Business Proposal

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BusinessProposal

Tableof contents

Introduction 3

Statementof opportunity 4

Objective 4

Scope

Thechallenge 4

Resourcesrequired 6

Costand benefits analysis 7

Managementplan 9

Conclusion 9

References 11

Marketexpansion, IKEA

Theglobal furniture market has undergone numerous transformations in therecent past. Traditionally, children inherited furniture from theirparents. However, this has changed significantly. This has introducednew buying patterns among furniture customers. It is important tonote that furniture is a basic requirement in a home. Modernizationand globalization has created a new and homogeneous market withsimilar buying patterns and preferences. Additionally, traditionalfactors that have had a huge influence in the furniture market remainsignificant. The emerging middle class in both traditional andemerging markets provides an expanded market for the furnitureindustry. The younger generations, who are acquiring homes for theiryoung families are more prone to buying low cost furniture in fortheir homes. To tap this market, IKEA is working hard to designproducts that will cater for the increased market. The corporatestructure of IKEA makes it a perfect furniture company to venture inthe international market. This is in addition to the expansion of themarket to cater for the diverse clients in the traditional markets(Johannson &amp Thelander, 2009). For example, the youngprofessionals have emerged to be the most important furniture market.It is also important to note that IKEA has implemented successfulmarket expansion strategies in several countries in Europe, Asia andAmerica. The success story of IKEA in different markets is powered bythe ability of the company to provide high quality furniture atcompetitive prices. The appealing nature of the IKEA stores settingsand innovative marketing strategies are also some of the strengths ofthe furniture giant. The main driving forces of IKEA are thecorporate slogan and vision statements of the company which states“low prices with meaning” and “to create a better everyday lifefor the many people” respectively (Johannson &amp Thelander,2009).

Statementof opportunity

Inthe modern world, technology has become a powerful force which drivesthe world towards convergence. Technology has enhanced transport andcommunication which has exposed marginalized and isolated societiesto the rests of the world. While the outside would is eager toexploit the resources in the newly discovered or accessiblefrontiers, societies living in these regions are very eager to tastethe benefits of modernity. This has created new realities in thecommercial world. The new frontiers have created new and emergingmarket for consumer goods. The opportunities in these markets areunimaginable. Corporations in the developed world are greatlybenefiting from increased market for their products due to increasedeconomies of scale as well as reduced competition. As a result,expanding the market to global level is a necessity for IKEA.

Objective

Thispaper proposes a market expansion for IKEA to tap new market in boththe traditional markets as well as venture into new geographicalmarket. Geographical expansion of the market will involve venturinginto new frontiers especially in Africa and South America while newmarkets within the traditional market involve meeting the needs ofclient beyond the current market niche.

Scopeof the work

Thechallenge

Inthe recent past, there have been numerous changes in the furnituremarket. In both traditional and emerging markets, IKEA main markethas been the young middle class who prefer low cost trendy furniture.This has been attributed to the changes in demographics andlifestyles in the main market, which has a direct impact on buyingpatterns. For example, in the developed and developing world, thechanges in the average age and income level will directly impact onIKEA market. The furniture market in both traditional markets andemerging markets are very competitive. Despite the huge market shareenjoyed by IKEA in the United States, Europe and other traditionalmarkets, it is faced with intense competition (Harapiak, 2013). It isimportant to note that IKEA is one of the largest furnituremanufacture and seller in the world. It has been able to expand itsmarket in all the major markets, but there are potentials for furtherexpansions. This creates the need for market expansion, in relationto target market and geographically. Additionally, there is anincreased demand in the furniture market for more environmentfriendly product, which has introduced the concept of using waste andrecycled materials in furniture manufacture. IKEA operation andexpansion strategy has always been provision of low priced qualityproduct to the customers. Despite the competitiveness of theindustry, IKEA has thrived on constantly reducing the prices of theirproducts by up to three percent per year. The company analysis thecompetitors prices and reduces their prices accordingly to remaincompetitive (Harapiak, 2013).

Marketexpansion strategies are not a new phenomenon in IKEA’s operations.However, the company has faced several pitfalls and challenges in anattempt to build supply and distribution networks that will supportthe expanded market. For example, the company faced numerouschallenges in Eastern Europe due to the confusion that resulted fromthe fall of communism. This resulted into lack of loyalty amongsenior employees in the company’s outlets resulting into maliciousdecisions. However, the absorption of the Swedish furniture company,Swedwood, provided the company with a cheap supply of raw materialsas well as institution knowledge that enabled IKEA to adapt to theEastern Europe market. There are other market expansion strategiesthat have had positive impact on IKEA profitability. For example, thecorporate strategy to expand its operations in Vietnam by partneringwith suppliers in the country resulted into massive expansion of thecompany’s supply base. This is because of the fact that suppliersin Vietnam are able to access cheap raw materials as well asrelatively cheap labor. There is no doubt that IKEA has benefit froman expanded market, especially the international market. Whileremaining committed to its original business concept, IKEA has beenable to adapt to emerging and diverse markets. Irrespective of thelocation of the outlet or store, the values and original concept ofIKEA has not been eroded (Jonsson &amp Foss, 2011).

Resourcesrequired

Expansionof IKEA market will require some form of investment. The resourcesrequired for market expansions include financial resources, mainlymoney and other assets and physical resources such as tangibleproperties and equipment. The expansion will also require adequatehuman resources which include training, experience and knowhow toimplement the business strategy in the new frontiers. Technologicalresources include unique software used by the organization in themanagement process as well as to enhance customer experience. Forexample, IKEA may have unique software that enables customers todesign their homes using the furniture available in the companystore. Modification of the technology to suit the new market may benecessary. Other resources include the reputation of the company orhow the targeted clients perceive the organization and organizationalsystems, routines and structures. The resources required for marketexpansion will be largely influenced by the nature of the specificmarket. Mainly, the resources required will be determined by the sizeof the market as well as the nature of market expansion. For example,geographical expansion will required more resources compared toexpansion of the market to tap a particular client in a traditionalmarket.

Costand benefits analysis

Marketexpansion is one of the most important strategies adopted by businessorganization. Business organizations expand their operations due toseveral reasons, mainly the existence of need in a new market.However, there are costs as well as benefits of business organizationexpanding its operations. Venturing into new market requires IKEA toemploy more people, acquire more spaces, and expand their inventoryas well as their production capacity. On the other hand, an expandedmarket translates into increased sales and consequently increasedprofits. Before making the final decision to venture into new market,it is important for the management to do a cost and benefitsanalysis. If the costs of venturing into new market are more comparedto the benefits, it does not make economic sense to venture into thenew market. On the other hand, IKEA should venture into new marketsif the benefits exceed the projected costs. One of the most importantbenefits that IKEA will accrue from an expanded market is access tonew customers (Hill &amp Jones, 2011). The primary reason forexpanding a market in a business organization is to attract or accesscustomers from new markets. Both geographical and target marketexpansions results into increased access to untapped markets,resulting into increased profits.

Anotherbenefit that can be accrued by IKEA as a result of market expansionis increased economies of scale. Be venturing into new markets, IKEAwill be able to spread economic risks as a result of increased scaleof operation. For example, over reliance on the United States marketmay result into negative consequences if there is a failure in themarket as a result internal or external factors. Additionally,increasing the number of markets allows IKEA to spread the cost ofproduction thus reducing the unit cost. This results into increasedprofits. Expansion of the market will also result into a strongerbrand name. More potential customers will be able to identify thebrand easily if it has an expanded market, thus improving brandrecognition. This refers to the ability of potential customers whohave not used IKEA product to recognize the products. Usually,business organization improves their brand recognition throughadvertisement. However, market expansion improves brand recognitionand ensures that the products are available to the potentialcustomers (Hill &amp Jones, 2011). For example, if IKEA opens abranch in Cape Town, South Africa, a potential customer whorecognizes IKEA products in an online advertisement is likely visitthe store and perhaps but the product.

Onthe other hand, there are some costs associated with businessexpansion. The most important cost of market expansion is the capitalrequirement. IKEA will be required to invest large amounts of capitalin order to successfully venture into new markets. This includes thecost of acquiring new premises, staff and sales promotion in order tohave a market presence. This will result into reduced capital that isavailable for other business transactions. As a result, it isimportant for the management to evaluate the new markets carefully todetermine the amount of capital required compared to the projectedbenefits from the new market. This means that the new market shouldhave a relatively high return on investment. Another cost of marketexpansion that will be faced by IKEA is the risk of spreading thecompany resources and expertise. Expanding the markets will resultinto spreading of expertise in production as well as sales in orderto accommodate the new markets. This may have a negative impact onthe overall performance of the employees. However, if IKEA hasadequate resources and expertise to cater for the expansion, it willnot pose a significant challenge to the organization in general (Hill&amp Jones, 2011).

Managementplan

Marketexpansion, especially, geographical expansion is the most costly andrisky strategic option a management can undertake. However, adequatepreparations as well as strategic decisions based on credible marketsurvey and analysis of the market can be an important breakthroughfor IKEA. In the modern business environment, geographical expansionof the market does not involves opening a new store in a foreigncountry. It involves a management representative from IKEA visitingthe targeted market to identify the gaps in the market. Themanagement should also be ready to employ the services of aprofessional business development entity or a market research entityto identify and analyze the opportunities available in the newfrontiers. It is also important for the management to considerentering into partnership with some of the major furniture producers,dealers and distributors in the targeted market. For example, in theVietnam market, the success of IKEA can be directly attributed to thepartnership between IKEA and the local manufacturers anddistributers. This is based on the fact that cooperation rather thancompetition will favor IKEA in the new market. The management shouldensure that adequate financial, physical, human and other resourcesare made available to the implementing team. For example, themanagement must be willing and able to hire qualified and committedpersonnel to deriver the targeted market. This may include transferof experts from the existing markets to spearhead the expansion plan.Failure to provide adequate resources increases the likelihood offailure in the new market (Kozami, 2009). Above all, the managementneeds to take an active role and take responsibility in the newventure.

Conclusion

Thefurniture market is one of the most competitive and innovativemarkets in the world. This is due to the adoption of technology inmarketing as well as enhancing client experience. Nonetheless, themarket is dominated by large multinationals such as IKEA. There aremany opportunities that are available for IKEA to expand its market.This is mainly due to the changes in life styles and the creation ofhomogeneous clientele distributed throughout the world. Globalizationand resultant integration of economies and societies have madegeographical expansion inevitable. Additionally, changes inlifestyles have also created new market niches in the traditionalmarkets. There are many benefits as well as cost that are associatedwith market expansion. Perhaps, market expansion is the mostexpensive and risky venture a business organization can undertake.However, if the expansion is handled effectively and efficiently bythe management, especially providing all the necessary resources, itwill have a positive impact on IKEA business.

References

Harapiak,C. (2013). “IKEA’s International Expansion” Internationaljournal of business knowledge and innovation in practice1(1), p 25-51.

Hill,C. &amp Jones, G. (2011). Strategicmanagement cases.Washington DC. University of Washington Press.

Johannson,U. &amp Thelander, A. (2009). A standardized approach to the world?IKEA in China”. InternationalJournal of quality and service sciences1(5), p 199-219.

Jonsson,A. &amp Foss, N. (2011). “International expansion through flexiblereplication: Learning from the internationalization experience ofIKEA”. Internationaljournal business studies42 p 1079-1102.

Kozami,A. (2009). Businesspolicy and strategic management,New-Delhi: McGraw-Hill Publisher.