Ikea Case Study

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12. Traditionally, IKEA has always been branding their products as low-cost, affordable yet well designed Scandinavian furniture. This concept from Ingvar Kampard has been integral to the business idea of IKEA. Following the rapid internationalisation, IKEA has also started to adapt more to the local tastes where they are operating in. As such, the IKEA brand now still stands for good quality Scandinavian design, but also includes tailored differentiation, all offered at low, affordable prices to the low to middle class population.

13. IKEA’s main barriers and challenges in Brazil are the different consumer behaviour of Brazilians. Only up to 1980s did the Brazilians view shopping at a mall an accessible option. Moreover, companies such as Zara and Sears, who were not culturally sensitive enough, ended up with poor results. For IKEA to enter a country like Brazil, a significant barrier is to adapt their products to attract the Brazilians, while maintaining low costs. Moreover, there is a significant import tax on furniture, which already reduces profitability by 5-15% even before the actual sale of the furniture. Finally, Brazil is dominated by individual direct importers, where there are no major distribution chains. As such, when looking for a supplier or a suitable franchisee, IKEA may face difficulty in finding a suitable candidate that can operate on a large scale similar to other IKEA outlets worldwide. As for IKEA’s entry strategy, the case is not clear; please refer to case question 3 for suggested entry model.

14. Yes, IKEA’s international strategy is successful. To be successful, IKEA must be able to adapt their business strategy to different countries and still be profitable. To this extent, IKEA’s business strategy has been extremely successful thus far. By sourcing first for a reliable supplier in each new country, they have managed to reduce risk by first learning about the country and also establishing a low-cost supplier close to raw materials and other resources needed for the country. Moreover, by adapting products while maintaining a Scandinavian core, IKEA has managed to continue offering desirable yet differentiated products at affordable prices. Finally, the franchising method has also worked well for IKEA, for it allows them to adopt a low-risk position to expanding, while still maintaining significant control over the product line and marketing methods. Hence, their internationalisation strategy has allowed them to carry a successful business model from Scandinavia and apply it in foreign countries, carried out in a conservative and cost-savvy manner, all the while maintaining control over the product line and brand image of the company.

[pic 6]IKEA Case Study Question

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- Pros:Transfer technology, assets and knowledge between companies. Allows cultural learning about the country more effectively.Cons:May sacrifice IKEA’s company culture. May not find suitable synergies that lower cost or bring about greater profit. IKEA may not be able to maintain their strict code of thriftiness when another company is involved.

- Yes, they should. Brazil has a huge low to mid income household region, which is suitable for IKEA’s target market. Moreover, Brazil is a low-cost nation, therefore enabling IKEA to find suitable suppliers. As Brazil is fragmented into small distributors, IKEA will be able to enter as a large-scale retailer. They should however be culturally sensitive and differentiate their products based on the Brazilian taste.

- The sourcing concept should be conservative and there should be contingencies. While IKEA usually depends on one supplier, they should ensure that there are suitable alternatives should the supplier fail, so as to maintain their in-stock position. Moreover, they should work with suppliers who are already familiar with the political and economical scene, so that they can understand and comply with governmental regulations and tariffs quickly and efficiently.