MNC report on global business

A type of firm that works internationally is a multinational corporation. Such a company will always have locations, whether they be offices or other facilities, abroad. However, the parent company manages and controls them. One of the trendiest company projects, particularly in this century, is to start such an international trade. Having a solid customer base in a foreign market will undoubtedly be one of the challenges anyone looking to launch an international firm would have to overcome (Hultén 273). You must keep in mind that you are entering a new market where competing businesses may already be established. As a result, you must look for strategies that will make you stand out and ways which will help you to stand out and compete favorably with the firms already existing there. What about the culture of the people in that region, well you must consider it too. The products which you are going to sell, there must be acceptable by the culture of the people living there, and this helps you to be relevant and therefore helping the company to broaden its market base and attracting more profits (Hultén 273). The cost of operating a business should be considered. Any business in which the operational costs are cheaper is easy to manage and expand than those with high running costs. This report focuses on how a multinational company will be able to adapt to a foreign market. Company adaptation is the process by which a company comes up with the cultural and demographic differences in a foreign country and hence able to operate and increase sales. The report analyses how IKEA, a multinational company adapts in foreign countries.

IKEA Profile Report

Company History

IKEA is a multinational corporation whose headquarters is in Netherlands. Ingvar Kamprad started it in 1946. The name IKEA is the short form of the founder (Ingvar Kamprad) and the places he lived in, i.e., Elmtaryd and Agunnaryd (Heaven 24).The young man Ingvar started this company by selling simple items like pens, wallets, watches, pens at relatively lower prices for five years. He later decided to sell furniture which he noticed was doing very well and in 1953 he conducted his first showroom to display his furniture to the customers. In 1958 IKEA opened its first store in and in 1963 begun to venture in other parts of the world, for instance, Norway (1963) and Denmark( 1969) and by May 2010 IKEA already had 313 stores in different countries (Hultén 273). All attempts to stop IKEA by its competitors failed, for example, the local suppliers were prevented from supplying IKEA with raw materials and IKEA was not even allowed to showcase its products, but it devised its showrooms and continued spreading and adapting to other parts of the world.

The first IKEA store in Sweden

Source: https://upload.wikimedia.org/wikipedia/commons/thumb/2/23/IKEA_Store_Elmhult.jpg/220px-IKEA_Store_Elmhult.jpg

IKEA’s Mission Statement is To Create a Better Everyday Life for Many. This means that their primary objective is to provide high-quality home furnishings to all their customers at low and affordable prices. This ensures that everybody even the low-income earners are capable of leaving in decent houses and therefore having a better everyday life.

Products and Services

IKEA products are in the category of; furniture, kitchen appliances, and home accessories. The product range includes bathroom, bedroom, children’s care, dining room, eating and drinking, food, garden, hallway, home decoration, home offices, kitchen and appliances, laundry, lighting, secondary storage, small storage, and textiles (Heaven 24).

IKEA services include; transporting items to customer homes, providing assembling services, designing and installations of kitchens bathrooms, furniture recycling where they take old furniture from their clients, finance services, and van hire (Heaven 24).

Adaptation of IKEA in China

IKEA gained entry into China through two cities that are Shanghai and Beijing in 1998 and 1999 respectively from where it started opening their stores to different parts of China (Yang and Wang 166). Its efforts to remain relevant to the customers, increase sales, and even outshine other players dealing with furniture such as Hola and Jiayimei; IKEA has remained true to its mission statement and has continued to provide the best quality products and hence adapting in the highly competitive market (Yang and Wang 166). To meet the local laws in China IKEA had to form a joint venture which further helped to test and understand the local market and adjusted its strategies accordingly so that the goods produced could meet the demand of the Chinese people.

Producing Stylish, high Quality and Durable Products

For any multinational company to encroach into foreign markets, its products must be appealing to the population of that country, and therefore its products must be able to brand themselves to the community, both young and the old (Heaven 24). After getting into China, IKEA faced some challenges such as low sales as it struggled to adapt. It then changed its strategy considering the Chinese culture and consumer behavior, and this was a significant milestone. IKEA produced goods which were visually appealing, attractive and in line with the culture of the Chinese people (Heaven 24). The durability of their product was also difficult to match and some of their products lasting for almost ten years. This helped them to maintain customer loyalty and hence broadening their customer base in China.

Selling their Products at Low Costs

The cost of a product is one of the factors affecting the demand for any given product and the customers are always susceptible and will always be able to notice any slight difference or changes in price (Mochon, Norton and Ariely 363). A small difference in price between two commodities makes the customers buy the commodity whose price is slightly lower than the other. In China, IKEA faced stiff competition from the other companies which also decided to sell products similar to those of IKEA and selling also at relatively at lower prices (Mochon, Norton and Ariely 363). This made their customers just to look at the products and some even drawing the pictures of their products but not buying. When IKEA realized this, it changed its strategy and cut the prices of its goods and begun selling at lower prices and this lead to robust sales and was a significant milestone to the existence of the company. They also made use of the locally available cheap raw materials and hence still managed to exist even when selling at low prices (Mochon, Norton and Ariely 363). A multinational corporation will be able to adapt to any foreign market if its products are cheap and affordable and hence will be able to broaden its market in the international market while edging others out of the market. IKEA group of companies has been able to thrive the international markets due to it cheap products (Mochon, Norton and Ariely 367). This has helped IKEA to target both the low-income earners and the high-income earners and therefore attracting and retaining many customers, and this has helped IKEA to spread and adapt to the foreign markets. IKEA was able to maintain selling at such lower prices because of the following reasons

Recycling-IKEA managed to recycle most of the recyclable materials such as packaging materials and this reduced cost of buying other packaging materials.

Waste reduction during the production process

Transporting by cargo other than the expensive air transport

Store Design And Location

Being unique makes any company stand out and outshines the other companies. IKEA group of businesses has employed this strategy in its stores in China to attract more customers (Mochon, Norton and Ariely 367). Some of its stores are parts of organized museums of natural history and buying the IKEA products is optional, this makes it unique. Moreover, this aspect makes it attractive for customers to walk inside there and while enjoying the natural history, end up buying their products, and this makes them come again increasing sales volume for the firm in China (Mochon, Norton and Ariely 368). Apart from having museums in their stores, nearly every IKEA store has a food store and restaurants which sell a variety of local delicacies, and this makes it be a destination point for

Many and will always remain familiar to the people. The stores also have maps and this help to direct the customers preventing them from getting lost while shopping (Mochon, Norton and Ariely 369). IKEA stores in China are precisely located near city centers next to major roads, and this has considerably helped in improving sales since most customers go shopping using public transport and so they can easily access the store (Mochon, Norton and Ariely 369). Their location outside city centers also allows the customers to shop peacefully, an environment liked by many hence the customers will always come back again and again.

Customer Value

IKEA is one of the companies that value their customers. This makes them continue with their endless efforts to provide a high-quality product at low cost such that even the low-income earners can afford their products (Yang and Wang 167). IKEA even refer to the customers as ‘visitors’ and not customers. This makes the customers feel some sense of comfort as they walk inside the stores and this particular treatment makes them win the loyalty of the client, and hence they will come again, and again hence the company will always have a broader customer base in any country.

Product Modification

IKEA s’ rapid expansion into the foreign markets was due to its ability to modify its products (Heaven 24). In China, after realizing that most Chinese live in rooms with small spaces, IKEA changed its furniture to fit into their small apartments or rooms and this increased demand for their products (Heaven 24).

Strategic Location

IKEA stores in China are precisely located near city centers next to major roads, and this has considerably helped in improving sales since most customers go shopping using public transport and so they can easily access the store.

Encouraging the Customers to Share their Experience with the Brands

This is one of the strategies that an MNC can use to market their brands to the population successfully (Heaven 24). Those who have already bought their products are encouraged to share with others their experience with the product (Heaven 24). IKEA has used this mechanism in China to gain more grounds in the country, and this has created awareness of its products and hence increasing the popularity of its products and finally adapting to the foreign markets.

Fighting Child Labor and Supporting Child Education.

Helping children is one of the charitable undertakings that any multinational company can do to improve its ties with the community (Yang and Wang 168). IKEA runs a foundation which campaigns against child labor, and this makes the company even more appealing to the humanity thereby increasing its support base. Supporting children education through sponsoring them makes it more attractive to the community, and this apparently broaden its customer base, and hence it will continue existing and encroaching even into other markets (Yang and Wang 168). IKEA also makes children toys, and every IKEA store has a playground for children. Parents drop their kids every day in the morning and pick them up in the evening, and this makes the kids happy and hence appealing to the humanity. This feature provides IKEA with a competitive edge over other companies regarding its connection with the community. IKEA also runs a charity organization (Stichting IKEA Foundation) that fights hunger among children, and this makes it the company to beat actually in any country.

Having a Sustainable Production Process

The continuity of any business will depend on its production process. If the manufacturing process is too expensive, then the company will struggle to exist. IKEA’s success is contributed to its manufacturing process. They mainly rely on raw materials which are locally available, cheap and can be recycled or renewable (Yang and Wang 168). IKEA minimizes the use of raw materials such as making some items like tables with hollow legs and using chipboard as filling to save timber and this makes the production process cheaper and sustainable. Reducing waste also help the manufacturing process to be highly durable and hence giving IKEA a better competitive advantage. IKEA cares for both people and the environment and hence discouraging the use of GMOs and some chemicals harmful to human beings and environment. This has maintained its popularity.

Active Marketing Strategy

The IKEA increasing demand comes about with a strong marketing strategy. IKEA uses different platforms to promote its wide variety of goods. It is evident that for any company to thrive in any geographical area, an enormous amount of money will be spent on advertisement. Strong marketing strategy has enabled IKEA to reach as many people as possible (“China Teaches IKEA Limits Of Homogeneity” 43). Such platforms used by IKEA includes; production of thousands of catalogs which are circulated in the stores so that the customers can access them and go through them hence able to see the various products being offered. Each list contains about 300 pages containing about 12000 products and hence will be able to inform the customer about the products so that they can plan to purchase (“China Teaches IKEA Limits Of Homogeneity” 43). The catalogs are printed in different languages hence reaching many people. IKEA has also opened a website as another platform to promote its brands. In the website, all the products are posted there, and the customer will always be able to get all information from the site (Yang and Wang 175). Since it is online, anybody from any part of the world can access the information about the products hence IKEA reaching many people as possible, and this broadens its customer base.

IKEA has also embraced social media to promote its products. Facebook pages have been created in different countries including China which they use to promote the products. This has been successful since many people use Facebook. Tweeter and Google plus have also been used to communicate and engage the customers (Yang and Wang 175). Occasionally IKEA has also used outdoor campaigns to promote the products and even to demonstrate to the customers how to fit those products in their homes.

Efficient Supply Chain

One of the reasons to IKEA adapting in foreign countries is its effective supply chain management. An IKEA store is large enough and can hold up to 9500 different products, and hence the customers will always get what they wanted (Yang and Wang 175). The products are neatly and spaciously arranged giving the customers an excellent impression, and this has given IKEA a good reputation (Yang and Wang 175). IKEA also has a good relationship with the raw materials suppliers and hence they are continuously supplied with the raw materials hence able to maintain an efficient supply of a variety of products to the customers and hence to win the customers’ confidence of getting all they want. IKEA has also removed the middlemen from their chain of distribution, and this has ensured that the goods reach their customers at low prices and correct packaging and hence attracting even more customers. One of the IKEA stores

Source: https://www.tradegecko.com/hs-fs/hub/407937/file-1449960017-jpg/blog-files/ikea-inventory-2-532x300.jpg?t=1505373281571

Good Human Resource Management

IKEA has employed many people in their stores and is well known for its strong Christian values and good working conditions that increased the performance of their staff (Chen et al.). They believe that you should do to others what you expect them to do for you and this ensured that the many employees treated well and even feeling part of the business (Yang and Wang 185). The result of this was the production of high-quality products which attracted more customers and hence a better competing ability.

Do-It-Yourself Assembly

This has also helped IKEA to have a competitive advantage in the industry. It sells many of its furniture in pieces, and the customer is the one to assemble the furniture (Chen et al.). The pieces are easy to handle since they are put in convenient packages, and this economizes space and hence reducing the transport costs. This has continued to make these products more popular, and hence the company will always adapt in any country (Chen et al.). The packaging also takes up small spaces in warehouses, and hence a variety of the goods can be stocked using little space.

Having An Appropriate Target Market

IKEA target market includes mainly the children, small and middle-class income earners who are the majority and prefers high quality and trendy goods hence ready to purchase their products (Chen et al.). Moreover, it targets the international community in China who prefers the uniqueness of the products. The locals provides a significant market for the furniture especially the ones made from locally sourced raw materials.

Conclusion

IKEA understands very well that growing internationally must come with a lot of sacrifices. It has taken risks to adjust its production to suit the local market, and it is ready to listen to the customers helping it to make the necessary adjustments for example modifications to produce eco-friendly goods which were highly demanded by the customers, something that many companies might not do. It has reduced the cost of its products and hence increasing the purchasing power of its clients who are mainly the low and middle-class income earners. This has significantly contributed to its to its continued success in foreign countries like China. It’s continued ability to have the customer at heart has been a significant milestone.

Works cited

“China Teaches IKEA Limits Of Homogeneity.” Strategic Direction 25.11 (2009): 43-45. Web.

Heaven, Douglas. “Robot Learns Using IKEA-Style Instructions.” New Scientist 216.2886 (2012): 24. Web.

Hultén, Bertil. “Sensory Cues And Shoppers’ Touching Behaviour: The Case Of IKEA.” International Journal of Retail & Distribution Management 40.4 (2012): 273-289. Web.

Chen, Pao-Lien et al. “Pre-Market Entry Experience And Post-Market Entry Learning Of The Board Of Directors: Implications For Post-Entry Performance.” Strategic Entrepreneurship Journal (2017): n. pag. Web.

Mochon, Daniel, Michael I. Norton, and Dan Ariely. “Bolstering And Restoring Feelings Of Competence Via The IKEA Effect.” International Journal of Research in Marketing 29.4 (2012): 363-369. Web.

Yang, Xin, and Dan Wang. “The Exploration Of Social Media Marketing Strategies Of Destination Marketing Organizations In China.” Journal of China Tourism Research 11.2 (2015): 166-185. Web.