This is the final individual assignment for Global Business Context subject in post-graduate level. This assignment received a High Distinction mark.


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1. Introduction: IKEA and a Semiglobalised World

There is a Chinese proverb that says, "when the wind rises, some people build walls; others build windmills." The business world has and continues to see a ‘wind’ rises in the world economy, it is the move towards a world with declining barriers to cross-borders trade, with shrinking perceived distance, with converging culture, taste and preference of the population and with the merging of national economies into an interdependent, integrated global economic system (Hill, Cronk & Wickramasekera, 2008). This ‘wind’ is regularly referred in literature as globalisation.


However, the current state of market globalisation is still much debated. Recent literatures tend to agree with the view that the world market is not yet purely global, in the Levitt definition (1983), which is a world where culture differences and preferences has converged and resulting in homogenized global market. Ghemawat (2003) concluded that, after a review of economic evidences from around the world, the international market indicates that currently the world is in a state of incomplete cross-border integration, he refers this state as semiglobalisation.


Despite that, there are companies that has built ‘windmills’ to take on the ‘wind’ of globalisation.   A semiglobalised market provides unique challenges to these companies. For example, it creates a need for companies to consider different preferences of foreign market, this is referred to as force for local responsiveness by various international business academics (Bartlett & Ghoshal, 1998; Prahalad & Doz, 1987). To manage and overcome these challenges, a company needed to have a strategy, more specifically an international business strategy.


The Swedish furniture retailer IKEA is one company that has successfully built a windmill to take advantage of globalisation. It has grown from a Swedish mail order business in 1943, to operating 263 stores in 24 countries and employing 127,800 people in 2009 (Inter IKEA Systems B.V., 2009). Until very recently, IKEA is the largest global furniture retail company (Jonsson, 2008) and this status is not likely to change soon, even in the face of global recession (Euromonitor International, 2009).


The size and success of IKEA is why it is chosen for this study. By looking at the experience of such company, other international companies, especially retailers can learn something from it. A way to do that is by investigating what kind of ‘windmill’ that IKEA has to benefit from the ‘wind’. This creates the first question that the study will try to answer: what international strategy did IKEA chose to be successful?


Their entry into the China market is chosen because it represent a very different market than  previous market IKEA has entered before, which are the European, Australian and North American market, both culturally and economically. Also, IKEA has been successful in China. IKEA holds the largest market share of China’s furniture and fittings market in 2008, and the second largest market share of U.K. in 2008 (Euromonitor International, 2009). The second question then is, why did IKEA strategy succeed in a new and different market? This answer to this question will points at the factors that contributes to the success of IKEA strategy in a culturally distant market.


This paper is an attempt to answer those two questions by empirically studying IKEA strategy in China and compare it with hypothesis from the theory. Secondary data from IKEA websites, news and accredited past studies on IKEA has been used in this study. The outcome of this will be a practical insight of international business strategy and possible factors contributing or deterring to the success of international business, especially in the global retail industry.


This paper is organized in six sections. In the first section relevant literatures regarding international business strategy and strategy formulation are reviewed. In the next section, a brief history of IKEA and their internal competencies and the China market are explained. In the third section, hypotheses about IKEA international business strategy and success factors are formed. The fourth section presents the findings from empirical studies and comparison with hypothesis.  The next section is a discussion about findings in related to the hypothesis. In the final section of the paper the implications of findings are presented.

 

International Business Strategy & Success Factors in an Emerging Economy: A study of IKEA’s Expansion to China

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