CASE Solution

1. How is IKEA profiting from global expansion? What is the essence of its strategy for
creating value by expanding internationally?
IKEA, Swedish corporation, is now considered the largest furniture retailer in the world.
In2010, IKEA has 313 stores in 37 countries in Europe, North America, Asia, and
Australia(IKEA). In other words, IKEA apparently became one of the biggest multinational
companies and has been making a huge profit for many years because of their globalization
strategy.
However, how is IKEA profiting from global expansion? Their low-cost strategy and
differentiation strategy play very critical parts to answer this question. In order to reduce the
price of its offerings and products, IKEA needs to lower their overall costs. Therefore, IKEA
desperately looks for the low-cost suppliers, like China. In addition, in order to be more
competitive, IKEA concentrates on their attractive designed products.
For the second question: what is the essence of its strategy for creating value by expanding
internationally, the answer to the question is, briefly, to maximize its profitability; in other
words, to maximize the value of the firm.
Further speaking, IKEA is “trying to simultaneously achieve low costs through local
economies, economies of scales, and learning effects and differentiate their product offering
across geographic markets to account for local differences”

2. How would you characterize IKEA’s original strategic posture in foreign markets?
What were the strengths of this posture? What were its weaknesses?
IKEA’s original strategic posture in foreign markets was called global standardization
strategy in order to decrease their costs because IKEA planned to reduce the price of their
products by 2 to 3 percent every year, which needs to lower their cost as well.
Therefore, standardization or mass production was their first step to reach their goal,
because there are some strengths behind; that is, IKEA could just pay attention on finding
the primary suppliers to create the products and shipping from those suppliers in order to save
the costs.
IKEA could save money from economies of scale and learning effects. However, there is one
big challenge with regard to the global standardization strategy; that is, what if the IKEA’s
standard products are not in accordance with the local people’s taste and preference? For
instance, IKEA had hard time marketing their European-style products in America in the early
1990’s, because Americans do not know centimeters of the measurement on their beds, but
only familiar with the king, queen, and twin sizes. Additionally, Americans complained harshly
about the small sized sofa and wardrobe drawers, and more. So IKEA failed at that time in
America and were forcedly to redesign their offerings to match American taste and preference.

3. How has its strategic posture of IKEA changed as a result of its experiences in the
United States? Why did it change its strategy? How would you characterize the
strategy of IKEA today?
IKEA had redesigned the products especially for U.S. customers. Specifically, IKEA changed
its products measurement units, sizes in order to meet with the customers’ preferences. Some
of IKEA’s problems in U.S. market can be addressed here.
First is with Durability. IKEA’s company slogan is “Low price with meaning”. In order to
reach this goal, IKEA has to compromise on its quality of the furniture. IKEA products usually
apart after a few years; therefore no one in this company would claim that IKEA furniture was
built for longevity.
Although IKEA provides lots of choices on style and color, some customers may not want to
see the item they bought break down so quickly. Second is the design for Americans’ Daily
Lives. At the beginning of IKEA business in the United States, they discovered that Americans
did not like their products. Apparently, its beds and kitchen cabinets did not fit American sheets
and appliances, its sofas were too hard for American comfort, its product dimensions were in
centimeters rather than inches, and its kitchen wares were too small for American serving-size
preferences.