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Ikea’S Global Strategy
Ikea’S Global Strategy
Ikea’S Global Strategy
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Mexico is a developing country located in the southern region of North America. Mexico is a country with about one hundred and twenty million individuals, making it a great candidate for IKEA to spread into. Mexico has the fifteenth largest nominal GDP and the eleventh largest by purchasing power parity. (wikipedia , 2015)The Mexican economy continues to grow at a moderate annual rate of growth of 2.4 percent as the economic recovery lost steam during the first half of 2015. (worldbank.org, 2015) Moderate growth during the first semester of 2015 in Mexico has been attributed to weakness in industrial production in the U.S., a further drop in the volume of oil production reducing annual GDP growth by about 0.4 percentage points and financial …show more content…
When conducting business in an international country you must always worry about political risks. There are many macroeconomic risks when considering conducting business in Mexico. Mexico could raise taxes against businesses at almost any time to generate money for their government. Another macroeconomic risk that applies in Mexico is the cartel situations in that country; it is as if they are in a civil war. Problems may arise for business like IKEA any time there is conflict amongst individuals from the same country. Another macroeconomic risk IKEA may look at may be the devaluation of the Mexican peso. Since the price of the peso is considerably cheap compared to the American dollar, the products IKEA sells may be too expensive for the un-wealthy individuals to purchase. Another form of political risks that IKEA must be aware of are the microeconomic risks involved in conducting business internationally. Microeconomics examines the impact that economic choices made by individuals, businesses and industries have on resource allocation and the supply and demand of goods and services in market economies. (what is economics?) With that being said IKEA would not have much to worry about since the only business that will be done is the selling and marketing of their products. In Mexico government corruption is very popular. Mexico ranked one hundred and three out of one hundred and seventy five, with a score of thirty five out of one hundred. Corruption in the government is done by the cartels that are committing many crimes on daily basis. Although the corruption may not affect a business like IKEA directly, they will be affected indirectly. Corruption could affect a business because the individuals that corrupt the government in Mexico
The runaway corruption in the country harms the business environment and causes collapse of various established institutions and industries.
The basic model employed after Cardenas to promote growth in the Mexican economy was Import Substitution Industrialization (ISI), whereby Mexico attempted to build domestic industry and a domestic market. The strategy quickly started paying dividends, and the “import-substitution policies of the Mexican state were successful in generating rapid and sustained economic growth” (Sharpe 28). ISI ushered in the “Mexican Miracle” of economic growth; the Mexican growth hovered around 6% annually for some thirty years (Hellman 1). The government created incentives for investment and lowered taxation to spur domestic investment. Despite the strong economic indicators, the spoils of growth were not shared by many.
Kurian, George Thomas, ed. "Mexico: Economy." World Geography and Culture Online. Facts On File, Inc. Web. 13 May 2014. .
· According to Euromoney, Mexico?s ranking among borrowing countries improved between March and September 1994
Kehoe, Timothy J. (November 2010). Why Economic Reforms Have Not Generated Economic Growth in Mexico. Kim J. Ruhl Department of Economics, NYU Stern School of Business. Retrieved from http://www.kimjruhl.com/storage/data/KehoeRuhlJEL.pdf
“The Perilous State of Mexico.” The Wall Street Journal. Dow Jones & Company, 21 Feb. 2009. Web. 16 Feb. 2014.
Business in Mexico Bienvenido a México! Welcome to Mexico, the first of what one would hope to be many greetings upon entering Mexico. With Mexico's population fast approaching the 100 million mark, "North Americans, what Mexicans refer to people from the United States" (Nicol, 2003) the lower labor rates and the strength of the American dollar against the peso over the last several years has created an influx of US manufacturing businesses into Mexico.... ... middle of paper ...
Most Latin America countries are known as third world countries because the economic structure still in development. To overcome such judgment the countries had been developing different policies since the 1970s. The policies promise to help the countries to obtain a healthier economy and have an economic growth. The author Franko explains in the book The Puzzles of Latin America Economic Development how the economist Paul Rosenstein “believes that in order to achieve sustained growth, an economy must develop various industries simultaneously, requiring a coordination of investment or a big push.” (pg. 19) But to accomplished economic growth countries need to reduce the government control over the economy and start developing a market-base economy. Market-base economy would not only guarantee positive results of development, but will also create a more stable economy. Mexico is one of the countries that have integrated new policies and other economic change which have been giving the country positive results mainly on its economy.
The sources of IKEA’s successful entry into the furniture retail business were IKEA’s low prices and resilience. First, Ingvar Kamprad, the founder of IKEA, began selling furniture in his mail order company. Then he was faced with a social problem and turned it into a business opportunity. Since 1935, furniture prices rose faster than any other retail good at 41%. Kamprad responded by creating a line of furniture priced so that all could afford it. The present furniture cartel attempted to stifle Kamprad’s growth and success. The cartel banned Kamprad from selling directly to the consumer at shows, then managed to persuade the manufacturing cartel to stop supplying Kamprad with furniture. Kamprad responded by supplying elsewhere and now could charge even lower prices. IKEA’s success was due largely to low prices and Kamprad’s ability to capitalize on bad situations.
Another example of IKEA’s international strategy in building good relationships with suppliers is in Asia, especially in Vietnam, where IKEA expanded its own supply base. Vietnam manufacturers offers low cost labor force and not expensive raw materials, while IKEA provides the view of creating a long-term, high-volume business relationship, and advice on finding the best according to the price raw materials, setting up and bulding factories, choosing what machines, equipments
DataMonitor, 2007. IKEA major retail competition in the US are: Furniture Brands International Inc., Office Depot Inc., Sauder Woodworking Co., Stanley Furniture Company, Inc., and Staples , Inc. This paper will identify the key macroeconomic variables that affect IKEA and the retail industry as a whole. To better understand the effects of such variables upon the industry, two specific variables will be developed further.
Corruption consists in the illegitimate agreement between a corruptor and a corrupted, in which they abuse of their public power in order to obtain personal benefit. Bribery and corruption is something that has been going on for years. According to Allen, “officials perceive themselves as immune to any penalties for demanding and receiving bribes” which she states that it is one of the main reasons for bribery and corruption in underdeveloped countries. According to Transparency International, an organization committed exclusively to end corruption, three of the most corrupt countries in the world are Somalia, North Korea and Afghanistan. This does not mean that corruption is only seen in underdeveloped countries. In international business, corporate employees often find themselves dealing with corruptors in foreign countries and, in most cases, they will give in.
Other types of exchange rate risks are translation risk and so-called hidden risk. The translation risk relates to cases where large multinational companies have subsidiaries in other countries. On the financial statement of the whole group, the company may have to translate the assets and liabilities from foreign accounts into the group statement. The translation will involve foreign exchange exposure. The term hidden risk evolves around the fact that all companies are subject to exchange rate risks, even if they don’t do business with companies using other currencies. A company that is buying supplies from a local manufacturer might be affected of fluctuating foreign exchange rates if the local manufacturer is doing business with overseas companies. If a manufacturer goes out of business, or experience heavy losses, it will affect all the companies it does business with. The co...
THE POLITICAL ENVIRONMENT: The critical concern Political environment has a very important impact on every business operation no matter what its size, its area of operation. Whether the company is domestic, national, international, large or small political factors of the country it is located in will have an impact on it. And the most crucial & unavoidable realities of international business are that both host and home governments are integral partners. Reflected in its policies and attitudes toward business are a governments idea of how best to promote the national interest, considering its own resources and political philosophy. A government control's and restricts a company's activities by encouraging and offering support or by discouraging and banning or restricting its activities depending on the government. Here steps in international law. International law recognizes the right of nations to grant or withhold permission to do business within its political boundaries and control its citizens when it comes to conducting business. Thus, political environment of countries is a critical concern for the international marketer and he should examine the salient features of political features of global markets they plan to enter. THE SOVEREIGNITY OF NATIONS From the international laws point of view a sovereign state is independent and free from external control; enjoys full legal equality; governs its own territory; selects its own political, social, economic systems; and has the power to enter into agreements with other nations. It is extension of national laws beyond a country's borders that much of the conflict in international business arises. Nations can and do abridge s...
Global Challenge: Building the New Worldwide Enterprise. McGRAW-HILL Book Company Europe. NEELANKAVIL, James P. (2003). International Business Corruption: A Framework of Causes, Effects, and Prescriptions. Hofstra University Press.