Expansion Plan To China

Fransisca Katherina RumambiG1200547C

Funding and Financing Options

• The Objective• Case study: IKEA Group

– Company Profile– Financial Performance– Current Funding and

Financing Options• Funding and Financing Options

for Expansion Plan to China• Key Learning To Choose

Funding and Financing Options

AGENDA

THE OBJECTIVE

To look at the various funding and financing options available for a company and their strategy for

expansion to other countries

CASE STUDY

IKEA: COMPANY PROFILE

• Founded in Sweden in 1943 by Ingvar Kamprad• The world’s largest furniture retailer• Designs and sells ready-to-assemble furniture • Known with its modern architectural designs on

various types of appliances and furniture• High quality and low price

IKEA: FINANCIAL PERFORMANCE

Source: IKEA Yearly 2011

IKEA: FUNDING AND FINANCING OPTIONS

Early StageFAMILY

Growth StageDEBT FINANCINGEQUITY FINANCING

Established StageEQUITY FINANCING

Mature StageEQUITY FINANCINGFRANCHISING

Early Stage FAMILY

• Family business initiated by Ingvar Kamprad

• Borrowed funds on a formal and informal basis before approaching outside parties

Growth Stage DEBT AND EQUITY FINANCING• Borrowing money from the bank and other commercial

lender with guarantee (form of security to pay back)• Obtaining capital that involves selling a partial interest in

the company to investors (angels investors through Stichting Ingka Foundation)

• The equity investors invest their money as a part of ownership

• Combined the debt and equity financing when financial performance showed improvement and more profitable

Established Stage EQUITY FINANCING

• Equity investors primarily seek growth opportunities

• IKEA nurtures its success, good image and profitability to seek more equity investors

Mature Stage EQUITY FINANCING AND FRANCHISING

• To rising extra capital for growth

• Expansion strategy and find new market

Franchising Arrangement

• Franchisee pays Inter IKEA System (on behalf of IKEA Group) for the right to operate a local business under IKEA Group’s trade name

• Inter IKEA System will bear with certain costs (architect’s work, establishment cost, legal cost, marketing cost and other support service cost)

• Inter IKEA System will charge initial franchise fee to cover set-up costs

• The regular payment of any IKEA stores that must be paid to Inter IKEA Systems as the franchisor is 3% of the revenue

IKEA EXPANSION PLAN TO CHINA

• Long term commitment to make China the largest market in 15 – 20 years

• Since its first foray into China in 1999, the revenue is more than 5.4 billion Yuan (US$850 million)

• The revenue increase 21% year on year, much higher than its global business growth

• The excellent enthusiasm of China IKEA Family Membership into 7 million

• Desirable results that indicated IKEA should build more stores in China to fuel their future business

Expansion Goal To China• The search for new markets

• China is one of new emerging market in Asia

• China market is potentially attractive

Funding and Financing OptionFor Expansion Plan

Joint Venture

Business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity

KEY LEARNING• Must consider how much

ownership and control it is willing to give up, not only in the present but in the future financing rounds

• Should decide how leveraged the company comfortably be, or its optimal ratio and debt to equity

• Should determine what types of financing are available to the company, given its stage of development and capital needs and compare the requirements of the different types

• Should ascertain whether or not the company is in a position to make a set monthly payments on a loan

CONCLUSION

To combine equity financing with other types, including entrepreneur’s own funds and debt financing in order to

spread the business’ risks and ensure that enough options will be available for

later financing needs

REFERENCES

1. Capdevielle, L, Li, M & Nogal, P 2007, A creation of competitive advantage by using differentiation of company’s strategy actions. The case study of IKEA Sweden with experiences on Chinese and French markets, University of Halmstad, School of Business and Engineering.

2. Euromonitor International 2009, Company watch: IKEA not recession proof but retains ambitious expansion plans, Euromonitor International, viewed September 17, 2012, <http://www.portal.euromonitor.com.ezproxy.lib.rmit.edu.au/passport/ResultsList.aspx>.

3. IKEA Yearly Summary 2011 (2012), viewed September 17, 2012, <http://www.IKEA.com/ms/en_CN/about_IKEA/facts_and_figures/yearly_summary.html>.

4. Inter IKEA Systems B.V. 2009, IKEA group stores, IKEA Group Corporate Site, viewed September 17, 2012, <http://193.108.42.168/?ID=11>.

5. Jonsson, A 2008, ‘A transnational perspective on knowledge sharing: lessons learned from IKEA’s entry into Russia, China and Japan’, The International Review of Retail, Distribution and Consumer Research, Vol. 18, No. 1, pp. 17–44.

THANK YOU