Swedish Takeout
In this mini-case, IKEA is expanding internationally viafranchising and other means. This case focuses on efforts in theUnited States, Europe, and Russia.
Expanding markets around the world have increased competitionfor all levels of international marketing. Cost containment,customer satisfaction, and a greater number of players mean thatevery opportunity to refine international business practices mustbe examined in light of company goals. Collaborative relationships,strategic international alliances, strategic planning, andalternative market-entry strategies are important avenues to globalmarketing that must be implemented in the planning and organizationof global management.
Here we focus on a variety of alternative market-entrystrategies, including exporting, licensing, franchising, strategicalliances, and direct foreign investments.
Read the case below and answer the questions thatfollow.
Fifty years ago in the woods of southern Sweden, a minorrevolution took place that has since changed the concept ofretailing and created a mass market in a category where nonepreviously existed. The catalyst of the change was and is IKEA, theSwedish furniture retailer and distributor that virtually inventedthe idea of self-service, takeout furniture. IKEA sells reasonablypriced and innovatively designed furniture and home furnishings fora global marketplace.
The name was registered in Agunnaryd, Sweden, in 1943 by IngvarKamprad—the IK in the company’s name. He entered the furnituremarket in 1950, and the first catalog was published in 1951. Thefirst store didn’t open until 1958 in Almhult. It became soincredibly popular that a year later the store had to add arestaurant for people who were traveling long distances to getthere.
IKEA entered the United States in 1985. Although IKEA is global,most of the action takes place in Europe, more than 70 percent ofthe firm’s $36 billion in sales. Nearly one-fourth of that comesfrom stores in Germany. This level compares with only about $5billion in NAFTA countries. The firm has stores in more than 40countries around the world.
One reason for the relatively slow growth in the United Statesis that its stores are franchised by Netherlands-based Inter IKEASystems, which carefully scrutinizes potentialfranchisees—individuals or companies—for strong financial backingand a proven record in retailing. The IKEA Group, based in Denmark,is a group of private companies owned by a charitable foundation inthe Netherlands; it operates more than 350 stores. The Group alsodevelops, purchases, distributes, and sells IKEA products, whichare available only in company stores.
1. The fact that IKEA has stores in more than 40 countriesaround the world and sells to many markets likely means that thecompany experiences benefits of global marketing? List fourbenefits and explain.
2. The fact that Ikea strives to lower costs, minimizesmaterials and packing, and has catalogs that are completelyrecyclable shows what type of company commitment?
3.Why has IKEA seen slower growth in the United Statesusing the franchise market-entry strategy?
4. Which mode(s) of foreign market entry has IKEA used?
