Ikea Venturing into India

Introduction

Recently the word globalization appears more often everywhere, it’s a phenomenon that reshaped the world into the more competitive environment. The effect globalization has tremendously changed the world’s economic systems, Political standards, and the social life cycle. Therefore, due to the more noticeable effects of the phenomena in the recent history, it is difficult to neglect the factors and its impact of the situation. Thus, this paper discusses the importance of globalization from a business point of view, limitations, and the implication of globalization in general. Furthermore, as part of the contemporary management issue from current affairs, this paper will incorporate a BBC article titled as ‘Ikea makes steps in India’s growth market’ to show the relationship between Ikea’s initiatives of globalization and the globalization studies. Moreover, this paper will analyze the reasons why Ikea went into the Indian market, and the challenges faced by the company to establish there.

Globalization

The word globalization simply refers to the concept of interconnection between multiple societies in the world through various markets to create more interaction between one another (Clegg et al, 2008: 580). Through the process of globalization people become more connected with the different parts of the world, hence the situation creates a more globalized environment for the world’s societies. In business point of view, when companies expand their networks to different parts of the world, the companies able to connect the people from one another by offering the same products and services like Mc Donald’s, Ikea, and etc.

On the on another hand, globalization also refers to the inevitable process that forces global societies to connect under one spectrum of a global society where the action and reaction affect the whole society regardless of the distance and relevance (Huczynski & Buchanan, 2001: 897). When an event happens locally, its highly likely the event was shaped by another country. For instance, when a large MNC like McDonald's discontinues one of its product from its menu, the effect will impact the whole network McDonalds chains regardless of the distance of supply chain.

Reasons why companies expand into the international market

1. Nowadays many companies turn their attention toward international expansion due to escaping domestic competition. Based on the recent study on industrial sector found that the intensive and growing competition among firms locally leads firms to expand to the international market to find new opportunities (Senik, et. Al, 2010).  The study found to be practical because when there is high competition in the domestic market, firms tend to fight each other to monopolize the market consequently limiting opportunities to other firms which offer the same products and services. However, expanding internationally doesn’t guarantee the firm can run away from competition, as there is competitions in every country.  
2. On the other hand, the study also found that the factors which influencing the companies to expand more frequently are due to the entrepreneur's strong motivation to overcome poor domestic market and environment (Senik, et. Al, 2010). When a company faces poor domestic market such as reducing sales, poor demands, increasing cost of operations, and etc. the companies tend to find other fresh opportunities internationally. According to a recent survey conducted on more 250 Malaysian SMEs, found that more than 25% of SMEs expand internationally due to the attractive opportunities found in the foreign market as compared to domestic market (Abdullah and Zain, 2013). Therefore, the ambitious SME entrepreneurs overcome domestic issues by internationalizing their market. However, in some cases, operating abroad involves many risks.

Advantages of globalization 

1. One of the greatest advantage that a firm can obtain by expanding globally is that the accessibility to a wider market base. Nowadays, many firms expand to larger market mainly to achieve competitive advantage in the international market by fully utilizing the economies of scale of having a larger market base (Rothärmel, 2017: p335). For instance, MNC companies like Tesco and Zara expand internationally to gain access to a wider marketplace like in India and China. Therefore, by gaining access to larger market means gaining more customers and increase the sales at the same time.
2. Expanding businesses internationally along with globalization phenomena allows firms to gain a competitive advantage in terms of the business operating cost. Through setting up plants in third world countries like India, Indonesia, and Bangladesh, the company can gain accesses to cheap labor, raw materials, and other cheap resources (Rothärmel, 2017: p335). As an example, many garments manufacturing corporation like Zara and Nike expand their manufacturing line in third world countries like Bangladesh and Myanmar mainly to exploit cheap labor in order to lower the cost of production hence increase the profit at the same time.  

Disadvantages of globalization 

1. Firms being part of globalization involves high-level risks due to the big liability of uncertainty (Rothärmel, 2017: p336). When a firm enters into a different country, there are numerous unfamiliar factors involved to set up a company such as the investment costs, trade barriers, languages and other economic & cultural factors. Lack of familiarity is one of the major reasons for many firms failing internationally. For instance, when Disneyland enters into Germany, there was instant resistant from German people to accept American culture. Therefore, being part of globalization involves many factors which are totally different than the domestic market.
2. Going into global scale can sometimes lead to loss of reputation in terms of the firm’s public relation (PR), customer relation (CRM), and etc. (Rothärmel, 2017: p336). When a firm expands into a different country in order to reduce the cost of production, the firm immediately becomes vulnerable to various ethical issues that can damage the firm’s reputation. Many multinational corporations (MNC) these days getting caught for being part of large scandals such as tax invasion, corruption and most notably using child labor for cutting cost. Once upon a time, Nike admits for using child labor in their production facilities to cut production cost which consequently damaged Nike reputation from all the stakeholders. Therefore, there are huge risks involved when going globally.

BBC article overview

The article basically is talking about the IKEA Company as one of the world largest furniture retailing firm expanding into India’s market. The BBC article also explains why Ikea’s plans to enter the Indian market, the factors influencing the Indian expansion, the benefits gained by the company through the expansion, method used and the future prospect of the expansion (Dutt, 2010). Mr. Mikael Ohlsson, the chief executive of Ikea claims that the India expansions was part of the Ikea’s long-awaited globalization goal, which has been disrupted each year due to the high barriers of entry (Dutt, 2010). However, during 2010 the company came into final consideration to expand into India, but there is still some complication in terms of choosing the best entry mode to India. However, this paper will mainly discuss about the relationship between Ikea expanding to India and the theories globalization phenomena.