Research Articles Base: Ikea Global Sourcing Challenge

Applied Knowledge Essay

APPLIED KNOWLEDGE PAPER _     Table of Contents                                                                                                                                       Page   INTRODUCTION                                                                                                                 2 International Business: Defined                                                                                    2 Challenges of International Business                                                                          3             Where to Operate?                                                                                                   3             What Basis?                                                                                                              4             How much to Invest?                                                                                     4             Market Data                                                                                                               4             Business Plans                                                                                                         5             Cross Culture Management                                                                         5             Language Barrier                                                                                                      8             Finding Competent Staff                                                                                          9             Marketing Plan                                                                                                          10             Product Design and Pricing Parameters                                                               10 Role of Managers                                                                                                               11 Sample Case                                                                                                                       15 Bibliography                                                                                                                        27                                                                                            INTRODUCTION                 It is a fact that mostly managers today are engaged into international business or cross cultural environments. This is because international business entails more business opportunities and investments. International Business is a field of business that looks into all aspects of multinational corporations or multinational enterprises. The theoretical base of this study was originated in 1960s and considered as established in 1980s. Traditionally, scholars engaged in this field came from more developed schools, such as general management, marketing, finance, strategy, organization, and international trade. Scholars of technology management and information management have also participated since 1990s (). This differs from business within borders because this would mean additional challenges in managing trade and investments in foreign countries. This paper aimed to demonstrate the application of specific concept or principles of international business management as it relates to an academic issue or to a business, trade or profession. This is to relate academic concepts to a practical solutions of everyday problems.     International Business: Defined   International business is defined as the study of transactions between counterparties who either reside in different nations or who reside in one nation but are compared to a pair of counterparties in another nation. It differs in important ways from business conducted within national borders in the way that international business poses additional challenges for managing trade or investments in foreign countries, but it also offers new opportunities in foreign markets. This is also defined as any business activity or transactions that transcend the national border ( 2004).  International business management, in general, combines strategy, international finance, trade theory, trade policy, marketing, human resource management, and other related areas.     Challenges of International Business   Despite the ease with which it is often conducted, doing business across borders is not the same as doing it at home. Rather, it entails a whole new set of managerial challenges: re-assessing competitive advantage; evaluating diverse political environments and legal structures; considering the impact of currency fluctuations and trading regimes; and understanding widely disparate cultures and business norms.   Where to operate?             The first thing to consider in establishing international operation is where to operate. In considering and selecting the country or markets to operate, you should also put in consideration if it would represent a good risk from the perspective of good legal framework, economic stability and growth, expected development of the industry and currency risk.   What basis?             In the chosen country or market, managers should also consider if he should operate in joint venture, wholly owned subsidiary if the chosen country market would allow or other alternatives.   How much investment?             Managers should also consider how much investment can be justified for the chosen market. He also take into account the availability of investable funds as well as appropriate proportion to total investment and equity participation if the venture is not a fully owned operation.  How much investment does the chosen market should justify in the light of the business plan for the venture should also be considered. He should also take into consideration if the return on investment targets could be accomplish within the time horizon normally expected. He also should know what assistance can you and will you provide the local operations.   Market Data             Frequently, market data are either dated or might not appropriately present the entire market or its potential. It might be underwritten or overwritten. Market data publicly available may not appropriately portray the growth potential for the coming years. Business Plans             Due to inappropriate or lack of reliable market data, overly optimistic expectations may result and in most cases resulted to failure in business plans and expectations. Usually capital investment requirements are underestimated as well as time and effort commitment and projected financial results are over optimistic. Instances of shortcomings would result to withdrawal of business entities from the specific market.   Cross-Culture Management It is a clear fact that managers today are increasingly working in an international and cross cultural environments. In addition with the pressure of managing employees, managers are also dealing with challenges, friction and misunderstanding emanating from cross cultural differences.             As an international, multinational, transnational, multi-domestic, and global business, it is most important to appreciate and respect regional, country and cultural differences or cultural diversity to a successful business outcome.             Every country or nation or nationality has diverse cultural beliefs and preferences and with different attitude toward things. Therefore, managers that would go into international business should learn to understand and must develop their cultural intelligence. The combination of knowledge, mindfulness, and behavioral skills is the basis of cultural intelligence. The first key that the manager should do before traveling to another country in business or for business meetings on other country is to study the culture and social protocols of the country. Another to thing that the manager should possess is mindfulness. Mindfulness means paying attention to one’s own assumptions, ideas, and emotions. It also means being aware of the selective perception, attributions and categorization that we and others adopt and noticing what is apparent about the other person. Mindfulness helps the manager link knowledge to skillful practice. It gives the manager the readiness to interact with people of different cultures and communicate comfortably and accurately in ways that honors the background and identities of both parties.  To practice mindfulness, managers should view situations from several perspectives. Managers should also seek out fresh information to confirm or disprove their mental maps. Part of mindfulness is using empathy as a means of understanding the situation from the perspective of another’s cultural background. Knowledge and mindfulness are the key factors but it is not enough. Cross cultural behavior is also important. Managers should also develop their social skills. Skills like the willingness to initiate a conversation, interest other people and listening what others would say. For example, in the case of , a Frenchman (2004,). This man knew how to be charming. This was particularly important in the Paris media company where  worked as a manager.  had noticed that many of the women in the company took pride in dressing fashionably. He therefore made a point of frequently complimenting them on their appearance. For example, he often said things such as, “, that is such a chic outfit! You look as beautiful today as I have ever seen you.” This kind of comment almost always gained him a smile, a thank you, and more importantly, he felt, increased cooperation from the woman to whom he had paid the compliment. After  company had been taken over by a major international conglomerate based in the United States, he was transferred for a two-year assignment at company headquarters in New Jersey. He was given a briefing on the United States and its different social norms and was advised, for example, that touching other people, particularly those of the opposite sex, was much less acceptable there than in France. In New Jersey, his new secretary, , turned out to be a highly effective person as well as a strikingly beautiful one, who, like many of his French colleagues, dressed extremely well.  was careful to keep his physical distance from  as he had been taught, but he felt that her obvious glamour provided an opportunity to build a good relationship. So in his customary French manner he would greet her every morning with a freshly minted compliment on her appearance. Her initial reaction was surprise. After a few days, she would thank him politely and then change the subject. Then she began to respond by frowning and pursing her lips.  was puzzled. Did she think his compliments were insincere? He made his compliments more heartfelt. One day,  said, “Mr. , I want you to stop making comments on my personal appearance. I am not here as a decoration, I am here as an employee. I take a real pride in what I do, but all you can talk about is the way I look. Can you imagine how that makes me feel? I have tried to discourage you, but it seems you won’t take a hint. From now on, can you please treat me with a bit more respect and professionalism?” In this case,  developed a repertoire of skilled behavior that worked well in one cultural situation, but these same skills backfired in another culture. His performance was based on a particular view of the world, on ways of expressing himself most likely developed from childhood, on sheer habit, and on having previously had the habit consistently rewarded. It can be hard for anyone like , socially skilled as he was, to erase the habits that don’t work in his new environment and to replace them with new, appropriate forms of social performance. The first step is to gain a better understanding of the history and norms of male-female interaction in the new culture and to learn generally about the interpersonal relations in that culture. The next step is to pay more attention, be mindful, to the behavioral cues provided by coworkers. Lastly, anyone in this position must develop new ways of behaving towards women; he will have to experiment with new approaches and refine his behavioral skills. To be as successful as possible, managers must be as culturally attuned to the world and to each foreign society in which they seek to operate as they are to their own home society.   Language Barrier             Communication is important in management. Unfortunately, intensity of communication intensity, increasing linguistic diversity and increasing scale of operations are problems brought about by the language barrier. Language barrier can trigger to negative consequences. It would cause uncertainty, suspicion, group division, undermines trust and leads to polarization of perspectives, perceptions and cognition. And with this problem, management would be hard to imagine. Many companies have experienced setbacks as a direct result of not knowing the local language. A major washing powder company forgot that in Arabic sentences are transposed and told their customers: “Put your clean washing in the machine and out comes this dirty grey material”! Even giants of international commerce can run into trouble. Coca Cola found out that in Chinese its brand name sounds like ‘bite the wax tadpole’. Pepsi fared no better in Taiwan. Their slogan ‘Come alive with the Pepsi generation’ came out as ‘Pepsi will bring your ancestors back from the dead.’ “ It is not a laughing matter when the business suffers as a result. Billions of pounds in revenue are lost each year due to a lack of international language skills and failure to overcome cultural barriers.   Finding Competent Staff             In choosing personnel it is important to consider key players who are attuned to the cultural gaps which may exist. These individual should be able to function effectively between two cultures. It is also important that these personnel are competent enough because they would play an active role in looking after and in assisting the international ventures and to manage, run, and administer such operations. At this point, such personnel are limited in availability because there is a very limited supply of those who posses the professional and industry requirements.   Marketing Plan             Marketing plan and selection of sales or distribution alternatives are also needed to be addressed. Recognition of these are needed to modify these to some extent so that these will work best for the country they are intended. But because of overly optimistic projections of business plans, companies would have a tendency to offer whatever products that enjoys the acceptability of the public and these would be a costly mistake or shortcoming in the long range.   Product Design and Pricing Parameters Experience data for the risks to be underwritten is often unavailable or available in limited form. With regards to some of the data, such as mortality experience, available data may be based on more liberal underwriting principles and techniques than those that will be used. Persistency expectations may be different than industry data shows, to some extent due to improved sales personnel training and sales techniques as well as different sales compensation schemes. Profit parameters will need to be thought out for purposes of pricing products for other countries. Some countries will represent higher risk or uncertainty while others will allow higher profit targets in light of existing competition and market demands. A careful thought process is required in setting the various pricing assumptions.       Role of Managers Changes in the global business arena have effected changes within business structures which, in turn, demanded changes in the role of the manager within the organization. Of the four primary functions of the manager that were proposed in the early 1990s, namely, planning, controlling, staffing, and directing, only the latter has become a misnomer in today’s workplace. While organizations of the past required managers to direct employees in how to perform the job, contemporary managers have become more focused on promoting employee empowerment and delegation and, in such capacity, have become more of mentors than directors (1998). As quoted by  (1998), the role of managers within our organizations is drastically different than it was ten years ago. As the structures within our business are altered, the processes by which the work is performed are also altered. The role of the manager within our organizations has indeed changed in response with time. In concept of management functions, he suggested four primary function of manager which are planning, controlling, directing and staffing but these functions had mean different in the current environment. Planning should be the first thing that a manager would do. Planning varies in different level of organization. The top managers planned in the longest time horizon and engaged in strategic planning. The middle managers planned in shorter time horizon than the top managers and are engaged in operational planning. But today, however, all managers are engaged in strategic planning. Next to planning is staffing which involves placing of right person in the right job. This staffing responsibility of managers also involves ensuring that the person-job-organization fit is made. The manager’s role of control is always been important. It’s the manager’s task to identify gaps from desired performance to actual performance and take corrective measures on the gaps made. But today, the role to control has been changed with the technological advancements. Then the forth is directing which perhaps has the greatest changes compare with the other three functions. Managers today are more engaged in coaching and mentoring rather than the traditional directing. Directing in  view is the manager’s responsibility to determine that the workers are doing the job in the best way. As a coach, a manager advises and assists employees. This does not mean controlling and issuing commands. The manager as coach should require the role to be one that supports. The manager should provide guidance to the employees in an objective fashion. Good coaching would foster better relationships between managers and employees. The concept of coach focuses on the development of the needs of his employees. Managers are required to help employees tap into their full potential and improve flexibility. The focus is on means (not ends). That is, the move is away from rigid rules and procedures. Flexibility should be allowed in how the tasks are performed. The coach should empower his employees. Managers should set his employees to manage themselves rather than taking control of them. This means giving up control. The manager as a coach should also be a good listener. The directing manager exerted control through talking. Little listening was actually done. But the new manager uses participative decision making. Autocratic decision making has no role in coaching. The new manager also emphasizes sharing information. Hoarding information has no place in coaching. Part of this relinquishing control, then, means giving up the control of information. If employees are to be truly empowered and participate in decision making, they need to also have access to the appropriate information. Just as the coach for an athletic team spurs the athletes on to higher levels of performance, likewise the manager as coach helps employees reach higher performance levels. A coaching environment helps nurture teamwork. Cooperative environments are created with a focus on coaching. These environments are best at developing employees by encouraging growth and building confidence. The best coaches are sincere and open. This helps create a climate of trust and mutual respect where employees can take risks without fear-such as trying new ideas. Yet employees in this environment are comfortable recognizing the ownership of their decisions. The coach is also mentor. This mentoring manager serves as a role model and a teacher. This manager gently guides the activities of others. Contrary to earlier theories suggesting managers had to be strong and in control, today’s managers must be caring and show concern for their human resources. Observational skills are really skills in identifying opportunities for employees to improve performance. Then opportunities to provide feedback have to also be identified. Analytical skills are needed so managers can analyze the opportunities observed. Coaching also requires good interviewing skills. This involves excellent communication including reading nonverbal behaviors. Finally, effective managers must have exceptional feedback skills so they can feed back information to their employees.  suggested the four functions of coaching are counseling, mentoring, tutoring and confronting. With the counseling function managers help their employees learn more about themselves and their feelings. Managers as mentors help employees become more proactive. As tutors, managers help employees develop technical skills. And the confronting function enables employees to improve their performance through a better understanding of what is expected of them. Constructive criticism is critical to effective coaching. This requires managers focus on worker behaviors not meeting standards. Engaging in active listening helps the managers as coach get a better grasp of how employees’ performance can be improved. Coaches must partner with employees to solve problems jointly. Advices must be constructive ( 1998).     Sample Case:             In order to understand better the theories of international business, here is a sample case below.  Case : IKEA’s Entry Into South America             IKEA seeks to continue expanding its retail presence around the world through worldwide franchising of the IKEA concept. They propose an immediate expansion of IKEA into South America, specifically a storefront in Brazil. Using  a balance scorecard approach we address the primary issues in such an expansion. They also believe Brazil is a logical candidate for longer term expansion on the manufacturing side of IKEA and provide supporting analysis for such expansion. Background Founded in the late 1940′s by  created with the concept of IKEA, a furniture company that provided quality fashionable furniture at prices everyone can afford. Although its business model at the time was much different then the mega stores today, this fundamental approach to furniture has remained the same. Despite its very risk-adverse nature, IKEA became the first furniture company to expand internationally. High bulk to value, high transportation costs, and susceptibility to damage are all issues IKEA was able to overcome with its innovative approach of  selling furniture collapsed flat boxes. This approach not only lowered its shipping and inventory costs, but also creatively transferred the labor-intensive assembly costs to the customer. IKEA’s innovate approach to adding the consumer to the value chain in effort to keep prices low and quality high has won it very loyal fans everywhere it has reached. Packed to the brim, its stores attract customers from great distances who load up their cars to furnish entire rooms or homes in a single trip. Constantly introducing new innovative new products, its model rooms in its stores and catalogs have provided a creative way introduce its new products to complement its existing product line. Fashionable and trendy it encourages customers to live the IKEA life. Financials Background: Ikea is a privately owned company with an extraordinarily opaque organization. Financial statements are not publicly available. The IKEA Group is ultimately owned by the Stitching Ingka Foundation, a charitable trust based in the Netherlands. The IKEA Group manufactures and sells products. Franchise stores are a part of the IKEA group. However, Inter IKEA Systems, a separate company, owns IKEA’s intellectual property. Franchises: “Inter IKEA Systems B.V. constantly seeks market expansion, and grants new franchises to markets/territories according to a detailed expansion plan” (Company Web Site). IKEA has identified location as a primary success factor, since store sales volume is so dependent on location. Franchises are granted only to organizations and/or individuals that can secure a strong market position and market penetration in the given territory and have the financial strength and potential as well as have identified well located sites for the retail activity.” Investment required: Based on recent examples, such as the IKEA store opened in Israel in 2003, typical investment is ~ M with a leased store. It is estimated that another M would be required for the building and infrastructure improvements. It is also estimated that a new distribution center may be required for the region. If this is required, it is likely multiple stores will be needed to justify such an investment. Revenue: With 190 stores, sales top 12.2B Euro. This means on average each store generates 67M euro (M/store). To validate this assumption, it should be noted that Germany accounts for 1/5th of turnover with a proportionate 33 stores. Costs: The IKEA store concept requires relatively little human resources, so costs are a function of other overhead such as lease, warehousing, utilities, taxes and advertising. It can be noted that manufacturing is primarily Poland and Asia, as Ikea grows in size, it should consider Brazil as third major manufacturing center for local and worldwide use. Earnings: After tax earnings for the IKEA group were shared in the 1997 book, “The History of IKEA.” Figures in the book show IKEA posted a profit of 5 million or 8% of sales. Other sources have estimated after tax profits as high as 18%. This indicates the stores are equally profitable, but must be verified before moving forward. Profits and royalties can be repatriated from Brazil. Production Brazil has abundance of high quality wood and low labor prices. This is an important reason for IKEA-Brazil to produce the furniture in Brazil and distribute locally. Brazilian taste for furniture indicates that they appreciate widermoldings that the standard American moldings. This along with a few more customizations might be essential to market IKEA products in the Brazilian market. In the late 90′s there has been an increase in quantity (+2.5%) and a simultaneous increase in exports (+11%), which show the increasing competitiveness of the Brazilian industry on international markets. Factors at the root of this process are most certainly the use of ever more advanced technology acquired thanks to huge investments in capital goods (in 1996 US$ 220 million was invested in machinery, mainly from Italy, Germany and the United States) which has increased the productive capacity of sector companies, and the effects of the process of opening up to international trade which intensify the significant comparative advantages of Brazil compared to other exporting countries: excellent quality raw materials at low costs and flexible labor.   Delivery Latin America’s most important trade show happens at Brazil and this is the most sought after trade show. Brazil stands as the main sourcing country for furniture for the whole of Latin America. Brazil is the largest country in South America and shares its border with a lot of countries. Since the South-east of Brazil is the economic center of Brazil, cities Rio de Janeiro and Sao Paulo are favorable places to establish IKEA stores. Land transportation is becoming more effective in that about 85% of Brazil’s people and products are transported by road. Brazilian highways are of modern design and link all the state capitals by paved roads. Problems still arise in the rural and remote areas as water floods the roads making them impassable for days. Sometimes road construction after the floods is delayed inhibiting travel even more. IKEA-Brazil can offer high quality products at low prices with the efficient methods of distribution and close relationships with manufacturers. This will ensure that even during problematic situations like flooding, the majority of the sales are not affected due to transportation issues. The same principle used everywhere else where the need for distribution is cut out by offering flat-packaged items that are warehoused in the stores and picked up by the customers on site, will be the key. The customer is spared shipping, storage and assembly costs resulting in dramatically lower product prices. Issues with the Labor Workforce Labor is cheap in Brazil compared to Europe and America. But with this cheap workforce and swinging economy of the country comes a multitude of issues that are worth investigating. Half of the labor force in Brazil is employed in the informal sector. Even though the government employs minimum wage, this is hardly followed and the wages are compensated often with respect to the fluctuations in the economy. In Brazil, 50 percent of the workforce is outside formal collective bargaining structures. Thus the labor laws in Brazil might make it expensive to employ workforce.   Quality Goals International companies are already sourcing out of Brazil for the past many years. Crossmart Brazil has nearly three decades of experience sourcing product for European catalogs out of 40 Brazilian plants. Crossmart relies on seven inspectors who constantly visit plants to check moisture content, finishes and overall quality. It is estimated that the company currently does million a year in French mail orders alone. In the southeastern production centers of Brazil, products are with a good qualitative level because of the use of modern production processes and suitable machinery. The effects of technological innovation and design created by some important trade fairs in these regions are also worth mentioning. With this kind of a history, the IKEA plant in Brazil should be able to achieve the quality standards that they have been able to measure up to internationally. Their products are not over-engineered to give a greater finish than the customer requires. Nevertheless quality is taken very seriously and the whole supply chain participates. The Ikea definition of quality is that the product must first be available in the store and secondly it must match up to the customer’s expectations: it must be complete, free from defects and easy to assemble. Returns to stores are analyzed and each product is carefully monitored. Legal and Regulatory It is important to note that Brazil is very friendly to foreign investors – domestic investors and foreign investors are treated equally. The largest restriction is that you must obtain a permanent visa in order to invest in Brazil as a foreigner – however, earnings may be repatriated after waiting for foreign currency to become available. The Ministry of Labor must approve this visa application. The minimum investment required is 0,000 (US) or the equivalent. The National Immigration Council can make exceptions if the new venture will create at least ten new jobs, or is of social interest. Once the visa is granted it will be valid for two years. At the conclusion of the initial two-year period the Ministry of Labor will perform an evaluation of the business to determine the feasibility of the venture before granting a definite extension. Internal Standards Foreign investors are encouraged to initiate discussions with state development agencies within the country. These agencies are available for government incentive programs. In addition to contacting local agencies it is important to note that a wide range of credit and financing options are available to investors through both foreign and domestic banks operating in Brazil. Finally, foreign investors are expected to import the funds for all major fixed capital requirements.     Cultural and Environmental Conditions Personal contact is more important in business than other forms of communications (i.e. telephone or mail). This is largely because the working relationships in Brazil are built on trust. The most common form of doing business in Brazil is through incorporated subsidiaries; branches are very difficult to operate. Joint ventures do not require a local Brazilian partner, however, it is still encouraged. It is essential to establish a network of connections with the public sector in Brazil. The culture in Brazil relies heavily on favors and ‘who you know’. These connections are important, but it is important to remember that these connections can, and will, change. Lastly, be prepared to negotiate on prices! Do not expect sales to occur quickly, and keep your best price till last. People IKEA has a company philosophy to create a better life for its customers, as well as its co-workers. This has significantly influenced the company’s workplace environment. IKEA received the Family Champion award and is recognized as a great place to work here in America. IKEA empowers their coworkers and respects their personal lives. This has had a tremendous influence on job productivity, growth and development, which ultimately benefits the customer. The IKEA workplace includes many benefits and family friendly initiatives to support co-workers needs. In 2002, IKEA saw a 26% decrease in sales staff turnover. In addition, women represent more than 48% in management positions and are 47% of the company’s top earners. This provides a proper fit for both IKEA and the Brazilian workforce. Brazil is a nation in which the richest 20 percent of the people receive 64 percent of the national income. It is a nation in which 40 percent of the people live on the equivalent of US a day and over 20 percent live on the equivalent of US a day. In May 2003 unemployment was up to 12.8%-it highest level in 14 months. For those that did work, the average wages in May 2003 fell to 0 US, 15% lower than a year earlier. However, the Brazilian workforce is renewing. The job market is very attractive to the ages of 25 to 39 years old. Brazilian women are making up a larger portion of the workforce. In 1970, only 18.5 percent of Brazilian women worked outside the home. This has since rose to 51 percent of the Brazilian workforce. The number of High School graduates has also risen from 35 percent in 1994 to 43 percent currently. IKEA has responded to national needs and cultural sensitivity issues. This has been a challenge for IKEA, but IKEA is meeting these challenges by finding a balance between country level autonomy and centralized intervention. To maintain service, quality and logistic standards, franchisees are audited for performance. The headquarters provides extensive training and operational support to the workers of all kind. The new organization has become flatter and is delegating more responsibility to subsidiaries. In addition, IKEA is committed to social policies to both employees and customers. IWAY (IKEA Way) provisions include health and safety standards, employee conditions such as access to rest areas and toilets, working hours and a minimum wage. IWAY is enforced worldwide but the criterion varies according to local culture and employment legislation. This is an additional benefit for the Brazilian workforce, where there has been some disparity in working conditions for minorities and women. IKEA has developed a mentoring program for learning and personal development of both the mentee and mentor with the expectation that by helping people to be partners they will become better employees. The evolution for the program is for IKEA’s mentees to become IKEA’s future mentors and Partners for Growth to become self-sustaining and seamless with the culture. IKEA’s program is innovative, not only because it is grounded in the values of IKEA’s culture, but also because it focuses on personal learning and development. It will help to secure its future as they expand, by creating a diverse group of leaders. Partners for Growth is now entering its second phase and is creating a culture where mentoring is available to all managers at IKEA. IKEA has launched Partners for Growth throughout the organization. Partners for Growth facilitates individual learning, promotes personal and professional growth and development, and has four strategic goals. These are to develop leaders from top to bottom, support career development across the boarder, develop and support diversity through the IKEA organization, and strengthen IKEA culture.     Marketing Strategy  “All marketing is based on the IKEA business idea: We shall offer a wide range of home furnishing items of good design and function, at prices so low, that the majority of people can afford to buy them” Although Brazilian customers are used to negotiating on price, we feel a fixed price retail store will do well since the prices are low, and the shopping experience is primarily self-service. The company’s target customers are people, who are looking for value and who are ready to do some work serving themselves, transporting the items home and assembling the furniture for a better price. The typical IKEA consumer is young low and middle income family. To facilitate shopping, IKEA provides catalogs, tape measures, shopping lists and pencils for writing notes and measurements. Effective marketing through catalogues usually attracts the customer at first, what keeps them coming back is good service. These catalogues are available in any IKEA store (prices are guaranteed not to increase while the catalogue is valid, which is again attracting consumers). Another good way of promotion could be television advertising, because of its wide auditorium. Large number of services, which IKEA provides to is customers, is also can be attractive for new consumers. Many IKEA stores offer a home decoration or kitchen planning service. The IKEA store also offers a home delivery service (which is not included in the product price) and a generous return policy.   Management Strategy IKEA is a very successful multinational corporation, which indicates that earlier discussed focused generic, or long-term strategy of cost leadership and product differentiation has served it well. IKEA approaches unknown, small, high risks markets by franchising. So this company actively expands in this field as well. IKEA has a lot of subsidiaries in many countries of the world. Franchisees have to carry basic items, but have the freedom to design the rest of the products. Cost leadership is also a part of management process. The main objective of Ikea is to produce high quality product at a low price. It is furnishing the customers with a quality product with components derived all over the world utilizing multi-level competitive advantages, low-cost logistics, large simple retail outlets in suburban areas. But cost reduction does not mean reducing the quality of the  of the product rather do things better and more efficiently. With the sample case above, it is shown that it is important for an international business to consider the cultural, legal and other internal policies of the country to be evaded. Moreover, it is also important for a business to have their marketing and management strategy  fit the market of the new environment.       Bibliography   Credit:ivythesis.typepad.com

Applied Knowledge Essay

APPLIED KNOWLEDGE PAPER _ Table of Contents ...

INTERNATIONAL BUSINESS ENVIRONMENT

APPLIED KNOWLEDGE PAPER   Table of Contents                                                                                                                                       Page   INTRODUCTION                                                                                                                 2 International Business: Defined                                                                                    2 Challenges of International Business                                                                          3             Where to Operate?                                                                                                  3             What Basis?                                                                                                             4             How much to Invest?                                                                                              4             Market Data                                                                                                               4             Business Plans                                                                                                        5             Cross Culture Management                                                                                  5             Language Barrier                                                                                                     8             Finding Competent Staff                                                                                        9             Marketing Plan                                                                                                         10             Product Design and Pricing Parameters                                                             10 Role of Managers                                                                                                               11 Sample Case                                                                                                                       15 Bibliography                                                                                                                        27                                                                                            INTRODUCTION                 It is a fact that mostly managers today are engaged into international business or cross cultural environments. This is because international business entails more business opportunities and investments. International Business is a field of business that looks into all aspects of multinational corporations or multinational enterprises. The theoretical base of this study was originated in 1960s and considered as established in 1980s. Traditionally, scholars engaged in this field came from more developed schools, such as general management, marketing, finance, strategy, organization, and international trade. Scholars of technology management and information management have also participated since 1990s (). This differs from business within borders because this would mean additional challenges in managing trade and investments in foreign countries. This paper aimed to demonstrate the application of specific concept or principles of international business management as it relates to an academic issue or to a business, trade or profession. This is to relate academic concepts to a practical solutions of everyday problems.     International Business: Defined   International business is defined as the study of transactions between counterparties who either reside in different nations or who reside in one nation but are compared to a pair of counterparties in another nation. It differs in important ways from business conducted within national borders in the way that international business poses additional challenges for managing trade or investments in foreign countries, but it also offers new opportunities in foreign markets. This is also defined as any business activity or transactions that transcend the national border ( 2004, p. 6).  International business management, in general, combines strategy, international finance, trade theory, trade policy, marketing, human resource management, and other related areas.     Challenges of International Business   Despite the ease with which it is often conducted, doing business across borders is not the same as doing it at home. Rather, it entails a whole new set of managerial challenges: re-assessing competitive advantage; evaluating diverse political environments and legal structures; considering the impact of currency fluctuations and trading regimes; and understanding widely disparate cultures and business norms.   Where to operate?             The first thing to consider in establishing international operation is where to operate. In considering and selecting the country or markets to operate, you should also put in consideration if it would represent a good risk from the perspective of good legal framework, economic stability and growth, expected development of the industry and currency risk.   What basis?             In the chosen country or market, managers should also consider if he should operate in joint venture, wholly owned subsidiary if the chosen country market would allow or other alternatives.   How much investment?             Managers should also consider how much investment can be justified for the chosen market. He also take into account the availability of investable funds as well as appropriate proportion to total investment and equity participation if the venture is not a fully owned operation.  How much investment does the chosen market should justify in the light of the business plan for the venture should also be considered. He should also take into consideration if the return on investment targets could be accomplish within the time horizon normally expected. He also should know what assistance can you and will you provide the local operations.   Market Data             Frequently, market data are either dated or might not appropriately present the entire market or its potential. It might be underwritten or overwritten. Market data publicly available may not appropriately portray the growth potential for the coming years. Business Plans             Due to inappropriate or lack of reliable market data, overly optimistic expectations may result and in most cases resulted to failure in business plans and expectations. Usually capital investment requirements are underestimated as well as time and effort commitment and projected financial results are over optimistic. Instances of shortcomings would result to withdrawal of business entities from the specific market.   Cross-Culture Management It is a clear fact that managers today are increasingly working in an international and cross cultural environments. In addition with the pressure of managing employees, managers are also dealing with challenges, friction and misunderstanding emanating from cross cultural differences.             As an international, multinational, transnational, multi-domestic, and global business, it is most important to appreciate and respect regional, country and cultural differences or cultural diversity to a successful business outcome.             Every country or nation or nationality has diverse cultural beliefs and preferences and with different attitude toward things. Therefore, managers that would go into international business should learn to understand and must develop their cultural intelligence. The combination of knowledge, mindfulness, and behavioral skills is the basis of cultural intelligence. The first key that the manager should do before traveling to another country in business or for business meetings on other country is to study the culture and social protocols of the country. Another to thing that the manager should possess is mindfulness. Mindfulness means paying attention to one’s own assumptions, ideas, and emotions. It also means being aware of the selective perception, attributions and categorization that we and others adopt and noticing what is apparent about the other person. Mindfulness helps the manager link knowledge to skillful practice. It gives the manager the readiness to interact with people of different cultures and communicate comfortably and accurately in ways that honors the background and identities of both parties.  To practice mindfulness, managers should view situations from several perspectives. Managers should also seek out fresh information to confirm or disprove their mental maps. Part of mindfulness is using empathy as a means of understanding the situation from the perspective of another’s cultural background. Knowledge and mindfulness are the key factors but it is not enough. Cross cultural behavior is also important. Managers should also develop their social skills. Skills like the willingness to initiate a conversation, interest other people and listening what others would say. For example, in the case of , a Frenchman ( 2004, ). This man knew how to be charming. This was particularly important in the Paris media company where Philippe worked as a manager. Philippe had noticed that many of the women in the company took pride in dressing fashionably. He therefore made a point of frequently complimenting them on their appearance. For example, he often said things such as, “Marie, that is such a chic outfit! You look as beautiful today as I have ever seen you.” This kind of comment almost always gained him a smile, a thank you, and more importantly, he felt, increased cooperation from the woman to whom he had paid the compliment. After Philippe’s company had been taken over by a major international conglomerate based in the United States, he was transferred for a two-year assignment at company headquarters in New Jersey. He was given a briefing on the United States and its different social norms and was advised, for example, that touching other people, particularly those of the opposite sex, was much less acceptable there than in France. In New Jersey, his new secretary, Anita, turned out to be a highly effective person as well as a strikingly beautiful one, who, like many of his French colleagues, dressed extremely well. Philippe was careful to keep his physical distance from Anita as he had been taught, but he felt that her obvious glamour provided an opportunity to build a good relationship. So in his customary French manner he would greet her every morning with a freshly minted compliment on her appearance. Her initial reaction was surprise. After a few days, she would thank him politely and then change the subject. Then she began to respond by frowning and pursing her lips. Philippe was puzzled. Did she think his compliments were insincere? He made his compliments more heartfelt. One day, Anita said, “Mr. , I want you to stop making comments on my personal appearance. I am not here as a decoration, I am here as an employee. I take a real pride in what I do, but all you can talk about is the way I look. Can you imagine how that makes me feel? I have tried to discourage you, but it seems you won’t take a hint. From now on, can you please treat me with a bit more respect and professionalism?” In this case, Philippe developed a repertoire of skilled behavior that worked well in one cultural situation, but these same skills backfired in another culture. His performance was based on a particular view of the world, on ways of expressing himself most likely developed from childhood, on sheer habit, and on having previously had the habit consistently rewarded. It can be hard for anyone like Philippe, socially skilled as he was, to erase the habits that don’t work in his new environment and to replace them with new, appropriate forms of social performance. The first step is to gain a better understanding of the history and norms of male-female interaction in the new culture and to learn generally about the interpersonal relations in that culture. The next step is to pay more attention, be mindful, to the behavioral cues provided by coworkers. Lastly, anyone in this position must develop new ways of behaving towards women; he will have to experiment with new approaches and refine his behavioral skills. To be as successful as possible, managers must be as culturally attuned to the world and to each foreign society in which they seek to operate as they are to their own home society.   Language Barrier             Communication is important in management. Unfortunately, intensity of communication intensity, increasing linguistic diversity and increasing scale of operations are problems brought about by the language barrier. Language barrier can trigger to negative consequences. It would cause uncertainty, suspicion, group division, undermines trust and leads to polarization of perspectives, perceptions and cognition. And with this problem, management would be hard to imagine. Many companies have experienced setbacks as a direct result of not knowing the local language. A major washing powder company forgot that in Arabic sentences are transposed and told their customers: “Put your clean washing in the machine and out comes this dirty grey material”! Even giants of international commerce can run into trouble. Coca Cola found out that in Chinese its brand name sounds like ‘bite the wax tadpole’. Pepsi fared no better in Taiwan. Their slogan ‘Come alive with the Pepsi generation’ came out as ‘Pepsi will bring your ancestors back from the dead.’ “News Letter [Belfast]” It is not a laughing matter when the business suffers as a result. Billions of pounds in revenue are lost each year due to a lack of international language skills and failure to overcome cultural barriers.   Finding Competent Staff             In choosing personnel it is important to consider key players who are attuned to the cultural gaps which may exist. These individual should be able to function effectively between two cultures. It is also important that these personnel are competent enough because they would play an active role in looking after and in assisting the international ventures and to manage, run, and administer such operations. At this point, such personnel are limited in availability because there is a very limited supply of those who posses the professional and industry requirements.   Marketing Plan             Marketing plan and selection of sales or distribution alternatives are also needed to be addressed. Recognition of these are needed to modify these to some extent so that these will work best for the country they are intended. But because of overly optimistic projections of business plans, companies would have a tendency to offer whatever products that enjoys the acceptability of the public and these would be a costly mistake or shortcoming in the long range.   Product Design and Pricing Parameters Experience data for the risks to be underwritten is often unavailable or available in limited form. With regards to some of the data, such as mortality experience, available data may be based on more liberal underwriting principles and techniques than those that will be used. Persistency expectations may be different than industry data shows, to some extent due to improved sales personnel training and sales techniques as well as different sales compensation schemes. Profit parameters will need to be thought out for purposes of pricing products for other countries. Some countries will represent higher risk or uncertainty while others will allow higher profit targets in light of existing competition and market demands. A careful thought process is required in setting the various pricing assumptions.       Role of Managers Changes in the global business arena have effected changes within business structures which, in turn, demanded changes in the role of the manager within the organization. Of the four primary functions of the manager that were proposed in the early 1990s, namely, planning, controlling, staffing, and directing, only the latter has become a misnomer in today’s workplace. While organizations of the past required managers to direct employees in how to perform the job, contemporary managers have become more focused on promoting employee empowerment and delegation and, in such capacity, have become more of mentors than directors (, 1998). As quoted by  (1998), the role of managers within our organizations is drastically different than it was ten years ago. As the structures within our business are altered, the processes by which the work is performed are also altered. The role of the manager within our organizations has indeed changed in response with time. In ’s concept of management functions, he suggested four primary function of manager which are planning, controlling, directing and staffing but these functions had mean different in the current environment. Planning should be the first thing that a manager would do. Planning varies in different level of organization. The top managers planned in the longest time horizon and engaged in strategic planning. The middle managers planned in shorter time horizon than the top managers and are engaged in operational planning. But today, however, all managers are engaged in strategic planning. Next to planning is staffing which involves placing of right person in the right job. This staffing responsibility of managers also involves ensuring that the person-job-organization fit is made. The manager’s role of control is always been important. It’s the manager’s task to identify gaps from desired performance to actual performance and take corrective measures on the gaps made. But today, the role to control has been changed with the technological advancements. Then the forth is directing which perhaps has the greatest changes compare with the other three functions. Managers today are more engaged in coaching and mentoring rather than the traditional directing. Directing in ’s view is the manager’s responsibility to determine that the workers are doing the job in the best way. As a coach, a manager advises and assists employees. This does not mean controlling and issuing commands. The manager as coach should require the role to be one that supports. The manager should provide guidance to the employees in an objective fashion. Good coaching would foster better relationships between managers and employees. The concept of coach focuses on the development of the needs of his employees. Managers are required to help employees tap into their full potential and improve flexibility. The focus is on means (not ends). That is, the move is away from rigid rules and procedures. Flexibility should be allowed in how the tasks are performed. The coach should empower his employees. Managers should set his employees to manage themselves rather than taking control of them. This means giving up control. The manager as a coach should also be a good listener. The directing manager exerted control through talking. Little listening was actually done. But the new manager uses participative decision making. Autocratic decision making has no role in coaching. The new manager also emphasizes sharing information. Hoarding information has no place in coaching. Part of this relinquishing control, then, means giving up the control of information. If employees are to be truly empowered and participate in decision making, they need to also have access to the appropriate information. Just as the coach for an athletic team spurs the athletes on to higher levels of performance, likewise the manager as coach helps employees reach higher performance levels. A coaching environment helps nurture teamwork. Cooperative environments are created with a focus on coaching. These environments are best at developing employees by encouraging growth and building confidence. The best coaches are sincere and open. This helps create a climate of trust and mutual respect where employees can take risks without fear-such as trying new ideas. Yet employees in this environment are comfortable recognizing the ownership of their decisions. The coach is also mentor. This mentoring manager serves as a role model and a teacher. This manager gently guides the activities of others. Contrary to earlier theories suggesting managers had to be strong and in control, today’s managers must be caring and show concern for their human resources. Observational skills are really skills in identifying opportunities for employees to improve performance. Then opportunities to provide feedback have to also be identified. Analytical skills are needed so managers can analyze the opportunities observed. Coaching also requires good interviewing skills. This involves excellent communication including reading nonverbal behaviors. Finally, effective managers must have exceptional feedback skills so they can feed back information to their employees.  suggested the four functions of coaching are counseling, mentoring, tutoring and confronting. With the counseling function managers help their employees learn more about themselves and their feelings. Managers as mentors help employees become more proactive. As tutors, managers help employees develop technical skills. And the confronting function enables employees to improve their performance through a better understanding of what is expected of them. Constructive criticism is critical to effective coaching. This requires managers focus on worker behaviors not meeting standards. Engaging in active listening helps the managers as coach get a better grasp of how employees’ performance can be improved. Coaches must partner with employees to solve problems jointly. Advices must be constructive (, 1998).     Sample Case:             In order to understand better the theories of international business, here is a sample case below.  Case : IKEA’s Entry Into South America             IKEA seeks to continue expanding its retail presence around the world thrreoug worldwide franchising of the IKEA concept. They propose an immediate expansion of IKEA into South America, specifically a storefront in Brazil. Using  a balance scorecard approech we address the primary issues in such an expansion. They also believe Brazil is a logical candidate for longer term expansion on the manufacturing side of IKEA and provide supporting analysis for such expansion. Background Founded in the late 1940′s by  created with the concept of IKEA, a furniture company that provided quality fashionable furniture at prices everyone can afford. Although its business model at the time was much different then the mega stores today, this fundamental approach to furniture has remained the same. Despite its very risk-adverse nature, IKEA became the first furniture company to expand internationally. High bulk to value, high transportation costs, and susceptibility to damage are all issues IKEA was able to overcome with its innovative approach of  selling furniture collapsed flat boxes. This approach not only lowered its shipping and inventory costs, but also creatively transferred the labor-intensive assembly costs to the customer. IKEA’s innovate approach to adding the consumer to the value chain in effort to keep prices low and quality high has won it very loyal fans everywhere it has reached. Packed to the brim, its stores attract customers from great distances who load up their cars to furnish entire rooms or homes in a single trip. Constantly introducing new innovative new products, its model rooms in its stores and catalogs have provided a creative way introduce its new products to complement its existing product line. Fashionable and trendy it encourages customers to live the IKEA life. Financials Background: Ikea is a privately owned company with an extraordinarily opaque organization. Financial statements are not publicly available. The IKEA Group is ultimately owned by the Stitching Ingka Foundation, a charitable trust based in the Netherlands. The IKEA Group manufactures and sells products. Franchise stores are a part of the IKEA group. However, Inter IKEA Systems, a separate company, owns IKEA’s intellectual property. Franchises: “Inter IKEA Systems B.V. constantly seeks market expansion, and grants new franchises to markets/territories according to a detailed expansion plan” (). IKEA has identified location as a primary success factor, since store sales volume is so dependent on location. Franchises are granted only to organizations and/or individuals that can secure a strong market position and market penetration in the given territory and have the financial strength and potential as well as have identified well located sites for the retail activity.” Investment required: Based on recent examples, such as the IKEA store opened in Israel in 2003, typical investment is ~ M with a leased store. It is estimated that another M would be required for the building and infrastructure improvements. It is also estimated that a new distribution center may be required for the region. If this is required, it is likely multiple stores will be needed to justify such an investment. Revenue: With 190 stores, sales top 12.2B Euro. This means on average each store generates 67M euro (M/store). To validate this assumption, it should be noted that Germany accounts for 1/5th of turnover with a proportionate 33 stores. Costs: The IKEA store concept requires relatively little human resources, so costs are a function of other overhead such as lease, warehousing, utilities, taxes and advertising. It can be noted that manufacturing is primarily Poland and Asia, as Ikea grows in size, it should consider Brazil as third major manufacturing center for local and worldwide use. Earnings: After tax earnings for the IKEA group were shared in the 1997 book, “The History of IKEA.” Figures in the book show IKEA posted a profit of 5 million or 8% of sales. Other sources have estimated after tax profits as high as 18%. This indicates the stores are equally profitable, but must be verified before moving forward. Profits and royalties can be repatriated from Brazil. Production Brazil has abundance of high quality wood and low labor prices. This is an important reason for IKEA-Brazil to produce the furniture in Brazil and distribute locally. Brazilian taste for furniture indicates that they appreciate widermoldings that the standard American moldings. This along with a few more customizations might be essential to market IKEA products in the Brazilian market. In the late 90′s there has been an increase in quantity (+2.5%) and a simultaneous increase in exports (+11%), which show the increasing competitiveness of the Brazilian industry on international markets. Factors at the root of this process are most certainly the use of ever more advanced technology acquired thanks to huge investments in capital goods (in 1996 US$ 220 million was invested in machinery, mainly from Italy, Germany and the United States) which has increased the productive capacity of sector companies, and the effects of the process of opening up to international trade which intensify the significant comparative advantages of Brazil compared to other exporting countries: excellent quality raw materials at low costs and flexible labor.   Delivery Latin America’s most important trade show happens at Brazil and this is the most sought after trade show. Brazil stands as the main sourcing country for furniture for the whole of Latin America. Brazil is the largest country in South America and shares its border with a lot of countries. Since the South-east of Brazil is the economic center of Brazil, cities Rio de Janeiro and Sao Paulo are favorable places to establish IKEA stores. Land transportation is becoming more effective in that about 85% of Brazil’s people and products are transported by road. Brazilian highways are of modern design and link all the state capitals by paved roads. Problems still arise in the rural and remote areas as water floods the roads making them impassable for days. Sometimes road construction after the floods is delayed inhibiting travel even more. IKEA-Brazil can offer high quality products at low prices with the efficient methods of distribution and close relationships with manufacturers. This will ensure that even during problematic situations like flooding, the majority of the sales are not affected due to transportation issues. The same principle used everywhere else where the need for distribution is cut out by offering flat-packaged items that are warehoused in the stores and picked up by the customers on site, will be the key. The customer is spared shipping, storage and assembly costs resulting in dramatically lower product prices. Issues with the Labor Workforce Labor is cheap in Brazil compared to Europe and America. But with this cheap workforce and swinging economy of the country comes a multitude of issues that are worth investigating. Half of the labor force in Brazil is employed in the informal sector. Even though the government employs minimum wage, this is hardly followed and the wages are compensated often with respect to the fluctuations in the economy. In Brazil, 50 percent of the workforce is outside formal collective bargaining structures. Thus the labor laws in Brazil might make it expensive to employ workforce.   Quality Goals International companies are already sourcing out of Brazil for the past many years. Crossmart Brazil has nearly three decades of experience sourcing product for European catalogs out of 40 Brazilian plants. Crossmart relies on seven inspectors who constantly visit plants to check moisture content, finishes and overall quality. It is estimated that the company currently does million a year in French mail orders alone. In the southeastern production centers of Brazil, products are with a good qualitative level because of the use of modern production processes and suitable machinery. The effects of technological innovation and design created by some important trade fairs in these regions are also worth mentioning. With this kind of a history, the IKEA plant in Brazil should be able to achieve the quality standards that they have been able to measure up to internationally. Their products are not over-engineered to give a greater finish than the customer requires. Nevertheless quality is taken very seriously and the whole supply chain participates. The Ikea definition of quality is that the product must first be available in the store and secondly it must match up to the customer’s expectations: it must be complete, free from defects and easy to assemble. Returns to stores are analyzed and each product is carefully monitored. Legal and Regulatory It is important to note that Brazil is very friendly to foreign investors – domestic investors and foreign investors are treated equally. The largest restriction is that you must obtain a permanent visa in order to invest in Brazil as a foreigner – however, earnings may be repatriated after waiting for foreign currency to become available. The Ministry of Labor must approve this visa application. The minimum investment required is 0,000 (US) or the equivalent. The National Immigration Council can make exceptions if the new venture will create at least ten new jobs, or is of social interest. Once the visa is granted it will be valid for two years. At the conclusion of the initial two-year period the Ministry of Labor will perform an evaluation of the business to determine the feasibility of the venture before granting a definite extension. Internal Standards Foreign investors are encouraged to initiate discussions with state development agencies within the country. These agencies are available for government incentive programs. In addition to contacting local agencies it is important to note that a wide range of credit and financing options are available to investors through both foreign and domestic banks operating in Brazil. Finally, foreign investors are expected to import the funds for all major fixed capital requirements.     Cultural and Environmental Conditions Personal contact is more important in business than other forms of communications (i.e. telephone or mail). This is largely because the working relationships in Brazil are built on trust. The most common form of doing business in Brazil is through incorporated subsidiaries; branches are very difficult to operate. Joint ventures do not require a local Brazilian partner, however, it is still encouraged. It is essential to establish a network of connections with the public sector in Brazil. The culture in Brazil relies heavily on favors and ‘who you know’. These connections are important, but it is important to remember that these connections can, and will, change. Lastly, be prepared to negotiate on prices! Do not expect sales to occur quickly, and keep your best price till last. People IKEA has a company philosophy to create a better life for its customers, as well as its co-workers. This has significantly influenced the company’s workplace environment. IKEA received the Family Champion award and is recognized as a great place to work here in America. IKEA empowers their coworkers and respects their personal lives. This has had a tremendous influence on job productivity, growth and development, which ultimately benefits the customer. The IKEA workplace includes many benefits and family friendly initiatives to support co-workers needs. In 2002, IKEA saw a 26% decrease in sales staff turnover. In addition, women represent more than 48% in management positions and are 47% of the company’s top earners. This provides a proper fit for both IKEA and the Brazilian workforce. Brazil is a nation in which the richest 20 percent of the people receive 64 percent of the national income. It is a nation in which 40 percent of the people live on the equivalent of US a day and over 20 percent live on the equivalent of US a day. In May 2003 unemployment was up to 12.8%-it highest level in 14 months. For those that did work, the average wages in May 2003 fell to 0 US, 15% lower than a year earlier. However, the Brazilian workforce is renewing. The job market is very attractive to the ages of 25 to 39 years old. Brazilian women are making up a larger portion of the workforce. In 1970, only 18.5 percent of Brazilian women worked outside the home. This has since rose to 51 percent of the Brazilian workforce. The number of High School graduates has also risen from 35 percent in 1994 to 43 percent currently. IKEA has responded to national needs and cultural sensitivity issues. This has been a challenge for IKEA, but IKEA is meeting these challenges by finding a balance between country level autonomy and centralized intervention. To maintain service, quality and logistic standards, franchisees are audited for performance. The headquarters provides extensive training and operational support to the workers of all kind. The new organization has become flatter and is delegating more responsibility to subsidiaries. In addition, IKEA is committed to social policies to both employees and customers. IWAY (IKEA Way) provisions include health and safety standards, employee conditions such as access to rest areas and toilets, working hours and a minimum wage. IWAY is enforced worldwide but the criterion varies according to local culture and employment legislation. This is an additional benefit for the Brazilian workforce, where there has been some disparity in working conditions for minorities and women. IKEA has developed a mentoring program for learning and personal development of both the mentee and mentor with the expectation that by helping people to be partners they will become better employees. The evolution for the program is for IKEA’s mentees to become IKEA’s future mentors and Partners for Growth to become self-sustaining and seamless with the culture. IKEA’s program is innovative, not only because it is grounded in the values of IKEA’s culture, but also because it focuses on personal learning and development. It will help to secure its future as they expand, by creating a diverse group of leaders. Partners for Growth is now entering its second phase and is creating a culture where mentoring is available to all managers at IKEA. IKEA has launched Partners for Growth throughout the organization. Partners for Growth facilitates individual learning, promotes personal and professional growth and development, and has four strategic goals. These are to develop leaders from top to bottom, support career development across the boarder, develop nad support diversity through the IKEA organization, and strengthen IKEA culture.     Marketing Strategy  “All marketing is based on the IKEA business idea: We shall offer a wide range of home furnishing items of good design and function, at prices so low, that the majority of people can afford to buy them” Although Brazilian customers are used to negotiating on price, we feel a fixed price retail store will do well since the prices are low, and the shopping experience is primarily self-service. The company’s target customers are people, who are looking for value and who are ready to do some work serving themselves, transporting the items home and assembling the furniture for a better price. The typical IKEA consumer is young low and middle income family. To facilitate shopping, IKEA provides catalogs, tape measures, shopping lists and pencils for writing notes and measurements. Effective marketing through catalogues usually attracts the customer at first, what keeps them coming back is good service. These catalogues are available in any IKEA store (prices are guaranteed not to increase while the catalogue is valid, which is again attracting consumers). Another good way of promotion could be television advertising, because of its wide auditorium. Large number of services, which IKEA provides to is customers, is also can be attractive for new consumers. Many IKEA stores offer a home decoration or kitchen planning service. The IKEA store also offers a home delivery service (which is not included in the product price) and a generous return policy.   Management Strategy IKEA is a very successful multinational corporation, which indicates that earlier discussed focused generic, or long-term strategy of cost leadership and product differentiation has served it well. IKEA approaches unknown, small, high risks markets by franchising. So this company actively expands in this field as well. IKEA has a lot of subsidiaries in many countries of the world. Franchisees have to carry basic items, but have the freedom to design the rest of the products. Cost leadership is also a part of management process. The main objective of Ikea is to produce high quality product at a low price. It is furnishing the customers with a quality product with components derived all over the world utilizing multi-level competitive advantages, low-cost logistics, large simple retail outlets in suburban areas. But cost reduction does not mean redusing the quality of the  of the product rather do things better and more effeciently. With the sample case above, it is shown that it is important for an international business to consider the cultural, legal and other internal policies of the country to be evaded. Moreover, it is also important for a business to have their marketing and management strategy  fit the market of the new environment.       Bibliography   Credit:ivythesis.typepad.com

INTERNATIONAL BUSINESS ENVIRONMENT

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