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2/6/11

Case Study IKEA in Thailand

1.    Summary of Thai Society.
There are three fundamental factors which influence to multinational companies when doing business in Thailand. These factors are detailed as follows:

1.1.  Law and political regulations. One obstacle foreign business encounters is no foreign companies are allowed to operate retail business, service businesses (restaurant in the store) etc. and own land in Thailand so as to protect local industries.

1.2.  Economic factor. The economy of Thailand is an emerging economy which is heavily export-dependent, with exports accounting for more than two thirds of gross domestic product (GDP). Thailand has a GDP worth US$627 billion (PPP). This classifies Thailand as the 2nd largest economy in Southeast Asia. Due to political uncertainty and the global financial crisis in 2008, Thailand economic growth has been weakened by reducing domestic and international demand for both its goods and services.

1.3.  Society and culture. Bangkok, the capital of Thailand is the center of economical, political and social activities. Many people move to Bangkok from other provinces to find work and make a living since its infrastructure is efficient and convenient. Thai is the official language spoken by more than 85% of the population. English is considered as a second language for educated people. Monarchy plays an important role in the Thai society. The king is highly respected by Thai people. It is wise to be aware of that it is culturally forbidden to touch him or talk about him (Roger, P.85). In regard of religion, 95% of the population practices Buddhism. The philosophy of this doctrine shapes Thai ideology, vision of life, search for balance and harmony and respect to others.  

Cuisine culture is popular in Thai people’s daily life. Unlike American fast food, most families prefer to prepare numerous kinds of traditional food at home so the kitchen plays an important role in shaping Thai style of cooking and eating.

2.    General Comparison between Thai and Swedish cultures
In this part, the GLOBE taxonomy developed by Robert J. House is referred to analyze the differences between Swedish and Thai cultural patterns. According to his research, there are five indicators that demonstrate opposite directions between the two cultures. These are power distance, uncertainty avoidance, in-group collectivism, institutional collectivism and performance orientation. Swedish companies are characterized by flat organizations, clear structure in the form of rules and regulations, independence and autonomy of the individual, group interests, and outcome and achievements orientation. In contrast, Thai companies are characterized by hierarchy, implicit codes, collective interest and interpersonal relationships orientation. Therefore, IKEA should have a serious consideration of these characteristics while doing businesses in Thailand. The manager must be aware of cultural intelligence to understand and bridge these differences. For example, the decision making process should include some procedures for emergent issues; trust, effective and harmonious interpersonal relationships among staff should be established besides getting the job accomplished; in business negotiation, the Swedish should take it seriously what status and position the counterpart is in the organization and society. Nevertheless, as to the assertiveness, both cultures are typical feminine which believes in caring and service for others and quality of life, which could be used as the bridge of intercultural interaction.

3. IKEA corporate culture 
The most important qualities of Swedish are humbleness, equality and hard work. In Sweden employees are the most important resource of the organization; people work in teams, communicate with each other and reach high results.  Human asset orientation is well spread in companies. These characteristics are reflected in IKEA’s values.

IKEA provides high quality products at affordable price, with simple, nature-harmony oriented, clean and innovative designing styles; it cut costs by assembling the furniture yourself, as a result functional home furnishings with high-tech Swedish design become available to everyone. So the IKEA shared values are generally togetherness, respect, simplicity and cost-consciousness.

4. Cultural encounter and suggestions

The key fundamental challenges for IKEA when expanding its business in the new countries are the cultural differences and communication issue.  Each different group has its own cultures and own identities, which will certainly lead to conflict due to misunderstanding each other.  However, it does not mean that cultural diversity creates the conflicts but the way we handle them do.  In order to handle it, we have to understand the cultural differences much more deeply than surface because culture is largely below surface. It influences identities, knowledge backgrounds and self-awareness. Therefore, IKEA, in order to succeed its business in Thailand, must deeply understand the root of Thai Culture first, which is the essence of its strategy “think global and act local”. To give IKEA the better understanding of Thai culture, there are a few examples which can illustrate its core values.  Firstly, in everyday life in Thailand, the concept of sanuk can be well explained the idea that life should be fun. Because of this, Thai people can be quite playful at work. Secondly, Thai people will use word ‘it does not matter’ to minimize conflicts and disagreements. Furthermore, the notion of face is extremely important since they believe that disputes should be handled with a smile and no attempt should be made to assign blame to another (Wikipedia, 2010).

As Edward Sapir (1921) stated that ‘Language is primarily a vocal actualization of the tendency to see reality symbolically’ (Roger, P.125), it can be said that language is the most important factor in the intercultural communication (Roger, P.126).  It is also a tool of sharing or exchanging the information among people.  On the other hand, it can be the barrier in creating effective communication in the organization because each person has different levels of English competence.  Therefore, it may cause problems when involving overseas businesses.

According to our previous description, it can be concluded that when two cultures encounter, conflicts can be presented. On the other hand, a new culture can emerge from the cultural clash.
In order to manage conflicts, the need of negotiating has been widely demanded. Therefore, the process of negotiation, participated by the two parties and a mediator, can be adopted to analyze the conflictive situation, and reach a compromised resolution. The main objective is reaching understanding of each part’s positions to create a productive collaboration. (Plum)

5.        Strategies.
Strategies formulated are on a business, corporate and network level.
The tendency of Thai companies is to move under uncertain scenarios, while Nordic companies tend to be uncertainty avoidance. Adapting models are more efficient in Asian countries. Therefore, the Management needs to maintain a balance between planned and structured strategies and the need to be flexible and ‘letting strategy emerge’. In regard of the application of evolutionary strategies, Thai culture demands that changes would be implemented gradually. (De Wit and Meyer, p.116)
In order to achieve business success in Thailand, suitable strategies are provided at three levels: 

5.1    Network level strategy: the Government of Thailand exercises high regulation in regard of land ownership for international companies. Therefore, IKEA needs to establish a strategic alliance in order to enter to this market. A joint venture with Siam Future Development PLC. and S.P.S. Global Trade Co. Ltd. has been subscribed to construct a one-stop mall with the offering of various services and products to attract different market segments. (THAIPR.net)

5.2    Corporate strategy: In regard of control, centralized and formal structure would be more efficient in Thailand, considering that Thai culture is high-power distance oriented, since Thai people respect seniority and hierarchical structures. (communicaid.com) Therefore, flat organizations are not suitable for Thai society.

5.3    Business level strategy. IKEA has developed value for customers, providing modern, innovative and simple design for high quality products available at a low price. IKEA has consolidated a sustainable competitive advantage (De Wit and Meyer, p.249) building a strong long-term relationship with suppliers in different countries.

5.3.1 HR Strategy. Human resource matters much when an international company wants to establish a foreign branch, especially when entering a market with great cultural difference. As to top management level, the manager should be equipped with the competences such as: deep understanding and management of cultural factors; coordinating cultural differences and encouraging innovation under mixed cultural background. According to the intercultural interactions in business context, the top manager can be expatriated from Sweden, he or she should have adequate international experience, such as employment or education abroad, preferably in South East Asian countries. Another alternative is to recruit managers locally, who have international experience. The core concept is that the manager should have culture competence and awareness on both cultures to bridge IKEA and Thai market.

In order to better meet Thai customers’ demands, middle managers and staff personnel should be local. At the same time, the candidates should be open-minded and flexible to integrate IKEA’s core values into the Thai branch’s business operations, according to knowledge sharing theory for international companies.

5.3.2 Marketing Strategy
To integrate IKEA’s global marketing strategy with the Thai culture, it is important to understand the market’s needs, elaborate a customer driven marketing strategy and select the target customer, design the marketing mix (4P), build profitable relationships and capture value by loyal and satisfied customers. Target customers are 25 years old and on, with medium income level, who prefer modern and simple designs. Being Sweden IKEA’s country of origin, it helps to create a positive image of the company worldwide.
The marketing mix helps IKEA to remain competitive in the market, specifically the kitchen department.

Product: IKEA provides global products which features are high quality with a modern design. Services are included in this element of the marketing mix. IKEA encourages customers to do it yourself (DIY). Nevertheless, it is suggested that IKEA Thailand pays special attention to the provision of technical support, since Thai customers value services.

Price: IKEA delivers affordable products with high quality standards. Cost-cutting policy encourages products demand and a set of alternatives for payment and credit that add value to the customer are available.

Place: IKEA Thailand is located on Bangna-Trad Km 9. This component of the mix includes channels, inventory and logistics. IKEA has established a strong and ‘efficient network of delivering its products’ and flatpacks represent an important advantage in lowering freight costs.   

Promotion:   To attract the customers to IKEA store, the concept of marketing communication plays an important role to build brand image.

5.3.3        Supply chain strategy
The main strategy is to work with a few large suppliers to gain more bargaining power; furthermore, it would be possible to reduce its costs. (Ivarsson and Alvstam, p.1579) IKEA success relies on ‘the ability to adapt, sensitivity to customers and being sensible with suppliers’(Ying, 2005, p.18)
                                   
6.        Actions
Communication is another key factor of cultural difficulty which IKEA has to handle.  Both Thai and Swedish culture are collectivistic; most of message is convey by the context surrounding it (Culture and Conflict, 2010). To avoid communication difficulties in the organization, IKEA needs to clearly communicate in the low context culture to effectively convey its expectations or rules since it is clear and hits to the point. It also enhances a mutual understanding between company and society.

The effective actions can be applied in three categories:
1.      HR Training. The objective is to build a team and strong relationships to bridge the two cultures and to understand the impact of cultural diversity in global businesses. Workshop is a form of training which focuses on providing knowledge about cultural differences to stimulate the understanding, engagement and communication in intercultural interaction. The benefits the company can obtain are: barriers among individuals are removed and a third new corporate culture emerges, which bears the best of each part. In addition, the HR manager should conduct activities as organizing meeting, giving feedback to local employees, motivating and evaluating them according to the Thai business model. Therefore, the top manager is required to receive preparation training and post-arrival training about Thai culture, traditions and language. Rotation training it is advised to be provided to the middle manager to build a talent pool. Thus, the expatriate general manager can be replaced by a local talent who is more familiar with the Thai market.
2.      Marketing and advertising. In order to reach Thai customers, IKEA should provide free delivery service for big kitchen items according to the Thai customers’ preferences and local competitors’ practice. Additionally, IKEA is located in a one-stop shopping mall 9 kilometers away from Bangkok and it is recommended that free transport is available for customers. Furthermore, slight changes to the products with Thai features would be available, such as variation in colors and designs and articles that are related and reflect the Thai eating and cooking style. In regard of promotions, advertising on TV, billboard and public transportation such as sky train will be placed, public relationships need to be strengthened, and catalogue and printed brochures with offers will be delivered to houses.  
3.      Supply Chain. IKEA has established strong relations with local manufactures to strengthen the relationships and demonstrate the respect and commitment to Thai society. A local company SB has been IKEA’s supplier for 20 years. Moreover, IKEA has selected the location of the store nearby the port and the airport to reduce the cost of transportation. This decision leads to important cost-cutting that would allow the company to offer lower-price products in the Thai market.

7.    Conclusions
When taking into the new country, IKEA should take into consideration its specific cultural characteristics to act wisely with cultural intelligence since the strong cultural values of IKEA impact positively to the establishment of the business in Thailand.

Firstly, given the different values, believes and behavioral patterns between Thai and Swedish, on one hand, IKEA should keep its own culture of simplicity and humility in accordance with the strategy of global expansion. On the other hand, modifications to strategies and actions on network, corporate and business level are necessary to tailor local demands. Therefore, a new hybrid culture bearing elements of both cultures is expected to emerge in the end. Both the Swedish and Thai cultures are collectivistic, which mean that they are concerned about common wellbeing. Therefore, this characteristic would be the departure point in establishing cultural ties.

Secondly, when the two cultures encounter, cultural clash is unavoidable. Negotiation and communication between two parties play an important role in conflict management process, by providing training and mediation from the third party which can offer an objective viewpoint and effective solution when cultural differences are handled. In addition, the policies established by the HR and Management department need to encourage current employees the discovery of particularities of the Thai culture and to recognize the positive elements that could be adopted by IKEA Thailand.

8. Our reflection on Cultural Intelligence
At the beginning of our group work we considered that we were good at understanding and demonstrating engagement. Nevertheless, we perceived that we could improve in the three factors: Engagement, Understanding and Communication. We thought that we needed to emphasis in improving our communication skills. Through this process, we realized that we knew each other better, we understood and knew our different working styles and we had productive sessions. What has enriched us was the fact of working together. We think that we need to improve our language skills, which is very important. We have ideas in mind but it is hard to communicate them. Sometimes this is frustrating.  The more time we spent together we felt more open and comfortable in sharing our opinions. This is the most important lesson learned from this group process.

Engagement
Initially, we perceived that we have been good at having the ability to handle emotional reactions, emotional maturity and mental flexibility; however, we could do better in being more motivated in generating results. We also needed to have a learning attitude and be more curious. With our group work proceeding, we could keep high-level morale and contribution which is beneficial to a fruitful result. Each member has been trying to convey ideas regarding cultural differences and keeping a learning attitude. Our group has been highly motivated and committed to achieve good results. Even though we have different cultural backgrounds, languages and viewpoints, we tried to understand each other and find out common ideas that have been the foundations to improve our project.

Understanding
At the beginning we have considered ourselves as flexible when it comes to understanding. Additionally we have been keen in producing general knowledge from our cultural differences as well as reaching a cultural understanding and we could do it better in increasing our cultural self-awareness.
During the discussion process, differences of opinions and perceptions to the same event are unavoidable. Group members are able to be aware of cultural differences in mind and reach understanding of each other by consistent communication. As we have been working together, we noticed that we did have differences when it came to work. As we have been aware of this, we could apply the negotiation process in order to reach an understanding. Some members of the group wanted to spend more time to gain more understanding while others were expecting to conclude the activities faster. Reaching a balance with these two points of view has been very fruitful.

Communication
We perceived that we could do better in all the aspects related to communication, being the most valuable the need of turning off our cultural autopilot and moving beyond habitual practices, we have considered that we needed to be more persistent and we needed to apply various communication tools.
Although we have a positive attitude to mutual communication, the language is still a barrier in the way. We have different accents and grammar structures but we could overcome these differences by being open, patient and being a good listener to reach consensus.

In order to demonstrate an effective communication, we resort to various non-verbal tools such as drawing graphs, drawing structures at the board, and material sharing through the Internet. What we expect to do in the future is moving the conversations to meta-level, which means we can jump out of the work we are involved in to discuss how we should talk so that the participants become attentive and lead to an effective communication. We should have done this reflection more frequently in order to overcome the language barrier and make the communication process smoother.



Appendix


Culture
Sweden(Nordic Europe)
Thailand(Southern Asia)
Power Distance
-0.77
1.06
Uncertainty Avoidance
1.92
-0.39
In-Group Collectivism
-2.03
0.75
Institutional Collectivism
2.33
-0.52
Gender Egalitarianism
-0.43
-1.75
Assertiveness
-2.12
-1.40
Performance Orientation
1.17
-0.91
Future Orientation
-0.96
-0.43
Humane Orientation
0.02
1.50




References

De Wit, B. & Meyer, 2010, R., ‘Strategy, Process, Content, Context. An International Perspective’, 4th edn, South-Western Cengage Learning. Hampshire, United Kingdom.

Schneider, Susan C & Barsoux, JeanLouis (2003) Managing across cultures.
Prentice Hall.

THAIPR.net, Thailand Press Release. Visited on 22-11-10.  http://www.thaipr.net/nc/readnews.aspx?newsid=23C981BE7A72665467FD79CFB697B69C

Ying Pan, Marketing Across Cultures: A case of study of IKEA Shangai, 2005. Centre for East and South-East Asian Studies, Master Programme in Asian Studies, Lund University.

Liu, R Z & Hu, B& Qiu, Z Q & Karcz, K.& Adamska, J 2007, Expatriation Management in China--A case study based on IKEA and NCR’s operation in China, International Conference on Convergence Information Technology, pp. 1253-1256.

Miller, P M 2004, IKEA with Chinese characteristics, China Business Review, vol. 31, no. 4, pp. 36-39.

Lustig, M W 2010, Intercultural competence : interpersonal communication across cultures, 6th edn, Allyn & Bacon, Boston.
Everette M. Rogers & Thomas M. Steinfatt, 1999. Intercultural Communication, Waveland Press, Inc., pp.125-126
Wikipedia 2010, Culture of Thailand, viewed on 22nd November 2010, http://en.wikipedia.org/wiki/Culture_of_Thailand
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