Global Strategic Management

IKEA: Analyzing industry

globalization potential; strategy
as revolution
 IKEA CASE SUMMARY

 To assess the globalization potential of an industry requires an

analysis of customers, costs, competitors, and government
(see globalization framework).
 IKEA transformed the industry from being local to
regional/global by overcoming the cost barriers to
globalization. Previous barriers included:
– a) high cost to transport a bulky product, and
– b) costs of damage during transport.
 By using knock-down kits (which allowed for volume
production) and including the customer in the value chain
(e.g., to transport the product, and replace assembly labor in
the plant) IKEA created cost advantages over local
competitors.

Professor Jeff Dyer

 IKEA CASE SUMMARY

REMEMBER THAT:

 IKEA’s strategy was successful because customers in

different countries were willing to buy similar
designs/products.
 IKEA encounters greater difficulties in markets (e.g., the
U.S.) where customers have more differentiated needs (for
customized products and services) and where standards are
different.

Professor Jeff Dyer

 Assessing Industry Globalization Potential
Customer
Drivers
• Common customer needs
• Global customers
• Location of strategic resources • Global channels
• Differences in country costs • Transferable marketing know-how
• Potential for economies of and global brands
scale, innovation, flexibility
• Cost of shipping (value/bulk)

Cost Industry Government

globalization
Drivers Drivers
potential
• Trade policies
• Technical standards
• Regulations
• Global competitors
• Competitors leveraging
global position (i.e. cross
subsidizing).
Competitive
Drivers
Professor Jeff Dyer
 DEFINITION OF A GLOBAL
INDUSTRY

An industry in which firms must compete in

virtually all world markets where the
product/service is used in order to be
successful and/or survive. In such an
industry, a firm’s competitive position is
significantly affected by its competitive
position in other national markets (due to
scale benefits or sharing of resources
across markets).

Professor Jeff Dyer

 General Globalization Forces
CUSTOMER/MARKET DRIVERS

 Per capita income convergence among industrialized

nations
 Convergence of lifestyles and tastes
 Increasing travel creating global consumers
 Organizations beginning to behave as global customers
 Growth of global and regional distribution channels
 Establishment of world brands
 Push to develop global advertising

Professor Jeff Dyer

 General Globalization Forces
COST DRIVERS

 Continuing push for economies of scale (but offset by

flexible manufacturing)
 Accelerating technological innovation
 Increasing cost of product development and technology
relative to market life
 Decreasing communication and transportation costs
 Emergence of newly industrializing countries with productive
capability and low labor costs

Professor Jeff Dyer

 General Globalization Forces

GOVERNMENT DRIVERS
 Reduction of tariff barriers

 Reduction of non-tariff barriers

 Creation of new trading blocs

 Decline in the role of governments as producers and

consumers

 Adoption of global standards

 Liberalization of labor laws

Professor Jeff Dyer
 Factors Inhibiting Globalization
1. Heavy transportation or storage costs (i.e low value to bulk
products).

2. A lack of economies of scale (flat experience curve slope).

3. Strong, established local distribution channels and sales

organizations.

4. A complex, segmented local market in which customers

demand very different products (more suitable for a local
firm more intimately embedded in it).

5. High cost/difficulty in providing intensive local customer

systems, service, or other needed customer interaction.

6. Government barriers (i.e. tariffs).

Professor Jeff Dyer