Assignment

Corporate Leadership & Social Responsibilities

Submitted To
DR SHAZIA REHMAN
Submitted By
Ambreen Akram (01-1221202-027)
Irtiza Ahsan (01-1221202-034)

Bahria University Islamabad

 IKEA CASE STUDY

Introduction

IKEA is an international company since 1970s. In 2019, it became the fastest growing furnishing
retailing company and has achieved £41.3 billion total sale. Temperately it already has more than
361 stores spreading 50 countries in Europe, North America, Asia and Australia. The giant IKEA
group nowadays was started by a 17 years old Ingvar Kamprad in Sweden in 1943, and he used
cost-cutting solutions that did not affect the quality of products to achieve success. Strictly follow
their company vision of a better everyday life for the many people, IKEA offer a wide range of
well designed, functional home furnishing products with prices so low allowing as many people
as possible to afford them. By lowing prices, improving stores, opening more stores and providing
new services, IKEA make it easier for customers to buy at their stores.

IKEA as a leader in the industry of home furnishing retailer, has its mature and unique market
strategies to stand out from other competitors. However, due to its internationalized background,
more specific markets like China are to be developed, with a different market background and
cultural context compare with European countries where IKEA flourished. The differences of
markets and customers allow IKEA to adjust strategies to match new market and change according
to new situations.

IKEA’s Main Strategies

IKEA offers a wide range of well-designed, functional home furnishing products at prices so low
that its possible for many people to afford them.

From this business mission it is easy to understand IKEA marketing strategy. The first is the
standardized approach of IKEA. By working in almost the same way in every market, IKEA create
its operational advantage and make the cost as low as possible. Moreover, the same IKEA image
 can be recognized by the world. By offering lower price products with higher quality products
compared with its competitors, IKEA hope to reach as many as possible customers around the
globe. So, cost leadership strategy and international strategy are their key drivers for future
development.

IKEA stores include restaurants and cafés serving typical Swedish food. They also have small
food shops selling Swedish groceries, everything from the famous meatballs to jam. Stores are
located worldwide. In August 2008 the IKEA group had 253 stores in 24 countries, with a further
32 stores owned and run by franchisees. It welcomed a total of 565 million visitors to the stores
during the year and a further 450 million visits were made to the IKEA website. IKEA sales
reached 21.2 billion Euros in 2008 showing an increase of 7%. The biggest sales countries are
Germany, USA, France, UK and Sweden. In 2008 IKEA opened 21 new stores in 11 countries and
expects to open around 20 more in 2009 as part of its strategy for growth.

The company pursued a cost leadership business since IKEA was founded in 1943. IKEA not only
cut the cost through a secret network of suppliers to obtain wood and fabric, it also allows their
customer to feel and experience their furniture. Kamprad knew how to turn difficulties into
advantages in the time when it is hard to get a supplier. He restructured the supply chain into
Poland which can give them the competitive advantage of lowering the cost of production, and
even now Poland is still manufacture for IKEA. To get more market share and allow more people
to know IKEA and become its customers, IKEA spread its business throughout the world.
However, as a standardized international company, their goal of providing good quality product
with low cost is not easy when it first entered a new market like China. So, the IKEA ideas needed
to adjust to new market and culture context by using international strategies. In this part, the two
main strategies of both cost leadership and international strategies will be described.

Description of IKEA’s Cost leadership strategy

“Cost leadership strategy involves becoming the lower-cost organization in a domain of activity.”
Cost leadership is an element from Porter’s Generic Competitive Strategies. Porter argues that
three means can help companies to achieve competitive advantage. They are having a lower cost
from their competitors, providing products and services which are exceptionally valuable for
customers even if the prices are high and focusing on narrow customer segments. To make it
 clearer, generic strategies can be catalogued into cost-leadership, differentiation strategy and focus
strategy.

Most manufacturers design a product, and then try to figure out how to make it for a target price.
For IKEA, the price comes first. The cost leadership approach can be achieved through many
aspects for IKEA, including their cost control from design to manufacture; change the traditional
role of customers; their flat pack strategy; their selling environment.

IKEA has its designers and engineers design low-cost, modular furniture ready for assembly for
customers, not the same with some other furnishing companies relying on primarily on third party
manufactures. The most important element they choose supplier is about cost and IKEA work
closely with the suppliers so that they can work efficiently to get high profit.

One of the key concepts which require the customers to play a role contribute to the low price is
that, customers need to pick up the items they choose all by themselves in the store, carry them to
their cars and take them home instead of free home delivery. The customers first has to enter their
showroom and then take the goods they choose which are unassembled (flat-pack) to the shopping
cart and finally to the cashier. Their customers are fully involved in the shopping experience which
contributes to the low price they pay.

The flat pack furniture is also a contributor to its cost leadership strategy. The concept of ready- to-
assemble furniture was first mentioned in 1953, by Grills Lundgren, one of IKEA‟s first employees.
At that time the insurance company were complaining that there were many cases of furniture
damage when being shipped to customers. So, selling unassembled furniture was utilized to reduce
the percentages of damage and also save more space when shipping. The task customer take both
create value for IKEA and reduce the price of their furniture.

IKEA follows a standardized layout around the globe which is a large blue “box” locate itself at the
outskirt of cities for a lower cost and close to highways. There would be some differences among
countries and some stores locate in the city such as the first IKEA store in Shanghai. Instead of
dividing the showroom into different catalogues, IKEA placed every item together with no
separation. IKEA also designed in a similar layout to allow all the visitors to find what they like.
After they go through the whole layout, the customers would pick up their items and move forwards
to cashier. This shopping environment fully reduces the cost, meanwhile create more potential
customers.

This low-price strategy is coupled with a wide range of well designed, functional products. IKEA's
products cater for every lifestyle and life stage of its customers, who come from all age groups and
types of households. This is vital in times when the retail sector is depressed, as it increases IKEA's
potential market.

IKEA’s International Strategy

IKEA is a multinational enterprise that focuses heavily on being international to get profit
worldwide using home-based products or services. IKEA has grown from a small private-owned
Swedish furniture retailer to a leading multinational enterprise selling thousands of their products
to more than 300 stores around the globe. Their innovative way of self-service by customers and
establishment of key suppliers producing their self-designed furniture win great profit from the
world. IKEA stand first still in Swedish market providing customers with high quality, low prices
furniture. Then it started its internationalization plan: they stretched their business to Switzerland,
Germany. After the establishment of their European business, IKEA began to reach United States
in 1985 and at the same time develop further in European countries such as the UK in 1987.The
first store was opened in Shanghai in 1998. As the process of their global strategy, home based
Swedish style furnishing products are have to differentiate for pursuing an internationally
recognized brand.

Sustainability Concerns

Demands of consumers are changing. There is a growing demand for greener products, a growing
demand for low priced products and trends in the current financial climate may result in consumers
trading down from more expensive stores. Along with this, there is a demand for reduced water
usage and lower carbon footprints.
Since it was founded IKEA has always had concern for people and the environment. The IKEA
vision 'to create a better everyday life for the many people' puts this concern at the heart of the
business. IKEA has responded to the public's rising concern for sustainability in its choice of
product range, suppliers, stores and communication. It has also spotted business potential in
providing sustainable solutions. IKEA's concern for people and the environment encourages it to
make better use of both raw materials and energy. This keeps costs down and helps the company
to reach its green targets and have an overall positive impact on the environment. One particular
table, the NORDEN table, uses knotty birch wood. The knots in this wood usually mean it is
rejected by other retailers and manufacturers as unsuitable for use. However, IKEA has made the
knots part of its design feature. OGLA chairs are made using wood waste from saw mills and
LACK tables use a 'sandwich' of stiff card between wood sheets to reduce the amount of solid
wood needed.
The other strategic initiatives involve increasing use of renewable materials, which improved its
overall use from 71% in 2007 to 75% in 2009. By 'Smarter' use of raw materials, IKEA increased
the use of recycled or reclaimed waste products in energy production across all stores from 84%
in 2007 to 90% in 2009. Not only that, through volume commitments, IKEA believes in creating
long-term partnerships with its suppliers in order to achieve this. By committing to buying large
volumes over a number of years IKEA can negotiate lower prices. This also benefits the suppliers
because they enjoy the greater security of having guaranteed orders. Adding to economies of scale
for instance, bulk buying at cheaper unit costs. In addition, it also sources materials close to the
supply chain to reduce transport costs, and delivering products directly from the supplier to IKEA
stores. This slashes handling costs, reduces road miles and lowers the carbon footprint.

IKEA has a number of areas of focus to its work with sustainability, each of which it supports in
various ways. For example; IKEA gives online tips and ideas for solutions for a sustainable life at
home. For sustainable use of resources, IKEA aims for zero waste to landfill, wastewater treatment
and programmes to reduce its use of water. It also aims to reduce energy use, reducing carbon
footprint, use more renewable energy, cut its use of air transport and reduce packaging. Its green
transport initiative includes an aim to reduce business flights by 20% in 2010 and 60% by 2015.
To develop social responsibility, IKEA's policy includes support for charities such as the World
Wildlife Fund, UNICEF and Save the Children. At the same time, it wants to be open with all its
stakeholders. This involves building trust through good communication with consumers, co-
workers, key opinion formers and the press. Being sustainable is a central part of IKEA's image.

Problematic Issues

IKEA has to acknowledge its weaknesses in order to improve and manage them. This can play a
key role in helping it to set objectives and develop new strategies. IKEA's weaknesses may include;
the size and scale of its global business. This could make it hard to control standards and quality.
Some countries where IKEA products are made do not implement the legislation to control
working conditions. This could represent a weak link in IKEA's supply chain, affecting consumer
views of IKEA's products. The IWAY code is backed up by training and inspectors visiting
factories to make sure that suppliers meet its requirements. Second, the need for low cost products.
This needs to be balanced against producing good quality. Lastly, IKEA needs to keep good
communication with its consumers and other stakeholders about its environmental activities. The
scale of the business makes this a difficult task. IKEA produces publications in print and online
(for example 'People and the Environment') and carries out major TV and radio campaigns to
enable the business to communicate with different target audiences.

The Entry Modes of IKEA in China

IKEA first entered China market using joint-venture (Beijing Northern Sweden Limited Company)
for many reasons. Different from European markets where suppliers and markets are identical,
China has a totally different market with the aspects of legal, cultural, financial and other issues.
To minimize the risks, IKEA have to use this as an entry mode. The first store was opened in
Shanghai with a local partner by renting land from the Chinese government. After this, IKEA
began to open its “real” store in China.

Question: Please develop SWOT analysis of IKEA and formulate strategies based on the
combinations of strengths, weaknesses, opportunities and threats.
SWOT Matrix of IKEA (5 marks)

Strengths

1. IKEA use cost-cutting solutions that everybody can afford easily whit higher quality of
products

2. IKEA strong brand reputation and market presence attracts the customers and strongly focus
on sustainability

3. IKEA has strong supply chain network that help them to grow sales rapidly such as KPI
evaluate IKEA’s objectives and the IWAY code that ensure suppliers meet its requirements.
IKEA also buy in bulk with direct delivery due to long term and strong partnership with
supplier in low cost.

4. IKEA increased the use of recycled or reclaimed waste products in energy production across
all stores from 84% in 2007 to 90% in 2009 this help them to gain the attraction of customers
worldwide.

5. IKEA products are self-designed and functional with diversified portfolio win great profit from
world and due to innovative way of self-service by customers , IKEA stand first still in Swedish
market providing customers with high quality, low prices furniture

Weakness

1. IKEA's weaknesses may include; the size and scale of its global business. This could make it
hard to control standards and quality. This could represent a weak link in IKEA's supply chain,
affecting consumer views of IKEA's products. Some countries where IKEA products are made
do not implement the legislation to control working conditions therefore the sales density
decreases.

2. The need for low cost products. Low cost needs to be balanced against producing good quality.

3. IKEA needs to keep good communication with its consumers and other stakeholders about its
environmental activities as scale of business complicates thus task.

4. At that time the insurance company were complaining that there were many cases of furniture
damage when being shipped to customers
 5. Instead of dividing the showroom into different catalogues, IKEA placed every item together
with no separation that is problematic and time consuming for customers as they go through
the whole layout to find their product

Opportunity

1. New trends in the consumer behavior can open up new market for the IKEA. It provides a great
opportunity for the organization to build new revenue streams and diversify into new product
categories too.

2. IKEA aims for zero waste to landfill, wastewater treatment and programed to reduce its use of
water. It also aims to reduce energy use, reducing carbon footprint, use more renewable energy,
cut its use of air transport and reduce packaging. IKEA green drive also opens an opportunity
for procurement of IKEA products.
3. IKEA's policy includes support for charities such as the World Wildlife Fund, UNICEF and
Save the Children. At the same time, it wants to be open with all its stakeholders. This
involves building trust through good communication with consumers, co-workers, key
opinion formers and the press. Being sustainable is a central part of IKEA's image.

4. Emerging markets are also an opportunity for IKEA to make a position and capture potential
customers such as growing online stores ,customers mostly shift to borrow from online stores
and also expand their business that can ultimately lead in competitive advantage

Threat

1. More competitors entering low price household and furnishing market

2. IKEA used standardized approach by working in almost the same way in every market, this
can be a threat in international market as every country has their own culture and if IKEA wants
to spread their business successfully then IKEA has to use customized approach accordance
with every county culture and their needs

3. Rising raw material can pose a threat to the IKEA profitability.

4. Customers’ needs and preferences changes rapidly is another threat for IKEA, as generating
new ideas by competitors to fulfill needs and preferences of customers can be threat

5. Economic recession and global financial crisis also threat for IKEA
SO Strategies

1. IKEA can used its brand image to capture new market

2. IKEA has advanced technology and high skills that can help to increase in production of
recycled products and with use of renewable resources IKEA can achieve big market globally
as today world moving toward sustainability purpose and IKEA also cooperate with the aim to
reduce energy and zero waste.

3. The new trend in customer behaviors changes as they want high quality with low prices in
today’s times so IKEA cost leadership strength and high quality can help to achieve its success.

ST Strategies

1. IKEA biggest threat is their competitors entering low prices that can be overcome to strength
of IKEA by providing unique qualities through better use of technology and expertise, this also
keep barriers high for small business.

2. The strong supply chain can help by providing in bulk in low prices, due this IKEA can keep
their product prices low as well with maintain high quality in economic recessions also.

3. IKEA online stores provide customer support for sustainability and reduce impact on
environment as well it help to now about the taste and preferences of customers. Furthermore
with the threat of slowdown buying process in market can also fill the gap by making strong
relation online

WO Strategies

1. The shift in needs and preference in sustainability gains new stakeholders for business and it
will to balance the low cost and maintain good network communication.

2. IKEA increase in expansion of online stores minimize the weakness of legislations

implementation.

WT Strategies

1. Conduct strong R&D and build the dynamic structure that are flexible and able to create
customize products and maintain good communication with stakeholders at broader
level/global environment

2. Focusing on customer ease and their preferences along with country context and produce that
product products are not harmful for customers and environment