How IKEA Became an International Business Firm

Approaches IKEA implemented over the years to become an international business firm. We also reflected on the various challenges this company had to face and overcome while trying to expand and succeed in the market globally. Our goal was to identify how IKEA differentiated itself from similar furniture companies and what methods were used to adapt its services and products to different cultures around the world. We examined information from IKEA’s official website as well as business articles and scholarly journals that looked into IKEA’s progress throughout the years to get a better understanding of how this business firm grew.

How IKEA Became an International Business Firm

Many companies try to expand their sales internationally but often do not succeed. IKEA was founded over 60 years ago in Southern Sweden. The multinational group that designs and sells ready-to-assemble furniture, has opened up more than 315 stores internationally becoming the world’s largest furniture retailer. IKEA has continued to expand successfully as a result of its strategies that are aimed to maximize customer satisfaction.

To continue to grow outside of the European borders, IKEA has been adapting its original strategies in response to challenges it has faced in different sections of its sales. The Swedish business firm was able to find the right balance between standardizing and adapting products when needed and continuously keeping its costs low to maintain a competitive advantage within the market. New stores tend to attract new customers from far away, and therefore widely believed to be more important for regional development than the average large retail establishment.

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History of IKEA

The founder of Ikea, Ingvar Kamprad was born in 1926 in Sweden in a town called Salad. At a young age, he was determined to have his own business someday and started working towards that dream with hard work and dedication. When he was only five years old, Ingvar showed his business instincts by starting to sell matches in his neighborhood. He was buying them in large amounts for cheap money and then reselling them, at a price that made him a profit. When Ingvar turned 17, his father gave him a small amount of money as a reward for doing well in school, which was used to start the IKEA business in 1943. At the beginning of his career, he was delivering his products using milk trucks until 1947 when he started selling furniture that was made by local manufacturers. He faced issues at a very early stage of his career when manufacturers started boycotting his company because of how low the prices for his furniture were. Due to this obstacle, he had to design the furniture for IKEA at his warehouse. One of his first and most memorable ideas came to life when he started with the ready-to-assemble furniture, later known as the flat-pack furniture. The intention was to offer furniture that was affordable and practical as IKEA’s mission was to provide modern furniture that its people can put together on their own. Ingvar passed down his role as a chairman to his son in 2013 and recently passed away in January 201. It was estimated that Kamprad was between the 1st and 11th on the list of the richest people in the world. Currently, IKEA has 315 stores in 27 different countries and is continuously growing across the world. To do so, it had to differentiate itself from competitors in the market and create a competitive advantage (Fredén, 2020).

IKEA’s Background and the Structure of Its Network

IKEA’s dedication to providing low-price products characterizes both its current strategy and its initial mission when the company was founded. The production costs and transportation leads the customers to expand their product sales. The start of its expansion started with several stores in Sweden and abroad in the 1960s, which allowed IKEA to be in the eye of its cheaper option competitors (Baraldi, 2008). The Swedish furniture retailers tried to strangle IKEA’S purchase sources by requiring that all Swedish producers stopped supplying IKEA. IKEA took a different approach to its supplier strategy and looked for suppliers abroad (Baraldi, 2008).

Why Ikea Succeeds Around The World While Other Retailers Falter

Many global US companies don’t succeed when they go internationally because they take their winning strategy in their local market and try to apply it to another country that has very different cultures. IKEA is one of the companies that have expanded worldwide, even though many other furniture retailers have failed. The furniture retailer industry is not easy. Many American American retailing companies have a track record when it comes to operating on an international scale. While IKEA has owned and operated stores located in only 24 countries, some of the other stores are franchised or owned by others, which does not diminish the accomplishment. IKEA has been using different combinations of factors some of which are more obvious than others.

Some companies like Walmart or Best Buy have been the United States example of failing because they have tried to expand internationally and have not succeeded. Even though Walmart and Best Buy are very successful companies in the United States and other countries, they have also failed in other regions as well. Walmart opened its first store in 1962 and is now with more than 10,900 stores in 27 countries and 2.2 million employees. Walmart’s expansion has some concerns that small businesses have been forced to close, reducing total retail employment with also positive effects. Also, Walmart tried to sell the American Dream in Germany but it didn’t end well (Daunfeldt et al., 2017). Best Buy also tried to sell complex electronic products to the Chinese market when the market there was still buying basic technologies such as CDs and DVDs.

Ikea’s managers figured out early on that if it was going to grow, it was going to happen outside its home borders. IKEA creates an environment where customers feel comfortable continuing their shopping while having the ability to choose from the variety of options that are offered to satisfy their needs. IKEA has many opportunities but a major opportunity that IKEA can use to its advantage is the fact that it covers the urban geographical areas. Its young, educated, and value-conscious customers are well suited to this strategy of the geographic and demographic trend. Their larger target and diverse customer groups have increased because of IKEA’s operating cost and how it could pressurize its operating profit (MarketLine Company Profile: Ikea Group, 2016).

The goals IKEA has promoted through their products and technical development are a way of showing their innovative and fashion-oriented firm. These tasks have required advanced skills in marketing, retailing, logistics, purchasing, product development, and technologies. IKEA has managed to have all of these fields under control because of its 550 business units in 50 countries that specialized in those fields (Baraldi, 2008). The different experiences IKEA has faced throughout its years they have developed a great responsibility and coordinating role for every single product for their customers.

Expansion Strategies and Challenges

Strategies

Low-Cost Strategy. From the very beginning, IKEA’s mission was to sell modern but simple furniture at a lower cost than competitors. This is known as the low-cost strategy, where companies intend to gain market share and stimulate demand by offering a cheaper option for their customers. Although the costs of IKEA’s furniture were lower, the quality did not suffer and remained at an acceptable level for customers to choose this store over others. According to the manager of IKEA Long Island, Mark McCaslin, IKEA looks at the cost of competitors and tries to cut it in half for their customers (Bloomberg, 2005). This strategy has proven to be very effective as it created a strong base of loyal customers.

Standardization. Another strategy that IKEA has used for a long time is standardizing products and stores. Those who have been in an IKEA and are familiar with the items this store offers, know that they are made to be nearly the same in every country. Along with this, IKEA even standardized the layout of their stores, which made it easier for long-time customers to find exactly what they need, whether they are visiting the store within their country or not. This strategy showed great success but eventually needed to be modified in certain countries (Dudovskiy, 2019).

Product Adaptability. IKEA is a great example of a company that managed to adapt its products when expanding in countries with different cultures. Customer needs, standards, and lifestyles vary, which is why IKEA has made different subtle changes tailored to accommodate them. China and Korea are two great examples of countries in which this Swedish furniture company expanded despite the initial challenges it faced due to the broad cultural differences. In China, IKEA created an entire section of furniture for balconies in their showrooms because market research showed that home balconies are very common in this country. They were used as extra storage space where residents can store their belongings, set up chairs, or dry their clothes due to limited space inside of their homes. When expanding in Korea, IKEA initially promoted a Super Single Sized Bed for the stores. In 2004, when the company was about to open to customers, market research showed that bedrooms in Korea were much smaller in size than those in America. This resort to designing a super single-sized bed that was bigger than a normal average single bed but would fit accordingly in Korean bedrooms.

Advertisement. IKEA is active on various social media websites such as Twitter, Instagram, Facebook, and Pinterest, which highly increases its presence in different parts of the world. These platforms are used to promote the company and share any updates on discounts, events, and giveaways (www.ETRetail.com, 2014). IKEA also uses social media to connect with customers and address any questions or concerns they may have regarding their products or services. Separate Instagram accounts are made for each country in which IKEA stores are located, which makes it easier to approach different cultures for customers. Currently, Facebook I the most active social media website this company uses, having over 28 million followers worldwide.

Challenges

Child labor. One of the most concerning challenges IKEA had to face was uncontrolled child labor mainly in countries that supply this company with woven products. This issue affected the reputation of IKEA and even caused a drop in sales in certain countries. In 2014, the IKEA Foundation acted on this matter and granted $9.2 million for protecting protect children who are at risk of becoming laborers in India. It also created a special code of conduct called The IKEA Way on Preventing Child Labour, which involves monitoring suppliers with unannounced visits to ensure that childrearen’tnt part of the working labor. If the guidelines are not followed, IKEA will terminate the business relationship with those suppliers (Candid, 2014).

Lack of Market Research in China. The second challenge IKEA had to address was the Chinese lack of knowledge regarding the cultures and needs of their customers in different countries of the world. This obstacle was addressed when IKEA was in the process of expanding. Initially, the company applied the strategies that were successful in Europe to the stores they opened in other countries, which showed to be unsuccessful. Prices that were considered to be low in Europe, were found to be expensive in China, which caused confusion amongst chiChinesenese customers and resulted in IKEA cutting costs by 60 percent (VChie C hu, Alka Girdha, millions, and Rajal Sood, 2013).

Safety Issues. A more recent issue IKEA faced was a lawsuit after one of the dressers purchased from this store killed a toddler in 2017. According to the Consumer Product Safety Commission (CPSC), the same furniture line involved in this tragedy was linked to at least eight other deaths. IKEA agreed to pay $46 million in the lawsuit conducted by the parents ofofrentsof while reaching $50 million in settlements with three other families whose children died due to this same furniture line. IKEA took action in response to these tragic events by issuing new safety protocols, which include safety tips for parents that are based on their children’s age. IKEA also announced that it would be offering a new series of dressers that will have better stability features called “Glesvar”(Smith, 2020).

Identifying and investing in overcoming these challenges contributed to the growth of IKEA and its expansion across the world. While errors can’t always be foreseen, the commitment to minimize them and the approach that is used can become an opportunity for the company to gain customers and market share.

Swot analysis

IKEA’S team has worked on the firm’s SWOT analysis which raises awareness of different all of the factors that are involved when making decisions regarding their approach to strategies and challenges. Therefore, IKEA has identified some of its strengths, weaknesses, opportunities, and threats, which will be of great use for its future development in the furniture industry having many competitors globally.

Strengths

Broad product portfolio catering to a diversified customer base. IKEA offers a broad assortment of products in the furniture industry having a variety of different furniture for all the different rooms of a household. Products for living rooms, bedrooms, kitchens, dining, and children’s room all include different appliances and furniture pieces. They also contribute to homes, offices, hospitality, and retail stores appliances having a different customer variety (MarketLine Company Profile: Ikea Group, 2016).

Multi-channel retailing enhance the customer base. The multi-channel retailing involves the integration of stores, catalogs mobile, and applications to satisfy the needs of customers. It also helps to maintain forcontrolcontrol of inventory in an easier way for the e-commerce site. The faster way of shopping online is recording the number of visits different and online sales that are offered in 32 languages to millions of households across the world. Having different methods that IKEA offers allows their customers to shop with a higher frequency to shop for their needs (MarketLine Company Profile: Ik gives Group, 2016).

Significant market presence enhances bargaining power. The availability of havinhavinghaving having home furnishing products at a low price is the main attention for customers. IKEA has low prices which allows them to have a strong market presence which dives gives them considerable bargaining power. It is also an advantage in terms of higher customer recall (MarketLine Company Profile: its Ikea Group, 2016).

Focus on sustainability creating goodwill and strengthening brand value. Since 1990, IKEA has continued to work on its sustainability by developiitsdevelopments eir first environmental policy. IKEA’s sustainability initiatives focus on having a range of sustainable products and operations (MarketLine Company  Profile: Ikea Group, 2016).

Weakness

Overdependence on Europe. IKEA derives the majority of its revenues from Europe, which makes them a priority for its customer target as well as other international regions. The high dependence on one region for the majority of its revenues increases its exposure to local economic and climate conditions such as labor strikes and chchangeschanges n government regulations (MarketLine Company Profile: Ikea Group, 2016).

Opportunity

Growing furniture and floor coverings market in Europe and US. Ikea offers a large range of furniture for living rooms, bedrooms households, kitchens, dining, and children’s room for househoofficesld, offices allow Ikea, stores, and hospitality, which allows them to promote various floor coverings. The Europe and US market is expected to grow at a moderate pace in the future (MarketLine Company Profile: allow Ikeahaving Group, 2016).

Increasing online sales. The different interactive methods and limitless content for the customers of IKEA, allow retail e-commerce to grow at a faster rate globally. The website of IKEA has had over 1.9 billion visits and millions of online sales, where customers can choose from a bigger variety of products, which overall enhances their shopping experience (MarketLine Company Profile: office Ikea  Group, 2016).