Success of IKEA on International Market - Essay Example

Introduction IKEA was launched by Ingvar Kamprad in Sweden in 1947m and introduced their first furniture catalogue in 1951. The organization opened their first showroom in Almhult, Sweden. IKEA has able to achieve the mark of world’s largest retailers of home furnishing. The success of the IKEA into international market is based on its violation of the traditional concepts; the company ignored the retailing rule ‘that international success involves tailoring product lines closely to national tastes and preferences’ (IKEA Website), and emerged as the world’s largest retailers of home furnishing. The company adopted the policy of its founder which desired a typically Swedish touch in the product, the company ‘emphasized its Swedish roots in its international advertising, even going as far to insist on a Swedish blue and while color scheme for its stores’ (IKEA Website). The company launched and expanded its operation without surveying the requirements and reaction of the public. Discussion Before 1994, the IKEA has less than 10 outlets, and only one of the outlet was located outside Scandinavia, the expansion of the company internationally, was responsible for the magnificent rose in its annul reserves. In 1994, the annual reserves of the company stood at $210 million, and had 125 outlets in 26 different countries; the company reported sales of $5 billion. According to the 1994 statistics, only 11% of its sales were generated in Sweden, 29.6% came from Germany, 42.5% from the rest of Western Europe, and 14.2% from North America. The inauguration was attributed with the launch of IKEA concept and its development, the organization expanded its operation and services in United States in 1987, and the organization is operating more than 13 outlets in the United Kingdom. In 2004 the IKEA reported total sales worth 12.8 billion euros, the United Kingdom had the second highest sales with 12% of worldwide turnover, equating to over £1 billion sterling (IKEA Website). The organization considers its catalogue of significance, the catalogue is our most important marketing channel (IKEA Website). According to the market survey, the IKEA catalogue is considered to be the major share leader of the retail direct marketing door-to-door distribution activity inside United Kingdom, the organization delivered more than 13 million catalogues. The company understands that, the catalogue is a vital brand builder for IKEA and the key driver for attracting customers to the stores (IKEA Website). The organization planned to increase and improve its return of investment after spending a major portion towards the catalogue distribution, the publication of the catalogue is considered to be substantial investment, and remain ahead of the competition in terms of business strategy (IKEA Website). The organization has tried to make it possible for each customer to have knowledge about the IKEA products, and this exercise has given edge to the IKEA over its competitors. The organization has struggled and plans to launch parallel projects to maximize its return on investment, and has further expanded its operation associated with the advertisement, and have also emphasized on the quality assurance, and has tried to maintain the quality and production figures in harmony. The organization has developed keys objectives for itself, and has emphasized over the identification of target consumer types and geographic areas for distribution of catalogue (IKEA Website), and identification of the types and areas with poor sales potential (IKEA Website), the company has further planned to increase its sales return to compensate for the catalogue expenditure, the company is also in the process of initiating a new business strategy. IKEA has launched plans for the introduction and expansion of its product in the international market; it has competed against the local companies, and has taken a bold initiative to overcome the international competitors with success. The Swedish based company has already planned to invest more than 1.5 billion Euros within the period of next seven years, and has committed itself for the launch of 21 new retail structures in the Italy. IKEA expected sales for 662 million Euro during the period of September, 2006 and February, 2007. The company reported a growth of 12 percent as compare to its net sales in the previous half. According to last year reports, the IKEA launched shops of Ancona and Bari, and has expanded its outlet in Corsico, near Milan, for a cost of around 100 million Euro also thanks to the important investment for the geo-exchange system implemented, exploiting ground temperature saving up 30% of costs for the retail structure (IKEA Website). The expansion of the IKEA has provided job opportunities to more than 1000 locals, at the present the company has a work force of more than 5500 employees in Italy. Italy is considered as an important supplier of goods sold in the IKEA units, it is the third worldwide behind China and Poland (IKEA Website), and its supplies are mainly related to kitchens, electric households and wardrobes. The Italian based companies including Natuzzi, Snaidero Elica, Calligaris e Bormioli represent more than 8 percent of the gross sales in the IKEA outlets. The business activities and expansion is based on IKEA firm understanding of offering consumers good value of money. The company has more than 2700 firms associated as global network of suppliers in more than 65 countries. The company has tried to endure good partnership and understanding with their respective suppliers through long-term contracts, technical advice, and leased equipment from the company, in exchange the IKEA expects reduced prices and successful contracts. The IKEA team of designers has developed an understanding and association with the external designers to generate savings into the products. According to the reports, the company has introduced more than 10,000 products in cheap out-of-town stores. The company has further reduced its prices, and has offered the customers with an opportunity to avail such low prices as well, the company offers furniture kits at highly minimal prices, however the customers have to assemble the kit themselves. It has been observed that, ‘the firm reaped huge economies of scale from the size of each store and the big production plan made possible by selling the same products all over the world’ (IKEA Website). The plan provided the IKEA with an opportunity to compete against its local and international rivals in terms of quality assurance and quality management, the company even after reduction of the prices by more than 3 percent, was able to achieve 7 percent after-tax return profits. However such an experience did not work out when the company expanded its services and operations in North America, the company launched more than six stores in North America during 1985-90, however the outlets were not profitable. The methodology which the company applied in its operation within Europe was flop. During 1990, the company experienced difficulty to continue its sales in North America, the situation was further worsened by the rising exchange rates, in 1985 $1 = 5.8 Swedish kronar, by 1990 the Swedish kronar rose to 8.6, therefore the products imported from the Sweden ‘did not look inexpensive to American consumer’(CNN News). It was observed that Americans expressed their displeasure over the narrowed sizes of the Swedish beds, and Americans also preferred unmatched bedroom suites. The IKEA offered all such unpopular and unwanted items to Americans. The IKEA offered the kitchen cupboards which were extremely narrow, and did not match the requirement of the Americans who used such cupboards for placing their larger dinner plates required for serving pizza. The glasses sold at IKEA outlets in North America were smaller; the Americans expressed their displeasure because the glasses were not large enough to hold ice cube. Such ignorance of the cultural and social behavior of Americans by the IKEA was responsible for its failure. Therefore the IKEA planned to introduce certain amendments into its design, and contradicted its previous scheme of adherence by the Swedish designs. The new designs for North America were infused with ‘American tastes and sometimes physiques’ (IKEA Website). The company later increased its local production from the North America from 15 percent in 1990 to 45 percent in 1994. Such an exercise was turned the company ‘less vulnerable towards the fluctuating exchange rates’ (CNN News). The change in policy and the approach of the company to address the concerns and offer the required level of satisfaction as per the expectations and requirements of the local population was the responsible for the phenomenal rise in the sales of IKEA inside North America, between the period of 1990 -94 when the company was in the transitional phase, the company reported the total sales of $480 million in United States, which was three times higher then the sales achieved in the previous year. In 1994 the number of outlets within the North America increased to 15, which was phenomenal growth. Current Activities and Plans In 2003 the IKEA launched its first outlet in Australia; the outlet is located in Melbourne. The company invested more than $100 million to establish its network in the Australia region. The investment by the IKEA was expected to create 300 jobs, and was further expected to gather the focus of more than 1.5 million people annually. IKEA has expanded its operation swiftly inside United Kingdom; recently the company developed an understanding with the Milton Keynes for the launch of its outlet in their location. The IKEA purchased the site for £26m from Inter MK. The latest statistics revealed that, the IKEA has more than 186 outlets in 31 countries, and Germany is considered to be its largest market, more than 20 percent of the sales operations are exercised and performed in Germany, followed by United Kingdom, United States, France and Sweden. References 1. IKEA Website i.e. http://www.ikea.com. Read More