IKEA’s expansion plan

IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden. Currently, the company is owned by a Dutch-registered foundation controlled by the Kamprad family. IKEA is an acronym comprising the initials of the founder’s name (Ingvar Kamprad), the farm where he grew up (Elmtaryd), and his home parish (Agunnaryd, in Smaland, South Sweden). IKEA operates in 38 countries with 305 outlets, of which are thirty franchised . The company, which pioneered flat-pack design furniture at affordable prices, is now the world’s largest furniture retailer .

A vast majority of IKEA’s stores are functioning in wealthier nations such as Northern America, Europe and Australia. The Eastern part of the world which houses 60% of the world’s population has the smallest number of IKEA stores, fewer than 100. A strategic move on IKEA’s expansion plan will be to invest in one of the fastest growing economies in the world, India. With a population of over one billion, GDP of 1. 075 trillion and GDP growth rate of 6. 5%, India’s economy has been booming rapidly with foreign investment influx rising to US$1.

74 billion during November 2009. 62% of its GDP is drawn from the services sector (Source: CIA World Factbook). Recently, global conglomerates including Wal-Mart and Tesco are opening wholesale stores to exploit the 12th largest consumer market in the world. Rising per capita income, increased literacy and rapid urbanization have caused rapid growth and change in demand patterns. The growing change in urban lifestyle, and increase in spending power has led to a change in the consumption pattern of people.

Apart from the demand for fmcg goods, convenience, durable and luxury goods are growing at a fast pace too. The urban population between the ages of 15 to 34 years is expected to increase from 107 m in 2001 to 138 m in 2011, an increase of 30% . This would unleash a latent demand with more money and a new mindset. With increasing income levels and multi-fold increase in the consumption of lifestyle products, including furniture, India is a potential market to tap. IKEA has expanded to more than 300 outlets worldwide.

In the light of recent financial crisis and global recession, as well as the deep penetration of already existing markets such as North America and Europe, IKEA’s future strategy should focus on the Eastern parts of the world. Subsequently, expanding into India will be a strategic move. IKEA’s entry strategy in India should be through franchise expansion since the host country has strict legislations regarding foreign investment, and requires 51% control by Indian nationals, thus IKEA needs to find franchise operators.

The franchisees will have to form alliances and/or joint ventures to raise capital to develop the basis necessary to form a successful entity. Since India already has a huge furniture market with substantially lower cost of furniture which are often reproduced from IKEA catalogs, IKEA should focus on a differentiation strategy whereby it should market its easy-to assemble-products compared to the more heavy colonial furniture market in India. By targeting the youthful and modern age group of 15-34 entrepreneurs and service providers in the glowing IT industry, IKEA should market its products along the lines of flexibility, quality and design.

IKEA cannot really compete on cost since India housing cheap labor produces very low cost furniture. However, a rise in the disposable income of people has allowed them to purchase imported furniture worth $10-15,000. By opening stores in the wealthy hubs of India such as Mumbai, Bangalore, Nagpure and Pune, as well as town and cities having high demand for consumer durables such as Delhi and Chundrigarh, IKEA can gradually increase its network. With relatively low operational and labor costs, IKEA will be able to breakeven and mount profits in no time.

IKEA has more or less a centralized organizational structure; however, it has made exceptions to suit the cultural aspects of certain nations such as China where much of the operations are decentralized. This move depends on the potential of the market. Like China, India is a huge market with immense opportunities and potential. Since IKEA has more than 30 franchised stores, a similar strategy to counter governmental legislation will be more suitable.

Although critics argue that IKEA has a complex organizational structure, its rapid expansion global expansion reflects its flexibility in adapting to different cultures. IKEA’s specific differentiation strategy into the organized furniture sector of India, and organizational structure will allow them to attain growth in this huge market. Sources: India’s Top Ten Wealthiest Towns. ” Maps Of India. Web. <http://www. mapsofindia. com/top-ten-cities-of-india/top-ten-wealthiest-most-aware-towns-india. html>. IKEA’s Globalization Strategies and Its Foray in China.

” Case Studies and Management Resources. Web. <http://www. icmrindia. org/casestudies/catalogue/Business%20strategy/IKEA%20Globalization%20Strategies-Foray%20in%20China-Intro2. htm>. FMCG: The Indian Opportunity. ” Yahoo Finance. Web. <http://in. biz. yahoo. com/070314/21/6daga. html>. FDI in India. ” Maps Of India. Web. <http://business. mapsofindia. com/fdi-india/>. INDIA. ” CIA World Fact Book. Web. <https://www. cia. gov/library/publications/the-world-factbook/geos/in. html>. IKEA. ” Wikipedia. Web. <http://en. wikipedia. org/wiki/IKEA>.