Strategies and International Business in IKEA Comapany - Essay Example

IKEA internationalization Strategy Q1. IKEA is a company founded in 1943 in Sweden by a teenager called Ingvar Kamprad. The word IKEA is an abbreviation for Igvar Kamprad Elmaryd Agunnard. The words have their own independent meanings. For example, the first two words were derived from his name respectively while the third and last words were derived from the farm he brought and the name of his hometown respectively. In order to internationalize, IKEA pursued various strategies that would ensure it remains competitive and grow at a faster rate. To begin with, the company lowered the prices of its goods and services in the home country and in the global market (Coe, 2009). This factor made it attract more customers from the competitors. Consumers are sensitive of prices and any slight difference would make them shift and enjoy the relatively lower prices. Because of the highly priced competitors’ products, IKEA managed to record increase in their customer base. Secondly, IKEA engaged in continuous designing of their products to improve their quality and preference. They also engaged in continuous introduction of newly innovative products. Moreover, the company used trademark to protect its goods from being counterfeited by the competitors. Trademark would also make IKEA products be distinct from those of the competitors top help avoid confusion and to help in developing a brand (IKEA, 2010). In addition, IKEA opened their retail stores in the countries in which it operated to increase the availability of its products and to ensure customers get the direct attention from their agents (IKEA, n.d.). Opening of stores abroad would also ensure that the different customers’ demands are integrated in the production of the company’s goods. IKEA strength is gained from the variety of products it offers and the low prices it offers for their products. Through this, it reduced the costs through lowering storage space and reduced labor cost. The opening of the retails in Germany, Switzerland and US further made IKEA enjoy wide market coverage and smooth its sales in case the product performance is not good in some of the geographical coverage. However, IKEA suffers from the problem of controlling quality in the global market without hiking the prices of their products (Coe, 2009). To sell their products at low prices mean that IKEA has to sacrifice the profit margin. Environmental regulation further poses a threat to the company since the materials used in manufacturing their furniture requires destruction of trees hence a potential threat. Q2. Several reasons prompted IKEA chose Switzerland as the first country to internationalize. First Switzerland was the home country and hence they had a better understanding of the environment and geography (IKEA, 2010). The operation costs were therefore low as compared to those in operations in the foreign economies. The taxation costs and other government charges might have been low compared to other countries. Secondly, IKEA might have considered the cost of production factors low in Switzerland. In this scenario, the cost of raw materials required in the manufacture of furniture could be very low compared to the costs of the production factors in other jurisdictions. Moreover, the procedures required in starting business in Switzerland were relatively easy compared to those required in other jurisdiction. In addition, the political stability in Switzerland favored the growth of business and provided the needed political climate to undertake investments. Existence of market gap could have led to the decision to begin the business in Switzerland. This thus means that the market for the products was available and IKEA could make substantial sales and revenue in the market. This would lead to increase in the profits that could be needed for expansion. Furthermore, IKEA could be in a bid to enjoy competitive advantage in the market since the level of competition was low and therefore IKEA would achieve market leadership. Q3. IKEA internationalization strategy was never by chance. It was deliberate with the intention of increasing the market share and attracting more customers to increase the financial statement figures. The deliberate decision to lower the cost to enter into the share of the competitors further justifies the move of IKEA. This helped the company out do its competitors and have great subscribers to its products hence it made it grow tremendously. The colossal amount of capital expenditure invested by IKEA further show that the strategy to go global was intentional. No company can invest such amount of money without having any strategic goal. The company invested in developing a trademark that would ensure that their competitors did not steal the business ideas and designs. The simultaneous strategy of redesigning the products that were already in the market further proves that the company intended to increase its level of sales. In addition, the strategic opening of the warehouses in Norway, New York and other parts were with the consideration of the viability of the investments. If the strategies were not deliberate, we would expect non-calculated moves that would result into losses to the business and that could not be explained for. IKEA opened the stores because of the difficulties it faced in the serving of the customers because of the overfilled capacities. Every move of the company was intended for a particular course and thus the strategy was deliberate. Finally, the unique marketing strategy that was used by IKEA in serving their customers to win their loyalty also justifies their deliberate strategy to record positive performance. The company strategy of packing unassembled products was aimed at reducing costs and making easy the way of transporting goods to the customer’s premises. The company strategy of further making customers get self service also enabled their customers to enjoy the wide range of products that allowed them to make choices. In conclusion, IKEA strategy of ensuring that the company establishes in the international market has indeed proved successful and strategic. The strategy has therefore made the company become a leader in the furniture market. References Coe, NM 2009, The globalization of retailing, Edward Elgar: Cheltenham, UK. IKEA 2010, IKEA group 2010 Annual Report Retrieved from http://www.ikea.com/ms/zh_TW/pdf/Welcome_Inside_2010.pdf Annual report - IKEA. (n.d.), Welcome to IKEA.com - IKEA. Retrieved April 24, 2012, from http://www.ikea.com/ms/en_CN/about_ikea/press/press_releases/annual_report.html Read More