and how people are directed into businesses. Moreover, IKEA could capitalize on all of these elements to create an insurmountable competitive edge.
Due to the sustainability ideals that underlie IKEA, its SWOT analysis suggests that the company has excellent odds of entering a new market. While entering new markets has various benefits, it also comes with numerous difficulties, the most difficult of which is meeting the needs of your target audience and providing for their wants and needs uniquely (Neve, 2018). Suppose IKEA wants to take the top spot in its designated market and become the local leader before any other company. In that case, it must first conduct extensive market research and devise a comprehensive strategy to meet the needs of the Indian population, which can only be achieved after a thorough analysis of the market.
I choose this challenge because the business cannot strive well toward its objectives without space. Therefore, space is significant in every business; it should be accessible and have an appropriate geographically located size. The company should acquire more space within India and set its business in different locations to cater for the challenge for space. The retail space is to be where customers can easily access. During the implementation process, the company might face a high cost of buying space and restrictions from the government from opening more offices within the country. The furniture sector in South Africa has a bright future. According to the “Centre for Industrial Studies,” the rising purchasing power and increased demand in this business come from households with low to moderate incomes, which opens up new markets for specialized products (Özbilgin, 2019). South Africa’s abundant raw materials and a pretty good network will make the prospects even more significant in the long run (Li & Fleyeh, 2018). Our interest is piqued by this prospect and the growing gap between expensive furniture and the reduced cost, low-quality furniture presently accessible in South Africa.
References
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