MODULE 2: CASE ANALYSIS

Written By Apuro, Alvin V.

Professorial Lecturer Dr. Roberto Gabiola

Subject BA245: Business Policy and

Strategic Management
Program Master of Business
Administration
 1. What is the main problem?

As IKEA's growth began to accelerate, how can it develop markets in non-

Western countries while taking into account distinct cultures and looking for
potential low-cost suppliers worldwide without taking too much of a hit from
exchange rates?

2. How the problem brought about?

On the face of it , America looked to be fertile territory for IKEA. As in

Western Europe, furniture retailing was a very fragmented business in the United
States. At the low end of the market were general discount retailers, such as
Walmart, Costco, and Officer Depot, who sold a limited product line of basic
furniture, often very low prices.

IKEA opened its first United States store in 1985 in Philadelphia. Although
it initially garnered favorable reviews, and enough sales to persuade to start
opening the additional stores, it was clear that things were not going well. The
company found that its European-style offerings did not always resonate with
American consumers. Bed were measured in centimeters, not the king, queen,
and twin sizes with which Americans are familiar, Americans sheets did not fit
on IKEA beds, sofas were not big enough, wardrobe drawers not deep enough,
glasses too small, curtains too short, and kitchens did not fir American-size
appliances.

To make the story worst, IKEA was sourcing many of the goods from
overseas, priced of goods in the Swedish kronor, which was strengthening against
the American dollar. Moreover, some of the stores were poorly located, and not
large enough to offer the full IKEA experience familiar to Europeans.

In total, by 2008, there were 285 IKEA stores in 36 countries and

territories. As with the United States, some local customization has been the order
of the day. In China, for example, the store layout reflected the layout of many
Chinese apartments, and because many of them have balconies, IKEA’s Chinese
stores included a balcony section. IKEA also has had to adapt its location in
China, where car ownership is still not widespread.

BA 245: BUSINESS POLICY AND STRATEGIC

CASE ANALYSIS : IKEA
MANAGEMENT
 IKEA devotes considerable attention to finding the right supplier for each
item. They originally manufactured the product in Sweden but soon transferred
production to lower-cost suppliers in Poland.

3. Recommendation/ Strategy to resolve the problem

IKEA, a multinational furniture company, was founded on the idea of

providing a diverse range of functional, well-designed, and affordable home
furnishings. Considering distinct cultures, they must continue to have local
redesigning or customization that will fit into the style and living of the countries
they want to engage with without sacrificing the quality of the product at still low
prices.

They should engage more with suppliers. As of now, IKEA has

concentrated production on four core suppliers in China and Europe. Continuing
the contracts will really help them lower the cost of the products. In the event that
the supplier has no more supply or holds a higher price offered by competitors,
they can do vertical integration. By doing so, their business will expand by
acquiring another company that operates before or after them in the supply chain,
like what they do with Swedish manufacturer, Swedwood. In addition,
Swedwood also enabled IKEA to acquire knowledge about manufacturing
processes that are useful both in product designs and technology and ultimately
drive down their costs.

A powerful brand image, a wide range of products and styles, good

furniture design at a low price, and a friendly atmosphere in the stores are just
some of those factors that should be maximized to develop markets not only in
Western countries but also around the globe.

BA 245: BUSINESS POLICY AND STRATEGIC

CASE ANALYSIS : IKEA
MANAGEMENT