A CASE STUDY ON IKEA : FURNITURE RETAILER TO THE WORLD

Abstract : 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 rivalry

McKinnon (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 Kampradcentric ,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
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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
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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
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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
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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.