IKEA ENTRY INTO INDIA

1.Introduction:

The predominant market for furniture in India was dominated by these brands ‘Raj and Raj’, ‘Durian’, ‘Godrej Interio’, ‘Neelkamal’, ‘Nesta’, ‘Style Spa’, Zuari, until the organized marketing and retailing entered India “IKEA ENTRY INTO INDIA”. So there is the @home town, @Jagdish store which opened to customers walking for a whole new experience in choosing furniture. Close at heals was Reliance Furniture. The last wave was from the Indian startups in dotcom sector, www.pepperfry.com , www.jabong.com. Keller and Jacob (2011) stated that the threat of entry is high as the online e-commerce are offering home installation and delivery with a hefty discount.

This assignment is about the furniture giant IKEA which is considering the globalization agenda in this year, and it is scouting for the emerging markets. The BRICS (Brazil, Russia, India, China and South Africa) are the emerging nations is the target while the top slot goes to China followed by India in terms of GDP growth in the last decade (Ricks, 2010). Thus this assignment therefore will scout how to enter India in the Asian subcontinent, that is appropriate for Swedish furniture giant. The chosen country presents a huge challenge as the languages spoken is not even English while culture, food, dialect and living habits change in every 500 miles of travelling. The first step is to understand the economic condition in the earyly 2015 for India. We apply TOWS to understand it. “IKEA ENTRY INTO INDIA”.

1.1 TOWS:

Threats:

The predominant market for furniture in India was dominated by these brands ‘Raj and Raj’, ‘Durian’, ‘Godrej Interio’, ‘Neelkamal’, ‘Nesta’, ‘Style Spa’, Zuari, until the organized marketing and retailing entered India “IKEA ENTRY INTO INDIA”. So there is the @home town, @Jagdish store which opened to customers walking for a whole new experience in choosing furniture. Close at heals was Reliance Furniture. The last wave was from the Indian startups in dotcom sector, www.pepperfry.com , www.jabong.com. Keller and Jacob (2011) stated that the threat of entry is high as the online e-commerce are offering home installation and delivery with a hefty discount.

Opportunity:

India with its billion population has approximately around 200 million who are earning on an average of USD 1299 a month, this translates to a huge market and tapping it is a opportunity that IKEA cannot refuse to lose (Czinkota, 2007). Then there is round the year marriages that ushers an opportunity to sell home furniture in a set for the newly weds. There are offices and hotel expansions, airport lounges which are good bets, and the huge story of Indian infrastructure boom in metro cities, and the smaller towns Tier I, II, III.

Weakness:

The international pricing will not work in India, as the consumers are very price sensitive and wants bargain and discounts(Clark and Knowles, 2009). The range of IKEA design is very ultra modern and chic to suit the Indian culture and living which is again pointing towards the design elements. The size, the choice of colors, indoors and outdoors will differ due to cultural difference.

Strengths:

IKEA boasts of the World class manufacturing facility and brand name will attract the Indian masses who are prone to buy foreign brands.

1.2 STEEPLE:

Social Factors: The social structure in India is changing and has changed for good. The most important is the familial system that is an extended family which has now broken down to the nuclear stage. Neidell (2008) added that the rising middle class is a educated one and the new format is seeing the settling of working couples who are moving towards metropolitan cities in search of jobs away from the parental extended family. They are likely to buy the modern design furniture in their rented or newly acquired apartment.

Technological: The IT has revolutionized the Indian industry and now it has overtaken jems and jewellery in terms its contribution to the balance of payments. More so, the computer science and engineering faculties have contributed to shape a new India, which has major IT MNC firms to setup offices in Indian soil to tap the talent. The development of IT in every field which is progressing has enabled the new Indian system, its governance structure from central Govt down to the villages.

Economic: The rising middle class PPP( purchasing power parity) has increased due to the education that has enabled the children to study and procure job (Parker, 2010). The economic capability of the new income groups in India has changed the buying behaviour. It has led to creation of the organised retailing in the country that is seeing the customers shifting from the made to order to ready made SKUs that needs to be delivered with a upfront payment. “IKEA ENTRY INTO INDIA”.

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Political: The country India has a political risk in the sense that the Govt. approving the entry of the retailers through FDI is limited to 50 but it has to partner with an Indian business partner/firm. The approvals from the necessary political ministers make it not a hot destination for opening of a company. There are red tapism and kickbacks that has happened in the past marring the Indian political control on the business environment.

Legal: The FDI route to enter India defines that 50:50 JV is mandatory for market penetration as per Govt. rules. This can be avoided bypassing the JV scheme, and opt for a franchisee option. This requires to choose a franchisee option type that will be discussed later.

Ethics: The ethical issue is about the wood that is being procured by destroying the Indian forest, which is enabling the engineered wood, rubber wood that is long lasting and termite resistant. So there is an opportunity to do advertising for IKEA on the ethical standpoint appealing to the educated masses who are the target market for their products (Lester, 2006). “IKEA ENTRY INTO INDIA”.

This gives us a bigger picture, of the economy and the social web of the changing nature of the Indian consumers in the last decade (Cateora et al. 2006). Going forward it needs to carve a new identity in the market hence the brand communication plan needs to be prepared. The tool of 5Cs will be used in the following section

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1.2 5Cs:

The foreign brand will always have a upper edge and appeal for the target market. The Indian consumers as well need to be made aware about the foreign brand entry. The use of the 5Cs will help IKEA to do wonders:

Completeness: The completeness of the advertisement mix and the promotional strategies for IKEA will enable to perk up the attention of the target consumers who are contemplating to buy furniture. Burgess and Steenkamp (2006) stated that the advertisements need to in Classy photograph with the Indian family in happy mood that will increase the acceptance in the consumers mind. “IKEA ENTRY INTO INDIA”.

Conciseness: The need to keep the advertisement concise that tells half, is a clever strategy to create a pull the consumers to the inquisitiveness mode. The need for the creating the advertisements which contains the visuals more than the descriptive content will help IKEA to make inroads into Indian consumer psyche.

Clarity: The spread and the layout has to be in distinct which should be able to attract the visual gaze be it a print ad or a outdoor campaign. The need to design the conceptualization therefore has to be done by engaging a top notch advertising firm in India that suits the IKEA budget earmarked for the foray in the country. “IKEA ENTRY INTO INDIA”.

Concreteness: The ads should emanate a feeling of the solidity in the way it is depicted for the target masses in Indian context. The consumer should read the caption or the tagline, that should be in the Indian vernacular languages to adapt to their linguistics for better acceptability.

Correctness: The correctness of the advertising is the place the right ad at the right time, and the follow up ads to reinforce the buying behaviour towards the first purchase. The correctness of the advertisement meaning is also critical that will enable the Indian consumers to understand the utility value of buying a IKEA product. “IKEA ENTRY INTO INDIA”.

However, designing the advertising campaign in not enough as there are possible forces that will be acting on the brand IKEA in the Indian soil.

1.3Porter’s Five Forces:

The porter’s five forces model is the apt tool to understand the market forces against the brand IKEA in the Indian market.

Threat of new entrants: [Very high] The Indian market is dominated by the entry of dotcom that are challenging the physical shops, which used to custom built the furniture in the local vicinity (Brouthers and Hennart, 2007). Their new model of e-commerce enabled penetration has been fast in the last five years that is helping to meet the demand of the readymade furniture market.

Threat of substitutes: [High] The influx of the engineered rubber wood is challenging the existence of Indian plywood industry which was predominantly favoring the masses against the heavy wooden furniture that was pricey. In last decade, there has been influx of the wrought iron furniture that has been a part of the Indian household. There is also the introduction of the plastic chairs and tables which are easy to assemble, store, carry that has found popularity. “IKEA ENTRY INTO INDIA”.

Threats of suppliers: [medium] The suppliers of the wood into the traditional custom based market of furniture in nearby locality is facing the wrath of the forest officials logging for wood by felling the trees. “IKEA ENTRY INTO INDIA”.

Rivalry: [high] The competition of the Indian brands is very high, with Durian, Raj & Raj, Zuari, Style Spa, Neelkamal to be a part of the whole market. Bevan and Meyer (2006) added that there is a demand but the market share of organised and readymade furniture is challenging the custom built which takes days to manufacture.

2.Global Marketing Objectives vis-a-vis corporate and business strategies of launch of IKEA brand in India

IKEA started off with the philosophy of DIY(do it yourself) furniture that helped Swedish and later on EU to catch the fever. So panels of the assembled components were shipped at the premises of the consumers who bought it and a simple instruction booklet helped to assemble it. The idea of one piece furniture and the component based manufacturing therefore was the motive with which IKEA won the global war to occupy the market share (Arnold, 2008). To penetrate the Indian market which is very different in the structure and composition, the IKEA needs to introduce its lower end furniture (in terms of price). The current system of FDI in the JV requires to scout for an Indian partner when the single brand retailing is done in Indian. The other mode of entry is through the franchisee, where the international brand need to search for the potential Indian partner who is interested to promote the brand (Apéria and Georgson, 2011). “IKEA ENTRY INTO INDIA”.

Going forward the goals for the IKEA business can be outlined in the following manner. The current main goal should be

Main Primary Goal : To penetrate the pan India locations through either physical stores, and e-commerce websites.

Tertiary goals: The market share of each player needs to be ascertained and the push for online and retail push of brand IKEA in six months internal needs to be done.

T1: The sizing of the Indian market needs to be done, which will entail the key players, study their modus operandi, advertising outlay, advertising mix (initial advertisement by end of 2015).

T2: The push for the IKEA needs to be in metro cities first by 2016.

T3: The marketing activities will be based on outsourcing and the franchisee distributing items to either online or physical stores.

There are other ways to do the brand penetration in the Indian market for the metro city population. Aaker and Maheswaran (2009) mentioned that there are possible tieups with the corporate where the trade fairs, industrial fairs, will be showcasing the design and its acceptance. These are innovative ways to attract the visibility and gain the publicity. The idea is to tap the middle class which has more purchasing power. Therefore the push factors should be strategic locations in cities, at traffic signals, in the cinema halls, print ad(magazines, daily newspapers, business newspapers). “IKEA ENTRY INTO INDIA”.

3.Market entry mode for IKEA in Indian market:

The Indian market the presents a challenge for the IKEA as the chosen model is franchisee over the JV has already been seen as the fitting entry mode. The franchisee model therefore will let the IKEA, to do low cost entry and faster penetration riding on the Indian franchisee.

Looking at the past history, there are many global MNCs which has entered the Indian scenario. The franchisee procedure in India requires the franchisor to select a franchisee. They need to understand the rules, terms and conditions, to sign the contract as per Indian laws. There are various modes for entry through franchisee: Franchisee owned and company operated (FoCo), company owned franchisee operated (CoFo), Franchisee owned franchisee operated (FoFo). In the current context, IKEA can opt for CoFO that will enable faster penetration. “IKEA ENTRY INTO INDIA”.

The other modes like direct buyout, Joint ventures or strategic alliance between IKEA and Indian firm will entail a lot of legalities, that has to be done with due diligence. This will create additional taxation clauses for direct buyout, while JV will require equal share in financial terms. All the modes of entry discussed here, is time taking process, which with higher political risk factor in Indian bureaucratic system will slow down the project start date. Franchisee on the other hand, presents an easier option to deal with, with lesser legal hassles as per Contract Act. while IKEA opting for CoFo will enable to ride on the experience curve of Indian firm helping to setup the distribution channel directly. “IKEA ENTRY INTO INDIA”.

 

4.Implementation of Planned Marketing Activities with Time Line

7Ps

The marketing mix for IKEA is a mix of 7Ps, as the extended range will use the product and service factor that is penetrating into a market that is culturally different from all the markets IKEA has served globally. This will help to understand in a nutshell how and what are the key strategies which IKEA is thinking for a market based penetration in the Indian household.

Product: The IKEA products need to be aligned to Indian market tastes as the design factor is bound to create the demand for the product acceptance. The issue is critical here as the IKEA needs to launch the SKUs.

Price: The price of the IKEA products needs to be lower as compared to the international standards. the psyche of the Indian consumers is towards bargaining at the shop and even the online e-commerce stores. The need to gain acceptance through the pricing route is needed.

Promotion: The visibility of the international brand in the Indian market needs a good advertising budget which should be three pronged approach: outdoor, online and print media(Arnold, 2008). The timing of the promotion should be well timed, to evoke the customer target segment interest for IKEA. It should be able to change their orientation and preference. “IKEA ENTRY INTO INDIA”.

Place: The online penetration will help IKEA to do reach faster into Indian consumers radar, as the setting up of the franchisee led stores will take 2016 to roll out. The target is the Indian metro cities and then the smaller towns in the whole country.

People: The people are an important part of the whole process, hence the IKEA needs to train the third party sales agents in the different stores to be trained on the product. This is a vital aspect as the first impression about brand IKEA needs proper presentation and support from the sales people.
Physical evidence: The need to create store that express the brand IKEA is therefore a critical need. The cost for setting up the physical stores which can be present with the franchisee rolling out the outlets can be on the anvil. This is a key strategy for market based presence where Indian customers can see and look (Brouthers and Hennart, 2007).

Process: The whole process of importing furniture with the Indian office placing order and Swedish port dispatching will the first mode of market penetration strategy. In this manner the phase one roll out of the global supply chain will be done. IKEA then need to increase volumes that are demand centric so the use of forecasting for SKUs will be done. The second phase it can direct the company franchisee to set up a manufacturing plant in India.
The smart goals for IKEA can be portrayed as targeted below:

The first phase of launch will be through import route which will supply the flagship retail stores along with a central warehouse to be a part of the process (Aaker and Maheswaran, 2009). The next phase will not import but identify the procedure to manufacture the IKEA SKU in Indian subcontinent only if the volumes are picking up.So the survey of gathering the market based information can be done in the year 2015. This will be done by a third party independent research agency. The contract will be signed with the appropriate business partner in early 2016. The goal is to achieve at least 100,000 units through online and flagship store sales. The need to create India specific website is therefore important along with the rolling out of the advertising mix in the first quarter of the year 2016. The control of IKEA over the franchisee will be outlined specifically which will help to align its functions along with Indian operations of the franchisee. The first sale inauguration will see the presence of celebrity endorsing it which will help official opening of IKEA in the media. This will happen in the quarter one of the year 2016. “IKEA ENTRY INTO INDIA”.

5.Conclusion

Thus the overall plan for the right market entry strategy will be dependent on the IKEA’s board approving the franchisee board penetration route. It will clearly layout the process, date wise roll out, the payments in terms of royalties or annual fee, share of profit percentage. The successful launch thus will be requiring the need for detailing in each of the interlinked process which will contribute towards the franchisee mode entry. The challenges from the Indian perspective will be to counter the regulations, compliance, health and safety, welfare for host country employees along with the training. The control factor in the franchisee type chosen by IKEA company owned and franchisee operated therefore will be the key to initiate actions that are IKEA concepts while the local Indian franchisee will carry out the execution. The estimated time line from conception to launch is approximately around one and half years, which shows that the goals of 2016 detailed earlier is apt to align functions, global supply chain, and built distribution capabilities in the Indian subcontinent. Much of the advertising in local language with advertising mix has been planned to support the online and the physical store push. The brand visibility factor is the key to the capturing of the Indian customers attention. “IKEA ENTRY INTO INDIA”.

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