Analysis of IKEA's strategy

This section will analyze IKEA's transnational strategy and the various challenges that IKEA has faced in
its international expansion. It will also reveal the company's solutions to specific problems.

Europe
By 1973, IKEA was the largest furniture retailer in Scandinavia with nine stores. The company has a 15%
market share in Sweden. However, Kamprad felt the opportunities for growth were limited. Starting with
a single store in Switzerland over the next 15 years, the company expanded rapidly in Western Europe.
IKEA enjoyed considerable success, especially in West Germany, where it had 15 stores in the late 1980s.
Like in Scandinavia, the Western European furniture market is largely fragmented and served by retailers.
High-cost retailers located in expensive downtown stores and selling relatively expensive furniture are
not always available for immediate delivery. IKEA's elegant functional designs with clean lines, low prices
and instant delivery are a breath of fresh air, like a self-service store.

Asian
An example of this is China, where IKEA opened its first store in Beijing in 1998. It took IKEA five years to
understand the Chinese market, as the culture of Asia and Europe are very different. Below are

the challenges that IKEA faced.

Challenges:

How to provide low prices and compete with local markets in China?

High import taxes made it almost impossible for the company to offer low prices.

IKEA considers how to compete in China's cluttered market, where many local firms and products copied
each other.

The low-income levels in China made it difficult to reach many people.

Solutions:

IKEA had to source local products and materials to compete with prices in China. This resolved the
problem of high import taxes in China.

IKEA started performing local quality inspections, closer to the manufacturing stage, to save on repair
costs and offer low price products in huge volumes. IKEA hopes to win over some of the competitors in
the Chinese market.

IKEA targets the young middle-class population as this category has a higher income and is more aware
of Western styles. Targeting this segment helped IKEA project itself as an aspirational western brand.

Instead of using the IKEA catalog to promote its products, they used Chinese social media and micro-blog
website Weibo to target the urban youth instead.

One of the main challenges for IKEA in China was how to provide low prices.
IKEA offers a delivery service so that Chinese customers can shop at home. IKEA has also adopted a deep
discount model in China, pricing some items up to 70% less than they cost at IKEA stores outside of
China. To do this, IKEA sourced a large percentage of its products sold in China from local suppliers.

America
IKEA opened its first US store in 1985 in Philadelphia. Surveys of American consumers show that IKEA
shoppers are more likely to be expatriates who consider themselves risk-takers.

Challenges:

Many of the goods are sourced from abroad and they are priced in the Swedish Kroner, which is
strengthening against the US dollar. As a result, the prices of goods in IKEA's stores in the US go up.

The company found that European-style offerings didn't always resonate with American consumers.

Beds are measured in centimeters, not the king, queen and double sizes Americans are used to

American sheets don't fit IKEA bed

The sofa isn't big enough, the dresser drawers aren't deep enough, the glass is too small, the curtains are
too short, and the kitchen doesn't fit in with US appliances.

The glasses are clearly too small for Americans who like to add a lot of ice to their drinks.

Some stores are poorly located and the stores are not large enough to provide the full IKEA experience.

Solutions:

Many products had to be redesigned to fit the needs of Americans.

IKEA also began sourcing some products from factories in the United States to reduce both shipping
costs and dependence on the value of the dollar.

Newer and larger store locations have been selected.

To reduce prices, goods are sourced from lower-cost locations and priced in dollars.

IKEA sees a change in American culture. Americans are becoming more and more interested in design,
and more open to the idea of disposable furniture.

To penetrate America's changing culture, IKEA re-emphasized design, and began promoting itself with a
series of stylish advertisements aimed at a younger demographic; young couples, college students and
singles aged 20 to 30.

The change in tactics worked. IKEA's sales doubled within four years to $1.27 billion in 2001, up from
$600 million in 1997. By 2008, the United States was IKEA's second-largest market after Germany, with
35 stores representing 10% of total sales, or about $2.4 billion, and expansion plans calling for more than
50 stores in the United States by 2012.