Opening Case: IKEA

• IKEA’s expansion over time beyond home country:-

• Established in 1940s in a small village in Sweden by
Ingvaar Kamprad
• In 2009 IKEA ranked 28 out of 100 top global brands by
Interbrand
• In 2009 IKEA had more than 300 stores and 123,000
employees in 37 countries and annual sales of 21.5 b E
• Strategy – standardized self assembly furniture at a very
affordable price
• By 1960s the Swedish market was saturated and IKEA
decided to venture overseas
• The first store outside Sweden was opened in 1963, the
second store came in 1969 and the third in 1973
 Opening Case: IKEA
• IKEA followed a standardized product line strategy, not
making too many changes to adapt to local tastes
• In 1997 international sales accounted for 89% of total sales
• The standardized strategy worked well in Europe but
became an issue when IKEA went to Asia in Japan. The
Japanese market wanted a high degree of customization,
IKEA left Japanese market in 1986 after 12 years
• Another challenge came when IKEA went to US market in
1985. between 1985 and 1996 IKEA opened 26 stores in
USA, but these were not as successful as the European
stores.
• In 2006 IKEA reentered the Japanese market opening 5
stores in two years. The US markets accounted for 11% of
global revenue in 2009.
 Defining International Business : Its Evolution
• In simplest of terms doing business internationally
implies moving beyond country of origin
• Historically powerful empires flourished on international
trade.
• The British Empire rose to great heights in 19 th century
based on East India Company’s international trade and
the country’s naval prowess
• The Roman empire’s military might was based on the
success of trade
• Indian merchants were one of the earliest to venture
beyond their seas around 3000 BC and Indian traders
traded with special Indian commodities
• The Silk route was the route between China and Kashmir,
through which trading flourished as well as invasions
 Defining International Business : Its Evolution
• The British Empire mainly flourished on its effective
international business policy, which provided efficient
and protected shipping channels.
• The importance of international linkages was clearly
understood when the Federal Government of USA
through a notorious act raised import duties to the highest
level for imported commodities
• The European trading partners retaliated and US
produced goods had no takers in European markets. That
led to closure of US factories and this resulted in GREAT
DEPRESSION of 1930s – finally leading to WW II.
• The post war economic boom was once again led by
expansion of US firms beyond the shores of America.
 Defining International Business : Its Evolution

• 4 Characters shaped today’s Global Economy:-

• Traders: Indian, Sumerian, Egyptian traders

• Preachers – Buddhist and Christian Missionaries and the
Crusades between 1096 and 1200 Ad
• Conquerors: Alexander, Chenghis Khan,
• Travelers : Marco Polo, Al Biruni, Ibn Batuta
 Defining International Business : Its Evolution
• The Kondratieff Technology Waves or K waves:-
• 1791-1825: K1 : Steam Engine, Railroad
• 1825-1885: K2: Steamship, telegraph, Joint stock
companies, Audit firms, Metallurgy.
• 1885-1930: K3:L Electric Bulb, Aero plane, Model-T,
Brand Management, Multi Divisional Firms, Accounting
• 1930-1995: K4 : MNCs, Forex trading, global finance,
Jet aircraft, Antibiotics, Computers, Mobile Phones,
Transatlantic Cables, wireless broadband, Fuel injection
engines
• 1995-2050: K5 : Information age, cloud computing,
internet
• 2050: Space Age
Defining Globalization and what drives it?
• The case of Ecuadorian roses:-
• Ecuadorian roses are considered the best in the world
with large stems and grown in 10 different shades of Red
alone.
• On Valentine’s day 200 million Ecuadorian roses are sold
in USA.
• The country has 400 rose firms today and is the second
largest producer of roses. The rose farms support around
100, 000 jobs
• 30 years back a US consumer only bought locally grown
roses on V-day
• Today the roses are cut, packed, shipped from another
continent just 24 hours before the V-day!
Defining Globalization and what drives it?
• The same New Yorker now may drive a car, designed in
Germany, assembled in Mexico by FORD/TOYOTA,
from components made in Thailand/Malaysia and the
body was fabricated in India using Korean Steel and the
tires were made of Malaysian rubber in China.

• While driving to work the American may talk to his stock

broker in his hand free car speaker and his broker may
inform him about stock prices in three different stock
exchanges around the world, he may use an I-Phone,
designed USA, assembled in China, chip sets from
Taiwan, glass made by Corning in Europe.
Defining Globalization and what drives it?
• Defining Globalization – a convergence of technology
based products used on a standardized basis all over the
world (Cars, Laptops, Mobiles) with minor modifications
and the components are outsourced on a lowest cost basis
using a complex and inter dependent supply chain.

• What drives it?

• Emergence of global institutions after WW II – WTO
with 159 member nations (as of 2013) accounting for
98% of the world trade. The IMF was created by the
Bretton Woods convention in 1944 by 44 member nations
and which polices the international monetary system. The
United nations and the G 20.
Defining Globalization and what drives it?
• Opening up the country barriers for international trade
and FDI (India belatedly opened up in 1991 to FDI, thus
ending 4 decades of License Raj).
• Development of services that supports IB through
documentation and cross border capital flows
• The internet and transportation technologies
• Increased consumer awareness once again powered by
social media
• Increased foreign competition (sparked by Toyota in
1980s in USA)
• Opening up of the erstwhile socialist bloc
• Expanded cross national cooperation – SAARC, ASEAN
and so on.
 The basic differences between International and
Domestic Business
• Geographic distances – different opportunities to source
various types of raw material and different markets may
be far flung and wide spread
• Political Landscape – Think of Nigeria right now! Also
North Korea and Ukraine. Compare them with USA or
Scandinavian nations who rank very high on ease of
doing business. In between these two extremes like many
countries like India
• Law – the change in taxation laws with retrospective
effect to fine Vodafone, when the company won the case
against IT dept in court came under widespread criticism
and loss of investor confidence.
 The basic differences between International and
Domestic Business
• Behavioral and cultural factors: -this varies from country
and country, as we saw in IKEA’s case
• Economic conditions – vary widely from continent to
continents and within countries. Exchange rate, inflation,
GDP growth all of them have long term implications on
doing business in a foreign country
• The competitive environment –Going back to our opening
case – IKEA did well in Europe with its standardized
product line. Failed in Japan and was not so successful in
USA initially.
• Suzuki’s biggest market is India. Outside India, Suzuki is
still not a big name in cars (in bikes yes!). This Japanese
manufacturer specialized in bikes and small cars – the
transition to being a complete automobile company has not
been successful so far.
 Why Companies Go International
• Expanding Sales

• Acquiring resources:-
• Taking advantage of lower cost of production, skilled
manpower and technology acquisition

• Minimizing Risk:-

• Firms seek foreign markets in order to minimize cyclical

effects on sales and profits. Defensively, they may also
wish to counter the potential advantages that competitors
might gain from participating in foreign market
opportunities.
 Modes of Operation and Organizational forms
• Exports from home country
• Service exports – travel and tourism services,
engineering services for turnkey projects, service charges
for transmitting funds, export documentation and charges
for buying international securities
• Asset use – Licensing fees for using technology,
Franchisee fees for using brand name or specific royalty
and lease/hp payments for using a specific immovable
asset such as a machine
• FDI, JV’s and portfolio investment
• The two most common organizational forms are – MNC
and TNC
The Billion Dollar Question: - Going Global, WHEN ?
 What is the incentive to venture beyond the home country?
 Is it pro-active or re-active?
 Should it venture into a single market or should it venture
into multiple markets in a go
 What will be the recruitment policy of staffing the
international subsidiary?
 Is the current organization structure adequate to handle
international operations
 What are the strategic objectives and goals?
 Has the company done an audit of internal strengths and
weaknesses?
 Has it done the due diligence on competition that it will
face overseas?
 The product/service – how much standardization?
 Going Global, WHEN ? DATA CLEAR
 Who are the key characters?
 What is DC’s core business now?
 Who are its Key customers?
 What was the product’s potential beyond Telecom and
Banking?
 Who were DC’s overseas customers?
 What are the key strategic options now in terms of
product and geographic reach?
 What additional resources are required?
 What is Greg’s biggest drawback?
 What options are now being tables? Gr A Vs B?
 Should DC react to Competition or chalk out its own
strategy?