1.Read the case 2 file . 2.Follow the outline and guidelines for the case write-up shown below and write a case analysis. Please develop your paper based on those guidelines. Please use different sec

ÇILEK – AN EMERGING MARKET COMPANY GOES GLOBAL

Imagine designing and marketing specialized furniture targeting children and teenagers featuring a thematic concept with unique colours and designs. Would such a strategy be feasible? Could it have widespread appeal across dozens of countries? Might such a venture be able to grow at an annual rate of over 18% and successfully do business in five continents and 71 countries with more than 500 sales points?

Furthermore, imagine this company is not from an advanced economy but an emerging market that is not home to many global brands. How likely is this scenario? However improbable, Çilek, a children’s’ furniture company from Turkey, has actually managed such a feat.

Çilek Youth and Children’s Furniture began life in 1996 as a partnership of three brothers. Çilek is a Turkish design- and innovation-focused furniture manufacturer. Its production facilities are located in one of Turkey’s most well-known furniture centres in Inegol, Bursa. The company adopted the Japanese lean manufacturing method in 2008. Hi-tech German machines and lean manufacturing enabled Çilek to produce 20 different products a day in two shifts at the factory with a daily product capacity of 1,200 items. Most of the company’s materials are from domestic sources. The founding brothers value innovation, modern management tools, trust in business dealings, and social welfare. They also continuously invest in new manufacturing capabilities to ensure continuous improvement in productivity and operational excellence to produce high-quality furniture. The company also has a certified R&D Centre for product development and a Design Hub for concept development. Keeping the manufacture and design in Turkey is considered essential to its success.

Being a family-owned company where founders are fully committed and actively run the business makes Çilek a highly trusted company to its partners all around the world, and many of its franchisees are also family-owned businesses. With this trust-based relationship, franchisees are eager to work with Çilek, thereby producing solid and long-lasting relationships. Since the founders are actively involved and the company is 100% family-owned, company strategy is fully in their control and projects can be executed quickly.

INNOVATION IN A TRADITIONAL INDUSTRY

The company name ‘Çilek’, which is the surname of the founding brothers, means ‘strawberry’ in Turkish and the name and the brightly coloured logo are especially appealing to children. Since the foundation of the company, predesigned bedrooms with bright colours that reflect a particular theme have been designed for babies, children, and teens. The company targets the same niche market in all countries. Çilek rooms are high-quality concept bedrooms with thematic designs drawing on soccer, car racing, pirates, planes, and princesses (www.cilek.com). Çilek rooms are offered as a complete set, including bed frame, wardrobe, cupboard, study desk, bookshelf, and wall units – all complementary pieces that reflect a particular theme. Moreover, various complementary accessories such as sheet-and-pillowcase sets, lamps, curtains, and rugs are also available which enhance each concept. Any piece of furniture or other accessory pieces can also be bought individually, which gives flexibility to buyers.

Source: Reproduced with kind permission from Çilek.

The updated slogan of the company is ‘imagine’, which is clearly a message aimed at kids and reflects the innovative culture of the company. Muzaffer Çilek, the second brother and General Manager of Çilek, notes that they ‘produce dreams as well as kids’ furniture. We design a world that inspires them and develops their imagination’. The conceptual and functional integration of different pieces of furniture that make up a Çilek Room is highly appealing and is supposed to trigger creativity in children.

The founding brothers have maintained a focus on unique design, high quality, full room concept and a niche segment of the market. Çilek is the first company in the furniture sector that offers specific design and production for specific age groups between newborn and 24 years. Muzaffer Çilek stated that ‘the furniture sector is wide and there is no need to compete in this sector. There is no competitor for children’s furniture. Children are neglected by furniture producers. Our departure point was that we should produce furniture with several colours, materials, trends and unique design and children will like them.’ For several years, Çilek was the global licensor of Barbie from Mattell Inc. and manufactured Barbie Rooms. Becoming a global licensor of such a well-known children’s brand was another example of the visionary and entrepreneurial perspective of the Çilek brothers.

Since its target market requires special attention, the furniture has the most advanced child safety standards and rigorous quality tests are done regularly. All products have GS (Geprüfte Sicherheit) which is a certification for a high level of safety and quality. The most important competitive advantage of Çilek is the unique design of furniture and the full room concepts presented.

VENTURING ABROAD

One day, soon after the company’s foundation, the three brothers were having dinner together when Muzaffer outlined his vision for the company to be a pioneer in a niche market with unique products. His younger brother, Muharrem, said, ‘I am sure we can be a global brand since we have a unique design and are committed to high-quality standards and strategic planning. Also, our sales in Turkey are great.’ The oldest brother, Mustafa backed Muharrem with the words ‘The sky is the limit! Why don’t we start exporting our products to another country.’ Following this conversation, Çilek’s internationalization journey began and Çilek stepped into the global market almost from inception – a characteristic of so-called ‘born global’ companies.

Muzaffer Çilek reports that they participated in their first international trade fair in 1996. In the same year they began exporting to Ukraine, entering a foreign market for the first time. It registered its brand, logo and products in 70 countries all over the world. ‘Within the first few years following the establishment of Çilek, we participated in several major international trade fairs in Milan, Singapore and Tokyo. This is how we met with franchising partners’, Muzaffer Çilek said.

CULTURAL FIT

During a brainstorming session between the brothers, three main challenges arose: absence of brand recognition abroad; possible lack of cultural fit in foreign markets; and lack of international experience. Such challenges could hinder their expansion abroad. But, Muzaffer insisted on expanding to international markets. He said: ‘We sell niche products. Our brand will be successful in such an untapped market.’ Muharrem added: ‘What about the low-cost production in Turkey? This will create a great profit margin.’ Finally, Mustafa referred to their design superiority: ‘Unique colours, unique design, and high quality would definitely attract customers. Thus, our brand will stand for concept furniture. Keep in mind; we do not sell furniture, we sell concept kids rooms!’

After several brainstorming sessions, the founders decided to continue with the original brand name ‘Çilek’ (the letter ‘Ç’ is pronounced like the ‘ch’ sound in English), even though it is very awkward to pronounce for people who do not speak Turkish. From the perspective of the brothers, even if people have difficulty in pronouncing the brand name, they will recognize the ‘strawberry’ logo when they see it. The ‘strawberry’ stands for a high-quality product with a unique design – a standardized brand image aimed for the same product portfolio and design elements in all countries.

The brothers discussed another potential issue in international markets related to the cultural (mis)fit of kids’ furniture that was initially designed for the Turkish market. One of the brothers said:

I am not sure whether the standardized approach for product design would serve our company well. There are cross-cultural differences in terms of usage situation and consumption habits in different countries. For example, in some regions, the houses are so small that families cannot consider purchasing fully furnished kids’ rooms because they do not have enough space (e.g. Japan, China, Thailand, Taiwan). Moreover, in the United States, families prefer bunkbeds for children’s rooms, which could reduce demand for Çilek’s concept of kids’ bedrooms.

Muharrem thought out loud: ‘Some minor changes are required from country to country.’

Source: Reproduced with kind permission from Çilek.

MARKET ENTRY MODE AND INTELLECTUAL PROPERTY RIGHTS

In 1996, the year of its inception, the company expanded into Ukraine. The experiment of exporting for the first time demonstrated to the brothers some hard realities about doing business abroad. Exporting from the outset qualifies Çilek to be a ‘born global’ company. The main characteristic of born global companies is rapid internationalization from the early stage of its inception. Additionally, the innovative and risk-taking approach of the family members as senior executives was an essential component of its entrepreneurial prowess.

The first foray into international export was not encouraging, so the brothers looked at other ways of increasing sales in foreign markets. Finding the right distributors and managing promotional activities was difficult and time-consuming. There were other options for entering foreign markets, such as contractual agreements (e.g. franchising), joint ventures, and foreign direct investment (FDI). The brothers agreed that joint ventures or FDI were not suitable strategies because those entry modes required a substantial resource commitment. Çilek was a small family-owned business with limited resources. On the other hand, through franchising, the owner (franchisor) provides distributors (franchisees) with rights to distribute a product, service, or business concept. Franchising provides an opportunity for expansion abroad, especially for companies with a lack of capital to pursue foreign direct investment, or international experience. A franchisor can internationalize quickly to many markets at a low risk and cost. Another advantage of this market entry mode is that the franchisor can leverage franchisees’ local knowledge. Hence, they decided that franchising should be the mode of market entry for Çilek for entering foreign markets.

Meanwhile, Muharrem was regularly attending international trade shows. One day, he met Valentin from Malta at a furniture trade fair in the United Kingdom. Valentin said to Muharrem: ‘We spent some time in Turkey this summer. My kid saw the car bed in a store. Since then, he insists on having one. He loved it!’ Muharrem, an experienced businessman, replied immediately: ‘Oh, wow. I am sure he would enjoy it a lot. Would you be interested in selling our products in your country?’ In fact, such a potential business deal was already in Valentin’s mind. She said: ‘If we can agree on a franchising term, I would be happy to open a Çilek store.’ So, Çilek opened its first franchise store in Malta in 2001, five years after the company had its first international experience. Following the success of its first franchising model, the brothers decided to adopt this entry mode as the company’s main distribution strategy. The reputation of the potential franchisee company and the suitability of location for a potential Çilek store were the key criteria for selecting the franchisee.

Çilek continued its internationalization by establishing companies around the world. Çilek Germany GMBH was founded in 2005, Çilek USA Inc. in 2007, and Çilek Bosnia Doo and Çilek Japan Corp. were founded in 2009. In doing so, Çilek became the first Turkish brand to open a dedicated store in Japan.

In 2005 Çilek was recognized as a Superbrand in its product category. It was the only company that received such an award from Superbrands International in the furniture sector in Turkey. Moreover, Çilek is recognized as a trademark in the Turkish Patent Institute.

In addition, Çilek was accepted into the Turquality® programme launched by the Ministry of Economy (now, Ministry of Trade), which is the only state-supported global brand development scheme. Thus, the company’s success was recognized and supported by the Turkish government. The Turquality® programme of the Turkish government offers financial, managerial, and technical support to select companies under one main condition which is global brand development. The Turquality® programme prompts Turkish firms to develop their brands in the international markets by increasing awareness, image, and thus market share, as well as increasing sales of Turkish brands in foreign countries. (www.turquality.com)

Being accepted in the Turquality® programme and acknowledged as a Superbrand is not the only accomplishment of this highly specialized born global company. In 2007, the Istanbul Exporters’ Association declared Çilek a leading exporter in the furniture industry. In the following year, the company received the most admired company award in Turkey. In 2012, Çilek Furniture was ranked the second most successful exporter in the furniture industry by the Istanbul Exporters’ Association, surpassing significantly larger companies. Being recognized as one of the top Turkish furniture exporters was a major achievement given the scale of the industry in Turkey, and particularly as Çilek operates in a niche market. In 2014, Çilek received the second most innovative company award in Turkey, which is open to all industries, which was a clear vindication of its innovative processes and products.

One significant challenge during its market expansion was the global economic crisis. The company weathered this difficult period rather well. Muzaffer Çilek said, ‘As trade in Russia and Ukraine declined in 2009, we started focusing on our business in the Middle East, including Iran, Egypt, Syria, Iraq, Saudi Arabia and the United Arab Emirates.’ In 2014, Çilek opened 35 new outlets and grew 18% compared to the previous year.

FUTURE CHALLENGES

Being a born global company, the international operations of Çilek make up a significant part of its total operation. However, the company has faced different types of challenges which are typical in international business. Çilek has managed these successfully. The challenge of achieving further growth remains, however.

Standardization vs. adaptation: Çilek aims to follow a unified strategy with standardized brand image, distribution, product design, and quality in international markets. The standardization strategy is followed by using an identical brand name, colour, logo, product design, and website across different countries.

However, cultural variations and the preferences of the international franchisees make it difficult to maintain a standardized strategy and force some adaptations in the marketing mix for different markets. For example, houses are small in some regions such as Japan, China, Thailand, and Taiwan, meaning families rarely consider purchasing fully furnished kids’ rooms due to a lack of space.

Although the main distribution channel is franchising, in reality, the company follows a multi-prolonged strategy. Store types vary based on local conditions and requirements. For example, customers can buy Çilek furniture at Walmart, a major retailer in the United States or online through Amazon.com. In the United States, the company has both a franchising partner (Çilek USA) and a distributor Çilek USA Kids Rooms (www.cilekkidsroom.com) headed by Talha Çilek, from the second generation of the Çilek family. He has opened a store in Los Angeles, California and also sells through online channels.

In terms of pricing policies, an adaptive strategy is followed based on the level of economic development of the country, positioning strategy of the franchisee, and operational costs of the franchisee’s home country. For example, while the price of a car bed model costs 5,500 Turkish Lira (about $660) in Turkey, the price in the United States is about 11,000 TL (nearly $1,500).

Limitations of franchising: Franchising, which has been the preferred mode of entry by Çilek, is not free of flaws. A major disadvantage is the risk of creating competitors that may infringe intellectual property rights. When the franchising agreement is terminated, some franchisees may leverage their newly acquired knowledge to remain in business selling the same product line, often by slightly altering the franchisor’s brand name, trademark, or products.

According to Talha, the organizational capabilities and performance of the franchisees are the most important critical factors for success in the franchising system. Large companies may be reluctant to enter a franchising agreement with a newcomer since they may have already established franchising partners of long duration. Hence, large firms are sometimes less interested in a franchising deal with the Çilek brand. Thus, working with large and powerful companies does not always mean that Çilek can expand rapidly and successfully in a given country.

On the other hand, working with smaller companies may help Çilek grow faster since the profits of small companies depend on the success of Çilek. However, the challenge is that small-sized franchising partners might be less qualified for the job. From the perspective of Talha, a less qualified partner is a franchisee that does not value the Çilek brand, or has limited financial resources or scattered investments and a weak team or weak human resources. If Çilek has less qualified franchisees, the company provides support to help them remedy any failings. If there is no change, Çilek cancels the franchising agreement.

Another disadvantage of franchising is that the franchisor has limited control over its assets abroad. Moreover, franchisees may jeopardize the franchisor’s image by not upholding its standards. Talha noticed that the company had not been as successful as expected in some countries compared to others despite high demand for products. A close investigation revealed that franchisees in these countries lacked the motivation and capability to reach out to customers. Countries where the company performs successfully are those where the franchisees are dedicated and demand for products is high. Çilek’s success in a country depends on the franchisee’s success, which will only come if the partner focuses on and prioritizes the Çilek business.

Protecting intellectual property: Along with the flaws of franchising, Talha encountered another potential problem related to intellectual property rights when he was visiting China: he noticed lookalike beds in a Shanghai store. Elsewhere the brothers figured out that copycat furniture was already in India. But after a detailed market analysis, Talha worked out that the imitators were not offering quality products. Moreover, some customers reached out to Çilek to obtain original products after experiencing low-quality imitations. The cost of challenging these fraudsters was far above the damages they would receive. Thus, the brothers decided to avoid allocating financial resources and energy to fighting imitator firms.

Trade fairs created potential risks of infringement of intellectual property as well. Exhibitions enable other manufacturers to scrutinize product specifications. Thus, the risk of copycat products is high, but their quality is lower than the authentic Çilek furniture.

New market selection: The primary way Çilek develops its international market portfolio is through participation in trade fairs around the globe. International trade shows provide a platform where the company can interact with members of the main distribution channels in different countries. Networking facilitates entry into foreign markets. For example, expansion into the Indian market was realized thanks to the participation in a trade fair called Index Mumbai in 2014. Çilek met Ecuador’s biggest retailer at a trade fair in Las Vegas. This relationship enabled the company to start exporting to Ecuador in 2016. However, it may now be overlooking significant markets.

Çilek is a pioneer in some country markets as the leading Turkish furniture brand. The expansion into the Japanese market in 2009 and into Brazil in 2014 are examples of this leadership. Recently, the company has targeted South America, Africa, and the Asia Pacific region for international expansion. It plans to increase its number of selling points to 20 in the United States by 2023.

Inconsistent performance across markets: Although Çilek has expanded its activities to international markets, the company performance varies across different regions. For example, in 2007, Çilek planned to open between five and ten stores in China by 20125 but as of 2020 they have only opened one.

Çilek claims that the company has asserted a market presence in nearby countries. In line with Çilek’s claim, the company has the highest number of stores in Russia (40) followed by Ukraine (27), and Iraq (11). In the West European region, the leading market is Germany (23). Also, Switzerland (16) and Greece (15) are countries where Çilek has performed well. According to Çilek, the company has a competitive advantage in European markets. People in these regions are accustomed to importing products from East Asia. However, importing from Turkey is less costly in terms of logistics and inventory as it is much closer to these markets.

In Africa, Çilek has operations in Algeria, Morocco, and Kenya. In each of these countries, the company has four stores. Similarly, Çilek has a limited number of sales points in the United States and plans to expand its activities there.

Çilek’s success in emerging and developing countries may be attributed to an absence of brands for kids and teenage rooms. The competition is intense in developed markets like the United States, Japan, and Western Europe. On the other hand, the potential for the future is high in such countries. The expansion in those markets takes more time, and profits are rarely secured in the short term. The top five markets of Çilek in terms of market share are Germany, Northern Iraq, Ukraine, and Azerbaijan. The United States, China, and Italy are among its rapidly growing markets.

Source: Reproduced with kind permission from Çilek.

The first child that had a Çilek room is now 25 years old. Today, Çilek has more than 500 stores in 71 countries, with more than 225 located in Turkey alone. A largely untapped global market provides significant growth opportunities for Çilek. Çilek Furniture benefits from its specialized, original, and authentic brand name as well as unique product design and an established franchising system. However, there may be some challenges to face and more opportunities to exploit in Çilek’s remarkable journey.

This case has been prepared by Ilke Kardes, Asude Yasemin Zengin, and T. Cuneyt Evirgen.

CASE STUDY QUESTIONS

1.The company sells concept kids rooms that require sufficient space in a house or apartment to install. However, customer preferences vary from country to country. For example, people prefer compact furniture in places such as Japan due to lack of space. How do Çilek’s products fit culturally specific demand in international markets? To what extent is an adaptation as opposed to a standardization strategy feasible for Çilek products?

2.Çilek has so far pursued a franchising strategy in international expansion. Do you think that franchising is the optimum distribution channel for the company? What are the risks and opportunities of the franchising system for the company? How well does franchising serve foreign market entry? Is the company overlooking other distribution channel opportunities? If so, what would these be?

3. Çilek seems to have expanded into foreign markets in a rather opportunistic fashion. If the company wishes to initiate a more systematic strategy for international market selection, what approach and market selection criteria would you recommend?

4. Çilek’s product ranges are imitated in some countries such as China and India. The company executives do not take the necessary interventions to fight back against counterfeit offerings. Do you think that it is the right approach? What strategies would you recommend for them if you were acting as a consultant?