The paper "IKEA’ s Global Renovations" is a good example of a management case study. IKEA is a renowned Swedish multinational home furnishings company (Harapiak, 2013). In addition to its expansion strategies in emerging markets, such as China and Russia, and development markets, such as the United States, the company has focused on controlling costs and continuous development of its products to provide quality furniture to all people, whether poor or rich. This has made the company’ s products to be highly affordable. As a result, the company has been highly profitable since it was launched in 1935.
In January 2013, the company announced it had realized a peak in revenue of $36 billion, indicating an 8-per cent increase in profit between 2011 and 2012. However, less than a month later, the company was mixed up in the horsemeat scandal. This, among many other setbacks to its expansionist strategies, triggered a need for the company to reconsider its current operations. This report describes IKEA’ s approaches to international expansion and the successes and challenges it has undergone. It also examines the macro- and micro-political risks the company faces on entering Russia and the possible strategies.
Third, it suggests recommendations on how IKEA should respond to the recent scandals. Lastly, it examines the motivation, leadership, and international human resource management approaches the company has pursued to attain its international success before recommending additional steps to consider because of an imminent change in leadership. 2.0 Issue 1 2.1 IKEA’ s approach to expansion internationally IKEA engages two key approaches to international expansion: franchising and joint ventures. Twarowska and Kakol (2013) describe a franchising system as a system that allows semi-independent business owners known as franchisees to pay royalties and fees to the franchiser, or the parent company, for rights to sell its products and services, use its trademark and other business formats.
The franchisor provides a broad range of resources such as managerial systems, staff training, equipment, and site approval. Through the franchise approach, IKEA was able to expand to more than 41 countries, as of 2013. IKEA was able to maintain full control over its operations using different “ business format franchises” in which they provided the local entrepreneurs with capital investment, managerial expertise while marketing and merchandising was left to IKEA.
For instance, Inter IKEA Systems BV, which is based in the Netherlands, owns the franchise, while Inka holding company operated some over 300 stores globally. Another separate company also owned different other stores that belonged to IKEA in its own right. IKEA also made its entry into China through a joint venture with the government of China. Later in 2004 when the Chinese government joined the World Trade Organization and, IKEA’ s wholly-owned its third location in Quangzhou, and made further expansions across China.
In a joint venture approach, an international firm creates a partnership with the host-country firm leading to the creation of a third firm. A joint venture agreement provides an international company with greater control over the operation of the third firm, in addition, the right of entry to the local market (Twarowska & Kakol, 2013). 2.2 Significant successes 2.2.1 Consistency of core values and brand image Among the underlying reasons for the success of IKEA in its expansion strategies includes the capacity to enter new international frontiers yet manage to maintain its brand image and core values consistently.
In this way, the company has been able to replicate its competence areas and corporate image throughout its global operations. For instance, when IKEA expanded into Russia, its underlying strategy was building a local supplier base by actively cooperating with other stakeholders in the Russian wood industry. At this rate, the company’ s proactive strategy proved difficult to implement. One reason for this is that IKEA based its approach for long-term commitments on trust. However, this was unusual for Russians who have traditionally tended to run their businesses under uncertainty.
As a result, Russians tend to be disinclined to make long-term commitments. Having been aware of this, IKEA concentrated on understanding the Russian’ s cultures and attitudes and instead invested in changing their behaviours and attitudes.
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