IKEA Furniture Retailer to the World - Coursework Example

 IKEA Furniture Retailer to the World Answer 1 IKEA is one of the most successful brands in furniture industry and it has achieved this success through cautious planning and innovative thinking (Berger, 2011, p. 1). Ingvar Kamprad started dealing in furniture from since 1948. He wanted to establish the concept of “Democratic design” in the furniture industry, which meant that designs of furniture will be modern and available at moderate prices. He opened the first IKEA store in Almhult, Sweden to showcase his furniture range to the common people. The competitive advantages of the store are mentioned below: i. Exclusive and stylish furniture range for the mass at an affordable price. ii. Good quality of the furniture which was tested at the Swedish design laboratory. iii. Diversified product range; the products ranged from candlesticks to coffee tables and exclusive sofa sets. iv. In addition to the store outlet the restaurant was a huge hit. It became one of the major attractions of the store. v. In 1940, IKEA for the first time published its advertisement in a leading newspaper. Consequently, furniture orders started flooding; they also sent 800000 catalogues across Swedish homes (Hollensen & Banerjee, 2010, p.399). vi. It catered to the essential human needs and requirements. vii. The famous four-legged dining tables, whose legs were easily detachable from the bottom, could be painlessly dismantled by the users. This also reduced the transportation and warehousing costs for IKEA (IKEA, 2012). Answer 2 IKEA gained popularity in its home country as well as in rest of the Europe. The furniture designs reflect the Swedish art. IKEA’s stores were painted blue and yellow which reflects the Swedish flag. Though Scandinavian and European cultures are not synonymous, they have some common shades. IKEA was well aware of the fine taste of the Europeans, who laid special emphasis on elegant and classic designs. IKEA came up with a unique plan of offering Europeans with exquisite and classy designs, yet with a minimalistic price tag and this marketing strategy worked. In Philadelphia, IKEA opened its first store in 1985. The American market seemed to be a very good prospect, but the cold behaviour of the Americans took IKEA by surprise. Some of its competitors like Walmart, Costco and Office depot were offering low priced furniture range but it lacked proper design and good quality .Compared to IKEA, the furniture companies which were offering good design and quality products had a very high price tag attached to them. As per the customer analysis, IKEA furniture range did not attract the Americans. IKEA decided to re-emphasize on the furniture design because the American lifestyle and culture are very different from the European countries. IKEA renovated certain furniture range for the American markets and focused on the advertisement strategy which could lure the Americans. The tactics worked excellently and sales skyrocketed immediately after the marketing strategy was revamped. By 2008, the United States was IKEA’s second-largest market after Germany, with 35 stores accounting for 10 percent of total revenues (Hollensen & Banerjee, 2010, p.401). IKEA learnt a lesson that the tastes and preferences varies from different countries. Therefore, IKEA had to work on new designs and patterns from time to time but they always kept their original designs and patterns in mind. As they say, “Don’t reinvent the wheel but realign it”. IKEA had etched the incident of America in their minds and before entering the Asia-pacific markets it did its homework very well. IKEA studied the Asian culture, lifestyle and the cultural trends that influenced people’s work and personal lives. For instance, the IKEA stores in China resembled the Chinese houses decorated with attractive colours. IKEA started paying attention to very small details of the customers, For instance, when a woman shopped with her husband, the husband could get bored. So a tool section was added to the store layout particularly for the tired people who wanted to relax. This immediately boosted the sales in the tool section. Answer 3 IKEA focuses on the cost leadership marketing strategy where the producers focus on offering low priced products to the consumers and deliver genuine quality of products. They should focus on an efficient production system so that; the company can very easily outrun its competitors (Bord Bia Vantage, 2010). Right from its evolvement, IKEA had focused on low priced products for mass consumerism and good quality. However, its entry into American markets taught them a lesson that low cost, good quality and attractive packages are not the only factors that attract the consumers but they should focus on the “convenience “of the consumers. American house arrangements are a bit different from European house arrangements. So, IKEA started to imbibe the “Focusing strategy “where the company focuses either on differentiation strategy or cost leadership strategy in order to enter into a specific market segment. Figure 1: Competitive Advantage Source: (Porter, 1980, p. 29). Answer 4 Cost leadership strategy focuses on producing low priced but high quality products; this is only possible with the help of an efficient production and supplier system. An efficient supplier is a key to surplus profits, as getting the goods delivered at the right time and the right place is often termed as a key to success (Bord Bia Vantage, 2010). In addition, this value-chain modification differentiates IKEA from its competition because IKEA has always maintained a very good supplier-producer relation right from its evolvement. IKEA believed that the key to an efficient production and distribution network is only possible when the supplier-manufacturer relationship is strong and steady. This has proved to be a boon to IKEA as this had reduced not only the transportation and warehousing costs but also improved efficiency of the manufacturers (Hollensen & Banerjee, 2010, p.399). IKEA had developed a strong and smooth relationship with its suppliers in Vietnam and this resulted in, low cost labour and cheap availability of raw materials This enabled IKEA to operate on a larger scale and understand the other Asian Markets. IKEA believes in educating its suppliers about the products. This concept not only ensures smooth communication among the employees and suppliers but also makes the suppliers aware of the markets like acquiring cheap raw materials and expanding factories. This has helped IKEA to set a strong footing worldwide. The concept of developing a smooth relationship between the employees and the suppliers is a key point in gaining success as perfect timing of the suppliers. This enables fast and prompt delivery which in turn, would help in proper distribution of products to retailers, wholesalers and clients (Hollensen & Banerjee, 2010, p.402). Answer 5 The key to become a successful organization is the efficient working of employees; it can be attained only by providing congenial working facilities and environment which would motivate the employees. IKEA had always maintained favourable working conditions for the employees and has given them complete autonomy in their work, but every employee has to come up with a unique idea of innovation (Ledderhos, 2003, p. 1-2). IKEA does not have its own manufacturing facilities therefore it promotes “pro-sumers “where the shoppers are half consumers and half producers as they have to assemble the product themselves (Hollensen & Banerjee, 2010, p. 401. To help the shoppers, IKEA has provides catalogues, details in websites, tape measures and shopping lists where the guide to assemble the product is given. IKEA gives attention to consumer needs in every possible manner. It publishes products in catalogues, which is the main attraction to customers. Their good quality service makes the customers keep coming back to the IKEA stores. Manufacturing products of high quality, different variety and low cost products have always been the Unique Selling Proposition (USP) of IKEA. The organizational culture of IKEA is very informal where suits and blazers are absent and all employees are treated equally. This was a not popular concept with many of the newly recruited employees who had worked in other companies. A good company is efficient only when its employees are working efficiently .The future of the IKEA looks bleak as most of the new managers might not adhere to the existing company policies and procedures. They might change the company policy as per their own requirements, which might affect the originality of the company policies and procedures. Answer 6 IKEA’s success rate in China can be determined if the political, legal and economic scenario of the country is analyzed (Export Gov, 2013.). Political As per the latest catalogue on the foreign investment in Industry, the business climate looks prosperous for the high-technology, equipment manufacturing and new materials production industries. Since China relies heavily on export duty, IKEA would be welcomed easily. China would also welcome companies who believe in resource conservation and environmental protection. Therefore, IKEA might have to work on its Corporate Social Responsibility charter and focus on the environmental concerns. Overall, the political scenario looks stable in China and it seems to be a fertile territory for IKEA. Economic China has the third largest economy in the world in terms of nominal GDP. The economy has been rising rapidly mainly due to its low labour costs, good infrastructure , favourable government policy towards foreign investors and good infrastructure which are suitable conditions for successful operations in China Legal The legal system is not very appealing as it lacks a judiciary body and the existing Chinese communist party makes the decision. However, the recent advance reforms regarding a free market economy by subsidizing the rates of essentials like oil, water and electricity to avoid social unrest in China have proved to be lucrative for the foreign investors. The legal situation seems almost perfect for IKEA (World Savvy, 2013). There are many different modes of entering into foreign markets. Each mode has its strengths and weaknesses in general terms. However, Chinese markets are open to western products as they welcome products which have western influence. The best way to learn about these products is through a company which offers western products. Hence, IKEA has a potential prospect keeping in mind the socio-political climate. The ideal distribution entry mode for IKEA would be “franchising” which involves low risks, low cost and good profitable returns. The company could apply cost leadership strategy and differentiation marketing strategy ( Bord Bia Vantage, 2010). This would enable IKEA to enter the Chinese market and create a niche for itself. It should focus on cost plus pricing method where the cost of manufacturing and a marginal profit price is summed up, so that the company makes a considerable amount of profit. IKEA can distribute the products through franchising method to maintain service, quality and logistic standards (Hollensen & Banerjee, 2010, p. 403). As mentioned before, infrastructure costs and labour costs are relatively lower in China than western European countries as, the availability of labour is quite abundant and cost of producing raw materials is very cheap. This situation is almost similar to that of the other Asian countries where due to the lower per capita income, availability of raw materials and labour is in abundance. IKEA can easily make profitable gains in China and other Asian countries; so entering the Asian markets would seem as a profitable concept. The shipping costs would tend to be lower, if IKEA does not import raw materials from western countries and focus on manufacturing in China. This is because raw materials and labour easily available in China. The organizational structure has been very informal in IKEA right from the start, so it can focus on the “Functional Structure” concept where different set of tasks would be allocated to different employees. This would improve the efficiency among employees in China and enable an efficient and smooth supply chain network within China. IKEA has to cater to the local people of China by revamping the designs as per the taste and preference of the people in China keeping the preference for western influence in mind. References Ledderhos, M. (2003). IKEA - success and problems of a Swedish concept. Berlin: GRIN Verlag. Berger, A. (2011). Operations management: IKEA. Berlin: GRIN Verlag. Hollensen, S., & Banerjee, M. (2010). Global marketing (4th ed.). Noida: Pearson Education India. Porter, E.M. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: New York Press. Bord Bia Vantage. (2010). Developing a competitive strategy. Retrieved from http://www.bordbiavantage.ie/marketingbusiness/marketing/competitivestrategy/pages/developingacompetitivestrategy.aspx. World Savvy. (2013). Modern China: The promise and challenge of an emerging superpower. Retrieved from http://worldsavvy.org/monitor/index.php?option=com_content&view=article&id=113&Itemid=176. IKEA. (2012). About us. Retrieved from http://franchisor.ikea.com/about.html. Export Gov. (2013). China releases new catalogue on foreign investment in industry Retrieved from http://export.gov/china/doingbizinchina/eg_cn_027473.asp. Read More