Question

Swedish furniture behemoth IKEA opened its first store in India on August 9 2018, creating quite a buzz among the residents, with industry insiders looking forward to the multinational's expansion in one of Asia's fastest-growing economies. A rising middle class has become a major factor in attracting foreign companies like IKEA to invest in India, and two decades of experience in a neighboring emerging market may help it better understand local needs. Hundreds upon thousands of people in Hyderabad, capital of southern India's Telangana state, rushed into a brand-new IKEA store on its opening day on August 9, causing hours-long traffic jams in the city's bustling IT hub. It is the first store that IKEA has established in India, which came after years of market delay. Staff members of the Swedish furniture retailer, in their iconic yellow uniforms, welcomed a swarm of customers at the store's entrance, holding both Swedish and Indian flags. The stampede-like situation even went viral on social media. Samarth Shah, a 28-year-old technology consultant, said he found out about the store's opening on Facebook, reiterating that it even created traffic jams. While visiting Hyderabad for a business trip, Shah went to the store in his spare time and spent two-and-a-half hours there. "I believe [IKEA] is more about providing a personal experience, which I don't see in other furniture stores in India. Also, IKEA is more tech-savvy," he told the Global Times. Over the past few years, IKEA has been studying the Indian market from both a legal and a consumer perspective. After its rapid expansion in China, the Swedish company has now tapped into Asia's third-largest economy to meet the demands of India's growing middle class. India has tremendous potential as a country with the right socioeconomic preconditions, the company noted in a statement sent to the Global Times. "India's economy is growing rapidly. There is huge urbanization where more people are moving into the cities," it said. The world at large has recently been witnessing the most rapid middle-class expansion in history, whereby 380 million are expected to climb the ladder in India and 350 million in China between 2015 and 2022, US research group Brookings said in a report released in February 2017. By 2020, India will be the country with the third-largest middle-class consumption rate worldwide, with $3.7 trillion in annual spending that will contribute 9 percent to the global share, the report forecast. In India, nuclear families are also becoming more common, while the population is getting younger, where more than 50 percent of its people are below 30 years of age, IKEA noted. "I think [IKEA has a] large range of products for all people to choose from. It's one place where you can get all you need for a beautiful home," Harish Muniganti, a Hyderabad resident, told the Global Times via WeChat. Also, the food options in its cafeteria make the store unique, he noted. Although the 38-year-old engineer said he had not visited the store in India yet, he has plans to visit it in the next few weeks. "As far as I know, IKEA is known for its unique products, which are economic yet stylish," he said. Before opening the store in the city, the Swedish multinational said it visited more than 1,000 homes in cities including Hyderabad itself, Mumbai, Bengaluru and New Delhi to understand the needs and aspirations of Indian families. Also, IKEA acquired four land sites in its priority markets - Telangana, Maharashtra, Karnataka and Delhi/National Capital Region - and is continuing to look for suitable sites in other cities, the company said. The hugely popular furniture business has been successful in China because of the local real estate boom, seen as a major driving force, noted Tian Guangqiang, an assistant research fellow with the National Institute of International Strategy at the Chinese Academy of Social Sciences. "However, the housing market in China has been cooling down recently, which might have prompted the company to find new territory," he said. IKEA has seen its revenue growth in China slow down recently, and it plans to scale down the size of brick-and-mortar stores while still enhancing the offline shopping experience in the 2019 fiscal year, domestic news site qq.com reported on Thursday. Meanwhile, the company reportedly will lower delivery costs for certain products and boost its e-commerce business in China. But, India's rising middle class does not necessarily guarantee IKEA's success in the country, Tian noted. "Most of the population still belongs to low-income groups, which will limit the overall purchasing power," he said. After two decades of operation in the Chinese market, IKEA's China business model is unlikely to be replicated in India. Nevertheless, the company's experience in the Chinese market might serve as a learning curve to help it better understand local people's needs. "Like IKEA's product portfolio strategy in China, and even in the US for that matter, offering products that are customized to local preferences, needs, household sizes and structures is key for IKEA's success in India," Sowmya Adiraju, home and garden research analyst at Euromonitor International's Bangalore office, told the Global Times. Also, the company is expected to adjust its store location strategy in India, like it recently did in the Chinese market, and to expand its retail consumer reach by deviating from its big-box retail format through introducing small-format stores there, he noted. "A 'one-size-fits-all approach' would not necessarily guarantee success, and understanding the local market and consumers is key," Adiraju said. While some Indian customers have shown enthusiasm for the newly opened IKEA store, some have expressed concerns over the idea of DIY - do it yourself. Shah, who spent most of his time in IKEA's sample houses during his first visit to the store, said the concept adds more personal touches to the shopping experience. "I think more Indians will buy [IKEA products now] but I'm not sure about the assembly part," he said. Similar to Chinese people, Indians are not quite used to the idea of DIY yet and it is currently limited to a small segment of the population that is comprised of hobbyists, Adiraju noted. "It is important to cater to consumers' needs [when it comes] to product delivery, assembly, and after-sales support."

Question 1 Analyze any THREE (3) forces of local responsiveness IKEA faced in its India operations.

Question 2 Explain TWO (2) main sources of IKEA’s competitive advantage in China. Explain your answer with relevant example.

Question 3 IKEA has decided to expand into Vietnam in 2023. Explain how it could balance its strategic means with the THREE (3) required capabilities in this new market.

Question 4 Swedish analysts proposed that expanding spiral of globalization concept would serve as a key driver for IKEA’s growth in the next ten years. What is their rationale? Do you agree with them?

Answer 1

Answer 1 :

Three forces are
a) The low-income group which may not bring the same profitability to the company as in China, or the US. Although Hyderabad a tier 1 city in India, but comparing it with other countries would not be right. Plus, the demands of people are different catering to their needs and financial stability
b) The culture of India is not suitable for DIY, and they may not be impressed with this offering from IKEA. Instead, people would want better after-sales support and product delivery that fits their size.
c) India would have a big middle-class household that can be leveraged by IKEA. Also, the nuclear family would mean that smaller house size or needs for store locations.

Answer 2 :

a) One would be its brand, which is popular worldwide and is non for innovative, yet affordable furniture
b) Another competitive advantage lies in China's economy that is one of the best in Asia. With 350 million middle-class consumers. Also, the local real estate boom gave them a competitive advantage in the market

Answer 3:

a) Vietnam is also a growing economy but not on the lines with China or the US, this market needs to understand from the perspective of local customers. Here, cheap and innovative products of IKEA would work
b) As Vietnam is a good manufacturing country. It can be used as a hub for the Southeast Asia market. This would help IKEA to use this capability to expand to other countries in Asia and maintain supply in the existing ones.
c) Asian countries' developing economies dont have cars for everyone. Thus, IKEA can start online booking, where furniture can be delivered at the doorstep, without thinking about carrying it by the customers. This can be done in Vietnam, India, and other countries in Asia

Answer 4 :

The rationale is the increasing globalization in the coming times. Already a lot of companies are operating in different countries like Amazon eCommerce, or Walmart. It has made way for other companies to think about expansion. With trade agreement and lower entry tariffs for companies, this strategy of globalization is thriving.

With the internet and social media, people are already aware of the brand that is popular elsewhere. For example, IKEA before entering India was popular amongst the local population, thus it gives an advantage for these companies to get ahead with little promotion. Thus, expanding spiral would help IKEA in expanding further from India and China to other countries in Asia and elsewhere.

Thus, it needs to be agreed with the statement.

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