STRATEGY IN THE GLOBAL ENVIRONMENT-IKEA

ISSUES FACED,AND STRATEGIC DECISIONS TO BE MADE

Submitted to:
Prof. Arun Sangwan

Submitted by:
Arpit Kulshreshtha
Rishi Malhotra

List of Contents

S.No.
1
2
3
4
5
6
7
8

Particulars
ABOUT THE COMPANY
THE EFFECT OF GLOBALISATION
PORTERS DIAMOND MODEL OF NATIONAL COMPETITIVE ADVANTAGE
INCREASING PROFITABILITY AND PROFIT GROWTH THROUGH GLOBAL
EXPANSION
COMPETITIVE PRESSURES FACED
GLOBAL STRATEGY
CHOICE OF ENTRY MODE
REFERENCES

ABOUT THE COMPANY

IKEA is a Swedish Home furnishings company founded by Ingvar Kamprad in 1943 in Smland
in southern Sweden. At the age of five Ingvar Kamprad started his journey as an entrepreneur
selling matches to his nearby neighbours. From matches he expanded his business to selling
flower seeds, greeting cards, Christmas tree decorations, and later pencils and ball-point pens.
When Ingvar was 17, his father gave him money as a reward for succeeding in his studies. He
used it to establish his own business, IKEA. The name IKEA was formed from the his initials
(IK) plus the first letters of Elmtaryd (E) and Agunnaryd (A), the farm and village where he grew
up. IKEA originally sold sells pens, wallets, picture frames, table runners, watches, jewellery and
nylon stockings. Furniture was introduced into the IKEA range in 1948 and the rest is history!
The IKEA vision is to create a better everyday life for the many people. The IKEA business idea
is to offer a wide range of home furnishings with good design and function at prices so low that
as many people as possible will be able to afford them.
Our mission is to give people with thin wallets a chance to furnish their homes in a beautiful and
functional way. We call it Democratic Design.
There are currently 315 IKEA Group stores in 27 countries. IKEA employs 150,000 co-workers
and in 2014 alone we had 716 million visitors to our stores, with a 28.7 billion sales turnover.
Our 150,000 co-workers are the inner strength of IKEA and are what makes us a unique
company. We come from all over the world but share the fundamental humanistic values that our
culture is based on, such as togetherness, humbleness, simplicity, cost-consciousness, giving and
taking responsibility and common sense.

THE EFFECT OF GLOBALISATION

Globalization is the system of interaction among the countries of the world in order to develop
the economy.The term globalization has come to mean the way in which the world economy is
run and dominated by multinational corporations and international trade they tend to control.
IKEA faced challenges in the discrepancy of cultural, demographic and markets. For instance,
IKEA always located the retail stores in cheap areas and applied do-it-yourself principle to the
furnishings. Nevertheless, such elements needed to be changed in China region in order to cater
the China market. And it yielded a great success. Having experience in China market, IKEA uses
different marketing and advertising strategies in different countries like Japan and Malaysia. It
yields a high turnover on selling furnishings all around the world. On the other hand, it creates a
mutual taste for worldwide customers. Its services are different in different countries according
to different needs of the customers, which are tailor-made. Therefore, IKEA has huge success in
different parts of the world. Although markets were diversified, all the home furnishings are still
developed by IKEA in Sweden, the birthplace of IKEA. Hence, all the items that were sold in
different countries are a lot the same. Whats more, the decoration of every store is very like to
each other, which gives its customers an accommodating feeling even they shop in different
countries.
IKEA's globalization strategies and its arrival in Chinese furniture market. And in Japanese
market. The main assumption of ikea's global strategy is that one design suit's all. IKEA offers
nearly 1200 items to the home furnishing market in world wide. It sold a wide range of products
including furniture accessories, bathrooms, and kitchens. With these different types of products
of furniture IKEA entered in different parts of the world. Across the Europe, Asia and Australia.
Means IKEA entered in the biggest market of selected countries, and in 2003 IKEA was on 43rd
rank on a list of the top 100. And in Japan ikea Funabashi has overall proven itself to be succeful
since its establishment in japan in 2006. They know they are not suitable themselves to
obligatory cultural aspects but, they believe that they are able to standardize their products and to
maintain themselves to be special they are so, called swedishness. And I believe that the another
reason of their success in Japan that they do not confronted with any direct competitors. But I
recommend IKEA need to focus more on PR and marketing in order to maintain a strong and fast
mover company. And these could be the biggest advantage over other potential competitors in
market.
IKEA had successful with its one design suits all global expansion strategy in many different
markets.

The first store of IKEA in china was opened in 1998 and Chinese market is one of the most
competitive markets in the world. And when they entered in china they were confronted with
several problems of cultural and traditional. Ikea group also had to change two of the most
necessary aspects of its time tested and proven of global strategy. The essence of IKEA in
locating their stores is usually it located in less expensive area. Because however people do not
buy the furniture daily so, why should they open their store in busy areas and pay higher rents for
the use of place. And they sale their furniture on do it yourself principle. But in this strategy they
need a change. Because, (DIY) principle is not successful as others. if you as a company help
costumers to get their products ready to use.
Besides that the IKEA group claimed that it had decentralized most of its functions including HR
and store management. In a matter of globalization decentralization plays a vital role. Because
there is a opportunity to get a information about the market situation from companies own
source. And to make quick decision company needs the information of day to day business of
total market so, they can take an appropriate decision. If company's top management is
centralized in taking decision and its lower level is decentralized so, it could be helpful to the top
management in taking quick decisions.

PORTERS DIAMOND MODEL OF NATIONAL COMPETITIVE ADVANTAGE

INTENSITY OF
COMPETITION

FACTOR
ENDOWMENTS

NATIONAL
COMPETITIVE
ADVANTAGE

LOCAL
DEMAND
CONDITIONS

RELATED AND
SUPPORTING
INDUSTRIES

Michael Porter identified four attributes of a national or country-specific environment that have
an important impact on the global competitiveness of companies located within that nation.
The four attributes of these model are:
1. Intensity of Competition
It talks about how companies are formed,organized and managed,governed by the
conditions in the country and the nature of competition. More the intensity of

competition,better it is for the company to come out with strategies to be more successful.
Factor Endowments
It tells us about the various factors of production like land,raw materials,labour etc in a
particular nation so as to compete in a given industry.
2. Related and Supported Industries
It talks about the presence or absence of supplier and related industries in a nation that are
internationally competition. Through the help of such industries,a company is likely to
have a strong competitive position internationally.
3. Local Demand Conditions
It refers to the nature of home demand for the industrys product or service. These
conditions help in creating pressures for innovation and quality.
A company is more likely to succeed in industries or strategic groups in which these four
attributes are favourable.

In case of IKEA, these four attributes would comprise of the following:

1. Intensity of Competition: According to Hopkins (2008) there is more competitive
pressure if there are more rivals in the industry. The number of rivals for IKEA is limited
in Europe which is where major revenue is generated, as they are able to restrict
competition due to their cost leadership and product differentiation. Apart from the
competition IKEA faces from UK based B&Q (the largest DIY retailer in Europe and
third largest in the world) in china; its biggest worry is that it is facing competition from
many international and Chinese chains who are copying its products. Many stores in
china have IKEA's catalogue in their stores and they tell customers that they can
reproduce the same furniture at a lower price. IKEA's online catalogue makes it easy to
view and copy.
2. Factor Endowments:
Supplier: IKEA does not enter into actual production but has taken further steps thus
keeping the suppliers in an even tighter grip. These suppliers are not only dependent on
orders from IKEA but are also in direct financial debt to IKEA, because IKEA has paid
for the assembly of their machinery
Technology: Increasing use of renewable materials, By using new technologies: Like
IKEA's OGLA chair has been in its range since 1980.
3. Related and Supported Industries: Favorable conditions for furniture making have
produced a number of furniture clusters in Sweden. Industry clusters
For each industry, closely related industries are sources of critical resources and
capabilities.
Labour force: low cost

Infrastructure: good
Government policy

4. Local Demand Conditions: Swedish customers are sensitive to environmental

considerations. IKEA argues that it goes for low costs, but not at the expense of the
environment
Population: 1.3 billion
The raising of Middle class
Cheap furniture demand

INCREASING PROFITABILITY AND PROFIT GROWTH THROUGH GLOBAL

EXPANSION

Social trends: IKEA is providing online help to guide customers to a more sustainable life. The
advantages of online business will reduce administration cost and it will give more information
to customer of product and IKEA can pass its corporate goal to target its customer more
effectively
Market forces: IKEA is large enough to enjoy economies of scale and also target the biggest
segment of the market .i.e. middle class. This helps to reduce average costs in the long run
through, for example, better use of technology or employing specialized managers. Economies of
scale also give a business a competitive edge if cost savings are then passed on to customers in
the form of lower prices. This puts up high barriers to entry for smaller companies entering the
market.
Economic factors: Global recession and significant decrease in first time buyer has affected the
demand in future industry. IKEA's low prices create appeal amongst its customers in tough
financial times. It is vital to keep prices as low as possible when the retail sector is depressed.
IKEA's pricing strategy targets consumers with limited financial resources. Its products will also
attract to those with higher income through good quality and design. IKEA must ensure that it is
always recognised as having the lowest prices on the market in the future

COMPETITIVE PRESSURES FACED

Companies that compete in the global marketplace typically face two types of competitive
pressures: Pressures for cost reduction and pressures to be locally responsive. The competitive
pressures place conflicting demands on the company.

Pressure for global Integration

Standardising whenever possible
90% of product line is similar across in more than 12 countries
IKEAs marketing is centrally developed at headquarters

Pressure for local responsiveness

Adapting when necessary
Modification of its furniture to suit individual countries e.g longer hangers in Italy
and deeper wardrobes in USA
Implementation of local adjustments in marketing to suit language and catalogue.

Pressures for Cost Reduction It requires that a company needs to minimize its unit
costs. To attain this goal,it may have to base its productive activities at the most
favourable low-cost location. It may also have to offer a standardized product to the
global marketplace to realize the cost-savings that come from economies of scale and
learning effects. Alternatively,it might outsource certain functions to low-cost foreign
suppliers in an attempt to reduce costs. Pressure for cost reduction is high if a company is
following a global standardization or transnational strategy. It is low if a company
follows the international or localisation strategy.

Pressures for Local Responsiveness: In order to be locally responsive,a company

differentiates its product offering and marketing strategy from country to country in an
effort to accommodate the diverse demands arising from national differences in consumer
tastes and preferences,business practices,distribution channels,competitive conditions and
government policies. This adds to the cost to the company. Pressure for local
responsiveness is low if a company is following a global standardization or international
strategy. It is high if a company follows the transnational or localisation strategy.

GLOBAL STRATEGY

The first store of IKEA in china was opened in 1998 and Chinese market is one of the most
competitive markets in the world. And when they entered in china they were confronted with
several problems of cultural and traditional. Ikea group also had to change two of the most
necessary aspects of its time tested and proven of global strategy. The essence of IKEA in
locating their stores is usually it located in less expensive area. Because however people do not
buy the furniture daily so, why should they open their store in busy areas and pay higher rents for
the use of place. And they sale their furniture on do it yourself principle. But in this strategy they
need a change. Because, (DIY) principle is not successful as others. if you as a company help
costumers to get their products ready to use.
Besides that the IKEA group claimed that it had decentralized most of its functions including HR
and store management. In a matter of globalization decentralization plays a vital role. Because
there is a opportunity to get a information about the market situation from companies own
source. And to make quick decision company needs the information of day to day business of
total market so, they can take an appropriate decision. If company's top management is
centralized in taking decision and its lower level is decentralized so, it could be helpful to the top
management in taking quick decisions.
Ikea management team around the world is really good and especially the managing director of
ikea in United Kingdom Mr. Goran nilson he is fantastic in his job and responsibility
performance. The management team of is mainly concentrate on understanding of the human
resource management practices and work culture of a major furniture manufacturer and retailer.
And they appreciate the importance of the positive human resource management and practices in
all the employees' retention management. Even after this importance the company has some
issues regarding human resource and the management team is working on it to overcome this
problem and company had some more issues regarding the effect of culture on employee morale.
Ikea has a strategy and vision for company and its employees to help many people to have better
life and people included employees, customers and community. And I think if IKEA supports the
employees in their personal lives then the employees will become more committed in every
performance of company. If company takes care of their wants and needs only.
IKEA is a global company that is developing rapidly. An IKEA IT support helps IKEA in
development with the help of information flow and provides solutions to the company. The team
of IKEA IT supports is solution oriented and IT team of IKEA is genuinely creative in nature and
helpful in providing in correct and required information. They supply the quick and correct

information in a very short span of time. On the other side they support the marketing and
advertising department of Ikea. And through these help IKEA make certain decision which helps
the company stability and the decision are very important because it affects the stakeholder and
customers and employees and community as well.

ikea competitors from different parts of the world has a unique in qualities that are different from
others that one cannot ignore it that taking into consideration. Yet we think that a company has to
find a good balance between suitability in products in different markets and we as a company
should know that what is best they think for themselves at a best price. And we should be able to
maintain a quality uniqueness to sustain a competitive advantage over other competitors in
different markets where the culture is different.

THE CHOICE OF ENTRY MODE

Any company which wants to enter a global market has to determine the best model. There are
five ways in which a company can enter in to the global markets. They are Exporting, Licencing,
Franchising, Joint Ventures and Wholly Owned Subsidiaries.
IKEA used Franchising as the mode for entering into the global market.
A franchise is a type of license that a party (franchisee) acquires to allow them to have access to
a business's (the franchiser) proprietary knowledge, processes and trademarks in order to allow
the party to sell a product or provide a service under the business's name. In exchange for gaining
the franchise, the franchisee usually pays the franchisor initial start-up and annual licensing fees.
Franchises are a very popular method for people to start a business, especially for those who
wish to operate in a highly competitive industry like the fast-food industry. One of the biggest
advantages of purchasing a franchise is that you have access to an established
company's brand name; meaning that you do not need to spend further resources to get your
name and product out to customers. Franchising tends to involve long-term commitments.
Management of various stores is the IKEA Operations responsibility. INGKA Holding is a
private Dutch company which is owned by Stichtting INGKA Foundation which was established
in 1982 in Netherland as a tax exempt non profit foundation. The design and manufacture of its
furniture, purchasing and supply functions are overseen by INGKA. In 36 countries 2,235 stores
are run by INGKA Holding, the rest 30 stores are run by franchises. The INGKA Foundation is
controlled by a five-member executive committee that is chaired by Kamprad and includes his
wife and attorney.
The IKEA trademark and concept is owned by Inter IKEA Systems, registered in Luxembourg,
which is an exclusive Dutch company and its ownership is very complicated and uncertain but
believe to be owned by Kampard Family members. All IKEA stores including ones run by the
INGKA Holding pays a fee of 3% of the total profit to Inter IKEA systems.
All the stores are operated by Inter IKEA Systems under a franchise agreement. In Australia
however IKEA is operated by two companies: Eastern Coast Stores including Queensland, New
South Wales and Victoria are under the owner ship of INGKA Holding. Stores in the South and
Western Australia are owned by CEBAS Pvt. Ltd.
The suppliers acquire a long term contract with IKEA transferring technical advice and leased
equipment from the company. IKEA keeps the rights of exclusion and also for low prices.

References
http://www.ikea.com/
http://www.ikeafoundation.org/about-us/
http://www.businesstoday.in/magazine/lbs-case-study/how-ikea-adapted-its-strategies-toexpand-in-china/story/196322.html
http://globalnews.ca/news/2245350/watch-california-dad-builds-bed-with-slide-secretroom-using-ikea-parts/