Culture of Ikea Essay Example

as a boy. At the young age of 17, Ingvar registered the IKEA name in 1943. In the 50s, IKEA started to sell furniture at factory prices by mail order. This was met with firm resistance and boycotts from the established furniture trade, and IKEA was even banned from the huge national furniture trade show in Stockholm.

The other established furniture retailers threatened to withdraw their business from suppliers who also supplied IKEA. Undeterred, IKEA sourced for alternative suppliers outside Sweden, and IKEA's designer furniture at factory prices continued to pull in the customers.The Smaland spirit of thriving under hardship, and turning problems into opportunities kept IKEA alive and set the foundation of IKEA's development. Today, IKEA has found its own niche: beautiful and durable furniture at prices so low that the majority of people can afford them. Not just in Sweden, but in Germany, Poland, UK, US, Singapore, Australia, China, Israel, Russia, Malaysia, and the rest of the world.

The Ikea Business Idea

"We shall offer a wide range of well designed, functional Home Furnishing products at prices so low that as many people as possible will be able to afford them. Here in IKEA Malaysia, we have systematically reduced our prices every year so that we will always be on the side of the customer. This has been made possible mainly because we use the full strength of the IKEA concept and the IKEA organization to purchase in large numbers, using the best supply chain methods to keep prices low. In the store, we request that you, the customer, do your part to shop on your own, and together, we save.

Ikea’s Modes Of Entry The Internationalization

Of Ikea

IKEA has applied a conservative policy to internationalization. As a general rule, the firm never enters a new potential market by opening a retail outlet.

Instead, a supplier link with the host nation is established. This is a strategic risk reducing approach in which local suppliers can provide valuable input on political and legal, cultural, financial and other issues which provides for opportunities and/or threats to the IKEA Concept. IKEA has concentrated its international expansion in Europe and in North America mainly through company-owned subsidiaries. Franchising, on the other hand, has been extensively utilized in expanding to other areas of the world.

Expansion By Fully Owned Subsidiaries

IKEA establishes subsidiaries in stable markets which are identical to the Scandinavian market.

These subsidiaries are set-up by an expansion team from the central expansion group located in Sweden. This group is responsible for store location and layout, training, logistics and marketing. All capital requirements are sourced from the headquarters. The primary purpose of the expansion group is to ensure standardization, operational control and provide a smooth entry into to a new market. When everything is properly set-up and functioning, the local operational team will take over the responsibility for running the store. The expansion team, on the other hand, will move on towards new expansion projects.

Expansion By Franchising

IKEA approaches unknown, relatively small, and high risk markets by franchising. The expansion group is active in this field as well, as it provides the same pre-opening activities as in opening firm-owned subsidiaries. Franchisees have to carry basic items, but have the freedom to design the rest of the product mix to fit local market needs. The basic core items amounts approximately 12,000,

simple and functional products.

The centralized head office is actively involved in the selection processes and provides advice. In addition, all products have to be purchased from IKEA's product lines.In order to maintain service, quality and logistic standards, individual franchisees are periodically audited and compared to overall corporate performance. Extensive training and operational support is provided from the headquarters. All franchisees pay franchise fees to IKEA holdings. All catalogues and promotional advertising is the responsibility of the headquarters.

Franchising has been used as a vehicle to the company's generic focus strategy.

Supporting Organizational Structure

The present organizational structure can be defined as highly functional with a global market strategy.In such a structure, Ikea is able to maintain centralized control over functional activities and at the same time take advantage of low cost and enhanced quality from international suppliers. In addition, control over strategic direction is enhanced and functional redundancies are minimized. In order to ensure efficiency in the logistics process, the organization has integrated purchasing and distribution processes under one umbrella function referred to as "Wholesale".

Balance Of Autonomy And Strategic Direction

• As IKEA continues to expand overseas, the significance of centralized strategic direction will increase.
• Naturally, rapid internationalization will trigger a range of challenges imposed on the headquarters in Sweden: Such challenges include:
• The complexity of the logistics system will increase.
• It will be more difficult to respond to national needs and cultural sensitivity issues.
• Franchisees may demand more control over operations.
• Emerging demographic trends will force the organization to broaden its focus strategy to respond to varying nation-level consumer groups.

With all these challenges emerging, it will be very difficult to maintain a global organizational structure.The best approach to

meet these challenges is to find the proper balance between country level autonomy and centralized intervention. Likewise, intensifying and responding to local rivalry (such as Freedom in Australia) requires increased subsidiary/franchisee autonomy. With reference to IKEA's long-term relationship and control over its suppliers in exchange for quality assurance, technology transfers and economies of scale factors may trigger potential suppliers to integrate forward and produce competitive products for IKEA's local competitors.

With logistics complications and long lead times, IKEA is forced to maintain high control levels over its suppliers. For instance, if the supplier responsible for the screws component to a table cannot deliver on time, the supplier of the table-top has to adapt its production to the new scenario. Without IKEA's centralized logistics system, this example could lead to severe store shortages, leading to losses in sales.

Recommendations

IKEA is a very successful multinational corporation, which indicates that earlier discussed focused generic, or long-term strategy of cost leadership and product differentiation has served it well.

The IKEA concept is unique and over twenty years of international operations have not triggered any direct international rivalry. The recommendations in this section are designed as to explore possible avenues of further developing IKEA's competitive base and prepare the firm for possible demographic shifts that may reduce the size of its target market segment.

Explore Joint Ventures And Strategic Alliances

IKEA has not yet explored joint venture and strategic alliances strategies. Furthermore, strategic networking links only exists between suppliers and retail outlets, with the headquarters as a centralized mobilizing agent.The current centralized system suppresses creativity and freedom on the individual store level.

A joint venture approach could replace IKEA's franchising concept and increase cultural sensitivity and

operational controls through the establishment of strategic networks. Such alliances could also increase market coverage, without IKEA losing its focused strategic intent on one particular market segment. Kenichi Ohmae explores this concept in his strategic three C's triangle consisting of the Corporation, Customers and Competitors.By finding an appropriate partner, IKEA can further expand into other market segments in which the competitor has established it well. In return, IKEA, on the other hand could provide the partner with the access to reliable suppliers. In particular, IKEA's insensitivity to individual market needs represents another obstacle to increasing market share.

It is highly questionable whether the current centralized design and research development department is able to understand global customer needs and satisfy all of them better than the local competition.For instance, Scandinavian customers like furniture in light pastel colors. Americans, on the other hand, prefer darker and more classic designs. Presently, IKEA ignores this issue and pushes its Scandinavian designed furniture into the American market. Opposite to this, local joint venture partners could develop products within their core-competencies for the local market, and thus, more effectively respond to customer needs. Also, successful, products developed in North America, produced with parts from all over the world, could be marketed in the Europe.

IKEA is presently attempting to be the best designer in all fields simultaneously, is reluctant to import new designs from overseas, and is successfully pushing Scandinavian concepts overseas without adoption to local preferences. Joint venture design and product development partners would perhaps ensure continuous success, especially if industry rivalry intensifies.

Explore A New Organizational Structure

A new organizational structure will be necessary as a result of moving the organization from a

global towards a transnational perspective.Whereas the global organization is designed as to increase production efficiencies using global economies of scale and scope concepts, the transnational organization combines efficiency, local responsiveness and organizational learning.

In order to facilitate the transition process towards such an organization, IKEA has to radically change its mindset on the role of its subsidiaries. Currently, IKEA's subsidiaries are hardly not more than extensions of the corporate head office in Sweden. The role of the subsidiaries is not to influence parent company strategies, but rather follow instruction provided from Sweden.High localization pressures emerging due to demographic and cultural differences will force subsidiaries to take strategic initiatives to respond to local market needs. The new organization would be flatter and delegate more responsibility to subsidiaries.

The centralized Research and development department would have form internal strategic networks with these subsidiaries and, in a collaborative manner, develop products which are adopted to match country level needs. Corporate strategic direction has to be maintained, since IKEA has to preserve its market niche.The changes proposed in the organizational structure will have possible impacts on the corporate culture, which is presently built on the IKEA Spirit. Less control from Sweden will trigger the influx of new ideals, values, and procedures into the IKEA system.

This will increase the complexity of the operational culture, but will enhance decision making based on a true international dimension. Today, IKEA limits itself to knowledge and values developed in Scandinavia rather than attempt to understand and incorporate international thoughts and dimensions.

Conclusion

Together with innovative changes in the value chain, where consumers become Pro-sumers and suppliers are turned into consumers, the concept of marketing high quality products at

low cost through a focused generic strategy, intended for the globally emerging middle-class has served IKEA well. Centralized control and product standardization are two necessary components of the firm's long-term strategy. In addition, the company has facilitated its international expansion through owned subsidiaries and franchises.

Future localization pressures will force IKEA to change its global strategy in order to become more sensitive to local demands. Greater emphasis on joint ventures and strategic alliances represent possible vehicles to further build on IKEA's focus strategy. A new transnational oriented organizational structure would further provide the necessary infrastructure needed to support such vehicles towards true internationalization. This in turn, would impact on the present homogenous Scandinavian culture and introduce new values, ideas and, perhaps, broaden IKEA's core competencies.