Evaluation Option: Strategic Plan Part 1 STR/GM 581University of PhoenixEvaluation Option: Strategic Plan Part 1Introduction
IKEA is a Swedish based global company founded by Ingvar Kamprad in 1940’s. At the age of seven, Ingvar started buying matches in bulk from Stockholm and sold it in individual packages at a very low price. After realizing he can make a decent profit from re-selling, he started to do the same with flower seeds, Christmas trees, pencils, and pens. His childhood experience on retailing is what led him to build a company that offers wide variety of functional and stylish home furniture pieces at an affordable price. Today, IKEA is a successful global mass-market retailer of household goods and furniture operating in 42 different countries and a total number of 70,000 employees catering to 410 million shoppers per year (Innovation Leaders, 2001).
The IKEA mission statement is “to create a better everyday life for the many people and to offer a wide range of well designed, functional home furnishing products at prices so low, that as many people as possible will be able to afford them. The IKEA brand is the sum total of the emotional and rational values that consumers associate with the IKEA trademark and the reputation of our company” (IKEA, 2010).
Team B selected New Zealand as the country for expanding business operations. The New Zealand population of is 4,327,944 and 66% of this population is between 15-64 years of age. The Ethnic Groups are composed of 56.8% Europeans, 8% Asians, 7.4% Maori, 4.6% Pacific Islander, 9.7% Mixed, and 13.5% Other (Index Mundi, 2012).
This papers aims to identify which two strategic options is best recommended for IKEA and what are the competitive advantages these strategic options create for the global expansion of operations to New Zealand.
The first strategic option IKEA should consider is to create a joint venture with an already established New Zealand company. According to “Strategic Alliances and Joint Ventures” (2012), “a joint venture involves a potentially long term investment of funds, facilities and resources by two or more companies to a combined venture, which benefits all companies”. In the case of IKEA, the strategic option of creating a joint venture is to easily establish a marketing and distribution presence in New Zealand.
The advantages of a joint venture include sharing the risks with a partner to offset of exposure in the market. Access to the partner’s distribution networks can also be an advantage allowing the company to gain recognition faster than if going it alone. If IKEA can find a partner that will complement their strengths, it allows IKEA to focus to focus on their core business: building furniture. Tapping into the New Zealand target market may be difficult in the beginning but a joint venture with a good partner makes it accessible.
International joint ventures can be tricky and complicated. The risk is that if the partnership is a bad one, the affair can get expensive quickly. Therefore, as a part of this strategic option, IKEA must engage both New Zealand export and marketing consultants. When they find a company that they want to do a joint venture with, IKEA must have them researched. International firms, like banks, lawyers and accountants should all be called upon when the company is being evaluated. The Ministry of Foreign Affairs and Trade can be consulted to understand the New Zealand political situation.
During our discussion Team B agreed that the more transferable advantages IKEA has, and the more dominant these advantages, the easier it is to globalize. Building on that concept the second strategic option the Team will be implementing is the Cost Leadership strategy. The company’s mission statement is built around low cost; this will help greatly and the company will gain competitive advantage in New Zealand if implemented properly. Cost Leadership will also help once the company enters the market against the threat of its competitors, the threat imposed can be reduced through pricing strategies that low-cost firms like IKEA can engage in and through their relative effect on the performance of a low-cost firm and its higher-cost rivals (Jay Barnet, 2007).
IKEA will gain sustained competitive advantage in New Zealand because cost strategy is rare and costly to imitate, either through direct duplication or substitution. The firms design its furniture, thus removing the threat of suppliers and with it differentiated features that appeal to its target customers, including in store playrooms for children, wheelchair for customers use and extended hours they will be able to attract new customers.
IKEA. (2010). Retrieved on September 14, 2012 from http://www.ikea.com/au/en/
Index Mundi. (2012). Retrieved on September 14, 2012 from http://www.indexmundi.com/new_zealand/demographics_profile.html
Innovation Leaders. (2001). Retrieved on September 14, 2012 from http://fp05-527.web.dircon.net/ikea_company_profile.html
Strategic alliances and joint ventures. (2012). Retrieved on September 16, 2012 from http://www.nzte.govt.nz/develop-knowledge-expertise/Export-guide/Ways-of-entering-a-new-market/Pages/Strategic-alliances-and-joint-ventures.aspx