IKEA’s Global Strategy Walk into an IKEA store anywhere in theworld, and you would recognize it instantly. Global strategystandardization is rampant! The warehouse-type stores all sell thesame broad range of affordable home furnishings, kitchens,accessories, and food. Most of the products are instantlyrecognizable as IKEA merchandise, with their clean yet tastefullines and functional design. With a heritage from Sweden (IKEA wasfounded in 1943 as a mail-order company, and the first store openedin Sweden in 1958), the outside of the store will be wrapped in theblue and yellow colors of the Swedish flag. IKEA has sales of €34.2billion euros annually (about $37 billion U.S. dollars) and morethan 150,000 employees. Interestingly, IKEA is responsible forabout 1 percent of the world’s commercial-product woodconsumption.
The IKEA name comes from its founder—the acronym consists of thefounder’s initials from his first and last names (Ingvar Kamprad)along with the first initials of the farm where he grew up(Elmtaryd) and his hometown in Sweden (Agunnaryd). Overall, Swedenhas 20 IKEA stores, which are only fewer than in Germany (49 IKEAstores), the United States (42), France (32), and Italy (21). Spainalso has 20 stores. With 351 stores in 46 countries, IKEA is thelargest furniture retailer in the world. Basically, the furnituremarket is one of the least global markets, with local tastes,needs, and interests much different than for many other productsacross industries. The largest IKEA store is in Gwangmyeong, SouthKorea, at some 640,000 square feet.
The IKEA store itself will be laid out like a maze that requirescustomers to walk through every department before they reach thecheckout stations. The stores are often structured as a one-waylayout, leading customers counterclockwise along what IKEA calls“the long natural way.” This “way” is designed to encouragecustomers to see the store in its entirety. Cut-off points andshortcuts exist but are not easy to figure out. It is evendifficult to get back out after having a meal in the famous IKEArestaurant with its Swedish food (meatballs anyone?).
Immediately before the checkout, there is an in-store warehousewhere customers can pick up the items they purchased. The furnitureis all packed flat for ease of transportation and requires assemblyby the customer. Value is stressed to a great extent (the pricecustomers pay for the quality furniture they get). If you look atcustomers in the store, you will see that many of them are in there20s and 30s. IKEA sells to the same basic customers worldwide:young, upwardly mobile people who are looking for tasteful yetinexpensive “disposable” furniture of a certain quality standardfor the price they are willing to pay.
A global network of more than 1,000 suppliers based in more than50 countries manufactures most of the 12,000 or so products thatIKEA sells. IKEA itself focuses on the design of products and worksclosely with suppliers to bring down manufacturing costs.Developing a new product line can be a painstaking process thattakes years. IKEA’s designers will develop a prototype design(e.g., a small couch), look at the price that rivals charge for asimilar piece, and then work with suppliers to figure out a way tocut prices by 40 percent without compromising on quality. IKEA alsomanufactures about 10 percent of what it sells in-house and usesthe knowledge gained to help its suppliers improve theirproductivity, thereby lowering costs across the entire supplychain.
Look a little closer, however, and you will see subtledifferences among the IKEA offerings in North America, Europe, andChina. In North America, sizes are different to reflect theAmerican demand for bigger beds, furnishings, and kitchenware. Thisadaptation to local tastes and preferences was the result of apainful learning experience for IKEA. When the company firstentered the United States in the late 1980s, it thought thatconsumers would flock to its stores the same way that they had inwestern Europe. At first, they did, but they didn’t buy as much,and sales fell short of expectations. IKEA discovered that itsEuropeanstyle sofas were not big enough, wardrobe drawers were notdeep enough, glasses were too small, and kitchens didn’t fit U.S.appliances. So the company set about redesigning its offerings tobetter match American tastes and was rewarded with acceleratingsales growth.
Lesson learned. When IKEA entered China in the 2000s, it madeadaptations to the local market. The store layout reflects thelayout of many Chinese apartments, where most people live, andbecause many Chinese apartments have balconies, IKEA’s Chinesestores include a balcony section. IKEA has also had to shift itslocations in China, where car ownership lags behind that in Europeand North America. In the West, IKEA stores are located in suburbanareas and have lots of parking space. In China, stores are locatednear public transportation, and IKEA offers a delivery service sothat Chinese customers can get their purchases home.
2. IKEA has narrowed down its market entry mode (intoVietnam) to three options i.e. franchising; a joint venture with ahost-country firm or setting up a new wholly owned subsidiary inVietnam. Critically evaluate these options. Which one would yourecommend? (1000 words)
