N128 International Business and Marketing : International Trade
Answer:
Introduction
Though technology has brought many advantages to companies, it also brought many disadvantages that threaten the survival of the firms in the market. Technology has brought globalization by enabling easy transport and communication networks around the world. Globalization is the ability of a company to engage in foreign trade. The changes have a management of foreign branches of a firm smooth and not need the physical presence of the managers. Through international trade, competition has increased tremendously in the business environment (Lee, and Carter, 2012). Firms have to improve the qualities of their services and products to be able to compete effectively. Competition is not only within the countries boundaries but in the global perspective. Firms have been forced to produce products that have high standards to enable them to have a competitive advantage in the market over their competitors. Managers have been given the obligation to oversee the execution of the activities of the firms which have become perilous to undertake. They need to have excellent skills that will enable them to make the most appropriate decision favoring growth and development of the firms in the competitive market. Better strategic plans have to be made which will guide the organization achieving its goals and objective. In this paper, I am looking at IKEA stores which need to engage in trade activities in Myanmar (Peter, and Donnelly, 2011).
Company background
IKEA is a multinational corporation carrying business globally. It is the largest self-assembly furniture retailer in the world, and its major stores are located in Netherlands, Asia, Middle East, North America and Australia. The company also boasts of having 392 stores in 48 countries and providing job opportunities to more than 183,000 employees for all the operations. The range of products the company sells is 12,000 for home furniture. Firms products include accessories, baby and children products, outdoor furniture, sofas and armchairs, desks, mirrors, beds and mattresses, chairs, clothes storages, decoration items, leisure and safety products, kitchen cabinets and appliances, and TV and media furniture. Stores are located in Asia including China, Singapore, Malaysia, South Korea, Indonesia, and Thailand. There are 19 stores in China, Singapore takes place seven stores, while in Thailand, Indonesia and South Korea own one store in each country (Ford, Edvardsson, Dickson, and Enquist, 2012, pp.281-290).
Company History
The company has grown to form a small business to a multinational corporation serving the whole globe. IKEA was founded as business mail order sales by Ingvar Kampard in 1926. In 1948, the furniture was produced by the local manufacturers in the forest near Ingvar Kampard's house. The first IKEA store was opened in Sweden, and it has 6,700 square meters of home furnishings in 1958. At that time, this store is the largest furniture display in Scandinavia. In 1963, IKEA branched out the outside of Sweden was in Oslo, Norway. In 1986, Ingvar Kampar retired from the group of IKEA management, and then B.V. Anders Moberg became the CEO of the IKEA group. Nowadays, IKEA stands as the largest self-assembly furniture retailer and operating around 392 stores all over the world.
SWOT Analysis
The SWOT analysis checks different internal and external factors that affect the business directly. It is an acronym that stands for strengths, weaknesses, opportunities and the threats.
Strength is the factors that affect the business positively, and they help in making it achieve its goals and objectives. They show the high points of the organization and deal most with the internal analysis of the business. Strengths of IKEA Company are;
There are emerging markets in Asia and Eastern Europe. The company engages in international trade, and therefore the new global markets are presenting an opportunity for the company to participate in business in these markets. New markets have low or no competition from firms offering similar of substitute products. Companies aim at eliminating competition which is impossible, but when an opportunity avails itself to make the sale in the market or have few competitors, they do not hesitate to take it. Little competition implies that the firm will have more sales thus more profit margins.
It provides sustainable products for increasing demand. In IKEA products are designed to be manufactured by suppliers in mass productions. This strategy has made a continuous flow of the materials to the customers without delays. The products of IKEA Company are of high quality, form, function and sustainability and also sold at lower prices compared to those of the competitors. The lower prices attract a large number of customers.
Expansion and advertising to college students market. The range of items the company sales fits the requirements of the college students. The advertisement will increase the numbers of student customers acquiring its products and thus increasing sales.
High Growth in online sales of the company. IKEA has utilized technology by engaging in online advertisements to the whole world. These strategy has had advantages has it has increased the number of the online sales for the company.
Increased expansion into developing countries. Expansion to new countries increases the sale of the enterprise's products. The new markets are less concentrated will Salters, and this makes the company competition low thus having high numbers of sales.
The company weaknesses are inferior product lifespan and decreasing the quality of goods. The products lifespan and quality are small making customer needs be not fully satisfied as the products do not meet their expectations.
No home delivery options are offered by the company when the customers purchase large products. The customers incur the costs of transportation instead of the company providing such aftersales services. The number of sales person for customer service is low making the customer have to wait for long periods to be served. Customers goals are to acquire the products they need within the shortest time possible, and these delays may reduce the numbers of customers for IKEA stores.
Customer perception of cost vs. quality has changed over the years. The company goals are to offer cheaper products which are of high quality, but in the recent past, the levels of quality of the products are low. Low-quality products do not meet customers' needs, and they may switch to other providers regardless of the prices.
Stores are few and their locations not easily accessible by the potential clients. The company economies on cost making it have few stores which are located in a cheaper area regarding fees or renting. This makes the increasing numbers of customers to be served adequately. Shortages are experienced, and they create an opportunity for competitors to benefit.
IKEA has a limited product and style selection for the customers. Customers find it economical to get all their products needs in one place. Limit in the products can make them turn to suppliers who have everything they require. The company also has an online support which is weak regarding replying or commenting on the issues of the customers. Feedback to the customers takes quiet periods thus being a significant weakness.
IKEA opportunities include emerging markets in Asia and Eastern Europe which the company can engage in hence get high returns. Competition in the markets is small, and it can utilize it to make more profits. The increasing demand for the company products is an opportunity which the company can grab to increase the numbers of sales. It must also ensure a continuous supply of goods with no shortage to create customers loyalty.
Expansion and advertising to college students market will increase the customer base of the company. The continuous growth in an online sale for the IKEA will provide an opportunity to make more resources. IKEA also intends further expansion into developing countries to offer its products to the potential customers, and this will create a window for more sales.
The threats that the company faces from the external analysis includes stiff competition as other competitors in the market are offering products which are of low prices like the Wal-Mart.
There is high resistance among the customers as they are not willing to change furniture. The products may take many years for them to change and this creates weak sales for the company.
The furniture industry has many competitors. Competitors do steep sales promotion forcing the IKEA to do so thus incurring losses as it sales products at incredibly low prices. Economic conditions have changed in the world making the development of the store reduced. Finally, some competitors have attempted to copy the model of the business thus offering products same of those the company and at low prices. This act has given the consumers products which are alternatives (Kajanus, Leskinen, Kurttila, and Kangas, J., 2012, pp.1-9).
STEEPLE Analysis
STEEPLE Analysis is a tool useful for businesses during growth and development mainly in strategic positioning. The analysis looks at the external factors that may affect the business activities when trying to meet their goals and objectives. It is an acronym that stands for social, technological, economic, environmental, political, legal and ethical factors that affect the business.
Social factors deal with population growth, consumer attitudes, age structure, or lifestyle changes in the environment. The element enables the companies to anticipate the market trend of its products and see whether it is unfavorable. Initially Myanmar has had very many social problems; the people were oppressed by the military regimes and denied their right to teach their ethnic beliefs. In 2012, ethnic violence erupted between the Buddhists and the Rohingya Muslims. In addition, the isolation policy hid most of the problems in Burma like children were used in Military activities and oppression of the citizens. However, the end of isolation of the country has led to end of some of the social evils and paved way for development initiatives. As a growing nation, Myanmar will be an ideal location for IKEA stores as competition is low and it is assured of high market for its products.
Technological factors deal with the changes in the markets that may affect business activities. They may include new ways of execution of business, new machinery, etc. Myanmar has low technological changes as mobile penetration is 4% and internet 2%. However, there the country since 2010 has being opening up to the world and technological changes are on the rise. Development American Company Cisco has joined the country with many marketing and advertising agencies identifying the region as a driver to future growth. The government has allowed foreign telecom companies to enable it achieve its vision of ‘smart and connected Myanmar.’ These changes are opening door of development in the country and foreign investors will surely get high benefits. This location is ideal for IKEA stores as the market is promising.
Economic factors deal with the exchange rates, interests' rate, inflation rate, exports and imports rates. They help in enabling the company to have resources to execute its duties. Location with high inflation rate causes the cost of operations for any company very high hence no profits incurred. Myanmar is a poor country with the income per capita not increasing at high rates. The country depends on agriculture as it makes 59% of the GDP. However, Burma has wealth of natural and labor resources as it produces 75% of the world's teak and had a highly literate population. Therefore, the country is on the fast track to development and this makes it ideal for IKEA stores. IKEA stores produce products at low prices and this may have high sales in the country.
Environmental factors deal with the environmental regulations and protection. Changes in the business recently have stressed on the protection of the environment. In Myanmar, the environmental issues which are very rampant are deforestation and illegal logging. This is done by the international firms and it keeps on increasing. Environmentalists and protectionists have risen concerned about these acts with the president Thein Sein taking the complaints into consideration. The president stopped the works of a dam project and other mining companies as their works are questionable. IKEA stores deals with furniture products which are made of timber. The company should avoid getting into deforestation and illegal logging as this may bring disputes among different stakeholder leading to its disclosure.
The political environment determines the ability of the business to succeed. Governments make policies that may be favorable to the businesses or not. Political stability is crucial to the survival of any business. Political instability provides the hostile business environment. Myanmar was initially democratic country but it was derailed by the rule of U Ne Win in 1967 who rule for twenty six year making the economy worsen and corruption level were very high. The people suffered so much due to high levels of food shortage and they protested leading them been killed in large numbers. During his era great leaders had rose like Daw Aung San Suu Kyi but she was jailed for 15year due to her contributions. After the end of U Ne win through coupe elections were held with Daw Aung San Suu Kyi losing to Hitin Kyaw but the country remained peaceful with no violence. The peace in Myanmar attracts many people to engage in businesses in country with IKEA stores being in the forefront.
Legal factors are the laws that are imposed on the companies. They include employment laws, taxes policies, safety regulations and the competition regulations. The laws are not aimed at businesses, but they ensure there is fairness in all activities of activity among business. Myanmar practices the legal system which is based on Common Law legal system. IKEA Company Myanmar location is ideal as it has refreshed the majority of the important laws, for example, foreign investment law, banking law and business law and also changed an administrative law. The environment is favoring business success.
Ethical factors promote that business don what is right and not what is wrong during their operations. Businesses must adhere to the social value when carrying out their activities. Myanmar has had many shortcoming made by the leaders. The leaders had been dictatorial and oppressive to the people. The country isolation policy as hindered the country from exposure to the globe for growth and development. However, the change in the governance has opened the country for foreign investor and this has stopped many evils in the country. With the president advocating for better policies the country is ideal for IKEA stores to increase their sales volume.
Choice of entry mode (Factors influencing admission decision)
Market entry is the method a firm uses to enable delivery its products to the customers in the foreign market. The mode must be cost efficient and be able to meet the demands of the potential customers fully. IKEA Company should entry the new Myanmar market by the opening store where the customers can get the products.
The company uses a small system of productions which involves suppliers manufacturing the product in mass production then transporting them in flat boxes to the stores. The method is cheap for both the company and the potential buyer as he will get the products at lower prices but of high quality. The opening of a store in the new market will ensure timely delivery of goods at lower prices to the customers.
Market demand and Market segmentation for IKEA in Yangon
Entry into a new market requires the company to carry out intensive research and consultation to ensure that it makes better decisions. Foreign markets are uncertain, and the possibilities of failure are very high for any organization. The reason for a firm to go internationally is to make profits and losses are not accepted. Managers must oversee that better strategies are put in place to enable the company to have a competitive advantage in the market. Market demand is the rate at which the firms' products are required in the new foreign market. Any company must ensure that in the new market its products requirements are high to have the real competing base. IKEA entry in the Myanmar market has many favoring factors. The market has low competition with the few furniture businesses supplying the wealthy class thus leaving out the local class. The firm sells high-quality products and at low prices. It will attract a large market among the locals as they will be able to afford the products. Myanmar otherwise called Burma which is located in South-East Asia. The nation has more than 51 million people, and this means that IKEA will have a large market for its products due to the high population. Finally, Myanmar has been refreshed the majority of the necessary laws, for example, foreign investment law, banking law and business law and also changed the administrative law. This act has made the location favorable for company’s existence as the policies and legislation that regulate businesses are convenient.
In order IKEA Company to reach the market well, it must carry out market segmentation. Segmentation is dividing the whole market into segments of people with sales needs. Segmentation enable the company know the areas it has demands of its products to be able to meet them effectively.
Competitor analysis
Competitor analysis is the ability to study your opponent to see how they execute businesses and their strengths and weakness. The main reasoning behind this act is to know how they perform better than you and come up with plans which are better than theirs (Czepiel, and Kerin, 2012, pp.41-57).
This analysis is done to the better performing business in the industry and aims at reducing competition from the competitor.
In Myanmar, competition is weak for the IKEA stores, and this will reduce the competition likely to face. However, firms engaging in international trade must check the competitor so as to act as a guideline in their performance ( Oo, Drew, & Runeson, 2010, pp.1321-1329).
Market strategies
Market strategy is the plan an organization formulates when entering a new market. The method comprises of all the goals of the firm. The market strategy of IKEA stores is to increase its sales in the new market and be able to have a competitive advantage in the market. Through this, the company will increase its profit margin (White, et al., 2010, pp.110-116).
The Ansoff matrix helps organization come up with ways of ensuring group growth. It is a strategic planning tool used by firms to identify growth strategy. The matrix has four plans which are market penetration, market development, product development and diversification. Market penetration is ensuring the growth of the firm by selling the same or existing products in the current market. Market development involves expanding into new markets but offering the existing products to customers. Product development is creating new products for the current market whereas product diversification is creating new products for new markets. IKEA Stores are using market development by offering the same furniture product to new market, Myanmar. It aims at increasing sale of the products in the new market (Hussain, Khattak, Rizwan, and Latif, 2013, pp.196-206).
Market mix for product, people, price and promotion
The marketing mix is a combination of all factors that the company can manipulate hence ensures high sales of its products. To be successful in the environment, the IKEA Stores must consider the 4 Ps of the marketing mix (Goi, C.L., 2009, p.2). It can achieve this through the following:
Product- it is the commodity that will be offered to the customers to satisfy their needs in exchange for cash. The company should ensure it has the right products with all standards that the potential customers need. These will increase sales of the company and reduce customer frustrations.
People- they comprise of the clients and also the employees to deliver the products to them. IKEA stores must have adequate workers to supply the goods in the new location. Also, the company must ensure the market has scores of potential buyers to avoid making losses due to weak sales
Price- it is the amount of money exchanged for the products. IKEA has low prices, and this will be positive in attracting many customers to acquire its products.
Promotion- it is the ability to create awareness about the existence of a firm's products, it may be used through advertising. IKEA has to promote its products in Myanmar to enable the potential customers to know the life of the products in the market. When they are aware, they can make decisions to buy them.
The distribution network is the channel to use and move the products from the firms to reach the target customers. IKEA Company initially uses the direct marketing to enable its products reaches the customers directly. The methods ensure the products reach the customer in the required standards and also at low costs. In Myanmar, the company can use direct marketing to sell to the client. These are enhanced by the stores the company opens in the different market segment in the unknown location. Selling directly to the customers will enable firms to get feedback from the customers and respond accordingly. Also, the prices of the products are controlled from fluctuations caused by brokers looking for personal gains.
Choice of Region/ Country/ Market (Market Selection Process)
The market selection process is the ability to choose the areas to sell firms products aiming and getting more sales. A company cannot get into a new market and strive to supply the whole market with its products. The company must select areas it has more sales to sell its products.
IKEA stores entry in Myanmar is a productive activity, but without proper strategies on the areas to sell its products it may fail in its operations. The firm must carry out market segmentation to divide the market according to their products demands. These will act as a guideline in supplying the potential customers with products of their needs.
Choice of the Global Marketing mix (standardization-adaptation)
International trade has specified standards that firms must meet to be allowed to operate freely. IKEA must ensure that its products mostly meet the international standards for them to be allowed to sell in foreign countries. The international standards check whether are suitable for human usage without having any effects and also being environmentally friendly (De Mooij, 2013).
References
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De Mooij, M., 2013. Global marketing and advertising: Understanding cultural paradoxes. Sage Publications.
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Edvardsson, B. and Enquist, B., 2011. The service excellence and innovation model: lessons from IKEA and other service frontiers. Total Quality Management & Business Excellence, 22(5), pp.535-551.
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