Internationalization Strategy at IKEA - Case Study Example

Internationalization Strategy at IKEA Introduction The world understands IKEA as a company that offers products at low prices that include among others innovatively designed furniture. This case study evaluates how IKEA adapted its international strategies to penetrate the global market in the process becoming profitable in China, United Kingdom, the United States, and Sweden. The discourse further covers lessons learnt from one market by the company and corrective measures in another part of its market. IKEA is a Swedish giant furniture company founded by Ingvar Kamprad during the early forties. Kamprad started his entrepreneurial engagements by selling wallets, pens, and watches hawking his goods from door to door. The entrepreneur faced stiff challenges from rivals in the competition as opponents tried to stop him when he began selling low-priced furniture. Initially, authorities banned local suppliers from supplying raw materials to IKEA. Furthermore, the same authorities did not allow IKEA to display its furniture during trade shows and other exhibitions. Because of this, IKEA imported its raw materials from Poland and took the initiative to organize its exhibitions. Kamprad defied all the odds to become the current leader in furniture retail with more than three hundred stores across the globe. The presence and performance of IKEA on the three markets differs largely. The company landed in Sweden in ninety-fifty three opening its first store in nineteen fifty-eight. The company joined the United Kingdom market in nineteen eighty-seven and in nineteen ninety-eight entered China (Buzzell, 1968, p. 106). These markets also show great differences in the cultural setup highlighting the value of the cultural web at IKEA with its contributions to success. While Sweden appears more home to the company, United Kingdom entails an Angle-Saxon market having similar business traditions and consumer traits. China comes on the extreme end of the cultural behavior because it is simply different from the rest. The International Front Two years before the turn of the twenty first century witnessed the first attempt by IKEA to go global in the East by venturing into the Chinese market. The company formed a joint venture to meet local legal guidelines. The venture provided an excellent platform for the company to test the market in China, comprehend the needs of local populations, as well as adjust its strategies to suit the local market (Burt, 2006, p. 411). From the start, IKEA understood that the Chinese market favored small apartments with more customers in need of modular and functional solutions. In the process, IKEA made modifications to its products to satisfy needs of the locals. The layout of the store resembled the exact sizes of apartments in China in addition to the balcony. The expansion strategy applied by IKEA after it opened the first store in Sweden in nineteen fifty remains exceptional in the world. In addition to the three hundred stores, the company has twenty-nine more franchisees in thirty different countries. The business concept formulated by IKEA is thus, IKEA offers a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible can afford them,(IKEA corporate web site 2008). This business idea is the foundation of all business strategy applied by IKEA throughout its success years. IKEA carries out a standardized approach. This forms the guiding principle within which the company operates. The company strives to work in the same way across all countries and retain its image in all regions of operation. Through this, the company gains operational advantage and allows it to maintain low prices on its products in the process remaining attractive to most people. The company use the merchandise as its basic marketing strategy (Burt, & Carralero-Encinas, 2000, p. 41). The merchandise entails prices of products and the range of the same products. The company insists on its products being same across different markets. The management only allows a few modifications to fit into individual country needs. The brand remains the same, IKEA (Evans, 2000, p. 382). Furthermore, furniture prices must be lower compared to what consumers find from other competitors. The theme line for the company is to provide high value at the lowest possible cost. The company insists that irrespective of the country where they operate, stores appear on the outskirts to enhance accessibility by client cars, which remains the preferred mode of transportation. IKEA has standard formats for all their stores. The stores have three different sizes including various assortments. The assortments may differ but the format is similar across all locations. Another important area emphasized by IKEA pertains to the selling points. They are the same primarily in relevant dimensions that constitute display and colours, design and layout, same number of departments within the stores, as well as similar service levels. This framework provides the same shopping experience to clients irrespective of the location of the store. This structure does not lock out adjustments to suit local tastes and needs. Adjustments include various stores having rooms with different sizes. Some stores have smaller rooms for instance, those in China. In addressing the service levels, the company makes sure that they are similar across the globe with almost equal number of employees considering the necessity of the same. The structure is however, not rigid (Davies, 2001, p. 161). The role of customers concerning low prices manifests in the level of service. Considering the world a world of give and take arena, IKEA holds that the price paid by consumers for receiving goods at lower prices is having them pick their goods. Apart from picking from the stores, they carry them to their cars or other means of transport, and transporting them to their residence. Recently, the company introduced home delivery and installation services at a fee. Opportunities and Threats The catalogue dominates business promotional activities undertaken by the company. IKEA considers this a marketing tool unusual for global retailers and insists on having it as one of the main marketing strategies. The method consumes more than seventy percent of the marketing of the company. The company produces the catalogues in thirty-eight different editions, in more than thirty countries, and in more than seventeen languages. The company makes the adjustments from a standard point of view with same entire information and same products. It is clear that adjustments to cover respective market zones are few. However, difference include covers on the catalogue, picture models, and in newer markets especially in the emerging markets, catalogues carry more information about IKEA. Overall, the differences are minimal. Although not used in the entire market, the IKEA family falls within the company plan of covering all areas on the market. The company considers the IKEA family an essential tool that enhances the relationship between the company and clients. The last international strategy applied by IKEA is promotion. This strategy covers all aspects within marketing communication including and not limited to sales promotion, advertising, and direct marketing. It constitutes the component of marketing strategy that individual markets across various countries adjust messages and provide to rhyme the local competition and nations. It bases on standard guidelines on the position the company wants to hold on the market. The most outstanding element of the strategy applied by IKEA is standard. The company applies the same marketing tools in almost the same way across the globe (Dawson, & Mukoyama, 2006, p. 207). Respective stores and nations have limited autonomy to make modifications in addition to various adjustments to suit individual markets and competition apart from local legal regulations. The value of standardization appears effective when the company offers low prices in the entire market it runs businesses. This covers as many people as possible. Adapting this strategy by competitors in the industry becomes difficult. Ikeas Cultural Web Research shows that sales of houseware and furnishings in the top twenty-five world economies brought revenues of at least two hundred and seventy billion United States dollars. However, various factors led to the decline in this revenue in two thousand and eight and two thousand and nine. The factors included among others the global recession and fewer trade activities in the housing sector (Cui, & Liu, 2001, 55). IKEA is the only international company that compete local companies in the domestic market including the United States. IKEA is the market leader in the largest and most lucrative European market in the world. Competition as well as developments in technology that affect designs makes the current furniture market different from the traditional one. Today, the company has to offer the most appropriate product for the right amount of money. IKEA comprehends the shift in the functions of employees within the industry. IKEA employees are no longer salespersons but consultants. The company allows its clients and possible customers to visit their showrooms because it an essential component of the purchasing process for furniture (Evans, 2002, p. 521). This is because it gives the client a rough concept of their environment as much as the concentration remains on the price tag. Underlying the cultural context of IKEA understands the difference between globalization and internalization. The management at IKEA holds that globalization constitutes all activities by the company, which visualizes its present position in various countries across the globe. Initially, the company held on one design fits all strategy. This context did not allow IKEA to recognize and embrace local market demands and tastes. Expansion to Japan and the United States markets opened their minds to think otherwise and recede on this position. The company tailors the furniture to suit local market interests. The clientele in the United States favored big and ample furniture yet those in Japan preferred simple and small houseware along with the furniture to fit and fit into their living room, small in design. Internationalization stands in contrast in many aspects to globalization. This is clear to the management at IKEA (Dupuis, & Prime, 1996, p. 37). Internalization puts into perspective specific market demands and interests as opposed to what the company desires to provide to the market. The strategy and cultural situation at IKEA adapts every year to think globally but act locally. IKEA revolves around the Swedishness, a simple culture that entails common values among them simplicity, humbleness, and teamwork. Credit goes to the founder of the company, Ingvar Kamprad considered by staffs as an industrious visionary leader who lived simple. Cultural Changes The management should allow the local companies to adjust brand images to suit various cultural aspects of several countries. Among the common cultural undertakings, the company holds dear the act of staying close to clients. Each store is parent-friendly, justifying their clarion call where the customer comes first. The company also centers on employees ad ways in which they discharge their duties (Baek, 2004, p. 156). Apart from working from relaxed environments, IKEA allows its employees to dress in a casual smart manner. Their officers entail open plan floors rhyming with the remark on their website that goes, a career in IKEA is not a ladder, is what, and where you make it. The management encourages teamwork and allows people room to learn from their mistakes. The company trod the impossible path in cost cutting. Employees travel in company buses to work or receive staff houses where they reside from within the company. Stickers are all over reminding everybody that they need to turn off taps, lights, as well computers after use (Fernie, 2003, p. 63). During important company functions, stories touching on cost cutting carry the day and receive the best prizes. It is a common feature to see common components in each IKEA store. In Sweden for instance, all shop floor staffs put on a uniform blue and yellow Sweden colors. Besides the stores, the company adds a restaurant, children’s corner, and a food hall in addition to small shopping for children to buy papers, pencils, tape measure, and shopping bags. IKEA focuses on delivering products and service the Swedish way. It concentrates on simple and minimal designs [produced in custom flat packages. The brand name remains the main symbol carrying the important Swedish colors and Kamprad, the founder. Bibliography Baek, J. (2004). How Does the Global Retailer localize its format? International Business press. Pp 151-166. Burt, S. & Carralero-Encinas, J. (2000). The Role of Store Image in Retail Internationalization, International Marketing Review, 17(4/5), 433-453 Burt, S. (2006). The International Transfer of Store Brand Image, International Review of Retail Distribution and Consumer Research, 16(4), pp. 395-413. Buzzell R. (1968). 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Psychic Distance and Organizational Performance: An Empirical Examination of International Retailing Operations. Journal of international business studies, vol 33 (3), pp 515-532. Fernie, J. (2003). Principles of retailing. New York: Butterworth Heinemann. Read More