Question

1.   What are the risks faced by IKEA after they decided to go for global market?
2.   What does the IKEA story teach you about the limits of treating the entire world as a single integrated global marketplace? Is the company taking high risk by using that particular business strategy? Justify your answer.
3.   Do you think IKEA calculate the business risk properly before penetrating the global market? Why?
4.   In your opinion, what future risks should IKEA need to take into consideration when the company wants to do business in the Malaysian market?
5.   Are there other multinational retailers that are successfully managing their business risks and achieve success overseas? Please name ONE and point out the potential risks taken by them.

Answer 1

IKEA, a Swedish Furniture giant has faced a lot of problems over the years in the global market. Some of them are as follows:

IKEA started it's retail operations in China in 1998 and to keep up with the local laws it formed a joint venture. It opened a lot of stores from Shanghai to Beijing. Even though the revenue jumped 40 % from the previous year, the local stores weren't profitable. Then IKEA identified the problem which was even though in other parts of the world it's prices were considered less it was expensive here in China. IKEA then opened a lot of factories in China, it started to source materials locally. The problem of paying high import taxes was solved because of local factories. IKEA realised that they should target young middle class population as they are more familar with the western culture & have a relatively higher income. IKEA also targetted the youth using social media & Weibo, a micro blogging website.

Other factors are things like the local vendors who are willing to offer the furniture at a lower price and the people would be more influenced to buy almost identical product at a cheaper price. Price plays a very important role when expanding in global markets if there are products available at cheaper prices then the consumers would prefer those products. The promotion of the brand if not done properly can lead to very less sales, there are a lot of ways to promote like advertisements, social media, blogs, etc. There are other retailers in the market like Walmart who provide a tough competition to IKEA.

IKEA stores are big and to open such a big stores a large area of land has to be acquired which is not easy in various countries like India because of the bureaucratic system which delays the process of opening the stores and there is a lot of money which goes during this process. DIY culture is coming into trend and people want to do everything on their own now a days, they want to design as per their needs and get it done with the help of a local furniture maker perhaps which can provide some problem to IKEA.