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K for the name of the farm and village in Sweden respectively, where he spent many years of his childhood. Ever since being established in 1 943, KEA has earned the title of the world’s largest furniture retailer, and the products being offered are portrayed to be of Scandinavian quality design, at affordable prices much Like the Asian made products. Angina Initially offered his products, beginning with basic products such as pens and Jewelry, then started with the disassembled furniture that was packaged in the flat box concept they are known for, through a mail-ordering catalogue and distributed them using the mounts milk van.
The first KEA store was later opened in 1958 in Angina’s hometown, Almost. Their mall products are Do It Yourself (DID) concept furniture, as well as home accessories and Swedish delicacies. Angina accomplished his vowels of affecting many people around the world providing them with affordable low priced products but of great quality. KEA became the first furniture producer and retailer to expand internationally, and the empire that KEA developed into began in Norway in 1963, this triggered an avalanche of stores opening across Europe, and then going cross
Atlantic in 1985 by opening a store in Pennsylvania, USA. As of today, KEA are group, their international presence is well known. And their workforce is consisted of 139,000 co-workers. KEA stuck to its innovative way or providing high quality Scandinavian furniture with lower costs than their competitors which made them highly favorable amongst the public, and they managed to achieve the low cost not by compromising on the quality but by taking advantages of certain economies of scale. Cost leadership is what KEA managed to excel in.
Practices such as keeping the cost low starting at the design hash of the product, yet ensuring the quality, gives them the extra advantage as well as the flat packaging which enables them to ship high quantities at lower costs and reach their demand globally through their efficient well spread 33 distribution and 11 customer distribution centers. With roughly 30,000 square meters of retail space they include over 10,000 products, available on their ‘Holy grail’ catalogue, where copies given out for free reached 212 million. The supply is covered by the KEA Industry group, which is consisted of 41 production facilities based in 11 countries.
Also KEA own 1,084 home furnishing suppliers in 53 countries. Most of the supply emerges from the Asian production sites, as the cost per unit is lower. KEA has enjoyed a steady increase in total revenue over the years; while net income for 2012 was at 3. 2 billion Euros. Although the company is Swedish at heart, it is currently a daughter company of Dutch based ANGINA Holding B. V, a daughter company if ANGINA Stitching Foundation. Their roles are re-investing, handling the philanthropic activities and supporting the KEA Group.
Although the structure of the company is complex, unlike their internalized strategy, KEA Sweden, part of the KEA Group, call all the shots regarding the different long-term strategies for all their products. When KEA are a bit skeptical about a certain market they have little knowledge of, or a market with high risk and uncertainties, they opt for franchising. Candidates are chosen based on their financial status, and the know-how in retail in a particular market. Furthermore, KEA periodically audit their franchisees in order to make sure that the standards are up to par in comparison with overall performance. 1. 2.
Global Furniture Industry 1. 2. 1 . World Furniture Industry Characteristics After the difficult economical crisis in 2008, the furniture industry recovered quickly. In 2012, the industry was up to $ 104 billion and represented an increase of 7. 3% from 2011. The world furniture market is expected to reach $ 440 billion by 2015. By looking at the world environment, we can see that Canada and the USA are the major furniture importers with 15% annual purchase and China became one of the largest exporters. For example, the European furniture market manufactures over 50% of the world production, with Germany as biggest producer in the European
Union. Only includes chairs, tables or beds, but changed by adding also the manufacturing of specific parts, decoration, interior designs, mattresses, lights, kitchen, tools, and even more. Here are the main characteristics for the industry: * Use of skilled and unskilled work force (especially from rural areas), * Implementing more and more the use of manufacturing technologies to decrease the human factor & costs, * Highly diversified industry as spread across lot of different sectors and product range, * Fast growing industry, * Furniture companies are highly adapting to local needs and expectations, *
Most competitors are only regional and centralized ones. 1. 2. 2. World Industry Trends As the global economy grew quickly during this past 10 years, the furniture manufacturers and retailers followed the trend too. In terms of potential trends and opportunities of the industry to develop, which could be also implemented in our research on Kea would be the following selected countries: * China, * Southeast Asia, * Poland, * Russia, * India, * Australia, * Latin American countries (Mexico, Brazil, Argentina, etc. . All presented above countries had been selected because they presented an interesting economical growth rate, potential customer needs to satisfy, and a great opportunity to compete existing local competitors with, for example, Kike’s pricing strategy. 1. 2. 3. Kike’s main competitors Kea is nowadays an internationally strong corporation and brand. If we are looking for any international competitors, we can clearly see that there aren’t any major one facing ‘KEA.
Through this we can state that KEA is mainly competing with local furniture retailers in all countries where they are operating or going to open new stores. Is also having a global presence without any main international competitor in their Swedish food experience that there are offering as package with the “Kea experience” where people are purchasing cheap furniture and enjoying a meal. This Swedish taste & culture (kitchen, furniture names, etc. ) that the company implemented globally, is actually one of the most important competitive advantage for their brand name.
In terms of local competition, Kea is facing several competitors in each region they are operating in, such as Garden, Fortune Brands, Masc., and Rubberier for the USA or Fly, Conformal, and Gladioli in Europe. In order to give a clearer view on the ajar competitors around the world, we are going to pick few countries and share the outcomes in terms of their competitors, such as in the USA, Brazil, and Switzerland as they are countries presented in the case study and Switzerland as we are studying here.
Kike’s competitors in the USA As we can see on above competitor example’s list, we can see that there is a high competition in the USA, but if we are looking closer, we can actually pick up two main ones, which are Pottery Barn and Minimalist. These two companies are having a well-established brand image within the US furniture market. In terms of competitive wreath, Pottery Barn is having a really strong brand image in the USA, Puerco Rice, and Canada, but they can’t compete on the prices against Kea due to their powerful brand image.
While turning to Minimalist, we can see that the main threat is the Scandinavian aspect they are offering through their products within the US market, but they are not offering the true Scandinavian heritage and culture that Kea does. Kike’s competitors in Brazil By having a look on the Brazilian economy, we can clearly make the statement that it is a very attractive country for international expansion as it is one with the highest economical growth rate & trends. By looking our Kike’s world presence map, the international company isn’t operating in the Latin American countries.
Our team thinks that it would be totally logical to begin an expansion in South America with Brazil as starting point. In terms of competitors, the market isn’t as saturated as in the USA. The only major furniture retailer in Brazil is called ‘TENT’ and owns around 18 stores in the country. TENT is having as possible threat toward Kea the “build-at-home” concept for low prices and does also offer “at home delivery and assembly’ with a higher price. As already offering the low prices for furniture in boxes, it will be a difficult work for Kea to differentiate and take market shares by implementing the Scandinavian lifestyle products.
Even if Kea could face a tuff competitor on the market, our team do believe that the international structure of the company could offer extra pricing strategies through economy of scales and international suppliers in order to compete Tent’s Kike’s competitors in Switzerland Nowadays Kea is operating in most of Swiss departments (cantons), where the company is facing a tremendous success since when it entered the Swiss market 973. Since 2006, Kea is facing two major new competitors that are also successfully entering the Swiss furniture market.
The first one is a French company called ‘Fly, which is owning 19 stores all around Switzerland offering modern designs and good quality furniture for accessible prices, but Kea is still competing on prices, simplicity, and achieving the customers expectations. The second competitor is also a French company called ‘Conformal’ and is having 13 shops located all around the country. As threat, they are actually offering the same design concept than Fly, but with a lower laity and prices, but Kea is also still offering a wider & modular range of products at lower prices compared to both main competitors. . Question 1 Businesses cope with different methods of hierarchical entry modes as they adapt to the specific market. Wants and needs are catered to in an international expansion in order to gain local appraisal. In KEA for example they have opted for a centralized approach to the internationalization. As mentioned earlier in the report regarding KEA Sweden being the spearhead of their whole operation, it oversees all operations across the world and maintains the product development.
Previously, companies such as Sears and Ezra attempted to enter the Brazilian market by a centralized approach but both failed to penetrate, and this was clearly due to the decision-making strategies. Other alternatives for KEA include the regional headquarters and the transnational organization. When speaking of a transnational organization, it basically means the integration of all the company’s activities such as R&D, marketing, and sales. It’s a merge of all the activities that the firm undertakes globally in order to understand the similarities and differences of all the markets they operate in, and improve global competitiveness.
By focusing on region centers, the company will be involved in stimulating the sales in the whole region, this can be achieved by the downstream of activities such as marketing and sales services to the region, or by a full package downstream integration from R&D down to the sales of the region, with the latter being more favorable as local and regional competitors will be easier to compete with, as well as meeting specific demands in the market, although it may be accompanied with higher risk.
They would be able to control costs as they do across the world if they can downstream activities from production to sales, and gives them he same, if not better, competitive advantage of a local competitor. This method would be more favorable for KEA to follow as a market such as Brazier’s would need careful attention and can use it as an entry to the whole region. As explained in our introduction, Kike’s business strategy is focused on building and owning their own shops or facilities in the selected countries.
They aren’t actually into planning any collaborations or Joint ventures with foreign companies. Actually, if Kea is wishing to expend internationally within different markets, such as India, Algeria, Montenegro, or Malaysia, they will need to process a specific Joint venture, because the protectionism and laws of such countries are avoiding foreign companies to acquire or own more than 51% of a company’s equity or ownership.
For this reasons, the following board is listing the advantages and disadvantages of joint ventures: By looking at above pros & cons according to Kike’s current entry mode, we can see that on one side the company could benefit from key success factors, such as access to new technologies or knowledge and cost reduction. On the other hand, Kea could see the slow decision-making process or the loss on general operating controls as quality or management as an important threat, which could lead to break the possible Joint venture.
However, we do think that if Kea should be careful while selecting the entrance strategy while entering Brazil or any other high-risk countries because of strict tariffs or high bank interest rates. According to this environment, we do believe that Kea would need to make Joint venture with a local company in order to gain credibility, knowledge, contacts, etc. To get a smoother entrance experience and increase the success probability in new markets as Brazil. 4.
Question 3 After analyzing the global position and opportunities that KEA enjoy, we recommend Brazil as a great entry point for KEA to the South American region. As we can see in the case of C&A, they had the approach of adapting to the local market, which proved that their decisions led them to perform well. Should KEA use the same approach when entering the market, and adapt to the local markets perhaps by downstream integration of local suppliers to gain competitive advantages, we think that they have great potential to perform well.
Brazil is known for their rainforest’s, which are located mostly in the south, but production facilities close by will give them access to valuable resources and raw materials, especially wood, and further create an advantage in their favor and possibly become a sourcing location for the whole region. As observed in the industry analysis, Brazil economy and environment is a fast growing one and offering good potential opportunities. Cities such as ROI De Jeanine and SAA Paolo are considered to be the economical part of Brazil, and they are located in the southern parts as well as the rainforest’s.
Although there is some lattice unrest in the region, Brazil will prevail especially with events such as the World Cup that will attract more and more investments to the region. And in our opinion we view a country like Brazil where a large number of people are working on especially if they integrate with local suppliers and create the same relation as they normally do with suppliers elsewhere. The country is strategically situated where it borders with many countries in the region, so access to regional expansion in the future would be attractive. . Question 4 If Kea is interested to enter the South American markets, the company will need to analyses carefully all regions and countries as the political and economical situation as it is very complex to adapt and learn out from different systems, currencies, political regimes, etc. Even if the Latin American countries are quite stable, the areas are still subjects to high volatility. For example, we know that Brazil is organizing the next World cup and Olympics games, which could be an important reason for this incredibly high growth rates.
Even though, what would happen if this economical boom is getting lower or even stopping after the planned events? Another aspect bout such areas is to see the actual situation in Venezuela since Hugo Shave’s death. We can see that the country is entering in a chaos period and could probably lead the countries surrounding or dependent on Venezuela as Bolivia or Peru to an important desalination. Finally, Argentina is facing a strong economical deterioration due to the high volatility rate of the currency and markets.
While taking all these factors into account and keeping an eye on the up-growing tensions and instability in South America, especially in Venezuela, we do believe that Kea should plan all operation sourcing aspects through sub-contractors. This treated would give them extra safety against the possible economical and political threats in these regions. Actually, we are proposing them to use the same sourcing strategy than while entering North America.
This solution would protect Kike’s corporation against all possible external desalination threats, which could reduce success chances within the new entrance, but also create high dangerous costs in the long term. If they are deciding to use sub-contractors, they will need to control if they are operating in the way they are actually wishing to make business. So they are not losing the control and the Kea experience and practices. Even if the company would hire local work force, the company should be also careful and take as threat the possible increase or changes in salaries, which could lead to specific conflicts or tremendous losses. . Outcomes As analyses in this report, we can clearly state that Kike’s company is carrying a very powerful and world known brand. After having a closer look at Kea market strategies, way to deal within markets or while entering a new market, and also Kike’s business model, we do believe that the way they are doing business is quite effective and they should continue in that direction because it is working at their advantages and offering great competitive advantages within the world markets.