International MKT Case Study 2 IKEA

1. DQ 1 OF CHAPTER 2, P.
55
Use Porters five forces model to analyze the competitive environment of a country of your choice (pick a
product category that you are familiar with).
1 The rivalry between existing sellers in the market
Joining WTO has made Vietnam's retail be more competitive, so this also has led to a decrease in price.
Most Vietnamese supermarkets are small and independent and they couldn't compete against international giants
=> international retailers are selliing products cheaper than Vietnamese competitors, to win the market share
The largest and strongest of domestic retailers might now consider joining hands to lower prices, improve quality
and selection, and become more service oriented.
create a united force-a strong network of wholesale distributors/dealers and cooperate with large international
business groups
2 Bargaining power of buyers
Individually, customers have very little bargaining power with retail stores
Many supermarkets in Vietnam have experienced in some campaigns of ostracizing products that are harmful
or unclear origin.
The switching cost is low as buyers can easily find many sellers in open-markets, small stores or
neighborhood shops.
3 Power of suppliers
The power of suppliers is moderate. Although a tremendous number of suppliers have provide goods or logistic
services in Vietnam, a little of them can match required standard. It leads to some key suppliers try to put up the price.
4 Threat of new entrants
The barrier for new entrants is not strong, because the size of market is big and the government has opened the market
for FDI. However, in the recent year, Vietnam is lack of space for developing new chain of supermarket (VOV News),
so new entrants will face with the challenges in finding the location as well as negotiating in renting premises.
Being aware of challenges as the foreign firms are allowed to set up business in the retail industry, many Vietnamese
enterprises have actively banded together to build large-sized and competitive distribution systems. As a result, the
establishment of the Vietnam Distribution Association Network Development and Investment Joint Stock Co. (VDA)
was seen as the start of an industry trend geared towards greater cooperation between retailers.
5 Threat of substitute products
The tendency in retail is not to specialize in one good or service, but to deal in a wide range of products and services.
This means that what one store offers you will likely find at another store. Retailers offering products that are unique
have a distinct or absolute advantage over their competitors.
How does a market orientation explain entry into that market?
Market orientation is a company philosophy focused on discovering and meeting the needs and desires of its
customers through its product mix. This allows a company to focus product development funds on the characteristics
that are most in demand at the time in the hope of fulfilling consumer desires through their product choices.
At times, market orientation may reveal customer desires that are not cost effective to implement.
A resource-based view?
Resource-based strategy defines the firm not in terms of the products or services it markets, or in terms of the needs it
seeks to satisfy, but in terms of what it is capable of. From the resource-based perspective, the first question is what the
firm can offer in technology, know-how, products, and services. Only then may the issues of selecting markets and
developing a competitive global strategy be successfully tackled. An internal focus on strengths and weaknesses seems
to go counter to the marketing concept but in reality complements it.
Why are both perspectives useful?

Whereas a market orientation focuses on competitive advantages in the marketplace, the resources perspective fosters
a view of the company as a leveraging force for its resources. It generates an appropriate mindset of getting a return
on the assets philosophy, in which the key management question is how the resources should be deployed to generate
the best return.
2. IKEA (CASE 1-1), DQ1, 2 AND 5

IKEA Co. Background
- IKEA: the Swedish furniture manufacturer and retailer, expanding in Europe, Asia, and North America.
- The low-cost operation relies on buyers with automobiles to carry the disassembled furniture in packaged kits and
assemble the pieces at home
1) 1. What are IKEAs firm-specific advantages? Countryspecific advantages?
FSA
1.IKEA sells the same furniture all over the world, so IKEA rips huge economies of scale from the size of its stores
and the big production runs necessary to stock them => maintain high quality, elegant design.
2.IKEA also offers a low competitive price because of the economies of scale (30% lower than competitors)
3.Exclusive relationship between IKEA and its suppliers, offering modern and exclusive designs for IKEA. Designers
also work closely with suppliers, keeping the costs low.
4.Ready-to-assemble kits help to stack products in shelves in order to maintain larger inventories.
5 The cash and carry shopping formula; you can go to the rack directly to collect the product and go home to build it
by yourself => reduce shipping cost
6.Successful use of the word of mouth and the use of catalogues in order to reduce the advertising costs.
7.IKEA has simple and plain staff levels, lowering the fixed costs and giving more freedom to its employees. This
management structure also helps making decisions in a faster way.
CSA
- located in low-cost regions with access to raw materials and distribution channels
- region-specific advantages: standardization & word-of-mouth advertising worked fine within Europe
- USA market: more autonomy and they can order customized merchandise for these markets
3. What are the cultural factors that make expansion abroad in retailing difficult? What has made it possible
in IKEAs case?
Type
of
cultural
factors:
Language Custom, Tradition, Norm Religion Materials Design Preferences Technology
Management style, Laws and politics differ among the countries
How
IKEA
made
it
possible?
Doing a market research., Recruit and train local suppliers. Do demographic study. Store layout. Location. Promotion.
Product:
Adaptation like the dimension of its bedroom.

More quality with US suppliers through random checks.
New cash registers to decrease customers queue
New store layout
New service like next-day delivery
Price:
Cut prices because of recruitment of US suppliers.
Promotion:
Advertising necessary (more than in other markets)

Strong slogan: Its a big country. Someones got to furnish it
TV advertising attracting different kinds of consumers.
Place:
Huge size of the stores: 200,000 square feet.

Large inventory and parking space.
5. Should IKEA expand further in the United States or focus on other countries?
At the beginning of the expansion in US it proved difficult for IKEA, the company has made many adaptations
now, by making several changes to its retailing formula to adapt to US requirements. The concept of fun
shopping experience is likely eventually to succeed in the US.
IKEA has to follow the strategy of differentiation and the cost leadership
Some elements, specially the promotion, have to be adapted to the specific culture of the country.
To reach this flexibility, IKEA can allow local centers to take its own decisions, to be independent, but in the same
time, local stores have to keep following the main concept of IKEA to maintain the global brand.
A joint venture approach could replace Ikea's franchising concept and increase cultural sensitivity and operational
controls through the establishment of strategic networks. Such alliances could also increase market coverage,
without Ikea losing its focused strategic intent on one particular market segment.

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1. DQ 1 OF CHAPTER 2, P.

Why are both perspectives useful?

2. IKEA (CASE 1-1), DQ1, 2 AND 5

Adaptation like the dimension of its bedroom.

Cut prices because of recruitment of US suppliers.

Advertising necessary (more than in other markets)

Huge size of the stores: 200,000 square feet.

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