Kea name is the combination of K, Samara’s initial, E, first letters of the farm Elementary and village, Quandary in southern Sweden where Kampala grew up. Kea has since become one of the largest and most popular home furnishing retail shop in the world. Kea international expansion and development is very fast. It is now one of the world major and leading brand in home furnishings retail. Today, the number of stores stand at more than 300 in more than 42 countries. They have more than 1 5,000 co-workers and 46 production units. Total sales amounted to 23 billion euros at 2011. Kea retailing has a Swedish roots.
It operates a franchise system. Inter Kea Systems B. V. , located in Delft, The Netherlands owns the franchise and the Kea Concept. Kea stores in various countries are run by different franchisees. 1. 1 The business concept KEA was founded on the principles of frugality and low cost. The concept of KEA is based the vision statement: KEA supplies flat-pack, ready to be assembled furniture at a reduced cost. Low prices are one of the cornerstones of the KEA concept. Everyone is their target market. The simple design and packaging allows them to save money on manufacturing and distribution.
Wide range of products is available in all KEA stores and customers can make their order online through Kike’s website. The saving from the simple sales process is used to provide extra services like in store restaurants, cafe©s. To help family with comfortable shopping experiences they also include child-care play areas. Delivery services are offered for bulk purchases. 1. 2 Global expansion and Kike’s international strategy Many local competitors consider Kea as the king of globalization. It is known as the global business of retail home furniture and house ware.
Due to rapid internationalization process, KEA group now had 345 stores in 42 countries. Franchising has fueled Kike’s long-term growth. KEA founder Ingrain Kampala wanted a total independence and an ownership structure that would support a long-term perspective. Stock option was not an option to him. Hence, 30 years ago he established KEA franchise. Almost all KEA retailers are franchisees. This system enable KEA group to control the KEA concept, stimulate and promote growth and entrepreneurial spirit. In the past KEA has adopted a globalization strategy which was based on “one design fits all”.
However, it now takes into consideration what each local market can offer and its peculiarities and not just what they want to offer to the local consumers. Kike’s strategy has adapted over the years in a way that they ‘think globally and act locally’. When Kea expanded to China, they realized that they have to modify their product lines to cater to the consumers and the local requirement and specification. Page 2 1. 3 Marketing and target market. KEA use and promote a low price marketing strategy, supplement with a wide range of well designed, quality products.
They have built a strong brand with rodents that cater for customers of every lifestyle and life stage and all types of households. KEA standardize most of its furniture products in each country. However, they adapted some of its house ware products to suit local environment. (Hellholes, Bibb; Solomon, 1991; Woods & Scaring, 1995). KEA over the years has grown to substantiate size with significant economies of scale. This allow them to lower their average cost. Couple with the use of technology and employing specialized managers and workers, have given rise to their competitive edge.
This has resulted a high barrier of entry. The smaller layers find difficulties in entering the furniture industry. Kea low pricing strategy has attracted consumers from all walk of life especially those with limited financial resources and budget. They enjoy immense popularity. Kea has been recognized to be the brand with good quality and design at lowest pricing. KEA main marketing focus is its printed catalog. They also provide online version and free downloaded product information to help consumers in their desired design. Advertisement is used to create awareness and reach their targeted customers.
Social media keep consumes informed about company’s placement, activities and marketing events. Payment feature is designed to be thrifty and effective. KEA normally accept cash or credits only. 1. 5 The Chinese market China ruled by the Chinese Communist Party, opened up its border through economic reforms that began in 1978. The economic control have gradually relaxed, moving towards a market economy. The reform and low cost manufacturing base propelled growth. In China, the saving rate is high. The investment rates by household and government are also high.
Rapid inflow of foreign direct investment (FDA) has enabled this investments. Page 3 The legal environment is inconsistent with limited IP (Intellectual property) protection. Traditionally, foreign entrants focused on establishing joint ventures. Investment trend is shifting to green field operations inland for manufacturing. 2. 0 Kike’s culture and best business practices Kea has a strong corporate culture. The corporate culture is based on shared values. These values codified as “The Kea Way’ which means: ‘togetherness, cost-consciousness, respect and simplicity”. . 1 Corporate value KEA offer customers a wide range of more than 1200 items of low cost, well- designed and home furnishing products. Kea brand means good quality. Kea care for the environment. They make sure that their suppliers provide products that are manufactured under acceptable condition. They both share the commitment to promote good practices and hold high regard for people wellbeing. The company always concern employee well-fare and job satisfaction. Employees are kept engaged by involving them in activities throughout the year.
Employees enjoy a certain degree of freedom based on individual strength and specific skill set and abilities. 2. 2 Corporate Strategies KEA emplace low price strategy in providing its home furnishing products. This is the primary reason for the widespread acceptance of its products. This also has fueled its global expansion and growth in various countries. In executing its low cost strategy, the company reduce and control cost at each level of its design, manufacturing, transportation, marketing and assembling its merchandise. They use inexpensive materials and minimizing production, distribution and retail costs.
Hence their customers benefit from low prices. To keep prices low, customer involvement is critical. Customers are required to choose, collect, transport and assemble products themselves. Home delivery are offered for bulk purchase at an additional cost. Over the years, Kea further enhanced its leading position in home furnishing retail by continuing to offer customers reduced price over the competitors. This is what drive the Page 4 customers to buy. Low prices have allowed Kea to hold on to its market with considerable bargaining power and repeat sales. 2. From compliance to CARS as business strategy KEA has worked actively with Corporate Social Responsibility (CARS) for many years. KEA focused on compliance in its supply chain. Supplier partnerships and business integration are the core of Kike’s CARS work. The sense of corporate social responsibility is in accordance with its corporate culture, and it does not stop at the supply chain, factory door, social issues and environmental protection. KEA is very much involved in community development and keeps an active dialogue with various stakeholders. However, it is not only about supplier performance.
KEA continuously strives to improve environmental and social performance of its stores. Innovative solutions for energy and water supply are developed, for instance there are pilot projects to install solar panels on the roofs of the KEA stores. From a business point of IEEE, better factory performance means better business results. If workers are not treated well you will have a high staff turnover rate. A well-treated workforce leads to better performance, fewer defects in production and a more stable team, which in turn leads to good business performance.
KEA believes CARS is fundamental business ethics and that it is of benefit not only to the company, but also for to the public to make sure products are manufactured in an adequate way. KEA has taken the issue of child labor one step further from stopping child labor at the factory door to improving the life situation of these children. In that ark KEA engages with many professional child rights organizations, to help children to get quality education and better prepare for their future entry into the job market. 2. 4 Strong Focus on Sustainability KEA has always had concern for people and the environment.
KEA believes a strong environmental stance is good business practice. The KEA vision ‘to create a better everyday life for the many people’. They believe that “what is good for people is also good for us in the long run. ” They always made this concern at the heart of the business. Page 5 KEA has been doing so much for so long to promote sustainability. It has en very careful with its choice of product range, suppliers, stores and communication. KEA is concern for people wellbeing and the environment. They exercise effective measure to ensure their green targets are achieved.
KEA is known as environment friendly company. Its business strategy considers the environmental impact by making products that are environmentally conscientious and costiveness. Suppliers must abide by Kike’s strict environmental standards. They are encouraged to use renewable, reusable, and recycled materials as much as possible. Under KEA Group’s sustainability strategy, People and Plant Positive Concept, he company works a lot with its supply chain in its sustainability focus areas. Kike’s emphasis is to build long term partnership with suppliers in order to achieve consistent results and development. . 0 Local adaptation/responsiveness to the Chinese market KEA do adapt somewhat to the culture where they open their stores, but it is an adoption more towards regulations and pricing levels. Leadership and communication need to be somewhat adapted to the local cultures when entering new markets. Even if the culture is different in the country, they are still able to sell the standardized products with a bit of adjustments in the exposure. They can be required to suite some details in some furnishing for example in order to suite a certain markets home environment.
There are some factors to consider in global expansion. The first is about the peculiarities requirement of local demand and adoption when providing a good and service in a foreign market. The second in line with the trend of globalization, when a company goes abroad it faces dual pressures of local responsiveness and global integration. 3. 1 The company operation in China KEA entered the China market in 1998. At first as it did not have the resources, instances, organization and knowledge of the local market, it entered China with a joint venture followed by acquisitions later.
Cost consideration was one of the reason KEA has chosen China. KEA, however, was new to emerging to market and also did not know much about the China market. As local customers still do not appreciate Kea model and culture and hence, they do not trust and support KEA. As a result, Kea speed of growth in China is too Page 6 slow. Although China is the Kea largest market in term of sales which is about 20%, this region is only accounted for 5% in Asia. KEA business strategy is low price. International market players consider China as the biggest market of the world and a low cost factory.
The logo “made in China” means low price. However, many Chinese still find the KEA product price is too high due to the exchange rate. This is the dilemma faced by KEA in China. Most Chinese people are still caught in low income level. KEA need to further reduce their price in order to increase the number of purchases from China. 3. 2 Flexible and adaptable strategies The situation of China is different from many emerging markets. KEA has not been able to adapt the market well to the different Chinese culture and history.
With so many differentiations a foreign company it would take time to build trust and create awareness of Chinese customers. It also need steer its business strategies to adapt to the local market condition. Although proven quality products and service are integral part of a successful business model, KEA has to do more localization like provide delivery services, build stores in location near public transportation and so on. These innovative steps will help KEA to capture more market share. With flexible and adaptable strategies, KEA hope to improve their sales in China market.
The Chinese government plays an important role and the Chinese market is not yet a complete free market. The government is still the main maker of the game rules. The business model need to be adapted to the local environment. This may pose some difficulties as different companies have different understanding of the market and the local business practices. 3. 3 Pressure for Local Responsiveness for KEA in China KEA China management had always tried to find a balance between global philosophy and local adaptation. They do not involve in any form of corruption or bribing the authority to obtain more business opportunities.