How IKEA approaches scaling into new geographies
An interview with Evita Bizune, Expansion Business Analyst at IKEA.
At the time interviewed, Evita Bizune was an Expansion Business Analyst at IKEA. In this capacity, she evaluated opportunities for IKEA to expand our retail presence in new countries.In this interview, Evita shares her insight and offers guidance on how entrepreneurs could evaluate the possibility of launching their business in a new geography.
Can you tell us about your role at IKEA? How long have you been doing this work and what led you to it?
EVITA: I’ve been with IKEA for three years. I work as an expansion business analyst in Delft in the Netherlands. I’ve been supporting retailers with their expansion planning. Before IKEA, I was in a similar analyst role, but in a different company. I was analysing the sales and demand and supply on the market. At IKEA, I focus on market expansion so it’s a slightly different perspective.
What are your day-to-day responsibilities in this market expansion role?
EVITA: A big part of my time is allocated to supporting our retailers. This involves some coaching and some facilitating because, in the end, it’s the retailers who are responsible for their expansion plans. We’re there to support and guide them, provide tools for expansion planning, and share good examples from other markets.
Another part of my work is the market analysis itself, which is most relevant when we talk about entering new markets. When I use the term “new markets,” I’m talking about IKEA entering new geographies. We evaluate where IKEA might want to enter, since there are still plenty of countries where we’re not present yet.
What would you say are the most exciting parts of your job?
EVITA: When we're developing new tools or methods like the assessment for determining whether we should enter a new country, there are lots of stakeholders at the retailers and within the rest of the IKEA value chain that we need to engage. These range from the retail managers in the country to the supply organisation to the range development organisation. I get to be exposed to many stakeholders and try to manage their interests. This is an exciting and challenging part of my job.
Through this work, I also feel I can influence the longer-term strategic direction of IKEA. That is quite a humbling and an exciting thought to believe that you can play a role in achieving that impact.
Can you describe how IKEA assesses the retail potential of a new market and what factors need to be in place before you enter a new market?
EVITA: Our vision is to create a better everyday life for the many people. One of the first things we do when evaluating whether to enter a new market is to evaluate their “people potential.” That means looking at how many people we could reach who could afford our products. How many people could we positively impact? I think that’s a bit of a different approach than other companies use and was also surprising to me, but it's very much in line with our vision. Then, in addition to evaluating people potential, we of course also look at financial potential.
Luckily, the home furnishing sector is an established market so there's a lot of research and data available. We try to assess how big the overall market is and how it'll develop over the years to come. That’s the tricky part—trying to predict the future. We analyse the macro-environmental factors, trying to understand consumer behavior and how they might change over time. Then we focus on competitor analysis. We need to understand who the other players are and who is taking bits of the pie today. All these insights are summarised in a risk evaluation. We look to understand what various macro-factors like political stability or uniformity of law interpretation in the country means for IKEA and what could be possible scenarios.
This is the starting point. Then we also start looking at IKEA capabilities. It’s generally very important to understand why a company wants to enter a new market. For us, we know that IKEA wants to better everyday life for the many people. Beyond that, what are the further objectives? How do we see that expansion could support our current business? Perhaps we already have a supply chain there so a new market would provide additional volume. We try to understand what it would take for IKEA to enter that new market and what value it would offer to the overall business.
That makes sense. So, you mentioned assessing the “people potential” and the financial potential of the market. You also mentioned the risk assessment and competitor analysis. At what point do you start to consider supply chain or the logistics of how you’d actually build the business in a new country?
EVITA: Once we have a sense of whether expansion is feasible and interesting for us, then we go down the line and evaluate our other competencies. This includes understanding the supply network. What would it take for us to bring the goods into the market, and consequently what would it mean for our prices? We need to make sure IKEA is affordable for the many, not just the top socioeconomic level in a country. A blended cost estimation is a critical part of the whole analysis.
As you go through the stages of a new market assessment, who are you talking to? Where are you getting data? What sources are you reading? How do you pull an analysis together?
EVITA: Once we have done our own initial analysis of a new market and determined that it's worth investigating further, we start talking to stakeholders to gather more information. We talk to our market intelligence unit which has quantitative data on the home furnishing market. We also do qualitative research. We go into the market and talk to customers. We also involve our customs organisation and the product compliance organisation amongst others. They do their own analysis. We work with some external consultants, and we also go to the market for field trips. Sometimes we do competitor analysis by actually visiting them and sometimes we start just by Googling for information.
It’s super important to make sure that we involve the right stakeholders at the right time. You need to think through the different elements that could impact market entry early on so that you can speak to those stakeholders early on.
There have been situations when we have developed a strategy, but then realises that we didn’t involve the right stakeholders. For example, you might realise there are limitations in a new market in terms of IT systems and we should have spoken to IT experts at the outset of our process. If we fail to engage the right people at the right time, our expansion plan and timeline will be compromised.
How much do you think about localising your stores in specific markets versus maintaining consistency with the overall IKEA brand?
EVITA: Our brand is something that we do not compromise on, and our product range is distinctly IKEA irrespective of where you go. All our retailers in all our markets cannot compromise our trademark and the trade dress. You need to follow certain rules for how the store looks and the tone with which you speak to the customer.
Having said that, what you sell in the store needs to be locally relevant. You really need to understand the home furnishing preferences in that market and how people live. For example, if we need to present a storage solution, we need to create a store display complete with things that people in that market might actually be storing. In Sweden, that might be books. In Asia, that might be something else.
The general concept is always the same and how you present IKEA is always the same, but you need to make sure that you speak to the needs of the people in the market so they feel that they have a connection with you.
Are there any red flags that IKEA has encountered that indicate a new market is not ready yet for expansion? What might indicate that you should stop thinking about expansion in a given market?
EVITA: Home furnishing solves relatively universal problems. People in markets across the world need storage solutions or things that help them live in small spaces or with children. There's the potential for us to solve these problems all over the world. The big question becomes whether or we can offer our solutions in affordable and safe ways. Can we run key operations in this market without compromising our brand perception?
Those would be the most important questions we need to quickly figure out. We’ve seen red flags if the country has a judicial system where laws can be interpreted in many different ways. Can we really operate in that kind of environment, given that we have strict rules that we follow in terms of compliance? We need to make sure that the business environment is safe and that we're aware of the associated risks so we can mitigate them without incurring huge costs that we would have to pass onto the customer. Corruption is also a big red flag for us because we cannot engage in those kinds of behaviors or actions. So if corruption is prevalent in a country, we would say no right away.
That said, IKEA sometimes does like to take on a challenge and go into a new market to actually help be part of a solution. If we can find ways to run our business operations smoothly, we might be a good example in a new market. We could be something that makes the government of a country change the way they operate. In essence, when we enter into a new market, we focus primarily on making sure we're not compromising or contradicting our IKEA values.
That is a great summary. What is your advice for social entrepreneurs?
How should they think about expanding into new geographies?
EVITA: I think it’s super important from the beginning to understand why you want to be expanding into a new market. This should always be the starting point because it'll guide the strategy: you need to have a clear rationale for market entry. For social enterprises, I imagine that market expansion could be for reasons like securing access to extra financing or expanding their impact or providing additional access to technology. Whatever it is, keep that objective top of mind.
Then, of course, the next step is to understand if there's a problem in that market that you would be solving with your social enterprise. You need to go through hypothesis testing to ensure that people in your new market do indeed face the problems you think they do. Once you validate that the problem exists, you need to understand if it's being solved in any other way. Who are the fellow problem solvers? What is their value proposition? How is your way of approaching the problem similar or different? How would it be contributing to further eradicating the problem?
Then what is important is localising your solution. It's important to understand if there's a fit. Even if you already have an established business in a neighboring country, the attitudes of people in an adjacent market might be completely different. The solution that works in one place may not work in the country next door. It’s important to go out and test your solution with a small group of people if you can.
Once you go there and see things with your own eyes, your perspective often becomes completely different. If you can test things on a small scale and bounce your ideas off the who would be your target audience, this is always worth the investment.
Any other advice for social entrepreneurs who are thinking about scaling their business to new markets?
EVITA: Your gut instincts about whether or not you should expand your business are important, but the more you can verify your assumptions using data, the better. If you're able to test things and get some facts behind your ideas, you're less likely to make mistakes when going into a new market. It’s inevitable you will encounter surprises, but the more you can limit that, the better.
If you already have connections to other entrepreneurs currently operating in the new market, speak to them. Find out what running a business is like in that market from people who are already there. Leverage whatever information you can before you go for it.
This interview was done as of IKEA as part of the IKEA Social Entrepreneurship and Acumen East Africa Accelerator in 2020.
All use, reproduction and distribution of this work is subject to a CC-BY-NC-ND license.