Case Study for IKEA Essay

Ingvar Kamprad, believes that: “Most things still remain to be done, a glorious future! Time is your most important asset. Split your life into 10 minutes’ units and sacrifice as few as possible to futurities. The corporate culture of IKEA is built based on this philosophy all the way from design teams to suppliers and to the customer. A continuous strife for improvement in all areas of the value chain is an effective way to shape the industry to better-fit IKEA’s future strategies.

Due to the uniqueness of Ikea’s strategic positioning, being the largest competitor in its field, the firm has the advantage of setting the phase of the industry”(Introduction to IKEA, p. 19). Kamprad established IKEA when he was 17 years old. Up to 2010, “the IKEA Group had a total of 280 stores in 26 countries”(Year Summary FY09, p. 25). “There were 127,000 co-workers in 2010 in the worldwide. The IKEA Group had operations in 41 countries-29 trading service offices in 25 countries and 27 distribution Centers and 11 customer distribution centers in 16 countries.

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At the same time, IKEA had 1,074 suppliers in 55 countries. The IKEA range consisted of approximately 9,500 products. About 626 million visitors come to the IKEA Group stores, and IKEA websites had 712 million visits” (Year Summary FY09, p. 26) “At IKEA our vision is to create a better everyday life for the many people. Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”(Business Idea, 2012). IKEA’s goal as it emerged over time was to provide stylish functional designs with minimalist lines that could be manufactured cost efficiently under contract by suppliers and priced low enough to allow most people to afford them”(Hill, p512). Firstly, the IKEA’s target market is young people who like well-design products, and also the price can be adopted. The items in IKEA are special and amazing. As the IKEA’s website saying, “We design the price tag first, then the product. ” They will compare the price with competitors, and then set the price 30-50 percent lower than the competitors.

In the IKEA store, it take advantage of self-service, which means allowing costumers enter the warehouse, load furniture onto trolleys, and then take them through the checkout. It looks successfully. Secondly, the key feature of IKEA furniture is self-assembly. Self-assembly not only can reduce the shipping cost but also reduce the risk of destroy through the shipment. After 1956, self-assembly became one of the important concepts for IKEA. Thirdly, through sharing network with the suppliers, the IKEA can drive down the cost of items per unit. The goal is to identify the appropriate suppliers and least costly materials, a trial and error process that can take as long as three years” (Hill, p. 516). In order to avoid the risk from the suppliers, the IKEA bought the Swedwood as the vehicle to buy and run furniture manufacturers across Eastern Europe together with the largest investment in Poland. At the same time, the Swedwood also can get the knowledge about the manufacturing processes, which are useful in design and relationships with other suppliers.

The IKEA also give some suppliers suggestions in order to make IKEA’s item high quality. There were three advantages of doing business with IKEA: “One concision, and you could rely upon what had been decided. We were given long-term contracts, and were able to plan in peace and quite… A third advantage was that IKEA introduced new technology””(Hill, p. 513). “Up to 2010, IKEA had 1,074 suppliers in 55 countries” (Year Summary FY09, p. 26). As a successful furniture retailer, the IKEA needs not only low labor cost but also high quality. They corporates with some suppliers, which locate in the low labor cost countries. By 2008, IKEA had 1,380 suppliers in 54 countries. The top five sourcing countries were China, Poland, Italy, Sweden, and Germany” (Hill, p. 516). The relationship between IKEA and suppliers depends on the company business idea of producing low price products in a responsible and friendly way. Base on Code of Conduct, “The IKEA supplier shall communicate the IWAY requirements to its suppliers, involved in production or operations for IKEA. The IKEA supplier shall ensure that its suppliers have signed a document where they acknowledge and accept the requirements.

The IKEA supplier shall communicate the IWAY requirements to all its workers” (Code of Conduct, p. 5). All of the Code of Conduct illustrate that the IKEA has high requirements to their suppliers. Before starting the business relationship with IKEA, all of the suppliers needs to fulfill the requirements such as legal issues, working conditions, child labor and so on. But at the same time, the IKEA will advise the new technology to their suppliers. This will help the suppliers to improve their acknowledges and make process efficiently.

Most of overseas’ companies will meet different nature when they expand their business into other countries. “The company found that its European-style offerings didn’t always resonate with American consumers. Beds were measured in centimeters, not the king, queen, and twin sizes with which Americans are familiar…. ”(Hill, p. 514). Facing this situation, “the IKEA began to source some products from factories in the United States to reduce not only transport costs and dependency on the value of the dollar” (Hill, p. 515). IKEA entered United States in 1985. They met lots of problems at that time.

IKEA focused on solving problems, firstly, they put their location in a large area in order to get more parking area. Secondly, they tried to corporate with some American factories because of costs. They imported their items from lower-cost supplier out of the United States in order to price down. Thirdly, they found out that young Americans like to risks and more willing to experiment. Young people, college students and young married couples were aimed by IKEA. “IKEA’s revenues doubled in a four-year period to $1. 27 billion in 2001, up from $600 million in 1997.

By 2008 the United States was IKEA’s second-largest market after Germany, with 35 stores accounting for 10 percent of total revenues, or around $2. 4 billion, and expansion plans called for there to be 50-plus stores in the United States by 2012” (Hill, p. 515) The IKEA also expand their business all around world. They entered into China, and at the same time, they sold the items from their china’s suppliers. Comparing with IKEA’s international business strategy, in order to make profit as much as possible, they will import from low labor cost countries to high cost countries.

They will self-supply, and then sell them directly. The advantage of the IKEA’s strategy is reducing cost as much as possible. Each business environment has its special feature. For example, some countries in Asia, they have lower labor cost, it can make the cost price down, but the disadvantage is that consumer power is low there. Comparing with Asia countries, the Western countries’ consumer power is high, but labor is much expensive. This difference makes the IKEA take advantage of different business strategies in different situations. At IKEA, we don’t just want to fill jobs; we want to partner with people. We want to recruit unique individuals who share our values.

Co-workers are not restricted at IKEA; we listen and support each individual to identify his or her needs, ambitions and capabilities”(IKEA Value, 2012). “Insists on flying coach, takes the subway to work, drives a ten year old Volvo, and avoids suits of any kind” (Hill, p. 516). For a one of the richest people in the world, Kamprad insists his opinion. In Chinese, we said, “Don’t forget rainy when the weather is fine! His behaviors affect lots of IKEA’s employees. No special rewards for senior managers, and also has high requirements for them. The cultures have continued 50 years from IKEA started. Kamprad doesn’t look like most entrepreneurs who want their families continue to run the business; he thought they would sell the IKEA. At the same time, he prepared something to avoid losing IKEA when he was died. The IKEA has an unusual corporation structures. As above saying, Kamprad worried their sons would sell the IKEA, he created a foundation chaired by him and included five members.

Also, the trademark and concept of IKEA transferred to Inter-IKEA. One thing we can sure is that the beneficial owner is Kamprad family. The foundation has helped lots of poor people in the world, “The Stichting IKEA foundation is a Dutch charitable foundation, funded by the Stichting INGKA foundation. Today, the foundation mainly funds initiatives designed to improve the rights of children and youth in the developing world, making it possible for them to ultimately take charge of their own future.

During 2010 the foundation expects to donate an estimated 45 million Euro. The IKEA Group franchises the IKEA concept from inter IKEA Systems B. V. in the Netherlands, which is the franchisor of all IKEA stores world- wide – both stores inside the IKEA Group and stores owned and run by franchisees outside the IKEA Group. ”(Year Summary FY09, p. 7). All the things illustrate that In Kamprad doesn’t want to release the control for IKEA although he is 80s now. IKEA looks like Kamprad’s son, Kamprad wants to take care of it forever. In 1986, Kamprad gave up day-to-day control of IKEA to Andres Moberg, a 36-year-old Swede who had dropped out of college to join IKEA’s mail order department. Despite relinquishing management control, Kamprad continued to exert influence over the company as an advisor to senior management and an ambassador for IKEA, a role he was still pursuing with vigor in 2008, despite being in his 80s. ” (Hill, p. 517).

The IKEA often hire some young people who has not worked any companies, and give them a relax work environment. The IKEA thinks creative is much important for the growth of enterprise. Creativity is highly valued, and the company is replete with stories of individuals taking the initiative; from Gillis Lundgren’s pioneering of the self-assemble concept to the store manager In the Stockholm store who let customers go into the ware house to pick up their own furniture” (Hill, p. 517). In the future, IKEA’s target market will transfer from mature Western countries to developing countries such as China. China is one of the most important countries in the world. Starting 1993, when China began to reform, it has developed with a higher rate in the world.

Entering 2000, China has become the highest economic growth country in the world. More and more Chinese have much strong consumer power, and willing to spend money in their daily life. Lots of overseas’ companies, whatever their industries, have entered China’s market. “Asia’s purchasing region only occupies 32% in IKEA’s annual sale” (Year Summary FY09, p. 25). Comparing with 64% in Europe, there still has huge growth space for IKEA in Asia. Chinese people like famous brand. This also will help IKEA entering China because IKEA has been NO. furniture retailer in the world. “In terms of housing, the average square meters per person in China have been increasing considerably. Until recently, apartments averaged 40 square meters, now Beijing and Shanghai apartments average 80 square meters”(IKEA With Chinese Characters, Miller). China’s apartment area become larger, and this means Chinese need more furniture than before. It also is good news for IKEA. Another things, most of lower cost countries locate in Asia, it will help IKEA make more profit easier than Western-country.

It may help IKEA reduce much transportation fee. “Important to this physical expansion, of course, is revenue expansion. After lowing price nearly 10 percent. IKEA’s China sales rose 35 percent in 2003. Sales were up 50 percent in the first three months of 2004 alone”(IKEA With Chinese Characteristics, Miller). In order to get more profit in China, the IKEA needs to expand their consumer in China. Not only young people but also mid-age people will be appointed by IKEA. A graduate student will make 4000 RMB, how can he buy the IKEA’s item? Of course he will not buy. Most of IKEA’s China customers are 20 to 35 years old, but the store now attract an increasing number of customers closer to age 45, most likely a result of the store’s market repositioning. Many customers are families with children or are double-income, well-educated couples with no children. IKEA’s customers are generally better educated, earn higher incomes, and travel more than the average Chinese. And, as is true in IKEA shops around the world, roughly 70 percent of IKEA customers are women”(IKEA With Chinese Characteristics, Miller).

IKEA has been a big company in the world, it always focus on growth stalely. In the future, they will never stop changing strategy because of the changeable world. Looks like their saying: “Make the life more better! ”

Reference

Hill, C. W. L. (2011). International business: Competing in the global marketplace. New York, NY: McGraw-Hill. (2010). Year Summary FY09. Retrieved from http://www. ikea. com/ms/en_CN/about_ikea/press/press_releases/Welcome_inside_2010. pdf (2012). Code of Conduct. Retrieved from http://www. ikea. com/ms/en_US/about_ikea/pdf/SCGlobal_IWAYSTDVers4. df (2012). A corporate culture based on shared values. Retrieved from http://www. ikea. com/ms/en_US/jobs/join_us/ikea_values/index. html (2012). IKEA With Chinese Characteristics. Paula M. Miller. Retrieved from http://www. maestriaenadministracion. uson. mx/Maestros/ggaxiola/IKEA%20Chinese%20Characteristics. pdf (2012). Introduction to IKEA. Retrieved from http://www. kgsepg. com/project-id/1537-ikea-case-analysis (2012). Business Idea. Retrieved from http://www. ikea. com/ms/en_US/about_ikea/the_ikea_way/our_business_idea/index. html

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