Table of Contents

1. Introduction................................................................................................................................................................................. 1

1.1 Background .......................................................................................................................................................................... 1

1.2 Objective............................................................................................................................................................................... 1

1.3 Scope ..................................................................................................................................................................................... 1

2. Company Overview: IKEA ........................................................................................................................................................ 1

3. Expansion into Emerging Economies ........................................................................................................................................ 2

3.1 Case Study: India ................................................................................................................................................................ 2

3.2 Case Study: China ............................................................................................................................................................... 3

4. PESTLE Analysis........................................................................................................................................................................ 3

4.1 The Political Factors ............................................................................................................................................................ 4

4.2 The Economic Factors ......................................................................................................................................................... 5

4.3 The Social Factors ............................................................................................................................................................... 6

4.4 The Technological Factors .................................................................................................................................................. 7

4.5 The Legal Factors ................................................................................................................................................................ 7

4.6 The Environmental Factors ................................................................................................................................................ 8

5. Porter’s Five Forces .................................................................................................................................................................... 9

5.1 Competition in the Industry ............................................................................................................................................... 9

5.2 Potential of New Entrants in the Industry ....................................................................................................................... 10

5.3 Power of Suppliers ............................................................................................................................................................. 10

5.4 Power of Customers........................................................................................................................................................... 10

5.5 Threat of Substitute Products ........................................................................................................................................... 11

6. Entry into Bangladesh .............................................................................................................................................................. 11

6.1 The Bangladeshi Furniture Industry ............................................................................................................................... 11

6.2 Why IKEA should enter the Bangladeshi Market .......................................................................................................... 12

6.2 Scale of Entry ..................................................................................................................................................................... 13

6.3 Mode of Entry .................................................................................................................................................................... 13

6.4 Localization Strategy ......................................................................................................................................................... 15

7. Marketing Strategy ................................................................................................................................................................... 15

8. Timeline ..................................................................................................................................................................................... 17
1. Introduction
1.1 Background
This report focuses solely on the opportunities that IKEA will have if it enters Bangladesh. The
economic and its associated social advancements of this country are propitious for IKEA. With
the Americana mentality and lifestyle gradually being imprinted on the people of Bangladesh,
IKEA is now seeing it emerge as a glorious market. To understand the business opportunity
better, this report puts forward a detailed PESTLE analysis to limn how the external elements
present in the new market will affect IKEA. There is also a study of the prospect based on the
Portal’s five forces model. To illustrate how IKEA will operate in a market so distinctly different
than the kind of markets it usually operates in, there are case study analyses with regards to
China and India. This paper also holds an explanation of the entry mode, scale of entry,
localization strategy and an answer to the most important question: why Bangladesh?

1.2 Objective
The objectives of this report is to understand in depth how businesses are carried on globally and
how, by dint of the globalization of markets and production, world trade is witnessing
phenomenal forward thrusts. By examining the process of IKEA’s entry into Bangladesh, this
paper attempts to discuss essential topics like entry and localization strategies, and try to
comprehend what actually ensues from globalization and free trade.

1.3 Scope
This report is limited to the periphery of academics and the numbers used are imaginary. The
only purpose of this paper is to study how globalization works and how the theories related to it
can be applied in reality or in situations close to reality.

2. Company Overview: IKEA

Founded by Ingvar Kamprad in 1943 in Sweden, IKEA entered the business realm as a mail
order catalogue business. Now a home furnishings retailer, it was the largest furniture seller in
the entire world at the beginning of the 21st century. Along the timeline of its existence, it went
on giving proof upon proof of superiority. It now boasts 467 stores worldwide in 63 markets,
with over 50 e-commerce markets1. It is valued at over 18B USD. IKEA offers kit or ready to

1
About Us. (2022). Retrieved from IKEA: https://www.ikea.com/gb/en/this-is-ikea/about-us/

[1]
assemble furniture for in-home assembly by the customers themselves. Its iconic flat-packing
was introduced back in 1956.2 This form of packaging ensure a reduction in the company’s costs
and so, cutting prices became easier. This innovative and efficient packaging accompanied by its
affordable prices have won the hearts of its customers. No shareholders own IKEA. A number of
holding companies, non-profit organizations and operating companies control it. In the world of
home decor, IKEA has everything: beds and mattresses, kitchenware, bathroom items, smart
home appliances and whatnot. A key part of IKEA’s success can also be accredited to its
exemplary relationship with its suppliers. Having warehouses within its premises, IKEA’s supply
becomes greatly streamlined. Its Cost-per-Touch technique that requires the customers to retrieve
their purchases, thus enabling IKEA to cut more costs. The store operations in IKEA are aided
by high-flow warehouses, 20% of SKUs that account for 80% of volume, and low-flow
warehouses which are of a manual nature. The application of all these outlook-changing
operational elements make IKEA so great.3

3. Expansion into Emerging Economies

3.1 Case Study: India
IKEA opened on August 09, 2018 its first outlet of 400000 square feet in Hyderabad, India. The
whole process however took more than a decade. First in 2006, IKEA started studying the Indian
market and showed profound interest in entering it. India’s local laws prohibited more than 51%
of foreign ownership, and this made IKEA’s decision to enter India come to a halt. However,
into 2012, the Indian government withdrew this law, which rekindled IKEA’s interest in India. In
June of the same year, the Indian government announced that IKEA could invest up to 600
billion euros in the Indian market. IKEA then came to a decision in 2016 to open 25 stores in

2
IKEA. (n.d.). Retrieved from Britannica: https://www.britannica.com/topic/IKEA
3
QuickBooks Commerce. (2018, July o2). IKEA supply chain: How does IKEA manage its inventory? Retrieved from
TradeGecko: https://www.tradegecko.com/blog/supply-chain-management/ikeas-inventory-management-
strategy-ikea

[2]
India by 2025. Construction of its first outlet started in the same year.4 Now, in total, IKEA has
three stores in India.

3.2 Case Study: China

By opening its first store in Shanghai, IKEA stepped into the Chinese market in 1998. Later on
in 2003, the same store was redesigned and upgraded. China now holds 36 IKEA stores
collaborating with about 300 local suppliers. IKEA’s main marketing tool has always been its
product catalogue. Entering China pushed it to go full on with digital marketing by using the
Chinese social media platforms. Throughout the campaign, IKEA kept an open mind and
shirking its global ideals, it incorporated the local ones. It uses a combination of both
standardized and localized strategies. It had its fair share of trial-and-errors, but in the end it
applied the lessons learned from its mistakes. Collaborating with local shopping centers and
installing pop-up stores helped it to insert itself in the Chinese market strongly. Its products are
also somewhat localized to meet the customer needs. By accepting challenges and changes,
IKEA is now faring well in what was once an unknown market.5

4. PESTLE Analysis
PESTLE Analysis is a globally recognized framework used to gauge and summarize the greater
picture of an industry, company, or market. The acronym PESTLE stands for Political,
Economic, Social, Technological, and Environmental. These are often the burning issues
whenever a company expands into a certain market, and this tool can allow a company better
insight into a potential market. Because of the rather blurry nature of the aspects (such as an
overlap between Political and Legal, or Political and Environmental factors), PESTLE is often
simplified into a PEST Analysis. A PESTLE makes apparent both the potential and the risk of
entering a market.

IKEA, as a major multinational corporation, has accumulated a lot of experience working in a

variety of markets. This intangible capital gives them a head start in analyzing their prospects in

4
Ikea's long way to India: A timeline. (2018, August 09). Retrieved from LiveMint:
https://www.livemint.com/Companies/5sWT0nwARLGx1axunZeJmL/Ikeas-long-road-to-India-A-
timeline.html
5
IKEA in China: Big Furniture Retail Adapts to the Chinese Market. (2021, February 13). Retrieved from
Daxueconsulting: https://daxueconsulting.com/ikea-in-china/

[3]
the Bangladeshi market as well. IKEA’s experience in India and China discussed earlier in the
report, is likely to be the most relevant in this regard. As such, frequent comparisons will be
made to both of these cases.

4.1 The Political Factors

Democracy and Political Rights

Bangladesh is classified as a ‘hybrid regime’ according to the Democracy Index 2021. In other
words, while elections occur, the ruling party maintains power through regular electoral fraud
and persecution of the opposition. Political rights, freedom of speech, and the existence of
democracy often (but not always) translate to a better business environment. Moreover, it is
assumed that more democratic states have stronger institutions and are less likely to fall into a
power vacuum, thus reducing the potential risks of carrying out business there.

Bangladesh is ranked 75th among 167 countries in the Democracy Index 2021, compared to
India’s rank of 46 (‘flawed democracy’) and China’s rank of 148 (‘authoritarian’). 6

Political Stability

An even better marker of risk in opening a business is political stability. A stable regime,
democratic or not, decreases the chance of corporate property vandalism or seizure. The ruling
regime of Bangladesh has been in power since 2009, a position that has been largely
uncontested. Other than a bout of violent strikes in 2015, private property has been largely secure
from political violence. Moreover, while small businesses can fall prey to financial extortion,
large corporations are better insulated from these disruptions.

While countries like India and China do much better on the Ease of Doing Business Index (63rd
and 31st respectively in the 2020 index,) compared to Bangladesh (ranked 168th)7, this does not
specifically account for big corporations. While big businesses operating in China and India are
often under much greater pressure from the national government (such as the discriminatory laws

6
https://www.eiu.com/n/campaigns/democracy-index-2021/
7
https://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-
Business-Regulation-in-190-Economies.pdf

[4]
in China8 and the forceful land acquisition attempts in West Bengal), they are relatively free to
operate in Bangladesh.

Taxation

The corporate tax rate in Bangladesh is 32.5%. This is comparable to the 25.17% corporate tax
rate in India and 25% in China9. While this is hardly ideal, this rate overlooks tax loopholes and
the incentives available to foreign investors. Many of these privileges, exemptions, and
incentives are available in the eight Export Processing Zones (EPZs) throughout the country.

4.2 The Economic Factors

Economic Growth

The GDP per capita (in current USD, 2020) of Bangladesh was $1962, compared to India’s
$1928 and China’s $10,43510. This puts both Bangladesh and India in the lower-middle income
category. However, the recent economic growth of Bangladesh has been particularly impressive,
with a GDP (constant 2015 USD) growth of 6.77% annually from 2015 to 2020. This is faster
than China’s 5.75% and India’s 3.55% over the same time span11. This economic growth
coincides with rising consumer demand.

Inflation

According to data from the World Bank, the inflation rate in Bangladesh was 5.5% in 2021. This
is comparable to India’s 6.6% (in 2020), though China’s 1% (in 2021) indicates a far more stable
market12. Inflation rate is found to have a significant negative impact on FDI in the long run but
it is insignificant in the short run 13.

Unemployment Rate

A high unemployment rate means less disposable income for households, which has an adverse
effect on sales of more high-end products. The unemployment rate of Bangladesh is 5.2%,

8
https://www.washingtonpost.com/world/asia_pacific/amid-attacks-by-chinese-government-and-media-foreign-
companies-receive-mixed-signals/2013/08/09/b02eea48-00d6-11e3-8294-0ee5075b840d_story.html
9
https://tradingeconomics.com/country-list/corporate-tax-rate
10
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=BD-IN-CN
11
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?end=2020&locations=BD-IN-CN&start=2015
12
https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?end=2021&locations=BD-IN-CN&start=2015
13
https://ideas.repec.org/a/aif/journl/v4y2020i11p53-69.html

[5]
compared to 6% in India and 4.8% in China14. The limitations of these statistics are to be noted
as well, as the considerable shadow economy and high underemployment rates make
unemployment figures in Bangladesh and India unreliable. On the other hand, the unemployment
data in China is marred by a lack of transparency. Regardless, this data shows that the
unemployment rate in Bangladesh is standard for the region.

Exchange Rate

A low exchange rate makes it easier for foreign companies to acquire assets and invest in a
country. The Bangladeshi Taka (BDT) has shown consistent devaluation against the US Dollar
since 2013 15.

4.3 The Social Factors

Demographics

With a population of more than 167 million, Bangladesh is the eighth-most populous country16.
The population growth rate has been consistently above 1%, ensuring an even further increase in
the coming decades. The massive market size has been identified by many foreign investors as
an opportunity. With a median age of 27.6, the current demographic situation of Bangladesh
perfectly fits IKEA’s target market, which is discussed later. The life expectancy at birth is 73
years17, thus providing an incentive to acquire loyal, lifelong customers. Because of the
aforementioned economic growth, a middle class is emerging and expanding, providing a
potential customer base for IKEA.

Brand Preferences

Local brands and producers are often considered to be of inferior quality to foreign ones in
Bangladesh18 19. This fascination with foreign brands is an advantage to IKEA as there are
currently no foreign companies in the furniture industry. Moreover, IKEA’s reputation
throughout the world also raises its perceived value to Bangladeshi customers. In a market where

14
https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=BD-IN-CN
15
https://data.worldbank.org/indicator/PA.NUS.FCRF?end=2021&locations=BD-IN-CN&start=2011
16
https://www.worldometers.info/world-population/bangladesh-population/
17
https://www.macrotrends.net/countries/BGD/bangladesh/life-expectancy
18
https://www.researchgate.net/post/Is-Bangladeshi-peoples-demand-for-foreign-goods-responsible-for-higher-
imports
19
https://www.emerald.com/insight/content/doi/10.1108/XJM-01-2021-0027/full/pdf

[6]
local furniture brands face little competition and continue to raise prices, IKEA could be able to
make a strong presence in little time.

4.4 The Technological Factors

Manufacturing Technology

The current manufacturing technology in the Bangladeshi furniture industry is fairly on par with
IKEA’s. This is further evidenced by the fact that IKEA already has five suppliers in
Bangladesh20. The presence of local manufacturers will allow IKEA to use cheap local suppliers
to run their supply chain.

Marketing and Supply Chain Technology

Compared to IKEA standards, the current furniture industry lags behind in terms of marketing
and supply chain technologies. IKEA currently uses Augmented Reality (AR)21 to show
customers how a piece of furniture will affect the layout of their rooms. Moreover, IKEA also
uses digitized supply chains22, allowing precise information on each component. This allows for
a faster response to supply shocks and lags. Nothing comparable to these is used by local
furniture companies, thus giving IKEA an edge.

4.5 The Legal Factors

Employment Laws

The Bangladesh Labour Act, 2006, is the basis of all employment regulations23. While this act
specifies work hours, worker safety protocols, leave, and so forth, it is less demanding of
employers than similar laws in China or India. Both minimum ($17 per month) and average
($151 per month) wages are lower than in China or India. Even these minimum requirements are
often not enforced, with disastrous consequences for workers. IKEA’s global employment
standards would be vastly superior to the local competitors, allowing IKEA to hire local talent at
cheaper costs.

20
https://cleanclothes.org/news/2018/06/01/work-to-make-bangladeshi-factories-safe-continues-but-ikea-
refuses-to-join#:~:text=IKEA%20claims%20to%20have%20has,factories%20are%20still%20at%20risk.
21
https://www.architectmagazine.com/technology/ikea-launches-augmented-reality-
application#:~:text=IKEA%20has%20launched%20a%20new,%2Dto%2Dscale%203D%20products.
22
https://hbr.org/2021/06/inside-ikeas-digital-transformation
23
https://www.ilo.org/dyn/natlex/docs/ELECTRONIC/76402/110637/F-1265526237/BGD76402%20Eng.pdf

[7]
Consumer Protection Laws

The Consumer Protection Act 2009 covers the rights that consumers currently enjoy over
producers. This act illegalizes fraud, smuggling, adulteration, etc., and gives law enforcement
agencies the right to investigate, fine, or close offending businesses24. However, the absence of
these activities is already taken for granted by IKEA standards, and these regulations are far
more basic than IKEA’s markets in Europe and much of the world, even including India and
China. As such, the consumer protection laws in Bangladesh are not an obstacle of any
significance to IKEA.

Intellectual Property Laws

The Patents and Designs Act 1911 (amended 2003) protects patents and trademarks in
Bangladesh. While on paper it covers all aspects of intellectual property, enforcement of the law
is insufficient25. The present legal and administrative framework is inadequate for enforcing
intellectual property laws. As such, foreign brands can not expect to remove bootlegged products
from the market and must offer a value proposition for customers to choose the original product.

4.6 The Environmental Factors

Access to Raw Materials

Much of the raw materials needed by IKEA, such as timber, natural fibers, plastic, bamboo,
etc.26 are available in Bangladesh. This makes Bangladesh a suitable spot for IKEA expansion.
IKEA suppliers in Bangladesh and other regional markets (including India, China, Malaysia,
etc.) are more than capable of supporting the IKEA supply chain.

Climate Change

Bangladesh is at high risk from climate change and global warming. It is projected that by 2050,
one in seven Bangladeshis will be displaced by climate change and Bangladesh may lose

24
https://dncrp.portal.gov.bd/sites/default/files/files/dncrp.portal.gov.bd/page/6654dd6a_537a_4838_9017_712d
b7c60cd9/consumer%20act-2009.pdf
25
https://www.researchgate.net/publication/350950901_Basics_of_Patent_law_in_Bangladesh
26
https://www.ikea.com/us/en/this-is-ikea/sustainable-everyday/choosing-materials-being-a-large-business-
comes-with-large-responsibilities-pub47a5ba42

[8]
approximately 11% of its land by then 27. While such an event will definitely affect the market,
IKEA and the furniture industry are not uniquely vulnerable to these changes.

5. Porter’s Five Forces

Porter’s Five forces is a useful framework to highlight the strengths and weaknesses of an
industry. The five forces are:

1. Competition in the industry

2. Potential of new entrants in the industry

3. Power of Suppliers

4. Power of Customers

5. Threat of substitute products

We can use these five forces as five metrics to gauge the profitability of Bangladesh’s furniture
market for IKEA and whether or not it will be sustainable if IKEA decides to enter the
Bangladeshi market.

5.1 Competition in the Industry

Competition in the Bangladeshi furniture industry is local and there is no significant foreign firm
in the market in this particular industry. The most established local firms are Hatil Furniture,
Navana furniture, Akhtar furniture, Otobi, etc. Of these established brands, with the exception of
Otobi, cater to upper middle class and high-income families. Akhtar furniture for example uses
solid wood for most of its furniture28. So, practically IKEA will not compete directly with these
brands save for a segment of the middle-class families. Otobi is an interesting case where the
target market will overlap with IKEA. However, despite targeting the same demographics, Otobi
furniture is still relatively expensive. So, IKEA’s will have the ability to undercut the
competition when it comes to established brands. The real competition of IKEA would be the
independent local shops not affiliated with any brands. These shops provide furniture for cheap
at an acceptable quality for most of the people in Bangladesh. IKEA will face stiff competition

27
https://www.climaterealityproject.org/blog/how-climate-crisis-impacting-
bangladesh#:~:text=It%20has%20been%20estimated%20that,of%20sea%2Dlevel%20rise%20alone.
28
https://www.akhtargroup.com.bd/akhtar-furnishers-ltd/

[9]
when comparing prices to these shops. But IKEA will have the advantage of having a strong
brand while simultaneously providing relatively cheap and high-quality furniture.

5.2 Potential of New Entrants in the Industry

IKEA’s main competitors in its international markets are Wayfair, Amazon, Tesco, Home Depot,
etc. These competitors have no plans of entering the Bangladeshi furniture market. Even if these
companies plan to enter the market after IKEA’s entry, IKEA would still benefit from the first
mover advantage and be able to build up a brand image first.

While local shops may pop up quite easily, they are not that great of a threat individually. That
leaves the establishment of a new brand in the market. This is however hard as the investment
that is required to create a large brand that might rival current existing brands is extremely high
and thus a new brand is unlikely.

5.3 Power of Suppliers

The power of suppliers refers to how suppliers can influence the cost of products in the industry
through factors such as uniqueness of inputs, costs to switch suppliers etc.

IKEA already works with multiple suppliers from Bangladesh already for their international
business29. Due to this previous relationship, IKEA would not have issues with finding suppliers
for expansion into Bangladesh. IKEA also handles a certain percentage of production in house to
drive down costs and work closely with suppliers. Due to the common materials when it comes
to the furniture industry, suppliers do not have much power to dictate prices as competition is
high. So, suppliers would not be a meaningful constraint if IKEA expands to Bangladesh.

5.4 Power of Customers

The power of customers refers to the ability of customers to drive down costs of a product. It is
the direct consequence of the amount of competition in the industry as given more choices,
customers will go with the cheapest option.

As discussed in the competition in the market section of the framework, the brands that would be
competing have furniture that are relatively expensive to the average customer. IKEA would be
selling their products at a lower price as they’re main strategy is to undercut the local

29
https://panjiva.com/Bangladeshi-Manufacturers-Of/ikea

[10]
competition. Thus, the power of customers to choose a cheaper alternative actually works for
IKEA and will work as a competitive advantage.

5.5 Threat of Substitute Products

IKEA is in an advantageous position as their products evoke the “IKEA effect”. IKEA products
have to be assembled by the buyer and because buyers assemble the product, they will be more
attached to the product. To put it simply, no other competitor has such a trait as a differentiating
factor for their products.

But the issue that might crop up for the Bangladeshi market is that people do not have a DIY
culture in Bangladesh. So, the IKEA effect might not work as a differentiating factor and all the
competitors might have substitute product. This was seen in a small extent for the Chinese
market which also did not have a DIY culture. The solution that IKEA opted for was to have
dedicated employees that help assemble products for the customers. This solution can
undoubtedly work for the Bangladeshi market also but this would mean that IKEA would not
have the same differentiating factor and thus the threat of substitute products would be higher
than other markets that is in IKEA’s consideration.

6. Entry into Bangladesh

6.1 The Bangladeshi Furniture Industry
The furniture industry in the Indian subcontinent has a long history and tradition. Several small
traditional furniture businesses operated in Bangladesh prior to independence, but most of the
major furniture brands have been operating in the country since independence. As demand grew
in the early 1990s, the industry evolved into a mass-production-oriented industry, eventually
becoming one of the country's major economic contributors.

Bangladesh's furniture industry is divided into two categories: organized and unorganized. These
two types are referred to as branded and non-branded, respectively. Non-branded or unorganized
industries, on the other hand, account for 65 percent of the country's furniture market30. Brands
can be divided into three levels based on their perceived value. High-end furniture brands

30
https://businessinspection.com.bd/furniture-industry-of-bangladesh/

[11]
include Hatil, Navana, and Akhtar Furnitures, and rands like Partex and Brothers Furniture are
considered mid-tier, while Legacy and Homes Furniture are considered low-end.

6.2 Why IKEA should enter the Bangladeshi Market

• A growing demand

The furniture market in Bangladesh is worth more than BDT 67 billion31. Wealth is no longer
centralized in Dhaka and Chittagong, according to the latest BCG report. Thirty-six cities already
have over 100,000 Middle and Affluent Consumers (MAC), with the number expected to rise to
63 in the next ten years. These MACs are well-off enough to purchase high-end items and prefer
branded items. As a result, as the number of MACs increases, so will the demand for branded
furniture. Consumers in Bangladesh also prefer 'trading up,' especially when it comes to durable
goods (like furniture).

• Minimalistic, Convertible and Knock-down Furniture Concept

Instead of traditional ornamental designs, many customers are opting for simple and minimalist
furniture these days. Even though the minimal furniture trend has been around for a long time,
Bangladesh's market is still developing. Otobi Furniture was the first in Bangladesh to introduce
a simple design of minimalistic particle board furniture, which was inspired by IKEA.
Customers, on the other hand, preferred solid wood furniture to boards at the time. ISHO and a
number of other companies currently offer minimalistic furniture, and the popularity of this style
of furniture is steadily growing. Convertible furniture, on the other hand, is gaining popularity
due to its multi-purpose and space-saving features. There is also a vacuum left by Otobi after
their bankruptcy due to poor investment decisions. Otobi was the leading furniture retailer in
Bangladesh with over 450 selling hubs across the country. The prospect of capturing this
untouched market is why IKEA should enter into Bangladesh.

• Low labour costs and high woodworking skills

Low-cost labor is a critical component of any major industrial expansion in Bangladesh. The
furniture industry is no exception, with the ability to hire skilled workers at lower wages
propelling it forward. Additionally, the woodworker's exceptional woodworking skills aid in the

31
https://www.tbsnews.net/economy/industry/future-burns-bright-furniture-38827

[12]
development of aesthetically pleasing products. These serve to both of IKEA’s product strategy –
minimalistic and affordable.

• Backward Linkage

According to the EU study, domestic raw materials account for 40% of the industry's raw
materials. With forests covering over 10,600 square kilometers, the Chittagong Hills and the
Sundarbans are the country's largest source of high-quality timber.

• Rising demand in corporate sector

Another major reason why IKEA should invest into the Bangladeshi furniture industry is the
rapidly increasing demand of furniture in the country’s corporate sector. 30% of the furniture
produced in Bangladesh are to fulfill the demand of the corporate sector. The corporate sector
prefers simple, minimalistic and affordable furniture rather than traditional, ornamental furniture
that predominantly exist in Bangladesh.

6.2 Scale of Entry

IKEA must decide on the scale at which they will enter the market. IKEA, as one of the world's
most powerful companies in terms of international trade, has the financial and human resources
to enter the market with a large-scale production plan. When IKEA enters a market, they intend
to stay for a long time. This sends a message about IKEA's commitment to both consumers and
distributors. The signature large stores of IKEA are a perfect example of this. They also conduct
extensive market research prior to entering any market, obviating the need to "test the waters."
However, the biggest advantage of large-scale planning is that it allows IKEA to cut down their
cost due to the economies of scale. As production goes up the Average Total cost goes down.
These cost advantages allow IKEA to maintain their brand image of an affordable quality
furniture option. This is also particularly important to cater to IKEA’s product pricing strategy
where they charge the price of a certain piece of furniture 40% less than what their competitors
charge.

6.3 Mode of Entry

Where? When? How? These are the three questions a company must ask itself before deciding to
enter a foreign market. The first step is to select the market then an estimated time to enter the
market and finally the selection of entry mode. When entering a foreign market, IKEA strives to

[13]
follow a transnational strategy. Its marketing strategy is planned centrally. When they enter the
Bangladeshi market, they must stick to the same strategy because it will help them stay
competitive.

When should Ikea enter the Bangladeshi Furniture market? IKEA should enter the market as
early as possible in order to avail the “First Movers Advantage.” Luckily for IKEA, no
International “Ready to assemble furniture company” is in the Bengali market yet. So, the
entirety of Bangladesh is an untapped market that IKEA can take full advantage of. Entering the
market early will not only allow IKEA to establish their brand image to the people who don’t
know them already, but also reinvent themselves in a more appealing manner to the local market.
Moreover, it will allow IKEA to establish efficient, well connected supply chains that will
ultimately bring up the sales and cut down the costs. IKEA can also utilize their time to gain
some much-needed experience in the market while their competitors are forced to play catch up.
Finally, it is an arduous task to change people’s minds. If IKEA manages to capture a hefty
chunk of the market before the late entrants, then the Consumers will be tied to the brand of
IKEA by a switching cost. So, when inevitably foreign companies do enter the market, they
would have to work that much harder to break the loyalty of the consumers.

Now let’s come to the question of what entry mode IKEA can use to penetrate the Bangladeshi
market. Well, for IKEA that question is relatively simple to answer. IKEA uses the tried-and-true
method of Franchising to ensure the long-term growth and development of the IKEA business.
This also means IKEA can establish a global presence in a relatively short amount of time
without incurring any cost or risk associated with opening a foreign market on its own. This is
evidenced by the fact that IKEA is currently operating in 63 countries.

However, just like any other system ‘Franchising too has its shortcomings. A significant
disadvantage of franchising is quality control. However, here is where IKEA differentiates itself.
IKEA’s Franchising system is pretty unique compared to the franchising models of most other
companies. INGKA Group is the largest franchisee of IKEA. Surprisingly enough, this IGNKA
group was also founded by Ingvar Kamprad, the founder of IKEA. Thus, the franchisee is very
tightly knit with the IKEA brand. And as they control 367 stores of IKEA, quality management
becomes much easier as the management and the organizational culture of the franchisee is

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almost identical to IKEA themselves. This ultimately allows IKEA to enjoy all the cost and risk
advantages of franchises without worrying about the potential downsides of it.

6.4 Localization Strategy

IKEA's localization strategy necessitates researchers visiting ordinary people's homes in the
areas where they plan to open stores. IKEA is a master of localization – as already established
from the case studies of China and India32.

The localization strategy for IKEA in Bangladesh would be to first conduct extensive research
and thousands of home surveys across the country to understand what the consumers really want
and what their existing complaints and needs are. IKEA could offer specially customized product
to Bangladesh that they do not really offer in the West. For example, in Bangladesh, children do
not really have their own bedrooms until they are teenagers. Since a target segment is newlyweds
starting their family, IKEA could offer them beds that could be extended to accommodate a
child. Most Bangladeshis also rarely use forks and therefore their trademark cutlery line could be
customized and focused more on spoons as Bangladeshis tend to use their hands and spoons
more than forks. The famous IKEA cafeteria should also have menu that do not hurt the religious
and cultural sentiments of the Bangladeshi population. They should not keep pork and ham in
their menu.

Another important aspect that IKEA should be concerned about is the risk of a lack of DIY
culture in Bangladesh. If the marketing strategy of encouraging the DIY culture fails, IKEA
should have an alternative. Like India, IKEA could offer LUHY (Let Us Help You), and home
delivery with assembling services as well. This is particularly important because the e-commerce
sector of Bangladesh is booming, and IKEA could make use of this boom.

7. Marketing Strategy
The 7Ps could be used to understand the marketing strategy that IKEA should be implementing
in Bangladesh.

• Product: The primary aim is to create long-term relationship with the customers by
fulfilling their needs. IKEA should offer a product line that is customized to meet the

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 Bangladeshi customer needs. Customized products like extendable beds, more affordable
spoons, only chicken and beef items in the cafeteria, etc should be offered.

• Price: Bangladesh has a lower purchasing power than that of the West. Therefore, the
already affordable prices of IKEA might have to be lowered even more. The existing
IKEA policy to charge a product 40% lower than the competitor will be of huge benefit
considering the low purchasing power of the country. They could achieve this by large
scale of entry, low cost of labour and raw materials, and strong backward linkage in
Bangladesh.

• Place: IKEA needs to identify major places inside Dhaka where they could set up their
stores and then major divisions across Bangladesh where they could expand to. The
places should be economic hubs and places where there is less traffic congestion, as
carrying a furniture back home overcoming the congestion could be a deterrent for
possible customers.

• Promotion: IKEA must offer discounts to attract and build its customer base. They should
also make famous personalities like Shakib Al Hasan, Arnob, etc to endorse their
products. IKEA should also have a large budget to advertise itself extensively via
different media in the form of television, newspaper, radio, billboards and posters. They
could also sponsor a lot of university events to acquire a possible future customer base.

• People: The Bangladeshi consumers might not be to savvy with the DIY culture and as a
result might have a lot of queries. IKEA should therefore hire people who can handle
difficult questions with patience and understanding. A more tolerant customer service is
sure to boost goodwill and gain IKEA the mindshare of its target segment. As IKEA
should offer LUHY services as well, their assemblers should be qualified so that they do
not damage the product while assembly.

• Process: A flexible return policy should be something that IKEA should think about.
People might be weary to buy something from the catalogue. A return policy could keep
the customer at ease and increase sales effectively. IKEA should also have a quick
response service if they are to offer home delivery and online buying.

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 • Physical evidence: Since a DIY culture is the target, IKEA should have space for a large
parking area to accommodate vehicles that will be used to carry the furniture. The
catalogues should also be presented in Bangla because a lot of customers might be a little
less fluent in English. The IKEA store layout should also be that of their trademark
layouts where the customer will have to walk through the entire section before existing.
This will allow the customers to see all of their products and in come cases trigger
impulse buying.

8. Timeline
The tentative timeline of the primary activities that IKEA should follow is as follows:

• June 2022 – Application for opening a store to regulatory authorities.

• December 2022 – Approval from regulatory authorities.
• June 2023 – Extended marketing campaign.
• December 2023 – Purchase of land.
• April 2024 – Construction of the first store in Dhaka.
• December 2024 – Inauguration of the first store.

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