IKEA vs. CarrefourWhat platform will work the best in Sub-Saharan

Africa?

Nick AbbottAlex CardelleDanielle Rossi

Daniel O’Sullivan

CameroonGhanaKenya

South AfricaTanzania

Target Countries:

Advantages of an IKEA Platform

• Flat-packing distribution techniques reduce costs

• Designs all products in Sweden but utilizes suppliers in India and China to manufacture products

• Customers browse lightly staffed showrooms, collect product choices, load/transport themselves, and self-assemble at home – keeping costs at a minimum

• IKEA’s global brand concept of providing “Scandinavian furniture at Asian prices” has proved easily adaptable and culturally acceptable worldwide

Advantages of a Carrefour Platform

• Store formats include hypermarkets, supermarkets, discount stores, and convenience stores

• Stores offer a wide-range of products food and non-food and services. One-stop-shopping experience

Economic Environment

Business Environment

• South Africa and Ghana have the most efficient legal environment of the 5 countries

• Cameroon, Kenya, and Tanzania have low ratings of gov’t effectiveness, political stability, regulatory quality, and IP protection

• Kenya and Tanzania possess large trade barriers to entry such as high tariff rates and business costs of crime

Business Environment

Retail Environment

• Cameroon’s government has implemented supportive retail polices such as tax incentives and exemptions for mass-consumed products

• Central banks in Kenya and South Africa have kept lending rates low to influence growth

• Ghana’s government has been working to increase FDI with greater democratic reform

• South Africa and Ghana had the strongest retail environments because of high urbanization rates, higher consumption rates and healthy level of competition in retail, all important factors for Carrefour and IKEA.

Cultural Environment

• All 5 countries exhibit high-context attributes

• Ghana’s power distance is the highest at 73% - lowest is South Africa at 43%

• South Africa has the highest individualism at 60% - the rest of the countries are around 20%

• Each of the 5 countries places family at their highest priority

• South Africa’s culture is the most materialistic

• Businesses are hierarchical

• African culture is very traditional

SOUTH AFRICA + IKEAWhy we chose this

combination

• High income demographics of major cities – Johannesburg/Cape Town GDP per capita of $31,500 (PPP)

• Very low tariff rates (6.3% for wood/paper products)

• Pertinent, reliable infrastructure for importation/distribution

• Most “westernized” of the countries and would be a good fit for western firms such as IKEA

South Africa

• Already increases in consumer demand for IKEA

• South Africa is a young nation and IKEA typically targets young families with modest incomes

• No similar firms in South Africa that specialize in modestly priced, trendy, ready-to-assemble furniture

IKEA’s Unique Strengths in South Africa

• Vertically-integrated structure allows IKEA to be its own supplier

• Low capital investments needed – will open only a few warehouses in select urban areas

IKEA’s Unique Strengths in South Africa

Detailed Entry PlanIKEA to South Africa

• IKEA has successfully franchised in other emerging markets such as Eastern Europe, Russia, and the Dominican Republic

• No incentive or government requirement to find local partner in South Africa

• High failure rate of international strategic alliances is an unnecessary risk

Franchising

• IKEA will target middle and upper classes in urban areas

• Middle classes value upward mobility and buy products based on convenience and quality

• Upper classes value pragmatic products, are brand conscious, and are typically located in urban areas

• Young families who value low priced, quality furniture have the most viability as consumers

Target Consumer

• In order to be successful in South Africa, IKEA will have to adapt its store model to actively serve specific South African needs

• South African homes are smaller than those in western nations which means IKEA needs to carry products that will fit the reduced square footage

• Extensive tool sections will reduce shopping trips by allowing consumers to buy everything they need for assembly

• In order to cater to the multilingual country, IKEA will provide sales persons able to meet the needs of varying customer language.

Product Development

• Decentralized organization with centralized corporate culture to be passed on through management training

• Important that IKEA pass on the company philosophy which is key in providing a consistent image worldwide

• IKEA managers need to consider problems for more than one national group of employees

• IKEA will need to make adaptations of the domestic model to motivate workers. This may require managers to be more involved in the personal lives of workers such as living arrangements.

Management Strategies

• Today, consumers in South Africa are easier to reach due to a huge increase of mobile phone use

• IKEA’s promotion strategy will focus on wide use of mobile phone advertising

• Furthermore, the use of m-commerce and the up-rise in internet retailing via mobile phone will allow IKEA to reach South African consumers effectively

Promotion Strategy

• South Africa may not respond to advertising the same as in developed markets

• Studies in South African single-female households suggest purchasing behavior is affected by their perceptions about their independence and their cultural beliefs and sensitivities.

• IKEA will need to connect its company and its products to consumers and win the hearts of the people

Promotion Strategy

• South African furniture retail market is concentrated and is dominated by a small group of retail chains – JD Group, Lewis Group, Ellerine Holdings, and OK Furniture

• IKEA will compete using price leadership strategies, given its competency in cost-efficiency by leveraging its superior supply-chain management abilities

Competition

Other Considerations

Business/Office Supplies• Large increases in FDI and increases in start-

ups• Quality, low-cost office furniture will be in

demand• Only minor adjustments in store layout• IKEA already has experience in market• Operation will not cannibalize other markets

within IKEA

Other Pursuable Markets

• South Africa, especially its cities of Johannesburg and Cape Town, would offer IKEA an exceptional opportunity in entering the African continent.

• The income-viable populations within Johannesburg and Cape Town suggest sufficient market size to support a store in each

• Both cities contain sufficient highway infrastructure to support the projected daily attendance to the stores

Conclusions

• South Africa is only the foot in the door to future operations in Sub-Saharan Africa (long term)

• Next step: Ghana?

Only the beginning!

Questions?