IKEA AND THE LAND OF THE RISING SUN: A

CASE STUDY IN MARKET RE-ENTRY

Case study

Student name:
Executive Summary

This case study examines IKEA's experience entering and re-

entering the Japanese market. It highlights the critical role of
market research, cultural adaptation, and operational flexibility in
achieving sustainable success in international expansion. IKEA's
initial foray in 1974 failed due to a one-size-fits-all approach. The
company's successful re-entry in 2006 was marked by a
commitment to understanding Japanese consumer preferences,
offering culturally relevant products, and adopting a more flexible
operational model. The case study concludes by outlining key
takeaways for companies venturing into new international
markets.

Introduction

IKEA, the world's leading furniture retailer, boasts a global

presence with over 400 stores. However, its international
expansion journey hasn't been without its challenges. This case
study delves into IKEA's experience entering and re-entering the
Japanese market, a story that underscores the complexities of
international business and the importance of cultural adaptation.

Early Expansion and Initial Entry into Japan (1943-1986)

Founded in 1943 by Ingvar Kamprad, IKEA's initial focus was on

providing low-priced, self-assembly furniture. This innovative
model resonated with European consumers and fueled IKEA's
international expansion starting in the 1960s. Japan, with its
booming post-war economy and growing urban population,
presented a lucrative opportunity. In 1974, IKEA entered the

2
Japanese market through a joint venture. However, this initial
foray proved unsuccessful.

Factors Contributing to the Initial Failure

Several factors contributed to IKEA's initial failure in Japan:

 Cultural Misunderstanding: Japanese homes were

significantly smaller than their European counterparts. IKEA's
focus on large furniture designed for self-assembly wasn't a
good fit for limited living spaces and a less established DIY
culture.
 Preference for Durability: Japanese consumers valued
long-lasting, high-quality furniture over trendy, affordable
pieces, a preference at odds with IKEA's core offering.
 Unsuitable Joint Venture Partnership: The collaboration
failed to bridge the cultural gap and understand the nuances
of the Japanese market.
Lessons Learned: A Period of Strategic Reflection (1986-
2006)

Following its exit from Japan in 1986, IKEA embarked on a period

of strategic reflection. The company recognized the need for a
more nuanced approach to international expansion, one that
prioritized market research and cultural sensitivity. During this
period, IKEA focused on:

 Conducting Extensive Market Research: In-depth

research focused on Japanese consumer preferences, living
space limitations, and shopping habits.

3
  Understanding Cultural Nuances: IKEA invested in
understanding the Japanese emphasis on space optimization,
multi-functionality, and aesthetics in furniture design.
 Building Internal Expertise: A dedicated team with
expertise in the Japanese market was established to foster
cultural understanding within the company.
Re-entering Japan in 2006: A Focus on Adaptation

Armed with valuable lessons learned, IKEA re-entered Japan in

2006 with a renewed focus on adaptation. This time, the approach
was demonstrably different:

 Wholly-Owned Subsidiary: IKEA opted for complete

control over operations, ensuring greater flexibility in
tailoring the business model to the Japanese market.
 Market-Specific Product Line: A curated selection of
7,500 products, focusing on smaller furniture and space-
saving solutions, was offered.
 Culturally Sensitive Design: While maintaining its core
identity, IKEA introduced Japanese-inspired features like
multifunctional furniture and tatami-compatible bed frames.
 Operational Adjustments: Services like "Tebura de Box"
(pick-up box for online orders) catered to customers using
public transportation.
The Road Ahead: Challenges and Opportunities

Despite a successful re-entry, IKEA continues to face challenges in

Japan:

 Land Acquisition: Regulations restrict the development of

large stores, IKEA's traditional format.

4
  Product Labeling: Strict regulations necessitate meticulous
product labeling, adding complexity to operations.
 Food Regulations: Restrictions on imported food items
limit IKEA restaurant menus, a key customer attraction.

However, opportunities for further growth exist:

 Smaller Store Formats: Exploring formats like urban

stores to adapt to land acquisition limitations.
 Local Partnerships: Collaborating with Japanese
businesses for land acquisition, product sourcing, and
cultural insights.
 Regulatory Advocacy: Engaging with Japanese authorities
to advocate for reforms that facilitate business operations.

Conclusion: Key Takeaways for International Expansion

 Market Research is Paramount: Thorough understanding
of local consumer preferences, cultural nuances, and
regulatory environments is crucial for success.
 Embrace Cultural Adaptation: A one-size-fits-all
approach rarely works. Companies must be willing to adapt
products, services, and operations to the specific market.
 Develop Cultural Sensitivity: Investing in building
internal expertise on local cultures fosters better decision-
making and avoids potential pitfalls.
 Operational Flexibility is Key: International companies
must be adaptable in their operational models to cater to
local needs and challenges.

5
  Long-Term Commitment is Essential: Building a
successful presence in a new market often requires a long-
term commitment, with continuous learning and adaptation.
Beyond IKEA: Broader Implications

The case of IKEA in Japan transcends the furniture industry. It

offers valuable insights for any company venturing into a new
international market. Understanding the cultural context,
conducting thorough research, and remaining flexible are essential
ingredients for sustainable success. Companies must move beyond
simply replicating their domestic model and embrace the unique
characteristics of each market.

Looking Forward: The Future of IKEA in Japan

IKEA's future success in Japan hinges on its ability to navigate

ongoing challenges and capitalize on emerging opportunities. By
advocating for regulatory reform, exploring alternative store
formats, and fostering local partnerships, IKEA can further solidify
its presence in the Japanese market. The company's commitment
to cultural adaptation and operational flexibility will be key to its
continued growth in the Land of the Rising Sun.