International Trade Managemet

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Contents
1.Introduction ............................................................................................................................................... 3
2.The Company ............................................................................................................................................. 4
2.1.SWOT Analysis .................................................................................................................................... 6
2.1.1.Strength........................................................................................................................................ 7
2.1.2.Weakness ..................................................................................................................................... 8
2.1.3.Opportunities ............................................................................................................................... 9
2.1.4.Threats ........................................................................................................................................... 10
3. PESTLE Analysis ....................................................................................................................................... 10
3.1. Political factors ........................................................................................................................... 10
3.2. Legal factors ..................................................................................................................................... 11
3.3. Economic factors.............................................................................................................................. 12
3.4. Socio cultural factors........................................................................................................................ 14
3.5.Technological factors ........................................................................................................................ 15
3.6. Environmental factors...................................................................................................................... 16
4.Internationalization Strategy ................................................................................................................... 17
4.1. IKEA’s local competitors in South Africa ........................................................................... 18
4.2. Entry strategy options ...................................................................................................................... 19
4.2.1. Direct exporting ............................................................................................................................ 20
4.2.2. Wholly owned subsidiary .............................................................................................................. 20
4.2.3. Joint venture ................................................................................................................................. 20
4.2.4. Franchising .................................................................................................................................... 21
4.3. Marketing mix .................................................................................................................................. 21
4.3.1.Product........................................................................................................................................... 22
4.3.2.Price ............................................................................................................................................... 22
4.3.3.Place ............................................................................................................................................... 22
4.3.4. Promotion ..................................................................................................................................... 23
5. Conclusion & Recommendations ............................................................................................................ 23
References .................................................................................................................................................. 25

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1.Introduction

Founded in Sweden in 1926 by Ingvar Kamprad, using his family’s farm as the base for “supply
chain”, IKEA has become a global leading company in the furniture sector (IKEA 2018). Today
IKEA has just under 700 million visitors a year to 403 stores in over 49 countries having more
than 190.000 employees working together around the world. Moreover, IKEA's total income
increased by 1.7% or approximately €36 billion, retail sales was €34.1 billion, and rental revenue
from Centers was €1.0 billion (IKEA 2017, BBC 2017).
The IKEA Concept is to provide “a wide range of well-designed, functional home furnishing
products at prices so low that as many people as possible will be able to afford them” (IKEA
Systems 2017).
IKEA provides a broad range of furnishing products from all household, baby and children
goods, to food items (IKEA 2018). This remarkable variety of products is particularly due to the
reality that IKEA is outsourcing its manufacturing. It takes benefit of the inexpensive
manufacturing sources available globally (HBR 2018).
In order to reduce the costs, IKEA’s products are mostly produced in developing countries and
assembly of these products is done by consumers to save spot and simplify the manufacturing
process (HBR 2018).

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This paper aims to analyse IKEA’s internationalisation process into South African market
referring to relevant theories such as SWOT and PESTLE analysis. Moreover, there will be an
evaluation of different entry modes examined; through this identification the most suitable entry
strategy will be chosen. The last section will provide an appropriate conclusion by covering also
further recommendations for the company.

2.The Company

IKEA combines quality, function, value, design and sustainability to provide a vast range of
ready-to-assemble home furnishing products at an affordable price (IKEA, 2018). It offers a
wide variety of products from plants, toys, kitchen appliances to furnishings for living-rooms
(IKEA, 2018). They have about 12,000 products of which each store has a selection of the
12,000 products, provided by 1,350 suppliers from 50 different countries (IKEA, 2018). Majority
of their products are sourced from Europe (64%) and Asia (33%), focusing on cost-efficiency
and quality. Apart from offering home products, IKEA offers services such as delivery,
installations, financing etc. (fantastichandyman 2018, The Economist 2017) to save time and
effort for customers. IKEA also operates its cafes in its stores since 1958, where 30% of
shoppers come only to eat, earning them $1.6 billion in revenues in 2016 (Maynard, 2017).
IKEA is involved in 4 industrial sectors which are, Raw materials, Manufacturing, Distribution
and Retailing (Businesscasestudies 2018, Financial Times, 2016). The company develops natural
resources such as timber and minerals themselves and also procures raw materials from different
suppliers. They use the raw materials to manufacture them into finished products and use their
distribution channels to deliver the products to their stores around the world
(Businesscasestudies, 2018).

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Real estate industry, expansion, urbanisation and disposal incomes have enhanced the world home décor
market growth and market player opportunities (Alliedmarketresearch 2015). Additionally, customer
preference in regards to adaption and eco-friendly products usage have risen, thus something IKEA
understands (Alliedmarketresearch 2015). IKEA’s produces products which have insignificant impact on
the environment.

IKEA’s sale per region Source: Statista 2017 Source: Statista 2017

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 Source: Euromonitor 2017

2.1.SWOT Analysis

Strength Weakness

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· Good quality at lowest prices · Dependent on Europe
· Vast product range · Product recalls
· Targets diverse customer segments · Does not target premium market
· Multi-channel retailing
· Existing brand image
· Focus on sustainability
· Internationalization Experience
· Extra Services

Opportunity Threat

· Growing furniture industry in Americas and · Intense competition

Europe · Rivals using competitive pricing
· Growing online retailing · Rising labour costs in Europe and
· Restaurant china
· Growing furniture market in South Africa

2.1.1.Strength

IKEA is able to produce good quality products at the lowest prices, compared to its competitors
(Panagiotaropoulou, 2015; Circleinternational.co.uk, n.d.). They are capable of doing this as they
maintain a cost-effective supply chain in both Asia and Europe. IKEA also makes unassembled
furniture that are assembled by customers, thus reducing transportation costs further (European
Commission, 2008) . The lower costs are reflected in the prices offered to customers, which
competitors are not able duplicate, and charge higher prices for the same quality of the furniture
they produce.
IKEA has the largest range of products under their umbrella. 12,000 different products provide
extensive furniture for kitchen, dining, bedroom, living room, children room, office room and
offices and hospitality. Having an extensive line of products enables them to cater furnishing to
all clients (Scott, 2018). As IKEA is able to target a diverse customer group effectively, it

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provides them an edge over its competitors (Researchgate, 2010), as most of its competitors are
not able to reach such diverse customer groups.
IKEA uses multi-channel retailing which includes integration of stores, catalogues and e-
commerce (McKinsey&Company, 2009) to satisfy its diverse customers. It has 2.1 billion visits
to Ikea.com and 137 million visits to its catalogue and store apps (IKEA, 2018).
Using the multi-channel retailing strategy, it shows that shoppers have a higher frequency and
value of purchase than the single channel customers, allowing them to dominate amongst its
competitors in the multi-channel retailing industry.
Company’s trivial brand image and substantial market presence boosts their bargaining power
(Harapiak, 2013). IKEA is a household name in 49 countries, with 417 stores in 2017, and are
often seen in advertisements, purposely sustaining their presence in the mind of its customers,
allowing them to stay ahead of their competitors.
With a significant focus on sustainability they have strengthen their brand image further by
creation of goodwill and responsibility in the mind of their consumers and stakeholders. They
have been working on sustainability since 1990’s, focusing on sustainable products and
sustainable way of using resources (edie.net, 2018; Rowell, 2017). IKEA applies Product
Sustainability Scorecard, a tool to build business case for and measure, development of further
sustainable products as 54% of their sales were of more sustainable goods (IKEA, 2010).
Its experience in internationalization highly benefits IKEA, as they are aware of different
conditions to operate businesses in (Jonsson and Foss, 2011)
Other services such as delivery, financing, restaurants, among others, are added value to Ikeas
customers (Harvard Business Review, 2015), making them different from its rivals.

2.1.2.Weakness

IKEA has its highest market share in Europe with 79% , and proving to be over dependent on
Europe (Dawson and Mukoyama, 2013). Having an overdependence increases the risk of
exposure to local climatic and economic conditions such as economic recession, labor strikes,
bre-exit and higher wages, among others (Hill, 2011). This increases the business risk and can
affect its business opportunities in other markets.

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IKEA has had several products recalled in recent times. For example, in 2016, IKEA recalled all
its GOTHEM table and floor lamps due to a danger in electric shocks (LIN, 2016). In 2016 they
recalled HYBY or LOCK ceiling lamps as customers reported that the glass shades were falling
from the lamps (BBC News, 2016) , among other recalls. Recalls of products can affect the
brand value brand image, resulting in lower sales.
The recent tax investigation taken up by the European Union claiming Ikea’s corporate tax
avoidance since 2006 (Ft.com, 2017) is also contributing to the questioning of Ikea’s
transparency and responsibility. Further events such as these can affect the brand value and
image, resulting in lower sales and lower perceived brand value.
IKEA does not target the premium market with luxury items (Soliman, 2016). As they only
target middle-income and aspiring middle-income markets, the revenue from the premium
market is lost to competitors like Zara.

2.1.3.Opportunities

The furniture industry is growing in a constant rate around the world. The American furniture is
said to grow at around 2.9% CAGR through 2019 (Brand, 2017). The furniture market in Europe
is predicted to grow slower than America’s at 2.0% till 2021 (Statista, 2018). The online retail
business is growing faster in both the countries. IKEA can capitalize in this growth as they have
the highest financial and managerial capability in the furniture industry.
Ikea’s restaurants are highly rated by some customers, as 30% of shoppers come to only eat at
IKEA (Forbes, 2017). They can begin their own separate restaurant businesses, thus tapping into
a different segment, and enjoying higher profits.
Africa expects a growth in the furniture market of 11.8% CAGR until 2022, from US$351m in
2018 to US$547 in 2022 (Statista, 2018). IKEA can capitalize on this growth to spread its risks
and reduce its dependence in Europe.
The South African government said in its Industrial Policy Action Plan (IPAP) that it will boost
the capacity of the furniture manufacturing industry (allAfrica.com, 2016), referring to aids and
subsidies, as it will reduce unemployment and increase exports.

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2.1.4.Threats

The furniture industry is highly competitive where high fragmentation of the market exists and
sales coming from independent dealers, local and international chains, furniture centers,
manufactured-owned stores, national and local chains, mass market retailers and department
stores (Schneider, n.d.). Rise in sales for such stores can lead to lower sales for IKEA, which can
have negative impacts on Ikea’s business.
Companies like Walmart, Asda, Tesco, etc. use competitive price cuts to the increasing pricing
pressures which leads to losses. This forces IKEA to reduce their prices and experience fall in
profits, effecting their business (Wood, 2011)
The wages of labor have been increasing in Europe and china. This can adversely impact the cost
of production for IKEA. The hourly wage in China in 2016 was $3.60, spiking 64% from 2011
(Yan, 2018), and is still on the rise as the demand for Chinese labor rise. The hourly wages in the
Euro area increased by 1.5% and 2.3% in the EU-28 in the 4th quarter of 2017 (Ec.europa.eu,
2018). Economists predict that the labor wages will continue to increase in the future. Ikea
produces majority of its products in Europe and China and with current rise in the costs will
hamper the profitability of Ikea’s products.

3. PESTLE Analysis

3.1. Political factors

South Africa has a parliamentary democracy, and it is a federal republic. The president is both
the head of the Government and chief of state. The President serves a five year term and is
usually elected by the Parliament (Heritage, 2018).
Current Leader
o President: Cyril Ramaphosa ANC (Since 2018 February) has a promising agenda, to
stabilise the economy and structural reforms (TheGudian 2018) thus suggesting stability and
continuity in government, post 2019 elections

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 o Executive Deputy President: David Mabuza ANC (Since 2018 February)
In terms of the legislative power, there is a bicameral legislature in South Africa. Under the
proportional representation, parliament members are elected through a popular vote, to serve a
five year period (SantanderTrade 2018).
Government’s efforts to encourage FDI:
Foreign investors are able to enter most business sectors. No governmental approval is needed
and there are minimal restriction on the way in which the foreign entities will invest and the
amount (SantanderTrade 2018; BusinessLive 2018). Furthermore, numerous measures have been
implemented by the government, including better regularly policy on competition, protection of
intellectual property (Deloitte 2016), incentive and simple tax rules (Economist 2018). An
example of the measure is the skills support programme which offers 30% of workers’ salaries
and 50% of training costs (SantanderTrade 2018) thus beneficial to Ikea.
Alternatively, the political interference within South Africa, makes the judicial system
progressively vulnerable, regular political backbiting and several scandals have brutally
undermined the integrity of the government (Heritage 2018). The corruption index 2017, rank
South Africa 71 out 180 (Transparency 2018) thus suggesting the insufficiency of the
anticorruption statutes enforcements. Keeping records, accounts and books, which truthfully
reflect Ikea’s assets and transaction, will reduce corruption.

3.2. Legal factors

In 1994, South Africa saw the beginning of democracy, which led to fair rights within the Bill of
Rights and the Constitution (Labourguide 2018). In the Constitution the following rights are
protected: Section 18: Freedom of Association and Section 23: Labour Relations e.g. striking and
fair labour practices (Legalandtax 2016). Refer to figure 1, for key employment laws, crucial to
Ikea operating efficiently within South Africa.
Employment law

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 Source: Employment laws (Ilo 2002; PWC 2017)

3.3. Economic factors

The leading economy is Sub-Sahara is South Africa, in front of Nigeria. 75% of the largest
African companies originate from South Africa and the subsoil is very rich (Focus 2018; BBC
2016). The economy depends heavily within the mining sector, in addition to the vigorous
financial and agricultural sectors (SantanderTrade 2018). Ikea will belong to the third largest
sector trade (Refer to figure 1). Furthermore, within the continent South Africa has the largest
stock exchange (Heritage, 2018).
South Africa’s GDP, is likely to increase from 0.8 % 2017 (Statssa 2018) to 1.6% in 2018/2019
(IMF 2018). The purchasing power parity (PPP) has gradually increased from 750 billion USD
to 757.2 billion USD (CIA 2018). GDP per capita has decreased slightly from, 416, 87 billion
USD in 2011 (Worldbank 2000; WTO 2000) to 294.84 billion USD in 2016 (Statssa 2018;
TradingEconomies 2018).
South Africa is the 4th largest producer of diamonds (MiningAfrica 2017). In 2016, South Africa
imported $73.7 billion and exported 69.1 billion, causing a negative trade balance of $4.57
billion (Atlas 2017). Moreover, 4.2% is the average applied tariff (Heritage 2018). Moreover,
non-residence are only taxed on income obtained within South Africa (Deloitte 2016). Top
cooperate tax is 28% (Deloitte 2016). Moreover, taxes consist of capital gains taxes and value-
added (Heritage 2018).

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 Services contribution to the GDP (AgriCouncil 2017)

Economy Activity by sector (WorldBank 2018)

Macro-Economic Indicators of South Africa:

It can be concluded that South Africa’s growth has slowed down because of the global
competitiveness decline, political instability growth, and the decline in rule of law that occurred
in 2017 thus affecting investment-grade credit rating, to be reduced to a junk bond status,

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damaging the investor’s confidence in the country’s economic stability (Heritage 2018). In
addition, Ease of doing business has dropped from 32nd in 2008 to 86th in 2018 (Doing Business
2018).
The government must sustain macroeconomic constancy while facing a mixture of spending
pressures, rising public debt and state-owned enterprises inefficiency (Santander 2018).
Furthermore, inequalities and poverty are causes of high risk (demonstration, crime and strikes)
(Coface 2018; Euromointor 2017; OECD 2017; Goldmansachs 2015). Roughly 16.6% of the
population live below the poverty line (DailyMaverick 2018), unemployment has risen to 27.7%
(CIA 2018), 54.3% of them, are aged between 15 and 24. Additionally, HIV/AID is a constant
concern within South Africa (UN 2018). Hidden costs seem highly likely within South Africa,
therefore Ikea will need to overestimate budget. Additionally, Ikea will need to purchase
insurance to cover them, against the high crime risk.

3.4. Socio cultural factors

Within South Africa, highly-skilled labour force, is in short supply (Coface 2018; Economist
2018) and immigration laws make hiring foreign workers challenging (Santander 2018). Lastly,
South Africa is reliant on volatile flows of foreign capital and it has inadequate infrastructures
e.g. energy and transport (EY 2017; Santander 2018).

The better life index (OECD 2017)

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South Africa’s population is 57.19 million (WorldMeters 2018) and by 2050 South Africa is
estimated to have risen to 72.75 million (UN 2018). The urban population consists of 62.9% in
2018 (Mckinsey 2017; CIA 2018) and the labour force grew by 577 000 to 22.19 million (CIA
2018; Statssa 2017). Additionally, 36.6 million inhabitants are of the 15-64 working age (Statssa
2016). South Africa is a young nation with a medium age of 26.8 (WorldPopulation 2018) thus
vital for Ikea who targets young families with average incomes. South Africa’s official business
language is English which is spoken by 9.6% of the population and Afrikaans 13.5%
(SantanderTrade 2018; CIA 2018). Additionally there are 11 official languages (BusinessTech
2018).
It can be assed that the new ‘black middle class’ is relatively brand conscious and has a high
spending power(McKinsey 2018). South Africa’s middle class have a household income of
465.81 USD and 3328. 00 USD excluding tax (MG 2016). Their average disposable income is
10, 872 USD (OECD 2018) and in Johannesburg its 20,900 USD (Euromonitor 2016) thus
suggesting Ikea should enter Johannesburg first due to the vast opportunities. These customers
seek classy goods, and they have a tendency to spend minimal on housing or vital commodities
(SantanderTrade 2018).

3.5.Technological factors

Within Africa, South Africa has the biggest market in information technology (Export 2017;
HBR 2016). South Africa, possess technological leadership within security software, software
field and electronic banking services (Export 2017) thus highlighting Ikea’s potential reliability
and protection of users when Ikea eventually enters the online retailing. As a result of South
Africa’s electronics and ICT sectors both developing and sophisticated thus strong contributing
factors to the rise of private consumption through smartphones (ITNewsAfrica 2017). However,
due lack of inner-city infrastructure and connectivity, rural area will remain price sensitive (HBR
2017; MG 2017).
Furthermore, free Wi-Fi Hubs have been created within numerous metropolitans’ areas,
specifically within townships (PWC 2018; Export 2018). There are currently 10, 000 Wi-Fi
hotspots around the country due to the demand increase (BBC 2017).

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3.6. Environmental factors

By 2020 South Africa has made a self-determined pledge to decrease greenhouse emission by
34% (Ensafrica 2017) and 42% decrease by 2025 (PracticeLaw 2017). However the
government’s target needs a substantial amount of help from developed markets. Moreover,
Ikea’s core values are in line with the government’s agenda thus suggesting Ikea’s prosperous
growth within South Africa.
The challenges faced within South Africa are multifaceted: Limited underground aquifers, low
rainfalls and South Africa is heavily dependent on neighbouring nation’s water transfers (BCG
2017; Mckinsey 2015; UN 2011). In addition, It has been highlighted that the basins which
supplies large cities e.g. Cape Town are predicated to endure severe gaps brought by increase
industrial household demand (Refer to figure below).

Figure 6: Water demands (Mckinsey 2015)

Within South Africa, 0.4% of the country’s landmass is govered by natural foresets, although it
isn’t vast, there is a potential for Ikea to manufacture within South Africa (Foresty 2016).

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 Figure 7: South Africa’s forests (Foresty 2016)

4.Internationalization Strategy

Overseas market actions of an international company are strongly relying on its entry mode
option . Electing an appropriate entry strategy is vital for company’s success or failure in the new
market due to the fact that one the entry strategy is chosen it will be part of the long term internal
procedures and thus, it cannot be modified in the short term if the expected outcome it is not
achieved (Mitra & Golder, 2002). Doz and Prahalad (1984) enlightened the idea according to
which there are four main categories of international strategy that might be adopted as shown in
the above figure. The strategy is highly dependent on the local openness and global integration
pressure.

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In terms of internationalization process, IKEA has pursued the Uppsala Model by entering in the
surrounding markets where the psychic distance is minimal. The expansion into more distant
ones came later as they needed to acquire more market knowledge ( Johanson & Vahlne 1977).

4.1. IKEA’s local competitors in South Africa

Burke and Hussels (2013) stated in an article in the Harvard Business Review that organizations
which are exposed to competition early into their operations establish an immunizing effect and
its life span increases in long-term survival perspective. The South African market of home
furnishings instil several competitors with low market shares. In the image 2A can be seen the
market shares of the companies in the industry, showing no dominant players.

Source: Euromonitor International, 2018

The competitor, Mr Price offers modernized products that are designed locally using low-cost,
low- price strategy, targeting mass lower and middle customers who want to buy knock-down
and completed furniture, stretching from home accessories, kitchenware to home textiles
(MrPrinceGroup, 2018). They possess the highest market share value of 5.5% in 2016 (Passport,
2017), proving to be one of the market leader but not having dominance over competitors. In an
interview of a manager from Mr Prince’s stores, he stated that it is difficult to manufacture
quality products at an affordable price (Vukovic, Zarifnejad and Lundgren, 2010), thus not being
able to deliver high quality, at affordable prices.
South Africa’s third largest furniture brand is Lewis of Lewis Group Limited, which was
founded in 1934, operates 761 stores in South Africa and contributes 70% of the group’s sales.
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They are small stores from 450 square meters to 250 square meters (Lewisgroup, 2018)
compared to Ikea’s average store size of 27,871 square meters. They sell home furnishing to
electronics and is known for credit sales, targeting lower to middle income groups (Lewisgroup,
2018).
A part of the JD Group is Joshua Doore, also known as JD. It produces appliances, home
entertainment, furniture, office automatn, targeting the mass middle segment of South Africa
(Bloomberg, 2018). JD focuses in good innovative business and services, proposing large vareity
of furniture, entertainment merchandisse and household appliances. However, it has lost its
dominance in the past few years as their value of market shares has been declining since 2012
and has rrached 2.6% form a staggering 8.5% in 2012 (Passport, 2017)
It has closed down several of its stores, claiming it to be their restructing strategy which focuses
on less credit sales and higher cash sales (Euromonitor International, 2017)

Source: Euromonitor International

4.2. Entry strategy options

According to Doz and Prahalad (1984) theory, IKEA used several strategies across the years
such as "transnational", "global" and "international" one. Initially, the company has implemented
it's international policy into Norway. However, later on, in 1980, the company decided to go

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global with their standardized range products, by expanding in the United States. Later on, the
company entered the Chinese market with a transnational strategy, making the necessary
adjustments to suit the local environment (Hill, 2011).
In terms of entering the South African market, there are four options such as direct exporting,
franchising, wholly owned subsidiary, and joint venture partnership. In the following section
each option will be discussed and most suitable one will be recommended.

4.2.1. Direct exporting

Direct exporting will imply the outsource of the IKEA brand, namely exporting products to a
South African furniture retailer, who would on-sell the products at his turn. One of the main
advantage of this option is the initial investment low cost and low to none restriction, due to the
trade agreements which are in place, for importing furniture into South Africa. Nevertheless,
some negative implications for direct exporting are linked with the high costs of transportation
and all the supply chain section, if there's little or scarce availability of producers nearby
(Lévesque and Shepherd 2004).The cost pressure would impact IKEA's cost of goods and thus,
might have a huge impact upon its attractiveness in the new market.

4.2.2. Wholly owned subsidiary

Expanding through a wholly owned subsidiary option into South Africa might be considered a
risky option due to the high cost initial investments
(R.E. Hoskisson, L. Eden, C.M. Lau, M.Wright 2000). However, this financial risk can be
avoided through the establishment of a production facility in the market, as they did in Mexico.
Other than this, the corruption and bribery risks have to be taken into consideration when taking
such decision but, as an overall tendency, the offsetting these risks might bring to IKEA a full
control of business, strategic flexibility and high profits.

4.2.3. Joint venture

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A joint venture with a local partner will provide IKEA with the know-how with regards the local
environment and culture, in order to avoid an unwanted approach, providing an significant
advantage in terms of adapting the products and business model to local conditions (Xiaoyun
Chen, Alex Xin Chen, and Kevin Zheng Zhou 2014). On the other hand, the possible risk that
might arise in this case is linked with the loss in decision making process and therefore IKEA's
loss of control upon its business. Strategies might differ and the conflict with the partner is
considered a risk that the company has to consider.

4.2.4. Franchising

Last but not least, the franchising agreement strategy is considered to be the most suitable option
in this case, when entering the South African market, due to the fact that allows IKEA to have a
full control upon its brand and strategy options, at a reasonable cost, the financial risk being a
low one. Also, the profit margin might be lower than in the case of a wholly owned subsidiary.
They will need to adjust and asses this strategy in conformity with the legislation and tax
agreements before making a decision (Aliouche, H. E., & Schlentrich, U. A. 2011 ). In addition,
IKEA has successfully franchised in other emerging markets such as Russia, Dominican
Republic, and Eastern Europe which makes it easier as they already have experience (Alon, I.
2006).

4.3. Marketing mix

In order to accomplish great success, IKEA has to make set of actions or tactics to promote its
product and brand in the chosen market. The 4Ps helps in guiding and directing marketing and
business strategy. Using it effectively, it helps business to learn about customers needs and
behaviours (McCharty 1960:53). However, as new trends and technology emerge, accordingly to
Harvard Business review, 4Ps may need to be updated to fit with 21st century consumer.

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4.3.1.Product

IKEA should continue offering stylish, functional products and home furnishing such as plants,
toys, kitchen appliances to furnishings for living-rooms in the new targeted country (IKEA,
2018). However, in order to be successful, they need to adopt products to South African needs as
they have smaller homes in comparison to western nations. In addition, IKEA should consider
the opportunity to extend into the garden and outdoor products due to the South African high
temperatures (Climate 2016).

4.3.2.Price

The best option for IKEA would be to compete by targeting middle and upper classes in urban
areas as both middle and upper classes buy products based on convenience and quality.
Furthermore, young families who values affordable prices and quality furniture tend to be the
most suitable customers for IKEA in South Africa. Using price leadership strategy will increase
the company’s competency in terms of cost efficiency and improve supply-chain management
abilities.

4.3.3.Place

This section is highlighting the new market that IKEA should consider to enter. Firstly, investing
in South Africa will considerably reduce the home bias, receiving a higher portfolio return.
Secondly, South Africa is well known for its efficiency in terms of the financial factors, offering
a high degree of protection for investors. As it’s shown in the below picture, South Africa has
the biggest market share percentage compared with the other African countries.
As referred to South Africa, IKEA should target the biggest rural areas where the buying power
is higher compared to the rural ones. Some of the major cities that needs to be targeted are
Johannesburg, Cape Town, Durdan and Pretoria (The Economist 2016).

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 Source: FDI
Africa’s hub
economics (EY
2016)

4.3.4.
Promotion

A majority (86%) of South African population are using cell phones. It is a mobile first market,
while Internet use is still growing. IKEA's promotion strategy should be focused on wide use of
mobile phone advertising, due to a huge increase in use of m-commerce and in Internet retailing
via mobile phone in South Africa. In that way IKEA can reach South African consumers
effectively. Although, the traditional media cannot be ignored as TV and Radio has still an
enormous reach. Subsequently, IKEA can use its product catalogue and in that way expand their
customer base.

5. Conclusion & Recommendations

Accordingly to all conducted analysis, South Africa represents the best option for IKEA’s
expansion into an emerging market. However, as mentioned above, a further recommendation
for IKEA is to conduct an additional research at the local level before launching or making any
investment. In relation to its competitors, a recommendation for IKEA is to enter the market
sooner rather than later, so a competitive advantage in terms of expanding its brand awareness
will represent a plus for them, benefiting from the moving at an early stage. In relation to the

23
entry mode into South Africa, the most feasible approach that can be undertaken by IKEA is the
franchising one, maintaining in the same time its transnational strategy. The conducted analysis
indicates that South Africa is most likely to result in success for IKEA. As was mentioned in the
Product section, an investigation of South African’s cultural readiness should be conducted. If
required, IKEA should customise its brand, product range and prices according to the local
environment. Nevertheless, the past experiences in the emerging markets with the franchising
model should consist a starting point in this expansion. IKEA needs to provide South Africans,
with a multilingual sales team, to cater to customer’s needs. Furthermore, hiring a specialist
agency to manage, guide and mitigate risks, is vital for Ikea’s success.
IKEA should consider a budgeting system in conformity with the laws and regulations within
South Africa which are 9 or 8 hours a day with an overall of 45 hours in a week (Ilo 2002). Thus,
the minimum wage is R20 per hour (1.38 Euros), gaining R500 for 40 hour week (approximately
25 Euros) (Fin 2017). In addition, IKEA may need to take into consideration Cape Town and
Johannesburg as the main targeted cities because of their substantial profit margins as a result of
the growing middle class situated within these cities. Value perception is the biggest persuading
factor for South African consumers, in regards to a retail store, brand and the purchasing
decision (SantanderTrade 2018). When prices are priced fairly, South African are relatively
brand loyal (Businesslive 2018) this therefore implies that Ikea’s modestly priced, ready-to
assemble furniture will be successful in South Africa. Discounts are vital for the South African
consumer, therefore they shop across numerous channels (Euromointor 2017). Customer service
and after sales are tremendously important to South Africans, specifically in terms of space part
services and providing technical assistance (SantanderTrade 2018). As a result, in up-coming
years, IKEA will need to establish an online presence and provide their employees with
extensively training, to stay competitive.
IKEA should also bear in mind the high purchase costs of property in South Africa, high
inflation, and high crime rate in some urban areas.
To conclude, IKEA’s franchising option into South Africa represent a feasible procedure in
entering the African continent and provides further opportunities to expand in the surrounding
regions. However the board of directors should adapt this strategy according to local laws and
regulations fitting the targeted market.

24
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27
 Weekly meeting

21/02 28/02 07/03 14/03 21/03 28/03

Radh      

Loredana      

Natasa      

Muna      

Nadira      

Key :

 = Present
X = Absent

28
Team members names Parts undertaken

Radh The Company

Internationalization Strategy

Introduction
Loredana Internationalization Strategy
Conclusion & Recommendations
Proof reader

Natasa Introduction
Internationalization Strategy
Conclusion & Recommendations

Muna The Company

The Target Country
Proof reader

Nadira Introduction
The Target Country

29