IKEA is a multinational company (MNC) that designs and sells ready to assemble

furniture, home appliances, kitchen services, and home services. IKEA’s vision is “To
create a better everyday life for the many people”. The company offers a wide range
of well-designed, functional home furnishing products at competitively low prices so
that as many people as possible will be able to afford them. One of IKEA’s aims is to
achieve high quality products at affordable prices through a range of strategies
including optimization of its supply chain, long term relationships with its suppliers,
investments in capital expenditure and automation, and manufacturing in bulk.

IKEA was founded in Sweden in 1943. By the end of 2020, IKEA operated 422
stores in more than 50 countries worldwide. Approximately 70% of IKEA stores are
located in Europe. Around 15% of the company’s annual sales come from Germany
and approximately 14% from the USA. Apart from opening new stores in different
countries, IKEA’s growth strategy includes a wide product range of more than 9,500
products. IKEA’s product lines include (are categorised as) furniture, beds and
mattresses, storage and organisation, baby and children, kitchen and appliances,
decoration, lighting, kitchenware and tableware, winter collection, textiles, and home
smart. IKEA has also broadened its markets by operating IKEA restaurants and
coffee shops within many of its furniture retail stores.

The company uses a franchising strategy as part of its extensive expansion plans.
Potential IKEA franchisees are evaluated through a stringent process, given further
guidance, and trained accordingly. Successful franchise operators are authorized to
market, sell (the entire product range) and operate (the sales channels) of IKEA
goods. In return, IKEA franchisees pay the Inter IKEA Group an annual fee of 3% of
their net sales revenues. Franchisees also provide valuable input based on their own
consumer and local market insights. This provides further opportunities to expand
and collaborate.

IKEA plans to explore and exploit the growing Indian market. With just one large
store in Hyderabad, India in 2018 the company has expanded online in Pune and
Mumbai. The furniture retailer aims to integrate its brick-and-mortar format (of
physical) stores with online stores. IKEA announced the opening of its store in Navi
Mumbai on 18th December 2020. This became one of the company’s signature and
largest stores along with its small-format stores in the country.
IKEA aims to target 100 million customers in India by 2022. The demand for furniture
is increasing in India and consumers are open-minded to foreign retailers and
suppliers. The government has eased the process of expansion in India by
supporting MNCs. Legislative practices have been improved, and new contracts
have been formed to source other unconventional materials from India. The mandate
by the Indian government is to ensure that 30% of all goods sold in IKEA’s Indian
stores are sourced locally. The Indian domestic furniture market is expected to
expand at a rate of around 13% between 2020 and 2024. The global furniture
market is estimated at US$1.1 trillion, from which the Indian market size is
currently less than 5%.

However, consumers are price-sensitive and have loyalty towards Indian

stores. The market is dominated by local vendors and well-established brands such
as Godrej, Zuari, and Yantra. These companies have a well-proven market
presence. Moreover, firms such as Pepperfry and Urban Ladder are generating high
amounts of sales revenues through online platforms, indicating the success of e-
commerce in India’s furniture industry. The country’s infrastructural developments
and investments in technology are also the key objectives of the Indian government.

Define the term multinational company. [2 marks]

Apply the Ansoff matrix to two growth strategies used by IKEA. [4 marks]

Explain one advantage and one disadvantage to IKEA from its franchising strategy. [4
marks]

Discuss the impact of the external environment on the growth and expansion of IKEA in
India. [10 marks]