Ikea - Business Description - Research Paper Example

IKEA-Business Introduction IKEA International is a privately owned company that began its operations in 1943. The company has grown over the years to assume the position of a global leader in design of furniture, home accessories and house wares. The company retails its products in approximately 5000 stores distributed in over 30 countries, mainly in Europe and America. In actualizing its strategy of encouraging flexibility in operations, the company uses the mail order system to distribute items to the clients’ homes.

It buys its products in bulk from the manufacturers to create economies of scale which is reduces the individual product cost. This is then translated to the customers by offering these products at affordable rates (Ireland, Hoskisson & Hitt, 2008). Form of competitive strategy The company has a website that lists over 10,000 products for easy information access by the customers. It is a very interactive platform that offers customer care services through a timely email response mechanism.

The clients can do their virtual shopping when they click on the “shopping cart” link. This website also provides a platform where these clients can order for items online, check for product availability and look at the available offers and bargains (Thompson & Martin, 2010). They then are able to pay for these items once delivered to the client’s premises. To stay ahead of competitors, IKEA has adopted the following in its expansion strategy: Chaining: With several outlets in American and around the world, the company has moved its goods closer to customers, making its presence felt by providing personalised services to them.

This has helped build a loyal customer base and kept existing clientele though the element of market presence. Franchising: The IKEA franchise model has enabled the company reach markets that are difficult to penetrate because of economic, geographical and political reasons. The IKEA franchise is presently available in nations all over the world. Horizontal merging: This strategy has seen the organization enter into merger with other companies in the same industry and served to grow IKEA’s capacity and distribution muscle keeping it on top.

Internet: Through the internet, the company has managed to market itself as the home accessory provider of choice by compiling a comprehensive online catalogue with over 10,000 products. This display of variety is a sign of stability and creates a sense of one stop shop to buyers of such items and has further served to establish the companies might in this industry. Investment strategy The company has opted to share building as a way of wooing new investors. Through consistent impressive financial performance, IKEA has managed to position itself as the investment place of choice to existing and potential shareholders making its counter on of the most active.

It has used a combination of merger, chaining and franchising to propel growth beyond its traditional markets and is reaping the benefits of this to the delight of shareholders (Stanyer, 2006). Market description The furniture and home accessories market is mature and IKEA has adopted several strategies like price cutting and product proliferation to stay on top. Given is economic might, the company keeps stock beyond customer expectation and uses this its capacity through chains and franchises to avail these variety of products to customers making it a dependable home accessory provider (Rosenhauer, 2008).

The company has a loyalty card (IKEA family) that is given to clients free of charge. This enables them get quantity and trade discounts periodically offered by the company when offering sales promotions. This card makes clients duty bound to purchase from the store because of increasing shopping points; this makes them be part of IKEA which increases its image and eventual high sales volumes. Strategies of managing rivalry To contain its rivals the company has adopted the strategy of being a price leader with its prices being the bench mark upon which other suppliers of similar goods set theirs.

IKEA is regarded as one of the most competitive furniture and home accessory supplier with regards to product prices. Foreign markets entry The company started an expansion program that takes the company to foreign markets, this has however been characterised by modest growth in its sales volumes because of low uptake. It therefore employs a cautious approach in this effort by increasing capacity in already existing stores (Estrin, 2004). IKEA has mainly used franchising to make entry into most foreign markets like Asia where its growth has been very steady in Singapore and now China.

For markets in the UK and Canada, the company employed a combination of joint ventures and setting up entirely owned subsidiaries to expand its global presence. The company has worked with complimentary organizations like manufacturers of Television sets to increase its element of a one stop shop and collaborated with competitors like the US Design Within Reach to come up with new and more affordable designs to the benefit of the two organizations. The major drawbacks in this arrangement was the patent issue with Design within reach holding patents to products originated by them and reaping the benefits of IKEA’s elaborate distribution system and capacity.

To reduce the down side of this arrangement, the company has chosen to invest in a comprehensive design team to ensure self sufficiency in this area and carry out better negotiations in the event of any collaboration. Conclusion IKEA is an ideal model of using the available expansion strategies to reach the global markets. It has incorporated the elements of franchise, merger and chaining to achieve global presence to its benefit. The proper use of capacity has enabled IKEA position itself as the market leader by incorporating variety in its growth strategy.

The recent inclusion of high definition television (HDTV) sets in its list of products further projects the home accessory supplier as sensitive to market forces with HDTVs becoming central to the choice of furniture and other living room hard ware. IKEA, with such strategies, will continue to be unrivalled as a distributor of furniture. References Estrin, S. (2004). Investment strategies in emerging markets. Cheltenham [u.a.: Elgar. Stanyer, P. (2006). Guide to investment strategy: How to understand markets, risk, rewards and behaviour.

London: Economist in association with Profile Books Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2008). Understanding business strategy: Concepts and cases. Mason, OH: South-Western Cengage Learning. Rosenhauer, S. (2008). "Profit is a wonderful Word": IKEAs Strategy behind the Profit. München: GRIN Verlag GmbH. Thompson, J. L., & Martin, F. (2010). Strategic management: Awareness & change. Andover: South-Western Cengage Learning.