Global Business Management

Write-up Assignment 3

Student : 徐筱晴 R09724018

I. How IKEA internationalize

1. Clear Target Audience, Relatively low prices, high quality product (Highly
demanding customers in Swedish - diamond model)

IKEA clearly focus on teenagers and low-income group as their target audience.
Through cost controlling, IKEA try to provide lower-price products comparing to other
furniture retailers. Swede usually use custom-made furniture through generations, which
implies that consumers in Sweden is highly demanding. The characteristic of these
consumers make IKEA produce high-quality products. The low-price but yet high-quality
product thus meet part of the customer’s needs globally. Before IKEA, no furniture
company provides these kind of products successfully.

2. Same image, Avoid obvious local characteristics (I-R Model)

When talking about I-R model, IKEA use the strategy of Global Integrity. IKEA try to
build same image, which is good design, good function and affordable price, to
customers globally. IKEA avoid providing obvious local-characteristic furnitures, and
instead IKEA produce furniture with modern design appealing to people globally
regardless of their different culture and races. On the other hand, IKEA still faces some
pressure to localize, such as differences in customer needs and local competition.
When facing these situations, IKEA allows it’s 5 % products to be respond to locals and
also allow small amount of price drop to maintain relatively low price to competitors.

The below form shows pressures for global integration or local responsiveness that IKEA
faces.

• Importance of multinational customers ( IKEA Faces

small demand market in Sweden)

Pressures for Global • Pressure for cost reduction

Integration
• Universal needs (modern design, low price but yet high
quality goods.)

• Differences in customer needs (Chinese need

chopsticks, American need bigger bed)

Pressures for Local

Responsiveness • Local competition (IKEA’s product price was relatively
high comparing to other furniture stores in China)

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3. Cost control

The below chart uses Value chain analysis model to explain how IKEA can cost down
on each step.

Business Infrastructure
Emphasis on CSR and business sustainability

E-commerce

Financial independence

Human Resources Management

Mar
Incentives, Education scholarship

Support Activities

Take care of employees (their family and needs)

gin
Low turnover rate

Technology Development
Product database, parameter database

Teleconference

Procurement
Good bargaining power

No vendor account for large part of total purchase

Primary Activities

gin
Inbound Outbound Marketing

Mar
Operations Service
Logistics
Logistics Sales

• Very low • flat-packed

• No question
cost • railway
• Cash-and- asked
relative to form
• shipping carry

policy on
other by sea • Self-service returns
furniture

IKEA’s founder, Ingvar Kamprad emphasize cost-control highly, he implied this concept on
production management, operation management and the whole value chain.
Through the global supply chain integrity and the good relationship with supplier,
IKEA acquires relatively cheap materials without reducing the quality and low
manufacturing cost, and thus successfully cost down on each production processes.
IKEA also has good bargaining power to vendors, since no such vendor account for
large part of the purchase. IKEA use flat-packed form of package, which cost down on
shipping.Since IKEA has factory all over the world, it often use railway or shipped by sea
both are cheaper than air transport. What’s more, IKEA does care about their
employees, and gives them incentives to work or provide them with education
scholarships. These kinds of employees practice lead to low turnover rate, and save
money as training new employees.When talking about sales method, IKEA has its own
ways which are cash-and-carry and self-service. Both methods reduce sales personnel
cost and shipment fees.

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4. World-wide learning : self-service concept , cash-and-carry concept, new
consumption pattern, global supply chain integrity, E-commerce

IKEA is a company which embraces the changing world and different cultures with
innovations. The below form shows IKEA’s globalization process.

Form of globalization Content IKEA’s globalization

Globalization 1.0 National strength

Globalization 2.0 Multinational companies Expand global market with

(1800 AD~2000AD) (market, labor)
new thinking : self-service
concept , cash-and-carry
concept, new consumption
pattern (not just shopping
also visiting, large parking
lot)
Globalization 3.0 Global cooperation and global supply chain integrity
competition

Globalization 4.0 Artificial intelligence E-commerce

As to 2020, IKEA has been selling online for 8 years, and IKEA will keep working hard to
expand online customers. It also creates show rooming stores to balance offline and
online shopping.

In the application of digital technology, Ikea launched the AR version of the furniture
catalog app in 2017, allowing customers to try out the furniture at home through the app,
and pre-determine the size, without worrying about the dilemma of finding out the size
was unmet after the physical furniture arrived.

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II. How to enter into China (Standardization or localization )
1. What IKEA did

• Lowering price (localization)

As IKEA first came in China, people’s income were not high. IKEA’s product were thus
unaffordable to them. IKEA then transferred its manufacturing factory from other country
into China, so the product can be cheeper in China. This is what IKEA did to respond to
locals, but its purpose was to maintain the same brand image to people around the
world.

• 5% product responding to Chinese consumers’ needs (Standardization)

There’s only 5% of the products responding to Chinese’s special needs, such as
chopsticks,Wok with lid and broadsword.

IKEA’s strategy of entering China was basically the same with before. IKEA use global
integrity and try to make same image everywhere.

2. IKEA’s performance in China

IKEA stepped into China since 1998, and it has been 22 years from now. However, based
on the above two graphs, IKEA’s performance in China seems to be not so good.

The sales growth rate keeps dropping since 2014. And the speed of IKEA store’s
expansion is not quick as expect.

There are some reasons that may contribute to IKEA’s unwell performance in China. First,
Chinese began the development of e-commerce since 1998, but IKEA force to join in until
2018. IKEA only focus on offline selling, but forget that a large group of Chinese
customers already get used to shopping online. For example, beginning in 2015, Alibaba
established the "Jiyoujia" which specializes in home furnishings on the Taobao platform.
According to 2017 statistics, there are hundreds of merchants that have settled in
Jieyoujia. Most of these merchants are entrepreneurial brand in the home furnishing field.
The number is still growing rapidly.

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Secondly, according to the above chart, IKEA’s store number is not large as other
multinational company, such as Red Star Macalline and Harbor House. Since the land
becomes more expensive in China, it has made IKEA more difficult to expand than
before.

Responds to the above situation, IKEA has made some changes so far:

• E-commerce were fully launched in 2018, and the e-commerce distribution business
gradually covered 149 major cities across the country at the end of 2018.

• IKEA currently has three opened shopping centers in Wuxi, Beijing and Wuhan, with
a total volume of more than 1.1 million square meters and an investment of more than
10 billion yuan.These new shopping malls will explore a new downtown business
model.

The below chart shows the information of IKEA’s shopping mall in China:

In IKEA's view, shopping mall kills two birds with one stone. Land acquisition through
shopping malls can greatly reduce the difficulty of store expansion. In addition, IKEA,
as a major merchant, enters the shopping mall, and through its accumulated consumer
groups and data over the years, it can also bring a good flow of passengers to the IKEA
gathering center.

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3. Recommendations

To cater to the consumption habits of the Chinese people,IKEA needs to reach more
online users. However, there might be some problem when the sales field were
transferred from offline to online. Part of IKEA product’s value comes from the tall and
gorgeous shopping space. When these products were put online, it seems to lose some
value. People might not be so willing to purchase.

To solve this problem, IKEA needs to create brand loyalty. IKEA can features modern
design product and highly functional products. Since there are lots of low-price furniture
product which targets the same consumption group with IKEA, IKEA needs to sustain its
own feature to make a difference.

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III. IKEA’s management processes and coordination mechanisms?

1. Management processes

Through the four steps below, IKEA successfully export its culture.

Planning Promise customers inexpensive prices, immediate delivery and the

quality and create a better life for most people.
Organizing Expansion Group: initial planning for new market entry

Operations Group: take over the company one year after opening

• Purchasing, distribution and design functions are centrally controlled

• No guidelines except Ingvar’s thesis and a general objective

Leading Ingvar Kamprad
• Ingvar did not believe in delegation

• close to subordinates

• Encourage creative solution

• IKEA ambassadors were assigned to key positions to spread the

company’s philosophy

• Inter-store competition

Anders Moberg
• Formalized approach, systematization

• Delegate

• Integrate product groups

Controlling • management by running around

2. coordination mechanisms

There are some formal and informal control and coordination mechanism that are
adopted by multinational companies. The below form shows the methods that IKEA
applies.

Formal control and • Centralization

coordination • Output and behavior control-management by running

mechanism around

Informal control and • Cultural control

coordination • Establishment of informal communication-IKEA

mechanism ambassadors

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The below form shows the evolution of coordination mechanisms.

Early (1920-1950s) More emphasis on formalization mechanisms, focusing

Mid-term (1950-1980s)
Recently (after the 1980s)
on financial performance, personnel reporting and
expatriate control
Although it also focuses on formalization mechanisms, it
emphasizes the functions of centralization,
formalization, standardization, and planning. Japanese
companies emphasize cultural control mechanisms
In addition to the above-mentioned formal control
mechanism, due to the promotion of "subsidiary roles
and functions", the horizontal coordination mechanism
among subsidiaries has gradually received attention,
and a strong organizational culture has been shaped

As for IKEA, Ingvar used cultural control mechanisms, such as encouraging employees
to learn Swedish and their culture, the core group members are mostly Swedish. Ingvar
also emphasizes the functions of centralization, and Purchasing, distribution and design
functions are centrally controlled. At the same time, Ingvar highlight subsidiary roles and
functions, and promote Inter-store competition.

The other leader, Anders Moberg, calls for formalized approach and systematization,
which is very different from Ingvar Kamprad.

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