Case study KEA alternative entry strategy
Can you see any alternative entry strategy that KEA could have applied when entering the Russian market? What would have been the advantages and the disadvantages of these alternative strategies ? For KEA there was alternatives strategy for entry the Russian market, as any other foreign market, the options for the company where: Exporting Licensing Joint ventures KEA can use any of these alternatives but there were not in the same line has the company wanted to be In Russia, so they didn’t use it and stay with the direct Investment.
If the company used this strategies the advantages and disadvantages would be: Exporting Advantages: -Cheapest way to enter – the company do not have to know a lot about the new market – is the minimizing the risk and investment Exporting strategy allows to have a speedy way to enter the new market and also maximizes the scale using existing facilities. Disadvantages: There is no company image transfer to the local market, also there is a limit access to local information and the company is seen as an outsider.
By taking the export strategy the KEA will have a lot of transport costs and have to be aware of the trade aeries and tariffs that are always a disadvantage for the company. The advantages that comes with licensing In that the company nameless the risk and investment and a speedy entry in the market, like in the previous alternative, but it has a difference because in here the company is able to circumvent the trade barriers. This alternative also has a very high return on investment.
Disadvantages: There Is a lack of control over use of assets for the company that Its lending the license, also there have been cases when the licensee becomes a competitor for the original company. Another disadvantage is the knowledge spillovers and the fact that a license period is limited.
One of the most wanted advantage with its alternative is the Know How of the other company, and also to overcome ownership restrictions and cultural distance.
There Is also other advantages such as the combine resources of the two companies, the potential for learning and the difference in the investment (less investment)The 1 OFF company Is seen as an Insurer. Dilettantes: The first and most is the difficulty for manage the Joint venture, also the dilution of control that comes with the same manage problem. Other disadvantage in that this alternative have more risk than exporting and licensing.
Finally there is also the possibility that the partner may become a competitor. 2) To what extent do you think that Kike’s entry strategy for Russia is based on adaptation and on standardization? How are those approaches balanced? KEA in the strategy to enter Russia used both, adaptation in one hand and standardization in the other.
KEA wanted to transfer the KEA culture and values in its arrive to Russia, with the mind set of taking the “KEA way” to the new market.
To o this Kea first try to understand the market and know about the new market but it was an unsuccessful quest, so they have to change the way that they were looking at the market and it was then that they started to know the new market. There were also situations that helped KEA (like staying in the market when every other foreign company were leaving the country) , but Kea manage to be in the balance between standardization and adaptation, thanks to research and also the similar costumers between Russians buyers and the Mammal buyers.
KEA used the standard values of he company and manage to change the Russian way of think when they look al furniture, now they know that they can buy nice quality furniture for cheap prices, and KEA also manage to offer something for the new costumer, like adapt to offer products for small living spaces, and that was the key to the success (adapting and selling with the same standard of attention and service like in the other KEA stores). 3) In what respects do you think that Kike’s market behavior in Russia has been different due to the fact that Russia is an emerging market?
There are some important differences between emerging and well-established arrests. In case of Russia it would include: Demographics – after the transformation of the economic system in Russia, there were many people getting rich quickly.
At the same time, there were high levels of poverty. Thus, Russia was lacking a typical middle class, which is the main target of ‘KEA. Dynamic changes to the market – an emerging market is a very dynamic environment as the legal, social and economic system are not well established and are still changing. Legal issues – in an emerging market there is usually a lot of bureaucracy, which impede getting necessary legal permits. Corruption is also very common.
Kike’s market behavior was influenced by those differences to some extent. First of all, no special marketing research was carried out. The market in Russia was still undergoing rapid changes and Russian customers did not have much contact with products similar to ‘Sea’s. Thus, data about the Russian market was often uncertain and difficult to assess.
That’s why, KEA decided to adjust its market behavior only after entering the market. Once they entered the market, they practiced home visits to customers in order to learn about the cultural differences, hat were partly resulting from Russia being an emerging market.
Furthermore, KEA Ana to “recreate I TTS company culture Trot scratch” As ten economic system In Ursula has been recently transformed, there was lack of qualified personnel having experience with free market conditions.
Kike’s values and practices weren’t also typical for Russian market before. Thus, KEA had to put much emphasis on the training at both overall management and store level. On the other hand, KEA didn’t take into account the inequality in purchasing power in Russia, typical for an emerging market. Because of that, KEA didn’t have profit for the first few years in Russia, as its offering were still too expensive for the lowest class, and not luxurious enough for the rich.
KEA faced difficulties in Russia, also because of bureaucracy and corruption.
They waited for a permit to establish one of their stores for about a year, because of their strict policies concerning bribery. 4) KEA has a vision of building up a global brand. Can KEA be regarded as a global brand? How does Kike’s marketing strategy in Russia influence/contribute to the company’s brand vision? It is clearly visible that KEA is a global brand, by sheer figures alone. They operate in 40 countries, have 334 stores and employ over 130000 people all over the world. The only continent where KEA is not present is Africa.
What’s more, KEA is widely recognized by customers and they still continue to open new stores. The business idea of KEA is formulated as follows: “We shall offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. ” Kike’s marketing strategy in Russia is fully in line with it. KEA didn’t change its product’s range in the Russian market and continued to offer low prices. They aimed at introducing something new for Russian customers instead of offering products typical for Russian market.
As they stated “The range is supposed to be KEA-unique and typical ‘KEA”, which was considered essential for preserving their image.
Kike’s vision is “To create a better everyday life for the many people. ” This is also being realized in Russian market, as KEA focuses on providing solutions for customers and adapt to their needs. One example of that re storage solutions based on the theme “Living with small spaces”, which took into account the fact, that Russian apartments are usually small. Another example would be developing the room settings to reflect local conditions.
A good balance in terms of “standardization vs. adaptation” allowed KEA to keep in line with its business idea and brand and at the same time contribute to its vision of providing solutions for better everyday life.
Thus, Kike’s market behavior in Russia was both influenced by its brand and contributed to strengthening it. 5) What do you think the ownership form means for the Kike’s entry strategy and its Eng-term activities in the Russian market? The organization of the KEA group is very complex but also very interesting. The group is run by INKING Holding B.
The Holding company is owned by the Stitching ANGINA Foundation. The founder of KEA Angina Kampala is member of the foundations supervisory Board. The whole franchise concept on the other hand is ruled Day Inter K A systems wanly Is owned Day ten Interior Wantonly. I Nils foundation is controlled by the Kampala family. Knowing this it is easy to understand that the entry strategy in the Russian market differs from the way a corporation loud do it. As the text says the decision to stay in Russia after the financial collapse was made by Angina Kampala.
He pushed through against the whole management group. This was possible because he has, together with his wife and attorney, the majority in the supervisory board of the foundation which dominates the group. In a corporation you have many investors with rights of co-determination and they would deny this decision after the crisis in Russia. Furthermore the text says KEA started in the market without an specific strategy and without proper market research. But this loud be needed to support the decision of entering the market with a corporation.
Kike’s long-term activities were also possible because of its special structure. During the first years in Russia KEA made no profit. For a stock corporation this would mean much pressure because profit is the key figure for the stock market. With negative profit and dropping share prices the owners would force the company to revise its strategy. Shareholder Value is one of the main targets for a corporation which means to increase the capital of the shareholder by increase the share price or by giving him a good dividend.
But as the text quotes KEA needs all its money in Russia to grow.
In conclusion I would say that KEA could only succeed in Russia because of its special structure and not being ruled by shareholders. 6) Discuss Kike’s opportunities to achieve long-term success in the Russian market. What are the main challenges that KEA faces? How can they be managed? KIKE’S vision on the Russian market is to become “the main supplier of home furniture to the normal Russian families and their sales will exceed those in their home country Sweden. ” Becoming the market leader is an excellent base for achieving long-term success.
But therefore they have to make substantial growth.
On opportunity which KEA certainly uses is to open new stores to reach more customers. 2004 KEA had four stores in Russia nowadays it has eight and ten more in planning. But with opening new stores undo new regions KEA has to manage certain difficulties. Corruption is a big problem in Russia which affected KEA in the past. Furthermore the buying power in Russia is still behind the western markets.
The middle class in Russia is Just about to grow. KEA has to ensure that its stores are opened in region were the people can effort the products. This could be done through a proper market research.
But with entering new regions in Russia KEA has to pay attention to the cultural differences to the western markets which are even bigger than in Moscow and SST. Petersburg.
KEA has to use its experiences, which it clearly has, in entering new markets to succeed and to get a first mover advantage. Russia is an emerging market which brings more opportunities but also threats. One big advantage is that the number of suppliers in Russia is increasing. Through the growing competition on the supply market the prices will drop and KEA can save money. On the other hand the competition in Kike’s market is also increasing.
On that account KEA not only has to win new customers but also it has to bind its old customers. KEA has to use all its cross and upsetting potential to profit from its customers. I en violins AT I KEA In Russia Includes Tanat ten customers Duty tenet wangle furniture from ‘KEA. All in all KEA is on a good way to stay successful in Russia. It’s in the market for more than 20 years and so it is well known.
The buying power is increasing in Russia and with it KEA sales are increasing. Now is the time for the great investments of the past to get profitable.