QUESTION
1:
Why
did IKEA decide to enter Malaysian market through franchising? Do you agree
with this strategy? What could have
been alternative strategy?
Answer:
IKEA
entered the Malaysian market as part of its expansion drive across Asia. This
has resulting in IKEA Pte Ltd (Malaysia Branch) being set up in 1996 to oversee
the Malaysian Operations. The Malaysian store is the fourth one in Asia after
Hong Kong, Singapore and Taipei. Malaysia contributes 3% to IKEA world wide
sales.
IKEA
entered Malaysian market through franchising because they have applied a
conservative policy to globalization. Actually, the general rule of this policy
is that the firm never enters a new potential market by opening retail outlet.
Instead, a supplier link with host nation is established. This is a strategic
risk reducing approach in which local suppliers provide input. By practice this
strategy, IKEA can minimize their risk and cost.
IKEA
has concentrated it international expansion in ASIA mainly through company
owned subsidiaries. Franchising on the other hand, has been extensively
utilized in expanding to other areas of the world.
IKEA
expanded to Malaysia and approaches high- risk market by franchising. In
franchising, the franchisees have to carry basic item but have the freedom to
design the rest of the product to mix to fit the local needs.
Yes,
i agree with this strategy. The reasons are:-
By
franchising, a supplier link with host nation is established. This is a
strategic risk reducing approach in which local suppliers provide valuable
input. Example of the inputs are
culture which is during festival the supplier need provide items that related
to Malaysian festival that is Hari Raya, Deepavali and etc.
This
strategy is an international expansion through company-owned subsidiaries. This makes IKEA more organized when the IKEA
head quarters can focus on other important matter such as research and
development and training.
The
other alternative strategy is strategic alliances or joint ventures allow
partner with an existing business to share the risks and opportunity in a new
market. A strategic alliance is a form of collaboration between two or more
companies which can take on many forms such as technology transfer, purchasing
and distribution agreements marketing and promotion collaboration joint product
development. A joint venture involves a potentially long term investment of
funds, facilities and resources by two or more companies to a combined
ventures, which give benefits to both side companies.
Other
than that, IKEA can sell their product through foreign agents that are provided
in some area. So, the agent can do booking to IKEA if there are customer want
to buy their product. The agents will give some commission of their sale.
In
addition, IKEA can distribute their product through export management company.
It become department exporter for several manufacturers. They will give some
commission.
