INTERNATIONAL EXPANSION THROUGH FLEXIBLE REPLICATION-

THE CASE OF

Presented by:Karabi Kachari

Rashna Brahma

Replication in the Context of International Management Theory

• According to Winter & Szulanski, “Replication refers to the creation & operation of a large number of similar outlets that deliver a product or perform a service”.

• In the context of strategic management, “Replication conventionally denotes the creation of highly similar sales outlets that deliver a typically uniform product or service”.

Two-phase Model of Replication

Phase of Exploring

Exploitative Replication

Winter & Szulanski’s Two-Phase Model of Replication

Arrow Core

•Key notion, the full and correct specification of the fundamental, replicable features of a business model and its ideal target applications

Internationalization & Expansion Through Replication

• Experiential knowledge is vital to the internationalization process.

• It provides a vehicle for acquiring knowledge of internal and external resources and of opportunities of for combining them.

• The acquired knowledge has to be shared with the rest of the internationalizing firm.

• Uppsala model notions that knowledge is primarily held by subsidiaries in one particular market and should develop by embedding its view of knowledge as a driver of internationalization in a view of organizational learning in MNCs.

• MNCs stand to benefit from harvesting and transferring locally produced, experiential knowledge on a rather continuous basis.

• The view of flexibility and ongoing organizational learning in the process of international expansion contradicts the view of firm expansion in the replication-as-strategy view.

• Local responsiveness in terms of product offerings, services, etc. and analyze the trade offs that arise between global integration and such local responsiveness.

• Private Swedish home products company• Founded in 1943 by Ingvar Kamprad• World’s largest furniture retailer• 9500 products• Employs 127,000 people• Global sales in 2010- €23.1 billion • Today- 321 stores in 38 countries• 41 stores in 17 countries are franchise operations

THE ORGANISATIONAL STRUCTURE

FEATURES OF IKEA

• Format stores- blue and yellow• Low price• Long opening hours• Many stores include restaurants serving

traditional Swedish food, although there are variations country wise.

• Many stores have a play area, named Smaland

IKEA BUSINESS IDEA

“We shall offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” – INGVAR KAMPRAD

THE CASE

• Relevance of knowledge sharing and organizational learning- forward, reverse and lateral knowledge flows within the IKEA world

• Flexible replication

RESEARCH METHODOLOGY

• Small-N Research Designs• Explorative research• Data sources- in-depth, semi-structured interviews Documents Observation studies• 70 interviews with IKEA employees (Russia,

China and Japan)

IKEA’S PROCESS OF INTERNATIONALIZATION

Explorative Internationalization (1963- end of 1970s)

Rigid Replication (1980- mid 1990s)

Flexible Replication (mid 1990s- current)

EXPLORATIVE PHASE

• 1963- end of 1970s• Trial and error activity• First international expansion in 1963 in

Norway• 1969- Denmark• 1973- Swiss market• Late 1970s- Japanese entry• Test stores

Rigid Replication

• Replication of rigid format• Format stores• Codification and documentation- Kraft 80• Excessive exploitation- US market entry in

1985- failure

Flexible Replication: A Theoretical Development

• IKEA has moved beyond the Two-phase model of replication.

• It has moved on to a 3rd stage, flexible replication, which escapes the Winter & Szulanski model.

• The key to IKEA’s ability to combine replication with learning and local adaptation is the distinction between the Idea Concept and the Concept in Practice.

Propositions1. International replicators will realize a higher performance

when they adopt a hierarchical approach to replication rather than a “copy exactly” approach

2. The proportion of fixed to flexible features in a format for replication depends negatively on the heterogeneity and dynamism of the target markets

3. International replicators that deploy organizational mechanisms for lateral and reverse knowledge flows will be better able to identify, harvest and transfer local learning

4. International replicators adopt a flexible replication approach only after substantial experience with either highly explorative or high exploitative internationalization

Conclusion• IKEA’s flexible replication mode not only represents a way to

resolve the integration-responsiveness challenges but also facilitates organizational learning

• IKEA case suggests that flexible replication is a viable international expansion strategy that is particularly well attuned to heterogeneous international markets

• IKEA case also suggests that flexible replication requires strict management, dedicated organizational units and a strong corporate culture

• Lastly, this case suggests that research on ambidexterity maybe useful for further understanding how replicators can cope with the challenges introduced by flexible replication

Thank You..