IKEA background info free essay sample

IKEA is a Swedish company which sells affordable furniture and is famous for their D. I. Y furniture. They are the largest furniture retailer in the world and currently operates in 38 countries with a total of 332 stores. IKEA’s concept is to make use of unwanted woods and transform them into useful furniture, resulting in an affordable yet stylish product. They are also well known for their delicious food served in their restaurant which is located in their store. Ingka Holding, which belongs to the founder of IKEA, Mr. Kamprad, consists of a 5 person executive committee and holds majority of the stores worldwide. The remaining stores were owned by franchise companies. Scope and Reasons for international operations IKEA’s aim is to globalize their company in order to gain popularity and earn more profit. The first store they opened was in Sweden. After which, they decided to expand their stores in neighboring countries like Norway and Denmark to monitor the situation before further expanding their company. We will write a custom essay sample on IKEA background info or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page With rising success and popularity in their products, they further expand their stores all around the world. Among all the countries, Germany brought them the highest profit. Furthermore, every company will go through the product life cycle process. The last stage of the cycle also known as the declining stage will cause a company’s revenue to decrease. Therefore, it is important for IKEA to introduce their products in other foreign markets in order to start the product life cycle all over again. Building the company’s image is also important for IKEA to earn revenue. By setting up stores all around the world will definitely help build the company’s image. It is not profitable at the initial stage. However, once the image is built, earning revenue will be a piece of cake. Making use of labor from different countries can also benefit the company. Labor varies from country to country and may be cheaper to hire in some countries. By setting up factories in such countries will cut down the production cost of IKEA. Strategic goals and choice of entry modes Strategic goals Entry modes -Franchising Companies interested in franchising with IKEA are required to pay 3% of their yearly sales to IKEA and are responsible to construct their own IKEA store. Rights will only be given if that particular country do not have any existing stores. Acting as a franchisor will allow IKEA to have more time to manage their own stores and at the same time globalize their company with least effort. Advantages of franchisor- Lower risk and low costs. Publicize company. Low commitment. Disadvantages of franchisor- Limited control over franchised stores, Lack of quality control. -FDI (Foreign Direct Investment) Direct ownership of a store in a particular country. Can occur by obtaining existing entity or setting up a new enterprise. -Obtaining existing entity, it is a fast way for IKEA to enter foreign market but requires costly negotiation. Legal requirements in certain country may prevent foreign ownership. -New enterprise. It is also a fast way for IKEA to enter foreign market but it is very costly, risky and complex. However, it provides greatest degree of control and highest profit. Company will usually choose this entry mode when it is too expensive to obtain existing entity. Advantages and disadvantages for FDI Ad- Good knowledge of local market and competitors, able to access problems immediately, greatest control over product quality and management. Disad- Costly and high risk, Legal rights issues, requires high commitment in order to manage the company. Problems and challenges in different locations.