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Kingfisher Plc Cultural Expansion into Russia Analysis

| April 10, 2012 | 0 Comments

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Abstract:

Since its inception in 1982 as a UK based conglomerate, Kingfisher Plc has transformed itself into the biggest multinational home-improvement products retailer in Europe and the third largest in the world. The company currently ranks on the 52nd position of the FTSE 100 index with market capitalization totaling £7.23 billion (Stockopedia: Kingfisher Market Analysis 2012). Even though the global economic collapse has affected every economic identity adversely, Kingfisher Plc has emerged from the crisis robustly which is clearly reflected through their ever improving financial and business performance (Digital Look: Kingfisher Company Research 2012). This paper will analyze the frameworks and strategies of Kingfisher Plc’s recent expansion into Russia in light of its previous expansions in Eastern Europe. Comprehensive analyses of the cultural differences that may hinder prospective growth will also be included in the paper.

 

Kingfisher in Russia:

With an FTSE market capitalization ranking of 95, owner of popular household brands such as Brico Depot, ScrewFix, Castorama , and  B&Q, and with a very well established domestic network in UK, Ireland & France, Kingfisher Plc decided to expand its operations further into eastern Europe after Poland, i.e. Russia (KingfisherPlc: About Us n.d.). It aims to exploit the Russian market because of its excellent potential both in terms of profitability and growth. Russia’s 13 major cities are inhabited by more than 1 million inhabitants each, in addition to a high disposable income and low tax and utility charges. By 2009, the company had opened five stores in Russia and aims to open more stores in the future (Business Review: Key steps and aims. 2010).

 

 Tackling cultural differences to gain sustainable competitive advantage:

Even though prospective returns from Russian market are quite lucrative it is not a piece of cake to establish the firm strong in the market. The market Kingfisher Plc is currently operating in is quite different than the British market due numerous cultural differences such as, workplace culture differences, communication bottlenecks, different expectations, etc. These differences may seem meagerly insignificant however inability to cope with them may result in reduced competitive advantage in the long run.

The most appropriate model to date to study the cross cultural business expansion problem is the Hofstede’s model of cultural differences for international organizations. It analyzes a particular foreign market through five cultural magnitudes:

ü Power Distance;

ü Individualism;

ü Masculinity;

ü Uncertainty avoidance;

ü Long-term orientation.

 

The first dimension, power distance relates to the extent of equality/inequality in a country or society. A country with more power distance has a more authoritarian culture, for example, it may follow a caste system. Whereas, countries with low power distance are more democratically cultured (Tavakoli, Keenan and Cranjak-Karanovic 2003).

Russia has a relatively high power distance index, however the home market of Kingfisher Plc, United Kingdom has a low power distance culture. This can be a hurdle for Kingfisher Plc as in Russia people does not emphasize on status, power or wealth which makes them more inclined to purchase the products from local small businesses with little or no brand image. Whereas the success of Kingfisher retail in Britain was also due to the brand loyalty its products had created over the passage of time.

Russia also has collectivist culture which shows that people associate themselves in long term groups, family ties are strong and collective responsibilities are promoted whereas culture in the UK tends to be more individualistic and consists of very less interpersonal relations and affiliations (Yates 2005). Russia has a more feminine culture with greater emphasis on relationships and bonding while UK has a more masculine culture with more emphasis of competition, wealth generation and capitalist ideas (Yates 2005).

In the final dimensions of uncertainty avoidance and long term orientation, a high UAI score for Russia shows a high extent of uncertainty avoidance and its inclination towards long term goals. It also portrays quite low levels of tolerance for ambiguity.  Stringent laws that discourage creativity, innovation and nonstandard ideas prevail in the society. This dimension may go in Kingfisher’s favor since the conglomerate specializes in producing standardized products, but only to some extent. (Maternovsky 2004).

The dimension of uncertainty avoidance can create a significant impact on Kingfisher’s strategy as the target market is unwilling to adapt to new changes. Also, the Russian home market is dominated by small businesses that offer a tremendously varied product base but multinationals like Kingfisher has specialized in proving standardized designs just like its competitors such as IKEA (Osborne 2004).

The final dimension of long term orientation also brings into light another major difference between the British and Russian cultures. Russians put more emphasis on future stability and whilst the British, contrastingly, value the past and present most (Yates 2005). This can create a considerable impact on the spending patterns of the target market. Kingfisher needs to be more vigilant and ingenious with marketing and promotions to persuade the Russian segments.

Another important factor worth considering is the concept of psychic distance and the importance of it in a firm’s global expansion. This concept was bought into light by Jan Johansson and Fin Wiedersheim- Paul in their famous study of Uppsala Model of Internationalization (Jan and Jan-Erik 1977). The model explains how firms gradually expand in more indigenous and culturally diverse markets by first gaining experience from their domestic operations, then moving on to geographically close and culturally similar markets and gain further experience of operating other than home markets. Subsequently, the firm then further expands into more distant cultural markets by developing a learning chain based on the insights gained from previous expansions (Blomstermo and Deo 2003).

Kingfisher Plc’s Russian expansion can be prospectively successful in light of the Uppsala Model of Internationalization as it has not only operated and learned from its strong British home market. But also it has also successfully operated in foreign culturally diverse markets such as Germany, France and Poland. And now it is time to apply the previous knowledge gained in order to devise new successful policies to apply in the booming Russian market (Rugman, Kudina and Yip 297-315).

 

Conclusion

Even though Kingfisher Plc has stood strong in the wake of financial crisis, has posed strong financial results and has been keen with international expansions, the Russian expansion needs to be tackled with gravity as the market is quite culturally diverse from the markets Kingfisher was formerly operating in. However, the firm has considerable experience of operating in diverse markets and hopefully will do well with the Russian segments too. The performance so far has been up to the mark, for example, Kingfisher hired Peter Partma as its Russia Country head due to his experience as retail director for IKEA (Osborne 2004). This enabled Kingfisher to reduce the psychic distance and the Russian head also introduced culturally adapted style of management in Kingfisher too.

 

Bibliography

Blomstermo, Anders, and Dharma Deo. Learning in the internationalisation process of firms. New York: Edward Elgar Publishing, 2003.

“Business Review: Key steps and aims.” Kingfisher Annual Report and Accounts. 2010. http://www.kingfisher.com/files/reports/annual_report_2011/index.asp (accessed April 2012).

Digital Look: Kingfisher Company Research. March 2012. http://www.digitallook.com/companyresearch/10053/Kingfisher/company_research.html (accessed April 2012).

Jan, Johanson, and Vahlne Jan-Erik. “The Internationalization Process of the Firm-A Model of Knowledge Development and Increasing Foreign Market Commitments.” Journal of International Business Studies 8, no. 1 (1977): 23-32.

KingfisherPlc: About Us. http://www.kingfisher.com/index.asp?pageid=2 (accessed April 2, 2012).

Maternovsky, Denis. “Kingfisher to Enter Russian DIY Market.” Moscow Times. June 2004. http://www.themoscowtimes.com/business/article/kingfisher-to-enter-russian-diy-market/230369.html (accessed April 2012).

Osborne, Alistair. “Kingfisher poaches Ikea man to knock Russia into shape.” The Telegraph. June 2004. http://www.telegraph.co.uk/finance/2887606/Kingfisher-poaches-Ikea-man-to-knock-Russia-into-shape.html (accessed April 2012).

Rugman, Alan M., Alina Kudina, and George S. Yip. “The Regional Dimension of UK Multinationals.” Research in Global Strategic Management, 297-315: 2007.

Stockopedia: Kingfisher Market Analysis. March 2012. http://www.stockopedia.co.uk/share-prices/kingfisher-LON:KGF/ (accessed April 2012).

Tavakoli, A. A., John P. Keenan, and B. Cranjak-Karanovic. “Culture and Whistleblowing An Empirical Study of Croatian and United States Managers Utilizing Hofstede’s Cultural Dimensions.” JOURNAL OF BUSINESS ETHICS 43, no. 2 (2003): 49-64.

Yates, Mick. “Cultural Differences: It’s More than Geography that Matters.” Growing Global. October 2005. http://www.growing-global.com/detail.asp?ID=23 (accessed April 1, 2012).

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