Order 818901: Qualitative research evaluation

Running head: HOME FURNITURE INC. CASE STUDY 1

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HOME FURNITURE INC. CASE STUDY

Home Furniture INC.

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University affiliation

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Company overview

Home Furniture Inc. is a US furniture company that focuses in a wide range of well-designed and ready to assemble furniture. The company has been in operation for the last 30 years. It is headquartered in Washington DC. Home Furniture Inc. has utilized its effective management and innovation to excel in the local company. Management feels that the company should now take advantage of globalization to increase its market share and profitability.

Home Furniture Inc. has more than 70 wholly-owned stores in the US. It also operates three franchisees under international brands. Home Furniture Inc. has focused on the local market since it was incorporated. The company started by selling small home accessories and trinket products in the US. However, in the last 15 years, the company has been able to design its high quality furniture products.

This has enabled the company to increase its business operations and revenues. In fact, it has become one of the most recognized brand names in the US. In January 2018, management committee decided that it is the right time for the company goes international. After a critical evaluation of the furniture industry, Home Furniture Inc. decided to venture into Indian market (White, Hemphill, Joplin & Marsh, 2014).

Most of Home Furniture stores are wholly owned. The company has employed this strategy over the last 20 years to expand its operations in all the states across the US. This strategy has proved successful which explains why the firm intends to enter the Indian market as a joint venture.

Home Furniture has eyed the Indian market over the last five years but failed to go international due to lack of proper market research and lack of adequate capital. Since the company has done proper research and there is enough capital to venture into the Indian market, management has agreed to invest 600 million to create a joint venture.

Rationale for entering Indian market

India was the most appropriate country to enter since most countries in fast-growing economies have well-established furniture companies. Most importantly, these countries import their furniture from China. The mistrust between China and India has made it almost impossible for Indians to imports goods from China. This has left the Indian market with few local players who lack the technology and technical know-how to manufacture high-quality furniture.

Home Furniture has been decided to go international to intensify its business operations. Management noted that the slowing market demand in the US could only be reduced by going international. This strategy will also increase revenues and diversify risk in multiple ways.

Since the local companies have a low production cost, Home Furniture will focus on its ability to achieve economy of scale. This strategic capability together with its high tech knowledge in furniture manufacturing will enable the firm to succeed in India.

Another reason why the Indian market is the most appropriate for Home furniture is its market size. The demand for furniture in India is high compared to other Asian after China. In fact, India is classified as the 14th largest furniture market in the world. It is estimated to be worth more than $8 billion with a growth rate of 30 percent per year. Secondly, about 85 percent of players in the market are in the unorganized sector. They lack the technical skills and technology to deliver high-quality furniture in India. Even the 15% in the organized sector is largely made up of importers. This is an indicator that there is an existing market gap in the organized sector for local furniture firms that can manufacture the high quality product and avail it’s at an affordable price in the local market. Home furniture intends to take advantage of this market through joint ventures with a local company to penetrate the marker easily.

Home furniture will take advantage of the existing gap in the market by manufacturing high-quality furniture for the different target market. To maximize its knowledge and technology knowhow, home furniture will target the middle and upper class. India is one of the fast-growing economies in the world. It also has one of the fast growing middle and working class. These groups want traditional but stylish furniture that matches their social status. The middle class is expected to continue rising as the economy expands. Therefore, the Indian market represents one of the most lucrative and untapped markets in Asian.

Market entry strategy: Joint venture

The most effective market entry strategy is the joint venture. Home Furniture will enter the Indian market as a joint venture. Home Furniture has established Zuari, a local furniture company which will be acquired 70 percent of its stock to promote its products.

The main reason why joint venture has been considered as the most effective strategy is that it allows for operational control and smooth entry into the new market (Meschi, Phan & Wassmer, 2016).

It will also make it easier for Home Furniture to penetrate the market since the local company has already established itself in the market.

According to Meyer and Su (2015), a joint venture ensures the parent company has maintained control over its core competencies. This will allow Home Furniture to have control over its operations practice such as decision making, marketing strategy, and logistics. Entering the Indian market as a joint venture would be the most effective method since there is sharing of cost and investment capital. The benefit of a joint venture is enormous because each partner must come up with its unique skills, knowledge, capital and competitive advantage that will allow the new firm to succeed. One of the major benefits of a joint venture in India is sharing of knowledge and especially in the market. Zuari is an Indian company that has been in the furniture business for more than ten years. The business has an established market share. This means that Home furniture will acquire a business that has an already established market share with its customer. Zuari understands the needs of the market. Since Indians customer prefers traditional style over those in the western world, it will help Home furniture to identify the most fashionable styles in the market. It is important to note that Home furniture does not know customer needs in the market. Instead of investing in marketing research that will consume huge resources, joining together with a local firm will be the most effective way of penetrating the market. Secondly, building a brand name is expensive especially in a foreign country with the different cultural background. However, with the assistance of a local company, Home furniture will achieve penetrate the Indian market.

The other reason why joint venture is the most appropriate entry strategy in India is government support for foreign direct investment. The Indian government has given incentive to foreign companies that intend to invest in India. The previous Indian government policy was that joint ventures could only own 51 percent. However, this policy changed in 2012 to allow joint ventures to own 100 percent of Indian firms. The new policy will allow Home furniture to acquire 70 percent of Zuari furniture. Foreign companies are required to apply for permission to form a joint venture with a local firm. Since the Indian government has been keen on ensuring it attract foreign direct investment in its economy, there are high chances of Home furniture’s application being approved. However, if the government fails to approve the proposal, then management will have to consider another market. Joint venture seems to have been the most preferred entry strategy in India by foreign companies. For instance, Arrital Cucine of Italy and Wilhelm Bolt & Co. of Germany has invested in the furniture market in India through the joint venture. The main reason why these foreign companies preferred joint venture as they entry strategy is due to lack of knowledge about consumer taste and preferences. Indian prefer traditional furniture that incorporates their culture than the western furniture. As a result, western companies prefer to acquire or form a joint venture with a local firm. Local companies understand the needs of the market, the source of raw material, best marketing strategy and target market. A local firm also understands the pricing mechanism that will ensure a business has broken even fast.

When entering a foreign market, it is essential to consider the culture in the host country before investing. For instance, Indians home decorations including their furniture are different from their western counterpart. Consumers are most likely not to accept western designed furniture. Thus, to increase chances of success, the best way is to form a joint venture. Investing directly into a new firm has its own risk such as lack of failure. Home furniture does not intend to take such as risk since the amount of capital being invested in significant and if this venture fails to go through it could lead to the bankruptcy of the entire firm. Management has considered others options. However, the joint venture was the most appropriate for considering risk and return.

Indian culture is one of the main factors that led to concluding that joint venture is more appropriate. Home furniture can learn from IKEA in China. IKEA a multinational company opened a store in China directly. Although there were many visitors and increased sales at the beginning, the company has failed to break even because local consumers do not buy western furniture designs. Chinese and Indian prefer furniture and home decoration that are based on their cultural values. Although IKEA has been procuring its products from China for the last 25 years, it does not understand fully the Chinese culture, taste, and preference. This example shows how risky it is to invest in a foreign market where the cultural values are different from the western countries. Therefore, even though Home furniture will form the joint venture with a local company, management must gain a deep understanding of the Indian market and culture. The joint venture will bring in more valuable information and knowledge to Home furniture.

The joint venture will allow Home furniture to develop the good relationship with the media, local distributors, and suppliers. This information is critical to the success of the joint venture. Furthermore, the local partner will allow the joint venture to develop cooperation with local brands to develop a powerful brand image. Zuari will provide Home furniture with marketing expertise, suppliers, distributors and the government. The cooperating of this good is critical especially in obtaining the raw material. The Indian government expects foreign companies to but 30 percent of their raw material from the local market. Zuari knows where the joint venture can obtain quality supplies. It will also ensure that Home furniture has complied with government regulations.

Environment of operation

India has a well-established furniture market. However, the market is largely controlled by local players. This player lacks the innovation and technology required to manufacture high-end furniture. The key success factor that will ensure Home Furniture has effectively penetrated the Indian market is the ability to achieve economy of scale. This is because local players have low administration and production cost (Tasavori Ghauri & Zaefarian, 2016). To reduce its operational cost, the best strategy is to focus on achieving economy of scale. Secondly, Home Furniture will also focus on differentiating its brand name. This will be achieved by manufacturing high-quality furniture for the low, medium and upper class. The main objective is to target all customers irrespective of their social class.

Cultural profile

Understanding the cultural profile of Indian is one of the key determinants of whether Home Furniture will succeed in the Indian market. The Indian culture is different from western culture because they prefer traditional home decorations. This means that consumers are more likely to reject western designed furniture since they are used to traditionally designed that suite their culture. Since Home Furniture will enter through a joint venture, its success rate is high since the local company understands the cultural designs that suit is customers. Since Home Furniture will enter the Indian market as a joint venture, management expects the local community to support and buy its products. Moreover, the ability of the firm to manufacture furniture for all social class will make it acceptable to everyone. However, local distributors will view the entry as a way of increasing competition. Therefore, Home Furniture expects local distributors and firm to increase competition by reducing prices.

Organizational chart

This simple organizational chart was the most appropriate because this is the first joint venture in a foreign nation. The main objective is to make ensure everyone in the organization understand its operation. The division product will be headed by a middle-level manager who will oversee the overall operations of the firm. He will also report directly to the CEO. Each department will be headed by a departmental head who will report directly to the divisional manager. Decision making will also be easy since the top managers will communicate their policies and strategy to the divisional managers before passing it to departmental heads.

Staffing policy

The best staffing policy for top management will be ethnocentric policy. This is a strategy whereby the top level managers are employed from the head office instead of employing local staff. There are several reasons why the Home Furniture has opted to use this strategy in India. First, it will acquire 70 percent of its joint venture. Therefore, there is no one to objective this management strategy. Secondly, the ethnocentric policy will allow the head office to transfer its culture and foreign operations smoothly into the joint venture. It is easier to transfer expatriates and knowledge to the joint venture without risking losing critical competitive advantage information. This strategy will ensure effective communication between the head office and joint venture. Although Home furniture will occupy most of the top executive position, the chairman of the board of directors will come from Zuari Company. This is a strategy of balancing leadership to ensure employee remain motivated to achieve the firm’s objectives.

Leadership and motivational system

Home Furniture will employ democratic leadership. In democratic leadership, members of the groups/departments are encouraged to discuss and give their opinion (Certo, 2015). This strategy will be the most effectively especially in a country with completely different cultural beliefs. The main reason for employing this strategy is to ensure medium level managers (Indians) give their opinion and experience in the local market. Since top managers come from the head office, they do not understand Indian market situation. However, through participative leadership, they will gain more understanding of the market and customer buying behavior. Democratic leadership achieves two goes at the same time. First, it helps top managers to understand the Indian market through the participation of employees and mid-level managers. Secondly, it motivates employees because they feel that they opinions matter the organization. To motivate employees, employees are given an opportunity to oversee some of their proposals if it is in the best interest of the company. During the first five years, the company will tend to balance between flat and democratic leadership to motivate and understand the new market and its customers.

A flat management style is effective in motivating employees since they feel they are part of the organization and them opinions matters to top-level managers. It also gives local employees (Indians) a chance to interact with their western counterpart. This interaction is aimed at creating trust which is essential in motivating employees. Employee engagement is another essential factor that will be implemented in the firm. When making key decisions, top managers will involve employees to motivate them.

Communication problems face by managers

The major communication challenges facing the company include the following:

· Direct vs. indirect communication

· Accents and fluency

· Wrong attitude toward hierarchy and authority

The major challenge that is likely to affect Home Furniture’s joint venture managers in India is the use of direct and indirect communication. Western managers use direct communication in the workplace which might create confusion in India. This challenge is likely to manifest itself during face to face conversation especially when communication is virtual. In the western world, the employee gives a direct answer based on how they understand a situation. However, in India, employees are more likely to the response by giving suggesting without stating it directly. Home Furniture know this problem might exist during operations. Consequently, top managers heading the joint venture will undergo training how to handle communication in the workplace.

Secondly, managers will face the challenge when communicating due to the difference in accents and fluency. Most western managers can speak English fluently in an American accent. This is likely to be challenging for Indians who are non-English speakers. If this challenge is not solved, the employee will feel unnoticed and unappreciated since they have difficulties expressing what they think and feel. This problem can sometimes cause interpersonal conflict and discourage employee engagement. This challenge will be solved by the upper and medium managers who come from India.

Hierarchy and difference in attitude toward authority will affect communication in the joint venture. Indians treat employees on different ranks differently. In India, most organizational have a flat hierarchical structure where they work together as a team. However, in the western world, an employee has to present their ideas to middle-level managers before reaching to the CEO. This challenge will be solved by diversity training in the workplace especially for western managers.

Major challenges

The major concern of the local community is the loss of employment after the acquisition. To solve this problem, Home Furniture will retain existing employees apart from top executives. Moreover, the firm will also obtain 30% of its raw material from the local community. In fact, 70% of the employee will be recruited from within the surrounding communities. The main aim is to increase community support and to build a strong brand image. Another challenge that is likely to affect the joint venture inability to match the two cultures. The Indian and western culture vary significantly in term of how they approach decision making and authority. In the western countries, employees are given more autonomy and management tend to be either flat or democratic. In India, management tends to be autocratic; top managers are responsible for decision making without involving other employees. This challenge can be eliminated by employee engagement and training. When the new joint venture starts its operations, employees will undergo induction to try to merge the two culture. Top and middle-level managers will explain how they expect employees to behave and the way authority is defined.

Conclusion

In conclusion, Home furniture has been successful in the last ten years. Management has been considering expanding their business into a new market. After a critical evaluation of the international market, management should expand their business into the Indian market. India has a large market share which has not been tap. The demand for fashionable furniture in India has continued to grow due to the increasing number of working class. The middle income earns want modern furniture manufactured using modern technology.

The Indian furniture market largely operated by the unorganized player, this players lack modern technology and technical skills to manufacture high-quality furniture. Home furniture has the technical know-how and technology capacity to manufacture furniture in large scale. The best strategy to enter into this market is through the joint venture. Home furniture has established a partnership that will help it to penetrate the market. The joint venture will allow Home furniture to develop a strong brand image since it has an already established market. Moreover, the joint venture will reduce investment in market research since it has an already existing market share. To operate and motivate employees, home furniture will employee democratic leadership. Employees will be allowed to give their opinion in major decisions especially those that affect them directly. This strategy will ensure that employees are motivated.

References

Certo, S. (2015). Supervision: Concepts and skill-building. McGraw-Hill Higher Education.

Meschi, P. X., Phan, T. T., & Wassmer, U. (2016). Transactional and institutional alignment of entry modes in transition economies. A survival analysis of joint ventures and wholly owned subsidiaries in Vietnam. International Business Review, 25(4), 946-959.

Meyer, K. E., & Su, Y. S. (2015). Integration and responsiveness in subsidiaries in emerging economies. Journal of World Business, 50(1), 149-158.

Tasavori, M., Ghauri, P. N., & Zaefarian, R. (2016). Entering the base of the pyramid market in India: A corporate social entrepreneurship perspective. International Marketing Review, 33(4), 555-579.

White III, G. O., Hemphill, T. A., Joplin, J. R., & Marsh, L. A. (2014). Wholly owned foreign subsidiary relation-based strategies in volatile environments. International Business Review, 23(1), 303-312.