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Authors: Asif Khan, Ahmed Ali Shafiq
Supervisor: Dr. Richard Afriyie Owusu
Examiner: Dr. Per Servais
Subject: Degree Project in International Business Strategy
Level: Master
Course Code: 5FE40E
Master Thesis
Internationalization Challenges for Retail Firms in
Emerging Asian Markets: A case study of IKEA
2
ABSTRACT:
There has been prior research on the internationalization process of retail firms. However, most
of the research has investigated the developed countries' markets. There has been little research
on the internationalization process of retail firms, especially in the emerging Asian markets. The
emerging Asian markets are different from developed markets. Therefore, internationalization
challenges and hindrances are dissimilar in this region than in developed countries' markets.
Previously, there have been numerous researches on IKEA and other Swedish retail firms on the
internationalization process. However, most of the research study has been done on its
movement to developed markets. There has been little research done on IKEA's
internationalization into emerging Asian markets. There are different challenges faced by firms,
when entering into the emerging Asian market and during the business in these markets.
However, the emerging Asian markets are different from other continents, especially the Western
and developed markets.
This research study aims to fill the existing knowledge gap by exploring the challenges that
IKEA faces in emerging Asian markets. In addition to this, by the research, we seek to develop
our understanding of the challenges faced by Swedish retail firms while entering emerging Asian
markets. Furthermore, by exploring the challenges that retail firms face in the emerging Asian
markets, we also aim to provide possible solutions on how IKEA and other retail firms can
resolve or tackle the issues they face in emerging Asian markets.
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KEYWORDS: Internationalization process, Internationalization theories, Uppsala model,
Transaction cost theory, Network model, Eclectic model, Retail firms, emerging Asian markets,
China, India, Challenges, Culture, Competition, Infrastructure, Technology, Psychic distance,
Network relationship, IKEA.
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ACKNOWLEDGMENTS:
We are thankful and owe very much to so many people whose help and support at different
stages of our research work enabled us to write and complete the thesis report on time.
First of all, we are grateful to our supervisor Dr. Richard Afriyie Owusu, who always taught
and corrected us in a very loving manner whenever we needed him. We had various zoom
meetings with him regarding the thesis; his time guidance and assistance are appreciated.
We are also very much grateful to Examiner Professor Per Servais for the seminar sessions and
discussion. We are also pleased with his valuable suggestion and recommendation, which has
enabled us to correct our research work. For his incredible motivation and support, we are very
much thankful.
We are very thankful to our respected teacher Mr. Mathis Karlsson for his support and helping
us with IKEA officials to collect the required data for the thesis. It would not have been possible
without his support to complete and gather the required data. We are also thankful to Ms. Soniya
Billore and Ms. Katarina Ek for connecting us with IKEA officials.
We are also grateful to our classmates for their endless encouragement and cooperation
throughout the writing and completing the thesis, their suggestions, constructive criticism and
valuable guidance.
Furthermore, we are also thankful to the staff of IKEA for their cooperation during the collection
of required data. We want to thank Mr. Olafur Magnusson, Mr. Martin Cerullo, Ms. Asa
Hederberg, Mr. Daniel Jimenez, Ms. Shagufta Nahid, Mr. Peter Wisbeck and Ms. Valery
Henriquez whose help made it possible for us to complete our thesis report.
We are grateful to our families for the financial support, friends for their motivation and
encouragement, and teachers throughout the degree program. Their prayers, motivation,
encouragement, and moral support are always with us as guiding lights in the struggling ways of
life.
Many Thanks
Date: 24/05/2021
________________ ________________
Asif Khan Ahmed Ali Shafiq
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Table of Contents CHAPTER - 1
1. INTRODUCTION ........................................................................................................ 9
1.1 Background .................................................................................................................... 9
1.2 Emerging Asian market Perspective .............................................................................. 13
1.3 Emerging market China ................................................................................................. 13
1.4 Emerging Market India .................................................................................................. 15
1.5 Problem Discussion ...................................................................................................... 16
1.6 Research Questions ....................................................................................................... 19
1.7 Purpose of Research ..................................................................................................... 19
1.8 Delimitation .................................................................................................................. 19
CHAPTER - 2
2. METHODOLOGY ..................................................................................................... 20 2.1 Research Philosophy ..................................................................................................... 20
2.2 Research Approach ....................................................................................................... 21
2.3 Research Design ........................................................................................................... 21
2.4 Research Process .......................................................................................................... 22
2.4.1 Data Collection .................................................................................................... 22
2.4.2 Primary Sources ................................................................................................... 22
2.4.3 Secondary Sources ............................................................................................... 23
2.5 Operationalization ........................................................................................................ 23
2.6 Method of Analysis ...................................................................................................... 24
2.7 Research Quality .......................................................................................................... 25
2.7.1 Credibility (Internal Validity) ............................................................................... 25
2.7.2 Consistency (Reliability) ...................................................................................... 26
2.7.3 Trainability (External Validity) .................................................................................. 26
2.8 Ethical Considerations .................................................................................................. 27
2.9 Authors Contributions .................................................................................................. 27
CHAPTER – 3
3. LITERATURE REVIEW .................................................................................................. 30
3.1 Internationalization Theories ....................................................................................... 30
3.1.1 Uppsala Model ..................................................................................................... 30
3.1.2 Network Model .................................................................................................... 31
3.1.3 Transaction Cost Theory ....................................................................................... 33
3.1.4 Eclectic Model ............................................................................................................. 34
3.2 Internationalization Challenges ................................................................................... 35
3.2.1 Competition ......................................................................................................... 35
3.2.2 Policy and Regulation .......................................................................................... 36
3.2.3 Culture .................................................................................................................. 38
3.2.4 Funding ............................................................................................................... 41
3.2.5 Technology and Infrastructure............................................................................... 41
3.2.6 Network relationship ............................................................................................ 43
3.2.7 Psychic Distance .................................................................................................. 44
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3.2.8 Theoretical Synthesis ........................................................................................... 45
CHAPTER - 4
4. FINDINGS ............................................................................................................ 48 4.1 IKEA in China ................................................................................................................. 50
4.1.1 Internationalization Process ................................................................................. 53
4.1.2 Internationalization Challenges and Opportunities ................................................ 54
4.1.2.1 Competition ........................................................................................... 55
4.1.2.2 Policy and Regulation ............................................................................ 56
4.1.2.3 Culture .................................................................................................. 58
4.1.2.4 Technology and Infrastructure ............................................................... 60
4.1.2.5 Network Relationship ............................................................................ 62
4.1.2.6 Psychic Distance .................................................................................... 64
4.2 IKEA in India ......................................................................................................... 66
4.2.1 Internationalization Process ................................................................................. 68
4.2.2 Internationalization Challenges and Opportunities ................................................ 68
4.2.2.1 Competition ........................................................................................... 69
4.2.2.2 Policy and Regulation ............................................................................ 71
4.2.2.3 Culture .................................................................................................. 73
4.2.2.4 Technology and Infrastructure ............................................................... 74
4.2.2.5 Network Relationship ............................................................................ 75
4.2.2.6 Psychic Distance .................................................................................... 76
CHAPTER - 5
5. RESEARCH ANALYSIS ...................................................................................... 78
5.1 Internationalization process ..................................................................................... 78
5.2 Internationalization challenges ................................................................................ 79
5.2.1 Competition .............................................................................................. 79
5.2.2 Policy and Regulation ............................................................................... 80
5.2.3 Culture ..................................................................................................... 82
5.2.4 Technology and Infrastructure .................................................................. 83
5.2.5 Network Relationship ............................................................................... 84
5.2.6 Psychic Distance ....................................................................................... 85
CHAPTER - 6
6. CONCLUSION .................................................................................................... 88
6.1 Objectives ............................................................................................................... 88
6.2 Research Questions ................................................................................................. 88
6.2.1 Research Question 1 .................................................................................. 88
6.2.2 Research Question 2 ................................................................................. 90
6.3 Theoretical Implications .......................................................................................... 90
6.4 Practical Implications .............................................................................................. 93
6.5 Limitations of the Study .......................................................................................... 94
6.6 Suggestions and directions for future research ......................................................... 94
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7. REFERENCES .................................................................................................... 96
8. APPENDICES ..................................................................................................... 114
8.1 Interview Guide .................................................................................................... 114
8.2 Interview Schedule ............................................................................................... 116
8.3 Interview Invitation Sample .................................................................................. 117
8.4 Consent Form ....................................................................................................... 118
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LIST OF TABLES:
Table 1: Operationalization Process .......................................................................................... 24
Table 2: Summary Table of Methodology ................................................................................ 28
Table 3: List of IKEA officials interviewees.............................................................................. 50
Table 4: Summary Table of IKEA in Chinese Market Findings ................................................ 66
Table 5: Summary Table of IKEA in Indian Market Findings ................................................... 77
Table 6: Comparison of IKEA in China and IKEA in India ...................................................... 87
LIST OF FIGURES:
Figure 1: Theoretical Model ..................................................................................................... 46
Figure 2: Figure: Revised Theoretical Model ............................................................................ 91
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CHAPTER - 1
1. INTRODUCTION:
The introductory chapter provides a base and comprehensive overview of the composed study to
start with the first chapter. It describes the internationalization process and challenges to
existing retail firms in emerging Asian countries’ markets. It also presents the emerging Asian
market perspective and internationalization challenges for retail firms in these markets, the
research gap, delimitation, and the purpose of the study.
1.1 Background:
Internationalization is merely not a new concept in the modern business era, the firm’s
development by penetrating different countries' markets is known as internationalization
(Cuervo-Cazurra, 2011). There have been numerous perspectives and debates of scholars on
internationalization and its implication for the business. Hence, the organization needs to assess
its potential gain and to know the difficulties while expanding the trade to other countries'
markets (Pogrebnyakov and Maitland, 2011). According to Aliouche and Schlentrich (2011),
there are several intentions and purposes for increasing business operations to different
international markets. The idea can be to maximize market share of the firm and increase
competitive advantage over different international platforms (Aliouche and Schlentrich, 2011).
The goal can be to maximize a firm's earnings. Besides, the goal can be to compete with
competitors at distinct platforms (Aliouche and Schlentrich, 2011). In addition to this, the idea is
to obtain resources and to get proficiency by working with diverse societies (Aliouche and
Schlentrich, 2011).
There have been different views and opinions of scholars on the internationalization process.
According to Zahra, Ireland, and Hitt (2000), internationalization is a process of expanding the
business to international markets that could help companies develop and increase
competitiveness. Further, Zahra and Garvis (2000) explained that internationalization had helped
international companies to leverage their resources, skills, and capabilities by expanding their
business into different markets. Similarly, Kotler and Armstrong (2010) emphasized the
importance of expansion into other markets. Hartungi (2006) stated that the internationalization
process influences the competition by expanding the business into other markets.
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Andersson, Johanson, and Vahlne (1997) argued that firms need to accumulate market
knowledge and international experience from the domestic and international markets while
expanding their business to other markets before expansion. In the views of Salvaneschi and
Akin (1996) the internationalization process is increasing the business to global markets but the
most important thing is that companies need to evaluate and select the appropriate market and
country and location before entering the new market. Internationalization is essential for firms
presently because it is crucial for businesses and it can be advantageous for firms to
internationalize (Root, 1998). According to Tomlinson (1999), internationalization is a concept
by which firms increase their operation in other markets. However, different challenges influence
and affect the internationalization process, such as social environment and economic change and
political instability (Tomlinson, 1999). Internationalization increases the competition and
decreases interdependency between firms in international markets (Hartungi, 2006). According
to Levitt (1993), companies are now seeking to extend their enterprise to other markets because
they want to explore new markets and to increase sales by expanding and reaching as many
customers. Kotler and Armstrong (2010) argued that internationalization facilitated and helped
organizations to achieve a competitive edge. Zahra and Garvis (2000) stated that
internationalization is vital for companies to expand their business operation to new markets or
existing markets. Kotler and Armstrong (2010) explain that internationalization is considered by
many companies and there are different reasons for expansion, maximizing sales, exploring new
markets, competing with rivals in different platforms and reaching new customers. Furthermore,
they argued that firms operating internationally are more innovative as they are experiencing
diverse consumer experience and employers working in the organization (Kotler and Armstrong
2010).
Furthermore, Chakrabarty and Wang (2012) argue that internationalization increases a firm’s
activities in global markets and sells company products and services to maximize firm profit and
proficiency. In addition to this, every organization aims to expand its business in international
markets because there is tremendous potential in global markets and growth opportunities than
local and domestic markets (Chakrabarty and Wang, 2012). The Authors further added that it is
not that easy to compete in international markets; it requires vast investment for business
operations and capital to compete in intercontinental markets (Chakrabarty and Wang, 2012). In
the opinion of Conconi, Sapir, and Zanardi (2016) to obtain international market knowledge,
11
firms must follow the internationalization process and learn about international markets which
can only be gained through operations in global markets.
Previous studies of scholars suggest that the world is becoming more of a global village. Leidner
(2010) presents a research study that it is easy for firms to move to international markets and
expand their operations. However, Assaf, Josiassen, Ratchford, and Barros (2012) argue that
internationalization does not always favour retail firms’ performance in international markets. It
sometimes leads firms to challenges such as lower firm performance. Milliot (2013) stated that
currently, 82,000 multinational companies are operating in different world markets. According to
Sadiq (2012), retail firms provide finished goods to the final consumer. Further, the author
claimed that the retail industry contributes 12% to the global economy and employs 14% of the
world's labour (Sadiq, 2012). According to Leidner (2010), in the economic purpose phase,
globalization leads to economic development and increased sales and trade with fewer
restrictions. In the author view, globalization is not merely an exchange of finished goods; it also
includes sharing and exchanging raw materials, exchanging experiences, exchanging ideas and
information technology when moving to a new market (Leidner, 2010). Therefore, globalization
is propitious for both organizations and societies at large (Leidner, 2010). In the views of Wang
and Mathur (2011) firms operating in different markets are more innovative and compatible than
firms operating in the domestic market. Li (2018) argues that from 1970 onward till date
internationalization is followed by many firms and expanding the business to international
markets is the firm’s core interest.
Retailing is an old economic activity, but the emerging industry is evolving and modernizing
with time (Dawson, Findlay, and Sparks, 2008). The authors further added that there are various
challenges for retail firms’ in foreign markets (Dawson et al, 2008). Some of the major
challenges that firms face are; brand extension, internationalization of functions, and turbulence
in the retail environment (Dawson et al., 2008). The internationalization process enhances
foreign markets’ challenges; the number of firms progressing in the foreign markets is raising
competition (Balakrishnan, Vashishtha and Verrecchia, 2019). Additionally, Leong and Yang
(2019) discussed that competition escalates challenges, but on the other hand, it is likewise
promoting innovation and effectiveness in the production.
According to Knezevic, Renko and Knego (2011), the retail industry is rated as one of the
significant sectors for the national economy; the retail industry provides job opportunities and
12
contributes to the national GDP and boosts the earnings of the country. Likewise, McGurr and
DeVaney (1998) affirmed that the retail sector is important for the local economy, but there is
immense competition in this sector due to large numbers of local and international rival
companies. Knezevic et al. (2011) stated that approximately one-fifth of all companies are
registered in the retail industry. Furthermore, Knezevic et al., (2011) added that the retail sector
was previously limited to the domestic markets. But, currently the retails firms are oriented
toward international markets and the number of retails firms in this sector is increasing
(Knezevic et., 2011). In Pantano et al. (2017) view competitiveness and innovation are growing
in the retail industry due to technological advancements and progressive changes. Chen and Ou
(2011) explain that there is rising competition in the retail sector which leads firms to
competition and challenges faced by other rivals firms; retail firms want to increase their profit
and reduce the cost. The retail sector is encountering a variety of challenges and different
pressures such as competition, ever-changing portfolio of products and changes in customer
requirements (Büyüközkan and Vardaloğlu, 2012).
Prior debates on communication and cultural diversity suggest that culture is a considerable
hurdle for firms running internationally. “Culture is the human body’s software that controls
human thinking and behaviour” (He and Liu, 2010.p-2). According to Efrat (2014), culture
directly and indirectly influences business advancement and its operations in host countries; it
impacts business processes such as trades and marketing, managerial level, innovation and
organizational decision planning. In the views of Ralston, Russell, and Egri (2018) firms need to
manage cross-culture diversity for effective business operations in foreign markets. In addition to
this, communication can be a hurdle for a firm’s productivity (Ralston et., 2018). However,
language performs an essential role; different countries' markets have different languages, which
are creating problems in organizations' communication process (Brahma Aweera, 2016).
Moreover, Domestic politics is also considered a threat for international business; variations in
rules, regulations, policies and laws can be crucial for firms to achieve potential growth
(Vigevani and Júnior, 2011).
According to Doole and Lowe (2004), social and economic environments impact the
international business operations of a firm that are operating in host countries. Kotler and
Armstrong (2010) argue that for successful business operations in global markets, firms require
continuous learning and analysing determinants that are influencing and impacting their
13
performance. Doole and Lowe (2004) state that other than social and economic challenges,
technological challenges are also considered threats for multinationals in host countries' markets.
There are complex factors such as political, legal, and cultural hindrances that are barriers for
multinationals in the host countries and multinationals firms require addressing such issues
(Kotler and Armstrong 2010). Political changes and politics that possess an indirect threat for
multinational companies in host countries are also known as external threats for firms (Mark and
Nwaiwu, 2015). A research study by Masovic (2018) noted that multinational firms are operating
in different markets. Therefore, they are experiencing various political, legal, economic, cultural
and technological challenges that influence and impact organization performance (Masovic,
2018).
1.2 Emerging Asian Markets Perspective:
The internationalization process is not a new concept in emerging Asian markets; many retail
and non-retail firms moved and operates in the Asian emerging markets. There are currently
fewer barriers to enter any country's market and start a business over there in the emerging Asian
markets (Conconi et al., 2016). According to Cui and Li (2000), retail firms are concerned about
developing their business into emerging countries in this modernized era. There are specific
reasons to penetrate the emerging Asian countries, as these markets lack infrastructure,
information technology and development in health and education which could be seen as an
opportunity for business successes. According to Sadiq (2012) most Western companies started
to target the Asian emerging markets because they have growth potential, market potential, large
market size, growing GDP, increasing purchasing parity, increasing FDI and skilled labour, and
cheap labour availability (Sadiq, 2012).
1.3 Emerging Market China:
In the views of Qureshi and Wan (2008), China is a world-leading nation in production with the
lowest production cost and skillful labour, which has attracted multinationals businesses to grow
their operations to the Chinese market. Choi, Dawson, Larke, and Mukoyama (2004) argue that
international retailing is not a new phenomenon in the Chinese markets; it existed earlier.
According to Statista (2017) the retail industry is continuously growing in the Chinese market.
Furthermore, International retail firms bring innovation while moving to foreign market (Choi et
al., 2004). According to Statista (2019), there are approximately 252,656 retail stores in the
Chinese market, including local and international retail firms.
14
In 2017 the retail sector revenue in China amounted to $19.9 trillion, which has surpassed the US
retail market for the first time in Chinese history China (Statista, 2017). The retail industry's
annual growth amounts to 8.1% annually and it employs 2.1 million people in China (Statista,
2017). According to the International Monetary Fund (2020), the Chinese economy is the
second-largest economy after the United States. The Chinese economy has remained an
attraction for many retail firms from 1978 onwards (Siebers, 2011). The country's economy is
rapidly increasing and retail sales accounted for 13% per year in the market (Siebers, 2011).
China has a strong economy within the emerging Asian markets market (Siebers, 2011).
According to The World Bank (2019), the country’s current GDP is US dollar 10,261 per capita.
In Garnaut and Ma's (1993) views the Chinese economy is one of the stable economies and it is
rapidly growing and increasing due to skilled labour and export activities.
According to Hawksworth and Cookson (2006), China is the leading country among the world's
emerging nations. Different institutional factors are in favour of expanding the business to the
Chinese market. In the view of Morrison (2014) the Chinese government has long ago taken the
initiative of economic liberalization, which has formed a stable and robust economy. The
economic stability has improved the country’s standard and encourages multinationals to expand
the business into the country (Morrison, 2014). Davies (2013) stated that the Chinese
government has been proactive in enforcing entrepreneurially welcoming and supportive policies
for local and international firms. Besides, the taxation and investment policies are different in the
country as urban areas have higher taxes than rural areas, which favours international business
countrywide (Long, 2005).
China is the leading emerging market in the Asian region, with vastly different social, cultural
and political structures than developed countries (Yin and Zhang, 2012). According to Fan
(2000), the Chinese culture is unique and based on communist thinking and ideology. In views of
Ojala and Tyrväinen (2007) culture is a shared value in society; culture has a strong influence on
consumer purchasing behaviour and influencing the implementation of policies and strategies for
firms in the market. Li and Harrison (2008) argued that different cultures has different
characteristics and culture can be affected by other social aspects such as education, language,
political views and religious views. Furthermore, Magnani, Zucchella and Floriani (2018)
acknowledged that for successful business operations in foreign markets, the country's cultural
knowledge must be investigated and managed to mitigate risk.
15
1.4 Emerging Market India:
Doole and Lowe (2004) explain that the Indian economy is a growing economy and the demand
for various products and services increases over time. This market is considered a key market for
firms to expand their business activities (Doole and Lowe, 2004). India has a long history of
more than 2000 years; the British have brought internationalization a long time ago by
establishing the East-India company in that region in the 1600s (Pereira and Malik, 2015).
Narang (2010) acknowledged that the retail industry is growing very rapidly in the Indian
market; the retail sale amounted to $925 billion and is expected to reach over $1.3 trillion by
2020. In addition to this, the retail industry is one of the most significant and compatible sectors
in the Indian economy; the retail sector sales are growing at 13% per annum (Salim, 2008).
Currently, India is a developing country and is considered the top economy for multinational
companies to expand their business (Pereira and Malik, 2015). The World Bank (2019) report
shows that the Indian GDP has been growing since 1960 and its current GDP is US dollar 2,099
per capita. The growing population is an advantageous factor for multinationals to expand their
business operations to India (Pereira and Malik, 2015). According to The World Bank (2015),
there have been remarkable initiatives taken by the Indian governments to attract foreign direct
investment and the country has started decentralization to attract and facilitate international
business. Grainger and Chatterjee (2007) explain that education and the skilled labour force are
the sources of success for any country because it plays a significant role in their development.
According to the World Bank (2020), the literacy rate in India is improving and currently, India
has a 74% literacy rate in the country, which is forming a skilled and educated labour force.
Furthermore, Mohan Raj, Ramesh and Biyani (2014) state that information technology in India
has improved compared to other emerging markets; this market has more IT skilled workers who
can help multinationals firms.
Culture has several dimensions, customs, values, language, and traditions that can influence
individual attitudes and behaviour, affecting business and its progress (Kotler et al., 2008).
Likewise, Bensoussan and Fleisher (2012) argue that cultural characteristics can influence
customer buying behaviour, as it guides people and sets boundaries for an individual so that
individuals do not cross those boundaries. According to Clegg (2009), the Indian culture is
collectivist and highly influenced by the Indian religion; primarily, the decision and buying
behaviour of Indians are influenced by their culture. Therefore international firms should
16
investigate the culture of the host countries' market while entering that market (Bensoussan and
Fleisher 2012).
1.5 Problem Discussion:
The internationalization process of firms is increasing and firm’s progress toward international
markets to attain potential growth and experience of diverse social, economic, and political
environments (Aliouche and Schlentrich, 2011). However, most Western firms'
internationalization has been the centre point for researchers and scholars in the past. Similarly,
there has been very little internationalization expansion of Western retail firms into the emerging
Asian markets (Ghoshal and Bartlett, 1990). Western retail and non-retail firms have mainly
operated their business in the developed markets (Sandberg, 2010). But now, the interest of
multinationals is shifting toward the emerging Asian markets. However, the previous research
study suggests that Western multinational retail firms have operated mainly in developed
markets (Sandberg, 2010). Spence (2008) and Kumar (2008) argue that the retail industry was
previously limited to the local markets, but now the retail sector is developing to international
countries markets and concerned about expanding the business into global markets to increase
market share and reach more customers.
The literature on the internationalization process of firms is growing over the last decades. The
internationalization process of firms into international markets has been the interest of many
multinationals to expand their business to different markets (Ghoshal, Bartlett, 1990). According
to Jansson (2007), every market has its characteristics and has different kinds of challenges for
international companies. To be successful in the international arena, firms need to understand the
local market and develop the knowledge by research and investing resources and time (Aggarwal
and Bhargava, 2011). Research indicates that international firms operating in emerging markets
and developed markets are facing various challenges; such challenges can be an opportunity for
success and reason for failure (Jansson, 2007).
Furthermore, understanding such challenges by looking at other firms that are operating in the
emerging markets which have learned and dealt with those challenges successfully will help the
firms to save time and resources (Jansson, 2007). The knowledge of the market will provide the
solution for such hurdles and complexities. However, firms have more potential in emerging
markets because they are growing with an increasing population. There is less competition in
these markets than in developed markets. The research study of Doole and Lowe (2004)
17
indicates that factors that affect firms' operations in the emerging markets are culture, legal,
political, economic, infrastructure, and technological complexities and these should be taken into
consideration.
Similarly, Sadiq (2012) argued that there are different kinds of challenges that retail firms
encounter while entering and doing business in these markets because emerging markets are
developing, and these markets are yet to be developed. Firms face particular challenges during
business operations such as culture, IT, infrastructure, health, and education. Such challenges are
barriers to a firm's development in these regions. According to Sudhir et al. (2015), emerging
markets are growing rapidly and improving these countries' economies due to foreign direct
investment and internationalization of multinationals firms.
According to Arnold and Quelch (1998), emerging Asian markets consist of significant growth
opportunities in the growing global economic platforms. Its potential has already attracted
multinational firms to expand business in these markets. Bekaert and Harvey (2003) argued that
emerging markets are rapidly changing and developing and these markets are different than
developed markets. London and Hart (2004) explain that developed markets are becoming
saturated; therefore, multinationals are increasing operations to emerging markets to gain better
economic opportunities and potential gain. Washburn and Hunsaker (2014) claimed that the only
reason to enter the emerging markets is to pursue new customers. In addition to this, Kose and
Prasad (2011) argued that investors and multinational companies are showing great interest in
emerging markets. Luo (2002) stated that in order to gain success in emerging markets firms that
are planning to move require learning about the markets and developing strategies to help
achieve firms’ goals. Moreover, multinational firms need to provide learning and training to the
international managers in the emerging markets, to maximize profit and mitigate risks (Luo,
2002).
According to Jansson (2020), the complexity of international markets persists due to various
factors examined as the external threats for a firm penetrating the new market. Jansson (2020)
explains that the emerging Asian markets are prominently the large emerging markets among
other emerging markets in (BRICS) Brazil, Russia, India, China, and South Africa. These
markets will be the dominant economies in 2050. Jansson (2020) acknowledged that
liberalization and privatization had started in the 1990s in China and India. Hence, these
countries would be the top markets in the future, and their dependence on the economies would
18
be high compared to other markets. However, it is worthwhile for firms to penetrate the
emerging Asian markets China and India. Previously, the Chinese market was considered
challenging and complex, but with the growing number of firm’s internationalization to the
market, the country has developed new policies and regulations to develop the integration in the
market, and now there are fewer complexities for international firms that affect the business
operations (Jansson, 2020). The research study aims to explore the challenges that international
retail firms face in emerging Asian markets. Therefore, the problem discussion will present the
challenges that firms have encountered while entering the emerging Asian markets. It will also
present the challenges that firms face these days.
Our thesis report seeks to study the internationalization process and the emerging Asian markets
perspective. Besides, the research discusses the retail industry’s possible challenges in the
emerging Asian countries' markets and the possible solutions for international retail firms to
overcome those challenges. The authors seek to analyse the challenges faced by retail firms in
these emerging Asian markets and would discuss the solutions that how retail firms can
overcome such challenges and complexities. The scope of the research would revolve around the
Swedish retail firm IKEA. IKEA is a Swedish multinational conglomerate founded by Ingvar
Kamprad in 1943 (IKEA, 2021). The company sells and manufactures innovative smart products
to make the home better. IKEA has 445 stores in different countries, in North America 65 stores,
Europe 271, Africa 2, Middle-East 14, South Asia 82 and Oceania 11. The most number of
IKEA stores exist in Germany (IKEA, 2021, a). According to IKEA (2021, b), it previously had
82 stores in the Asian emerging countries, which means that the Asian region is not a new
market for the company. The increase of business into emerging markets is the interest of many
multinationals. However, there are different reasons for expansion to the region. As Heinz and
Tomenendal (2012) identified that emerging markets are growing rapidly; multinationals firms
have enormous potential growth in this region.
19
1.6 Research Questions:
Based on the above problem discussion, the authors come to the following two research
questions, which will be addressed in the thesis report.
Q1: What are the challenges for retail firms while entering to the emerging Asian markets and
during their business in these markets?
Q2: How can retail firms overcome such challenges?
1.7 Purpose of Research:
The purpose of this research study is to examine and explain the challenges that retail firms
encounter while entering and doing business in the emerging Asian markets. In addition to this,
how retail firms deal with such internationalization challenges in these emerging markets.
Therefore, the authors of this research study seek to examine the challenges by studying the
Swedish retail firm IKEA’s case in the emerging Asian markets. Furthermore, our research study
focuses on producing knowledge and implications that can improve the theoretical and practical
understanding about the internationalization challenges for retail firms in the emerging Asian
markets and how such challenges can be handled effectively.
1.8 Delimitation:
Different retail firms are operating in emerging Asian markets. Some of them are local retailers,
and others are international retail firms. Conceptually, this study is delimited to the international
retail firms that operate in emerging Asian markets. Various contextual and non-contextual
challenges exist in the region. Since there are quite a many emerging markets in Asia, our
empirical study will be limited to China and India. The chosen case company for research is the
Swedish retail firm IKEA.
20
CHAPTER - 2
2. METHODOLOGY:
The methodology chapter gives the detail of methodological approaches and methods utilized in
directing this thesis report. Likewise, it provides a comprehensive analysis of the methods chosen
for conducting this thesis report. The methodology chapter also explains the research design,
operationalization, data collection and data analysis techniques. Additionally, the measurement
is taken to guarantee the collected data validity and authenticity for research ethics. Moreover,
the GDPR ordinances are followed while conducting the research which aims to protect
participants' personal data.
2.1 Research Philosophy:
The research philosophy believes and ensures that how data of the phenomena will be collected,
gathered, interpreted, and how the gathered data will be implemented and employed for research
work (Saunders, Lewis, and Thornhill, 2007). However, there are various kinds of research
philosophies that are employed in the research work. The interpretivism philosophy is a type of
research philosophy in which the researcher combines qualitative research approaches and this
type of philosophy is applicable for qualitative research (Baškarada and Koronios, 2018). This
research study is based on the interpretivism research philosophy because the interpretivism
philosophy provides a clear and better understanding of a complex and unique phenomenon
(Saunders et al., 2007). According to Alharahsheh and Pius (2020), the interpretivism research
approach is mainly concerned with depth variables and factors related to a context. Furthermore,
the authors stated that the interpretivism approach considers that human beings are different from
physical phenomena. They create further depth in meaning with the assumptions that human
beings cannot be explored in a similar way to physical phenomena. Interpretive considerations
such as culture and other social, environmental circumstances and times lead to the development
of different social realities (Alharahsheh and Pius 2020). In this study, we have focused only on
the interpretivism research philosophy; another philosophy like positivism is not used due to the
nature of our research work; we are only focusing on the qualitative part since Alharahsheh and
Pius (2020) state that positivism is a scientific method like experimentation which is mainly
applicable for conducting quantitative research study. However, we don’t have any experiments
21
in our research study. Therefore, the positivism approach cannot be applied as it is not
appropriate for conducting a qualitative research study (Saunders et al., 2007).
2.2 Research Approach:
The research approach is a plan or procedure for conducting research study; it helps the
researcher and provides a guideline in conducting research. There are different approaches for
conducting research, some scholars and researchers have identified research approaches in the
past. According to Flick (2018), there are three research approaches for conducting research
which are deductive, inductive and abductive. To start with the deductive research approach, it is
a research method which is used mainly in quantitative research study and analysis, in which
researchers aim to test one or more variables and find out their relationship (Saunders et al.,
2016). Whereas, the inductive research approach seeks to develop a new theory or knowledge
based on the data collected in research work (Saunders, Lewis and Thornhill, 2016). However,
The Abductive research approach explains incomplete observation, study gap, surprising facts
specified at the beginning of the study (Flick, 2018). Our research study aims to focus on the
internationalization process and challenges in the emerging Asian markets. Therefore, we seek to
find out the challenges international retail firms face in the emerging Asian markets. However,
the abductive research approach is an appropriate approach for conducting this study. However,
methods like deductive and inductive are not suitable for this research, because we are not
seeking to produce a new theory or knowledge, nor are we doing any experiment in this research
study.
2.3 Research Design:
The research design refers to the context that effectively conducts the research, tackles
complexities, provides guidelines, and helps to establish research questions based on the data
collection and interpretation applicable to the research study (Saunders et al., 2016). Our focus is
on the internationalization challenges for international retails firms in the emerging Asian
markets; therefore, we are focusing on qualitative research. The qualitative research helps the
researcher to understand the people and what they say and do, and it also provides an
understanding of the social and cultural context within the groups (Myers, 2020). According to
Taylor, Bogdan, and Devault (2015), qualitative research provides a better understanding of the
thoughts, opinion, and beliefs and develops concepts, insights and understating from the data
22
collected. Our research mainly focuses on two questions. Q1. What are the challenges for retail
firms while entering into the emerging Asian markets and during their business in these markets?
Q2. How can retail firms overcome such challenges? We are not doing any experiment, nor are
we testing any hypothesis and variables in our research work. Therefore, quantitative research
analysis is not our concern for this research study. We are focusing mainly on the qualitative
research that is appropriate and applicable for this research study. The retail firm case company
under discussion would be IKEA, and the targeted respected markets would be the emerging
Asian markets such as China and India.
2.4 Research Process:
This research study is qualitative; data will be collected through a primary source, including
interviews and emails. Additionally, secondary data will also be the centre point for gathering
informative and relevant data for the research work. However, the secondary sources, including
journals, financial statements of the proposed company, and interviews, will be analysed to draw
the research analysis and conclusion.
2.4.1 Data Collection:
According to Saunders et al. (2016), data collection is described as gathering, measuring
and interpreting scientific insights for research work and utilizing standard validated procedures.
We are seeking to collect data from both primary and secondary sources for our thesis report.
2.4.2 Primary Sources:
The primary source of data is defined as the kind of data collected directly from the
original and accurate source by conducting interviews, surveys, and experiments or remotely via
video technology (Hox and Boeije, 2005). The primary source of data collection is vital and
considered authentic and reliable data as compared to other forms of data. However, Saunders et
al. (2016) explain that primary data sources are accurate and authentic but they usually take more
time than other types of data collection methods. According to Bowden and Galindo-Gonzalez
(2015), the primary data collection method includes different techniques such as interviews,
surveys, experiments and emails. It can be done through emails and remotely when you are not
available face-to-face and it is considered accurate compared to other sources of data collection
for research work (Bowden and Galindo-Gonzalez 2015). In our research, we seek to interview
the official of IKEA; therefore, data will be collected through primary sources by conducting
23
remote interviews via internet and emails. Due to the spread of the Covid-19 pandemic, it is
impossible to meet the officials to conduct face-to-face interviews since most of the companies
in the present circumstances have adopted a new approach as working from home.
2.4.3 Secondary Sources:
According to Heaton (2003), the secondary data is the kind of data that is already
investigated and readily available for researchers. The data can be easily accessed and gathered
for research work and as compared to a primary source it does not take a long time; data can be
easily accessed from the relevant sites. In views of Saunders, Lewis, and Thornhill (2016)
secondary information is available in different varieties for researchers to help them while
conducting research or writing a thesis. Furthermore, the authors stated that the secondary data
includes guides and internet sources to answer the researcher’s question and provide them
detailed information related to their research work. In Johnston's (2017) views, technological
advancement led researchers to vast data collection. The author relates to the point that
technology has a huge impact on the collection of secondary data, researchers can access and
gain data from any part of the world by using the internet facility. Further, the author stated that
utilizing secondary data for research is more prevalent and secondary data is flexible and can be
used in different ways. Secondary data that already exists helps the researcher to resolve the
research topic and complexities to the maximum extent. While conducting our research, we seek
to collect data from secondary sources like scholarly articles, books, and the case company
IKEA’s fiscal reports, World Bank, country reports, IMF, Statista and many other sources that
relate to our research work.
2.5 Operationalization:
According to Saunders et al. (2016), operationalization is a method by which researchers conduct
quantitative research. However, it is also applicable for conducting a qualitative research study.
Brinkmann, Flick, and Kvale (2018) argue that operationalization in qualitative research can be
practiced while conducting interviews and the information gathered from the interviews can be
converted into written words. According to its definition, the operationalization process
determines variables to measure factors that further accommodate to explain and distinguish each
one from another (Bryman and Bell, 2011). In the views of Bell, Bryman, and Harley (2018)
operationalization provides the link between theory and the findings of the research work which
is obtained from interviews. However, we seek to conduct interviews with IKEA officials to
24
discuss the internationalization challenges and to gain relevant data related to the research topic
and the data will be written in words accordingly.
The table below shows and represents the operationalization of our research work. The first
columns represent the main concepts followed in the research work, the internationalization
process. The second column presents the themes and context in which the questions were asked
from the interviewees. The third column represents the theories that are further developed in the
literature review chapter. The fourth column is the category, which shows how the interviews
were conducted to gather the required data. The interview guide was structured mainly into eight
categories starting from A to H. The last columns present how the question relates to the
theories.
Table 1: Operationalization Process
Concepts Sub-concepts Theory Category
Question
Inter-
Process Uppsala
Model B, D and H B1,B2,B3,D1,D2,D3,H1,H2,H3
Network
Model B,C,D,E,G,H B1,C1,C2,D1,D2,E1,E2,G1,G2,H1,H
2
Transactio
n Cost
theory
F F1,F2,F3
Eclectic
Model F F1,F2,F3
Inter-
Challenge
s
Competition Network C C1,C2,C3
Policy &
Regulation E E1,E2,E3
Culture Uppsala Network
D D1,D2,D3
Psychic
distance Uppsala
Network H H1,H2,H3
Technology
&
Infrastructur
e
Network F F1,F2,F3
Network
Relationship Network G G1,G2,G3
2.6 Method of Analysis:
According to Sutton and Austin (2015), data analysis is the process of assessing and testing data
and ensuring that the collected data is relevant, appropriate, factual, and reasonable for the
research work. In the view of Kawulich (2004), data analysis refers to collecting accurate and
reliable data that makes sense based on facts and reduces extensive and long data such as stories
and long interpretation. There are different types of data analysis techniques for conducting
25
research. A research study by Saunders et al., (2007) argued that data analysis is an approach
through which the researcher correctly answers the research question and analyses the collected
data to draw a conclusion. Braun and Clarke (2006) suggested that the thematic data analysis is
appropriate for qualitative data analysis. The authors explain that thematic data analysis is a
relevant and applicable technique that can be used to answer the research questions. The authors
further added that thematic data analysis is a method of analyzing qualitative data and it is
usually applicable to a set of texts, emails data and interviews data. Furthermore, thematic
research analysis is an appropriate and applicable method for analyzing qualitative data because
it identifies, examines and interprets patterns of meaning within qualitative data (Clarke and
Braun, 2014). However, this thesis report seeks to employ thematic data analysis for the research
because data will be mainly collected through interviews, discussions, emails and a set of texts to
draw a conclusion.
2.7 Research Quality:
In the view of Graves (2015), research quality is a process by which researchers assess, establish
and ensure research quality. In addition to this, it also ensures data validity and reliability in
quantitative analysis and authenticity and trustworthiness in qualitative research (Bell et al.,
2018). The quality of research is considered a significant obstacle to developing synthesis, but it
improves research quality (Cooper and Hedges, 1994). Qualitative research is undertaken in a
naturalistic setting and is interpretive, with collected data mainly driving from interviews, emails
and analysis (Cleary, Horsfall, and Hayter, 2014). However, for conducting research, it is
necessary for both quantitative analysis and qualitative research to ensure the quality of research
and needs to ensure rigor in the research work (Merriam and Tisdell, 2015). Likewise, the study
will become a reality and be considered credible and beneficial for science and society at large
(Marschan-Piekkari and Welch, 2004).
2.7.1 Credibility (Internal Validity)
According to Bell et al., (2018), credibility is concerned with trustworthiness and
integrity in the research work and it ensures that the research is done in a better and ethical
manner. On the other hand, Bryman (2015) demonstrated that internal credibility refers to
identifying causal connections among two different variables and discovering whether it is
sustainable or not in the research. In the views of Creswell and Poth's (2018.p-34), “it is not easy
26
to measure qualitative research's actual reality due to subjectiveness”. The authors relate that
different facets such as personal impressions, feelings, and opinions are challenging to evaluate
to conclude the research work. Furthermore, to gain validity in qualitative research, Bell et al.
(2018) suggested triangulation is required because triangulation enhances the depth of collected
data and provides detailed information. Therefore, the authors will utilize the triangulation
method in the research study as Denzin (2019) argued that triangulation is an appropriate method
for a qualitative research study to gain data from multiple sources that are appropriate, relevant
and valid for the research work. Similarly, the authors in this research seek to collect data from
various sources, including scholarly articles, company websites, IMF reports, World Bank
reports, Statista, interviews, email, and company reports, to strengthen our research validity.
2.7.2 Consistency (Reliability)
According to Bell et al. (2018.p-46), “reliability is the degree to which analysis produces
similar results each time.” Golafshani (2003) stated that reliability is commonly used in
quantitative research to test the variables to produce similar results each time. However,
reliability is also applicable and can be employed in qualitative research study. The purpose of
reliability is to minimize errors, complexities and approach problems in research work
(Aberdeen, 2013 Yin, 2009). Furthermore, the researcher needs to achieve reliability in the
research and it requires consistency and stability (Golafshani, 2003). According to Doz (2011), a
qualitative study is continuously changing and achieving similar results might be difficult for the
researcher. Therefore, we seek to conduct detailed interviews with case company officials and
interviews will be recorded to ensure reliability in the research progress. Moreover, for recording
the interview sessions full consent from the participants will be achieved, and after the purpose
of the research, the recording and personal data will be archived and deleted.
2.7.3 Transferability (External Validity)
According to Polit and Beck (2010), transferability is primarily practiced in qualitative
research. In views of Thyer (2010.p-49) “Transferability relates to the degree to which
qualitative research is generalized or transferred to other contexts and settings.” Furthermore,
Bell et al., (2018) transferability refer to the degree to which the research findings could be
generalized or not. Bryman and Bell (2011) argue that to guarantee transferability in qualitative
27
research study, therefore detailed information is required, which provides a depth of the study
and its method. According to Bell et al. (2018), it is challenging to assure external validity in a
study because one company cannot represent other companies. The research requires study to be
conducted in an ethical and mannerly way. Therefore, the authors will present detailed
information about these emerging Asian countries' markets to ensure transferability in the
research work.
2.8 Ethical Consideration:
While conducting the research, the authors of this research study have strictly followed the
European Union Data Protection Ordinance (GDPR). The GDPR ordinance aims to protect the
personal data of interviewees. We had taken full consent from the participant for interview
discussion by sending them an email and taking their consent. The interviewees were also
informed about the aim of the research study and the purpose of the interviews. Moreover, the
participants were also informed that the data would be shared with the university. According to
Miller and Al (2012), ethical considerations are considered an essential part of research work.
Bell et al., (2018) state that the researchers should be concerned about the ethical aspects of
conducting a research study. They should not harm the privacy of the participant in any condition
and respect the dignity of the research participant, full consent should be obtained and there
should be fairness in data collection (Bell et al., 2018). Merriam and Tisdell (2015) stated that
research should be for the interest of researchers, science and society both and there should be
ethical considerations in the study. In this research study, the authors researched ethically and
honestly. Moreover, ethical considerations were strictly followed and employed. The author's
responsibility is to protect the collected information and it will be shared only with the academic
institute for transparency purposes. Our thesis report is for educational purposes and the
respondents were informed about the purpose of conducting this research study.
2.9 Authors Contributions:
This thesis report is co-authored; a group of two students have written the thesis report. While
writing the thesis report, the authors acknowledged working mutually. The authors shared the
responsibility of work equally; while writing the thesis report. Various virtual and non-virtual
meetings have been done to ensure mutual understanding and discussion on the research work.
28
We have a Google document file in the share, where authors use to put the writing work daily.
We also corrected each other's work. Individually, each author has approximately 50% of the
contribution in writing the thesis report. The working relationship went well and smoothly; both
authors were motivated towards the work; we encouraged and supported each other at every
stage.
Table 2: Summary Table of Methodology
Research Philosophy
Interpretivism
Research Approach
Abduction research approach
Research Design
Qualitative research
Research Process
Qualitative, Data collection process Primary and Secondary
Method of Analysis
Thematic analysis
Research Quality
Credibility, Consistency and Transferability
Ethical Consideration Following GDPR to ensure data.
Authors Contributions
Each Author has 50% contribution
The table above represents the summary of the methodology chapter. While conducting the
research study, the authors have adopted and chosen the relevant methodology that is applicable
for conducting this research. The research study is based on qualitative research. In addition to
this, the interpretivism research philosophy is employed in the research because the
interpretivism research philosophy is applicable for conducting qualitative research.
Furthermore, the authors have chosen the abductive approach regarding the research approach
because the authors are not producing any new theory or knowledge. The authors focus on the
challenges that firms face in emerging markets; therefore, the research will examine the
challenges firms face. However, the abductive research approach is appropriate for conducting
this research study. Additionally, the thematic research analysis method is used to make the
research analysis. The research process for data collection employs both primary and secondary
data collection methods. Furthermore, the authors have applied credibility, consistency, and
29
transferability to ensure the research quality. Moreover, regarding the ethical considerations, the
authors have strictly followed the GDPR ordinance to protect the participants' personal data and
to ensure that the collected data is safe and would only be shared with the university for
transparency purposes. Lastly, the research report is co-authored, and each author has a 50%
contribution for writing the research.
30
CHAPTER – 3
3. LITERATURE REVIEW:
This chapter presents the existing literature related to the research topic. Additionally, it also
presents the internationalization process and internationalization theories of firms. Furthermore,
the chapter also presents the debates on the internationalization of retail firms in the emerging
Asian markets and retail firms' challenges. The chapter starts with internationalization theories
and then proceeds to internationalization challenges.
3.1 Internationalization Theories:
Internationalization is a long and complex process which requires a thorough analysis by an
organization. Johanson and Vahlne (2009) argue that in order to reach the stage of
internationalization firms need to have a stronghold on their domestic market. In Asian markets,
there is a mixed trend but mostly firms try to get a stronghold on the local market before moving
to other markets. Multinationals firms aim to increase their profit and maximize market share by
penetrating international markets (Chakrabarty and Wang 2012). In this process, organizations
are connected to one another in a complicated way (Johanson and Vahlne, 2009). Therefore, to
penetrate a new market, it is essential for an organization to have the adequate knowledge about
that market’s network (Johanson and Vahlne, 2009). The process of internationalization moves
forward when there is a requirement of a company to proceed towards expansion and the demand
for its product is on the rise (Johanson and Wiedersheim-Paul, 1975).
3.1.1 Uppsala Model:
This famous theory was originated in 1977 by Johanson and Vahlne who were working at
Uppsala University. It is a slow and steady process of movement of a firm to international
markets by initially gathering information about that market and with the passage of time
through various steps entering into that foreign market (Johanson and Vahlne, 1977). The
process of internationalization is dependent on the concept of perceived distance which refers to
elements which complicate the comprehension of international markets (Johanson and Vahlne,
2009). The perception of an organization is dependent on its past or current experiences from
overseas markets (Johanson and Vahlne, 2009). Their viewpoint also alters according to the
31
requirements of their consumers and their performance in that particular market (Johanson and
Vahlne, 2009).
According to Johanson and Wiedersheim-Paul, (1975-p3), The Uppsala model is a theory
that explains how firms can penetrate an international market. It has four different steps while
entering a global market. Such steps are “no regular export activities, export via an independent
representative, and establishing a subsidiary and foreign production.” These steps indicate
business operations depending on the organization's market knowledge during the process while
penetrating the international market (Johanson and Wiedersheim-Paul, 1975). This process of
gradual internationalization of a firm can only proceed with the emergence of trust between the
firm and its local partners, and their relationship becomes strong with time (Johanson and
Vahlne, 2009).
Hollensen (2007p-72) explained that "the main consequence of the Uppsala model is that
firms tend to intensify their commitment toward the foreign markets as their experience and
knowledge about the international market grows." Johanson and Wiedersheim-Paul (1975)
explain that the first step of the Uppsala model is to explain that the firm penetrates the
international market but does not export regularly and the firm's own limited knowledge is
attained by chance. The second step describes the firm’s export through an identified agent,
where direct export enhances market knowledge and the firm gains experience. The third step
explains that it will take over the middleman operations and try its own, which means that the
firms have to have the required knowledge and establish its procedures. Finally, to develop the
firm's production facilities in the international market it already exports to, and the company has
enough knowledge and experience about the country market (Johanson and Wiedersheim-Paul
1975).
3.1.2 Network Model:
Previously there have been different views and explanations of the scholars on the
network model of internationalization. The network model of internationalization mainly focuses
on the importance of firm's' relationships with different actors in the international markets such
as buyers, suppliers and firm competitors (Łuczak et al., 2012). According to Hollensen (2007p-
80), "Business networks are a mode of handling activity interdependencies between several
business actors." There are various assumptions of the network model of internationalization.
Hollensen (2007) acknowledged that the network model is that the firm relies on other firms'
32
resources in the foreign markets. To get access to the resources, firms require an external
network position. Besides, the author added that the development of firms is based on
relationships. Hence, firms need to possess strong relationships to encounter such challenges in
the international market (Hollensen, 2007).
According to Anderson, Hakansson and Johanson (1994), in a business setting the
relationship between firms and different participants is of utmost concern because the
relationship is a collection of the different individuals and the business relationships in which
firms exchange is carried between various participants. Furthermore, Łuczak et al. (2012) has
briefly explained that the firms are interdependent on each other in the international markets.
Therefore, they must have a better relationship with actors that are important and considered
beneficial for firm growth in the markets. Besides, the authors argued that the network model of
internationalization refers to establishing the relationship with different actors, sustaining and
developing business and its network partners (clients, suppliers and rivals) in the global markets.
Likewise, Danciu (2012) stated that firms are interdependent on several actors in the foreign
markets; the relationship of firms with influential participants could be an opportunity for
growth.
A firm’s network situation helps it to recognize its options with reference to
internationalization and thus enables it to identify which market is most suitable for the company
and what could be the possible mode of entry in that market (Johanson and Vahlne, 2009). There
may be obstacles in the process of internationalization which may be caused by certain important
players in the network like the local government (Jansson, 2007). Johanson and Vahlne (2009)
argue that the important factors in the network model are having the appropriate knowledge
about the market and developing credibility and trust in that market. Organizations should also
have a standing in the market which means access to certain resources (Johanson and Vahlne,
2009). Otherwise, they will have to rely on external parties when they seek to target a market
(Johanson and Vahlne, 2009). When the firm possesses these elements, they have more chances
to succeed in the foreign market. A firm's decision-making and strategy formulation is dependent
on the relationship it has in the market (Johanson and Mattsson, 2015). A firm establishes itself
in the market by breaking the chain of old relationships developed in the market by other
companies and strengthening the existing relationships that it has in that foreign market
(Johanson and Mattsson, 2015).
33
Network relationships are crucial for retail firms while entering emerging markets
because they relate to different market groups such as buyers and suppliers (Elg, Ghauri, and
Tarnovskaya, 2008). Furthermore, the authors argue that traditional consumer products and
services depend on inter-firm relationships with channel partners. In addition to this, the authors
claimed that the network relation is crucial and challenging in firms' internationalization,
especially for retail firms, due to complexity and they need to manage relationships with many
external actors in a new market (Elg et al., 2008). A research study by El et al., (2008) shows that
when IKEA entered the Chinese market for the first time, the retail firms' development was
relatively gradual compared to other retail firms. The authors explained that the relationship with
local partners, suppliers, and government bodies (micro and macro) remains important for retail
firms. "Trust is very important in the country where personal relationship means so much" (Elg
et al., 2008.p-113). Similarly, trust is built when personal relationships are made. Moreover, the
authors added that network relations are considered key factors for success in emerging Asian
markets (Elg et al., 2008).
3.1.3 Transaction Cost Theory:
According to Schmitz (2012), transaction cost theory describes the situation of an
organization when it has to plan for expansion, or it could be the other way around and in this
scenario, the price that the organization has to pay for this process. In a certain situation an
organization might cut its ties with its partners in the foreign market or develop new ties in a new
market. If the organization plans to do this expansion without involving outside parties these
costs can be on the higher side as firms find it hard to estimate such costs (Schmitz, 2012).
Therefore, the evaluation made by the company could help it to decide whether it should expand
by involving external parties or not.
According to Hollensen (2014), an organization will rely on internal production as long
as the costs involved are lower as compared to if it opts to rely on outside partners. Internal
activities will be executed by setting up a mechanism where there is proper management which
controls the expenses and the external parties such as the distributors have an edge over their
rivals (Hollensen, 2014). Hollensen (2014) argues that the process of expansion in the internal
activities is done by the organization to lower transaction costs and major decisions taken by the
company are in order to lower costs. Transaction cost mainly includes the costs of collecting
34
information, the expenses involved in negotiating contracts, penalising the party which does not
oblige with its commitments, and supervision of the deal between the concerned parties to ensure
that they are adhered to (Hollensen, 2014). The argument of the author is that if the costs
incurred by having an external party are more than having an internal system where all the
relevant activities are carried out then it would be desirable for the firm to pursue its activities
internally (Hollensen, 2014).
Moreover, according to Dawson (1994) International retailing can be described as firms'
development in other markets by an alliance with a local partner, own store, or distribution
channel. Foreign retailers are involved in different markets and countries. In views of Andersen
(1997) the transaction cost theory is an exchange of economics, and uncertainty surrounding the
exchange of resources among purchasers and sellers which represents the transaction's core. The
author argued that transaction cost theory concentrates on how an organization or distributor
should select a market or country to sell its products or services. Additionally, from the seller's
viewpoint, it likewise focuses on the relationship of seller and buyers and how they develop and
keep their relationship (Andersen, 1997).
3.1.4 Eclectic Model:
The eclectic model is a concept used to describe the aspects that impact the
internationalization process of an organization and it was initially brought forward in 1976
(Dunning, 1988). This model describes how companies start expansion to foreign markets by the
process of production in those markets (Dunning, 1988). An organization has different options if
it plans on expanding which could be to increase its range of products, go for mergers or
acquisitions or explore new markets abroad (Dunning,1980). When the company decides to opt
for the last option, it needs to consider the costs involved along with the possible advantages it
may possess when it starts its production in those new markets (Dunning, 1980). The eclectic
model explains that organizations make their decision of investment in foreign markets by
focusing on three factors: the benefits of having control in that market, benefits from a specific
location and the possible gains from internationalization (Cantwell and Narula, 2001). The
benefits of control basically refer to the advantages that the company has over other
organizations in the market. This advantage could be in the form of the knowledge that the
organization possesses or its scale of business and the developments it has been able to achieve
35
through utilization of the latest technology (Dunning, 2000). The gains from choosing a certain
location could be evaluated by studying the size of that market and the challenges that could
occur from investing in that market (Dadzie, Owusu, Amoako, and Aklamanu, 2018).
Internationalization gains could be analyzed by considering three main factors: the benefits of
moving to a new market as compared to the costs involved whereas the alternative could be
whether it would be more beneficial of expanding in the local market (Dadzie et al., 2018).
Thirdly the mode of entry opted by the firm is critical when the firm formulates its strategy for
internationalization (Dadzie et al., 2018).
3.2 Internationalization Challenges:
In this section, the authors present and discuss several internationalization challenges and
opportunities international firms face globally. This section also presents the challenges that
multinationals face in the emerging Asian markets and examines opportunities for multinationals
in these markets.
3.2.1 Competition:
International markets are complex, and it is expected that multinational firms face
competition challenges in other markets because of domestic and international companies
operating in the market. A research study by De and Van (2016) argued that competition is an
influential factor for firms operating in international markets; it impacts the organization's
performance and productivity in global markets; firms must analyze and address such factors
effectively. Furthermore, Reinartz et al. (2011) identified that over the past decades retailing is
increasing worldwide. However, competition challenges are different in emerging markets than
in developed markets. The competition challenges that multinational firms face in emerging
markets are that many firms are already operating in the market, and the new companies
emerging in the market are increasing the competition (Reinartz et al. 2011).
According to Carpenter and Dunung (2011), firms encounter competition challenges in
international markets. Therefore, firms need to develop competitive advantage strategies to
minimize competition challenges. In addition to this, the authors argued that competition in
global markets puts downward pressure on products' prices. Moreover, Carpenter and Dunung
(2011) stated that some of the basic mistakes firms make when entering the international market
36
is not doing prior research, not understating the competition and not offering the specific or real
value proposition to the customer's in the global market.
According to Froese et al. (2019), China has shifted its focus from domestic investment
in the 1980’s to foreign investment in the 1990’s and since then its economy has started to grow
as it has become one of the most attractive countries for foreign investors. The local Chinese
market has developed quite a lot with a better atmosphere for its institutions and business
friendly policies for foreign companies and a huge market size (Froese et al., 2019). However
due to the changing global trends there is an expected change from business-friendly policies for
foreign companies to strengthening the domestic market which means that foreign companies
will face tougher competition from the local companies (Froese et al., 2019).
According to Nagpal and Sinha (2017), the retail sector of India is one of the primary
earning sectors in the country, and there are numerous local retailers in the country, which is
boosting the Indian economy by 14% GDP and 15% employment of local labour in the country.
In addition to this, the retail sector is growing over time, and the Indian retail market is the 12
largest retail markets in the world. Nagpal and Sinha (2017) explained that there are various
challenges that retail firms face in the country, and the complexity retail firm’s face is the
competition from the unorganized retailers in the country. In views of Nagpal and Sinha (2017)
the unorganized retailers are the local retailers producing a specific product. The production of
these products is usually considered low priced and made in the local residential areas that are
not paying taxes to the government. Furthermore, the competition increases in the sectors as they
offer discounts and low prices products, which are the major challenges for other retailers
(Nagpal and Sinha, 2017).
3.2.2 Policy and Regulation:
According to Reinartz et al. (2011), retail business operations are influenced by
government policies and international trade regulations. The authors claimed that in comparison
with mature markets, the retail operations are more influenced in emerging markets. Reinartz et
al. (2011) mentioned that the trade liberalization reforms of 1991 in India helped retail firms.
The Indian government opened the retail sector to foreign firms allowing 51% of direct
investment via single-brand retail route. This has improved the growth of the retail industry in
the country to the maximum extent (Reinartz et al. 2011). Governments can play an essential role
37
in attracting foreign investment and multinationals companies because “government is
considered to be the body of people that sets and administers public and exercise, political, and
sovereign power through customs, institutions and laws within a country or state” (Carpenter
and Dunung 2011.p-30). Furthermore, the authors mentioned that the government could attract
international business by offering low-interest loans to companies and lower corporate income
taxes.
On the other hand, Carpenter and Dunung (2011) stated that firms operating in
international markets must know the country's local rules and regulations in which they are
working. In addition to this, Carpenter and Dunung (2011) stated that the legal factors that reflect
law and regulation are relevant to the region's organization, state, country. It can include that the
rule of law is well established and how easily regulations can be changed. Firms that are
importing have a better idea of customs requirements and customs regulations, entry of goods.
According to Froese et al. (2019), China is still in a phase where it is moving towards a
market economy but is still not there and so there are certain practices adopted in developed
countries which are difficult to implement in the Chinese market. The authors argue that there
have been issues of transparency when it comes to the processes of the local authorities and the
government policies have also protected the local industry which is a challenge for foreign
companies (Froese et al., 2019). Although there is much more acceptability for foreign firms
today there are still laws which are still quite unclear and certain rules regarding copyrights are
quite ineffective (Lee, 2003).
According to Singh (2014), The Indian government encourages international trade by
different means and supports the inward FDI in the country. However, there are different rules
and regulations set by the Indian government which are not favouring international trade, as the
Indian government has set a limitation for FDI and MNCs to hold only 51% ownership in the
country. In addition to this, Nagpal and Sinha (2017) argue that the retail sector is the only sector
in the Indian market which is restricted by the Indian government. The authors further claimed
that allowing international retailers and giving full ownership will boost the local economy and it
will make the Indian economy much stronger (Nagpal and Sinha, 2017).
According to Jansson, Johanson and Ramström (2007), a company's network may not be
the same in different markets because of the way institutions might function in those particular
markets. The authors argue that institutions may affect the processing of the network or the
38
working of the different market players involved in the network, they may be also have an
impact on the understanding of strategy that a firm has and the structure of the entire network
along with the management of the relationships within the network (Jansson et al., 2007).
Jansson et al. (2007) argue that the pace at which institutions transform themselves is usually
quite slow and normally the words associated with institutions are rules and processes.
According to Jansson et al. (2007), the situation in China with regards to institutions is that there
is a considerable difference between what the ideal institutions might look like and where they
are standing today in reality which means that the institutions are unable to solve the problems
faced by different companies. The authors explain that the local market in China is going through
a phase of evolution where change in the structure also has an impact on institutions (Jansson et
al., 2007). Jansson et al. (2007) state that earlier most of the control of the corporate sector was
in the hands of the government whereas with time it has now become a more balanced mixture of
the private sector and the government.
3.2.3 Culture:
There has been prior research on social challenges that are barriers for international firms
in host countries' markets. According to Hofstede (2011-p3), "Culture is the collective
programming of the mind that distinguishes the members of one group or category of people
from others." By collectivistic programming, the author relates to the point that each culture is
correlated and linked with different collectives and backgrounds. Hofstede (2011) emphasized
that culture is most generally applied in different areas of life. Culture is practiced to distinguish
among the tribes in arthrography (Hofstede, 2011). Culture is exercised in countries political and
economic settings and studied in organization management and social context (Hofstede, 2011).
According to Hofstede (2011p-8), there are five dimensions of the culture, such as power
distance which relates to power distribution. “The members of that society, group, and
organization accept that the power is distributed unequally.” In addition to this, uncertainty
avoidance relates to the degree of risk and uncomfortability of people in a group, society, and
organization (Hofstede, 2011). People that belong to this kind of group and society accept that
situations can be comfortable or uncomfortable depending on the circumstances. Furthermore,
individualistic cultures are considered independent, and they are less influenced by other people
39
in the society (Hofstede, 2011). In contrast, collectivism is opposite to the individualistic mind-
set, and people are bound and influenced by others in a group or society (Hofstede, 2011).
Moreover, “masculinity applies to gender, gender role, and material achievement and
wealth” (Hofstede, 2011p-8). However, the feminist fluid gender and its role are modest and
nurturing and more concentrated on life quality and comfort. Finally, the author has
distinguished the short-term orientation and long-term orientation. The short-term orientation
group of members are concerned about the near future and immediate achievements. However,
long-term orientation is the opposite of the short term as it focuses on the long-term
achievements and prosperity (Hofstede, 2011). “Culture is the beliefs, values, mind-sets and
practices of a group of people” (Carpenter and Dunung 2011.p-103). According to He and Liu
(2010), culture controls and leads humans, the way people think, behave, act, react and their
mind-set are primarily influenced by its culture. The influence of culture and its dimensions is as
significant as other factors affecting business in global markets (Doole and Lowe, 2004).
Similarly, Kotler and Armstrong (2010) stated that social challenges affect and challenge
companies. Furthermore, the authors argued that cultural challenges should be addressed for
successful business operations in global markets. As Efrat (2014.p-1) stated, “culture has a
direct and indirect impact on a business managerial level, influencing the organization's
innovation process.” In contrast, if cultural challenges are well addressed, it will lead companies
to potential gain, productivity and innovation. As different cultural backgrounds, people are
sources of innovation and competitiveness.
Furthermore, Carpenter and Dunung (2011.p-96) state “culture differentiates individuals
from one group and distinguishes between right and wrong.” The authors explained that culture
has different dimensions such as language, rituals, values, traditions, and religion (Carpenter and
Dunung, 2011). For instance, in some cultures, people shake hands while greeting and in some
cultures, they have ritual values of kissing hands and hugging each other while meeting for the
first time. Such differences exist in today's world that is affecting business activities and
operations (Carpenter and Dunung, 2011).
Moreover, Culture influences the organization's ethics and management practices as it
affects how individuals see each other's role in the organization. There are various perceptions of
women in the workplace. For instance, if a western-based organization sends their women
40
employee-manager for some business dealing with Saudi Arabia or any other Islamic country,
they would not favour dealing with women (Carpenter and Dunung, 2011).
The impact of social factors on business is enormous. There are different reasons why
firms need to understand the cultural aspect. According to Carpenter and Dunung (2011), culture
affects the business activities that how employees can be well managed based on their values and
priorities. Furthermore, the authors claimed that a firm could manage its employees well in the
organization. Firms need to understand their employees' priorities and if such factors are not
addressed, they will create difficulties and affect business operations such as marketing, sales,
distribution, and innovation (Carpenter and Dunung, 2011). Besides, the cultural dimension can
also affect the organization's analysis of making decisions about business expansion. For
instance, a local partner can mitigate the risk of cultural challenges (Carpenter and Dunung,
2011).
Foreign companies have always faced issues of being seen as strangers for example an
issue with Dolce and Gabbana happened a couple of years back when they launched a campaign
which faced criticism as it was thought to be offensive for the local residents and the company
had to issue an apology for the confusion that was created (Froese et al., 2019). A foreign firm
has to not only consider the cultural gap between the home and host country but when it comes
to China there are differences in culture when it comes to different regions in the country which
are also known as sub national cultures (Kwon, 2012). One of the reasons for the failure of
foreign companies in China has been attributed to the cultural gap that exists between China and
the West (Li, 2019).
A study by Kotler et al. (2008) reveals that culture has different dimensions such as
norms, values, rituals, traditions, language, and religious affiliation, which influences the
members of the group and society in different ways. According to Bensoussan and Fleisher
(2012), every society has its own culture, which makes them unique and different in the world.
Clegg (2009) argued that India has its own culture, known as collectivistic, which is highly
influenced by its religion Hinduism. People are obligated to follow their culture and belief in the
country. When it comes to the business point of view, culture influences an individuals' buying
behaviour (Clegg, 2009).
41
3.2.4 Funding:
International retail businesses require colossal investment and funding as they are large
and sell various products (Carpenter and Dunung 2011). The increasing numbers of new firms
emerging in this sector are increasing challenges (Carpenter and Dunung 2011). Therefore, retail
firms need exclusive funding to maintain their operations in international markets. According to
Carpenter and Dunung (2011), International firms can raise funds from different sources. To
obtain funds in global markets, firms can have funding through intra-firm loans and trade credits.
For instance, McDonald's was the first multinational firm to receive funding in China by issuing
Yuan-denominated bonds, which helped the company to obtain $29 million in 2013 (Carpenter
and Dunung 2011).
3.2.5 Technology and Infrastructure:
It is easy to think that business is just about the interest in different countries, but it is
more complex while doing business in different countries' markets (Carpenter and Dunung,
2011). Various factors are causing and affecting business operations. There are various factors
that are affecting business operations in host countries' markets. It could be the firms' internal
environment and external environment, such as the host country's social and economic
environment (Carpenter and Dunung, 2011). In addition to this, political and legal factors can be
hurdles for firms to face in host countries' markets. Previously some of the challenges are
discussed and identified by authors that can affect international business operations in global
markets. Besides those challenges, firms also face technological and infrastructure challenges in
international markets, keeping an eye on the infrastructure and technology, which are also
considerable challenges for firms in global markets (Carpenter and Dunung, 2011).
According to Carpenter and Dunung (2011.p-368), “The expansion of technology has
opened new opportunities to investors and companies worldwide. Technology has provided more
efficient and cheaper means of trading stocks issuing shares by small size firms.” Furthermore,
Carpenter and Dunung (2011) argued that technology has brought people and businesses closer.
Besides, it has made business and communication easy and convenient for both people and
organizations. Furthermore, technology has embarked on recognitions all over the world, and it
has changed the infrastructure of the world. Technology has brought innovations in various
industries. For instance, automobile industries have improved by technology and are now
42
manufacturing luxurious and classic cars more conveniently and quickly with the help of
technological advancements.
In order for firms to share technology with their partners in other countries, it is crucial
for them to develop that trust factor which can only be achieved through strong relations and
networks (Ivarsson and Alvstam, 2005). This can play a role in bridging the gap between
developed and developing countries. A research study by Cui and Li (2000) claimed that
multinational firms are concerned about expansion to the emerging markets because there is a
less advanced technology and infrastructure that can be an opportunity for international firms.
Similarly, Sadiq (2012) explained that expanding a business to emerging Asian markets could
lead firms to potential growth and possibilities. There are various opportunities as these
countries' economies are growing with time. There are enormous populations which can be a
factor of expansion as well as cheap and skilful labour availability (Sadiq, 2012).
Certain firms move to different markets by creating an exact copy of their value chain in
that new market but this does not guarantee success for them as there are other factors which
play a role in this such as their adaptation to the local settings (Jonsson and Foss, 2011).
However, in the case of large firms like IKEA even after the process of movement has occurred,
they continuously work on new knowledge techniques in order to improve their outlets in foreign
countries (Jonsson and Foss, 2011).
According to Li‐Hua and Khalil (2006.p-3), “technology refers to the scientific
knowledge and understanding for practical purposes in industry and production.” In addition to
this, the authors claimed that technology is making the production process easier and effective
than the traditional way of producing products. IKEA is working on sustainable and
experimental friendly aspects to reduce harmfulness to the environment and adopted such
strategies to protect the natural environment (Saud Alenezi et al., 2019). However, certain
challenges are making the process a bit harder for IKEA (Saud Alenezi et al., 2019). In view of
Saud Alenezi et al. (2019) to be truly sustainable a firm requires the right technology in
production to minimize such complexities for producing the green output. Although it demands
huge investment, it will help the firm to achieve its goal (Saud Alenezi et al., 2019).
According to Nagpal and Sinha (2017), technology is one of the essential requirements of
the current day; it almost makes every process easy. However, the technological advancement of
India is considerably not that good. The author also added that the feasibility and adoption of
43
technology are significant challenges for retailers in India. For instance, technological adoption
can be used for different operations and activities like payment and especially E-commerce. The
author also identified that India's infrastructure overall is flawed and under-developing, which
often incurs additional cost for the firm in logistics. The infrastructure is the major challenge
affecting the distribution channels and supply chain process of retailers (Nagpal and Sinha,
2017).
3.2.6 Network Relationship:
There have been different views and debates on business networking and its importance;
some scholars have previously explained the importance of networking and relationships in
international markets for firms. According to Håkan, Håkansson and Snehota (1997), network
relationship is considered an essential factor in business; a good network relationship can benefit
the organization by different means. “Social networks are made of nodes that are generally
individuals or organizations connected by ties; a set of relationships among peoples” (Carpenter
and Dunung 2011.p-703). Krzysztof Fonfara (2012) explained that different networking
substances could enhance business operation, including actors, activities, and resources: Actors
are the individuals or groups in the markets who aim to improve or control the network they have
experience or knowledge about markets. Resources relate to tangible and intangible assets, and
networking helps organizations reach the resources they require. It can be possible by good
networking and relationships with people and other participants in the market. Activities refer to
the production and manufacturing of goods or the trade and operations of firms. Likewise, firms
can improve their operations and marketing activities by having a good relationship in the market
with different participants and local partners (Krzysztof Fonfara, 2012).
According to Bjorkman and Kock (1995), developing network relations is critical in the
Chinese market in order to collect the required information from the market and to have the
necessary business interactions. Businesses can gain a certain advantage over their rivals and
have access to raw materials at cheaper prices if they develop relations in the market (Zhao and
Aram, 1995). While trying to analyse a network it is important to comprehend the general
attitude and norms of that particular market (Bjorkman and Kock, 1995). According to Bjorkman
and Kock (1995), there is a tradition in China where people offer assistance to their contacts and
the individual who has been obliged then comes under pressure to return that favour.
44
To shed light on the importance of network relationships for the firms, Håkan et al.
(1997) argued that network relations are vital and are considered a progressive fundamental
factor for firms operating in international markets. Besides, the authors described that the better
the firms have network relations, the better the firm's' operations would be. Moreover, it is very
much effective for the firm to have extensive networks in business. For instance, network
relations are increasing and promoting business operations (Håkan et al., 1997). They can help
identify the challenges that firms face, and they can help the firm overcome such complexities
with the help of network relationships (Krzysztof Fonfara, 2012).
3.2.7 Psychic Distance:
Johanson and Vahlne (1977) argue that psychic distance is one of the most crucial factors
which determine the internationalization process of an organization. One of the key factors in the
psychic distance is the difference in culture which is considered a hindrance in smooth flow of
information between the concerned parties and thus becomes an obstacle in the process of
internationalization (Thornton, Campbell and Owusu, 2019). It becomes more difficult for a firm
to enter a market which has a totally different culture as compared to one which has similar
values and norms as the organization’s home country; therefore, this factor is always considered
when an organization plans to move to a foreign market (Johansan and Vahlne, 1977). Although
O’Grady and Lane (1996) argue that the perceptions of an organization that businesses in
countries which are similar would be easy to carry out might not be true as certain important
differences could be ignored. The logic behind this theory is to evaluate the dissimilarities
between markets to help an organization formulate its strategy (O’Grady and Lane, 1996). This
concept of perceived distance therefore has an impact on the marketing or promotional strategies
of the organization in that foreign market (Sousa and Bradley, 2005). It depends on how much
information the organization has of the market it seeks to target; the lower the information the
organization has of this market the more would be the perceived distance between the two
markets (Thornton et al., 2019).
According to Carlsson, Nordegren, and Sjöholm (2005), companies coming from the
West encounter certain difficulties in the Chinese market as the way of doing business is
different when it comes to the Chinese market but it depends on a particular company how they
handle these challenges. The authors state that the companies which have operated in a country
45
which is similar to China have a bright chance of performing better as compared to the ones who
face a completely new market (Carlsson et al., 2005). Carlsson et al (2005) argue that it is also
dependent on the span of time the organization’s subsidiary has spent in the Chinese market
which ultimately impacts its performance.
According to Puthusserry, Child and Rodrigues (2013), psychic distance is mainly
concerned with the differences and dissimilarities of firms' in host and home country business
environments. Several factors of psychic distance influence and discourage the firms from
moving to the international markets. The authors also mentioned that psychic distance is a
problematic perspective for firms planning to move to host countries. The authors also noted that
the greater risk of psychic distance is on the business operations in the host country market,
where culture is one of the major issues in the host country market. Furthermore, the authors
added that firms that plan to move to other markets should focus on psychic distance and it
should be addressed well. Puthusserry et al., (2013) carried out the research and found out that
the psychic distance challenges in the Indian market is higher than in other countries like the UK
and developed countries since multinationals are mainly focusing on expanding their business to
the Indian market. Therefore, different factors are to be considered, such as education, language,
culture, norms, values, religion in the Indian market (Puthussery et al., 2013).
3.2.8 Theoretical Synthesis:
The literature review chapter discusses different theories and concepts to develop
theoretical synthesis for our research study: Uppsala model, network model, transaction cost
theory and eclectic model. The theoretical synthesis presents a comprehensive overview of
international retail firms' internationalization challenges based on the prior literature.
46
Figure 1: Theoretical Model
Retail firms develop their operations to global markets gradually by employing Uppsala
business models (Johanson and Vahlne, 2009). The network model is competent for retail firms
when they are looking to expand. In addition to this, the network model focuses on firms'
relationships with different international market actors (Łuczak et al., 2012). Anderson,
Hakansson and Johanson, (1994) described that networking is an essential factor for firms in the
business for exchange. Hollensen (2014) explains the transaction cost theory as the company's
cost of exchange with external parties. Whereas Dunning (1988) narrates the eclectic model as
the factors that the firm evaluates before moving to a foreign market.
International retail firms confront challenges both from home and host countries' markets.
There are various contextual and non-contextual challenges that firms risk while expanding
business and doing business in international markets. The challenges found by the prior
researchers for foreign retail firms are competition, policy and regulation, culture, funding,
47
technology and infrastructure, network relationship, and psychic distance. International markets
are complicated to analyze; firms frequently confront competition from rival companies that are
local and international firms which produce similar products and services. De and Van (2016)
stated that competition is an influential factor for a firm operating internationally. In addition to
this, cultural challenges influence and impact the international retail firms in host countries
markets (Kotler and Armstrong, 2010). Besides, funding is one of the biggest challenges firms
face because firms need funding for operations and to tackle challenges that affect the firm
(Carpenter and Dunung 2011). Moreover, infrastructure and technological challenges exist in
international markets that can lead firms to difficult situations because it is complex and critical
for firms to operate globally. International retail firms face policy and regulation challenges
while working in other markets (Reinartz et al., 2011). According to Håkan et al. (1997), a
network relationship is supposed to be an essential part of business; a good network relationship
can help the organization by different means.
48
CHAPTER - 4
4. FINDINGS:
This chapter presents the findings from the retail firm IKEA official’s interviews. Two emerging
Asian countries' markets targeted to be studied in our thesis report are China and India. The
findings are well presented according to the study theme developed in the literature review
section. This chapter starts with the participant's details and their information that we have
interviews with. Further, the chapter presents IKEA in the Asian markets and later presented the
internationalization process and internationalization challenges and opportunities.
Interviews conducted with IKEA Officials:
We have interviewed several people working for IKEA in China and India for the thesis project;
their details and information are given below.
1. Mr. Olafur Magnusson:
We had an interview with Mr. Olafur Magnusson, who is a global manager and whose
primary responsibility is fulfillment availability and support at IKEA. Olafur has 11 years of
experience in the company in different positions and is currently the global manager in the Asian
region. Olafur discussed the internationalization challenges and expansion of IKEA to the
emerging Asian market and some other questions related to our research topic.
2. Mr. Martin Cerullo:
We had a discussion with Mr. Martin Cerullo. Martin works for a well-known dairy farm
group leading Pan-Asian retailer and part of the Jardine Matheson group. The dairy farm group
operates supermarkets, hypermarkets, convenience stores, health and beauty stores, home
furnishing stores, and restaurants under more than 20 well-known brands across Asia. Martin
holds two roles in human resources leadership, one at A Group talent director position for the
whole organization and the second regional people leader for the dairy farm IKEA franchise.
3. Ms. Asa Hederberg:
We interviewed Ms. Asa Hederberg; Asa had two-year working experience as a Range
and product design manager in the IKEA product development center located in Shanghai,
China, and Asa has a total of 13 years of working experience with IKEA. While talking to Asa,
49
we asked her different questions regarding the challenges that IKEA faced and currently
encounters in the Chinese market and the Indian market.
4. Mr. Daniel Jimenez:
We interviewed Mr. Daniel Jimenez who is the managing director at the IKEA Product
Development Centre in Shanghai and has been working with IKEA for the past 25 years. We
asked him several questions regarding the challenges faced by IKEA in the Chinese and Indian
Market.
5. Mr. Peter Wisbeck:
We interviewed Mr. Peter Wisbeck, the business development manager of IKEA in
China, and is also the Operational head of purchasing for IKEA in the Asia Pacific. We asked
him several questions regarding the challenges faced by IKEA in the Indian and Chinese Market.
6. Ms. Valery Henriquez:
We interviewed Ms. Valery Henriquez who has been working in IKEA for the past 20
years and for the past 7 years she has been working in the financial field. Valery is currently the
Retail Business Navigation Business Partner at IKEA and is the country board of Asia Pacific
which includes India and China.
7. Ms. Shagufta Nahid:
We interviewed Ms. Shagufta Nahid who is the business development manager of IKEA
in India and has 3 years of experience of working in IKEA. Shagufta mentioned that the
company is new in India and is a relatively unknown brand with regards to the Indian market.
Shagufta stated that it is about the awareness and adjustment of a brand that how it establishes
itself in the market. It is about the acceptance of the brand in the new market and IKEA structure
is as such that people are not used to it so far as the company has large stores and people
sometimes feel that they are lost in the store. Shagufta stated that the logistics and labor is cheap
in the country so that is an advantage for the local people. Shagufta also stated that the price
setting is as such that what is a low price in Europe is a high price in India so it depends on the
price setting that which price is reasonable for the customer.
50
Table 3: List of IKEA officials interviewees
Country
Name
Position
Date
Duration
Mode
China/India
Mr. Olafur
Magnusson
Global manager
16-03-2021
1 hour
Teams-Meeting/
China/India
Mr. Martin Cerullo
Talent director
18-03-2021
1 hour
Zoom-Meeting
China/India
Ms. Asa Hederberg
Range and product design manager
24-03-2021
1 hour
Zoom-Meeting/ Email
China/India
Mr. Daniel Jimenez
Managing director
12-04-2021
1 hour
Zoom-Meeting
China/India
Mr. Peter Wisbeck
Business development manager
14-04-2021
1 hour
Zoom-Meeting
China/India
Ms. Valery Henriquez
Retail Business Navigation Business Partner
15-04-2021
1 hour
Zoom-Meeting
India
Ms. Shagufta Nahid
Business development manager
16-04-2021
1 hour
Zoom-Meeting
4.1 IKEA in China:
IKEA is a Swedish multinational conglomerate founded by Ingvar Kamprad in 1943 (IKEA,
2021). The Company sells and manufactures innovative smart products to make the home better.
The retail sector of IKEA entered the emerging Chinese market in 1998 and it now has 36 retail
stores in different Chinese cities and it aims to connect young buyers because there is potential
for growth in this market for IKEA (IKEA, 2020e).
According to Olafur, IKEA has had business operations facilities in the Chinese market since
1998. Therefore, IKEA has a lot of ideas, experience and knowledge about the Chinese market.
IKEA is doing its manufacturing in the Chinese market and exports it to some Asian and non-
Asian countries. Olafur mentioned that China is a central place for supply, export, and import for
IKEA to control the import and export of IKEA products from China. IKEA is trying to establish
51
its operations in Asian emerging markets for about five decades. IKEA started its operations in
the Chinese market in 1998 in the Shanghai region for the first time, which means that China is
quite an old market for IKEA. While talking to Olafur, we asked him about the market share that
IKEA has in the emerging Asian markets. Olafur shared his views on the market share that IKEA
has significantly less market share in this region than the mature markets. Besides, Olafur
claimed that although the market share is less than other markets, the aim of IKEA is trying to
reach as many people as possible. Regarding the retail stores in China and Sweden, Olafur
mentioned that small stores are convenient and easily accessible for people in China. As Olafur
said, China is a more populated and congested country where everyone cannot afford to drive the
car in the big cities, and therefore IKEA is trying to deliver products to their home.
Asa stated that IKEA is more about doing it yourself, parts of the product can be brought from
the store and the customer can assemble it themselves. However, she explained that in the
Chinese market the product was purchased online where the products are already assembled and
the customer looks for the most convenient option. Therefore, she stated that IKEA had to devise
its policies to adapt to the local market and the key to success is how you sell your product. Asa
mentioned that IKEA is faced with an extreme surface market where it is very easy to get
services; therefore, IKEA has to develop its strategy accordingly in order to offer products at
reasonable prices and in order to do that it is working on building its channels and offering the
services according to the needs of the customer. Asa believed that the maintenance costs are not
that high for IKEA in the emerging Chinese market however it has adapted to the ways of selling
and is available for the customer most of the time. Asa still feels that there are a lot of
opportunities in the Chinese market as China has a massive population, and IKEA can target the
masses and sell much more than it is currently doing as at the moment it has a low market share.
Asa believed that IKEA had been targeting the middle classes recently as China is an emerging
market and the customers had developed an increase in purchasing power over time but now
IKEA is going back to targeting the many people with small wallets or limited purchasing power
by offering the lowest prices. According to Asa, her office in Shanghai has been in continuous
contact with customers and suppliers in the market in order to produce products according to the
requirements of the customer and in the right sizes. Asa mentioned that her development team in
Shanghai has worked on a series of cooking gadgets targeting families from all walks of life in
order to stay relevant to the market. Asa argued that there is so much information and so many
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new products in the market that they still need to stay updated, having a wider product range and
present their products in an aspiring way. However, according to Asa, the biggest markets at the
moment for IKEA are Germany, China and North America.
Peter mentioned that when IKEA entered the Chinese market, the company was unknown and
the company started on a price level which was way too expensive so it was a long journey
before IKEA established itself in the Chinese market although affordability is still a challenge
today. Peter stated that over the years, China has developed a supplier base which has helped the
company but when the company started in China the purchasing organization was not that strong
and the numbers of suppliers that are present today were not there at the time. Another thing that
Peter mentioned was that the company is still not present in certain cities or is unknown in some
other part of the country, so still there is a lot of scope for the company.
Furthermore, Peter mentioned that China is like the mother of productions and there are a lot of
factories in China and a well-established supplier and manufacturing setup. Therefore, Peter
believed it is ideal from a purchasing perspective as you can buy almost everything. According
to Peter, in China the lifestyle is quite busy so people either do not want to go to the stores or do
not invest their time in visiting a store which is why they order the things they require from the
phone which the company realized a little late. In addition to this, Peter mentioned that the prices
of land are getting expensive so it is an affordability issue for the company as well when it plans
to buy land so it needs to work more on its sales channels. Peter argued that IKEA plans to target
the masses and the company first went into tier one cities and then tier two which were most in
the West and inland China so the company wanted its product to be attractive and reach the
many people. Peter also stated that the company does produce its products locally but certain raw
materials are imported from countries like Russia and New Zealand. At the moment the company
has about 1% percent of the market share so there is a long way to go. According to Peter, at
present the company is also buying more containers and leasing vessels as at the moment getting
the goods out of China is a little issue for the company. Peter mentioned that the overall
customer response has been very positive in China. The company concern is to reach more
people and to somehow also capture the audience which at the moment cannot afford the IKEA
product. Furthermore, Peter explained that the company has been affected by the pandemic as the
store in Shanghai has been closed and the purchasing team cannot visit the suppliers. According
53
to Peter, there are cases of Covid-19 in some of the factories so the production has also been
affected. Moreover, Peter explained the company has focused more on online sales due to the
pandemic and the stores are more acting like warehouses from where the products are delivered
to the consumers. Peter stated that IKEA applies a certain concept of retail and purchasing in a
market and it learns from that experience when it enters a new market but there are still local
complexities that the company has to face.
4.1.1 Internationalization Process:
IKEA internationalization process is an old concept; IKEA is genuinely an international
retail firm in the world. IKEA has operations in more than 45 countries globally. IKEA has 445
stores in different countries, in North America 65 stores, Europe 271, Africa 2, Middle-East 14,
South Asia 82 and Oceania 11. The internationalization of IKEA to the Chinese market
happened in 1998, and currently, the retail firm has about 36 retail stores in different cities of the
Chinese market (IKEA 2021, a).
According to Olafur, IKEA choose to establish subsidiaries in the emerging Asian
markets because IKEA is a multinational retail firm, and we do not consider IKEA for a few
people. It’s for everyone worldwide, and we are trying to reach out to many customers living in
different regions and places in the world. Furthermore, Olafur explained that choosing emerging
Asian markets is one reason to reach out to people who need and wish to have innovative and
advanced products that IKEA offers.
The top regions where IKEA has high volume sales are Europe 71%, America 18%, and
Asia 11%. The countries where IKEA has high retail sales are Germany with 15% annual sales,
US 13%, France 8%, UK 7%, and China 6% (IKEA, 2019). Daniel explained that IKEA can
build on further development in the retail side as well as become more accessible to the customer
and focus on lowering prices so the products become more affordable and could reach more
consumers. Daniel stated that there was a huge potential for the company outside Europe and the
highest potential was in North America and then in Asia. Daniel explained that at the moment,
the company had the highest market share in Sweden. Daniel stated that the biggest market
shares of the company are in the US, Japan and Germany. However, the top markets are
considered those which have a large economy and significant population such as China and
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India. According to Daniel, IKEA is a growing company that is planning to expand its business
worldwide, and its current plans are to enter the new markets in Asia such as Vietnam and the
Philippines. Daniel said that the company's ambitions are to target the many people, even those
with small wallets and to reach out to people in big need of home furnishing and changing their
life situation, for example those who are having children or moving to their first apartment and
find it difficult to buy quality products. According to Daniel, the company purchases about one-
third of its products locally from the Chinese market and also imports some of its products.
When we asked him that if the company had any issues in the supply chain, Daniel mentioned
that the company was not dealing with many middlemen, it had suppliers which it was dealing
with directly and then it had to deal directly with the consumer so the company’s expectations
were from its suppliers to follow the protocols and standards of the company.
4.1.2 Internationalization Challenges and Opportunities:
According to Asa, the challenge that IKEA faces is that it does not have the product
range which is relevant to the Chinese market and the product functions that the customer
requires neither does it have the sizes the customer wants the product to be in which is what
IKEA is working on and making changes according to the local market. Therefore, Asa believed
that they are now trying to develop their products which are relevant to the market so customers
do have an option of buying a bit of different products in different markets which are connected
to the IKEA style. Another challenge that Asa thought was being faced in the Chinese market
was to maintain reasonable prices in order to penetrate the market.
There are various Internationalization challenges that firms face in international markets.
The challenges we have analyzed and explained in the literature review are competition, policy
and regulation, culture, funding, technology and infrastructure, network relationship, funding and
psychic distance. However, IKEA does not face the funding’s challenges, and therefore we have
excluded the funding’s from the challenges section that IKEA faced or faces in the emerging
Asian markets. The challenges that are investigated by conducting interviews with IKEA
officials working for the Chinese markets are stated below.
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4.1.2.1 Competition:
China's economic performance over the past 30 years has been extraordinary, and its
continuous progress has developed the international competition, which is integrating with the
world in adjusting to new technologies and building new world-class infrastructure (Bank, 2013).
Olafur mentioned that China is quite an advanced country, and the people of China are using the
internet very frequently. Olafur also said that people are purchasing their products online. China
has the largest online community globally. The number of internet users is expected to reach 989
million, resulting in the country's fast-growing mobile app market (Statista, 2017). There are
different reasons why they are buying products online. Olafur mentioned that the country is
highly populated and its big cities like Shanghai where very few people have access to the car
and personal transport because of the traffic. Therefore, people are willing to buy products online
rather than visiting locally. The E-commerce sale is growing in the Chinese market with 24% of
the total retail sale in China. However, the Chinese market is the largest market globally with the
highest online sales figure, and these figures are expected to grow in the future (Statista, 2021).
Furthermore, Olafur mentioned that the significant challenge that IKEA is currently facing in the
Chinese market is E-commerce. Martin stated that competition is a factor that every business
nowadays faces. As Olafur explained, it could not be ignored that IKEA faces competition
challenges from the local furniture retail store operating in the Chinese market.
According to Asa, the products were easily available in the market and the customers
already had their preferred sellers so it was difficult to compete in the market. Asa believed that
the strength of IKEA was that they could offer a wide range of home furnishing products under
one roof, but if they compared it to other local competitors, their product range was quite limited.
IKEA has started to have its products availability for many customers online. The online sale in
the Chinese market accounts for 5%. The company aims to boost online sales by investing in the
E-commerce sector (IKEA, 2019). Similarly, Daniel stated that at the moment, the company was
small in E-commerce and had recently worked on its app to increase sales in China and through
the website but in China the company faces a tough competition from large companies like
Taobao.
The growing numbers of retail stores are increasing competition in the Chinese market,
and there are 252,656 retail chains in the Chinese market (Statista, 2020). Peter explained that
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there is no direct competitor for IKEA but there are companies which specialize in certain
products that IKEA also offers so that is a competition for the company. In addition to this, Peter
mentioned that the company could also focus on opportunities with regards to doing business as
there are a lot of real estate companies and construction work going on so the company could
offer its kitchen, bedroom and bathroom solutions. With regards to competition Valery had a
point of view that there is a trend of online shopping in China more than it is in the West and the
local Chinese Amazon and Alibaba are a competition for the company when it comes to online
sales.
4.1.2.2 Policy and Regulation:
The FDI policies of China have evolved alongside economic development and sustained
institutional capacity. The Chinese ministry has taken a progressive and reasonable approach in
the process of liberalization in the 1980s (The World Bank, 2010). The country has experimented
with opening up to FDI in coastal cities and special economic zones such as industrial parks to
attract export-oriented manufacturing FDI. In addition to this, China has been quite successful in
mobilizing inward FDI, and the country has attracted countless multinationals (The World Bank,
2010). There are various opportunities for investors and multinationals to develop the business in
the Chinese market. The FDI policies and regulations have led China to receive 20% of all the
FDI to developing countries over the last ten years and over $100 billion in 2018 (The World
Bank, 2010).
While talking about China's legal aspect that affects or affected IKEA operations in the
country, Asa mentioned that opening a store in China and getting a certain area of land in China
was difficult and there were a lot of rules and regulations for foreign firms. Asa also stated that
there were other hindrances like custom fees which would make it a little difficult for foreign
firms to enter the Chinese market. The part where Asa felt that IKEA was lucky was that they
had good relationships with the Chinese government which is why it was relatively easier for
them as compared to other foreign companies.
Daniel mentioned that when IKEA entered the Chinese market the country was more
politically driven and the government wanted to have a certain control over the companies
operating in the country especially those coming from the Western world. Daniel mentioned that
the situation has changed today as there are open discussions with the local partners and they are
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more open to fulfilling the company’s requirements. The Chinese government imposes the
working hour regulation in the country, 46 working hours per week (Statista, 2020a). The wages
and salary regulations set by the central government of China fluctuate. The minimum salary per
annum in the urban areas is 72956 Yuan, whereas in the rural areas, 39,300 Yuan per annum
(Statista, 2017a). Daniel stated that besides cultural differences the initial issues were that
suppliers were not following the requirements of IKEA with regards to minimum wages and
working hour’s regulations. Daniel also mentioned that IKEA has taken action on those suppliers
who have not adhered to the company’s protocols and closed down business with them but IKEA
has overall had a positive response from its suppliers. Although Daniel said there are more
restrictions in China than if the company was operating in Europe and the company had to abide
by the local rules and regulations, thus IKEA was prepared for this challenge.
Peter explained that IKEA has a code of conduct when it comes to the working
environment and complying with the local law and how to deal with suppliers. The other issue
that Peter mentioned was that the local law allows the workers in China to work only 48 hours a
week but the government does not reinforce that law and there have been deviations which has
caused the company to end its relations with certain suppliers. Peter, however, explained that the
company, however, abides by the law and reinforces it more than the local authorities. According
to Peter, the Chinese government has a five-year plan so the company has an idea of what the
policies are going to be or what their direction would be in the future. Peter mentioned that in the
city he was posted in China, the general impression there is that time is money and efficiency is
life and there is a hunger for doing good things. The other point that he mentioned about the
Chinese market was that what is promised is delivered so the overall experience of the company
was very positive with regards to doing business in China. Peter also said that there is still a lot
of potential in China as people are becoming healthy from a financial perspective and the
government policies are strengthening the manufacturing sector and the country is focusing on
innovation and taking initiatives from a sustainability point of view so the opportunities are
endless when it comes to China as the ability to make things happen has been the factor which is
led to the point where the country is today.
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4.1.2.3 Culture:
According to Daniel, IKEA has been present in the Chinese market for the past thirty
years from a purchasing perspective and the reasons for entry in the Chinese market was because
China has a huge potential and the country focuses on manufacturing and exports. Daniel stated
before entering the Chinese market, IKEA was a small group in Europe and like companies in
South Asia it also went to the Chinese market but the company had to face cultural challenges
and there were a lot of expectation from the company due to the standards it had maintained and
the fact that it operated a little differently as compared to other companies. Daniel felt that IKEA
did business and purchase in a certain way with regards to home furnishing and accessories
which was a challenge for it as it had to enter a new market like China. Further, Daniel explained
that the country has worked immensely on innovation and has focused on sustainability and the
local people are well aware of the global economy.
Likewise, Olafur explained that the cultural challenges that IKEA faces in the Chinese
market are how Chinese are influenced by their culture and how it affected IKEA's operations or
is affecting it. Furthermore, Olafur mentioned that currently, IKEA faces various challenges;
Olafur said that just copying Swedish retail store infrastructure is not working in the Chinese
market. In addition to this, Olafur argued that the retail store must be relevant to the Chinese
market. Olafur also added that the E-commerce challenge is quite notable because people like to
buy online. While in the discussion, Olafur mentioned that retail firms or international firms that
operate outside of their country markets would take time to succeed in other markets. Therefore,
it needs to build strategies that are appropriate for achieving the company's target. Olafur
explained that long-term vision can lead a firm to success. Furthermore, Olafur also agreed that
culture impacts the business, like how big and large the community is will affect the company, as
China is a big country with a large population. Olafur mentioned that we have also faced price
challenges, customer buying behaviors and perceptions various times. IKEA has adjusted its
prices for the products as he said that price directly relates to products.
During the interview, Martin mentioned that in order to connect with the local market,
IKEA has tried to adapt to the local culture. For instance, they have provided local shirts to
employees in Indonesia which connect with their culture. Similarly, in Hong Kong they are
offering traditional food to the locals which are not provided in other countries. This adoption
has helped IKEA with its sales. When asking about the challenges in the Pandemic, Martin did
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mention that since people have been more confined to their homes recently, their focus has been
on the development of their households which includes their kitchens. This has led to more sales
of their products and thus their revenue has not been that affected by the pandemic as compared
to other companies.
According to Asa, the cultural difference between China and the Scandinavian market
could be thought of as a strength in certain aspects whereas a weakness in other cases. The point
that Asa focused on was that western products were perceived as very sought out and good
products in the Asian markets as compared to the local ones whereas in certain scenarios, the
equipment used in the kitchens by the Chinese people were different as compared to what IKEA
was offering in their stores as the Chinese used a different set of equipment in their households.
Asa believed that the Chinese people did not understand what the products were used for as they
did not cook like how people in Sweden cook their food.
Martin admitted that culture impacts the business and its activities. In addition to this,
Martin stressed the matter to mitigate cultural challenges and for that IKEA practices different
tactics. For instance, in IKEA stores in Hong Kong, Martin argued that IKEA provides
traditional foods associated with local culture to show belongingness and connectivity to the
people that IKEA is part of their society. For instance, Martin mentioned that IKEA provides
uniforms to Indonesian employees in the country related to their country and culture. Some
differences that Peter mentioned were when the company wanted to promote Swedish meatballs
but the cultural minister in China did not agree to it and thought the approach was different in
China as compared to European countries.
With regards to overcoming cultural differences Valery explained that it is important to
have awareness and identify the strength of different cultures. Valery mentioned that it is also
important that the company could connect with people and have a mix of local talent and foreign
employees in the working team to overcome the cultural barrier. In China Valery explained that
there is this great desire to change with time which has helped the company. Valery explained
that it is important to address the cultural differences and put them on the table rather than
avoiding them in order to move forward.
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4.1.2.4 Technology and Infrastructure:
IKEA is planning to make its huge investment in the technology side of IKEA in China
(IKEA, 2020). This investment aims to overcome the technological challenges in the country for
fast growth in China, adapt new online shopping behaviors, and enhance the customer's
experience at all meeting points (IKEA, 2020). According to IKEA (2020), IKEA is planning to
invest its largest amount of $1.45 billion in the Chinese market to improve and overcome the
challenges that IKEA faces. IKEA is focusing on digitalization in the Chinese market. IKEA's
primary focus is to provide digital services to compete and overcome the challenges that IKEA
encounters during the business (IKEA, 2020). The first IKEA digital Hub was established in
China, one of the world's largest and most digitally advanced markets (IKEA, 2020). According
to IKEA (2020), China is at the forefront of new consumer habits driven by the convergence of
E-commerce, entertainment, and social media integrated innovation. The team in China quickly
revamped the mobile IKEA and launched a shoppable IKEA app (IKEA, 2020). After some
time, the app is already capturing 80% of the online sale in China, and it has played a significant
role in countering the decrease in offline sales during the Covid-19 lockdowns (IKEA, 2020).
While discussing the technological challenges with the IKEA officials involved in the retail
business for IKEA in China, the majority believed that China is a much-advanced country in
terms of technology. However, the challenge that IKEA face and had faced in China is that
IKEA lacked to have its E-commerce operations in China. IKEA is experiencing the new digital
format for its products and by partnering with the Alibaba group; IKEA launched 3500 IKEA
products and some furnishing solutions (IKEA, 2020b). The partnership provides solutions to the
new challenges seen in the market, and it is an opportunity for IKEA to complement its existing
customer meeting points (IKEA, 2020b).
According to Olafur, China has much better technological advancement in the country
and its infrastructure is quite improved compared to other markets in the regions where IKEA
operates. Regarding the opportunities that IKEA has in the Chinese market, Olafur mentioned
that China has many big cities, which is an opportunity for IKEA and the customer need is high
for the product. However, according to Olafur the growing demand for the IKEA product in the
country is an opportunity for IKEA. He explained that IKEA faces challenges from the
technological side; people in China are willing to buy products online. Olafur stated that the E-
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commerce market is a challenge for IKEA currently, but IKEA is planning to overcome this
challenge.
According to Martin, technological advancements are becoming challenges for IKEA in
the Hong-Kong and Macao markets. Digitalization and E-commerce have been a challenge for
IKEA in these markets, and still, IKEA is facing such difficulties in the markets. IKEA doesn't
have big blue boxes to overcome such challenges in these markets. Martin explained that these
countries have an advanced infrastructure that supports business and its operation like supply
regarding the country's physical infrastructure. Martin also discussed that IKEA's most
significant challenges in these markets are E-commerce and digitalization. In the Macau market,
IKEA has opened a retail store in the pandemic, and its sale is the same as other days counted,
whereas, in main land China IKEA has closed its store in the pandemic situations.
According to Asa, the important aspect was how the product was sold and the main
channel had to be digital. Asa stated that the trend in the Chinese market was that the products
were mainly purchased online and there are two or three applications on the phone which the
customer prefers to purchase all its products from so the challenging part for IKEA was that it
had one store to sell a different range of products. Asa explained that the Chinese prefer the
products delivered at their residence rather than going to a store. In addition to this, Asa
mentioned that the products are produced by IKEA’s suppliers who then sent it to the warehouse
which is then send to the stores but companies like Taobao produce the products themselves and
then sell them on web based platforms which is more convenient and their handling of the
products is not like that of IKEA and they have less middle chains which is why their process is
much faster which becomes a challenge for IKEA. Moreover, Asa stated that IKEA has recently
allowed its products to be sold at a different retail platform in China rather than setting up their
own logistical chain in order to increase its sales.
According to Daniel, to overcome the challenges of technology the company has
increased cooperation with its partners in order to find the answers and shown humbleness in
order to progress as technology has taken over the Chinese market. Daniel mentioned that IKEA
has become more flexible and there is a third party on whose digital platform the company’s
products are being sold in order to grasp more customers. Daniel stated that the company could
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expand through increasing online sales and from a purchasing perspective the company could
focus more on innovation and sustainability.
With regards to the technological challenges, Peter had a similar point of view as the
other officials that we met and told us that in China everything is done on the phone so every
product is ordered from your phone and IKEA was not the first one to embrace that technology
and so the company had to catch-up with this aspect. With regards to the infrastructural issues,
Peter explained that the general transport system is quite good and there is a good rail system so
the connectivity is not a problem. Also, China had started a one belt and road initiative by which
the connectivity with China and outside with countries in Europe has become quite easy so the
infrastructure is a competitive advantage for China if it is compared to India where the
infrastructure is not at the same level and the price level with regards to the movement is quite
reasonable. Moreover, Valery stated that it is hard to cope-up with continues technological
changes in China as they are happening so quickly but the company has established its digital
hub to overcome such issues.
4.1.2.5 Network Relationship:
According to Olafur, network relations are quite crucial for the expansion of business and
successful business operations. Olafur argued that network relations cannot be developed in
multiple markets simultaneously, but IKEA has a center house in China from where it controls
its export and other operations in the country. Besides, Asa explained that it is important to
develop good relations in the market before entry and it is vital that lobbying is done which was
IKEA’s strategy in China. In addition to this, Asa stated that the most difficult part is to enter the
Chinese market and there were certain restrictions due to which a limited number of firms could
enter the market. Asa also mentioned that IKEA’s policy has been to send its workers to these
markets and not recruit from scratch therefore the hiring for these markets had been mostly
internal rather than external. Another important point that Asa mentioned was that the raw
materials were extracted from the local Chinese market for the products in the retail outlets in
China but the control of the suppliers was managed from the offices in Sweden. Asa believed
that the strength that she had was her strong relationship with iOS in China which helped her and
the company. Furthermore, Asa mentioned that it is important to have full confidence in your
new teams in order to grow in the company. Moreover, Asa felt that the company had a very
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strong relationship internally but not much externally. Asa stated that the experience of China
was considered when they entered into India and there was a lot of preparation done before
entering the Indian market especially with regards to developing network relationships.
Daniel mentioned that IKEA was in contact with suppliers before entering the Chinese
market, and the company has a long-term relationship with its suppliers, some of which it is
working with even today. Daniel also explained that the company had developed new relations
over the years and now has a strong position in the market from a retail perspective and also with
regards to product development and manufacturing. According to Daniel, it is important to
nurture your relationships. He explained that in some cases, they could get damaged when there
are differences with the local partners but it is vital that the relationships in your network
whether it is with the government or local authorities are respected.
According to Peter, the importance of developing a network is different depending of
which area the company is operating in for example, in the North of China especially the regions
which have a border with Russia or the areas under attack it is vital that the company develops a
strong network whereas in the South of China it is not important to have a strong network
relation. Peter explained that in China, the company tries to be distant and more professional
with regards to its connections in the network but the company cannot be naive to the situation in
the local market. Furthermore, Peter stated that in certain places of China it is a practice to have a
certain relationship with your network where the environment is informal and it is a normal
practice to exchange gifts and give other private benefits which is against the code of conduct of
IKEA. Therefore, Peter stressed on the importance of network relations as he stated that it is
important to have a good relationship in the network but at the same time it has to be
professional and the company makes it clear to its suppliers what its code of conduct is and the
curriculum that the company follows.
Valery stated that the company does respond quickly to the questions raised by our
suppliers and other players in the network and IKEA has invested a lot of its time when it comes
to building relationships in the Chinese market.
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4.1.2.6 Psychic Distance:
The psychic distance challenges cannot be ignored when firms plan to move to foreign
market. In the discussion we asked Olafur about the Psychic distance challenges that IKEA has
or had in China. Olafur stated that there are fewer challenges in this regard as IKEA does not
consider only Swedish people; it’s a company for many people. Therefore, He explained IKEA is
trying and continuously learning different cultures and languages to avoid challenges or mitigate
psychic distance risk. In his views, He mentioned that to reduce risk, IKEA needs to hire people
from local communities that can lead the firm to a better route and such people can help in the
formation of strategies and help the top management.
Olafur stated that to overcome the challenges that IKEA faces the company needs to
provide home delivery services in China as people buy products online and our focus is on E-
commerce currently. Furthermore, Olafur mentioned that it is better to hire people locally and
produce locally. Martin explained the psychic distance challenges that IKEA faces in the
respective markets during the discussion by mentioning that it’s expected that people have some
differences in either language, culture, religion that influence their behavior. For instance, Martin
argued that products must be relevant to the market's needs and requirements, just copying
Swedish products and selling in these markets won't work because there are different choices and
demands for the product. Moreover, Martin mentioned that no market is free of certain risks, and
it is not easy for firms to succeed easily; it requires continuous effort. Furthermore, Martin
mentioned that the more companies expand their activities and operations, the more companies
learn and get experience. Martin also has few comments about the Chinese market as he
mentioned that China is a big market and home to many multinational retail and non-retail firms.
Furthermore, Martin said that IKEA has been very successful for many years and still it has a
much better business in the Chinese market. While in the discussion, Martin stated that this
market is overgrowing; therefore, IKEA has some challenges like E-commerce and digitalization
that IKEA faces currently. Martin explained that IKEA is learning from its experience in other
markets and its expansion activities in other markets. In addition to this, Martin added that IKEA
is learning different cultures for successful operation in other markets and doing continuous
research in foreign markets.
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According to Asa, IKEA has a certain culture and values but it does not necessarily mean
that only a Swedish person can work in IKEA and in order to enter a new market IKEA plans its
strategy based on its experience. In order to overcome language barriers Daniel stated that the
company had to recruit local residents and some were given high positions as well to develop a
strong relationship with the local suppliers. According to Daniel, the company was a little
flexible with suppliers although they still had to meet deadlines but now there are high demands
of the company from the suppliers to fulfill their requirements and also focus on issues like
sustainability. Furthermore, Daniel explained that there is a cultural gap but IKEA uses its
knowledge to overcome the concept of perceived distance but overall as soon as the company
went outside Europe it faced more difficulties. Daniel felt that it depended on leadership and
adaptability with which the company could overcome perceived distance but it also had to draw
the line where it was with regards to the standard operating procedures of the company.
According to Peter, language is a barrier when it comes to doing business in China but it
is also about the body language, facial expressions and the overall message which should be
clear and practical. Peter mentioned that IKEA has a lot of local workers in China and the
relation is quite open with the suppliers so the factor of perceived distance has not impacted that
much when it comes to the Chinese market. According to Valery, it depended on the length of
time the company was in a certain market it manages to establish a balance between the
dissimilarities there are between the two markets and since IKEA had a lot of staff from different
nationalities it has been able to cope-up with the challenge of psychic distance.
66
Table 4: Summary Table of IKEA Chinese Market Findings:
Retail
Firm Process Competition Culture Policy &
Regulation Technology &
Infrastructure Psychic
Distance Network
relationship
IKEA
China -Gradual
-Network
relationship
-Face
competition
from local and international
retail firms.
-Face huge
competition
from E-
commerce.
-Local retail
furniture
companies.
-Faces a tough
competition
from large companies
like Taobao,
Amazon and
Alibaba are
real
competitors
for IKEA in
online sales.
-Face
cultural
challenges.
-
Differences
in
behavior.
-
Differences
in opinions.
-Issues of
transparency
when it comes to the
processes of
the local
authorities and
the
government
policies.
-Getting a
certain area of
land in China
was difficult
for IKEA. There were a
lot of rules
and
regulations for
foreign firms.
-Minimum
wages and
working
hour’s
regulation.
-Lack of
technological
advancement as compared
to other rivals
in the country.
-Lack of E-
commerce
operations
which
affected
business of
IKEA.
-Pandemic has
influenced IKEA's
operations in
China.
-Language
is a barrier to
a certain extent when
it comes to
doing
business in
China.
-Initial hiring
was an issue
in China as
the brand
was
unknown in
the market.
-Difference
between the
Western &
Chinese
norms and
values.
-Developing
Network
relations were critical
in the
Chinese
market when
the company
started its
retail
operations.
4.2 IKEA in India:
The Swedish retail firm IKEA started its retail operations in the Indian market in 2018 (IKEA,
2018). Olafur discussed that IKEA has recently started operations in India and it has opened its
first retail store in the market. Furthermore, Olafur predicted that IKEA is trying to open more
retail stores in this market. The estimated total population of the Indian market is approximately
1.38 billion (Statista, 2014). India is progressing over the past decades and the country has cheap
labor and agricultural exports (Statista, 2014). There have been economic variations in the
country since 1986, and its current GDP is 2098 in the US dollar (Statista, 2018). Olafur believed
that the Indian market could be a compatible market for IKEA as their economy is growing and
they have a high population and friendly government policies which could attract international
67
enterprises. Furthermore, Olafur stated that climate also is a factor which IKEA has to keep in
mind while creating a product. For example, He explained that in India the weather is humid so
the product is created accordingly and its quality is kept in mind so it is long-lasting, whereas
this factor is not that much applicable in China as it has a similar weather to Sweden. In addition
to this, Olafur stated that the consumer buying patterns are different and the price is a crucial
factor in the Chinese and Indian markets which affects the demand of the product. Similarly,
Martin agreed that India has the second-largest country by population and still the population is
increasing. In addition to this, He stated that the economy of the country is growing over time.
According to Asa, the experiences of working in China and Russia have helped IKEA while
entering the Indian market. Asa stated that the potential for IKEA is huge in India as it has a
massive population and there are a lot of small players in the market but they lack big players in
home furnishing which is where IKEA can capitalize as it offers a wide range of home furnishing
products under one roof. Asa explained to us that the demand of the value proposition or demand
for the value of money for the Indian consumer may be the highest in the world so the Indian
market is highly demanding when it comes to the affordability aspect and the price offer has to
be attractive. Asa mentioned that there is a demand for conveniences when it comes to things
like free deliveries, the part being already assembled and the whole service package. According
to Peter, the demand for services durability and quality in India is among the highest in the world
and as Indian consumers also don’t want to spend a lot of money on purchasing goods. When
asked about the opportunities in the Indian market, Peter stated that India is an untapped market
and IKEA wants to create a better environment for the many people so it was mandatory for our
vision to enter a huge market like India. Peter also mentioned that to find solutions which are
competitive in the Indian market means finding answers which are competitive in any other
market since the Indian market conditions are very tough. According to Peter, the challenges that
the company faces will help it to learn when it goes to other markets in the region.
Valery explained that India is a huge market and deciding the entry strategy was a challenge.
Another point that Valery stated was that how the distribution network would be setup as IKEA
has high volumes so the setup needs to be planned accordingly and which cities the company
will go to was another challenge. However, Peter explained that the company is producing
locally as well but the majority of the manufacturing is not done in India. Peter also stated that
68
the products are imported mostly from Europe, South-East Asia and China but as a requirement
after five years 30% of the sourcing should be from the local market. According to Peter, the
company is focusing on overcoming their challenges every day and as the company is new in
India and with the current pandemic the operations have been affected at the moment thus the
company is trying to look for ways in which to deal with the situation. Peter explained that IKEA
is in India for the long term and is looking to expand as it is there to target the masses so the
company has in the pipeline to open more stores in other cities.
Shagufta mentioned that IKEA manages its different customer segments as it wants to make live
better for the many people that it targets. Shagufta stated that IKEA has such a setup in India that
it is catering to the middle class and the upper middle class but it does want to target the many
people. According to Shagufta, the biggest challenge for IKEA at the moment is price as it has to
make its products more affordable for the local customer and then the company has to make
itself more accessible to the customer.
4.2.1 Internationalization Process:
IKEA is a multinational retail firm and it aims to expand its operations to different
markets in the world. According to IKEA (2020a), The Swedish retail firm started its process in
2018 in India and currently it has two stores in the Indian market. There are certain reasons why
IKEA choose to enter the Indian market. While talking about the Indian market, Olafur has
shared his experience regarding the country that India is one of the friendly countries that protect
its fabric industry by giving a friendly environment to international retailers. In addition to this,
Olafur also explained that IKEA has manufacturing facilities in India. He stated that IKEA
produces some of the products locally and some of the products are imported from other regions.
4.2.2 Internationalization Challenges and Opportunities:
Challenges that IKEA faces while entering to the Indian market and during the business
are acknowledged in this section. Such challenges are competition, policy and regulation,
culture, technology and infrastructure, network relationship, and psychic distance. However,
IKEA is a multinational retail firm that does not face any challenge regarding funding.
Therefore, we have excluded the factor of funding from the challenges list that we have
developed in the literature review chapter.
69
4.2.2.1 Competition:
The retail sector is a growing sector in the Indian market and the retail market amount is
expected to reach 1.7 trillion US dollars (Statista, 2021b). However, the ever-increasing numbers
of retail firms in the country are increasing the competition in the Indian market. In addition to
this, the retail sector employs 40 to 50 million people in the country and the retail industry in the
country contributed to 40% of consumption in 2018 (Statista, 2021b). In the case of IKEA, IKEA
is an international retail firm which faces competition from the local producer in the Indian
market in specific products. The size of IKEA is much bigger than the local producers, but still,
the locals are willing to buy the products from local producers. There are different views of
people on the competition in the Indian market whom we interviewed. All of the interviewees
who are involved in the retail business of IKEA in India agree that IKEA faces competition only
from the local producers who are producing single products as there are very few international
retail firms that are to be considered real rivals of IKEA in the country.
According to Olafur, IKEA targets the emerging Asian markets, especially China and
India in the region because these two countries have large population and customers that attract
international firms to reach these markets. Olafur believed that IKEA is trying to target those
customers who can afford and buy the products and those who wish to have an innovative and
advanced product. He further added that IKEA is practicing different tactics and strategies to
target as many customers as possible. IKEA is adjusting the price of its various products to
attract customers and avoid competition. In addition to this, Olafur explained that there are local
and international retail firms in these regions. Therefore, He mentioned that it is pretty tricky for
IKEA to face more competition challenges in India because of the many local retail firms that
exist. Still, He claimed that there is not too much competition from international retail firms as
there are fewer international retail firms in the Indian market. Furthermore, Olafur argued that
IKEA is facing competition challenges with more than 2000 local and international competitors
in the emerging Indian market. Moreover, Olafur mentioned that, as IKEA has a diverse range of
product lines the company is not facing specific competitors' challenges but IKEA faces
challenges for different products. For instance, He mentioned that the kitchen's renovation and
competition that the company encounters only from producers who are producing single products
like a mug of coffee etc. Olafur explained that IKEA has varieties of products and therefore it is
70
not easy to focus on or compare with single-product firms. He stated that the competition level is
higher compared to those retail firms that are selling only single products or a few.
In views of Olafur, long-term planning and vision can be the best alternative to mitigate
the competition challenges that IKEA faces in the Indian market. He explained that India is a big
country both geographically and population-wise and it has quite a historical background. In
addition to this, Olafur stated that the countries where IKEA recently entered and aims to boost
its operations in the future but there are considerable competition challenges for the company.
Olafur argued that very few international retail firms are considered rivals of IKEA but the local
companies and manufacturers are considered threats and actual competitors. Peter stated that
IKEA has a certain structure where it focuses on everything under one roof so if it is taken from
that perspective, there are no clear competitors of IKEA in India but there are companies which
are specialized for one area and there are online driven companies. Furthermore, Peter added that
the traditional way is to call a carpenter and explain what is required by the consumer and have
the product customized which is still the main way of doing business in India.
According to Valery, the company has come-up with prices to reach the masses and make
sure it is affordable for them and this is a challenge as the import duties have been increased by
twenty percent. Valery stated that company has also focused on different ideas like for instance
in India in certain cases rather than offering a cooking set of knife, fork and spoon a company
decided to offer a six pack of only spoons for children and the response has been good so far.
She explained that although the target is people with thinner wallets it does not mean that the
company excludes those who have fatter wallets. Valery stated that there is an increase in
demand for home furnishing products in India despite the current pandemic and that is an
opportunity for the company as it would help it to grow.
With regards to competition Shagufta mentioned that when it comes to the furnishing
business there are a lot of local retailers in the market which are offering cheaper products and
there is a lot of competition so it is a challenge for IKEA at the moment. Shagufta explained that
the labor is available in a non-compliant way in the market so it is very cheap for the local
consumers. Shagufta also mentioned that the customer is used to the furniture available in the
market which is of quite good quality but if IKEA manufactures that it would be quite expensive.
71
Shagufta explained that in other industries like textile as well where certain companies are
involved who are manufacturing multiple ranged products and are offering them at low prices is
a challenge for IKEA. Furthermore, Shagufta discussed that the local retailers might also copy
IKEA products and offer them at lower prices which would become an issue for the company as
well. In addition to this, Shagufta stated that there are different industries producing different
goods and some are organized sectors and some are unorganized sectors but the product quality
of IKEA is better than others. According to Shagufta, there are no direct competitors as IKEA is
offering a range of products under one roof but it does face difficulty because of the unorganized
sector as there are some places where the consumer can get furnishing articles like curtains at a
very low price. With regards to online sales Shagufta believes that Amazon is a competitor and
according to Shagufta, Wal-Mart is also entering the Indian market which could be a challenge
for the company.
4.2.2.2 Policy and Regulation:
The foreign direct investment sector of the Indian market is increasing since the
government has taken the initiative of liberalization in the 1990s (Invest India, 2018). India's FDI
policies and regulations aim to promote and attract international investors and inward FDI to the
Indian market (Invest India, 2018). The FDI policies and regulations have promoted FDI inflows
in the country and the FDI amount of India has amounted to 44 billion US dollars (Statista,
2021b). Olafur mentioned that India is quite good in terms of policy and regulations; it protects
and encourages multinational companies to invest. Martin also agreed that the Indian
government is supporting foreign direct investment and international firms. Similarly, Peter
mentioned that IKEA wanted to have 100% percent ownership but as a foreign company you can
only have 45% ownership so it took to the company almost ten years to negotiate with the Indian
government and then it was also decided that after five years of operations in the Indian market
30% percent of the sourcing had to be done locally so these were the issues faced by the
company. Besides, Peter stated that the government policies can be unpredictable in India as they
have elections after every five years and the provinces have a lot of power so the issues may be
different in different parts of the country and India itself is bigger in area than the European
Union.
72
Valery mentioned that the Indian government was reluctant to allow entry of foreign
companies without partnership and there were conditions like for example the company could do
it with a joint venture and another condition was that after a certain number of years a certain
percentage of the company’s products were to be produced locally so these were the main
challenges for IKEA in regard to the policy and regulations of India. According to Valery, there
was a lot of dialogue with the Indian government and consensus that the company could enter the
market without a partner.
Furthermore, Valery mentioned that although IKEA has started its retail business in India
a couple of years back but the sourcing of IKEA products has been done from India for a long
time which has been an advantage for the company when it entered the market as it has already
had been in contact with the Indian government. Valery also mentioned that there are certain
restrictions for companies to enter the market but that is there for every foreign company not just
for IKEA. According to Valery, there are however certain issues externally as in when tensions
between India and China increase the authorities may take initiatives like increase import duty on
products coming in from China which affects the company as many of IKEA products are being
imported from China. The spread of the Covid-19 pandemic has affected business activities in
the Indian market (The World Bank, 2015). Regarding the effect on the business due to the
pandemic Valery stated that the company follows certain safety precautions and before the
government announced certain restrictions the company was also complying with its safety
policies. Valery mentioned that the store in Mumbai had been closed due to the pandemic but the
company is seeing the pattern of demand as after the first wave when certain restrictions were
lifted there was a huge demand at the stores so the company had to fulfill that and make sure that
the customers remained loyal to IKEA. Moreover, Valery stated that the company does produce
some of its products locally especially its textiles and some of the textiles of the company were
already being manufactured in India before it started its retail chain in India and the company
will continue to increase its production in the Indian market.
With regards to the legal aspects Shagufta stated that it took almost thirteen years for the
company to enter the Indian market as no company was allowed 100% percent foreign direct
investment so that was an initial challenge. Shagufta explained that the other issue that the
company faces is the import tariff which is quite high and it raises the cost of the products and
73
the process of the government is quite slow. Shagufta stated foreign companies are under the
scanner all the time so it is important for them to be right or follow the local policies.
4.2.2.3 Culture:
In view of Olafur, there are cultural barriers while conducting business in India but IKEA
considers itself a genuine multinational company and learns different cultures. In the opinion of
Olafur, every country has its own culture and social background and similarly India also has its
cultural values. He also mentioned that culture impacts firms that are moving from the home
country market to host country markets. In addition to this, Olafur argued that at the moment he
felt that IKEA has very few challenges in this context. As IKEA is truly an international brand
and it learns and practices the host countries' culture when it moves to the new country market.
Peter mentioned that the cultural aspect has not yet had a big impact for IKEA in India and IKEA
is an unknown brand in some parts of India and in places where it is known there is an
admiration for the brand and the Indian people like to buy the products from IKEA.
Valery mentioned that there are challenges with regards to cultural differences but it is
important how the company enters a market and IKEA also has a mix of local people working in
the company with foreigners in India so it can help establish the company in the market. Valery
also explained that it is important to have strong local talent in the company as India has a large
young population and they have good education so the amount of people the company was able
to recruit turned out to be a great team which was not the case when the company entered China
as the hiring process was difficult. Therefore, Valery explained that it is important to have a good
balance of local people with foreigners in your team to tackle the cultural challenges and
understand what biasness the company might face and most importantly stick to the values of the
company without offending someone.
With regards to the cultural challenges Shagufta explained that the IKEA structure of
stores are as such that the customer are not used to off it and they find it difficult to get direction
of where the products are located and the local consumers are more comfortable with getting all
the parts assembled and then being offered to the customer rather than do it yourself which is the
culture of IKEA. As an example, Shagufta mentioned that the localized need of the customer is
74
different like IKEA’s curtain size is from nine to eleven feet whereas the requirement of the
Indian customer is of seven feet.
4.2.2.4 Technology and Infrastructure:
In 2019 after one year of operations in the Indian market IKEA has started online
business operations in the Indian market to fill the gap of being online retailers in the country
(IKEA, 2019). The E-commerce sector of IKEA has improved the sale of the company by 10%
in the Indian market (IKEA, 2019). The company is further looking to invest in the E-commerce
sector to overcome the challenge and make a better E-commerce environment (IKEA, 2019).
According to Olafur, in terms of technology and infrastructure India is not that good as compared
to China. In addition to this, Olafur argued that emerging markets are progressing and practicing
different development projects that improve the country's standard. Olafur believes that it has a
long way to enhance the technological and infrastructural measures when it comes to
technological and infrastructural improvement in the Indian context. Olafur also added that there
is minimal technological advancement as compared to other emerging countries like China. In
comparison between China and India, he claimed that China is much improved in both
technology and infrastructure terms. Further, Olafur mentioned that China is one of the major
emerging countries which is progressing very fast. Furthermore, Olafur felt that technology and
infrastructure are the challenges for IKEA in the Indian market especially in the E-commerce
section. Regarding the technological aspects, Peter stated that online sales E-commerce and
shopping in Mumbai is much more widespread in India than if it is compared with Sweden so the
company needs to work more to have a bigger share in E-commerce and online sales and make
the customer more aware of IKEA’s product range.
When asked about infrastructural challenges Peter mentioned that India is very strong in
the textile sector but IKEA is also working in other businesses like solid wood, flat lines and
comforts which is not that existent in India so IKEA has worked on greenfield investments with
the concerned suppliers to invest in sofa production and helped to upgrade mattress production to
meet European standards. Therefore, he mentioned that it is a lot of manufacturing, development
and investment in India to get the manufacturing abilities on a level that meets IKEA’s standards
and the requirement of the consumers.
75
With regards to infrastructural issues Valery mentioned that is important to determine
which would be the logical places for the company to open a distribution center and which cities
it should target so these were the initial challenges for the company and also it is important to
have a plan A along with plan B, C and so on. Valery also emphasized that it is a challenge to get
goods transferred from one point to another but it depends if the company has the right
partnerships and therefore the company has to be flexible and have backup plans.
With regards to the technological issues Valery mentioned that the company has
developed an online sales channel along with offline sales and it is so far doing quite well in
India from that aspect and this situation is not the same in other parts of the world. Valery also
stated that you have to adapt to the local infrastructure and the local rules and regulations and
also it depends on the approach of the company as for example now the company is planning for
smaller store formats in different parts of the country to reach more customers. According to
Valery, the company is targeting the many people in India with thin wallets and the company
was conscious on how to enter the market with the whole price setting, affordability and
profitability and so far the company has done well.
According to Shagufta, Indian market does not have many hindrances with regards to
technology but there are infrastructural issues especially in those parts which are controlled by
the government. The local customer still prefers to go to the stores for shopping although the E-
commerce industry is shaping up in the country but the sector is not yet profitable. IKEA is not
that advanced when it comes to the E-commerce industry in the Indian market but due to the
pandemic there has been a large increase in online sales therefore now the focus of the company
is to develop the E-commerce industry further. Shagufta believed that IKEA can develop its
online sales better by checking the delivery costs and how it can manage its digital platform. In
view of Shagufta the company was not facing any challenges with regards to infrastructure as it
is dealing directly with its suppliers.
4.2.2.5 Network Relationship:
In the context of the network relationship of IKEA in the Indian market Peter mentioned
that the Indian market is more relation orientated and companies need to have a network to
function properly therefore IKEA has to focus on this aspect. With regards to network
76
relationships Valery mentioned that the company was present in India before starting its retail
chain from a sourcing perspective therefore it already had connections in the local market. These
Valery mentioned were important and the company also needed to develop relationships with the
local community from a sustainability point of view.
With regards to the relations with external parties Shagufta mentioned that IKEA is
working with its suppliers in developing its home furnishing and accessories so the relations are
quite well and since the company is localizing its production more so the efforts are being made
to develop its relations with other market players. According to Shagufta, the company also
keeps in contact with the Swedish embassy and the local commerce ministers in order to
strengthen its relationships.
4.2.2.6 Psychic Distance:
While talking to Peter about the psychic distance challenges regarding the Indian market,
Peter stated that it takes a lot of working and time before a company can move into the Indian
market and get the required permits. Also Peter mentioned that the deadlines are quite flexible
and you have the time to go out and see how the work is going on in the factory which is being
built so to explore the culture the company has the adequate time as compared if it moves to
another Scandinavian country so the time for adaptability is there.
According to Valery, to overcome the challenge of psychic distance it is important to
identify the needs of the market and focus on the similarities between the home and host country
market and at the same time not ignore the differences. Valery also mentioned that it depends on
your team how they establish the company in the local market. According to Shagufta, the Indian
market is quite acceptable in nature although there are certain European products which do not
fit in the Indian households because they have a different outlook or color but the company is
working on this aspect to increase the acceptability of the product for the consumer.
77
Table 5: Summary Table of IKEA Indian Market Findings:
Retail
Firm Process Competition Culture Policy &
Regulation Technology &
Infrastructure Psychic
Distance Network
Relationship
IKEA
India
-Gradual
-Network
Relationship
-Mainly face
competition
from local
manufacturers.
-Local
carpenter.
-Some international
retail firms.
-IKEA faces
Copy Cat issues;
the locals are
copying IKEA
products and
selling them at
lower prices.
-Culture
differences.
-Buying
behavior.
-Regulation
regarding
ownership.
-Government
policies to
protect local
industry.
-Unpredictable
government
policies.
-Government
was reluctant
to allow entry
of foreign
companies
without
partnership.
-High tariff
from the government
side.
-E-commerce.
-Pandemic.
-Lack of IT in
the country.
-Poor
infrastructure.
-Social
norms.
-Literacy is
improving
but there is
a lack of
skilled workers.
-Language
is not a
barrier for
IKEA in
India.
-India is a
relation
oriented
market.
78
CHAPTER - 5
5. RESEARCH ANALYSIS:
In the Research analysis chapter, the authors will discuss the findings related to
internationalization and the challenges retail firms face and how they will deal with them in the
emerging Asian markets such as China and India. The analysis will follow challenges explained
in the literature review chapter such as Competition, Policy and Regulation, Culture,
Technology and Infrastructure, Network Relationship, and Psychic Distance based on the data
collected from interviews and other secondary resources. It will also discuss the similarities and
differences within the empirical results and between the empirical results and the literature
review.
5.1 Internationalization process:
The findings reveal that the internationalization process of most retail firms is mainly based on
the two procedures that are gradual or network oriented. Based on the data gathered from
interviews it can be concluded that in the case of IKEA the internationalization process has been
followed primarily through a gradual process by adopting the Uppsala model and the network
relationship. The findings of the thesis report reveal that IKEA has adopted procedures such as
gradual and network to reach out to the emerging markets China and India to expand their
business operations. The process of movement in China and India based on the findings was
quite slow although the company was present in the Chinese and Indian market before starting its
retail chain. However, according to the majority of the interviewees the process of negotiations
took a very long time in India as compared to China as there were certain restrictions on foreign
firms in India. The other advantage that the company had while moving to India was that it
already had an experience of working in similar markets while at the time when it entered China
the company was not that much aware of the issues faced by foreign firms in this region's
market.
The authors have examined different challenges stated by interviewees and prior research and
analyzed the challenges associated with the internationalization process of firms. The
internationalization challenge discussed in the findings chapters that IKEA faced and faces in the
emerging Asian markets is competition, culture, policy and regulation, technology and
infrastructure, psychic distance, and network relationship. Based on the findings the initial
79
challenges in India and China were different as in the case of the Chinese market the level of
awareness regarding the existence of IKEA was much lower when the company entered China.
Other than that in the Chinese market as per Peter it was very difficult to employ local staff and
there were issues of actually finding employees to work for IKEA. Based on the data collected
from the interviews in case of India there were not that many challenges of hiring local staff and
there was some awareness regarding the brand IKEA in the market. The other interesting aspect
is the time when IKEA entered both these countries. IKEA started its retail operations in China
in 1998 as discussed by Olafur, whereas according to Shagufta IKEA entered the Indian market
in 2018 therefore IKEA entered the Indian market at a time where there was a lot more
acceptability of foreign firms in both these markets as compared to when IKEA entered the
Chinese market. Also, the challenges faced at the period when IKEA entered China were
different as compared to when the company entered the Indian market for example E-commerce
was not a challenge back in 1998 as compared to the impact it has today in both these markets.
Another issue discussed with some of the participants was that the speed at which things are
changing with regards to technology and innovation in recent times was not the case in 1998.
5.2 Internationalization challenges:
5.2.1 Competition:
According to De and Van (2016), competition is a crucial factor for firms seeking to
strengthen their ties in foreign markets. Research by Reinartz et al. (2011) demonstrates that
retail is a thriving sector throughout the world in many markets. However, the competition
challenges have recognized a threat to firms in the emerging Asian markets. In addition,
Carpenter and Dunung (2011) agreed that competition for firms is indispensable, though it can
be a threat if organizations fail to develop such strategies to tackle it. Nagpal and Sinha (2017)
insist that retail firms are facing competition challenges mainly from the local and unorganized
retailers in the emerging Indian market. Olafur affirmed that IKEA faces competition challenges
of the local retailer and the international retail firms operating in the emerging Asian markets.
There are approximately 2000 local and international retail firms in the Indian market. Peter also
affirmed that the small retailers offering single products are in large numbers and it is difficult to
compete with them in the Indian market. In addition to this, Nagpal and Sinha (2017) state that
some local firms are producing products in their residential places with low budgets and are
80
selling them at cheaper charges. Valery and Shagufta also affirmed that IKEA faces competition
challenges from the unorganized retailers producing products locally. Moreover, Shagufta claims
that the local retailers are copying IKEA products and selling them at lower prices, which is one
of the most impactable challenges for IKEA.
Froese et al. (2019) argue that China had initiated certain policies a couple of decades
earlier which had led a significant increase in foreign direct investment and there was an increase
in acceptability of foreign firms but since 2018 as countries are focusing more on their domestic
industries there will be difficulties for foreign firms as they would be facing more competition
from the local industry. According to Froese et al. (2019), the new phenomenon of digitalization
would be an opportunity for foreign firms to establish themselves in the Chinese market.
However Valery, Olafur and Daniel stated that the new trend of E-commerce was a challenge for
a company like IKEA and at the moment they were finding it hard to cope-up with it. All the
interviewees had a similar opinion on the fact that both in India and China there is no direct
competitor which offers such a product range under one roof but in China there is so much
competition due to E-commerce and the rapid advances in innovation that a firm like IKEA
which is in its developing phase when it comes to E-commerce in China finds it difficult to keep
up with it but in India E-commerce is not that big of a threat whereas the company faces more
problems in India due to the local retailers. However, the company’s products have had an
overall positive response in both the countries; the challenge is that the same products or similar
products are available at cheaper prices from the local retailers.
5.2.2 Policy and Regulation:
Reinartz et al. (2011) and Carpenter and Dunung (2011) discussed that the differences in
legal aspects are different for each country; every country has its regulations that protect the
local industries. In addition to this, the policies of the Indian government are notably supportive
for international business and FDI as affirmed by Reinartz et al. (2011). The Indian government
began liberation a long time ago intending to sustain and promote FDI and multinational
companies (Reinartz et al., 2011). Olafur and Martin affirmed that the Indian government has
considerably supported policies for international firms and it encourages firms with a global
identity to invest in the country.
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Furthermore, Reinartz et al. (2011) and Singh (2014) have similar viewpoints regarding
the Indian policies and regulations for international firms as the Indian government policies
regarding the retailer business operations are quite open and the government has set a regulation
that allows the foreign firm to own 51% control. Similarly, Peter, Valery, and Shagufta
mentioned that it took a long time to negotiate with the Indian government before entering the
market as IKEA wanted to have 100% ownership in the country but due to the restriction and
limitation that the government has set, it was not possible to have 100% ownership for a firm that
has an international origin. Similarly, Nagpal and Sinha (2017) argued that the retail sector is
restricted and international firms are not allowed to have 100% ownership. Therefore, enabling
complete control to the global retailers will raise the economy and bring the innovation and
technology they are employing (Nagpal and Sinha, 2017).
However, there is a contradiction in the views of authors and interviewees regarding the
policies and regulations of India. Reinartz et al. (2011), Carpenter and Dunung (2011) and Olafur
and Martin have similar points of view regarding the policies and regulations of India. In
comparison, Nagpal and Sinha (2017), Peter, Valery, and Shagufta had a different view
regarding the police and regulations of India that they were not business friendly for foreign
firms. However, the findings affirm that IKEA has faced the policies and regulations challenges
in the Indian market before entering the market.
Lee (2003) stated that the communist culture had always been the reason for the country
lacking behind and distancing itself from the world. Even though the culture has changed, there
is still an element of interference by the government due to which foreign companies have been
cautious and have adapted according to the requirements of the local authorities (Lee, 2003).
According to Froese et al. (2019), the local system of China is developing but there are still
loopholes due to which doing business could be tough for an outsider. Likewise, IKEA officials
Asa and Daniel had a similar viewpoint that although the circumstances have improved but still
government rules and regulations do become a hindrance for the entry of foreign firms and there
is a certain check on foreign firms due to which they have to be careful. Therefore Daniel, Asa
and Peter all stressed on the importance of having good relations with the local authorities in
order for the company to survive in the Chinese market. Peter and Daniel did also mention
during their interviews that the company is strictly complying with the local laws and are even
being firm on their suppliers regarding this aspect in order to avoid any problems.
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5.2.3 Culture:
Olafur stated that cultural differences are barriers for firms that operate outside their
country. The Indian culture is highly driven by the Indian religion, and the buying and
purchasing behavior of people is impacted by their core values associated with culture in India
(Clegg, 2009). Olafur affirmed that culture impacts business and cultural barriers exist in every
part of the world but IKEA is genuinely a multinational retailer globally. IKEA learns different
cultures and manages diversity as explained by Olafur. Therefore, IKEA faces very few cultural
challenges in India. Peter, Valery, and Shagufta likewise affirmed that India is a new market for
IKEA and the culture is collectivistic and the social environment is new for IKEA. Despite this,
IKEA manages and regulates the cultural challenges and learns the new cultures. Hence,
concerning cultural challenges in India IKEA has not yet been affected by the culture. In
contrast, Shagufta pointed out that Indians are not used to the big store concepts whereas IKEA’s
culture of building their store in such a way that it is large and complex for consumers to find the
right product. Besides, Shagufta suggested that the small and convenient store might be the
solution for such challenges. However, most of the interviewees contradict the claim of Clegg
(2009) and confirmed that in the case of IKEA very few challenges exist from the cultural
aspects.
Asa explained that the approach towards Western products is different as compared to the
ones manufactured in the local market as some products might not be thought of as practical for
the Chinese people but the general opinion of the local consumers were that these products
would be of a better quality as they were coming from the West. This mindset could affect the
outcome of the firm as it might not succeed if its products are not relevant for the local market.
According to Li (2019), there are certain retail chains which are known world over and have
been successful in China due to their brand names despite facing tough competition from the
local brands. Li (2019) stated that the failure of these foreign firms coming from the Western
world could be associated with the inability to comprehend the local Chinese culture.
While Froese et al. (2019) and Kwon (2012) discussed the importance of understanding
different cultures within the country in China most of the interviewees did not comment on this
aspect as they responded about the overall culture of China which they felt was impacting the
business of IKEA.
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5.2.4 Technology and Infrastructure:
The technological advancement and infrastructure in most emerging countries are
acknowledged as under-developing (Cui and Li, 2000). Olafur and Peter said that technology and
infrastructures are current challenges for IKEA in the Indian market especially when it comes to
E-commerce. As India lacks technological and infrastructure advancement it will improve over
time as different projects are in progress which will enhance the country's infrastructure. In
addition to this, Sadiq (2012) emphasized that the insufficiency of technology and infrastructure
are considered challenges in the Indian market for firms. The technology and infrastructure in the
Indian market is growing as affirmed by Sadiq, (2012). Valery and Shagufta noted that IKEA
had developed E-commerce operations in the Indian market to overcome the challenges.
However, such challenges incurred additional costs for the firm (Nagpal and Sinha, 2017).
Concerning the infrastructure, Shagufta claimed that IKEA directly deals with the suppliers and
the local partners which mean that the infrastructure does not incite additional operational costs
for IKEA.
There is a contradiction in the views of the interviewees and scholarly authors Cui and Li
(2000) and Sadiq (2012). The author’s research shows that there are technological and
infrastructure challenges for firms in the Indian market. In comparison, two out of four
interviewees have similar views on the technical aspect. Olafur and Peter affirmed that IKEA
faces technological and E-commerce challenges in the Indian market. Valery and Shagufta have
different opinions, and they confirmed that IKEA does not face technological challenges in the
Indian market.
All the interviewees who had worked or are currently working in the Chinese market had
a similar opinion regarding the technological advancement and the emphasis of Chinese people
on latest innovation and they also felt that the Chinese customer was used to purchasing their
products through digital channels. The major challenge highlighted by Peter, Daniel, Martin, Asa
and Valery was that China was moving at such a fast speed when it comes to advancement in
technology that the company was finding it difficult to keep up with it despite its efforts.
Similarly Li-Hu and Khalil (2006) stressed that the problems faced by foreign companies in
China are coping up with the technology used in China and handling their network. Similarly
when comparing the technology and infrastructure of China with India those interviewees who
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were dealing with both the Chinese and Indian market agreed that China was ahead of India
when it comes to technological advancement and infrastructure and some of them even felt that
China had the best technological setup and infrastructure facilities if compared to other markets
in the region.
5.2.5 Network Relationship:
The importance of network relationships in the international market for a firm was
explained by (Thornton et al., 2019), (Johanson and Vahlne, 2009) (Anderson et al., 1994), and
(Hollensen, 2007). IKEA continued cooperating with its local partners and is seeking to improve
the relationship in the Indian market. Peter stated that the Indian market is network-oriented and
IKEA is working on the network aspect in the Indian market and it has developed better relations
with the suppliers, agents, and other players in the market that are considered important for
IKEA. Valery believed that IKEA entered the Indian market because it previously has a network
there and links with the suppliers in the markets which have supported the company to the
maximum level to penetrate the country and overcome the complexities. Whereas, Shagufta
affirmed that there are no difficulties for IKEA regarding the network relations as IKEA already
has connections in the country with suppliers. The network relationships of IKEA are
considerably good in the Indian market as per Shagufta. All of the participants, Peter, Valery,
and Shagufta revealed that IKEA does not encounter many challenges regarding the network
relations in the Indian market. Johanson and Vahlne (2009) claim that the local partners and
agents in the host market help and facilitate international firms to grow their connections and
links with other partners. IKEA’s penetration proved how local partners have facilitated the
company initially while entering the Indian market.
According to the majority of the interviewees before IKEA started its retail chain in
China it was present in the market from a purchasing perspective which enabled it to make
certain connections in the market and those were helpful when the company entered the market.
Due to this aspect IKEA had the required knowledge about the market which is similar to the
viewpoint of Bjorkman and Kock (1995) who stressed on the importance of developing a strong
network in order to have know-how of the market.
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Peter, Daniel and Olafur had a similar view that the structure of the Chinese market was
such that without having the necessary connections it is very difficult to survive in the Chinese
market. Although Froese et al. (2019) and Lee (2003) argue that China is more open to foreign
companies today. Bjorkman and Kock (1995) have a different view that for the Chinese people it
is difficult to trust foreigners which is why it is so important to create a bond with the relevant
players in the market. The discussion from the interviewees suggests that both the Indian and
Chinese market are driven by relationships and as the governments want to exercise certain
control over foreign companies it is critical for foreign firms like IKEA to have the required
connections in order to avoid any complications.
While Krzysztof Fonfara (2012) and Zhao and Aram (1995) identify the development of
network connections as critical in order for a firm to obtain the required raw materials, Olafur
viewed network relations as a necessity for the running of business operations.
5.2.6 Psychic Distance:
There are different views of scholars on the psychic distance that are developed in the
literature review. Most of the participants mentioned that language is not an issue for IKEA in
India. Although the buying behavior and cultural values and beliefs that impact the customers are
considered challenges. This contrasts with Johanson and Vahlne (1977), as the authors stated that
international firms face various internationalization challenges while doing business in global
markets where language is one of the challenges that international firms face in other countries.
During interviews with IKEA officials, most participants disagreed with Johanson and Vahlne
(1977) claim. They mentioned that in the case of IKEA, the company does not face any
challenges regarding language as Indians have a better knowledge of the English language and
English is the primary language for business communication. The psychic distance impacts firm
managerial level and operational level and strategic level as affirmed by Sousa and Bradley
(2005) and Puthusserry et al. (2013). Peter explained that India has its own culture and language;
however, there are variations in cultures that lead to challenges like psychic distance. Besides,
Puthussery et al. (2013) claimed that psychic distance issues are considerably higher in the
emerging Asian Indian market than in the developed markets. Valery affirmed that Psychic
distance is important to identify the needs of the market and focus on the similarities between the
home and host country market but at the same time not to ignore the differences. Valery
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suggested that firms must tie relations with the local partners to mitigate the psychic distance
challenges and concentrate on market needs. Shagufta stated that the Indian market is quite a
suitable market for international firms. However, there are some differences and complexities
that IKEA faces in the Indian market. Hence, all of the participants agreed that there are
considerable challenges for IKEA regarding psychic distance.
Majority of the interviewees stated that language has not been that much of a hindrance
when it comes to doing business in China or during the journey of IKEA’s movement to this
region .This contradicts the views of Johanson and Vahlne (1977) who recognize language as an
important barrier when it comes to a company's movement to foreign markets. However, Daniel
and Olafur explained that the solution which the company was applying to this problem was
through recruitment of local people and by even giving them managerial positions. The views of
Carlsson et al. (2005) and Valery were similar when it comes to the fact that acquaintance with
the local environment can only be acquired by spending a certain amount of time in that market
and especially when it comes to the Chinese market as the dynamics of the Chinese market are as
such that a foreign company requires time to settle in to the local conditions. Most of the
interviewees agreed that the company was expecting more issues to arise regarding perceived
distance when it planned to come out of Europe. With regards to both the markets China and
India a common aspect that came out from the interviews was that the products which are used in
the western market may not be useful for these markets due to the whole cultural outlook of
these countries.
Based on the findings, the authors draw a comparison of IKEA in China and IKEA in
India. Both of these markets have their level of complexities for retail firms and we have
compared both markets in terms of challenges that IKEA faced and faces in China and India.
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Table: 6 Comparisons of IKEA in China and IKEA in India.
Challenges IKEA in China
Market
IKEA in India
Market
Comparison
Competition ***** ****
In terms of the competition, the Indian market is
favorable for IKEA.
Policy & Regulations *** *****
In terms of Policy & regulation, the Chinese market is
favorable for IKEA.
Culture *** **
In terms of Culture challenges Indian market is
favorable for IKEA.
Technology &
Infrastructure **** ***
In terms of technology and infrastructure challenges,
India is favorable.
Psychic Distance * ***
In terms of Psychic distance challenges, China is
favorable.
Network Relationship ** *
In terms of network relationship challenges, the
Indian market is favorable for IKEA.
The table above shows the comparison of the emerging Asian markets China and India. The
research authors have drawn the comparison table based on the empirical findings and the
interview discussions. The first column represents the challenges that retail firm IKEA faces:
competition, policy & regulations, culture, technology & infrastructure, psychic distance, and
network relations. In addition to this, the second column represents the level of challenges that
IKEA faces in the respective market China. Similarly, the third column shows the challenges
faced by retail firm IKEA in the Indian market. Lastly, the comparison column represents the
comparison and the market which is favorable for IKEA in the emerging Asian markets whereas
the stars in the second and third columns identify the level of challenges.
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CHAPTER - 6
6. CONCLUSION:
This is the concluding part of this research study. A summary of answers to the research
questions will be discussed. Moreover, the authors will present various implications of theory
and practice. Lastly, the authors will examine the study’s limitations and provide suggestions
and directions for future research.
6.1 Objectives:
This research study analyzes the internationalization challenges for retail firms in the emerging
Asian markets by studying the two biggest emerging countries from the Asian region.
Additionally, the research study also analyzes how retail firms can overcome such challenges in
emerging Asian markets. Through analyzing different concepts, the authors came up with a
theoretical synthesis for the study. These concepts frameworks helped to operationalize the study
and develop themes for the interview process for gathering the relevant data. The results from the
findings helped in answering the following questions.
6.2 Research Questions:
6.2.1 Research Question 1:
What are the challenges for retail firms while entering to the emerging Asian
markets and during their business in these markets?
The study identified that there are various challenges for retail firms and they do not fall
under one single theory of the internationalization process. Retail firms especially those moving
from developed markets to developing markets follow different aspects of the models discussed
in the research which were Uppsala Model, Network Model, Transaction cost theory and
Eclectic Model. In the case of the retail firm discussed in the research the most prominent
theories that were applied were the Uppsala Model and Network Model as the process of
Internationalization was gradual and there was a lot of time spent on negotiations and studying
the markets before actually deciding to enter them. In the case of India, the negotiations went on
for more than a decade and similarly in China there was a lot of planning done before entering
the Chinese market. In some instances, the findings were similar to the literature but in other
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cases there were variations where the interviewees had a different perspective as compared to
what the previous literature suggested.
Retail firms, although holding a range of products do face competition as the locals may
easily copy their products and offer them at a lower price. In the case of IKEA, the competitors
in China varied according to the product the company offered as the company offered a
diversified range of products and then there were online platforms. However, the benefit was that
the company was offering a variety of products in a single store and had no direct competitors as
the whole concept was unique. The technological costs were increasing for the company in the
Chinese market due to the pace at which the market was adopting new innovations. In the case of
India these costs were not that high as India was not that advanced in terms of technology. Based
on the findings in both these markets infrastructure was not that big of a challenge as the
company did not involve a lot of middlemen while conducting its business.
With regards to policy and regulations the challenges are more or less similar when it
comes to any foreign firm operating in China and India although for IKEA, they were tougher as
compared to when they were operating in European countries. The advantage that the company
had with regards to network relations was due to its existence in these markets before starting its
retail chain.
Psychic distance was going to be an initial challenge for the company as the system of
these countries was according to the local norms but in both these countries formal
communication was done in English thus language was not that much of a hindrance. Based on
the findings in the Chinese culture individuals who are representatives of the foreign firm are
judged more by their body language and expressions thus these factors were considered by the
company in the Chinese market. However, to analyze the thought process and the convenience of
a product for a local consumer were challenges which required knowledge and sufficient time for
the company to adapt to.
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6.2.2 Research Question 2:
How can retail firms overcome such challenges?
Based on the findings in case of the Chinese market the biggest challenge for the retail
firm IKEA was the speed of technological advancement in the country. In order for the company
to overcome this issue they needed to work on the latest technology being offered in the Chinese
market and adjust to the pace of that society. The company had introduced digital platforms and
enabled its products to be sold on third party platforms but it still needed to advertise its products
more through digital channels in order to further penetrate the Chinese market. Many of the
interviewees admitted that the company was lacking behind in E-commerce which meant that
they had to put more effort on it in order to succeed or increase their market share. To gain more
knowledge of the market network relationships are always important and as both the Indian and
Chinese market are relationship oriented the company has to be in constant interaction with its
partners and other players to even remove the effects of any further challenges like psychic
distance. The interaction is also important to mitigate any trust deficit that exists between the
firm and other market players. Keeping the partners updated and providing them with the
relevant training according to the policies of the company can ensure smooth operations of the
retail firm.
Cultural issues could also be resolved through frequent communication with the
customer. For example, an issue faced in the Indian market was the structure of the stores which
was new for the customer. This could be addressed by employing staff at the start of every
section and supervisors who guide the customers. Even directions at the point of entry and within
the store could be helpful. Lastly in India through marketing, the customer could be made aware
of the concept of a large store. The benefit that the company has in the Chinese and Indian
market today is the increase in acceptability of foreign companies whereas the scenario was quite
different a couple of decades ago.
6.3 Theoretical Implications:
The study identified the process of internationalization of retail firm IKEA as gradual which is
according to the views of Johanson and Vahlne (1977) and Jansson (2020). Some of the
challenges faced by the retail firm IKEA were competition, policy and regulation, technology
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and infrastructure, culture, psychic distance and network relations which were in line with those
explained in the theoretical synthesis. Some of the challenges are connected with each other for
example having strong relations with the network can reduce the challenges of Psychic distance.
The model in the literature review was presented to identify the challenges that retail firms face
in international markets. The authors have initially identified challenges: competition, policy and
regulations, culture, technology and infrastructure, funding, and psychic distance. However, the
empirical findings and the interviews with IKEA officials enable us to identify and figure out the
challenges that IKEA faces or are currently facing in the emerging Asian markets: competition,
policy and regulations, technology and infrastructure, and psychic distance. These are the
fundamental challenges that IKEA encounters in the Indian and Chinese markets. Therefore, we
have developed a revised model of the theoretical model developed in the literature review.
Figure: 2 Revised Theoretical Model
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The revised model represents and figures out the challenges that IKEA faces are: competition,
policy and regulations, technology and infrastructure and psychic distance.
IKEA faces a lot of competition challenges from the unorganized retailers in the emerging Asian
markets. The empirical findings have revealed that the competition challenges are considered
threats for the company as many local and international retailers are operating in this region.
However, IKEA does not face a direct competition challenge from the rivals. The empirical
findings show that local producers in emerging Asian markets are considered competitors that
are specialized in a single product and it is difficult for IKEA to compete with them. In addition
to this, most local producers copy IKEA product styles, make the same products and sell them at
lower prices.
Furthermore, the psychic distance issues are notable challenges for international firms in the host
countries' market. Thus, IKEA faces psychic distance challenges in emerging Asian markets.
However, the empirical findings reveal that there are very few challenges regarding the language
barrier that IKEA faces, however the consumer purchasing behavior challenges exist in the
emerging Asian markets. The customer buying behavior is mainly influenced by the level of
income and cultural views. Culture has an important status in Asian markets and people follow
their culture quite frequently.
Moreover, the empirical findings reveal that retail firms are facing technological and
infrastructural challenges in the emerging Asian markets. The technical challenge that is the
internal challenge of the firm in the case of IKEA is that the company is struggling to develop its
online sale and overcome the challenges associated with the technological aspect. Currently,
IKEA has a partnership with some E-commerce companies but it seeks to have its own E-
commerce section. Therefore, the company plans to invest in the technological sectors to
overcome some of the major challenges. In addition to this, infrastructural challenges are also
known as external challenges affecting business operations. However, the infrastructure in most
of the emerging markets where IKEA operates is not much advanced which results in leading
IKEA to additional transportation costs.
Policy and regulations in the emerging Asian markets are uncertain as most of the governments
in these countries have five years of duration; after every five years the new government comes
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into administration. Therefore, the policies and regulations are also revised or changed. The
emerging Asian markets China and India have taken liberalization initiatives in the 1980s to
boost their economy by attracting FDI, multinationals and investors. These initiatives have
helped the country to the maximum levels. However, in the current time, China and India are
decentralizing their policies to protect the local industries and imposing taxes, tariffs, and import
duties on international firms. In addition to this, the government in India is not allowing
international firms to hold full ownership of the company and buying land in China is also a
critical issue for multinational firms. Such policies and regulations are influencing international
business operations. IKEA has its operations in the Chinese market for more than 20 years and it
has a lot of experience and ideas about the Chinese government.
The funding challenge was identified in the literature review chapter. Meanwhile, the empirical
findings and interviews with IKEA officials acknowledge that IKEA is a multinational retail firm
and it does not face any challenges from a funding point of view. IKEA has a central board
where the company decides and has proper planning about the funding and investment.
Therefore, IKEA does not face any challenge regarding funding. Consequently, we have
excluded the funding challenge for IKEA in the revised model.
6.4 Practical Implications:
The results generated from the study are not only useful in the academic field but can also be
beneficial for the management of a retail firm or leaders who intend to overcome the challenges
faced by their firms when they seek to internationalize especially towards emerging markets. The
study identified different challenges for a retail firm which had an impact on its
internationalization process to emerging markets. After identification of these challenges we
came up with different practical implications from which recommendations or suggestions could
be given to managers or leaders of retail firms.
From the study it is evident that the importance of network relations cannot be ignored. An
adequate knowledge of the market can only be acquired through the right connections, making
new connections or strengthening existing ones with the local authorities, suppliers, local
communities, trade unions can help speed up the process of movement towards these emerging
markets. Connections with the government can even resolve issues of financing which may help
94
in the establishment of the firm. Therefore, managers should put in efforts to develop new terms
and strengthen existing ones as these can have multiple advantages for the firm. The information
collected from connections in one market can also be useful when the company plans to move to
other markets especially to the ones which are similar.
Based on the findings and analysis the study has shown that markets like China are focusing on
innovations and customers trend are more towards online shopping. In these circumstances’
managers will have to be proactive and constantly remain updated with the changes. In addition,
they have to initiate innovative marketing campaigns which could be through digital channels to
keep the customers interested in their product.
Another challenge discussed in the thesis was psychic distance which also includes the cultural
gap between the west and these Asian emerging markets. While it is true that removing this gap
takes time, managers need to provide training to their staff about different cultures especially
when the work environment involves multicultural teams and the importance of showing
sensitivity towards the local norms and values of that market. The other issue is the different
cultures within these countries again for which the market has to be studied and sufficient
knowledge has to be acquired by the managers or leaders before moving to different cities within
the country.
6.5 Limitations of the Study:
One of the limitations of the study was that the emerging Asian markets discussed for this study
were only two which were India and China whereas there are other emerging markets in Asia.
Therefore, there could be future research on the topic which covers all the emerging markets of
Asia. Secondly, the retail firm discussed was only one on which the study was based; however,
we managed to interview seven officials from IKEA who had quite a good experience of
working in these markets which helped us in getting a general overview of the challenges faced
by retail firms in these emerging markets.
6.6 Suggestions and directions for future research:
The internationalization process of retail firms from developed markets to emerging markets has
not been given that much importance by previous researchers. Therefore, there are different
aspects that could be discussed by researchers in the future regarding this topic. This study
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discussed the challenges faced by retail firms who were seeking to move to emerging markets of
Asia whereas there are other emerging markets in Africa or in other parts of the world which
could be studied. Another topic could be the comparison of challenges of internationalization of
retail firms moving to emerging markets as compared to their movement to developed markets of
America and Europe. This could help in formulating a theory or coming up with a general
mechanism on the internationalization process of retail firms. These challenges for retail firms
moving to emerging markets could also be discussed by future researchers using the quantitative
method. Researchers could also discuss the challenges for these retail firms in a particular
industry like home furnishing or textiles in these emerging markets.
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8. APPENDICES:
8.1 Interview Guide
A. Biographical Data
1. What is your name?
2. What is your position?
3. How long have you been working with IKEA?
4. Why did IKEA choose to establish subsidiaries in the emerging Asian markets?
5. How long has it been since IKEA has established itself in the emerging Asian markets?
6. How many local and Swedish employees are working in emerging markets for IKEA?
7. Compared to the mature market, how big is the market share in emerging markets?
8. What kind of customers is IKEA targeting in emerging markets?
9. Does IKEA produce its product locally in emerging markets?
10. How IKEA gets resources?
B. Internationalization process
1. What are the challenges for IKEA while entering the emerging Asian markets and during
business in these markets?
2. What kind of opportunities did IKEA see in the emerging Asian markets while entering
and currently?
3. How can IKEA overcome such challenges?
4. As IKEA already had an experience of expansion so has IKEA’s experience in China
helped it to overcome challenges in the Indian market?
5. Which market does IKEA think is more compatible?
C. Competition
1. Who do you think is the most influential competitor of IKEA?
2. Does competition impact IKEA’s operations?
3. How IKEA manages to compete with its rivals?
D. Culture
1. Does culture have an impact on IKEA?
2. How has culture affected IKEA?
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3. How IKEA has overcome cultural challenges?
E. Policy & Regulation
1. Do legal aspects have an impact on IKEA?
2. What are the legal aspects that affect IKEA’s operations? (Local law, international law).
3. How have the Policy and Regulation aspects affected IKEA?
4. How IKEA manages to overcome legal issues?
F. Technology & Infrastructure
1. How have the technological aspects affected IKEA?
2. How have the infrastructural aspects affected IKEA?
3. Do such factors incur additional cost for IKEA?
G. Network Relationship
1. How IKEA manages to promote its business?
2. Do network relations impact IKEA’s operations?
3. How IKEA grows network relations?
H. Psychic Distance
1. Do you think psychic distance has an impact on IKEA?
2. How does psychic distance impact IKEA’s operations?
3. What kind of measures IKEA has taken to tackle psychic distance issues?
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8.2 Appendix B: Interview Schedule
Retail Firm
Country
market
Name of
Representative
Position of
Representative
Date of
interview
Duration
of
interview
Mode of
interview
Mode of
Contact
China/India
Olafur
Magnusson
Global manager
16-03-2021
1 hour
Teams-
Meeting/ Email
Linked-In
China/India
Martin Cerullo
Group talent director
18-03-2021
1 hour
Zoom-
Meeting
Katarina Ek
Reference
China/India
Asa Hederberg
Range and product
design manager
24-03-2021
1 hour
Zoom-
Meeting/
Mathis
Reference
China/India
Daniel Jimenez
Managing director
12-04-2021
1 hour
Zoom-
Meeting
Mathis
Reference
China/India
Peter Wisbeck
Business
development
manager
14-04-2021
1 hour
Zoom-
Meeting
Mathis
Reference
China/India
Valery Henriquez
Retail Business
Navigation Business
Partner
15-04-2021
1 hour
Zoom-
Meeting
Dr. Soniya
Billore
Reference
India
Shagufta Nahid
Business
development
manager
16-04-2021
1 hour
Zoom-
Meeting
Mathis
Reference
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8.3 Appendix C: Interview Invitation Sample
Hello XYZ,
This email is in regards to our master thesis. We are students at Linnaeus University Sweden,
Kalmar Campus. We are currently writing a master thesis on "Internationalization challenges for
retail firms in emerging Asian markets; A case of IKEA." Therefore, we are formally requesting
permission to conduct an interview with you so that it could help us with our research.
We are currently collecting data for writing our master thesis. We intend to use the data collected
to assist in creating a master thesis and will be sharing it with Linnaeus University Kalmar
Campus, in accordance with your organization's protocols. On behalf of me and my research
team member, we heartily express our gratitude for examining our request. We assure you that
all protocols will be followed, and privacy regulations will be adhered to.
We shall be very thankful to you as any kind of help will be appreciated.
Best Regards,
Asif/Ahmed
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8.4 Appendix D: Consent form.
Consent form for taking part in (Master Thesis, Title Internationalization Challenges for
Retail Firms in Emerging Asian Markets: A Case Study of IKEA)
This email is in regards to our master thesis. We are students at Linnaeus University Sweden,
Kalmar Campus. We are currently writing a master thesis on "Internationalization challenges
for retail firms in emerging Asian markets; A case of IKEA." We are collecting data for
writing our master thesis. We intend to use the data collected to create a master thesis and share
it with Linnaeus University, Sweden Kalmar Campus.
By signing this consent form, you approve that your personal data is processed within the frame
of the thesis/study described above. You can withdraw your consent at any time by contacting
one of the contact persons below. In that case, your personal data will not be saved or processed
any longer without other lawful basis.
The personal data that will be collected from you is what are the challenges that IKEA faced and
faces in the emerging Asian markets. Your personal data will be processed between April and
May 2021, and after this, the data will be archived.
You always have the right to request information about what has been registered about you and
to comment on the processing of the data that has been collected by contacting one of the contact
persons below or the higher education institution's personal data ombudsman on
[email protected]. Complaints that cannot be solved in dialogue with Linnaeus
University can be sent to the Swedish Authority for Privacy Protection.
Name in block letters ………………………………
Signature ……………………………… City and date ………………………………
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Contact information:
1. Student's name: Asif Khan
Student's email address: [email protected]
2. Student's name: Ahmed Ali Shafiq
Student's email address: [email protected]
3. Supervisor's name: Richard Afriyie Owusu
Supervisor's email address: [email protected]
