IKEA is a global company that retails home products such as furniture, kitchen items, consumer goods, bathroom items, and other accessories. Ingka BV is wholly owned firm by Stichting Ingka Foundation, the parent company of IKEA group of companies. The Komprad family owns the foundation. As at December 2013, the group managed to have operations in 43 countries across Asia, North America, Europe, and Australia. The headquarters of the firm is in Delft, Netherlands and employs 135,000 people Baraldi (99). During the financial year that ended on December 2013, the group managed to have revenues totaling 28, 506 million Euros and operating profit of 4, 011 million Euros. The group emphasis is on the provision of home furnishing products at cost beneficial prices. That is the key reason the firm negates widespread consumer acceptance in its products. That in turn facilitates IKEA’s growth in the international level.
Hultman et al. (10) state that the group began in 1943 as a one-man mail order company in Smaland, Southern Sweden. Ingvar Komprad was the founder of the company that opens stores in Sweden that sold furniture. The firm opened subsidiaries in Norway and Denmark in 60s while the company spread to Switzerland, Germany, and Scandinavia in early 70s. The IKEA concept starts in the 50s with catalog marketing that is combined with a view room where customers could view and have a feel the firm’s products. The company’s mission statement includes function, quality, and low price. Problems with suppliers lead to the company to start procuring its goods from foreign producers in Eastern Europe. In the 60s, the company adopted the warehouse concept. The group opened a gigantic store in Stockholm where customers could pick products they chose. IKEA made the first attempt to open stores in overseas in 1963 using nontraditional materials such as furniture (Li Heng et al. 991). Most of the IKEA store designs are large buildings with blue coloration and yellow accents to represent Sweden national colors. The stores place goods strategically on the shelves where customers can choose desired goods. Currently, the world has many stores that follow the same layout.
The people philosophy of IKEA has the strategy of mixing people from different cultures. The company abandoned employing only Swedes at the senior management. In the past, the group did not have many long-time co-workers of other nationalities. Currently, IKEA has different nationalists working full time. The management sees diversity issue as a matter of creating a challenging business atmosphere since it expands the recruitment base. The firm has a diverse workforce with many positive business possibilities.
The cornerstone of IKEA concept that enables it to have international growth is the development of big stores on the outskirt of the cities. In normal stores, someone serves the customers while at IKEA a customer selects the goods they desire. Traditional businesses source their products in the local market while IKEA sources its product globally. As the traditional businesses target middle and upper classes, IKEA targets young people and young families. IKEA introduces light styles of furniture that comes as a flat pack where one has to assemble it.
The company products include furniture, houses, and flats while some of its services include retail, manufacturing, and family mobile. One purchases the furniture as a flat pack to self-assemble it. That concept will help the company to reduce costs of packaging. The flat-pack concept enables easier transportation as many European clientele use public transport. The group uses economies of scale to capture material streams and create manufacturing processes that hold cost down. The product base of IKEA includes flat-pack houses that cut prices of those that buy houses for the first time. The group publishes a yearly catalog in different languages. IKEA communications ensure that every store has that catalog. The firm has a gigantic photo studio at Almhult that caters for its printing services. The current catalog is Smartphone compatible as one can access videos or photo galleries using an app. additionally the catalog augments reality app to project a commodity in real time image.
The company has consistently focused on marketing products at extreme low prices. Its first purchases in the 50s were made from producer's unsold stocks to ensure costs remained low (Jonsson et al. 337). Later, the firm enjoyed large sales, and that enabled it to start ordering models of its design from the local manufacturers. Next IKEA introduced innovations such as flat packs that reduced transportation costs and production as the showroom-warehouse concept reduced retailing costs.
One of IKEA expansion strategy involved establishing long-term relationships with few identified and approved suppliers as external sources for its offerings. Currently, its supply network spans the world and is full of complexities. The use of network does not make it divert from its mission of designing and purchasing products that lead to low production and transportation costs. IKEA achieves low production costs while taking into account the design and purchase strategies in all network activities. Products developed in close interaction with suppliers takes into consideration the impact of raw materials, components, and facilities involved. Some of the major goals for IKEA include reduced costs, good quality, appealing designs, and adequate product functionality.
IKEA adheres to a centralized supply chain in furniture retailing to make it a world leader. A centralized- supply chain planning strategy will benefit the company since it will improve visibility, transparency, and synchronized processes. Prerequisites for centralized supply chain planning include innovation and market efficiency. Centralized planning can facilitate by limited ownership of manufacturing and full ownership of warehouses and retailers. The centralized supply chain planning is suitable to sell functional products to strive for low-cost and timely deliverables. The successful implementation of a centralized supply chain requires a company to have full control of the supply chain through vertical integration to assist dominance of the organization. The power and competence to implement a single plan is a crucial prerequisite.
Hultman et al. (11) envisage that IKEA concern to provide low-priced products characterize its history and current strategy. The introduction of flat packs in the 50s allows important savings in transportation and production costs. IKEA customers only deliver in-assembled furniture components. The design of showroom-warehouses retail stores combines large exhibition area with an adjacent self-service warehouse. IKEA can afford low retail prices to enable its sales to rocket in the 60s to signal the expansion of several stores in Sweden and overseas. The group benefits from long-term strategy with selected key suppliers are still the trademark of IKEA purchasing and product development strategy. IKEA conceives distributes and sells products in accordance to set cost and quality goals.
IKEA approach to supplier relationships depends on the product involved. The group assigns production technology to suppliers it has extensive trust, commitment, and knowledge to establish long-term relationships. The strong relationships entail extensive joint investments in facilities.
IKEA faces intense competition that affects the group’s expansion plans. The group is a retailer of furniture and accessories and faces threats from non-specialists such as grocers that tend to increase non-food product portfolio to appeal to a customer willing to trade-down. The non-specialists such as grocers benefit from varied product mixes at the detriment of traditional specialist retailers such as IKEA. The economic recession has an adverse impact on discretionary demand of the company’s products. Tesco uses Extra stores while Asda uses Supercenters to create strong non-food offers. Grocers’ non-food ranges benefit from a high volume football in their core food and grocery categories that allow an extreme price competition. The expanding of non-food offering of grocers is in direct competition to IKEA’s product portfolio that forces the company to work harder to attract customers.
The current sluggish global economic recovery significantly deteriorates consumer confidence, and discretionary spending (Kling and Ingela 34). The global economic conditions remain uncertain, and that reflects concerns of weakening effects of the stimulus policies in the advanced countries. Low consumer confidence and reduced household incomes and wealth hold consumption down in the advanced economies. The sovereign debt crisis stifles growth for the emerging economies since the Eurozone experiences recessionary trend. A weak economic outlook for IKEA markets can pressure its top line growth.
IKEA has plans to launch stores in the Indian market. Previously, India placed restrictions on foreign direct investment in the single-brand retail sector for firms to have full ownership while operating in the country. In early 2013, India’s Foreign Investment Promotion Board grants approval for IKEA investment proposal worth INR 105billion. IKEA first India store will be ready in 2015. Initially, the group intends to establish ten stores over the next ten years (Jonsson et al. 338). Each of the stores will spread 100,000 square feet. The industry estimates that the Indian home and furnishing market is worth $20 billion, and foreign retailers like IKEA can have full control of the stores without collaborating with Indian partner.
Works Cited
Baraldi, Enrico. "Strategy In Industrial Networks: Experiences From IKEA." California Management Review 50.4 (2008): 99-126.
Hultman, Jens, et al. "An Interaction Approach To Global Sourcing: A Case Study Of IKEA." Journal Of Purchasing & Supply Management 18.1 (2012): 9-21.
Jonsson, Patrik, Martin Rudberg, and Stefan Holmberg. "Centralised Supply Chain Planning At IKEA." Supply Chain Management 18.3 (2013): 337-350.
Kling, Katarina, and Ingela Goteman. "IKEA CEO Anders Dahlvig On International Growth And IKEA's Unique Corporate Culture And Brand Identity." Academy Of Management Executive 17.1 (2003): 31-37.
Li, Heng, et al. "Using The IKEA Model And Virtual Prototyping Technology To Improve Construction Process Management." Construction Management & Economics 26.9 (2008): 991-1000.
