Only while sleeping one makes no mistakes Ingvar Kamprad

Cultural Barriers to Entry into International Markets - IKEA’s Case Study

Chichi Natasha Wambebe

Ewa Kochanowska

Maria Blanco

Agenda

Who What

Where How

IKEA Barriers to entry Case studies Recommendations

History & Timeline

1943 IKEA is founded

1951 IKEA publishes 1st catalog

1953 IKEA ‘s first showroom

1958 First IKEA store opens

1963 IKEA’s 1st intl store

2011 - Thailand IKEA opens its 332nd store

Annual sales (€ billions)

Europe 79%

North America

15%

Asia & Australia

6%

Sales worldwide

Value curve

0

2

4

6

8

10

12

IKEA Low-end retailers High-end retailers

Barriers defined?

Market

Most Common Barriers

Absolute cost advantage

Economies of scale

Customer loyalty

Firm’s concentration/size

Capital requirements

Customer switching cost

Distribution channels

Government policies

Distances to Successful Entry

Cultural

Administrative

Geographic

Economic

Firm’s size Country risk Country openness

Rivalry

3.1

Threat of new entrants

3.0

Buyer Power

3.5

Supplier Power

3.1 Threat of

Substitutes

3.1

Comple-mentors

3.1

Porter’s Five-Forces Analysis

Brand value

$7.3 billion, rose by 28%

10th on the list of TOP retail brands

network of 1,300 suppliers in 53 countries

Cultural differences are a nuisance at best and often a disaster

Prof. Geert Hofstede

Cultural Dimensions

Power Distance Index

Individualism

Masculinity

Uncertainty Avoidance Index

Long-Term Orientation

Cultural Dimensions

0

20

40

60

80

100

120

Power Distance Individualism Masculinity Uncertainity Avoidance

Long-Term orientation

US Russia Sweden China

USA

1985 – 1st store in Philadelphia

2011 – 38th store in Centennial

Initial poor performance and slow start

Clothing storage ways

Result

Size matters

Godis glass in the EU

10 cm high

23 cl

Godis glass in the USA

16 cm high

40 cl

Measurements

Standard EU:

140 x 200 cm

152 x 202 cm

59 7/8”x 79”

Standard US queen

vs.

Jerker

Language surprises for Anglophones

Fartfull Lyckhem

Fukta

Families’ size and preferences

70% Modern IKEA

vs.

Traditional

US taste

One doesn’t discuss taste, or do they?

SOLUTIONS

Turnaround Adaptation Customization

Revenues doubled over a four-year period US the 3rd biggest market

IKEA experienced similar obstacles worldwide

bureaucracy

“The unpredictable character of administrative procedures in some regions”

Swedish imperialism

in Denmark

Language – Köge

Lebanon

China from 1998

Misperception of IKEA as a luxury brand

Other Culture and Life Style Barriers

Web site challenges

Low-focus on customer service concept misunderstood

IKEA’s ideas to improve its cultural sensitivity

Learning as a driving force

behind internationalization

Backpacker Journey Program for Co-workers

Customization of some IKEA products

Food items are replaced/changed/added

Products with inappropriate names are withdrawn quickly

Recommendations

cultural adjustment costs

move along learning curve

exploit previous experience

Invest more

in Market

Research

Be cheeky

• Educate about the Swedish design

Be sensitive

• Customize to habits (through local “detectives”)

• Consult with linguists and cultural studies specialist

Spread the IKEA spirit among new co-workers to ensure quality customer service

Expand higher-end furniture i.e. Stockholm line

The more stores we build and the more we

increase our market share, the more we have

to find ways to appeal to a broader public.

Scandinavian design and style

is a niche and it is not

to everyone’s taste.

But we don’t want to be just another

supplier of traditional furniture.

Scandinavian design is

what makes us unique.

We have to find a balance”

Andres Dahlvig, president of the IKEA Group 1999-2009