Executive Summary
The case fact of IKEA and McDonalds will be analyzed regarding the risk approaches in international operation process have been analyzed in this assignment. The company management of IKEA faced challenges initially in the Chinese market as the local competitors copied the product designs and marketing approaches of IKEA. McDonalds used to source the raw materials and resources from OSI. The Chinese media stated that OSI is responsible for the bad impact of the American fast food products on the health of consumers as the production process and quality of raw materials are not up-to-the mark. The Chinese leaders of IKEA focused on the unique marketing and promotional approaches to overcome the challenges. The number of social media users is increasing significantly. McDonalds decided to cut-down ties with OSI in case of Chinese operation. Apart from it, the company management of McDonalds adopted and implemented effective cross-cultural approaches for the better collaboration and cross-cultural diversity within the workplaces. The company management has become successful to offer products at the economic price level. It also helped the company management capture the value of the firm quite effectively.
Introduction
Global business environment is becoming competitive as different leading organizations are significantly adopting unique strategic approaches in the business operation management process for the better business growth and competitive advantages. Among different competitive strategies and approaches, international business expansion also can be regarded as an important strategic approach for several multinational firms, which help the organizations to improve business growth and profitability. In international business expansion, different organizations used to face different types of risk factors. Some organizations adopt unique approaches and control the risk factors quite effectively. On the other hand, some organizations decide to exit from the particular market due to the risk factors. In this assignment, the case facts of IKEA and McDonalds will be analyzed regarding the risk approaches in international operation process. In addition, the solutions and initiated approaches of the two multinational firms will also be analyzed.
McDonalds is one of the leading multinational fast food restaurant chains. It was established in the year 1940. The company is an America based company and the organization successfully has adopted the international market expansion approach. McDonalds has a strong presence in different emerging and developed nations. On the other hand, IKEA is also considered to be one of the leading multinational customized furniture manufacturing firms based in Sweden. The company has started its business operation journey in the year 1943. Both of the companies have successfully adopted resource seeking approach by focusing on the availability of the natural resources, strong skill level of the labors, creativity of the assets, and unique physical infrastructure in the international market places to become highly successful. Both of the countries have a strong presence in the Chinese market, but the organizations faced some risk factors in the Chinese market. This assignment will discuss about the strategies adopted by the organizations to overcome the risk factors.
Challenges for MNEs in Respective Countries
Before considering the critical analysis of the risk factors and adopted solutions, this will be important for the researcher of this study to determine the risk approaches. IKEA is popular for its customized furniture products. The company develops the customized wooden home appliances, office appliances and other products basis on the needs of the target customers. The company follows similar style of business operation in European market and other market places. On the other hand, this is also essential to accept that the Chinese market seemed to be attractive for IKEA. Therefore, the company entered into the potential Chinese market with similar kind of business operation process. The company management of IKEA faced challenges initially in the Chinese market as the local competitors copied the product designs and marketing approaches of IKEA. The management of IKEA did not lose hope and adopted unique marketing approaches to overcome the problems.
Similarly, the management of McDonalds also has understood that the Chinese market will be important for the company to improve the profitability and business growth. Therefore, the company management decided to enter into the potential Chinese market. Initially, the company management of McDonalds faced critical challenges in the distribution and supply chain approaches. McDonalds used to source the raw materials and resources from OSI. The Chinese media stated that OSI is responsible for the bad impact of the American fast food products on the health of consumers as the production process and quality of raw materials are not up-to-the mark. Apart from these challenges, the company management of McDonalds also faced language barriers in the Chinese market. In terms of the solutions, the company management and decision makers of McDonalds have decided to cut the ties with OSI in the Chinese market to improve the sustainability aspect. In addition, this is also important to accept that the company management of McDonalds is starting to recruit the managers and leaders from the Chinese regions to overcome the language and other cross-cultural issues.
Strategic Importance of the Market
It is already introduced that the company management of IKEA understood that the Chinese market will be profitable for the company. The decision taken by the company was right as IKEA is one of the leading organizations within the Chinese furniture manufacturing and distributing organization. The reason behind the targeting of Chinese market is that China is one of the leading and largest consumer markets, which helped the management of IKEA to improve the customer base, sales growth and overall profitability. On the other hand, the economy of China is considered to be booming economy due to rapid globalization and industrialization. The corporate houses and office buildings are being developed quite rapidly. Most importantly, the income level of common people is improving. On the other hand, the products of IKEA are not costly as the company management of IKEA follows the resource seeking approaches, which helps the company management to offer products at economic price level. This is considered to be competitive approach, which helped the management of IKEA to grow in the Chinese market. In addition, this is also an important aspect to admit that the demand of customized furniture products at economic price level in China is increasing rapidly. These aspects have motivated the company management of IKEA to enter into the potential Chinese market and helped the company to improve the business growth and profitability quite effectively.
McDonalds is one of the reputed brand names within the Chinese fast food restaurant chain industry. The company management of McDonalds always focuses on the expansion of the business network in the potential and emerging international markets. The management of McDonalds have understood that China is one of the potential markets for the fast food products like burgers, sandwiches, wings etc. However, the company management of McDonalds have become successful to penetrate the Chinese market place through the adoption and integration of the unique business operation activities. McDonalds also got motivated through the concept of leading and largest consumer market. China is the largest consumer market across the globe. This is also acceptable that China is becoming one of the economic superpowers day-by-day. Therefore, the Chinese market place is becoming one of the lucrative market place for the majority of the organizations. Most importantly, the price sensitivity aspect, product differentiation aspect, and local culture integration aspect are considered to be the important brand elements of McDonalds in the Chinese market places. These aspects have assisted the company management of McDonalds to gain success in the potential Chinese market.
Dealing with Risk Situations
In the previous sections, it has been identified that the management of IKEA has faced challenges from the local competitors regarding the copyright issues. This is acceptable that the company management of IKEA felt that the approaches of local competitors are illegal and unethical. This is also essential to accept that the Chinese laws were not that much strict and strong, which may help the management of IKEA in the copyright issues. The Chinese leaders of IKEA focused on the unique marketing and promotional approaches to overcome the challenges. The number of social media users is increasing significantly. In addition, this is also essential to admit that the number of young social media users is increasing rapidly. Most importantly, the organizations are trying to target the urban youths through the consideration of the effective social media networking websites. On the other hand, the Chinese are becoming western brand conscious slowly and gradually. These aspects are helping the management of IKEA to promote the brand through the online social media and digital media platforms. On the other hand, strong branding approaches according to the demand of the target customers are helping the organizational management of IKEA to capture the value of the firm.
In terms of dealing with the risk situations, the company management of McDonalds has strongly focused on the quality approaches. Previously, the management of McDonalds decided to enter into the Chinese market with the help of OSI. OSI is a long-term supply chain partner of McDonalds since the year 1955. However, the Chinese media raised their voice regarding the quality of resources and raw materials. However, the strategy developers and decision makers focused on the sustainability in Chinese market. Therefore, McDonalds decided to cut-down ties with OSI in case of Chinese operation. Apart from it, the company management of McDonalds adopted and implemented effective cross-cultural approaches for the better collaboration and cross-cultural diversity within the workplaces. The considerations of the cross-cultural approaches have helped the company management of McDonalds to overcome the language barriers from the workplaces quite effectively. In addition, the company management of McDonalds has decided to develop menu items according to the Chinese culture and tradition in the international market places. These cross-cultural and cultural integration approaches has helped the company management of McDonalds to compete with the local competitors as well as the MNEs in the Chinese fast food retail chain industry. These cross-cultural approaches and supply chain management approaches have helped the company management to maintain its leading market position. Hence, the company management has become successful to offer products at the economic price level. It also helped the company management capture the value of the firm quite effectively.
Motivations for Entering the Market and Rationale for the Choice of Entry
IKEA has adopted and implemented sole proprietorship market entry mode. The major motivation behind the entry of IKEA in the Chinese market place is the growing demand for the customized furniture products among Chinese. On the other hand, China is the largest consumer market across the globe. This specific aspect motivated the company management of IKEA to enter into the potential Chinese market. In addition, this is also essential aspect to admit that the management of IKEA is comfortable with the adoption and implication of the sole proprietorship approach as the company does not feel comfortable with the profit sharing aspect. In addition, this is also essential to state that the company management of IKEA has a strong rapport with the local suppliers. In addition, decentralization approach has helped the company management of IKEA to adopt and implement the risk free approaches in the business operation process. In terms of the use of firm specific advantages vs. country specific advantages, it can be accepted that the management of IKEA is focused to employ the brand image, resource seeking approach and customized product manufacturing process for the better business growth. These approaches are considered to be the leading firm specific advantage approach, which can help to improve business growth. These approaches have helped to ensure a strong business growth in the potential Chinese market. On the other hand, the company management also considered the country specific advantages by the adoption of sole proprietorship market entry aspect. These specific firm and country specific advantages have motivated the company management of IKEA to adopt and implement sole proprietorship market entry approach. The country specific advantages are considered to be the real motivating aspects for the company management of IKEA in the Chinese market place.
The company management of McDonalds has adopted and implemented the franchisee market entry mode to enter into the potential Chinese market. This is acceptable that the particular market entry mode has helped the management of McDonalds to share the risk factors with the franchiser. This is firm related advantage. On the other hand, the company management of McDonalds has capitalized on the demand, needs and satisfaction level of the target customers in the strategy development process in order to improve the growth of the business in Chinese market. In terms of country specific advantages, the management of McDonalds has successfully capitalized on the created demands for the fast food products. This franchisee model has helped the company management of McDonalds to capture the value of the firm. The firm specific advantages are the real motivating aspects for the company management of McDonalds in the Chinese market places.
Porter’s Diamond Model
There are four important parameters of the porter’s diamond model and this model is important for the professionals to analyze the different aspects of the international business operation process of a company. The four important parameters of the Porter’s Diamond Model are firm strategy, factor conditions, demand conditions, and related or the supporting industries. In case of IKEA, the firm strategy is to manufacture customized furniture products. The factor conditions are customizations, economic pricing, and western looks. The demand conditions are high due to growing need for these kinds of the products among target customers. The supported and related industries are corporate houses, local supply chain networks and online retailers.
In terms of McDonalds, the firm strategy is to offer the differentiated and trendy products at the competitive pricing comparing to other MNEs. In terms of factor conditions, differentiation, cost sensitivity, and efficiency of the supply chain network are important. In terms of the demand conditions, the growing demand for the quality of the products can be considered as important diamond factor. In terms of the related and supporting industries, bakeries, vegetable vendors and chicken firms are considered to be some notable diamond factors.
Reason behind the Risk Association
In terms of IKEA, the furniture retail chain industry has become highly competitive. It is considered to be one of the critical risk factors for the company management of IKEA. In addition, it has been identified that the company management of IKEA is suffering from the threat of local competitors as the local competitors are copying the business approach of IKEA. The Chinese law is not strict enough, which has affected the business growth of IKEA in the Chinese market initially. These are some critical risk factors.
In terms of McDonalds, the external environmental factors are not supportive as the media houses are becoming the real threat factors for the company management of McDonalds. In addition, the cross-cultural challenges as well as demographic challenges also can be considered as the important risk factors for the company management of McDonalds in the Chinese market place.
Strategies to Deal with Risk Situations
In terms of the use of the use of the organizational structure, the company management of IKEA has always focused on the utilization of the less-hierarchical and flatter organizational structure. In addition, this is also essential aspect to state that the consideration of the decentralized business operation approach has helped the company management to develop creative promotional approaches regarding use of social media networking websites to target the urban youth.
The management of McDonalds has adopted and implemented centralized organizational culture and the hierarchical structure have helped the company to create the autonomous aspect. The franchisee model has helped the company management to overcome the possible cross-cultural issue as the local management team helped the company management of McDonalds to overcome the challenges.
Foresee of Risk Factors
In both the cases, the risk factors could have been avoided event before occurrence of the risk factors. The company management of IKEA should have focused on the adoption and integration of the patent and trademark law to overcome the copyright issues. The consideration of these specific activities would also assist the company to gain the support of the stakeholders.
On the other hand, the management of McDonalds should start from the localized approaches by integrating local supply chain partners in the business operation process for the better growth. This would have helped the company management to overcome the supply chain and product quality related issues.
Conclusion
IKEA is popular for its customized furniture products. The company develops the customized wooden home appliances, office appliances and other products basis on the needs of the target customers. The company management of IKEA faced challenges initially in the Chinese market as the local competitors copied the product designs and marketing approaches of IKEA. The management of IKEA did not lose hope and adopted unique marketing approaches to overcome the problems. McDonalds used to source the raw materials and resources from OSI. The Chinese media stated that OSI is responsible for the bad impact of the American fast food products on the health of consumers as the production process and quality of raw materials are not up-to-the mark. In terms of the solutions, the company management and decision makers of McDonalds have decided to cut the ties with OSI in the Chinese market to improve the sustainability aspect. The products of IKEA are not costly as the company management of IKEA follows the resource seeking approaches, which helps the company management to offer products at economic price level. These aspects have motivated the company management of IKEA to enter into the potential Chinese market and helped the company to improve the business growth and profitability quite effectively. The price sensitivity aspect, product differentiation aspect, and local culture integration aspect are considered to be the important brand elements of McDonalds in the Chinese market places. the management of McDonalds should start from the localized approaches by integrating local supply chain partners in the business operation process for the better growth.
