A CASE STUDY ON IKEA : FURNITURE RETAILER TO THE WORLD

A CASE STUDY ON IKEA : FURNITURE RETAILER TO THE WORLDAbstract : The case study will look into the development of IKEA from a small Swedish furniture company to global home furnishing giant that it is today.Keywords : IKEA, case study

4. Firm strategy, structure and rivalryMcKinnon (2009, p.210) explains that the way firms are managed in particular country and choose to compete matters a great deal. This include the managerial system, the management practices and training, the way in which firms are organized and the extent to which firms are globally oriented and willing to compete internationally. Further, according to McKinnon, the goals of the firms in particular country, along with the motivation of employees and managers, may also contributes to a country being successful in a particular industry. With regards to rivalry, McKinnon stated that that the more vigorously firms compete with one another in particular industry, the more likely that a country will develop and successfully sustain a competitive advantage in that industry. With contextual modification, McKinnons explanation can be used to explain firm strategy, structure and rivalry as source of IKEA competitive advantage. For example, the managerial system of IKEA since its inception ,which is Kamprad-centric ,had proven to be advantageous as admitted by one of the Polish managers quoted in the article under review where he said that one advantage of working with IKEA was :..the decision making; it was always one mans decision, and you could rely on what had been decided. IKEA was also on its way to global expansion in the years leading to the 1970s by vigorously opening up stores in other part of Sweden which shows their global aspirations. Motivation and morale was also high in the company as can be glanced from Kamprad recollection of IKEAs early days. when we were working as a small family in Aluhult,we were as if in love.Nothing whatsoever to do with eroticism.We just liked each other so damn much. As for rivalry, it has been proven as the continuous source of competitive advantage for IKEA which had managed to turn hostile conditions to their own advantage e.g. turning away to cheaper Polish supplier when denied access to the designs of many Swedish manufacturers with the results that their products can be sold at a price lower than competitors.As a conclusion, it is submitted that as shown by the analysis of the four conditions in Porters Diamond Model above, IKEA possessed competitive advantage in various aspects which had led to its establishment as the largest furniture retailer in Sweden by early 1970s.2.Why do you think IKEAs expansion into Europe went so well? Why did the company subsequently stumble in North America? What lesson did IKEA learn from this experience? How is the company now applying these lessons?In general IKEA owes its success to low price and quality which appeal to customers in Sweden and abroad. IKEA success hinges on its ability to provide standard offerings to potential customers in different locations. In fact, IKEA is often seen as a model of standardization among retailers. Other contributing factors for IKEA success in European market are economies of scale realized from large stores, network of local suppliers, long term, exclusive contracts with suppliers, close work/design relationship with supplier (Kwapong 2003,p.80). However, attributing IKEA success to the low price and quality of its products alone is an oversimplification. This paper submits that for the most part, its successful expansion into Europe went so well was also due to the European homogeneity factor i.e. the culture and taste of the consumers in Europe is not so much different from the culture and taste of the consumers in Sweden. Home furnishings business is a business with a strong cultural influence. Companies that want their products to succeed in foreign markets must pay attention to cultural differences among consumers, especially when designing home furnishings. IKEA success in Europe is therefore by chance and not by design. This is further supported by the fact that IKEA early expansion outside Scandinavian countries was not the results of careful strategizing but was driven by Ingvar Kamprads intuitive quest for opportunities. According to one of IKEAs Swedish executives: [Ingvar] spoke to the street to learn what they are looking for (Grol and Schoch 1998,p.97).According to Grol and Schoch further, such empirical experiential approach goes against the orthodox rules of international retailing, which preach extensive market studies before entering new market, catering to local tastes and gaining expertise through acquisitions and joint ventures.It is only after IKEA began venturing into non-European markets that they realize the cultural dimension of purchasing decisions by consumers. To support this argument, this paper notes that IKEA has encountered problem due to cultural differences in its expansion drives to China where it had teething problem when first opened its store there in 1998. According to an editorial (Anon 2009,p. 44) IKEA had to made various adjustments to their furniture to fit the national demand in the Chinese market.For example, beds sold in China are shorter, 190cms compared to standard-sized beds of 200cms. Many Chinese people live in apartments with balconies and IKEA has added model sets and special balcony sections in the stores, which show customers how they can furnish their balconies.They do not have this kind of problem when they venture expand to other part of Europe because most of the furniture designs suit the Europeans lifestyle and their house sizes.

As pointed out above, homogeneity and standardization have their limits. IKEA learned the hard way in North America that they had to adapt to local culture in general. The myriad range of customers preferences had proven to be a challenge in this regard in North America, particularly in the United States of America. There the European homogeneity of the design of its products which serves as the hallmark of its success in the European continent had proven to be a deterrent factor for the North American consumers. From the onset of the establishment of its first store there, they found out that the made-to-European-specifications dining tables were a little bit too small for the American family. Further, Americans, who are used to imperial measurement system (and size up beds according to a queer measuring system of Queen, Full and Twin) had a different perception of size from the Europeans, who size them up in centimetres.The Americans find every fault with IKEA products, its Scandinavian influenced bookshelves were not large enough to hold American television sets, the towels too thin and small by American standards. Worst of all, the American had found unintended different uses for some of IKEA products, for example, IKEA vases meant for flowers were bought to be used as drinking glasses (Konzelman, Wilkinson, Craypo & Aridi 2008, p.131) IKEA venture in the United States was actually planned haphazardly. According to Grol and Schoch (1998, p.98), few products managers from IKEA of Sweden had traveled to North America because IKEA cost-conscious policy means that the price of air travel was prohibitive. IKEA management had a misguided expectation that their heavily European-centric products will also garnered broad consumer appeal in the United States.But this did not turn out to be the case. IKEAs management learnt that there are some aspects of IKEA business that cannot be duplicated successfully outside Europe. IKEA however were quick to revamp their approach. Grol and Schoch (1998,p.98) quoted one IKEA former US country managers who said that IKEA went soul searching after the flawed venture. According to the manager, We ask ourselves what we could offer to Americans. Should we become an American company, or merely adapt our merchandising to American customers? We finally decided on a solution: merchandising to the Americans customers by speaking English with a Swedish accent; capitalizing on our strength as outsiders.IKEA now apply the lesson from their initial hiccup in the US by monitoring development of new range of products which must take into account specific national preferences. Nowadays development of the range is closely monitored by IKEA of Sweden and Board of Directors of INGKA Holding. Their casual attitude in deciding to introduce new range has been replaced by practice of scrutiny. It took IKEA of Sweden several years to introduce futons (Japanese bed) in Europe, and American store managers had to work hard to convince the company that a Home Entertainment line is feasible in North America. The product manager now usually listen to the advice of the country manager (Grol and Schoch (1998,p.100). On this, Kwapong (2003,p.80) stated that IKEAs act (of not pursuing global standardization of products with regard to the US market) amounted to bowing down to Americanism.

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