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Ikea Case Study

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International Management

IKEA Case Study

  1. IKEA was founded in 1943 by Ingvar Kampard and focuses on stylish but inexpensive Scandinavian furniture targeted at  low to mid income families. In 1956, IKEA adopted the concept of self-assembly by opening a self-service open warehouse. Internationalisation began in 1973 and now IKEA is operational in 22 countries with 178 stores, having over 70,000 staff under employment.

  1. IKEA is able to maintain low-cost without sacrificing quality and offers great design to keep customers coming back.
    Instead of having its own manufacturing facilities, IKEA subcontracts manufacturers. and also engages customers as pro-sumers, where they both consume and partake in the production process. Finally, IKEA has one of the most efficient internal production system.
    In addition, to maintain the cost leadership, IKEA’s suppliers are located in low cost nations with close proximity to raw materials and reliable access to distribution channels. Also, IKEA utilises economies of scale and competitive advantages as they look for suppliers that produce highly standardised products intended for the global market.
    IKEA is able to keep customers coming back with its effective marketing shown in its eye catching catalogues, good service and strong in stock position as the most popular styles and design trends are continuously anticipated. With these three aspects, IKEA is able to attract its customers, keep the customers coming back and keep the customers satisfied.
    While there have been successes, there also have been barriers. One barrier is the differences is customer tastes all over the world. As it is hard to satisfy different tastes from all over the world, IKEA merged the global taste by having a Scandinavian base. For example, IKEA would export Scandinavian style products to the U.S. and export U.S. products to Europe. Since globalization has been an ongoing concept, people all over the world have been adapting to different tastes and cultures.
    Another barrier is the global scale of IKEA. With it comes the difficulty of always having an in-stock position. As such, IKEA has an efficient global distribution system.
  2. [pic 3]IKEA’s differentiation strategy is low cost while maintaining quality through good design. By tying customers into the production process of assembling their own furniture, they are able to lower costs.
    Secondly, IKEA ties in both consumers and suppliers very well, almost granting them direct communication. This is done by keeping both sides informed about IKEA’s business systems and product pipeline, thereby creating long-term relationships and gaining value from both parties.
  1. The best practices that IKEA are its internal efficiencies and conservative way of international expansion. Global suppliers are located in low cost nations with close proximity to raw materials and reliable access to distribution channels. With this strategy, IKEA is able to create better products in a more efficient matter.
    Furthermore, IKEA always strive to provide customer value through great design. This keeps customers coming back through both low cost and great value through design.
  1. IKEA has created its own global distribution network and depends on leading edge technology and closeness to supplier to always ensure an in-stock position. It is important that IKEA has its own distribution network so that they can maintain control of the delivering, timing and processing of products.
  1. Based on the first-hand experiences of some American friends, one of IKEA’s main global competitors are Ashley Furniture Industries, which is the largest United States home furnishings, headquartered in Arcadia, Wisconsin and Kika, which is an international chain of furniture stores based in Austria. These are IKEA’s direct competitors but IKEA also has a couple of indirect competitors such as Target, Walmart and Lowe’s.
  1. IKEA’s business strategy is to offer low cost and well designed furniture. In order to achieve this goal, IKEA’s strategy is to bring suppliers and consumers closer together, often engaging customers into the production process. The use of a well designed catalogue also continually attracts customers while keeping them updated about the product pipeline. Finally, IKEA utilizes its resources and import/export from different markets to both high quality and lower prices. With IKEA’s low costs and high volume, IKEA is able to create profits across international borders.
  2. [pic 4]The manufacturing process is subcontracted to manufacturers all over the world. Suppliers from all over the world are procured by having IKEA staff share their contacts. After deciding on one supplier, IKEA usually lets the one supplier supply to the rest of the world.
    Half the production takes place at the subcontracted manufacturer; however, half the production takes place with the consumers themselves, which also helps IKEA to keep their costs low. Customers purchase IKEA furniture in flatpacks and are often tasked to assemble the furniture themselves.
  1. Product adaptation refers to tailoring the products to suit the local tastes of different countries where IKEA is operating in. IKEA’s unique strategy is to provide low cost leadership while maintaining high quality through input and process variables. The product adaptation is related to its strategy because it offers customers value through differentiated and tailored products that suit their tastes, while maintaining low unit costs of their furniture.
  1. IKEA employs a conservative strategy to their international expansion. To enter a new country, they first establish a strong connection with a key supplier, before opening a retail outlet. This is strategic as the supplier can then provide input on political, cultural and other factors, thereby reducing risk for IKEA. In the recent past, IKEA has also adopted the franchising system when internationalising, which is a cost-savvy and less risky option for IKEA.
    Store location is also weighted in this strategy, as IKEA is often located in the outskirts of the city or in the suburban areas. These areas offer lower rental rates, hence allowing IKEA to rent a larger space. This is crucial for two purposes: firstly to facilitate the walk-through showcase of their furniture. Secondly, IKEA combines both showroom and warehouse, to allow customers to pick up their furniture on the spot. Being in a cheaper location allows them to acquire the space necessary for their business strategy.

11. According to the case, after-sales service for IKEA is only important to little extent. IKEA focuses on good service mainly in 2 ways:

  1. Having a strong in-stock position, so that customers will always be able to find what they want. This is achieved through an efficient global distribution network.
  2. Anticipating and producing desirable designs and trends to keep customers satisfied.

With these two factors as their main focus in terms of customer service, the after-sales service is less prioritised. Moreover, with the customers bringing their furniture home to assemble themselves, the focus on the service is to attract the customers to the sale, thereafter tying them into the production process of transport and assembly of furniture.

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