Economics

Being an analyst it is my duty to provide accurate analysis about IKEA in Japan to support buy, sells and hold decisions of stock offering. IKEA entered into Japan in the 1974. It entered into Japanese market through a joint venture with Japanese company. The stuff was cheap and of good quality. Most of its stores were located around Tokyo. It did not give special care to it Japanese customers. The employee management was also not good as they did not hire many locals at high levels in the start and so were not able to work in the desired way. At that moment the supply chain was not streamlines and the coworkers were not trained well. IKEA did not understand the local environment and did not operate based on local requirements. The promotional strategies used by IKEA were not really successful in Japan because of the resistance showed by the local customers to buy from an international brand. Not much advertising was done. After some struggle it went out of Japan in 1986. So the global strategy of IKEA in the mid- 1970s was a complete failure.

IKEA launched again in Japan in the early 2000s. A giant store was opened in the outskirts of Tokyo. There is a difference now in the global strategy of IKEA as compared to earlier years. They have streamlined their supply chain and hired trained locals at high levels which have an understanding of the Japanese market. IKEA now does thorough research of what the customers in Japan want and they way they live in their homes. This has helped them do produce and market appropriate furniture. Currently one of the interesting ways IKEA is promoting its furniture is through the Christmas tree deal.  IKEA Japans free Tree deal is a very economical way for store shoppers to celebrate the Christmas with a real tree. IKEA is also advertising in high traffic areas of Japan. It is advertising in train interiors which is another distinct feature of their advertising campaign. So IKEA has now changed its promotional strategies based on the market dynamics. These new strategies are working quiet well for IKEA in Japan and they have seen some good market response.

Now analyzing internal and external environment of IKEA, it is completely different business at present as compared to its earlier entry in Japan. It has hired locals at top levels and so employees are being managed in a more local way that is important for succeeding in Japanese market. But still there are some mistakes being made by IKEA. They have opened their stores that are huge but far away from the main city that is inconvenient for the customers to reach.  They produce large bulky furniture that is not suitable for the Japanese who mostly have small homes and have no room for bulky furniture. There are not large cars owned by Japanese and so it becomes difficult for them to take bulky furniture with them. But IKEA refuses to reduce their delivery fee and so costing more to the buyers that results in a resistance for them to buy furniture from IKEA.

Its main competitor in the Japanese market is Nitori as it has the edge of better understand of the local market. Other competitors of IKEA in Japan are very experienced about the market conditions and they find it much easier to attract customers to their furniture outlets. Also the Japanese are more loyal to their local stores. But IKEA is a large furniture shop and so for promotional purpose both of them are having price wars. This is a future risk for IKEA as it will have to reduce its profit margins. It is not an easy job to survive in the Japanese market as the market has some very different dynamics and foreign companies have not found much benefit in operating there.  Japanese market is not easy to operate in by foreign company.