Critical analysis of strategic aspects of IKEA and McDonalds taking into consideration theories of Standardisation and Localisation as well

as Crossing Borders (becoming an International company) A note evaluating the Writers learning experience

1. Executive Summary
The aim of this paper is to critically analyse the strategic aspect of IKEA and McDonalds with a focus on existing theories of standardisation and localisation as well as their market entry strategy. This paper asked three research questions: what strategies they utilised to enter their various international markets? What strategies they utilised to win local customer confidence? and why both companies are very successful in their internationalisation strategies? This paper found out that both companies are similar in their internationalisation strategies as they both utilise the franchising model to enter new countries. IKEA uses a strict franchise strategy, while McDonalds has 80% franchise and 20% company owned restaurants. In order to win local consumer confidence, both companies have had to adopt a more localised strategy for specific markets, and both companies have been very successful because they standardise their core brand strategy. This paper recommends that IKEA and McDonalds consider an even more localised strategy for markets other than their home countries.

2. Introduction
The purpose of this paper is to critically analyse the strategic aspect of going global for two companies: IKEA (the Swedish furniture retailer) and McDonalds (the American fast food chain), McDonalds. In doing this, this paper will take into consideration two theories: standardisation and localisation and what strategies companies utilise to cross borders or go international. The increase in world trade, an increasing integration of the worlds major economies, and the onward march of globalization, will mean that decisions on standardization and adaptation of marketing strategies (Viswanathan and Dickson, 2007: 46) as well as the strategies required to go international will continue to be an important issue for academic research, strategy and marketing practice Various reasons lead to internationalisation of brands deciding to go international. These include possibilities of higher profits than those offered by the domestic market, larger customer base, reduce dependence in one market, and counter-attack competitors (Kotler and Keller, 2006). Thus it is important to understand the strategies businesses utilise to go international and what strategies they use to compete internationally. This paper seeks to investigate what strategies IKEA and McDonalds utilised to enter their various international markets, what strategies they utilised to win local customer confidence and why both companies are very successful in their internationalisation strategies. In order to answer these questions, the structure of this report will be outlined as follows: Critically analyse existing literature about both theories : Standardisation and Localisation and crossing borders An analysis of the methods of data collection IKEA and McDonalds and how their strategies relate to both theories being analysed Finally conclusion and recommendation

3. Review of Existing Literature

In reviewing existing literature, this paper will first explore arguments regarding the concept of standardisation and localisation before reviewing those that pertain to crossing borders.

3.1. Standardisation
Supporters of standardisation stipulate that consumers needs, wants and requirements do not vary significantly across markets or nations (Vrontis et al, 2009). Theodosiou and Leonidou (2003) agrees with this concept by suggesting that global companies aim for the promise of market similarity, technological uniformity and similar consumer needs, economies of scale, similarities in tastes and preferences, a consistent company identity and decrease in managerial complexity. There has been a lack of agreement amongst researchers of what standardisation really is. Jain (1989) views it as having a common marketing program, but Szymanski et al (1993) argues that it includes a common strategy of allocation of resources across the marketing mix. Viswanathan and Dickson (2007) concurs with Jain (1989) in their argument that it is a case of having a uniform marketing program. Medina and Duffy (1998) reviewed various definitions of standardisation and suggested that the concept goes beyond marketing program or allocation of resources. They proposed that standardisation entails extending and effectively applying domestic target market specific product standards as well as their tangible and intangible attributes to markets in foreign environments. Thus creating a standard to be applied rather a standard to be achieved. Other authors (Rigby and Vishwanath, 2006; Doole and Lowe, 2008) stress that firms strive to achieve standardisation mainly to improve efficiency and they if they attempt to customise their product or service to every location they risk losing economies of scale that makes them profitable. However Ryans et al (2003) points out that the argument for standardisation is weak and relies on consumer homogeneity. They mention that when argument for standardisation started in the 60s, 70 and early 80s, technology was still backward compared to present day, as a result the goal of firms was to increase export and minimise cost. Thus with the advent of the internet, changes in technology, cost minimisation is no longer enough. Companies are now more consumer oriented and strive to satisfy customer needs wherever they may be, hence they need to adapt their product/service to suit their customers needs.

3.2. Localisation
Proponents of localisation (also called adaptation or customisation) argue that there are overwhelming differences between countries and in some cases regions within a country (Vrontis et al, 2009) and when businesses go international, they are faced with a number of macro-environmental factors such as climate, race, occupation, law, technology, topography, different kind of society, consumer tastes, disposable income, taxation, nationalism, local labour costs, literacy level and standard of education (Paliwoda and Thomas, 1999; Czinkota and Ronkainen, 2009). Rigby and Vishwanath (2006) argue that the one size fits all strategy of stalwarts like Wal-Mart no longer fits, as diverse consumer communities differentiated by ethnicity, wealth, lifestyle and values now demand customised products. As a result, international companies need to alter their strategy and other elements of the marketing mix in order to fit the requirements of the particular country, local tastes, meet special

market needs (Cho and Cheon, 2005; Vrontis and Thrassou 2007; Vrontis et al, 2009). Moreover, Vrontis and Thrassou (2007) stress that not only is there evidence of cultural and other differences, but having a standard product, service or marketing mix everywhere can scare off customers, alienate employees and blind the company to its customer needs. Doole and Lowe (2008) argue that what really drives adaptation or localisation are cultural differences that must be taken into consideration when implementing strategies in a different country other than home country. For example a UK recruitment consulting firm establishing an office in West Africa needs to take into consideration that sales cold calling to generate business (as is done in the UK) cannot be used because of the collective culture and business is done based on personal relationships and not necessarily professional relationships. Thus the business has to take a different approach (e.g networking) into their business development strategy. It should be noted that localisation/adaptation has its limits. Rigby and Vishwanath (2006) indicated that a company cannot customise every element of its business in every location. It would be too complex, very expensive and probably paralyse the companys operations. Thus they recommend customisation by clusters. Which is simply grouping a regions or certain countries together according to their buying petterns, tastes, laws, culture e.t.c.

3.3. Crossing Borders or Internationalisation Strategies

Internationalisation is the process of adapting firms operations (strategy, structure, resource, etc.) to international environments (Calof and Beamish, 1995: 116). The internationalisation of brands has been motivated by a variety of factors which include cultural homogenity, technological advancement, deregulation, international competitors, economies of scale and scope, sales expansion, geographic diversification, resource and labour acquisition and inteernational brand recognition (Yu, 1999; Segal-Horn, 2002). There is a general agreement amongst researchers that a typical range of strategic choices for internationalisation or market entry modes consists of direct and indirect export, strategic alliances, franchising, licensing, management contracts, joint venture and merger and acquisition (Athiyaman and Go, 2003; Kotler and Keller, 2006; Doole and Lowe, 2008; Johnson and Turner, 2010). Piggy backing, agent and distrubutor (Doole and Lowe, 2008), concession (Coe, 2004). Indirect export utilises independent intermediaries like distributors (Kotler and Keller, 2006) who buy the product and sell them abroad while direct export is managed by the company itself. This has minimal commitment, risk, control and profit potential. For licensing, the licensor (the main company) issues a lience to a foreign company to utilise its process, brand name, trademark, patent, or trade secrets for a licensing fee (Kotler and Keller, 2006). Franchise a form of contractual

internationalisation where the franchisor sells the brand and business concept to the franchisee invests in and pays a certain fee (Kotler and Keller, 2006). They assert that franchise is a more complete form of licensing. Other authors (Hoffman and Preble, 2004; Doole and Lowe, 2008; Johnson and Turner, 2010) argue that franchise is completely different from licensing. piggybacking is another for of contractual internationalisation where the company going international utilises only the supply chain

of an establish company, thus piggybacking. A company wishin to go international may partner with a local company to create a joint venture with joint ownership and management (Kotler and Keller, 2006). Joint venture is usually for a specific purpose. Strategic alliance occurs when a company partners with another company for a specific reason (strategic). It could be in the form of logistics, product, promotional (e.g McDonalds and Disney) or pricing (e.g hotels and car rental companies). Mergers and acquisition occurs when the international company takes over a local company (acquisition) or come together with another company (not necessarily forming a new company).

4. Data Collection
Ghauri and Gronhaug (2010) explain that the method or source of data is very important in finding answers to the research problem. For the purpose of this paper, secondary data collection techniques will only be utilised. Secondary data can be defined as information collected, researched and published by other authors (Ghauri and Grnhaug, 2010). It is a very important source of information for exploring answers to a research problem (Saunders et al, 2003). The process of secondary data collection for this paper include: 1) Library research- which gave access to journal articles (both electronic and paper), textbooks, magazines, reports and web sites. 2) Lecture notes 3) Lecture slides Most of the information about both theories on localisation and standardisation and internationalisation came from existing journal articles and textbook on international marketing, business management and strategy. Information on IKEA and McDonalds was found on both company websites and previous research on both companies in journal articles. This method of data collection is not very good because according to Saunders et al (2003), though secondary data gives an opportunity to explore answers to a research problem, it does not fully represent or address a research aims and questions.

5. Findings and Discussion 5.1. IKEA

IKEA is a Swedish home furnishing retailer which has grown into a global retail brand with 290 retail stores, 131,000 co-workers in 41 countries generating annual sales of more than 20 billion GBP (IKEA, 2012). IKEA utilises the franchise model for all of its retail stores and are able to sell quality products for between 20%-50% less than their nearest competitor (Kotler and Keller, 2006). The IKEA global strategy focuses on cost reduction, very efficient supply chain, bulk purchase, furniture

sold in flat pack, thus enabling low transportation costs and consumers assemble it themselves. IKEA initially used the standardised approach globally until recently where it had to adapt some of its processes in countries like China and Japan. 5.1.1. IKEAs Internationalisation Strategy Johansson and Thelander (2009) point out that one characteristic that makes IKEA stand out among global retailers is its standardised approach to every market it enters. It looks and operates the same in every market, or so it appears. Burt, et al (2011) asserts that the product and price range are standard except for small adaptations according to countries. The IKEA strategy is to deliver a brand that has high value at low prices, thus this remains standardised and remains lower than their competitors but the prices vary with country. This applies in countries close to its home market (Sweden). As IKEA enters further markets like China, the company has made significant changes to its strategy in order to compete. Johansson and Thelander (2009: 214) notes that IKEA prices, compared to alternatives for Chinese consumers, are not low but high, offering their products to fewer rather than to more people. IKEA China has had to drop some of its basic principles a centralised source and supply chain to be able to develop its business and reduce prices in order to compete. In terms of place (location and store format), the strategy is standardised for large out-of-town stores in every country. Layouts are aimed to be the same for core features of the store (colour, display and departments) (Burt, et al, 2011). Customer experience in every IKEA store is standardised as well as the IKEA concept of customers being viewed as prosumers (Kotler and Keller, 2006). Customers are part of the process; they are expected to assemble their purchase, thus ensuring that IKEA prices stay low. However, this strategy was viewed negatively in Japan and IKEA suffered an initial set back when it entered Japan as the Japanese did not particularly like flat packed furniture (Johansson and Thelander, 2009). Burt et al, (2011) notes that the most important part of IKEA strategy is their marketing communication the IKEA catalogue. The company uses a standardised strategy globally for this, though there are minor adaptation especially for new markets providing information about the company, the IKEA concept and how to shop (Burt et al, 2011), however, the company has also had to make significant changes to its advertising and promotion strategy to respond to the Chinese market and any other market (Johansson and Thelander, 2009). It should be noted that due to its strict adoption of the franchising model, IKEA has been very successful globally, this is because the franchise model offers low risk, low commitment from the franchisor and gives the local franchisee greater control.

5.2. McDonalds
McDonalds is global foodservice retailer with more than 33000 restaurants in 119 countries. More than 80% (27000) of restaurants are independently owned by local people, 59% are typical franchises while 21% are licensed to foreign affiliates or developmental licensee and 20% are owned and run by the company (McDonalds Corporation, 2012). Vignali (2001) notes that the key to international

success for McDonalds has been its use of the franchising model. This is because the franchise model offers low risk, low commitment and gives the local franchisee greater control. The company franchises with local people, thus selling the US brand culture in both product and service. 5.2.1. McDonalds Internationalisation Strategy McDonalds uses a standardised approach in its international strategy, however some aspect of the companys marketing mix is adapted or localised to particular countries, local tastes, laws or religion. McDonalds aims to create a standardised product globally.The company aims that a Big Mac should taste the same whether in Johannesburg, Toyko, or London. The company reduces costs through standardisation of its product, however it believes that being able to customise its products if need arises ensures success (Vignali, 2001). McDonalds now takes advantage of localisation strategy to enter some specific markets due to religious laws and customs. In Israel Big Macs are served without cheese in come restaurants, in India, McDonalds serves vegetable based McNuggets and mutton served with Big Mac (called Maharaja Mac) (Vignali, 2001). He further points out that adaptation like these is necessary for countries where Hindus no not eat beef or muslims do not eat pork. This ties in with Ryans et al (2003) argument that international companies need to adapt some aspects of their product/service to satisfy customer needs. However there is still the element of standardisation in products, for example due to the strategic alliance with Cocacola, every McDonalds restaurant serves Cocacola products and the McDonalds signature elongated fries are standardised across restaurants. McDonalds pricing strategy is one of localisation rather than standardisation (Vignali, 2001), this is because the company takes a view of the country, local suppliers, income level of customers, values of customers as well as brand perception e.t.c. For example a typical Big Mac meal costs 4.50GBP in the UK, but in Lagos, Nigeria, it cost about 8.00GBP. This because of brand perception as eating the american food, so the typical customer in Lagos will pay more. McDonalds promotion is that of standardised branding but localised advertising (Sandler and Shani, 1991). The company localises its marketing communications strategy as it needs to consider the culture and differences of every country it enters. For example the Im lovin it campaign has been adopted as part of its standardised global strategy however in certain countries like China, Vignali, (2001) notes that their advertising is very specific to the locality.

6. Conclusion and Recommendation

At the start, this paper sought to answer three questions: what strategies MNC like IKEA and McDonalds utilise to enter various international markets, what strategies they utilise to win local consumer confidence and why bother companies are very successful in their internationalisation strategies. It was discovered that both companies utilised the franchise model to go international. Most of IKEA stores are franchises and 80% of McDonalds restaurants are also franchises. This is because the franchise model offers low risk, low commitment and gives the local franchisee greater control. Both companies have a standardised core strategy but have made adaptations in certain countries in order to win local consumer confidence. It can be argued that both companies have been very successful by sticking to their core standardised brand strategy, thus the McDonalds and IKEA brand is known for their standardised service, customer experience. McDonalds aim is for their flag ship product the Big Mac to taste the same everywhere and IKEA is known as a brand with value for low price.This paper will recommend that both companies consider an even more localised approach because standardisation is considered an old approach to internationalisation. Also as both companies enter markets that are further away from their home countries, there will be more resistance to their standardised strategies, thus they need to be open to adapt a greater part of their marketing mix. Finally, both companies need to research the culture, laws, and consumer behaviours of their target countries.

7. References
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Reflection on my learning experiences

Before I started my MSc with Glasgow Caledonian University, I have very little knowledge on my capabilities, weaknesses and strengths; this is because I have never done an analysis of myself. Dunning (2002) indicates that individuals and organisations are now compelled to react efficiently and effectively to organisational challenges as a result the important of soft and technical skills is now very important. The focus of this essay is to write an account of my learning experiences while working on the Global Strategic Management module with a concentration on the group work and assignment. In order to do this, this essay must first define what reflective learning is.

Reflective learning as defined by Socha et al (2003) is a technique by which people learn from experience. This helps individuals become self aware of their capabilities, strengths and weaknesses. My experiences in learning and studying during the Global Strategic Management module have revealed some interesting findings. I previous understanding of business strategy was that it meant only the companys business model, but during the course of the module, I found out that strategy encompasses every aspect of an organisation from human capital, pricing, product, research to customers. As an active member of the group working on the strategic aspects of IKEA and McDonalds, firstly I discovered that a team needs everyone to contribute for the team to be successful. This exercise tested my team working abilities. Though there were disagreements during our brainstorming exercises, I understood that other members of the team had opinions that need to be taken into consideration. Individual differences had to be put aside to ensure that the teams goal was the most important. Also my listening and conversational skills were constantly questioned and as a result improved. Each member of the group was given a particular task which was full of initial challenges on how to analyse secondary data, but I noticed that I had very strong analytical skills and the ability to communicate difficult information in the simplest terms.

A 2500 word report was also required to complete this module. I wrote on IKEA and McDonalds with a focus on internationalisation strategies of standardisation, localisation and market entry. I found the report very challenging. The reason for this that only secondary data was used, as a result conclusion was deduced based on findings from secondary literature. I must applaud myself in the way I approach the report. I had to study at least 50 journal articles and surfed the internet while finding relevant literature on the topic. My time management and organisational skills greatly improved while writing this report. I also had to extract relevant arguments for and against the subject so as to put forward an appropriate conclusion.

In summary I believed I have learned a lot during these exercises, though in order for me to be the best in my field, I still have to work on my analytical skills, time management and team working abilities.

References
Dunning, J.H. (2002) Regions, Globalization, and the Knowledge-Based Economy. Oxford: Oxford University Press Socha, D.,Razmov, V.,Davis, E. (2003). Teaching Reflective Skills in an Engineering Course. Center for Urban Simulation and Policy Analysis. Department of Computer Science & Engineering. University of Washington