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Global Business Opportunities: IKEA Expansion to Vietnam

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Published: Thu, 14 Sep 2017

Background

IKEA was founded 1943 in Sweden by then 17 years old Ingvar Kamprad. Kamprad who today is 90 years old, is Sweden’s richest man by far, through his assets in IKEA. 

IKEA is using the franchise strategy and the main financial principle is to grow by using own resources, which means that they earn the money before they spend. IKEA is investing the majority of the profit in existing or new stores, product development and sustainable solutions. IKEA’s idea and vision is “To create a better everyday life for the many people”. 

Today IKEA has 340 stores in 28 countries. 

Why did IKEA start to expand?

They are seeking three basic benefits with international strategy: increased market size, economies of scale and location advantage. IKEA wants to grow to leverage on their strong core competencies and capture the many opportunities outside US and Europe. A big part of their production is established in Asia, and they see big potential for increasing their market share in the Asian market.

IKEA in China and Asia

IKEA opened their first store in China in 1998. To adapt to this market, IKEA cut prices to make their products much more affordable than in the western market. They also repositioned their brand to be more fanciful, innovated to target the young and more educated upper middle class. So in fact, they lowered the price compared to the western market and at the same time they positioned themselves more exclusive than in the western market.  

IKEA gained valuable knowledge from their experiences in China that they later implemented when opening their stores in Thailand and Indonesia. Opening an IKEA store in Vietnam as well as shifting part of the production there could be beneficial in many ways. Except from the fact that they would enter a market with almost 92 million people they would by moving parts of the production help Vietnam into a better economy, which would in foreseeable future make them gain more costumers.

Hofstede Framework

By using Hofstede’s framework the similarities and differences between the Chinese and Vietnamese culture could be identified. The comparison shows that the countries are very alike with high score on power distance and long-term orientation and with low scores on individualism and uncertainty avoidance. On the masculinity scale it shows that China is more masculine than Vietnam, so IKEA need to adapt to the more feminine society in Vietnam in order to succeed there. But the culture of IKEA is a culture of hearts, full of enthusiasm and togetherness that would fit in well with the collectivist and feministic society in Vietnam.

 

International strategy and entry model Traditionally, IKEA have used franchising when extending to new markets and this is also the advice when entering the market in Vietnam.

From the Hofstedt analysis the conclusion is that the Chinese and the Vietnamese market are quite similar. IKEA can therefore learn from the expansion to China when entering Vietnam.

In the Chinese market IKEA needed to adopt their positioning, target and location and this is the case even in Vietnam. In Vietnam, IKEA should focus on targeting the young middleclass.

The young middle-class is educated, have relatively high income and is aware of Western styles.

IKEA have to keep in mind that access to cars in this target market is rare so a distribution system or a solution where the costumers can bring their goods on their scooters must be found. In different cities in different countries IKEA have different solutions for this. In most cities in Sweden the average costumers has their own cars but there are exceptions. In Swedens oldest University City Uppsala cars are rare and most of the costumers get to the store by bike. So their solution was to provide trailers for bikes so that the costumers could buy bigger furniture in their store without the problem of not getting their new furniture home. Either IKEA could use a similar system with trailers for scooters in Vietnam or they could develop a more sophisticated distribution system with home delivery.

After entering the Vietnamese market the step is still big to further enter Cambodia and Laos since these are really poor countries. IKEA’s business strategy is adapted to a society with higher economic prosperity, either in the whole population or at least in groups of the society.

So the Cambodian and the Laos-market are still not mature for IKEA’s business, but when they are, IKEA can probably use the same model for entering as they now can do for Vietnam.

International management, HTW Berlin, 2017

Anton Karlson


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