IKEA's Global Strategy

Walk into an IKEA store anywhere in the world, and you would recognize it instantly. Global strategy standardization is rampant! The warehouse-type stores all sell the same broad range of affordable home furnishings, kitchens, accessories, and food. Most of the products are instantly recognizable as IKEA merchandise, with their clean yet tasteful lines and functional design. With a heritage from Sweden (IKEA was founded in 1943 as a mail-order company, and the first store opened in Sweden in 1958), the outside of the store will be wrapped in the blue and yellow colors of the Swedish flag. IKEA has sales of 34.2 billion euros annually (about $37 billion U.S. dollars) and more than 150,000 employees. Interestingly, IKEA is responsible for about 1 percent of the world's commercial-product wood consumption.

The IKEA name comes from its founderthe acronym consists of the founder's initials from his first and last names (Ingvar Kamprad), along with the first initials of the farm where he grew up (Elmtaryd) and his hometown in Sweden (Agunnaryd). Overall, Sweden has 20 IKEA stores, which are only fewer than in Germany (49 IKEA stores), the United States (42), France (32), and Italy (21). Spain also has 20 stores. With 351 stores in 46 countries, IKEA is the largest furniture retailer in the world. The furniture market is one of the least global markets, with local tastes, needs, and interests much different than for many other products across industries. The largest IKEA store is in Gwangmyeong, South Korea, at some 640,000 square feet.

The IKEA store itself will be laid out like a maze that requires customers to walk through every department before they reach the checkout stations. The stores are often structured as a one-way layout, leading customers counterclockwise along what IKEA calls "the long natural way." This "way" is designed to encourage customers to see the store in its entirety. Cut-off points and shortcuts exist but are not easy to figure out. It is even difficult to get back out after having a meal in the famous IKEA restaurant with its Swedish food (meatballs anyone?).

Immediately before the checkout, there is an in-store warehouse where customers can pick up the items they purchased. The furniture is all packed flat for ease of transportation and requires assembly by the customer. Value is stressed to a great extent (the price customers pay for the quality furniture they get). If you look at customers in the store, you will see that many of them are in there 20s and 30s. IKEA sells to the same basic customers worldwide: young, upwardly mobile people who are looking for tasteful yet inexpensive "disposable" furniture of a certain quality standard for the price they are willing to pay.

A global network of more than 1,000 suppliers based in more than 50 countries manufactures most of the 12,000 or so products that IKEA sells. IKEA itself focuses on the design of products and works closely with suppliers to bring down manufacturing costs. Developing a new product line can be a painstaking process that takes years. IKEA's designers will develop a prototype design (e.g., a small couch), look at the price that rivals charge for a similar piece, and then work with suppliers to figure out a way to cut prices by 40 percent without compromising on quality. IKEA also manufactures about 10 percent of what it sells in-house and uses the knowledge gained to help its suppliers improve their productivity, thereby lowering costs across the entire supply chain.

Look a little closer, however, and you will see subtle differences among the IKEA offerings in North America, Europe, and China. In North America, sizes are different to reflect the American demand for bigger beds, furnishings, and kitchenware. This adaptation to local tastes and preferences was the result of a painful learning experience for IKEA. When the company first entered the United States in the late 1980s, it thought that consumers would flock to its stores the same way that they had in western Europe. At first, they did, but they didn't buy as much, and sales fell short of expectations. IKEA discovered that its European-style sofas were not big enough, wardrobe drawers were not deep enough, glasses were too small, and kitchens didn't fit U.S. appliances. So the company set about redesigning its offerings to match American tastes better and was rewarded with accelerating sales growth.

Lesson learned. When IKEA entered China in the 2000s, it made adaptations to the local market. The store layout reflects the layout of many Chinese apartments, where most people live, and because many Chinese apartments have balconies, IKEA's Chinese stores include a balcony section. IKEA has also had to shift its locations in China, where car ownership lags behind that in Europe and North America. In the West, IKEA stores are located in suburban areas and have lots of parking space. In China, stores are located near public transportation, and IKEA offers a delivery service so that Chinese customers can get their purchases home.

QUESTIONS:

1.IKEA is very Sweden-centric; that is, they like doing it the Swedish way, from the names of the furniture to the management of the company. Sweden is a neutral country, so maybe this is the way to go for a global company, but is it smart to be too centric to a specific country when you are a global corporation?

2.IKEA is also very "IKEA-centric." For example, the IKEA store itself will be laid out like a maze that requires customers to walk through every department before they reach the checkout stations. This forced path can seem constraining to their customers who naturally are more free-spirited than the IKEA management model. Can this spell trouble in the near future, or is the IKEA way a sustainable business model?

3. Strategically, having more than 1,000 suppliers result in a complex task of managing those suppliers, ensuring the quality of the products, and maintaining the IKEA brand. While we will address global supply chains later on, from a global strategy standpoint, how would you manage IKEA's global suppliers?