Ikea
Content
Strategic Marketing Plan 2009
IKEA Expansion to Indonesia
BUSM1534 Marketing Management Herdianti Wisesaputri (S3100622) MBA - October 2009
IKEA to Indonesia – Strategic Marketing Plan 2009
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Executive Summary
The purpose of this document is to provide an in depth look into Inter IKEA Systems B.V. (hereafter IKEA) current business strategy and Indonesian home furnishing market in order to assess the feasibility and provide strategic marketing plan for IKEA to enter Indonesian market. Key to this plan is the opportunity presented in emerging markets like Indonesia balances IKEA’s weakness of biased sales towards Western European market that is currently afflicted by global financial crisis. Macro and micro environment analysis suggest that Indonesia is an attractive market for IKEA though attention should be paid to inadequate infrastructure, widespread corruption and lack of IP law enforcement. Indonesia’s furniture and furnishing market is very fragmented, open and moderately competitive. Competition is expected to intensify with emerging modern chained furniture and furnishings stores and grocery hypermarkets selling low-cost furnitures. A growth rate of 4% for period of 2009-2013 is predicted. Due to significantly lower income level compared to IKEA’s key markets, it is suggested that IKEA pursue only upper middle income class and above. In this income brackets four market segments are identified. They are Educated Single, Young Family, Mature Family and Business Customers. Demographic, geographic and needs of each segment is identified. Key customer behaviours are do-it-yourself (DIY) concept has not yet been embraced and visiting shopping centres are viewed as a form of entertainment activity. To create and increase brand awareness, make products affordable and appealing for Indonesian market and capture 0.5% of market share in 5 years, the following marketing mix is suggested: 1. Product: Limited localisation of product; Product selection and display imitate IKEA’s franchise Malaysian stores; Provide assembly and delivery service options.
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2. Promotion: Using internet in the beginning to build hype and conduct marketing research; Mass media such as television and lifestyle magazines is the key to reach target markets in Indonesia; Catalogue should be adjusted to Indonesian style homes and using local models; Financing and loyalty reward program need to be considered. 3. Place: Open display store in shopping malls first before opening a full-scale stores in major cities such as Jakarta, Surabaya, Bandung and Yogyakarta. 4. Price: Continue using Good-value strategy and defend it aggressively; To keep the products affordable and appealing for Indonesian market, IKEA should try lowering cost, hence price, every year by sourcing gradually shift production locally. Initial investment needed is US$31 million. Using a sustained growth rate of 25% it is expected that IKEA will capture 0.5% of market share in year 5 and break-even at early year 7 of operation. It is recommended for IKEA to capitalise on developing market to balance out its global sales by expanding into Indonesian market by using strategies that were already a success in China, such as shifting to local production and make limited, but effective and appropriate product localisation. However, it is recommended that IKEA start by opening a small display store in shopping malls first before opening a full size IKEA store. This move should be accompanied by continuing market research and ‘hype-building’ promotional activities, through the internet. Yearly review on profitability and cost should be conducted.
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Table of Contents
Executive Summary Table of Contents 1 Introduction
1.1 Aim and Purpose
1.2 Background of Inter IKEA Systems B.V.
1.2.1 IKEA in Asia
2 3 5
5 5 5
2 Current Marketing Situation
2.1 Overview of Indonesia
2.2 Macro-environment Situation
2.3 Micro-environment Situation
2.3.1 Home Furnishing Market in Indonesia
2.3.2 Customer Segmentation
2.3.3 Customer Behaviour
7
7 7 8 8 10 11
3 SWOT Analysis
4 Proposed Marketing Strategy
4.1 Marketing Objectives
4.2. Marketing Mix
4.2.1 Product
4.2.2 Price
4.2.1 Promotion
4.2.2 Place
4.3 Implementation and Budget
4.4 Financial Analysis
12 13
13 13 13 13 14 14 14 15
5 Recommendations
References
Appendix A. Financial Assumptions and Calculations
16 17 20
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1 Introduction
1.1 Aim and Purpose The purpose of this document is to provide an in depth look into IKEA’s current business strategy and Indonesian home furnishing market in order to assess the feasibility and provide strategic marketing plan for IKEA to enter Indonesian market. Financial assumption are based on IKEA’s news reported figures of average investment on each store and growth rate of similar business in Indonesia, constant economic growth rate and sustained interest rate are also assumed. Another limitation is all data used in this document are secondary data. 1.2 Background of Inter IKEA Systems B.V.
Founded in 1943 (IKEA, 2009a), privately held IKEA is the biggest home furnishing retailer in the world (Bhatia & Kenna, 2009; Euromonitor International, 2009a). As of 2009 there are 296 IKEA stores in 36 countries/ territories (IKEA, 2009b). The cornerstones of IKEA vision, business idea and concept are low prices (IKEA, 2009c; Euromonitor International, 2009a). IKEA offers a wide range of functional home furnishing products with simple Scandinavian design “at prices so low that as many people as possible can afford them “ (IKEA, 2009d). The company targets customers looking for value and is willing to do some work themselves, e.g. self-transporting and self-assembling the furniture, for a better price. The typical IKEA customer is young low to middle income family. 1.2.1 IKEA in Asia
Asia accounts for less than 3% of IKEA total sales (IKEA, 2009e). Currently IKEA Group has 7 stores in China and 5 stores in Japan, with other 13 Asia stores managed by franchisees (IKEA, 2009f). Ikano Group operates IKEA stores in Singapore and Malaysia (Ikano Group, 2008). Ikano Group plans to expand to Thailand, Indonesia, Philippines and Vietnam in the future (Rungfapaisarn, 2009).
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IKEA’s Asia expansion has not been smooth. Its first Japan expansion failed in the 1980s (Carpell, 2006). The second Japan, together with China, expansion was more successful. Some scholars has attributed this success to IKEA’s organisational learning and market adaptation abilities (Chaletanone & Cheancharadpong, 2008; Johansson & Thelander, 2009). Especially in China, Johansson (2009) observed that local market does not share IKEA’s affordable for everyone image as the rest of the world due to much lower income level in comparison to Western market. Hence, other than striving to continuously lower its prices in China, IKEA also adjusted other aspects of its marketing strategy, i.e. offering delivery and assembly services (Johansson & Thelander, 2009).
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2 Current Marketing Situation
2.1 Overview of Indonesia Indonesia is populated by approximately 240 million with GDP of US$914.6 billion (2008 estimation) growing at 6.1% in 2008 (CIA, 2009a). 2.2 Macro-environment Situation
Macro-environment analysis suggested that Indonesia is an attractive market for IKEA. Indonesia maintained a stable economy despite global economic downturn and a preference towards modern retail stores exists. However, attention should be paid to inadequate infrastructure, widespread corruption and lack of IP law enforcement as they increase barriers to entry and expansion. Additionally, diverse culture, shopping habits and wide use of television and mobile media can be useful for entering this market. See Table 2.1 for more details. Table 2.1 – Indonesia PEST Analysis
Economy • Despite facing global financial crisis, Indonesia’s economy is stable and progressing. This is due to stability in political climate and sound fiscal policies. • GDP per capita is US$3,900 (2008 est.) this is low if compared to IKEA’s key markets (Western Europe and US). • Labour cost is low. It means Indonesian does not do DIY furniture assembly as it is cheap to hire carpenters but also there is a potential to source production locally, lowering cost. Social and Cultural Factors • Diverse culture exists, although majority of population is Muslim, there are also influential and wealthy Chinese minorities. This influences consumer seasonality, such as in Ramadhan green colour may be popular, while during Chinese New Year red colour with Chinese year animal symbol can be a seller. • Indonesian likes to shop and trip to malls is approached as a form of entertainment activity. • There is trend that Indonesians shift to prefer modern retailer stores than traditional markets. • Inadequate infrastructure can hinder logistic and property development. • Usage of media such as television and internet is growing. • Usage of PDA (e.g. Blackberry), promoting mobile media, is growing rapidly, especially in big cities. Political and Legal Factors • Corruption is still widely pervasive. • Intellectual property law is not strongly enforced this can be especially problematical when combined with availability IKEA’s yearly catalogue and low labour cost.
Technological Factors
Source: CIA, 2009a; Euromonitor International, 2009b.
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2.3 Micro-environment Situation 2.3.1 Home Furnishing Market in Indonesia
Furnitures and furnishing sales value in Indonesia was estimated at US$1.36 billion with a growth rate at an average of 9.2% per year for 2003-2008 period. This growth is due to the rapid development of property market, especially in major cities such as Jakarta and Surabaya (Euromonitor International, 2009c). This market is very fragmented, open and moderately competitive. Approximately 3% of market share are held by 3 leading firms, Garant Möbel Indonesia (GMI), Home Center Indonesia (HCI) and Graha Vinoti Kreasindo (GVK), the rest are shared by other small firms (Euromonitor International, 2009c). Figure 2.1 illustrates the leading company shares history by value for period 2004-2008 and Table 2.2 details brand shares by value for the period 2005-2008. Figure 2.1 - Indonesia Furniture and Furnishings Stores Company Shares by Value 2004-2008, excluding other small firms share
2.00%
1.8%
1.75% 1.50%
1.6% 1.3%
1.25% 1.00%
0.8%
0.75%
0.5%
0.50% 0.25% 0%
0.5%
0.5%
0.5%0.5%
0.4%
0.4%
0.4%
0.4% 0.2%
0.1%
2004
2005
2006
2007
2008
Garant Möbel Indonesia Graha Vinoti Kreasindo Source: Euromonitor International, 2009c.
Home Center Indonesia
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Table 2.2 - Indonesian Furniture and Furnishings Stores Brand Shares by Value 2005-2008
Brand Furnimart Index MER Furniture Center Vinoti Living Others Company Garant Möbel Indonesia Home Center Indonesia Garant Möbel Indonesia Graha Vinoti Kreasindo 2005 0.2 0.5 0.5 98.8 2006 0.6 0.4 0.7 0.5 97.8 2007 0.9 0.5 0.7 0.5 97.4 2008 1.1 0.8 0.7 0.4 97
Source: Euromonitor International, 2009c. GMI owns two brands targeting different market segments: MER Furniture Center, for middle and upper income customers, and Furnimart, for lower to middle income customers. GMI continued to extend its market leadership in 2008. Furnimart outlet number grew rapidly in 2008, to lead furniture stores in outlet numbers. Growth was aided by significantly lower starting capital required to open a Furnimart outlet compared with MER Furniture Center (Euromonitor International, 2009c). The Index brand, owned by HCI, saw the largest increase in value share in 2008. Index achieved this with its “one-stop shopping for all furnishings needs” concept, it is the largest modern furniture and furnishings store in Indonesia, with average selling space of almost 5,000 square metres, five times others furnishing stores. Index also co-branded with Citibank for a payment by instalments scheme, and offers a loyalty scheme with introducing Index Reward card (Euromonitor International, 2009c). Competition is expected to intensify with emerging modern chained furniture and furnishings stores (e.g. Index and new entry Habitat) and grocery hypermarkets (e.g. Giant, Carrefour) also selling low-cost furnitures (Euromonitor International, 2009c). The effect of grocery hypermarkets are expected to be stronger, influencing stores targeting lower to middle income consumer. Euromonitor International (2009c) predicted a growth rate of 4% for period of 2009-2013, supported by rapid property development and strong demand for houses and apartments. These trends are expected to continue given the young median age in
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Indonesia and young average age at which people get married, making the bulk of Indonesian population young and married (Euromonitor International, 2009a).
2.3.2 Customer Segmentation
Due to significantly lower income level and differences in demographics compared to IKEA’s key markets, it is suggested that IKEA pursue only upper middle income class and above. These segments are more likely to be familiar with IKEA brand and have the purchasing power for current IKEA products. The following further segmentations within this income bracket emphasise in demographic as “consumers wants and demands often vary closely with demographic variables” (Kotler et al., pp. 230-321, 2009) and geographic variables as it is important for IKEA to identify where to start its entry to Indonesia. Table 2.3 - Proposed IKEA Indonesia Market Segmentation
Educated Single Young Family Mature Family Business Customers
Using furniture for working offices.
Descripti Early to Mid 20s, well Late 20s to early 30s Middle aged adults on educated and has just of age, they own their and 2 or more teen started working. Most homes, have 0 to 2 age children, usually live with parents, young children. live with extended however the ones that Practicality and style is families (e.g. live by themselves usually live in apartments or rented property. Location Major cities Jakarta, Bandung, Surabaya. Spread all over Indonesia, however suggest that Jakarta and its surrounding has the most population in this age category. May look for style Other character rather than function istics and have limited Spread all over Indonesia, however important for customers in this segment. grandfather and grandmother)
Concentrated in major cities, Jakarta, Bekasi,
census data from 2005 census data from 2005 Tangerang, Bogor, suggest that Jakarta Surabaya and and Surabaya has the Bandung. most population for this segment
Balance between style Looking for functional Expect services such and value is important, furniture is their as assembly and after may expect assembly priority. Also, the sales service. Need adults in this family are personal contact. in the peak of their income
expense allocation for service. household goods.
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Educated Single
Needs Stylish and value for money furnitures, doesn’t mind assembling by themselves, furniture accommodating 1-2 person.
Young Family
Stylish furnitures, multi-functionality as to accommodate future addition in the family, furniture accommodating 2-4 people.
Mature Family
Furnitures that can accommodate more than 4 people,
Business Customers
Value for money professional styled furnitures, looking to
assembly service, buy in bulk and get functional design, can discount. pay higher price for quality.
Sources: Central Intelligence Agency, 2009a, 2009b; Data Statistik Indonesia, 2009; Euromonitor International 2007, 2009a, 2009b, 2.3.3 Customer Behaviour
Based on Euromonitor International (2009a) report, Indonesian customer shops for household goods in specialists shops. Furniture is most often purchased from independent furniture shops. Specialist retail shops are expected to remain as a dominant distribution channel for household goods. However a few chains have emerged, usually located in shopping centres (Euromonitor International, 2009a). Do-it-yourself (DIY) concept has not yet been embraced as tradesmen services are still very affordable. However, expenditure on hardware and DIY products did increase, albeit slowly, reaching US$ 547 million in 2007 (Euromonitor International, 2009a). Additionally, visiting shopping centres are viewed as a form of entertainment activity often done on the weekend by all members of the family (Euromonitor International, 2009a).
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3 SWOT Analysis
Table 3.1 outlines IKEA’s current strengths, weaknesses, opportunities and threats (SWOT) analysis. Key to this plan is the opportunity presented in emerging markets (e.g. Indonesia) balances IKEA’s weakness of biased sales towards Western European market. Table 3.1 – IKEA’s SWOT Analysis
Strengths
• Strong brand image A well established brand combining a distinct style with reputable affordability. Hence, it has a broad and loyal consumer base, helping it survives in tough economic condition. • Broad geographic reach IKEA stores are established in many countries, shielding it from local market downturn. • Adaptability to market and strong global strategy as proven by success in China and Japan
Weaknesses
• Too focused on Western Europe IKEA sales remain significantly focused in Western Europe, a mature market currently affected by considerable economic problems. • Downside of distinctiveness IKEA’s success in establishing a strong brand image and distinctive offer could reduce its capacity to adapt should consumer trends turn against its unique brand image and design.
Opportunity
• Emerging markets China, India and Indonesia with growing middle class, increasing purchasing power, young median age and growing economy, can support IKEA’s large-scale stores and help balance to spread out global sales. • Internet retailing Strong brand and established delivery infrastructure place it in a strong position to exploit the expansion of internet retailing, driven by increased access to the internet and trends towards convenience in IKEA’s key markets.
Threats
• Difficult economic conditions Though IKEA is more strongly positioned than its competitors, its business is still being threatened by lower purchasing power and poorly performing housing markets in IKEA’s key markets. • Increasing competition from supermarkets Retailers in US and European market such as Wal-Mart and Tesco, pose notable threats to IKEA’s low-price positioning. This is further enhanced by the development of internet retailing.
Sources: Chaletanone & Cheancharadpong, 2008; Euromonitor International, 2009a; Johanssen & Thelander, 2009.
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4 Proposed Marketing Strategy
4.1 Marketing Objectives • Create and increase brand awareness • Make products affordable and appealing for Indonesian market • Capture 0.5% of market share in 5 years 4.2. Marketing Mix
Armstrong and Kotler (2006) stated that marketing mix is a set of controllable strategic marketing tools–product, price, place and promotion– that firm uses to produce the response it wants in the target market. The following marketing mix are based on IKEA’s successful entry into China market, as both market provided similar challenge of distant culture and lower purchasing power, however several adjustments for this specific market were also made. 4.2.1 Product
Product selection wise, IKEA should follow what Malaysian franchise store sells, as the market in this two countries are similar. Showrooms should be designed and arranged in Indonesian style and sectioned with market segmentation presented in section 2.3.2 in mind. For localisation, it is suggested that IKEA do not produce a new product altogether for this market, instead do slight alterations. This will lower localisation cost and it has been proven successful in the Chinese market (Ying, 2005). Market seasonality such as Ramadhan and Chinese New Year can be a good inspiration for alterations. Customer needs and behaviours considered, it is important that IKEA offers delivery and assembly services. As IKEA will not be affordable for everyone, its products’ modern design and the fact that it is a global brand can project an upper class image to the market, hence the availability of such services is important to maintain perception of value. 4.2.2 Price
IKEA should keep its Good-value strategy pricing, which entails medium to high product quality at a low price (Kotler et al, 2006). To keep the products affordable and appealing
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for Indonesian market, IKEA should do as they did in China, try lowering cost, hence price, every year by sourcing gradually shift production locally. Aggressive low price-good quality strategy can appeal to Indonesia lower income population, hamper competitions, and build customer preference in this market. 4.2.1 Promotion
Promotion’s objectives are to build awareness and liking towards IKEA brand and products. For this, promotion needs to start well before store opening. Integrated Marketing Communication (IMC) channels should be used are mass communication (television and mass media) and internet communication. Internet can be used to build hype and survey the customers on they’re wants and needs, this is a low cost way to build awareness. To appeal to the two families segments, tag lines such as “Family living space” or “Functional together” can be used for marketing IKEA products in Indonesia. IKEA catalogue should be adjusted to Indonesian style, this can be done by using local model or style the rooms in Indonesian styles. Co-branding with a popular bank for financing, and loyalty offer using reward card, similar to Index’s strategy, is also suggested as it can help build and maintain loyal customer base in Indonesia. Financing option is especially attractive for ‘Educated singles’ segment. 4.2.2 Place
Analysis reveals Jakarta as the most ideal city to enter, for potential future expansions cities like Surabaya, Bandung and Yogyakarta are suggested. Before opening a large-scale store, IKEA should first open display stores in shopping malls. This is less costly and can be a good opportunity to familiarise with what customers want or need. This helps build brand awareness. 4.3 Implementation and Budget
Table 4.1 provides implementation and budget for 5 years ahead.
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Table 4.1 Marketing Strategy Implementation and Budget
Time
Year 1
Activities
• Market research and location research. • Use internet to make a hype and do marketing research and begin building customer database. • Research sourcing channel for furniture production.
Budget
US$300,000
Year 2
• Build IKEA display store in shopping mall. • Continue building customer database and get in touch with customer. • Begin building IKEA stores. • Build furniture sourcing infrastructure in Indonesia. • Medium advertising, aimed at creating brand awareness.
US$700,000
Year 3
• Do review on display stores and customers’ satisfaction before continue on year 3 plan • Opening of first IKEA store • Begin production in Indonesia furniture production lines • Heavy advertising, aimed at increasing brand awareness, build preference and getting maximum sales. Use Internet when possible but mostly using mass media.
US$15,000,000
Year 4
• Review performance on previous year before continue on year 4 plan. • Ongoing marketing research is suggested. • Continue market penetration, promotion should focus on brand advertising. • Research on location for second store.
US$10,000,000
Year 5
• Review performance on previous year before continue on year 4 plan • Ongoing marketing research is suggested. • Opening of second IKEA store, probably in Surabaya or Yogyakarta city.
US$5,000,000
4.4 Financial Analysis
Initial investment needed to open first store and sustain operation until year 5 is US$31 million. Using a sustained growth rate of 25% it is expected that IKEA will capture 0.5% of market share in year 5 and break-even at early year 7 of operation. For more details on financial analysis please refer to Appendix A.
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5 Recommendations
IKEA should capitalise on developing market to balance out its global sales, currently it focused too much in economic difficulties afflicted Western European market. IKEA can do this by expanding into Indonesian market, that has been analysed as attractive and open. IKEA can penetrate into the market using strategies that were already successfully done in China, shifting to local production and make limited, but effective and appropriate product localisation. It is suggested that IKEA should build a network of supplier and production lines in Indonesia. This will both keep the local customers satisfied with IKEA offerings, by pushing prices lower, and strengthen IKEA’s global network of low cost suppliers. However, it is recommended that IKEA ‘tests the waters’ first, by opening a small display store in shopping malls first before opening a full size IKEA store. This move should be accompanied by continuing market research and ‘hype-building’ promotional activities, through the internet. Yearly review on profitability and cost should be conducted. If review is positive IKEA should consider expansion to other cities in Java Island.
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References
Euromonitor International 2009a, Inter IKEA Systems BV in retailing, Euromonitor International, viewed 4 October 2009, <http://www.portal.euromonitor.com.ezproxy.lib. rmit.edu.au/passport/accessPDF.ashx?c=00%5CPDF%5C&f=F-126684-16205100.pdf &code=VqD5FJbfw4LbefRERARv1L49mQs%3d>. IKEA 2009c, Our low prices, IKEA, viewed 4 October 2009, <http://193.108.42.168/ index.php?ID=9>. IKEA 2009d, Our business idea, IKEA, viewed 4 October 2009, <http://193.108.42.168/? ID=5>. IKEA 2009e, IKEA group in figures, IKEA, viewed 4 October 2009, <http:// 193.108.42.168/?ID=10>. IKEA 2009f, IKEA group stores, IKEA, viewed 4 October 2009, <http://193.108.42.168/? ID=542&view=all>. IKEA 2009a, Our history, IKEA, viewed 4 October 2009, <http://193.108.42.168/?ID=4>. Bhatia, M. & Kenna, A. 2009, IKEA has slowest sales growth in more than a decade, Bloomberg.com, viewed 5 October 2009, <http://www.bloomberg.com/apps/news? pid=20601085&sid=aSvPmp60dCL8>. IKEA 2009b, IKEA group stores, IKEA, viewed 4 October 2009, <http://193.108.42.168/ index.php?ID=11>. Ikano Group 2008, The Ikano Group: Where we come from, Ikano Group, viewed 4 October 2009, <http://www.ikanogroup.com/the-group.html>. Rungfapaisarn, K. 2009, Ikano Group: Ikea mega-stores coming here soon, The Nation – Business, viewed 4 October 2009, <http://www.nationmultimedia.com/2009/05/12/ business/business_30102445.php>. Central Intelligence Agency 2009a, The world factbook: Indonesia, Central Intelligence Agency, viewed 4 October 2009, <https://www.cia.gov/library/publications/the-worldfactbook/geos/id.html>.
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Central Intelligence Agency 2009b, The world factbook: Country comparison – Population, Central Intelligence Agency, viewed 4 October 2009, <https://www.cia.gov/ library/publications/the-world-factbook/rankorder/2119rank.html? countryName=Indonesia&countryCode=id®ionCode=eas&rank=5#id>. Carpell, K. 2006, Ikea’s new plan for Japan, Business Week, viewed 5 October 2009, <http://www.businessweek.com/globalbiz/content/apr2006/gb20060426_821825.htm? chan=search>. Chaletanone, W. & Cheancharadpong, W. 2008, ‘Internationalization of IKEA in the Japanese market and Chinese markets’, School of Sustainable Development of Society and Technology. Johansson, U. & Thelander, A. 2009, ‘A standardised approach to the world? IKEA in China’, International Journal of Quality and Service Sciences, Vol. 1, No. 2, pp. 199-219. Euromonitor International, 2009b, Indonesia: Country pulse, Euromonitor International, viewed 10 October 2009, <http://www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/ passport/accessPDF.ashx?c=84%5CPDF%5C&f=F-53650-16313184.pdf&code= bWZwu5tIMlKxQBgSIuwd8NwmzGY%3d>. Euromonitor International 2007, Indonesian young population as key driver to consumer market growth, Euromonitor International, viewed 10 October 2009, <http:// www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/accessPDF.ashx? c=80%5CPDF%5C&f=F-71313-12432980.pdf&code=uZSiRgPxXc1U7yDJSafAD %2byZKag%3d>. Euromonitor International 2009c, Furniture and furnishings stores - Indonesia, Euromonitor International, viewed 10 October 2009, <http:// www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/ResultsList.aspx>. Data Statistik Indonesia, 2009, Indonesia census data 2005: Number of population by sex and age group, Data Statistik Indonesia, viewed 10 October 2009, <http:// www.datastatistik-indonesia.com/component/option,com_tabel/task,/Itemid,165>. Yu, W. 2008, IKEA plans $60m for Tianjin store, China Daily, viewed 11 October 2009, <http://www.chinadaily.com.cn/bizchina/2008-04/22/content_6635220.htm>.
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Bangkok Post 2009, SF set to bring IKEA to Thailand - First store planned at B10bn Mega Bang Na, Bangkok Post, viewed 12 October 2009, <http://www.bangkokpost.com/ business/economics/16537/sf-set-to-bring-ikea-to-thailand>. Business Week 1997, IKEA’s new game plan, Business Week – October 6, 1997, viewed 12 October 2009, <http://www.businessweek.com/archives/1997/b3547009.arc.htm>. Ying, P. 2005, ‘Marketing across cultures: A case study of IKEA Shanghai’, Centre for East and South-East Asian Studies, Lund University. Armstrong, G. & Kotler, P. 2006, Marketing: An Introduction, Prentice Hall, New York.
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Appendix A. Financial Assumptions and Calculations
1. Investment for opening 1 IKEA store and all supporting marketing and organisational activities in Indonesia is estimated at $31 million. This figure is based on news figures of IKEA investment in its Asia stores, as listed below • Thailand store, proposed as the biggest IKEA store in Asia Pasific, THB 3.5 billion (US$ 102 million) (Bangkok Post, 2009). • China: Dallian store $20 million, Shanghai store $10 million (Business Week, 1997), Tianjin store $60 million (Yu, 2008). 2. Revenue stream are estimated to be growing at 50% in the third year, as a full-size IKEA store is opening and will grow at 25% for year four, this is a pessimistic growth rate based on similar market (China) growth rate and growth of similar business in Indonesia and 40% in year five as IKEA opens the second full-size store. The base revenue is estimated at 0.2% of market value (US$ 2.6 million), for the second year of investment as display store opens. This is a pessimistic estimation, considering IKEA plan to gain around in its first year in Thailand, a similar size market with Indonesia (Bangkok Post, 2009). Table A.1 Estimated Revenue Stream (in US Dollars)
Year
Revenue Growth Market Share 0.19%
1
$0
2
$2,600,000
3
$3,900,000 50% 0.29%
4
$4,875,000 25% 0.36%
5
$6,825,000 40% 0.50%
3. At a sustained growth rate of 25%, break-even point will be at early year 7. Table A.2 Estimated Break-Even Point (in US Dollars)
Year
Revenue Growth Left to $31,000,000 Break-even
$28,400,000
1
$0
2
$2,600,000
3
$3,900,000 50%
$24,500,000
4
$4,875,000 25%
$19,625,000
5
$6,825,000 40%
$12,800,000
6
25%
$4,268,750
7
25%
-$6,395,313
$8,531,250 $10,664,063
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IKEA Expansion to Indonesia
BUSM1534 Marketing Management Herdianti Wisesaputri (S3100622) MBA - October 2009
IKEA to Indonesia – Strategic Marketing Plan 2009
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Executive Summary
The purpose of this document is to provide an in depth look into Inter IKEA Systems B.V. (hereafter IKEA) current business strategy and Indonesian home furnishing market in order to assess the feasibility and provide strategic marketing plan for IKEA to enter Indonesian market. Key to this plan is the opportunity presented in emerging markets like Indonesia balances IKEA’s weakness of biased sales towards Western European market that is currently afflicted by global financial crisis. Macro and micro environment analysis suggest that Indonesia is an attractive market for IKEA though attention should be paid to inadequate infrastructure, widespread corruption and lack of IP law enforcement. Indonesia’s furniture and furnishing market is very fragmented, open and moderately competitive. Competition is expected to intensify with emerging modern chained furniture and furnishings stores and grocery hypermarkets selling low-cost furnitures. A growth rate of 4% for period of 2009-2013 is predicted. Due to significantly lower income level compared to IKEA’s key markets, it is suggested that IKEA pursue only upper middle income class and above. In this income brackets four market segments are identified. They are Educated Single, Young Family, Mature Family and Business Customers. Demographic, geographic and needs of each segment is identified. Key customer behaviours are do-it-yourself (DIY) concept has not yet been embraced and visiting shopping centres are viewed as a form of entertainment activity. To create and increase brand awareness, make products affordable and appealing for Indonesian market and capture 0.5% of market share in 5 years, the following marketing mix is suggested: 1. Product: Limited localisation of product; Product selection and display imitate IKEA’s franchise Malaysian stores; Provide assembly and delivery service options.
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2. Promotion: Using internet in the beginning to build hype and conduct marketing research; Mass media such as television and lifestyle magazines is the key to reach target markets in Indonesia; Catalogue should be adjusted to Indonesian style homes and using local models; Financing and loyalty reward program need to be considered. 3. Place: Open display store in shopping malls first before opening a full-scale stores in major cities such as Jakarta, Surabaya, Bandung and Yogyakarta. 4. Price: Continue using Good-value strategy and defend it aggressively; To keep the products affordable and appealing for Indonesian market, IKEA should try lowering cost, hence price, every year by sourcing gradually shift production locally. Initial investment needed is US$31 million. Using a sustained growth rate of 25% it is expected that IKEA will capture 0.5% of market share in year 5 and break-even at early year 7 of operation. It is recommended for IKEA to capitalise on developing market to balance out its global sales by expanding into Indonesian market by using strategies that were already a success in China, such as shifting to local production and make limited, but effective and appropriate product localisation. However, it is recommended that IKEA start by opening a small display store in shopping malls first before opening a full size IKEA store. This move should be accompanied by continuing market research and ‘hype-building’ promotional activities, through the internet. Yearly review on profitability and cost should be conducted.
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Table of Contents
Executive Summary Table of Contents 1 Introduction
1.1 Aim and Purpose
1.2 Background of Inter IKEA Systems B.V.
1.2.1 IKEA in Asia
2 3 5
5 5 5
2 Current Marketing Situation
2.1 Overview of Indonesia
2.2 Macro-environment Situation
2.3 Micro-environment Situation
2.3.1 Home Furnishing Market in Indonesia
2.3.2 Customer Segmentation
2.3.3 Customer Behaviour
7
7 7 8 8 10 11
3 SWOT Analysis
4 Proposed Marketing Strategy
4.1 Marketing Objectives
4.2. Marketing Mix
4.2.1 Product
4.2.2 Price
4.2.1 Promotion
4.2.2 Place
4.3 Implementation and Budget
4.4 Financial Analysis
12 13
13 13 13 13 14 14 14 15
5 Recommendations
References
Appendix A. Financial Assumptions and Calculations
16 17 20
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1 Introduction
1.1 Aim and Purpose The purpose of this document is to provide an in depth look into IKEA’s current business strategy and Indonesian home furnishing market in order to assess the feasibility and provide strategic marketing plan for IKEA to enter Indonesian market. Financial assumption are based on IKEA’s news reported figures of average investment on each store and growth rate of similar business in Indonesia, constant economic growth rate and sustained interest rate are also assumed. Another limitation is all data used in this document are secondary data. 1.2 Background of Inter IKEA Systems B.V.
Founded in 1943 (IKEA, 2009a), privately held IKEA is the biggest home furnishing retailer in the world (Bhatia & Kenna, 2009; Euromonitor International, 2009a). As of 2009 there are 296 IKEA stores in 36 countries/ territories (IKEA, 2009b). The cornerstones of IKEA vision, business idea and concept are low prices (IKEA, 2009c; Euromonitor International, 2009a). IKEA offers a wide range of functional home furnishing products with simple Scandinavian design “at prices so low that as many people as possible can afford them “ (IKEA, 2009d). The company targets customers looking for value and is willing to do some work themselves, e.g. self-transporting and self-assembling the furniture, for a better price. The typical IKEA customer is young low to middle income family. 1.2.1 IKEA in Asia
Asia accounts for less than 3% of IKEA total sales (IKEA, 2009e). Currently IKEA Group has 7 stores in China and 5 stores in Japan, with other 13 Asia stores managed by franchisees (IKEA, 2009f). Ikano Group operates IKEA stores in Singapore and Malaysia (Ikano Group, 2008). Ikano Group plans to expand to Thailand, Indonesia, Philippines and Vietnam in the future (Rungfapaisarn, 2009).
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IKEA’s Asia expansion has not been smooth. Its first Japan expansion failed in the 1980s (Carpell, 2006). The second Japan, together with China, expansion was more successful. Some scholars has attributed this success to IKEA’s organisational learning and market adaptation abilities (Chaletanone & Cheancharadpong, 2008; Johansson & Thelander, 2009). Especially in China, Johansson (2009) observed that local market does not share IKEA’s affordable for everyone image as the rest of the world due to much lower income level in comparison to Western market. Hence, other than striving to continuously lower its prices in China, IKEA also adjusted other aspects of its marketing strategy, i.e. offering delivery and assembly services (Johansson & Thelander, 2009).
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2 Current Marketing Situation
2.1 Overview of Indonesia Indonesia is populated by approximately 240 million with GDP of US$914.6 billion (2008 estimation) growing at 6.1% in 2008 (CIA, 2009a). 2.2 Macro-environment Situation
Macro-environment analysis suggested that Indonesia is an attractive market for IKEA. Indonesia maintained a stable economy despite global economic downturn and a preference towards modern retail stores exists. However, attention should be paid to inadequate infrastructure, widespread corruption and lack of IP law enforcement as they increase barriers to entry and expansion. Additionally, diverse culture, shopping habits and wide use of television and mobile media can be useful for entering this market. See Table 2.1 for more details. Table 2.1 – Indonesia PEST Analysis
Economy • Despite facing global financial crisis, Indonesia’s economy is stable and progressing. This is due to stability in political climate and sound fiscal policies. • GDP per capita is US$3,900 (2008 est.) this is low if compared to IKEA’s key markets (Western Europe and US). • Labour cost is low. It means Indonesian does not do DIY furniture assembly as it is cheap to hire carpenters but also there is a potential to source production locally, lowering cost. Social and Cultural Factors • Diverse culture exists, although majority of population is Muslim, there are also influential and wealthy Chinese minorities. This influences consumer seasonality, such as in Ramadhan green colour may be popular, while during Chinese New Year red colour with Chinese year animal symbol can be a seller. • Indonesian likes to shop and trip to malls is approached as a form of entertainment activity. • There is trend that Indonesians shift to prefer modern retailer stores than traditional markets. • Inadequate infrastructure can hinder logistic and property development. • Usage of media such as television and internet is growing. • Usage of PDA (e.g. Blackberry), promoting mobile media, is growing rapidly, especially in big cities. Political and Legal Factors • Corruption is still widely pervasive. • Intellectual property law is not strongly enforced this can be especially problematical when combined with availability IKEA’s yearly catalogue and low labour cost.
Technological Factors
Source: CIA, 2009a; Euromonitor International, 2009b.
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2.3 Micro-environment Situation 2.3.1 Home Furnishing Market in Indonesia
Furnitures and furnishing sales value in Indonesia was estimated at US$1.36 billion with a growth rate at an average of 9.2% per year for 2003-2008 period. This growth is due to the rapid development of property market, especially in major cities such as Jakarta and Surabaya (Euromonitor International, 2009c). This market is very fragmented, open and moderately competitive. Approximately 3% of market share are held by 3 leading firms, Garant Möbel Indonesia (GMI), Home Center Indonesia (HCI) and Graha Vinoti Kreasindo (GVK), the rest are shared by other small firms (Euromonitor International, 2009c). Figure 2.1 illustrates the leading company shares history by value for period 2004-2008 and Table 2.2 details brand shares by value for the period 2005-2008. Figure 2.1 - Indonesia Furniture and Furnishings Stores Company Shares by Value 2004-2008, excluding other small firms share
2.00%
1.8%
1.75% 1.50%
1.6% 1.3%
1.25% 1.00%
0.8%
0.75%
0.5%
0.50% 0.25% 0%
0.5%
0.5%
0.5%0.5%
0.4%
0.4%
0.4%
0.4% 0.2%
0.1%
2004
2005
2006
2007
2008
Garant Möbel Indonesia Graha Vinoti Kreasindo Source: Euromonitor International, 2009c.
Home Center Indonesia
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Table 2.2 - Indonesian Furniture and Furnishings Stores Brand Shares by Value 2005-2008
Brand Furnimart Index MER Furniture Center Vinoti Living Others Company Garant Möbel Indonesia Home Center Indonesia Garant Möbel Indonesia Graha Vinoti Kreasindo 2005 0.2 0.5 0.5 98.8 2006 0.6 0.4 0.7 0.5 97.8 2007 0.9 0.5 0.7 0.5 97.4 2008 1.1 0.8 0.7 0.4 97
Source: Euromonitor International, 2009c. GMI owns two brands targeting different market segments: MER Furniture Center, for middle and upper income customers, and Furnimart, for lower to middle income customers. GMI continued to extend its market leadership in 2008. Furnimart outlet number grew rapidly in 2008, to lead furniture stores in outlet numbers. Growth was aided by significantly lower starting capital required to open a Furnimart outlet compared with MER Furniture Center (Euromonitor International, 2009c). The Index brand, owned by HCI, saw the largest increase in value share in 2008. Index achieved this with its “one-stop shopping for all furnishings needs” concept, it is the largest modern furniture and furnishings store in Indonesia, with average selling space of almost 5,000 square metres, five times others furnishing stores. Index also co-branded with Citibank for a payment by instalments scheme, and offers a loyalty scheme with introducing Index Reward card (Euromonitor International, 2009c). Competition is expected to intensify with emerging modern chained furniture and furnishings stores (e.g. Index and new entry Habitat) and grocery hypermarkets (e.g. Giant, Carrefour) also selling low-cost furnitures (Euromonitor International, 2009c). The effect of grocery hypermarkets are expected to be stronger, influencing stores targeting lower to middle income consumer. Euromonitor International (2009c) predicted a growth rate of 4% for period of 2009-2013, supported by rapid property development and strong demand for houses and apartments. These trends are expected to continue given the young median age in
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Indonesia and young average age at which people get married, making the bulk of Indonesian population young and married (Euromonitor International, 2009a).
2.3.2 Customer Segmentation
Due to significantly lower income level and differences in demographics compared to IKEA’s key markets, it is suggested that IKEA pursue only upper middle income class and above. These segments are more likely to be familiar with IKEA brand and have the purchasing power for current IKEA products. The following further segmentations within this income bracket emphasise in demographic as “consumers wants and demands often vary closely with demographic variables” (Kotler et al., pp. 230-321, 2009) and geographic variables as it is important for IKEA to identify where to start its entry to Indonesia. Table 2.3 - Proposed IKEA Indonesia Market Segmentation
Educated Single Young Family Mature Family Business Customers
Using furniture for working offices.
Descripti Early to Mid 20s, well Late 20s to early 30s Middle aged adults on educated and has just of age, they own their and 2 or more teen started working. Most homes, have 0 to 2 age children, usually live with parents, young children. live with extended however the ones that Practicality and style is families (e.g. live by themselves usually live in apartments or rented property. Location Major cities Jakarta, Bandung, Surabaya. Spread all over Indonesia, however suggest that Jakarta and its surrounding has the most population in this age category. May look for style Other character rather than function istics and have limited Spread all over Indonesia, however important for customers in this segment. grandfather and grandmother)
Concentrated in major cities, Jakarta, Bekasi,
census data from 2005 census data from 2005 Tangerang, Bogor, suggest that Jakarta Surabaya and and Surabaya has the Bandung. most population for this segment
Balance between style Looking for functional Expect services such and value is important, furniture is their as assembly and after may expect assembly priority. Also, the sales service. Need adults in this family are personal contact. in the peak of their income
expense allocation for service. household goods.
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Educated Single
Needs Stylish and value for money furnitures, doesn’t mind assembling by themselves, furniture accommodating 1-2 person.
Young Family
Stylish furnitures, multi-functionality as to accommodate future addition in the family, furniture accommodating 2-4 people.
Mature Family
Furnitures that can accommodate more than 4 people,
Business Customers
Value for money professional styled furnitures, looking to
assembly service, buy in bulk and get functional design, can discount. pay higher price for quality.
Sources: Central Intelligence Agency, 2009a, 2009b; Data Statistik Indonesia, 2009; Euromonitor International 2007, 2009a, 2009b, 2.3.3 Customer Behaviour
Based on Euromonitor International (2009a) report, Indonesian customer shops for household goods in specialists shops. Furniture is most often purchased from independent furniture shops. Specialist retail shops are expected to remain as a dominant distribution channel for household goods. However a few chains have emerged, usually located in shopping centres (Euromonitor International, 2009a). Do-it-yourself (DIY) concept has not yet been embraced as tradesmen services are still very affordable. However, expenditure on hardware and DIY products did increase, albeit slowly, reaching US$ 547 million in 2007 (Euromonitor International, 2009a). Additionally, visiting shopping centres are viewed as a form of entertainment activity often done on the weekend by all members of the family (Euromonitor International, 2009a).
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3 SWOT Analysis
Table 3.1 outlines IKEA’s current strengths, weaknesses, opportunities and threats (SWOT) analysis. Key to this plan is the opportunity presented in emerging markets (e.g. Indonesia) balances IKEA’s weakness of biased sales towards Western European market. Table 3.1 – IKEA’s SWOT Analysis
Strengths
• Strong brand image A well established brand combining a distinct style with reputable affordability. Hence, it has a broad and loyal consumer base, helping it survives in tough economic condition. • Broad geographic reach IKEA stores are established in many countries, shielding it from local market downturn. • Adaptability to market and strong global strategy as proven by success in China and Japan
Weaknesses
• Too focused on Western Europe IKEA sales remain significantly focused in Western Europe, a mature market currently affected by considerable economic problems. • Downside of distinctiveness IKEA’s success in establishing a strong brand image and distinctive offer could reduce its capacity to adapt should consumer trends turn against its unique brand image and design.
Opportunity
• Emerging markets China, India and Indonesia with growing middle class, increasing purchasing power, young median age and growing economy, can support IKEA’s large-scale stores and help balance to spread out global sales. • Internet retailing Strong brand and established delivery infrastructure place it in a strong position to exploit the expansion of internet retailing, driven by increased access to the internet and trends towards convenience in IKEA’s key markets.
Threats
• Difficult economic conditions Though IKEA is more strongly positioned than its competitors, its business is still being threatened by lower purchasing power and poorly performing housing markets in IKEA’s key markets. • Increasing competition from supermarkets Retailers in US and European market such as Wal-Mart and Tesco, pose notable threats to IKEA’s low-price positioning. This is further enhanced by the development of internet retailing.
Sources: Chaletanone & Cheancharadpong, 2008; Euromonitor International, 2009a; Johanssen & Thelander, 2009.
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4 Proposed Marketing Strategy
4.1 Marketing Objectives • Create and increase brand awareness • Make products affordable and appealing for Indonesian market • Capture 0.5% of market share in 5 years 4.2. Marketing Mix
Armstrong and Kotler (2006) stated that marketing mix is a set of controllable strategic marketing tools–product, price, place and promotion– that firm uses to produce the response it wants in the target market. The following marketing mix are based on IKEA’s successful entry into China market, as both market provided similar challenge of distant culture and lower purchasing power, however several adjustments for this specific market were also made. 4.2.1 Product
Product selection wise, IKEA should follow what Malaysian franchise store sells, as the market in this two countries are similar. Showrooms should be designed and arranged in Indonesian style and sectioned with market segmentation presented in section 2.3.2 in mind. For localisation, it is suggested that IKEA do not produce a new product altogether for this market, instead do slight alterations. This will lower localisation cost and it has been proven successful in the Chinese market (Ying, 2005). Market seasonality such as Ramadhan and Chinese New Year can be a good inspiration for alterations. Customer needs and behaviours considered, it is important that IKEA offers delivery and assembly services. As IKEA will not be affordable for everyone, its products’ modern design and the fact that it is a global brand can project an upper class image to the market, hence the availability of such services is important to maintain perception of value. 4.2.2 Price
IKEA should keep its Good-value strategy pricing, which entails medium to high product quality at a low price (Kotler et al, 2006). To keep the products affordable and appealing
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for Indonesian market, IKEA should do as they did in China, try lowering cost, hence price, every year by sourcing gradually shift production locally. Aggressive low price-good quality strategy can appeal to Indonesia lower income population, hamper competitions, and build customer preference in this market. 4.2.1 Promotion
Promotion’s objectives are to build awareness and liking towards IKEA brand and products. For this, promotion needs to start well before store opening. Integrated Marketing Communication (IMC) channels should be used are mass communication (television and mass media) and internet communication. Internet can be used to build hype and survey the customers on they’re wants and needs, this is a low cost way to build awareness. To appeal to the two families segments, tag lines such as “Family living space” or “Functional together” can be used for marketing IKEA products in Indonesia. IKEA catalogue should be adjusted to Indonesian style, this can be done by using local model or style the rooms in Indonesian styles. Co-branding with a popular bank for financing, and loyalty offer using reward card, similar to Index’s strategy, is also suggested as it can help build and maintain loyal customer base in Indonesia. Financing option is especially attractive for ‘Educated singles’ segment. 4.2.2 Place
Analysis reveals Jakarta as the most ideal city to enter, for potential future expansions cities like Surabaya, Bandung and Yogyakarta are suggested. Before opening a large-scale store, IKEA should first open display stores in shopping malls. This is less costly and can be a good opportunity to familiarise with what customers want or need. This helps build brand awareness. 4.3 Implementation and Budget
Table 4.1 provides implementation and budget for 5 years ahead.
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Table 4.1 Marketing Strategy Implementation and Budget
Time
Year 1
Activities
• Market research and location research. • Use internet to make a hype and do marketing research and begin building customer database. • Research sourcing channel for furniture production.
Budget
US$300,000
Year 2
• Build IKEA display store in shopping mall. • Continue building customer database and get in touch with customer. • Begin building IKEA stores. • Build furniture sourcing infrastructure in Indonesia. • Medium advertising, aimed at creating brand awareness.
US$700,000
Year 3
• Do review on display stores and customers’ satisfaction before continue on year 3 plan • Opening of first IKEA store • Begin production in Indonesia furniture production lines • Heavy advertising, aimed at increasing brand awareness, build preference and getting maximum sales. Use Internet when possible but mostly using mass media.
US$15,000,000
Year 4
• Review performance on previous year before continue on year 4 plan. • Ongoing marketing research is suggested. • Continue market penetration, promotion should focus on brand advertising. • Research on location for second store.
US$10,000,000
Year 5
• Review performance on previous year before continue on year 4 plan • Ongoing marketing research is suggested. • Opening of second IKEA store, probably in Surabaya or Yogyakarta city.
US$5,000,000
4.4 Financial Analysis
Initial investment needed to open first store and sustain operation until year 5 is US$31 million. Using a sustained growth rate of 25% it is expected that IKEA will capture 0.5% of market share in year 5 and break-even at early year 7 of operation. For more details on financial analysis please refer to Appendix A.
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5 Recommendations
IKEA should capitalise on developing market to balance out its global sales, currently it focused too much in economic difficulties afflicted Western European market. IKEA can do this by expanding into Indonesian market, that has been analysed as attractive and open. IKEA can penetrate into the market using strategies that were already successfully done in China, shifting to local production and make limited, but effective and appropriate product localisation. It is suggested that IKEA should build a network of supplier and production lines in Indonesia. This will both keep the local customers satisfied with IKEA offerings, by pushing prices lower, and strengthen IKEA’s global network of low cost suppliers. However, it is recommended that IKEA ‘tests the waters’ first, by opening a small display store in shopping malls first before opening a full size IKEA store. This move should be accompanied by continuing market research and ‘hype-building’ promotional activities, through the internet. Yearly review on profitability and cost should be conducted. If review is positive IKEA should consider expansion to other cities in Java Island.
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References
Euromonitor International 2009a, Inter IKEA Systems BV in retailing, Euromonitor International, viewed 4 October 2009, <http://www.portal.euromonitor.com.ezproxy.lib. rmit.edu.au/passport/accessPDF.ashx?c=00%5CPDF%5C&f=F-126684-16205100.pdf &code=VqD5FJbfw4LbefRERARv1L49mQs%3d>. IKEA 2009c, Our low prices, IKEA, viewed 4 October 2009, <http://193.108.42.168/ index.php?ID=9>. IKEA 2009d, Our business idea, IKEA, viewed 4 October 2009, <http://193.108.42.168/? ID=5>. IKEA 2009e, IKEA group in figures, IKEA, viewed 4 October 2009, <http:// 193.108.42.168/?ID=10>. IKEA 2009f, IKEA group stores, IKEA, viewed 4 October 2009, <http://193.108.42.168/? ID=542&view=all>. IKEA 2009a, Our history, IKEA, viewed 4 October 2009, <http://193.108.42.168/?ID=4>. Bhatia, M. & Kenna, A. 2009, IKEA has slowest sales growth in more than a decade, Bloomberg.com, viewed 5 October 2009, <http://www.bloomberg.com/apps/news? pid=20601085&sid=aSvPmp60dCL8>. IKEA 2009b, IKEA group stores, IKEA, viewed 4 October 2009, <http://193.108.42.168/ index.php?ID=11>. Ikano Group 2008, The Ikano Group: Where we come from, Ikano Group, viewed 4 October 2009, <http://www.ikanogroup.com/the-group.html>. Rungfapaisarn, K. 2009, Ikano Group: Ikea mega-stores coming here soon, The Nation – Business, viewed 4 October 2009, <http://www.nationmultimedia.com/2009/05/12/ business/business_30102445.php>. Central Intelligence Agency 2009a, The world factbook: Indonesia, Central Intelligence Agency, viewed 4 October 2009, <https://www.cia.gov/library/publications/the-worldfactbook/geos/id.html>.
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Central Intelligence Agency 2009b, The world factbook: Country comparison – Population, Central Intelligence Agency, viewed 4 October 2009, <https://www.cia.gov/ library/publications/the-world-factbook/rankorder/2119rank.html? countryName=Indonesia&countryCode=id®ionCode=eas&rank=5#id>. Carpell, K. 2006, Ikea’s new plan for Japan, Business Week, viewed 5 October 2009, <http://www.businessweek.com/globalbiz/content/apr2006/gb20060426_821825.htm? chan=search>. Chaletanone, W. & Cheancharadpong, W. 2008, ‘Internationalization of IKEA in the Japanese market and Chinese markets’, School of Sustainable Development of Society and Technology. Johansson, U. & Thelander, A. 2009, ‘A standardised approach to the world? IKEA in China’, International Journal of Quality and Service Sciences, Vol. 1, No. 2, pp. 199-219. Euromonitor International, 2009b, Indonesia: Country pulse, Euromonitor International, viewed 10 October 2009, <http://www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/ passport/accessPDF.ashx?c=84%5CPDF%5C&f=F-53650-16313184.pdf&code= bWZwu5tIMlKxQBgSIuwd8NwmzGY%3d>. Euromonitor International 2007, Indonesian young population as key driver to consumer market growth, Euromonitor International, viewed 10 October 2009, <http:// www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/accessPDF.ashx? c=80%5CPDF%5C&f=F-71313-12432980.pdf&code=uZSiRgPxXc1U7yDJSafAD %2byZKag%3d>. Euromonitor International 2009c, Furniture and furnishings stores - Indonesia, Euromonitor International, viewed 10 October 2009, <http:// www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/ResultsList.aspx>. Data Statistik Indonesia, 2009, Indonesia census data 2005: Number of population by sex and age group, Data Statistik Indonesia, viewed 10 October 2009, <http:// www.datastatistik-indonesia.com/component/option,com_tabel/task,/Itemid,165>. Yu, W. 2008, IKEA plans $60m for Tianjin store, China Daily, viewed 11 October 2009, <http://www.chinadaily.com.cn/bizchina/2008-04/22/content_6635220.htm>.
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Bangkok Post 2009, SF set to bring IKEA to Thailand - First store planned at B10bn Mega Bang Na, Bangkok Post, viewed 12 October 2009, <http://www.bangkokpost.com/ business/economics/16537/sf-set-to-bring-ikea-to-thailand>. Business Week 1997, IKEA’s new game plan, Business Week – October 6, 1997, viewed 12 October 2009, <http://www.businessweek.com/archives/1997/b3547009.arc.htm>. Ying, P. 2005, ‘Marketing across cultures: A case study of IKEA Shanghai’, Centre for East and South-East Asian Studies, Lund University. Armstrong, G. & Kotler, P. 2006, Marketing: An Introduction, Prentice Hall, New York.
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Appendix A. Financial Assumptions and Calculations
1. Investment for opening 1 IKEA store and all supporting marketing and organisational activities in Indonesia is estimated at $31 million. This figure is based on news figures of IKEA investment in its Asia stores, as listed below • Thailand store, proposed as the biggest IKEA store in Asia Pasific, THB 3.5 billion (US$ 102 million) (Bangkok Post, 2009). • China: Dallian store $20 million, Shanghai store $10 million (Business Week, 1997), Tianjin store $60 million (Yu, 2008). 2. Revenue stream are estimated to be growing at 50% in the third year, as a full-size IKEA store is opening and will grow at 25% for year four, this is a pessimistic growth rate based on similar market (China) growth rate and growth of similar business in Indonesia and 40% in year five as IKEA opens the second full-size store. The base revenue is estimated at 0.2% of market value (US$ 2.6 million), for the second year of investment as display store opens. This is a pessimistic estimation, considering IKEA plan to gain around in its first year in Thailand, a similar size market with Indonesia (Bangkok Post, 2009). Table A.1 Estimated Revenue Stream (in US Dollars)
Year
Revenue Growth Market Share 0.19%
1
$0
2
$2,600,000
3
$3,900,000 50% 0.29%
4
$4,875,000 25% 0.36%
5
$6,825,000 40% 0.50%
3. At a sustained growth rate of 25%, break-even point will be at early year 7. Table A.2 Estimated Break-Even Point (in US Dollars)
Year
Revenue Growth Left to $31,000,000 Break-even
$28,400,000
1
$0
2
$2,600,000
3
$3,900,000 50%
$24,500,000
4
$4,875,000 25%
$19,625,000
5
$6,825,000 40%
$12,800,000
6
25%
$4,268,750
7
25%
-$6,395,313
$8,531,250 $10,664,063
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