Strategic International Business And Competitive Strategy Of IKEA

Question: Discuss about the Competitive Strategy Practices of IKEA. Answer: Introduction: This paper is mainly relying on examination of the theoretical concepts related to international business as well as various competitive strategies and on the basis of observing the best practices of the industry on international competitive strategy it will be suggested which strategy would be best for IKEA , so deductive approach would be the best one for this study. The deductive approach is mainly based on testing the processes that start with a generalised concept or an established theory (Hyde, 2000) . In this case also the study will use deductive method as a theoretical framework will be used for collecting the relevant data so that an accurate analysis as well as conclusion can be drawn. Since qualitative approach is mainly created on the basis of comprehending or exploration of the meaning that the individuals or the groups can easily contribute towards any social issue and this research also covers a diverse range of questions , while focussing on the individual meanings (Creswell, 2014) . This paper will be using qualitative research approach because the subject that has been chosen for study is quite critical thus needs in depth investigation. Quantitative research approach has been eliminated because the main focus of the study is to collect relevant data in relation to international business as well as competitive strategies adopted by organizations to be successful in international markets. After the consideration of various research designs, descriptive research design has been chosen for this study because it will be based on finding that which would be the best practices for the industry in relation to international competitive strategy. Descriptive design for research has been chosen because it is common in relation to various business aspects and mainly aims at describing varied groups of entities or people (Bryman Bell, 2003) . Causal research design has been discarded because this kind of model is mainly used for finding out whether one variable is capable of determining the value of another variables or not (Ghauri Grnhaug, 2005). This research study will rely on just the secondary data as Case Study of IKEA will be done on the basis of previous data and studies that have been conducted on IKEA and what international market strategies has it adopted in past. The information will be collected from the past researches that have been complied as journal articles, annual reports of IKEA; this will help in gaining much holistic view about IKEA. Secondary data will be used because to will save both cost and time and will also provide an opportunity for longitudinal analysis as well (Bryman Bell, 2011 ; Krishnaswamy Satyaprasad, 2010). Case Study has been used as research strategy for this study because this will help the researcher to develop an in-depth analysis of the case and moreover in case study the data collected is mainly processed within a continuous timeframe (Hultman et al. , 2008 ; Creswell, 2014) . Case studies are moreover used mainly in the cases where a complex social phenomenon needs to be understood and it is very effective in showing the significant as well as holistic features of the real life matters (Yin, 2009). Case Organization Description IKEA is one of worlds well known furnishing companies that hold reputation for selling Scandinavian style furniture as well as other home based goods. Currently the company has worldwide 230 stores and the company is operation across the globe in 42 nations with more than 70,000 employees. The capacity of store itself is to host 410 shoppers in a year. The Swedish based organization has been built on the basis of the idea to offer a wide range of functional , and well designed home furnishing products at much lower rates , so that majority of the people can easily afford them. The INGKA Foundation currently solely owns the IKEA Group with the help of a holding company. Background of IKEA The company called IKEA was being founded by Ingvar Kamprad who was a Swedish native, at young age of 17 years in 1943 when he was being rewarded by father in the form of money for doing well in studies. He used this money for a start-up which initially sold basic items like pens, wallets, jewellery at much lower price (IKEA, 2012). In 1948 furniture was also included in its product range and since he got quite positive response, the product line was expanded. Customers were also allowed to view as well as touch the various range of furniture that was just viewable through catalogue. To gain competitive advantage IKEA also opened a showroom and later on flat packs and self-assembly concepts were introduced. In 1963 it opened a store in Norway and since then IKEA has been expanding to various countries like Switzerland, Germany, Denmark, Canada, Netherlands, Australia and Austria. Then 1980 onwards with its new concepts it started expanding further to new markets through franchising. And a new ownership structure was developed in the organization. Context of IKEA The vision of IKEA as an organization is to: Create a better everyday life for many people (IKEA, 2012). The entire business of IKEA strongly supports this vision by both manufacturing as well as selling wide range of home furnishing products that too at much affordable price. Current Strategic International Business and Competitive Strategy of IKEA In a comparative study regarding standardised marketing strategies internationally in retail sector when the international strategies of IKEA were compared in three entirely different markets , China, Sweden and The United States , it was found it adopts standardization approach worldwide with very minimal amount of adaptations that too depending upon the prevailing local cultural values (Burt et al. , 2011) . Therefore as per IKEAs standardised approach for doing business overseas, it suggests that following a standardized approach really works well for the big retailers, although there are quite notable cultural differences. IKEA is quite often used and quoted as an example for the successful centralized organization that implements standardisation strategy. It is a global retailer also that adopts the similar kind of approach in each and every market wherever it operates (Maktoba Porter, 2011) . Standardisation has been considered as the strength of the company and due to global sourcing decisions and selling modern furniture it has been able to reduce the price of its products by at least forty percent (Edvardsson Enquist, 2012). As per Porters Five Generic Competitive Strategies , IKEA has focussed on minimising the production cost and being a modern furniture manufacturing company it has created low cost efficient supply chains with the help of outsourcing. It has approximately 1400 suppliers that have manufactured various products for the organization that too at very low and affordable price, thus decreasing the cost of production. That is why IKEA is capable of providing highly unique as well as quality products, that too at much reasonable cost to the target demographics thus delivering competitive advantage to the firm(Chung, 2008) . To gain competitive advantage it has also adopted transnational strategy as well, where IKEA has created extraordinary tactics for every different nation. For example in case of Chinese markets it has developed compact stores as there are several locations that needs to be accessed and just for the stores in China balcony facilities along with other different layouts have been introduced (Nachum, 2012) . For home delivery services they have added rare-car ownership facility in its list of Chinese counterparts and by adopting transnational strategy IKAE has been able to get attention of customers towards its stores. Teams Perception of IKEAs International Business and Competitive Strategy Challenges and Opportunities As per the teams perception the goal of sustainability as well as environmental design will be the main points to be focussed in its business strategy .SWOT analysis acts as a strategic tool to achieve its objectives in case of IKEA. Any business can counter the threats by capitalising on its strengths and thus create opportunities for itself (Mintel Oxygen, 2010). Like in case of IKEA its major strength is its strategic objective of using not more martial than needed in the manufacturing of each and every item and it also creates its product plans so that it can use more of recycled or waste materials in its products. Strengths: It is a strong global brand that is capable of attracting major consumer groups while promising as well as delivering similar range and quality all across the globe. Focuses on a democratic design that helps in creating a balance between design, price, functionality as well as quality. Cost Consciousness feature of IKEA indicates that lower price is being taken into account whenever each product is being designed from very starting. Works on a strong concept that is entirely based on offering a wide range of functional as well as well designed products that too at lower price (Mintel Oxygen, 2010) . It uses Key performance Indicators (KPIs) for assessing its progress in terms of its vision and long term goals. Strengths in its production process like more use of renewable materials, smart use of raw materials, economies of scale, reducing transportation cost by sourcing materials very closer to supply chain, using latest technologies and volume commitments. Weaknesses: Size as well as scale of business might make it difficult for IKEA to control the quality and standards (Johansson et al., 2008). Need for lower price products is tough to be balanced with good quality products. It is difficult task to maintain good communication with the consumers as well as stakeholders due to large scale of business. Opportunities: Rising demand for greener products that are low priced. More demand for products that have lower water usage as well as lower carbon footprints (The Times, 2014). IKEA offers its customers solutions through which they can live a sustainable life at their home by giving online tips and ideas. Makes use of resources in sustainable manner for example IKEAs main aim is to create zero waste for landfills, methods for lesser water usage and wastewater treatment. IKEA also focuses on reducing carbon footprints by decreasing the use of energy and using more of renewable energy, cutting down its use of air transport as well as reduced packaging. It has developed social responsibilities through IKEA policies where it supports charities like UNICEF, Save the Children etc.(The Times, 2014) Threats: Some of the ongoing social trends like slowdown in the first-time buyers that are entering the housing sector and this are the core target market segment in case of IKEA (Tarnovskaya, 2012). Economic factors like recession might also decrease the consumer spending as well as result in declining disposable income. Since more competitor are making entry in the sector of lower priced household and furnishings so IKEA will have to reinforce its unique qualities to deal with its competitors (Johansson, Hansson, Hanssson, Thelander, 2008). Other Observations and Conclusion The above analysis suggests that IKEA has been a successful retailer in household and furnishings market and expanding into the international markets has provided it with great opportunities as well in these markets. It has achieved increased market size through its market development strategy by selling its existing products into the new markets. IKEA has been able to gain higher returns as well on its major initial capital investments from various other nations except for its home country. That is why they have started exploring new markets. It has been able to exploit its economies of scale by merely expanding in the markets that already consist of homogeneous consumer tastes that does not need much adaptation, by simply using the standardised products all over the globe (Hitt, Ireland, Hoskisson, 2012). The main focus of IKEA is to create and manufacture highly elegant products that are of good quality and low price. By expanding its market base it has also expanded its scope fo r internationalisation as well as has expanded its learning by expanding its knowledge base also. These new markets are also source of innovation in the specific sector of home furnishings and furniture. It also gains competitive advantage from location as every new location has different culture , while the economic factors are specific and it also makes use of geography as well as administration. Through internationalisation it has extended its product life cycle as Swedish market was saturated so IKEA decided to expand its business in other markets. Sweden not being a large market, there seems to be limited growth, so IKEA thought of expanding to various other international markets like Russia, China, European countries and US. IKEA tried to gain competitive advantage by adopting product differentiation by adapting to various markets. IKEA tries to increase its profitability by adopting cost reductions. Initially IKEA was also using global strategy where production along with marketing as well as various other activities that are concentrated in few locations, while there is no customization, to maintain economies of scale. 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