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Ikea's Global Strategy: Furnishing the World Case Solution
The case study looks at the global strategy of Ikea. The review defines the origination of Ikea in Scandinavia and the pertinent differentiation from a competitive furniture retailer. The intriguing aspect is the globalization of a specialized retailer once the competitive advantage is standardized. The strategic importance of entry in regions has been discussed i.e. Germany, Canada, and the US. The key element of the case study is to identify how Ikea managed to convert the barriers to entry to its advantage and what were the pertinent downfalls and problems faced during this process.
Following questions are answered in this case study solution:
What are IKEA's firm specific advantages, Country specific advantages?
What are the cultural factors which make expansion abroad in retailing difficult? What has made it possible in IKEA's case?
Describe how IKEA'S expansion has re-energized mature markets around the world and changed the competitive situation.
How does the TV advertising campaign initiated by IKEA overcome the entry barrier of high advertising expenditures?
Should IKEA expand further in the United States or focus on other countries?
Ikea s Global Strategy Furnishing the World Case Analysis
1. What are IKEA's firm specific advantages, country specific advantages?
IKEA’s firm specific advantages are rather simple and clear cut. Primarily, IKEA is a low-cost furniture retailer and manufacturer with the aim of targeting the young customers. It has been consistently working on innovative designs, whereby the components can be placed in mass production through its early venture into the Eastern Europe, building up a reliable supplier base. IKEA was consistent in its approach to create partnerships and affiliations with independent furniture manufacturers and provisioning them with guaranteed orders from IKEA, but in return the suppliers were prohibited from selling to others. IKEA store design layout retained standardization across the globe. It was essentially a warehouse store, whereby the ready-to-assemble kits could be conveniently stocked on racks. Additionally, the inventory was always large, and the customers could always pick up their furniture, rather than waiting for delivery.
This aforementioned approach, which aided in abating costs to a minimum, created its country specific advantage, whereby, cost minimization is perpetuated through dependency on IKEA’s global sourcing network of approximately 2,300 suppliers in almost 67 countries. Additionally, it is the fact that same furniture sells globally, huge economies of scale from size of stores and relatively large production runs were reaped. IKEA had essentially expanded the market through lower pricing, which was a strategy adopted by some adversaries.
2. What are the cultural factors which make expansion abroad in retailing difficult? What has made it possible in IKEA's case?
Cultural factors that hamper expansion include numerous factors such as dissimilar tastes and preferences; therefore, when entering new markets, organization undertake studies to identify local tastes. Additionally, the management style varies from country to country. The level of education tends to vary, which defines the level of training required to the staff taking care of an organization. More importantly, the law and policies tend to differ, dictating the manner of operating capabilities within an organization. Finally, religion and language carry immense importance. Religion defines the rules to live by and the adherence towards identification of right and wrong. On the other hand, language dictates the strategy of utilizing local workforce to sustain a business rather than bringing in foreign teams to run the business because there remains a gap of understanding.
In case of IKEA, considering the example of Moose symbol in the US was considered an inauspicious signage. However, the ability of IKEA management to continually change their approach, defined their flexibility, such as in terms of the variation pertaining to US sized beds and European sized beds, which produced astounding results. Additionally, IKEA’s lean organizational strategies implied that individual employees held greater responsibility and freedom than the traditional stores. Additionally, IKEA was smart to utilize a global language, humor. Furthermore, in America, more advertising was required; word of mouth carried less importance.
3. Describe how IKEA'S expansion has re-energized mature markets around the world and changed the competitive situation.
It should be noted that prior to entry of IKEA in the confines of Europe and America, the sale of furniture was an irksome task, shared amongst the likes of departmental stores. They exclusively sold deliverable products for high prices and long wait times. There was no concept of expansion in the furniture industry.
IKEA broke several international retailing rules such as entering a new market after initiating an exhaustive study, acquisitions to acquire local expertise, franchising, and joint ventures. The ideology of IKEA was extremely flexible and adaptable where necessary. The porter’s strategy that it tends to follow is essentially that of differentiation and low costing. In Europe, IKEA retained consistency and was subsequently successful, whilst, in case of US, IKEA had to make certain changes pertaining to advertisements and furniture size, so on and so forth.
IKEA has re-energized the mature market by changing the consumer behavior. The consumer has shifted from expensive, redundant designs towards a more thoughtful perspective, whilst keeping the pricing as a pertinent derivative of their decision. Additionally, selecting furniture has been created as a depiction of personality, emotions, functionality, and lifestyle. Therefore, IKEA management wants to associate with the “warmest, most emotional furniture in the world”. Furthermore, IKEA has impacted the value chain by making customers the supplier of; transportation, labor, off time, knowledge, transportation, and information.
4. How does the TV advertising campaign initiated by IKEA overcome the entry barrier of high advertising expenditures?
The pertinent ad campaign and the relative positive word of mouth contributed towards making the Canadian entry, a success. The slogan stated: the impossible furniture store from Sweden, which was accompanied by a moose symbol that played a key role in attracting the young segment.
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