Question 5:
Section I: Global Strategies of IKEA
IKEA’s global strategy is centered around cost-cutting and sustainability. Specifically, the company is known for offering affordable, stylish, and durable products (HBS, n.d.). To achieve this goal, IKEA ensures that it has production sites in the countries it operates (Alenezi et al., 2019). Having a production site in the country of operation significantly impacts aspects like manufacturing, transportation, and delivery. For example, until 2019, IKEA had a production site in the US that allowed it to use local and regional raw materials (Horowitz, 2019). The company justified this approach with the need to reduce costs linked to importation. Subsequently, they felt this would allow them to offer even more competitive products (Horowitz, 2019). Thus, having a production site in the country of operation is a global strategy that IKEA strives to capitalize on in most cases.
IKEA also uses standardization as another aspect of its global strategy. Primarily, it has standardized how it packages its products, designs showrooms, and manufacturing processes (Alenezi et al., 2019). For example, IKEA uses flat-packs to package its products, which saves on costs and also allows customers to easily transport the items they buy. Moreover, its products are relatively similar in all locations, meaning that customers know what to expect regardless of where they purchase their IKEA products (Alenezi et al., 2019). These strategies have helped IKEA maintain its dominance in the furniture sector.
One of the challenges faced by IKEA is criticism over sustainability. Notably, IKEA is a company that primarily focuses on wooden products. This means that it is highly reliant on trees. Consequently, some of its wood-sourcing practices have attracted criticism due to environmental concerns (Cain, 2022). Thus, IKEA is forced to ensure that its supply chain is sustainable to avoid harming the environment. Another challenge that IKEA faces is competition. While it might have an advantage having production in the country of operation, cheaper products from developing countries like China will likely put pressure on relatively expensive locally produced goods. Thus, IKEA might be forced to outsource some of its operations to developing countries to save on costs. This is also why IKEA closed its US factory in 2019 (Horowitz, 2019). Following its closure, it decided to source its wood from Europe, where it has received much criticism for uncontrolled logging.
Section II: Entry Patterns
One of the main approaches that IKEA uses to enter a new market is through wholly-owned subsidiaries. For example, in the US and Europe, IKEA operated its own stores (John and Kaitlyn LLC, 2022). This allows the company to control its branding and customer experience to avoid tarnishing its reputation for quality. However, IKEA faces several regulatory issues in some countries that make it almost impossible to establish a direct-owned store. In such cases, IKEA utilizes a franchise. For example, Al-Futtaim operates IKEA’s franchise in several Middle Eastern and North African countries, such as the UAE, Qatar, and Egypt (Al-Futtaim, 2021). This allows the company to have operations in these countries, albeit without total control. Finally, some countries demand joint ventures from global corporations to enable local companies to learn from them and grow. In China, IKEA operates as a joint venture with local businesses (Chu et al., 2013). Unlike a franchise, whereby entities pay royalties to use a company’s products and name, a joint venture requires IKEA to share costs and profits with its partners in China. These entry strategies have allowed IKEA to expand its global market and sustain its growth.
References
Alenezi, S., Al Mutairi, N., Alenezi, S., & Münzer, S. M. (2019). Analysis of IKEA’s internationalization strategy. Journal of The Community Development in Asia, 2(3), 16-28. https://doi.org/10.32535/jcda.v2i3.577
Al-Futtaim. (2021, March 12). IKEA. https://www.alfuttaim.com/retail/ikea/
Cain, Á. (2022, February 19). IKEA has come under fire over allegations it’s eating up ancient forests in Romania. Business Insider. https://www.businessinsider.com/ikea-romania-forests-deforestation-allegations-environment-report-2022-2
Chu, V., Girdhar, A., & Sood, R. (2013, December 6). How IKEA adapted its strategies to expand and become profitable in China. Business Today. https://www.businesstoday.in/magazine/lbs-case-study/story/how-ikea-adapted-its-strategies-to-expand-in-china-132642-2013-07-06
HBS. (n.d.). Making strategic trade-offs. Institute For Strategy And Competitiveness – Harvard Business School. https://www.isc.hbs.edu/strategy/creating-a-successful-strategy/Pages/making-strategic-trade-offs.aspx
Horowitz, J. (2019, July 16). IKEA is closing its only US factory and moving production to Europe | CNN business. CNN. https://edition.cnn.com/2019/07/16/business/ikea-us-factory-closing/index.html
John and Kaitlyn LLC. (2022, April 5). International strategy of IKEA. Global Marketing Professor. https://globalmarketingprofessor.com/international-strategy-of-ikea/
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