IB ACTIVITIES

GROUP MEMBERS:
A K S H AY B AT R A

GEORGE KC

ABDUR REHMAN

BIBIN PILLAI
FURNITURE RETAILER
TO THE WORLD.
 Q.1 By the 1970’s IKEA had established itself as
the largest furniture retailer in Sweden. What was
the source of its competitive advantage at that
time?
Answer 1.

• IKEA’s competitive advantage came from the fact that it provided stylish, quality functional designs
at low prices so most people could afford them.

• IKEA’s furniture had minimalist lines, which it got manufactured in a cost efficient way by
establishing contracts with suppliers.

• IKEA’s ‘democratic design’ was based on reducing assembling costs through machine production.

• Sales started to take off when a widely read Swedish magazine called Allt i Hemmet promoted
IKEA’s products (to middle-class households) saying that they were 65% cheaper when compared
to its competitor’s products.
Q2. Why do you think IKEA's expansion into Europe went
so well? Why di the company subsequently stumble in
North America? What lessons did IKEA learn from this
experience? How is the company now applying these
lessons
Answer 2.

• Europe was a success because: -

– elegant, clean-lined functional designs
– Inexpensive prices.
– Immediate availability through a self- service store format.
IKEA’s stores were typically situated on city outskirts, instead of downtown, which meant
that IKEA had several access roads and good parking space for customers.
After experiencing slow business in United Kingdom due to a local competitor named Habitat,
IKEA decided to venture into North America
The most important lesson that IKEA learnt from its experience in North America is that in
order to be successful in North America, the company had to understand American needs and
redesign its European-style products.
Q3. How would you strategize IKEA’s strategy
prior to its missteps in North America? How
would you characterize its strategy today?
Answer 3.

• Prior to North America missteps: -

• Misstep - Low end retailers (Walmart) and high end retailers (Ethan Allen)–
therefore, there was a quality and price mismatch.
– Self Assembled furniture displayed in warehouse stores (First of its kind)
– Partnership with Poland – 50% cheaper than furniture in Sweden – Strategic Supplier
– Expanded facility : It had a strategy of producing and selling generalized product.
– Low price product : IKEA marketed itself as a firm selling low price product to middle class
people
CONTD..

• Strategy today: -
– Continued Global expansion – 20 -25 stores/year
– Reemphasized design and start promoting itself with a series of quirky hip advertisements aimed
at younger demographic – American Market
– Store location : Stores were located on outskirts instead of city area. This allowed IKEA to have
easy access from several roads and good parking place.
– Product customization : Presently, products at IKEA are designed to suit local requirements, their
tastes and needs. Preference is given to customer requirement. Its products are redesigned and
settings are stored as per regional preferences.
Q4. What is IKEA’s strategy towards its suppliers ?
How important is this strategy to IKEA’s success ?
Answer 4.

SUPPLIES
Germany
6.00%
10% Facts:
Sweden
6.00% China
11% 1380 suppliers in 54 countries in
21.00% 2008 with top sourcing countries
36%
like China-21%, Poland-17%, Italy-
8%, Sweden and Germany-6%.
Italy
8.00%
14%

Poland
17.00%
29%
STRATEGIES ADOPTED BY IKEA.
IKEA is a strong believer in having two-way relationship with its suppliers. As low priced products
meant low cost of production, IKEA was dedicated in selecting and appointing its suppliers.
• IKEA invested in latest technology and shared them with the manufacturers. Sharing
technology and knowledge are the main factor to establish a strong relationship between
business partners.
• IKEA also encouraged the suppliers to explore new and cheap resources in the product
making process without neglecting the standards designated by IKEA itself.
• Purchased Swedwood, a Swedish manufacturer, as a vehicle, to buy and run manufacturers in
Eastern Europe and Poland.
Q5. What is the source of IKEA’s success today?
Can you see any weaknesses in the company?
What might it do to correct these?
SOURCES OF SUCCESS

• value chain,
Three Key strengths • unique design capabilities,
of IKEA’S success – • tightly controlled logistics (LOW
COST)

Competitive Advantage - IKEA’s ability to produce products that are distinctive enough, secure sourcing for the long runs at profitable levels and reduce inventory
costs through regional warehouses.

Foster relationship with the people around and within them – customers|employees|suppliers.

Egalitarian working atmosphere.

Knowledge sharing culture with suppliers.

Enough time is given to manufacturers to do the work efficiently.

IKEA set the price first and accordingly manufacture the product.
Answer 5.

• Weakness – Business was too family centric,Very hard to fire anyone. Hiring process is not
systematic.
• Many Americans didn’t like the idea of assembling the furniture on their own – Strategic
disadvantage
• They relied more on freshers and rookies instead of experienced ones (can be one of the
weakness in long term)

• How to improve: -
– Make hiring process more systematic.
– Appropriate training and mentoring programmes in the organization.
– Provide assembly and delivery service to customers who expect IKEA to assemble the furniture as
well – Service development strategy