Ikea

MARKETING MANAGEMENT

CASE 16 IKEA

1. What are IKEA’s firm-specific advantages? Country-specific advantages?

IKEA is basically a warehouse store that carries quality furniture at low prices. The furniture they sell is all ready-to-assemble pieces that the customer picks up themselves, instead of having a ready-made item delivered to them. IKEA contracts with independent furniture makers and suppliers to design furniture that is made to be assembled in the customers’ home. They are able to keep their prices low because they have designers that work closely with the suppliers, so the savings are built into the products from the onset. The suppliers are guaranteed favorable orders from IKEA, but in return, the suppliers may not sell to other stores. IKEA has a global sourcing network of more than 2,300 suppliers in 67 countries, which makes it easier to keep their shelves stocked. The same furniture is sold all around the world, so IKEA gains high economies of scale from the size of the stores and the big production runs necessary to stock them. Because of this, IKEA is able to match competitors’ quality and still undercut their prices up to 30 percent.

2. What are the cultural factors that make expansion abroad in retailing difficult? What has made it possible in IKEA’s case?

A difference in social behaviors and systems can make expansions difficult for retailers. The management styles and organizational styles of the company may not fit into the “normal” ways of running a business in a different country. These differences can cause problems with new employees, and create friction in the work place. There is also the way the retailer presents themselves to the public. What is acceptable in one country is not always acceptable in others, and can give the business a poor image. When IKEA entered the United States, they also came across a difference in sizes in bedroom furniture. At first, they decided not to make any changes, but when sales did not pick up, they...