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IKEAs Expansion Options to Ukraine vs. Oman
The retail and furniture trade are an essential part of the global economy. The furniture industry consists of the production, distribution, and retailing of residential and commercial furniture items. This market also includes additional products such as mattresses and home furnishings. The industry is able to combine new technology and innovation with cultural heritage and style and provides jobs for highly skilled workers. Significantly, the sector offers a high level of employment, with nearly 1 million workers in 130,000 companies generating an annual gross turnover of about 96 billion euros. Another key importance of the industry in the global market is the establishment of trends. For example, furniture firms have provided about 12% of the designs registered with the European Union Intellectual Property Office. The worldwide worth of furniture was estimated to be worth 509.8 billion U.S. dollars in 2020 and was consistent with the outcome of 650.7 billion U.S. dollars by 2022 (Miller & Smith, 2021). The furniture segment is introducing changes in technology and innovation into the global marketplace in order to remain competitive.
Ukrainian Market Prospects
Grounded on the study issues, it can be presumed that the positive dynamics of the fittings business in Ukraine are not used to their full extent. However, it can provide and guarantee the potential of the industry. The market in Ukraine shows positive growth, and to a large extent, this is due to the increase in demand and consumer needs. Based on the data of production, exports, and imports, it can be stated that it is stable and continues to develop. The volume growth rate in the period 2016-2021 expanded by an average of 15% annually (Petrenko & Karnaushenko, 2017). The maximum sales volumes come from Odesa, Dnepropetrovsk, Lviv, Kharkiv, and Kyiv (64.2%).
Furthermore, 85% of people in the capital own their apartments. It is twice as much as, for example, in New York, and the numbers are still flowing. Thus, the demand for repairs and the purchase of the necessary equipment is increasing as well as the need for interior design, the sales of which increased by 10 percent in 2020. Fashion and global trends are a significant force on the level of desire in the furniture market. One regional course is increased interest in home offices, libraries, desks, shelving, and cabinets due to the rising number of people who work remotely (Petrenko & Karnaushenko, 2017). Analysts are predicting a 10-15% increase in the home office furniture segment sales through 2022. Other biases in the industry are in the real estate market (small apartments) and demographic trends (small families of 2-3 people).
As a consequence, there is an escalation in demand for multifunctional, transformable fittings of small sizes. The Ukrainian market is adapting to new cultures at a fast pace, as evidenced by the success of foreign companies. Experts say that this has been happening due to the growth of purchasing power of the inhabitants of the country. According to official data from 2018 to 2020, 56 companies of various profiles have entered the state (The International Trade Administration, 2021). At the same time, global furniture companies are practically not represented. With competent investment in scarce categories of fittings, the company can achieve economies of scale and a significant competitive advantage in the domestic market.
The brand is extremely popular in Ukraine; the evidence of this is the fact that there are fake companies currently operating in the state, offering products under the brand of the enterprise. It is essential to mention that the demand for such proposals is very high. Ikea is one of the most anticipated brand stores in Ukraine and is confirmed by the fact that clients from Ukraine are active users of the Ikea online sales website. For example, customers have completed more than 148,000 orders in the online store during the year. As of the end of 2021, more than 2528000 Ukrainians visited the IKEA website (The International Trade Administration, 2021). Thus, based on statistical data, it can be argued that Ukrainian buyers and the market are ready for the entry of Ikea.
As for the political situation in Ukraine, it is essential to emphasize that European leaders positively assess the actions of Ukraine on the way to achieving democracy. Significantly, the Cabinet of Ministers of Ukraine stipulated the possibility to create an interdepartmental working group to assist in entering the market of IKEA, a Swedish chain of furniture and household goods in Ukraine (Petrenko & Karnaushenko, 2017). Thus, if the company launches on the market, assistance is expected on product certification, licensing, customs, and other issues.
Considering the fact that Ukraine is in the center of Europe, the logistics network is extremely profitable for Ikea. It is worth noting that the stores are located outside the city, making it possible to reduce the cost of rental space and decrease the cost of goods. Therefore, renting space outside the city, even in cities with millions of inhabitants, will be cheap for the corporation. At the same time, there are transportation companies on the Ukrainian market that will be able to transport and deliver goods at low prices.
Oman Market Prospects
Furthermore, based on the information analysis and statistical data, it is reasonable to recommend Oman as a second state. According to expert investigators, the furniture industry in the country in 2022 is waiting for unprecedented growth about 40%. According to the latest forecasts, fittings companies in Oman may receive 700 million dirhams. The main reason for the increase in demand, development of the tourism industry, and the huge scale of housing construction. Investments in these areas amount to tens of billions of dirhams caused by population growth and the expansion of immigrants. The rapid expansion has led to a noticeable increase in interest in furniture, home goods, and related services, including design and interior decoration (Daunfeldt et al., 2017). Under these conditions, a further boost in imports and a need for new construction companies are expected. The Omani market is of great interest and is a crossroads of trade routes and a free zone, so many firms are opening their offices here.
The annual revenue growth rate is assumed to be stable (CAGR 2021-2025) at 4.82%, resulting in a projected market volume of $73 million by 2025. Additionally, user penetration will be 11.1% in 2021 and will reach 15.2% by 2025 (GlobalTrade.net, 2021). Furthermore, worth noting is the speed of culture adoption in Oman, which follows the example of the UAE, where the industry has already reached a huge scale. The countrys domestic capabilities fully meet the needs and have enough resources to introduce new players to the market, facilitating their rapid adaptation.
Due to the fact that quality furniture is popular in the United Emirates market, Oman is also interested in open Ikea. Questioned buyers about how often they furnish their homes. A consumer survey was conducted on how often they furnish their homes. The polls show that Omani residents are constantly seeking to furnish their homes and 40% of them buy furniture from Ikea in the United Arab Emirates (GlobalTrade.net, 2021). Thus, the majority of Omani individuals are already using this companys online shopping and shipping.
It is essential to mention that the political situation in Oman is stable. This country has a reputation as a reliable business partner. Oman is taking steps to increase the attractiveness of the country for international investment. Thus, the authorities have introduced an incentive package for investors, providing tax vacations, a duty-free regime for all exports and imports, and a tax-exempt return of profits (Rusakovich, 2018). Thus, the political and legal directions of the government are aimed at attracting large corporations to the Oman market.
The Sultanates Oman logistics strategy defines long-term goals to increase the logistics network. Omans strategic goals over the past few years have focused on reducing congestion and expanding capacity by investing in infrastructure and technology. At the same time, Oman aims to use its deep-water ways to become one of the worlds top logistics stations by 2040 (Rusakovich, 2018). Accordingly, the company will benefit from opening a distribution center to supply all eastern states.
Comparison of Sites
GlobalTrade.net is an online guide to international trade; its advantage is that it offers importers and exporters the first online directory of international trade service providers. They can find over 60,000 service providers who can assist them in international business transactions. The site includes over 14,000 market analyses, tips, and news, covering a wide range of international trade topics. GlobalTrade.net offers reliable data on two types of search, i.e., by country or by market sector analysis (GlobalTrade.net, 2021). There are also up-to-date and archived data for comparison information.
International Trade Administration offers a comprehensive range of services in the field of international trade. Thus, you can use this site to search for information about countries in the world by country criteria. Therefore, if people choose a country, it is possible to see its economic, political, and cultural situation. The site also has current information for the last couple of years. Hence, this site provides more accurate information and is a reliable source (The International Trade Administration, 2021). Companies can find local help in more than 100 U.S. commercial service offices and more than 70 international offices across the country.
Barriers
Barriers to market entry are objective or subjective factors that can prevent new firms from establishing profitable production in an industry. For Ikea, the main obstacle may be primarily the low level of transparency and predictability of the regulatory regime, characterized by inconsistency. Furthermore, eliminating corruption is a decisive factor in the companys entry into the Ukrainian market (Daunfeldt et al., 2017). Concerning Oman, the complexity of logistics operations may be a contributing determinant. International logistics companies have expressed concern about government directives that require them to set up infrastructure to process cargo at borders and send some cargo by air. Moreover, corporations with government contracts continue to face payment delays. In addition, the pandemic is a global challenge that is hampering business development.
References
Daunfeldt, S. O., Mihaescu, O., Nilsson, H., & Rudholm, N. (2017). What happens when IKEA comes to town? Regional studies, 51(2), 313-323.
GlobalTrade.net. (2021). International trade in Oman.
Miller, B., & Smith, D. (2021). IKEA Strategic Management Plans in Europe. Journal of Strategic Management, 5(2), 1-7.
Petrenko, V., & Karnaushenko, A. (2017). Joint enterprises in foreign trade activity of Ukraine. Baltic Journal of Economic Studies, 3(5), 203-207.
Rusakovich, V. (2018). Oman: Structural changes and economic growth. Asia and Africa today, (3), 48-55.
The International Trade Administration. (2021). Ukraine country commercial guide.
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