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IKEA

1. Introduction

IKEA is an internationally known home furnishing retailer. It has grown rapidly since it was

founded in 1943. Today it is the world's largest furniture retailer, recognised for its Scandinavian

style. The majority of IKEA's furniture is flat-pack, ready to be assembled by the consumer. This

allows a reduction in costs and packaging. IKEA carries a range of 9,500 products, including

home furniture and accessories. This wide range is available in all IKEA stores and customers

can order much of the range online through IKEA's website. There are 18 stores in the UK to

date, the first of which opened in Warrington in 1987. In July 2009 IKEA opened a store in

Dublin too - its first in Ireland.

1.2 IKEA Business Strategy

Four generic business Strategy which includes

Cost leadership strategy

Focused cost Leadership strategy

Differentiation strategy

Focused differentiation strategy

IKEA products are differentiated because their products are different in design (good, nice and

simple in design), convenience in use and customization ability. But the level of differentiation is

moderate because IKEA concentrate on young design, good quality products, cheap price

and customizable. Specially, IKEA most concentrate in cost leadership. IKEA prices always

cheaper than their competitor’s because they always try to find the cheaper suppliers with good

skill for make good products all over the world, restructure their form and find the convenience

for customer’s customizable in limits way IKEA supports help reduce the cost of warehouse,

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cost of inventory, cost of management and so on. Beside that, IKEA also develop wide products

lines for customers can buy everything relations with furniture. Moreover, they make people not

only buy something they want with a little money, customers also pay more when shopping at

IKEA by diversification of IKEA’s products and customers can buy everything relations with

furniture at IKEA stores. Overall, IKEA follows cost leadership strategy.

Supporting for cost leadership strategy, IKEA do a lot of actions at functional level: efficiency,

quality, innovation and customer responsiveness.

IKEA tried to achieve superior efficiency by increasing their effective of economic scale,

learning effects, experience curve, flexible productions systems and mass customization.

By outsourcing good products from all over the world, it not only helps IKEA reduce

products cost because of cheap labor and inexpensive materials from many other

countries, also helps them study and adapts new technology into their business.

Moreover, they invested heavily in Swedwood plans, equipping them with the most

modern technology for help themselves and their suppliers adapt new technology in

business. For example, they trying to find suppliers in Vietnam with cheap labor and

inexpensive raw materials, they also help Vietnamese suppliers IKEA’s technology and

knowledge for enhance Vietnamese supplier’s quality and cheap raw materials. Beside

that, by always try bring to customers cheap products with good quality, IKEAalways try 

to find out more suppliers for increase their competitive advantages and power with their

suppliers. It pressure to supplier always try to reduce cost, increase competitive with their

competitors. As the result, this strategy support IKEA reduce products price, also try

maximize their customization ability, support customers more choices.

Secondly, because of IKEA strategy is that always try provide for customers good

products with high quality and cheap prices, so IKEA always invest money in research

and develop new technology, finding out better suppliers, help suppliers adapt new

technology in business, redesign IKEA products every year for more convenience, IKEA

gain their mission is that products with high quality, cheap price, nice design.

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Third, by spend more money and time on research, design and marketing, IKEA always

try to find out customers requirements, try to understand what is customers needs, what is

the trends. Every time, they always try to introduced new designs in every product lines,

bring the innovation to their customers.

Fourth, by do all things above, understand customer needs, IKEA supply for their

customers customization ability by come to IKEA warehouse, collect the materials which

is customer needs to adapt its together become a product.

.1.3 INTERNATIONAL EXPANSION

For increasing profitability and profit growth we can achieve by global expansion.

expanding the market: leveraging products

realizing cost economies from global volume

realizing location economies

leveraging the skill of global subsidiaries. 

Moreover, by using maximum national competitive advantages from each nations by analysis

and using Michael Porter’s Diamond: factor endowments, local demand conditions,

responsiveness of supporting and related industry,  intensity rivalry, companies can increase

their profit by using maximum resources with highest competitive advantages from many

countries.

Understand the meaning and opportunities, at the beginning of started business, Kamprad

recognized is that not only Sweden market, Europe also had the same problems that were: poor

in design, expensive in price, dominated by small retailers. It motivated Kamprad started IKEA's

business. The more he developed the more he knew that everywhere on the world had the same

furniture situations with Sweden. That really was a big opportunity for Kamprad to expand

IKEA's market share and gain profit, drove IKEA expansion their number of stores around the

world.

SWOT Analysis

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Strengths

IKEA’s cost leadership concept keeps it ahead of its competitors.

IKEA has successfully combined low cost with good quality.

IKEA’s research and development team finds ways to alter designs to save on

manufacturing costs.

A key feature of IKEA furniture is self-assembly.

IKEA uses cheap labor which keeps its costs down and gives them a competitive

advantage.

Its strong long-term relationship with its suppliers gives it a competitive edge.

IKEA has the ability to adapt its tactics according to the market.

Weaknesses

Its organizational culture can become a demotivating factor for many of its employees.

IKEA is not at all customer focused.

It lacks thorough market research on customers’ preference before entering into a new

market.

IKEA never took economic issues into consideration before being faced with the

problem..

IKEA’s strategy is not exactly aligned with its vision.\

Opportunities

IKEA can expand its product line by producing high end products

IKEA can expand its business into interior designing and cookeries products

IKEA should listen to the customer demand to make more sustainable solution

Product customization can boost up IKEA’s sales

.

Threats

Changing social trend can hinder the growth of sales of IKEA

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Accelerated market competition in USA

The risk of global financial crisis

Outsourcing

Strategic outsourcing is the decision of IKEA to allow one or more company to perform

specifically or selected value chain activities or function by independent specialist companies

that focus all their skills and knowledge on just one kind of activities. According to available

information IKEA now outsource 90% of their product and rest 10% produce internally.

Outsourcing has brought some benefits for IKEA, those are,

Low cost structure

VERTICAL Integration has been cut IKEA’s cost structure because it creates increasing

economic of scale. Achieving economic of scale is very important of IKEA because it has a high

fixed cost structure. In furniture industries allows IKEA to spread its fixed cost over its large

volume of production and in this way it drove down IKEA to average cost per unit.

Focus on the core business

A final advantage of strategic outsourcing for IKEA is that it allows managers to focus their

energies and company resources on performing those core activities that have the most potential

to create value and competitive advantage.

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