IKEA Enters India - Term Paper Example

MNC Enters India Summary of the Business IKEA, a Swedish based retail company is well-known throughout the globe in manufacturing, designing as well as selling furniture that include desks, beds, chairs along with home accessories and home appliances among others. The company was founded in the year 1943 and since that period, it has been able to serve in the best possible manner in various countries where it operates (Inter IKEA Systems B.V., 2012). IKEA can be duly considered as one of the foremost multinational companies which is looking forward to enter into the Indian market by designing effective strategies and following every possible step that the company could take in order to enter into the said market. The company is basically involved in selling quality home furnishing products and home appliances among others through various franchises and retail outlets. The best aspect about this company is that its products are not very costly and thus are quite affordable. The company is responsible for attracting huge figure of consumers in its various retail outlets due to the deliverance of quality products to them and also complying with their requirements at large. It can be apparently viewed in this similar concern that the company was able to attract around 770 million of consumers who visited various retail outlets of IKEA in the year 2012. The company has a total of 338 stores and includes 154,000 co-workers (Inter IKEA Systems B.V., 2012). 2. Tracking of the Currency Exchange Rate for the Past 24 Months This part of the paper will entail the tracking of the exchange rate of Indian Rupee in relation to the US Dollar. It can be apparently observed in this regard that there have been a lot of fluctuations relating to India’s exchange rate. Presently, the value of Indian Rupee has fallen to a new record of 64 per dollar. The value of Rupee has been undergoing major turnarounds during the preceding two years due to the reason of weakening conduct of financial activities. It is even expected that the value of Rupee can fall to as low as 70 per dollar which can create a major turnaround in the currency exchange rate (YCharts, 2013). The following pictorial representation shows that the level up to which the value of Indian Rupees has increased. From the start of the year 2013, the value of Rupee has fallen and this trend is continuing. Source: (YCharts, 2013). The below diagrammatic illustration shows the actual value of Indian Rupee in the beginning of the year 2013 (Zak, 2013). Source: (Zak, 2013). The following graphical representation reveals the exchange rates of certain selected nations including Indian Rupee. Source: (Gottheil, 2012). On the basis of the above discussion, it can be affirmed that due to much fluctuations or variations especially in the exchange rates, the financial condition of the nation i.e. of India has been adversely affected resulting in generating financial downturns by a considerable level. It is worth mentioning that the fluctuations in the exchange rates have specifically been influenced by certain economic variables that include activities associated with foreign trade, Foreign Direct Investments (FDI’s) and exports along with imports. These variables generally possess the capability to drive high financial growth of a particular nation (Gottheil, 2012). 3. Analysis of the Exchange Rate Risks There are various risks that can be associated with transaction, economic and translation exposure especially in the Indian market. As previously mentioned, the Indian Rupee is expected to fall at 70 per dollar in the coming years, this particular aspect can impose adverse impact upon the Indian market by a certain degree. It can be affirmed that a sound financial position is quiet important for a company and also for a nation as well. Hindrance in the financial position can place the country’s transaction as well as economic activities at stake. Other risks associated with transaction, economic and translation exposure especially in the Indian market may include economic breakdowns and increased liquidity risks affecting the Indian market by a significant level (Gottheil, 2012). There exist certain possible amounts of fluctuations that may arise in the next 24 months, if the aforesaid risks are not mitigated or solved. In this similar concern, fluctuations in terms of trade related activities can be a significant aspect in the next 24 months impacting the financial position of the Indian market by a greater degree. Apart from the fluctuations in trade associated activities, certain variations can also be viewed in conducting various by the leading multinational companies particularly in the Indian market. Another fluctuation which might generate in the next 24 years is low diversification in the Indian market impacting the overall Indian economy at large. It can be affirmed that all these anticipated rates of fluctuations may act as a strong deterrent for the Indian market to grow in future (Gottheil, 2012). 4. Minimization of the Negative Impacts There are various measures that the MNC i.e. IKEA can adopt in order to minimize any negative impact of such fluctuation in the years to come. In this regard, for successfully entering into the Indian market, the MNC needs to possess a clear understanding about the particular market and the prevailing marketing trends. It can be affirmed that through this way, the company can acquire a fair idea about the existing marketing practices along with the various types of consumers that are prevalent in the aforesaid market. These aspects are quite important to analyze because these provides greater aid to a specific company in forecasting the future course of actions that could be executed in order to penetrate into a particular market (Gottheil, 2012). With this concern, the company can adopt as well as execute certain specific currency-derivative strategies that may include involving proper forecasting techniques and benchmarking techniques as effective tools of foreign exchange risk management. In terms of utilizing various forecasting techniques, the company can anticipate possible challenges that may arise in the future regarding foreign exchange. Therefore, the company needs to forecast those factors that may prove to provide hindrances to the company in achieving the desired growth rate in the Indian market. Forecasting in terms of requiring start-up capital, following initial advertisement strategies, conducting promotional activities, making expenses in order to perform various sponsorship programs and mitigating possible threats from other MNC companies among others need to be taken into concern. Relating to the exploitation of benchmarking techniques, IKEA can create a distinctive level of competitive advantage over its chief competitors in the Indian market by a certain degree. Besides, an effective execution of benchmarking techniques would also enable the company to manage its resources in the most efficient manner resulting in gaining maximum global exposure in the Indian market. As IKEA would be totally a new company in the Indian market, therefore it needs to balance the aforesaid two aspects with the intention of maintaining a balance in the market and attracting maximum number of consumers (Zak, 2013). Specially mentioning, the above discussed techniques might prove quiet beneficial for IKEA in lowering the impacts on international business operations by a considerable level. This can be justified that if the company follows the above two currency derivative-strategies, then it will be able to make appropriate financial forecasts which is of primary importance for all those companies that desires to conduct their respective businesses into new business markets. Also, benchmarking techniques would help the company in creating a huge customer base in the Indian market minimizing the impact on its international business operations at large. Additionally, these techniques might also help the company to create a positive brand image in the eyes of the consumers. However, the strategies will also facilitate the company towards making healthier choices in terms of fixing the prices of its broad assortment of products. As it has been analyzed that Indian rupee is continuously getting decreased in its value, the company in relation to this can adopt a nominal pricing strategy in the initial stage, then it can minimize the impact on its international business operations by a certain degree (Sivakumar & Sarkar, n.d.). 5. Application of a Hedging Technique In general, a hedging technique is basically meant to create possible deterrents in order to manage and face any sort of risk which may arise in future. Hedging techniques are generally used to cope up with the future uncertainties that arise within the business or a company. These techniques do not always guarantee delivering better results, but these have the prospects to cope up with the issues in a deliberate manner. Similarly, in this regard, IKEA can also adopt a hedging technique i.e. analysis of proper market timing. This technique might certainly help the company towards managing the risks of transaction, economic and translation exposures that may occur in the Indian market. It is to be affirmed that by y following this technique, the company can look into various significant factors that embrace Exact timing to enter into a market Effective pricing strategy which is needed to be followed Volume of the products that will be initially introduced in the market and Current market trends Thus, this particular hedging technique concentrating upon the aforementioned factors will provide greater aid to IKEA in coping up with all the three possible risks i.e. transaction, economic and translation exposures. This can be owing to the reason that if the company follows an effective pricing strategy in the initial stage, then it will not only help the company to improve the transaction activities with the consumers, but it will also lead towards greater improvement in the economic activities as well. It can be affirmed that the aforesaid technique will also help the company concerning its management of translation exposures related risk in terms of creating a positive brand image and most significantly delivering quality products to the consumers (Zak, 2013). Thus, on the basis of the above discussion, it can be stated that IKEA can broadly apply the hedging technique of analyzing proper market timing to manage the risks of transaction, economic and translation exposures that may occur in the Indian market. 6. Country Risk Analysis There are various types of risks that are associated with a business venture especially at the time when a particular foreign firm generally looks forward to enter into a new country for conducting its business or endeavoring towards capturing a totally new business market. In order to conduct a country risk analysis determining if senior management at MNC should support the proposal for the company to enter into the Indian market, certain crucial risk factors are required to pay utmost attention. The risk factors comprise environmental risks, risks associated with investment regulation, fierce competition and governmental restrictions concerning trade related activities among others. However, the company can cope up with these risks implementing certain specific measures like engaging in making effective interventions with the government, complying with the broad rules as well as the regulations pertaining to the marketing trends and applying appropriate marketing techniques based on the mindsets of the Indian consumers. It is expected that applying these broad measures would certainly assist the company in determining if senior management at MNC should support the proposal for the company to enter into the Indian market (Wagner, 2012). Based on the above discussion, it can be affirmed that IKEA is one of the prospective MNC companies which has a greater scope of attaining maximum growth in the Indian market. However, there are definitely certain risks along with other broad issues that might impose serious problems in relation to IKEA while entering into the Indian market. The study provided a greater aid in analyzing various types of risks associated with the exchange rates in the country i.e. India and based on the identified risks, effective steps and strategies along with techniques have been recommended to the company. Thus, it can be concluded that the adoption as well as the execution of these steps or techniques might support IKEA to manage the risks linked with transaction, economic and translation exposures that may occur in the Indian market. References Gottheil, F. M. (2012). Principles of microeconomics. United States: Cengage Learning. Inter IKEA Systems B.V. (2012). Welcome to IKEA.com. Retrieved from http://www.ikea.com/ Sivakumar, A., & Sarkar, R. (n.d.). Corporate hedging for foreign exchange risk in India. Corporate Hedging For Foreign Exchange Risk, pp. 1-17. Wagner, D. (2012). Managing country risk: A practitioners guide to effective cross-border risk analysis. United States: CRC Press Location. YCharts. (2013). US dollar to Indian rupee exchange rate: 61.65 INR/1 USD for Aug 16 2013. Retrieved from http://ycharts.com/indicators/indian_rupee_exchange_rate Zak, D. (2013). Clearly visual basic®: programming with Microsoft® visual basic® 2012. United States: Cengage Learning. Read More