Superior University, Lahore

Strategic Management

Mid Term Exam

Name: IMTIAZ NAWAZ

Roll No: MBPE-F17-014

MBA-6 (SCM)

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History:
The IKEA Concept began when Ingvar Kamprad, an entrepreneur from the Smaland province in southern
Sweden, had an innovative idea. In Smaland although the soil is thin and poor, the people have a reputation
for working hard, living frugally and making the most out of limited resources. So when Ingvar started his
furniture business in the late 1940, he applied the lessons he learned in Smaland to the home furnishings
market. Ingvar’s innovation idea was to offer home furnishing products of good function and design at
prices much lower than competitors by using simple cost-cutting solutions that did not affect the quality of
products. Ingvar used every opportunity to reduce costs, and he scraped and saved in every way possible –
except on ideas and quality. The name IKEA comes from the initials of Ingvar Kampard, I and K, plus the
first letters of Elmtaryd and Agunnaryd, Which are the names of the farm and village where he grew up.

Introduction:
IKEA is privately held, international home products retailer that sells flat pack furniture, accessories, and
bathroom and kitchen items in their retail stores around the world. The company, which pioneered flat- pack
design furniture at affordable prices, is now the world’s largest furniture retailer. IKEA was founded in 1943
by 17- year-old Ingvar Kamprad in Sweden and it is owned by a Dutch registered foundation controlled by
the Kamprad family. The company that was originated in Smaland, Sweden, distributes its products through
its retail outlets. As of August 2009, the chain has 301 stores in 37 countries, most of them in Europe, North
America, Asia and Australia.

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QUESTION#1

Vision and Mission Statements

Vision Statement
“To Create Better Everyday Life For Many People.”

Mission Statement
“To offer 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.”

Objective of IKEA:
 To produce cheap and affordable product for the customers.
 Ensure the customers find what they are looking for in store.
 Low Prices.

Products

IKEA Most Popular Products Worldwide

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IKEA Furniture for Small Bathroom

Bedroom Furniture

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QUESTION#2

Strategies Used by it and can we implement those strategies in Pakistan?

Strategies Used By IKEA

Following are the different strategies used by IKEA

 Product Strategy
 Diversification
 Low cost leadership strategy
 Promotion Strategy
 Market Development Strategy
 Differentiation Strategy

1-Product Strategy:
IKEA have using product strategy for uniqueness. Following are the points under this strategy.

 Mostly IKEA’s products are stylish that makes the company unique.
 Products are according to the need of the customers.
 IKEA provide flat pack it is very easy to transport.
 IKEA offers large variety styles for consumer choice on them.
 Products available for different segments.
 IKEA design its own furniture for uniqueness.

2-Diversification:
IKEA’s main business is home furnishings and it has largely stayed within that industry. IKEA continually
encourages diversification through the IKEA concept. IKEA also has food items that people are very fond
of. While IKEA is not in the food industry, they realized that when people visit the massive IKEA stores
and spend hours browsing and shopping, they get hungry. So IKEA started offering food for purchase and
spot in the middle of the store where people can order fresh meals. Customer also can purchase a variety of
packaged food items.

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3-Low Cost Leadership Strategy:
IKEA used low cost leadership strategy. IKEA provide furniture at low prices. IKEA used different
techniques to cut the cost. And provide good quality product at affordable prices. Following are the points
under the low cost leadership.

 Strong relationship with suppliers.

 Instead of having sales people attending customers, IKEA uses a self-service model based on clear in
store displays.
 Items are provided to customers in flat-packed from, which results in a wide range of supply chain
contributions. The flat package reduces the cost of shipping, storing, construction and assembles. It
also provides greater transportation capacity and warehousing space.
 Rather than relying on third part manufacturers, IKEA design its own low-cost, modular, ready to
assemble furniture.

4-Promotion Strategy:
IKEA used different promotion strategies such as:

 Home delivery service to its customers.

 Online shopping
 IKEA uses both traditional and digital channel to advertise and promote its brand.
 IKEA also uses well designed outdoor campaigns for promotion.
 Spending 70% of annual marketing budget in printing catalogs.

5-Market Development Strategy:

Market development strategy is associated with finding new markets for existing products. The world’s
largest furniture retailer engages in market development extensively. IKEA operates 422 stores in 50
markets around the world. It is very difficult to enter a new market but IKEA focuses on low prices and the
main goal is to provide good quality products on a low purpose so that this thing can further develop the
market.

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6-Differentiation Strategy:
IKEA used differentiation strategy every IKEA stores is a unique building with the noted brand symbol and
style. Compared to other furnishing retailers, IKEA shows their products in prototype rooms which are
miscellaneous and stylish. It provides various choices and suggestions for customers to decorate their
rooms. In some areas, people regard strolling in IKEA stores as an entertainment because of its fashionable
design furniture and easeful homelike environment. As a result, IKEA could easily receive their potential
customers.

Can we implement those Strategies in Pakistan?

Yes IKEA can use their strategies in Pakistan. Because consumers of Pakistan are price and quality
conscious and most of the consumers are related to middle and upper middle class so they need affordable
prices with unique and latest design. IKEA has wide range of product according to the need of the
customers. Most of the company products are stylish that makes company unique. And IKEA designs its
own furniture. IKEA also has food items that people are very fond of. While IKEA is not in the food
industry, they realized that when people visit the massive IKEA stores and spend hours browsing and
shopping, they get hungry. Promotions Strategy may also use in Pakistan because social media
advertisement trend is peak in Pakistan peoples mostly see ads on social media. IKEA has no official store
in Pakistan but there is great opportunity for IKEA to open its store in Pakistan.

QUESTION#3

External opportunities and threats in context of the Pakistan

Opportunities Threats

 Adding Premium quality products  Lack of knowledge of customer

 Expansion in Pakistan’s big Cities demand
 Launch new design  Local Competitors
 Making their reputation in Pakistan  Political Situation
 Consumer buying behavior different

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QUESTION#4

Internal strengths and weaknesses in context of the Pakistan

Strengths Weaknesses

 Raw Material Available  Low level of training facilities

 Powerful Brand Image  Decreasing Quality
 Affordable Price  Standard Products
 Good brand Image  Constrain of Technology
 Supply Chain Integration
 Tools available for making the
products

QUESTION#5

Competitive Advantages of IKEA

Following are the competitive advantages of IKEA.

 Offering the lowest price.

 Variety of products.
 High Quality Design

Offering the Lowest Price:

Cost effectiveness is one of the solid bases of IKEA competitive advantage. The global furniture retailer is
able to offer low prices thanks to a combination of economies of scale and technological integration into
various business processes.
Variety of Products:
Great range of products also belongs to the list of IKEA competitive advantages. Customer’s wants different
variety with low prices. So the IKEA provide variety of products with low prices.
High Quality Design
IKEA products are high quality design. Mostly consumers want unique quality design so the IKEA provide
the unique and high quality design products.

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QUESTION#6

Value Chain Analysis of IKEA

IKEA value-chain analysis is an analytical framework that assists in identifying business activities that can
create value and competitive advantage to the global furniture retailer. Each step in the manufacture of a
product or the delivery of a service can be thought of as a link in a chain that adds value to the product or
service. This concept of how business fulfill its mission and objectives is known as the value chain

IKEA Primary Activities

IKEA Inbound Logistics:

Inbound logistics for IKEA is associated with purchasing raw materials and ready items from about 1800
suppliers located in more than 50 countries worldwide. The world’s largest furniture retailer conducts
purchasing via its 31 trading service offices in 26 countries. The top five purchasing countries for The
Swedish furniture chain include China 20%, Poland 18%, Italy 8%, Germany 6% and Sweden 5%.

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IKEA inbound logistics is a major source of value creation for the business. Specifically, the proximately of
company’s 31 trading service offices to suppliers locations helps to ensure that company can monitor
production, test new ideas, negotiate prices and check quality of products and raw materials they are buying.

IKEA Operations:
IKEA operations are divides into three divisions – Franchise, Property and Finance divisions, with
Franchise division being the core of the business. IKEA follows de-centralization business strategy in
running its global operations. According to this strategy, regional managers are granted decision making
autonomy taking into account unique aspects of their markets, local culture, patterns of local consumer
behavior and other region specific factors. IKEA operates its stores under franchise agreement in 30
countries worldwide. There are 11 franchisees operating IKEA stores in more than 50 markets.

The majority of IKEA products are developed by IKEA Industry, the largest producer of wooden furniture
in the world. IKEA Industry consists of 40 production units in 10 countries: China, France, Hungary,
Lithuania, Poland, Portugal, Russia, Slovakia, Sweden, and the USA.

IKEA Outbound Logistics:

IKEA outbound logistics involve warehousing and distribution of ready products from 422 stores in 50
markets to end users. The world’s largest furniture retailer operates 28 distribution centers and 11 customer
distribution centers in 16 countries worldwide. Customers are responsible for cost associated with the
transportation of goods purchased from IKEA stores. The company offers two types of delivery services.
Parcel delivery is a service to deliver small items weighting up to 25kg and the company charges around
USD 12 depending on the location of the specific store.

Truck delivery on the other hand is made for purchases exceeding 25kg and IKEA charges starting from
approximately USD 50 for truck delivery. The delivery for goods purchased online is done free of charge.
Delivery of goods to customers directly without any intermediaries can be specified as one of the main
sources of the value in IKEA outbound logistics. Moreover, sources of value creation in outbound logistics
for the furniture retailer include using flat packs to save on space, transporting, goods by rail and sea instead
of vehicles whenever possible and applying fuel- saving techniques in transportation.

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IKEA Marketing and Sales:
The home improvement and furnishing chain uses print and media advertising, sales promotion events and
experiences, public relations and direct marketing techniques in an integrated manner. IKEA is a
multichannel retailer and integrates selling through stores, catalogues, website and app. The furniture giant
relies in its catalogues extensively for marketing and sales and more than 200 million catalogues are printed
each year globally. Starting from 2018, the company has changed its focus from rooms to product
innovation from marketing point of view. Online sales channel is also extensively utilized by the company
and ikea.com website attracted 2.5 billion visits in FY 2018. An effective utilization of traditional, paper
based IKEA catalogue is the most noteworthy source of value creation in IKEA’s marketing and sales.

IKAE Service:
Customer service as one of the primary activities in the value chain is addressed by IKEA via a standard set
of techniques and practices such as the provision of online telephone customer services, offering refunds
and exchange of goods whenever relevant and encouraging customers to provide feedback. If customers
find out that some parts of assembly furniture are missing, they don’t have to go back to IKAE store.
Customers can find out the missing part number (listed in the assembly instructions), call their local store to
ask for replacements and the replacement will be mailed to them. At the same time, IKEA is not famous for
the provision of a superior customer services. Such a situation may have resulted from the aggressive
pursuit of cost-cutting initiatives according to cost leadership business strategy.

IKEA Support Activities

IKEA Infrastructure:
IKEA has divided its business into three main segments which include franchises, range & suppliers and
IKEA industry. The CEO of Inter IKEA Group is Torbjorn Loof, The management of the Inter IKEA group
BV is overseen by a supervisory board. Apart from a functional basis IKEA also manages its business on a
regional basis. Each function at IKEA from finance to HR and communications has its own head. The CFO
of Inter IKEA Group B.V. is Martin Van Dam.

IKEA Human Resource:

IKEA’s focus on the efficiency and satisfaction of its employees has grown in recent years overall, the
company employs around 211,000 people worldwide. IKEA is investing in strategically managing its people

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whom it calls co-workers since the growth of its business depends on the growth of IKEA employees. Apart
from hiring and retaining the best employees, the company has also developed attractive programs to help
the employees manage growth and find career advancement opportunities.

IKEA Technology:
Technology has also played an important role in maximizing cost effectiveness and operational efficiency at
IKEA. At IKEA digital technology has played a central role in helping the company tackle its production,
supply chain and sales, and marketing related challenges. The company is investing in digitalization to
improve its manufacturing capabilities which is necessary to meet the ever changing needs of its customers.
The company has also accelerated the efforts to automate production and to leverage the benefits of data
driven manufacturing.

IKEA Procurement:
IKEA sources from around 1800 suppliers in more than 50 countries. It’s purchasing and logistics function
is divided into eight business units which include IKEA components, Regional Supply Teams, Purchasing
Development, Logistics development, Sales & Supply planning, Transport & Logistics Services, Purchasing
& Logistics Area, and Quality Support Centers. The company has also established trading offices at
strategic locations close to where its suppliers are located and focuses on developing long term strategic
partnerships with key suppliers. Integrated logistics has also helped IKEA make its procurement process
more cost effective and efficient.

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