Introduction
In the contemporary world, much has been said about bigger corporations getting in the global scene thereby overshadowing any news about a retail business attempting to tap opportunities in the same. However, even though there have been a number of cases, many retailers do not wish to venture into foreign markets. Segal-Horn and Faulkner (2010) explain this situation by claiming that the global market is characterized by volatility. Therefore, it becomes utterly difficult for businesses in the retailing sector to see the silver lining. However, irrespective of the struggling nature of the economy, as well as consumers in the United States of America and abroad, global expansion present activities for the businesses; whether corporate or retailing businesses, which wish to move. Segal-Horn and Faulkner (2010) further indicate that there is no “one-size-fits-al” path to expansion. Thus, finding a way usually starts at home. This is exactly the case with IKEA. The business started as an insignificant business, but it has overwhelmingly grown by expanding into foreign markets while still retaining its retail business status. Recently, it expanded into the Middle-East market by the opening of a store in Doha, Qatar and is intending to open a store in Cairo, Egypt. It has been reported that this expansion had had both negative and positive effects to the retail business. However, the business has established strategies and measures to help deal with these situations and help successfully operate in Egypt.
Thesis Statement
In the above context, this report aims at describing the business’ expansion in the Middle East, and the manner in which the expansion has affected the company. With the negative impacts, the report will establish what the business is doing to make good of these situations and how it is improving as it intends to expand into Cairo.
Global Expansion and internationalization of IKEA
IKEA is a Swedish company retailing home furnishings, as well as house wares having been incepted in 1943. However, the decision to push the retail business to the world market was met in 1980s. Ever since, the company has continued its growth spreading across the world. As at October 2011, the company was reported to have established a total of 332 stores in 38 countries across the world. In the fiscal year of 2010, the retail business reported an aggregate sale revenue of $23.1, which was a 7.7% increase comparing with the previous year (Carroll 2009).
In August this year (2012), the company reported that it intended to establish a chain of 100 economy hotels in Europe. However, these hotels would not carry the name of IKEA and further; they would not use the retail business’ furniture or furnishings. Germany has the most IKEA stores with 44 stores; hence regarded as the biggest market. It is followed by the U.S with 37 (Carroll 2009).
Expansion of IKEA into the Middle East
As compared to other parts of the world, IKEA has equally established stores across key cities in the Middle East. In 2005, the company opened the largest ever store in the Middle East in Dubai, which was put under management of Al Futtaim retail on a franchise basis. Before then, the retail line of business had opened its UAE operations in 1991 on Zebeel road, and then moved the business to Dera city center in 1995. In 2009, the company’s country operations and project manager in Dubai reported that IKEA intended to expand into Oman and Qatar (IKEA Group 2008). The store established in Qatar became Middle East’s largest flagship store. As such, this store is considered as the one to lead IKEA further into Middle East. The store was opened in December 2010. In a statement by one of the IKEA leader, it was reported that the business would still continue to grow regardless of the prevailing economic environment. The official further indicated that this was a proof of the strength of IKEA brand in the Middle East region, in addition to, the intense loyalty of the customers. The flagship store in Doha Qatar was established to target approximately 1.3 million visors in the first year after its opening with a majority of them being cash customers (IKEA Group 2008) . The flagship store has 1,563 bays for parking by customers who visit the store. Other than the sales people located on the floors, the store has 26 cashiers who serve the customers by receipting their purchases (IKEA Group 2008).
Besides the stores in Oman and Qatar, the retail business later established new stores in Saudi Arabia and Kuwait. However, these came later after the stores in Oman and Qatar were established. In 2012, IKEA revealed that it will dedicate 20 billion pounds for store expansion. In a report by the officials of the retail business, it was identified that it planned to double the pace of the store opening until year 2020 as the flat-pack retailer of furniture aggressively expands in an investment drive not exceeding 20 million pounds. In addition to this, it was reported that the business could develop in size by at least 50% by the time the decade ends under the planned target of opening 20-25 stores in a year as it seeks to venture and establish itself in emerging markets such as China and India (IKEA Group 2008). Further, the official said that the business was intending to expand in countries such as Egypt where its presence was relatively small.
On the IKEA website, it was posted that each store would need an investment worth 60-100 million pounds. In addition, these stores would employ about 300 to 500 people implying that the group could ultimately spend large sums of 20 million pounds, and create at least 100,000 employment opportunities by 2020 in the Middle East including Cairo, Egypt.
According to the company’s website, the annual turnover realized as a result of expanding in the Middle East until August had hit as high as 7 percent. This was a suggestion that the expansion to the Middle East market had a massive contribution to the aggregate growth, which stood at 26.9 billion pounds (IKEA Group 2008). With the company aiming to establish a store in Cairo Egypt, there are lessons that the company learnt regarding positives and negatives arising out the expansion to the idle East. However, the company is working out on these impacts, especially on the negative, in readiness for the Egyptian market. As such, these impacts will guide the business as it ventures into Cairo (IKEA Group 2008).
How expansion in the Middle East has affected IKEA
Foremost, as it is with the company’s social mission, IKEA’s expansion into different countries in the Middle East has helped the company come across a vast number of cultures, understand them, and thereby seeking ways to deliver product designs that suit their needs and wants. As such, when the target market feels that they are being acknowledged, they become loyal to the business, and they help attract more customers. Indeed, this attribute can be said to be the one that has led to the increased sale revenue in the Middle East (Matt, 2011).
Secondly, the economic conditions in the Middle East are considered to be adverse and to a large extent not adequately supportive to business. Financial analysts have indicated that the income growth, as well as the productivity of businesses in the Middle East is overwhelmingly low (Preston, 2012). In addition, both the level of economic growth and job opportunities creation has been branded as too slow in keeping up with the expanding workforce. All these are characters of a market that is not ideal for businesses. However, regardless of the prevailing conditions, IKEA is still faring well in this market owing to the nature of expansion of the retail business line. As such, it has learnt the most appropriate manner to get the best despite the prevailing conditions (Matt 2011). These lessons have been learnt from its experience into other markets globally.
Further, out of these expansions, the retail business is increasingly being able to take advantage of untapped markets; thus increasing the customer base and ultimately, the sales revenue of the company grows. As a result, the company desires to venture or expand into other regions. The Middle East countries are amongst the most populous (Matt 2011). This means that expansions into the Middle East market are an ideal option as more target markets are reached.
Negative Impacts
Expansion into India has proved to be a massive drawback as the Indian government limited what the company could sell. As such, certain products such as office supplies and textile products have been forbidden thereby cutting the number of product categories that IKEA can sell from 29 to 15 (Badhe 2012).
In Saudi Arabia, acknowledging that women were marginalized, the company removed the female gender images from the Saudi Arabian edition of its catalogue in a bid to mitigate the risk of upsetting the Saudi customers. However, this was met with fierce criticisms by the Saudi government, as well as the press (Surowiecki 2011).
How IKEA is dealing with these negatives and how it is improving
IKEA, through its much celebrated officials, raised this issue of being limited by the Indian government. Therefore, after a long deliberation by the Indian government, it was declared that the government liberate its rules on investments by foreign retailers, thereby allow global supermarket chains (Badhe 2012). In addition, the Indian Government resorted into lifting a ban it had imposed on investing on single-brand retailers including IKEA. Today, IKEA continues to claim a large market share in the aggregate business sector, in India. Indeed, it is considered as a competitive force even by strong multinational corporations. It is now planning to open a flagship store in Calcutta based on the population in the city.
In response to the criticism, IKEA opted to make a public apology and expressed its intent of restoring the original catalogue (Surowiecki 2011). This move was readily accepted, and the company’s status was reinstated. Just like in the Indian market where challenges had occurred, the company thereafter experienced a massive support from the Saudi customers.
References
Badhe, S., 2012. Ikea: Swedish social democracy meets DIY-unfriendly Indians. The Economic Times, 11 Dec. p.7.
Carroll, W., 2009. Global Expansion: The Case of IKEA. American Journal of International Marketing, 9 (2), pp.6-24.
IKEA Group., 2008. For the Many: Facts and Figures. (e-book). Available at< >
Matt, D., 2011. How has IKEA Benefited from Global Expansion. International Marketing, 12 (4), pp.23-27.
Preston, J., 2012. Ikea Apologizes for Removing Women From Saudi Catalog. The New York Times, 2 0ct. p.4b.
Segal-Horn, S. and Faulkner, D., 2010. Understanding Global Strategy. Belmont: Cengage Learning.
Surowiecki, J., 2011. The Tyrant Tax. The New Yorker, 7 Mar. p.23.
