International trade management

Founded in Sweden in 1926 by Ingvar Kamprad, using his family’s farm as the base for “supply chain”, IKEA has become a global leading company in the furniture sector (IKEA 2018). Today IKEA has just under 700 million visitors a year to 403 stores in over 49 countries having more than 190.000 employees working together around the world. Moreover, IKEA's total income increased by 1.7% or approximately €36 billion, retail sales was €34.1 billion, and rental revenue from Centers was €1.0 billion (IKEA 2017, BBC 2017).

The IKEA Concept is to provide “a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” (IKEA Systems 2017).

IKEA provides a broad range of furnishing products from all household, baby and children goods, to food items (IKEA 2018). This remarkable variety of products is particularly due to the reality that IKEA is outsourcing its manufacturing. It takes benefit of the inexpensive manufacturing sources available globally (HBR 2018).

In order to reduce the costs, IKEA’s products are mostly produced in developing countries and assembly of these products is done by consumers to save spot and simplify the manufacturing process (HBR 2018).

This paper aims to analyse IKEA’s internationalisation process into South African market referring to relevant theories such as SWOT and PESTLE analysis. Moreover, there will be an evaluation of different entry modes examined; through this identification the most suitable entry strategy will be chosen. The last section will provide an appropriate conclusion by covering also further recommendations for the company.

2.The Company

IKEA combines quality, function, value, design and sustainability to provide a vast range of ready-to-assemble home furnishing products at an affordable price (IKEA, 2018). It offers a wide variety of products from plants, toys, kitchen appliances to furnishings for living-rooms (IKEA, 2018). They have about 12,000 products of which each store has a selection of the 12,000 products, provided by 1,350 suppliers from 50 different countries (IKEA, 2018). Majority of their products are sourced from Europe (64%) and Asia (33%), focusing on cost-efficiency and quality. Apart from offering home products, IKEA offers services such as delivery, installations, financing etc. (fantastichandyman 2018, The Economist 2017) to save time and effort for customers. IKEA also operates its cafes in its stores since 1958, where 30% of shoppers come only to eat, earning them $1.6 billion in revenues in 2016 (Maynard, 2017).

IKEA is involved in 4 industrial sectors which are, Raw materials, Manufacturing, Distribution and Retailing (Businesscasestudies 2018, Financial Times, 2016). The company develops natural resources such as timber and minerals themselves and also procures raw materials from different suppliers. They use the raw materials to manufacture them into finished products and use their distribution channels to deliver the products to their stores around the world (Businesscasestudies, 2018).

Real estate industry, expansion, urbanisation and disposal incomes have enhanced the world home décor market growth and market player opportunities (Alliedmarketresearch 2015). Additionally, customer preference in regards to adaption and eco-friendly products usage have risen, thus something IKEA understands (Alliedmarketresearch 2015). IKEA’s produces products which have insignificant impact on the environment.

IKEA’s sale per region Source: Statista 2017 Source: Statista 2017

Source: Euromonitor 2017

2.1.SWOT Analysis

Strength Weakness

- Good quality at lowest prices

- Vast product range

- Targets diverse customer segments

- Multi-channel retailing

- Existing brand image

- Focus on sustainability

- Internationalization Experience

- Extra Services - Dependent on Europe

- Product recalls

- Does not target premium market

Opportunity Threat

- Growing furniture industry in Americas and Europe

- Growing online retailing

- Restaurant

- Growing furniture market in South Africa - Intense competition

- Rivals using competitive pricing

- Rising labour costs in Europe and china

2.1.1.Strength

IKEA is able to produce good quality products at the lowest prices, compared to its competitors (Panagiotaropoulou, 2015; Circleinternational.co.uk, n.d.). They are capable of doing this as they maintain a cost-effective supply chain in both Asia and Europe. IKEA also makes unassembled furniture that are assembled by customers, thus reducing transportation costs further (European Commission, 2008) . The lower costs are reflected in the prices offered to customers, which competitors are not able duplicate, and charge higher prices for the same quality of the furniture they produce.