Internationalizing Retail. IKEA Companies

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Introduction

International trade involves the exchange of capital goods and services on a global scale that is across international borders (Acs, Morck, Shaver, & Yeung, 2007). The international trade has been present for quite a long time but its importance and impacts have been emphasized in the recent globalized world especially the 21st century. Many factors have influenced the inception of the international trade and they include industrialization, advancement in transportation, globalization, the increase in multinational corporations and outsourcing of labour (Acs, Morck, Shaver, & Yeung, 2007). Globalization is actually the main factor that has greatly influenced the international trade systems that have consequently led to the development of international retailing. Nonetheless, international systems are structured just like the domestic trade systems (Acs, Morck, Shaver, & Yeung, 2007).

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The only difference is the scope of the trade for international trade includes a greater range of trade. Another outstanding variance is that the global trade is fairly more expensive to pledge and tolerate equated to general trade. In addition, international trade involves a wide range of legal requirements which makes it more complex compared to the domestic trade (Acs, Morck, Shaver, & Yeung, 2007). It is an imperative tone that factors of production in international trade are not very mobile across country borders compared to movement within a country. This is another reason that makes international trade to be very complex (Acs, Morck, Shaver, & Yeung, 2007). This paper will analyze and compare the internationalization strategies of two companies IKEA and Home Depot, and also discuss some of the impacts of the move by the two companies to internationalize their retailing services (Acs, Morck, Shaver, & Yeung, 2007).

International retailing

International retailing is a form of international trade which started about 2-3 decades ago (Bernard, Jensen, Redding, & Schott, 2007). This was realty influenced by globalization as well as the recent worldwide economic booms (Bernard, Jensen, Redding, & Schott, 2007). The growth of international trade has greatly influenced the decisions by the majority of multinationals to set up retailing branches all over the globe (Bernard, Jensen, Redding, & Schott, 2007). This is motivated by the economies of scale achieved in internationalizing retailing (Bernard, Jensen, Redding, & Schott, 2007). Technological advancement on the other hand has also played a crucial role in advancing the possibilities for international retailing. The internet for instance has played a very important role in creating a platform for international retailing (Bernard, Jensen, Redding, & Schott, 2007).

The internet today is flooded with websites full of products for sale. Many companies are taking the challenge by creating websites where they display their products to consumers from varying geographical locations (Bernard, Jensen, Redding, & Schott, 2007). The internet has created incredible opportunities for traders enabling them to reach out to markets that were practically unreachable in terms of infrastructural accessibility (Bernard, Jensen, Redding, & Schott, 2007). The major companies that have exploited the international retail system are reaping good returns as most of them make the most of their returns through foreign sales (Bernard, Jensen, Redding, & Schott, 2007). The international trade has opened up opportunities for retailers to expand their businesses through exploiting the numerous channels and platforms for them to distribute their products (Bernard, Jensen, Redding, & Schott, 2007). The media on the other hand has also contributed to the expansion of the international trade and consequently the international retailing system (Bernard, Jensen, Redding, & Schott, 2007).

The role of the media in this process has been to create awareness to the consumers of existing products thus creating demand for the products (Bernard, Jensen, Redding, & Schott, 2007). This has been a very successful move of mutual benefit between the media and the companies using international retailing opportunities (Bernard, Jensen, Redding, & Schott, 2007). The media have maximized the use of ICT and internet to expand their coverage hence creating a wider range of exposure for companies that seek to internationalize their retailing (Bernard, Jensen, Redding, & Schott, 2007). Therefore, international retailing can greatly be attributed to the two main drivers, internet and the media as explained above (Fernhaber, McDougall, & Oviatt, 2007).

Brief description of Ikea

IKEA is a company that deals with home furnishing products. It was founded in the early 1940s and named using the initials of the founder, the farm and the village where the founder grew up in Sweden (Fernhaber, McDougall, & Oviatt, 2007). As the business began, the found Ingvar Kamprad focussed on different products from what the company produces today. The business was selling pens, wallets, watches, picture frames, table runners and jewelleries (Fernhaber, McDougall, & Oviatt, 2007). One very notable characteristic that the company has been able to maintain is the sale of goods for very low prices. The business used to sell the above mentioned products at low prices and even up to today the company is still known for selling high quality products at very cheap prices (Bernard, Jensen, Redding, & Schott, 2007).

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The rationale according to the founder is to make his products more affordable to all sass to make volumes of sales (Bernard, Jensen, Redding, & Schott, 2007). He continued with this business until 1951 after seeing the positive feedback that the business was attracting (Bernard, Jensen, Redding, & Schott, 2007). He decided to expand the business and increase his line of production to diversify his sales. In 1953, the company put up its very first showroom in order to show and display its products to the prospective buyers. IKEA today has at least 313 stores in 37 different countries and still waiting to launch more stores in the future (Bernard, Jensen, Redding, & Schott, 2007).

Brief description of Home Depot

Home depot was founded in the year 1978 and from the very beginning the associates were able to offer the best customer services in the market (Fernhaber, McDougall, & Oviatt, 2007). Home Depot is a U. S., based company retailing home improvement and building products. The company has built its reputation over the years emerging as one of the very respected home appliances company in America. They mainly depend on their online stores for the sale of their quality products. Home Depot has majority of its stores based in the United States of America amounting to 2,193 stores with other stores in other countries such as Canada, Mexico, and China (Bernard, Jensen, Redding, & Schott, 2007). The headquarters of the company is located in Cobb County, Georgia (Fernhaber, McDougall, & Oviatt, 2007). This company is ranked number four in the home improvement industry in the United States and has a majority of its stores in the same upcountry. The company is also famed as one of the best in the industry and it has a substantial market share in the American markets.

The Home Depot was founded in 1978 by Bernie Marcus, Arthur Blank, Ron Brill, and Pat Farrah (Fernhaber, McDougall, & Oviatt, 2007). The company was founded on the idea of making the major home-improvement granaries in the country, where customers might find an extensive of provisions for variability of building and domestic schemes. In June 1979, the first two Home Depot stores unlocked in Metro Atlanta in seats leased from the J.C. Penny Company (Madsen, Rasmussen, & Servais, 2000).

The Home Depot prolonged to comprise companies underneath its Home Depot Direct Division, which complicated attainments of other businesses that were not exceedingly effective (Fernhaber, McDougall, & Oviatt, 2007). This encompassed the EXPO Design Centre, a retail undertaking for most affluent home beautifying items and applications that was locked in 2009 (Madsen, Rasmussen, & Servais, 2000). The corporation also increased Hughes Stock, which disseminated to workers but was vended in 2007 (Kalish, Mahajan, & Muller, 2003). Two more undertakings into advanced end foodstuffs encompassed 10 Crescent Lane and Paces Trading Company, a home fittings supply and illumination store, correspondingly.

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In 2006, The Home Depot gained Home Decorators Collection (Fernhaber, McDougall, & Oviatt, 2007). The corporation also originated Home Depot Countryside Supply in 2002 but locked the corporation in 2007 (Jovanovic, 2007).

In 2006, the corporation instigated directing fuel centers at certain of its trade positions. These fuel centers unlocked originally in Brentwood and Hermitage, Tennessee and advanced four additional were constructed in Tennessee and Georgia (Fernhaber, McDougall, & Oviatt, 2007). The fuel centers sell unleaded and diesel petrol, hot nourishment substances, cocktail and various foods (Fernhaber, McDougall, & Oviatt, 2007). They also obligate car showers that have reasonable space for normal pickup trucks. These fuel centers are anticipated to produce revenues of $5-7million per annum (Acs, Morck, Shaver, & Yeung, 2007).

Home Depot vouchers are obtainable on the Internet in instruction to fascinate new clienteles to the Home Depot’s operational supply. These vouchers allow clients to buy Home Depot foodstuffs at a reduction, in the hopes of heartening them to acquire more substances, try new objects, and finally developed loyal clienteles. The use of connected Home Depot coupons will unquestionably upsurge sales and increase the Home Depot’s desirability to patrons who select to shop online (Fernhaber, McDougall, & Oviatt, 2007).

Internationalization strategies

A characteristic IKEA stockpile is bulky (Autio, 2005). It has to be in imperative to suggest a systematic and complete range of foodstuffs that individuals can take household instantaneously and escalate the equivalent day, as glowing as to encourage individuals in representative opportunity surroundings and genuine households (Bell, McNaughton, & Young, 2001). The IKEA store is wherever the IKEA variety is wholesaled. It is also anywhere the assortment originates to life (Bernard, & Jensen, 2001). Corporations are strengthened to invest their time and get satisfied with IKEA domestic supplies. The area is that each person will appreciate their appointment to an IKEA supply (Bernard, & Jensen, 1999). If the children don’t neediness to the factory, they can production in the administered performance expanse (Bernard, Jensen, & Kortum, 2003).

It may be hard to get them to decide, but they can be captivated with an indulgence afterwards the IKEA Restaurant & Café (Bernard, Jensen, & Schott, 2006). Companies can compensate themselves for hopeful disbursement with a plate of Swedish meatballs (Bernard, Jensen, Redding, & Schott, 2007). The IKEA stores are key elements of its smaller downtown stores are not in line with the cost management approach (Bowen, & Wiersema, 2008). Fewer spaces suggest no warehousing and accordingly IKEA asset is required to suggestion circulation conveniences which would increase custodies. Less planetary recommends rarer potential to contemporary IKEA ground breaking viewpoints in openings, accordingly more sales administrations would be compulsory to influence customers (Caves, 1998). As a consequence, responsibilities are probable to upsurge (Calvo, 2006). As real estate is normally more exclusive in city centers, centre stores would demand industrialized assumption which will impress responsibilities if IKEA necessities to endure the same level of efficiency.

As a postulation to this, the adjustment in the size and situation of IKEA requirements will recommend a conversion in the unhurried location of IKEA and purpose encouragement the variation replacement of the institution. As IKEA is the world frontrunner in its detachment and customers are comfortable, there is no prerequisite to transmute the fashionable methodology. Discernibly, we can permanently maintain that IKEA should try new sections. In my estimation this is not suitable, since this will move the product double of the corporation by generating misperception by incoming new subdivisions, people might ask “Is IKEA still the lowermost price equipping producer?” Internationalization approaches used by IKEA Internationalization approaches used by Home Depot Decision of the two methods of both establishments Impressions of internationalization on the IKEA Impact of internationalization on home depot (Abbey, 2001).

IKEA Strategy

IKEA shadows the absorbed cost management approach (Coad, 2009). Younger consumers in the assessment of stylish equipment and family fixtures at a squat cost are IKEA’s beleaguered marketplace sector (Coad, 2009). For these clienteles, the secure offers family fittings that syndicate respectable enterprise, functionality and satisfactory superiority at lower amounts. Conferring to the firm, little cost is always significant (Coviello, & Jones, 2004). These happen to every disagreement of their happenings (Coucke, & Sleuwaegen, 2008). IKEA highlights numerous actions to reserving its prices low (De Loecker, 2007). For illustration, in its place of relying predominantly on third party industrialists, the firm’s manufactures propose low-cost, segmental equipment ready to purchase by clienteles (Dollar, & Kraay, 2002). Typically, competitors’ furniture stores display multiple varieties of a single item in distinct rooms, meaning that their clienteles scrutinize living room sofas in one room, tables in a different room, chairs in yet a different location, and accessories somewhere else entirely (Dunne, & Hughes, 2001).

In contrast, IKEA’s customers can view different furniture combinations in a single location, which eliminates the need for sales associates or decorators to help the purchaser envision how furniture prearrangement would look when placed in the customer’s home (Eaton, Kortum, & Kramarz, 2005). This approach requires fewer sales personnel, allowing IKEA to keep its costs low (Evans, 2005). A third repetition that helps Keep IKEA’s costs low is expected customers to transport their own purchases rather than providing a delivery service (Francois, & Manchin, 2006). Although a cost leader, IKEA also offers some differentiated structures that entreaty to its target customers, including in-store playrooms for children, wheelchairs for customer use and extended hours (Francois, & Manchin, 2006). Stores apart from those found locally include the Sweden Shops. These shops sell Swedish specialties such as herring, crisp bread, Swedish caviar and gingerbread biscuits (Francois, & Manchin, 2006). IKEA believes that these services and products are uniquely aligned with the needs of its customers, who are young, not wealthy, likely to have children, and because they work for a living, need to shop outside of regular hours (Francois, & Manchin, 2006).

Thus, IKEA’s concentration on cost management approach leaves the firm producing some notable features through its cheap products (Francois, & Manchin, 2006). IKEA clienteles are aggressively complicated in determining the involvement (Fernhaber, McDougall, & Oviatt, 2007). That is the idea behind: “You do your part. We do our part. Collectively we save money.”(Hutzschenreuter, & Gröne, 2009). IKEA had been fruitful in virtually all republics, because of public consciousness of the IKEA brand. IKEA is far more than equipment profit makers (Johanson, & Vahlne, 2007). It sells an existence those customers around the world squeeze as a suggestion that they have inwards, that they have good sensitivity and distinguish value (Bernard, Jensen, Redding, & Schott, 2007).

Home depot strategy

Home depot has greatly invested in foreign countries although the most successful of these investments are those in the North America. The company expanded to Canada investing in one hundred and eighty stores as well in Mexico where it invested ninety four stores (Fernhaber, McDougall, & Oviatt, 2007). Nonetheless, home depot announced the surprising shutdown of its store in China where the company had invested heavily in 2006. This however is not the first time that the home depot company has pulled out its resources from foreign markets (Fernhaber, McDougall, & Oviatt, 2007). In Argentina, the home depot sold a number of stores in the year 2001 around four stores (Fernhaber, McDougall, & Oviatt, 2007). Explaining their decision to sell the stores and pull out of the Argentinian market, home depot cited a number of challenges. The company said through its spokesman that it as finding it hard to remain competitive in the foreign markets saying that it was hard to grow outside one’s own market (Fernhaber, McDougall, & Oviatt, 2007). The company cited issues such as currency differences, logistical issues, differences in culture and time zone among other factors (Fernhaber, McDougall, & Oviatt, 2007).

The stores in China did not yield much as the company had anticipated prior to the heavy investment on the big box stores (Bernard, Jensen, Redding, & Schott, 2007). The company felt that by selling the stores it will be best served by the proceeds than investing in the country while the business was doing so poorly (Bernard, Jensen, Redding, & Schott, 2007). This disparity in the success of the company’s Chinese stores and the US stores was basically influenced by the existing difference of shopping behaviour (Bernard, Jensen, Redding, & Schott, 2007). The Chinese shopping habits are the do-it-for-me type while the Americans have the do-it-yourself attitude (Bernard, Jensen, Redding, & Schott, 2007). The problem arose when the home depot company anticipated that they could change the attitudes of the Chinese shoppers to align to the American type. This failed and consequently it affected its survival of the company in that particular market. This particular incident is a clear indication of how investors can get it wrong when it comes to expansion of its retail market into the international retail system (Bernard, Jensen, Redding, & Schott, 2007). Hence it is a learning experience for both the home depot and other companies who want to expand into the international retail market (Bernard, Jensen, Redding, & Schott, 2007).

Conclusion

This paper has critically analyzed the internationalization of the two retails namely the home depot and IKEA companies who both attempted to get into the international retail market (Bernard, Jensen, Redding, & Schott, 2007). The paper discusses their fates in their attempts and has clearly shown the impacts of internationalization of companies (Bernard, Jensen, Redding, & Schott, 2007). There are different risks involved internationalizing retailing services but also there are benefits to be ripped in the same (Bernard, Jensen, Redding, & Schott, 2007). The paper has also described his different internationalization strategies. The different strategies used by companies to expand into the global market are well presented in this paper (Bernard, Jensen, Redding, & Schott, 2007). Organisations must always evaluate the results of any attempt to expand their businesses into international retails or any global commercial entity for that matter (Bernard, Jensen, Redding, & Schott, 2007). This is because as discussed above, different strategies of expansion will influence different companies in variant ways (Bernard, Jensen, Redding, & Schott, 2007). The two companies discussed in this paper, the home depot and IKEA companies are a perfect example of this desperate (Bernard, Jensen, Redding, & Schott, 2007).

The strategies used by the two companies namely the home depot and the IKEA companies have been clearly stated and discussed (Bernard, Jensen, Redding, & Schott, 2007). The paper has shown in details he factors that enabled the IKEA Company to emerge successful in the bid to expand in the international market and the strategy used to influence this success (Bernard, Jensen, Redding, & Schott, 2007). On the other hand, the paper shows clearly the strategy used but h home depot in expanding into e global market and the various factors that led to its failure in the ambitious undertaking that caused the company billions of dollars (Bernard, Jensen, Redding, & Schott, 2007). This paper has achieved in discussing the impacts of internationalization with reference to the two companies that has provided the research with the cases of study.

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