IKEA: Furniture Retailer to the World

Investigation into Emerging Markets in South America

Alison Back, Andrew Kuszczakowski, Piero Sparapani

 

 


Contents

1       Introduction. 3

2       Background. 4

3       Analysis  5

3.1       Market Entry Analysis. 5

3.1.1    Market Entry Location. 5

3.1.2    Market Entry Timing. 9

3.1.3    Market Entry Strategy. 10

3.2       Cultural Analysis. 13

4       Summary of Findings. 14

5       Recommendations. 14

6       Conclusion. 17

7       References. 17

Appendix A – Company History. 19

Appendix B – Company Performance. 20

Appendix C – Location Analysis. 24

Appendix D – Location Determinants Data Sources. 27

Appendix E – Cultural Dimensions Analysis. 29

 

 


 

1         Introduction

We assume that IKEA’s goal is to ensure that its recent growth continues into the future. This report provides suggestions for IKEA’s future strategic plans as an input into IKEA’s planning process.

As shown in Figure 1, the value of an entity is a function of both its profitability and its profit growth (Hill 2011). Profitability can be increased by reducing costs and/or adding value. Growth in profits can be achieved by selling more into existing markets, or by entering new markets. Entry into new markets is the avenue for growth which the IKEA board is currently considering.

 

Source: Hill (2011)

Figure 1: Enterprise Value Determinants

 

As the company has already expanded significantly in the developed world, IKEA is looking at increasing the rate and reach of its expansion into emerging markets. Our consulting team has been tasked with investigating the potential for expansion in the South American region and advising the board on a possible market entry strategy. This will include the “where”, “when” and “how” of any expansion into that region. It must be considered that other emerging markets are under investigation by other consulting teams.

 

2         Background

The company was founded in Sweden in 1943 by 17 year-old Ingvar Kamprad, using his family’s farm as the base and the local milk truck to provide “logistics”, since then IKEA has grown to become a global company (Hill 2011). Today IKEA has just under 700 million visitors a year to 316 stores in over 39 countries, generating worldwide sales of €23.8 billion (Inter IKEA Systems 2010c), as shown in Figure 4 and Figure 5 in Appendix B.

The IKEA Concept underpins all that IKEA does. The IKEA Concept is to offer “a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” (Inter IKEA Systems 2010b).

From early in IKEA’s history, the “quality at a low price” philosophy has shaped its business model and made IKEA what it is today. The flat-pack, self-serve and self-assembly style that characterizes IKEA arose from a desire to provide quality affordable furniture to the ordinary person. Expansion into emerging markets such as those in South America is a natural extension of IKEA’s aim of creating a better everyday life for as many people as possible.

IKEA’s first steps in internationalisation were motivated by its low-cost focus. In an effort to reduce prices, IKEA began to source its products from Poland where manufacturing costs were lower. This was followed by expansion into neighbouring countries, Western Europe and ventures further afield including North America, China, Russia and Japan, as outlined in Appendix A. IKEA has generally followed the Uppsala Model of internationalisation by entering markets where the ‘psychic distance’ from its own roots are minimal, and expanding into more distant countries as it acquired greater market knowledge (Johanson & Vahlne 1977).

IKEA has developed a business model which enables it to achieve its “low cost, good quality” aim. Hill (2011) suggests that the key elements of this business model are:

·         Flat-packed, self-assembly product offerings, which reduce the costs of both production and transportation;

·         Large, self-service, out of town stores with restaurants and plentiful parking;

·         Maze-like store layout which ensures customers are exposed to a wide variety of products on their journey throughout the store;

·         Supportive, long-term relationships/contracts with suppliers enables IKEA to work closely with manufacturers from as early as the design phase to reduce manufacturing costs through innovation; and

·         A flat organisational structure.

 

3         Analysis

3.1       Market Entry Analysis

Market entry analysis concentrated on answering the questions about possible market entry location, timing and entry strategy.

3.1.1     Market Entry Location

The investigation of market entry location focussed on the six key emerging economies in South America, namely Argentina, Brazil, Chile, Colombia, Peru and Venezuela (see Figure 2).

Figure 2: Emerging Markets in South America

 

There are a number of tools that can be applied to market entry investigation, such as Porter’s Diamond (Porter 1990) and the Economist Model of Country Analysis (The Economist Intelligence Unit 2008). These models were not used directly, instead key determinants were considered according to Shenkar & Luo’s (2004) micro-context and macro-context factors. These key determinants of cost/tax, demand, regulatory and socio-political factors were weighted, as shown in the market penetration grids in Appendix C. Various data sources were used to investigate the market opportunities and risks, as detailed in Appendix D.

Due to the strength of IKEA’s brand and intellectual property, two of the mandatory requirements for a move into any foreign market are that the host country must be a member of the World Trade Organisation and a signatory to the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Analysis of the data showed that of the South American markets investigated, only Chile return a position opportunity to risk differential. In reference to the grids in Appendix C, the key determinants that delivered Chile an advantage over other South American markets include:

·         2c - Favourable forecast for market growth for 2011 (at 6%).

·         2e – Higher market receptivity (a measure of how receptive the market is to international trade).

·         3b – Higher levels of investor protection.

·         3c – Low perception of Public Sector Corruption.

Further analysis of trends from 2007 to 2010 are plotted and shown in Figure 3.

 

Figure 3: Market trends from 2007 to 2010

 

Figure 3 shows a favourable trend for the Chilean market, with an increase in opportunity for return between 2007 and 2010, whilst market entry risk reduced over this time period. In the context of other emerging markets, we can see that Chile is still a long way from China in terms of overall opportunity for return. However, of the emerging markets investigated in South America, Chile is by far the standout selection for market entry location.

3.1.2     Market Entry Timing

An imminent move into the Chilean market would constitute early market entry. Lieberman and Montgomery (1988) suggest a number of advantages and disadvantages associated with early-mover and late-mover market entry, as shown in Table 1.

Timing

Advantages

Disadvantages

Early Mover

     Pre-empt rivals

     Capture demand early

     Ride the learning-curve ahead of rivals

     Ability to establish switching costs

    Pioneering costs (learning the rules of the game)

    Changes to regulations may diminish early mover advantages

Late Mover

     Ability to observe and learn from early entrants’ mistakes

     “Free-rider” effects

    Risk entry into a market with established competitors

    Potential for higher barriers to entry

Source: Lieberman & Montgomery (1988)

Table 1: Early Mover versus Late Mover, advantages and disadvantages

 

There are advantages to entry as the late-mover, as has been seen in the Chinese fast food market where KFC provided the exposure to fast food, however is has been McDonalds, as the late-mover, that has since dominated the market (Hill 2011).

IKEA has a track history of early entry into markets, including entry into Canada in 1976, the USA in 1985 and China in 1998 (see Appendix A). This has provided IKEA with the advantage of riding the learning curve ahead of rivals, however there have been some costs associated with learning the rules of the game, such as the realisation of the need for localisation of its American product range. Walmart and Carrefour entered the Chinese market as early-movers, pre-empting rivals and captured early demand and still hold dominant positions in the market over the late-mover Tesco (Waldmeir 2010). IKEA’s failed entry into Japan in 1974 resulted in withdraw in 1986, followed by re-entry in 2006. In this situation, failure has been attributed to IKEA’s lack of readiness for the Japanese market and lack of readiness of Japanese consumers for IKEA’s do-it-yourself concept (Wijers-Hasegawa 2006).

The lesson that can be learnt is that riding the learning curve can be a long ride if your market is not ready to embrace your product. This is a key consideration for IKEA when deciding on a move into Chile as an early entrant.

3.1.3     Market Entry Strategy

There are two parts that require consideration for IKEA’s proposed entry into South America. Firstly, we consider what type of international strategy should be adopted in the South American market. Secondly, we look at the market entry strategy that should be adopted to complement the international strategy.

Doz & Prahalad (1984) suggest that there are four types of international strategy that can adopted and most suited strategy is dependent on the pressures for global integration and local responsiveness, as shown in Figure 4.

Pressures for Cost Reductions

High

Low

 

 

Low

High

 

 

Pressures for local responsiveness

Figure 4: Four International Strategies (Doz & Prahalad 1984)

 

Since its origins, IKEA has adopted a number of international strategies including ‘international’, ‘global’ and ‘transnational’ (Doz & Prahalad 1984).

IKEA initially adopted an international strategy with its expansion into nearby Norway. However, in the 1980’s IKEA adopted a global strategy in the United States, offering a standardised product range, as offered in Europe. It was discovered that this strategy did not work well as the product range did not meet the needs of the American market. For example, the sizes of glasses being sold were not big enough for the local consumer’s wants. Thus, IKEA adjusted its strategy and began to apply a transnational strategy, producing products that were customised to the wants of the local US market.

Having learnt from mistakes in the United State, IKEA adopted a transnational strategy to enter China.  In entering the Chinese market, IKEA had moved away from its traditional store layout and choice of location, as well as making changes to its product range to suit the local market. The application of this transnational strategy into China has been successful, with IKEA boasting 4 stores by 2008 (Hill 2011).

The cultural cluster matrix in Figure 9 (see Appendix E) shows that Chile and China are closely paired. This shows that Chile and China have collectivist and high power distance traits. Therefore, there may be a need to consider the market entry strategy, taking into consideration the cultural similarities between Chile and China. There may be an ability to apply any lessons learnt from entry into China to a move into Chile. We suggest that customisation and localisation of product offerings will be mandatory in any move into Chile, together with pressures for cost reductions. For this reason, we suggest a transnational strategy in Chile.

In terms of entering the Chilean market, there are five main options, which include Direct Export, Licensing of Brand, Joint Venture, Wholly Owned Subsidiary and Franchise Agreement.

Direct exporting involves exporting products to a South American furniture retailer, who would then on-sell the products.  The advantage of exporting is that the cost of the investment in the short term are low and there are generally low restrictions to bringing furniture into South America for sale.  Low restrictions in to the South American market are due to the trade agreements that are in place (such as Mercosur and Andean Agreements). The negative implications of direct exporting are associated high costs of transportation if a suitable producer is not available nearby. This would increase the price of goods and this will impact the attractiveness of IKEA’s products, due to cost pressures.

Licensing the brand to investors goes against the business model that has been successful at IKEA. The big issue with licensing is the loss of control of the brand, which could lead to longer-term damage to the company (e.g. if adverse dealings were had in the company’s name). The benefit of licensing is that it is a low cost option in the short term, with foreign investors outlaying the initial capital. Longer-term, there may be a cost if the brand is negatively affected by the investor’s actions.

A joint venture with a local investor has the risk of loss of control, particularly around decision-making. This may create an issue if the ideas of the joint venture partner conflict with those of IKEA’s, especially considering the differences in business strategies. There is also the possibility of clashes of cultures and the methods for undertaking business may differ. However, a joint venture provides IKEA with the opportunity to work with a local contact that can bring knowledge of the local market and culture. This can allow IKEA to take advantage, not only in localisation of the product, but also of in localising the business model to local conditions.

A wholly owned subsidiary can be achieved through setting up a new business in Chile or buying out an existing retailer (as was undertaken in England with the purchase of Habitat).This is a highly expensive option that would expose IKEA to significant financial risk if not successful. There are political risks of entering in to the market wholly in the form of nationalisation threats or corruption/bribery. The risk of nationalisation was common in the 1980’s in China at the height of communism before changes to a more open and liberal ideas to foreign investment. In recent times there have been issues with corruption in the opening of stores in Russia, which have been held up by safety officials’ requests for payments (Bush 2009). Subsequently, IKEA has threatened to withdraw all of its stores from Russia. This demonstrates the financial risk implications for the entering of IKEA into certain markets. There is also a risk of an inadequate supply chain support in the region. An option for IKEA may be to establish a production facility in region. There has been recent success in establishing production facilities in Mexico and this presents IKEA with an opportunity to investigate this for the purpose of building supply-chain partners in the region. There may be opportunities to investigate central production facilities that could service the South and North American markets. Offsetting the high financial risks are the possibilities for a return of 100% of generated profits. Not only does this option provide IKEA with full control of the business, rewards and brand, it also provides it with strategic flexibility across its global business.

The strategy that we recommend for entering the Chilean market is for IKEA to develop franchises. Franchises not only provide IKEA with full control of brand and strategy, but it is also a low financial investment risk whilst allowing IKEA to benefit from local knowledge. This allows IKEA to ease its entry in to the market as well as assisting with gaining momentum in the market. The key implications are the issue of sourcing a supply chain, as mentioned previously and there will also be lower profits returned than a wholly owned subsidiary set up.

Even though our recommendation is to enter into franchise agreements, IKEA will need to makes assessments of this strategy relative to tax arrangements and legislation (e.g. distribution of profits) before making a decision.

3.2       Cultural Analysis

IKEA’s entry into the Chilean market requires consideration of cultural implications. Our analysis here focussed on the cultural differences between Chile and Australia, together with other countries where IKEA has a presence. This analysis was performed using data from Hofstede’s (2010) six dimensions of culture, as shown in Appendix E.

The analysis of cultural differences shows that Australia is an individualistic culture, whilst Chile is orientated towards collectivism. Also, as a masculine society, Australians generally place a greater emphasis on money and material things. Chilean society is orientated toward femininity, with emphasis on relationships with people and a concern for others. These cultural differences should be considered by IKEA when considering entry into the Chilean market, as there may be a need to adjust the business model to accommodate these differences.

Figure 9 in Appendix E shows the clustering of various cultures where IKEA has a presence, based on the factors of individualism and power distance. This shows that Chile has collectivist and high power distance tendencies, together with Portugal, Hong Kong, Singapore, China, Taiwan, Greece and Turkey. There may be possibilities to investigate the implications of Chile’s cultural dimensions, based on the experiences of entering markets with similar cultural dimensions.

 

4         Summary of Findings

As outlined above, the analysis we have undertaken indicates that Chile is the point of entry into South America most likely to result in success for IKEA. As far as the timing of entry is concerned, we recommend that, should IKEA decide to enter the South American market, it should do so sooner rather than later in relation to its competitors. This will enable the company to take advantage of the benefits available as an early mover. In relation to the mode of entry into Chile, we propose that IKEA retains the approach it has adopted to internationalisation in recent years and maintain a transnational strategy. We would further recommend that a franchisee arrangement is likely to be the most suitable mechanism of entry into the South American market.

 

5         Recommendations

Prior to making a decision regarding investment into South America, we would advise the board of IKEA to take some further steps, as outlined in the Action Plan in Table 2. The research undertaken by our team of consultants has focussed primarily at a macro level, comparing general political, social and economic factors between countries. It is therefore imperative that the board now commission research at the micro level, to investigate factors at play in the retail furniture industry in Chile.

This study should include an investigation of Chile’s cultural readiness to adopt the IKEA brand, style of furniture and business model, which can inform IKEA in determining what, if any, level of customisation will be required. This will impact the cost involved in setting up in Chile.

In addition, such an exercise should look at the availability of local manufacturers with the necessary capabilities to supply IKEA. Should suitable local manufacturers not be found, IKEA will need to consider alternative options, such as engaging manufacturers elsewhere in the region or using existing manufacturers (such as those in North America) which would increase costs due to transportation.

An important factor to consider at a local level is the availability of potential franchisees. This will involve researching entities or individuals within the country to determine whether capital is available, as well as skills and experience needed to run a furniture retail business.

As well as undertaking some local analysis of Chilean factors, we recommend that IKEA takes some steps to ensure that lessons learnt in the past from its forays into new markets are not forgotten but appropriately applied to the Chilean context. We suggest that a working group be set up to consider IKEA’s recent experience in entering new markets. In particular we suggest investigation into the lessons learnt from opening a store in Lisbon in 2010. This investigation should focus on the cultural implications of the move into the Portuguese market, as there is a close cultural alignment between Chile and Portugal. Therefore, the certain lessons learnt in Lisbon may be relevant to entry into Chile.

 


Action

Timeframe

Objective

Action

1

Immediately

·      To determine Chile’s readiness for IKEA and the need for local customisation.

·      To determine the suitability and availability of supply-chain partners.

·      To understand the potential for franchisees arrangements in Chile.

Engage a team to undertake micro-level analysis of the Chile market, business conditions and the retail furniture market in Chile.

2

Immediately

·      To understand the cultural implications on organisational structure design.

·      To leverage corporate knowledge and ‘lessons-learnt’ from experiences in similar markets.

Engage a team to investigate the lessons learnt from the recent store opening in Lisbon, Portugal (May 2010).

Table 2: Recommended Action Plan

 

 


6         Conclusion

In conclusion, our team recommends that Chile represents the best possible point of entry for IKEA into the emerging market of South America. However, as outlined above, we further recommend that IKEA undertake some additional research at a local level before embarking on any investment in the region. As well as achieving the objectives outlined in the action plan, this micro level analysis will assist in confirming whether our recommendations are in relation to the timing and mechanism of entry into the market are appropriate. Finally, we acknowledge that any decision regarding entry into South America will need to be weighed up by the board in light of the findings of the other consulting teams, who are considering the potential for entry into alternative markets.

We thank the board for the opportunity to undertake this research and look forward to working with you again in future.

 

7         References

Bush, J 2009, Why IKEA is Fed Up with Russia, viewed 28 February 2011, <http://www.businessweek.com/magazine/content/09_28/b4139033326721.htm>.

Doz, Y & Prahalad, C 1984, 'Patterns of Strategic Control within MNCs', Journal of International Business Studies, vol 15, no. 2, pp. 55-72.

Hill, C 2011, International Business: Competing in the Global Marketplace, 8th edn, McGraw-Hill, New York, USA.

Hofstede, G 2010, Hofstede Dimension Data Matrix, viewed 19 February 2011, <http://www.geerthofstede.com/media/651/6%20dimensions%20for%20website.xls>.

Inter IKEA Systems 2010a, IKEA - Facts & Figures, viewed 12 February 2011, <http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/index.html>.

Inter IKEA Systems 2010b, IKEA | Our business idea, viewed 22 March 2011, <http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/our_business_idea/index.html>.

Inter IKEA Systems 2010c, Inter IKEA Systems B.V. - Facts & Figures, viewed 14 February 2011, <http://franchisor.ikea.com/showContent.asp?swfId=facts1>.

Inter IKEA Systems 2010d, Welcome to IKEA.com, viewed 14 February 2011, <http://www.ikea.com/>.

International Monetary Fund 2007, World Economic Outlook - Globalization and Inequality, viewed 22 February 2011, <http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/text.pdf>.

International Monetary Fund 2010, World Economic Outlook - Recovery, Risk and Rebalancing, viewed 22 February 2011, <http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/text.pdf>.

Johanson, J & Vahlne, J-E 1977, 'The Internationalization Process of the Firm - A Model of Knowledge Development and Increasing Foregin Market Commitments', Journal of International Business Studies, vol 8, no. 1, pp. 25-34.

Lieberman, MB & Montgomery, DB 1988, 'First-Mover Advantages', Strategic Management Journal, vol 9, pp. 41-58.

Michigan State University 2011, Market Potential Index for Emerging Markets, viewed 19 February 2011, <http://globaledge.msu.edu/resourcedesk/mpi/>.

OECD 2010, Historical Country Risk Classification, viewed 19 February 2011, <http://www.oecd.org/dataoecd/9/12/35483246.pdf>.

Porter, M 1990, 'The Competitive Advantage of Nations', Harvard Business Review, vol 68, no. 2, pp. 73-93.

Shenkar, O & Luo, Y 2004, International Business, John Wiley & Sons, USA.

The Economist Intelligence Unit 2008, EIU country analysis & forecasts: Country Reports, viewed 20 February 2011, <http://countryanalysis.eiu.com/country_reports.html>.

The World Bank 2011, Historical Data - Doing Business - World Bank Group, viewed 19 February 2011, <http://www.doingbusiness.org/custom-query>.

Transparency International 2010, Surveys and Indices - Corruption Perceptions Index, viewed 19 February 2011, <http://www.transparency.org/policy_research/surveys_indices/cpi>.

United Nations Development Programme 2010, International Human Development Indicators - UNDP, viewed 19 February 2011, <http://hdrstats.undp.org/en/indicators/49806.html>.

Waldmeir, P 2010, China push gives Tesco the edge, viewed 26 February 2011, <http://www.ft.com/cms/s/0/3cd96108-fe51-11de-9340-00144feab49a.html#axzz1HEX4Cmag>.

Wijers-Hasegawa, Y 2006, Sweden's IKEA back in Japan after 20-year hiatus, viewed 26 February 2011, <http://search.japantimes.co.jp/cgi-bin/nb20060425a1.html>.

Wikipedia 2011, List of parties to international copyright agreements, viewed 19 February 2011, <http://en.wikipedia.org/wiki/List_of_parties_to_international_copyright_agreements>.

World Trade Organization n.d., WTO | GATT members, viewed 19 February 2011, <http://www.wto.org/english/thewto_e/gattmem_e.htm>.

 

Appendix A     – Company History

Year

Description of Activity

1943

Established in Sweden by Ingvar Kamprad,  selling fish, Christmas magazines and seeds

1948

Added furniture to product line

1949

First product catalogue published

1953

Purchase of idle factory in Almhult and converted it into warehouse

1958

First store opens in Sweden, at expanded facility in Almhult

1961

Manufacturing begins in Poland

1963

First store opens in Norway

1965

First store opens in Stockholm

1973

Largest furniture retailer in Scandinavia with nine stores

1976

Expansion into North American market with store in Canada

1985

First US store opens in Philadelphia

1987

Expansion into the United Kingdom market

1998

Expansion into the Chinese market

2000

Expansion into the Russian market

2006

Expansion into the Japanese market

Source: Hill (2011)

Table 3: IKEA company history highlights


 

Appendix B     – Company Performance

1 – 201

 

Source: Inter IKEA Systems (2010c)

Figure 5: IKEA - Number of Stores (1954-2010)


Source: Inter IKEA Systems (2010d)

Figure 6: IKEA Worldwide Operations, 216 Stores in 39 countries


Source: Inter IKEA Systems (2010a)

Figure 7: IKEA – Sales by Region (2010)

 


 

Source: Inter IKEA Systems (2010a)

Figure 8: IKEA – Purchasing by Region (2010)

 

 


Appendix C     – Location Analysis

Key Variable

 Weight

 Argentina

 Brazil

 Chile

 Colombia

 Peru

 Venezuela

1. Acceptable (A), Unacceptable (U)

 

 

 

 

 

 

 

a. Member of World Trade Organisation

-

A

A

A

A

A

A

b. Protection of IP & Trademarks (signatory to TRIPS)

-

A

A

A

A

A

A

2. Return (high number = preferred rating)

 

 

 

 

 

 

 

a. Market Size (current)

10

0

3

0

0

0

0

b. Market Growth Rate (current)

6

2

0

2

1

1

3

c. Market Growth Rate (2011 forecast)

8

3

3

5

4

5

1

d. Market Consumption Capacity (current)

8

4

2

2

1

3

5

e. Market Receptivity (current)

8

1

0

3

0

1

1

f. Taxation complexity

6

5

0

5

6

5

4

g. Starting a Business

4

3

3

3

3

3

1

RETURN - TOTAL

50

18

11

20

15

18

15

3. Risk (lower number = preferred rating)

 

 

 

 

 

 

 

a. Country Risk Rating

4

4

2

1

2

2

4

b. Protection of Investors

10

5

4

4

2

3

8

c. Corruption Perception Index

6

4

4

2

4

4

5

d. Contract Enforcement

10

4

4

3

9

3

3

e. Human Development Index

6

1

2

1

2

2

2

f. Country Credit Risk

4

4

2

1

2

2

4

g. Trading Across Borders

10

6

6

3

6

3

9

RISK – TOTAL

50

28

24

15

27

19

35

OVERALL

 

-10

-13

5

-12

-1

-20

Table 4: Market Penetration Grid – South American Emerging Markets – 2010

 

Key Variable

 Weight

 Argentina

 Brazil

 Chile

 Colombia

 Peru

 Venezuela

1. Acceptable (A), Unacceptable (U)

 

 

 

 

 

 

 

a. Member of World Trade Organisation

-

A

A

A

A

A

A

b. Protection of IP & Trademarks (signatory to TRIPS)

-

A

A

A

A

A

A

2. Return (high number = preferred rating)

 

 

 

 

 

 

 

a. Market Size (current)

10

1

3

0

0

0

0

b. Market Growth Rate (current)

6

3

0

2

1

1

3

c. Market Growth Rate (2011 forecast)

8

5

4

3

2

8

4

d. Market Consumption Capacity (current)

8

3

1

1

2

4

4

e. Market Receptivity (current)

8

0

1

3

1

1

2

f. Taxation complexity

6

5

0

5

5

5

4

g. Starting a Business

4

3

3

3

2

0

1

RETURN - TOTAL

50

20

12

17

13

19

18

3. Risk (lower number = preferred rating)

 

 

 

 

 

 

 

a. Country Risk Rating

4

4

3

2

3

3

4

b. Protection of Investors

10

5

5

4

4

4

8

c. Corruption Perception Index

6

4

4

2

4

4

5

d. Contract Enforcement

10

4

4

3

9

4

3

e. Human Development Index

6

2

2

2

2

2

2

f. Country Credit Risk

4

4

3

1

3

2

4

g. Trading Across Borders

10

5

3

2

6

2

2

RISK - TOTAL

50

28

24

16

31

21

28

OVERALL

 

-8

-12

1

-18

-2

-10

Source: See Appendix D for full data source list for 2007 and 2010.


Table 5: Market Penetration Grid – South American Emerging Markets - 2007

 

Appendix D    – Location Determinants Data Sources

Variable ID

Variable Description

2007

2010

1a

Member of World Trade Organisation

http://www.wto.org/english/thewto_e/gattmem_e.htm

(World Trade Organization n.d.)

1b

Protection of IP & Trademarks (signatory to TRIPS)

http://en.wikipedia.org/wiki/List_of_parties_to_international_copyright_agreements

(Wikipedia 2011)

2a

Market Size (current)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2007

(Michigan State University 2011)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2010

(Michigan State University 2011)

2b

Market Growth Rate (current)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2007

(Michigan State University 2011)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2010

(Michigan State University 2011)

2c

Market Growth Rate (next year forecast)

http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/text.pdf

(International Monetary Fund 2007)

http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/text.pdf

(International Monetary Fund 2010)

2d

Market Consumption Capacity (current)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2007

(Michigan State University 2011)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2010

(Michigan State University 2011)

2e

Market Receptivity (current)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2007

(Michigan State University 2011)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2010

(Michigan State University 2011)

2f

Taxation complexity

http://www.doingbusiness.org/custom-query

(The World Bank 2011)

2g

Starting a Business

http://www.doingbusiness.org/custom-query

(The World Bank 2011)

3a

Country Risk Rating

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2007

(Michigan State University 2011)

http://globaledge.msu.edu/resourcedesk/mpi/index.asp?year=2010

(Michigan State University 2011)

3b

Protection of Investors

http://www.doingbusiness.org/custom-query

(The World Bank 2011)

3c

Corruption Perception Index

http://www.transparency.org/policy_research/surveys_indices/cpi

(Transparency International 2010)

3d

Contract Enforcement

http://www.doingbusiness.org/custom-query

(The World Bank 2011)

3e

Human Development Index

http://hdrstats.undp.org/en/indicators/49806.html

(United Nations Development Programme 2010)

3f

Country Credit Risk

http://www.oecd.org/dataoecd/9/12/35483246.pdf

(OECD 2010)

3g

Trading Across Borders

http://www.doingbusiness.org/custom-query

(The World Bank 2011)

Table 6: Location Determinants Data Sources

 

 


Appendix E     – Cultural Dimensions Analysis

Source: Hofstede (2010)

Figure 9: Hofstede’s Cultural Dimensions, comparison between Chile and Australia


 

Source: Hofstede (2010)

Figure 10: Cultural Clusters of countries where IKEA has a presence