M.Sc.

in Management
MASTERS DISSERTATION

academic year:
2011-12

IKEA: ANATOMY OF A BUSINESS

author:
Luca Decina
10-992-303

supervisor:
Prof. Erik Larsen

submission date:
June 2012
 2
IKEA: Anatomy of a Business
Index

Abstract 5

1. Introduction: a matter of trade-offs 6

2. History of IKEA 7
2.1. Company evolution 7
2.2. Relevant dates 9

3. IKEA today 10
3.1. Corporate structure 10
3.2. Key facts and figures 11

4. IKEAs products 13
4.1. Product range and features 13
4.2. Product development 17

5. IKEAs service offering 19

5.1. The process or shopping experience 19
5.2. The involved services 20
5.3. Further details about the store 22

6. Organizational culture at IKEA 25

7. Brand and communication of IKEA 27

7.1. Furniture and national identity 27
7.2. IKEAs brand 27
7.3. Keystones of IKEAs communication 29
7.4. Online presence of IKEA 31

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8. Global or local 34
8.1. A flat world 34
8.2. A round world 35

9. Globalization drivers for the home furniture industry 37

9.1. Market drivers 37
9.2. Cost drivers 38
9.3. Competitive drivers 38
9.4. Government drivers 39
9.5. Dealing with the middle ground 40

10. IKEAs international expansion 42

10.1. Strategies for operating abroad 42
10.2. IKEA as a global organization 44
10.3. IKEAs experience as a global organization 45
10.4. Important store openings 47

11. IKEA and global sourcing 48

11.1. IKEAs relationships 48
11.2. IKEAs strategic use of resources 50

12. IKEAs strengths, weaknesses, opportunities, threats 52

12.1. Internal factors 52
12.2. External factors 53
12.3. Possible improvements 53

13. Conclusions: a matter of place 56

References 61

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ABSTRACT

The aim of this dissertation is to illustrate the elements of IKEAs business and the
related competitive advantage. These elements, or themes, are addressed through sin-
gle chapters. However, numerous connections between themes often make it difficult
to perform strict distinctions or separations. In this sense, this work is an anatomy:
a view on the many interdependent parts of an organism (a business system in this
case), which by nature can only live as a whole.
This is done on a theoretical basis, through a review of the literature. The existing
literature about IKEA consists mainly of studies that are focused on very specific sub-
ject matters, and of only few studies on a more general level, which often miss to il-
lustrate some critical elements. It is exactly in this area that this dissertation aims to
be a positive contribution.
What ultimately emerges from the study is that the notion of place (place of origin,
place of production, place of storage, place of retail, place of consumption) can be
seen as a carrying strategic theme in IKEAs system of activities.

5
1. INTRODUCTION: A MATTER OF TRADE-OFFS

IKEA is often cited as revolutionary (Hambrick and Fredrickson, 2005; Barth-

lemy, 2006; Lief and Denison, 2008) and market driving (Ghauri and Tarnovskaya,
2008; Kumar et al., 2000) for having introduced a business model that redefined
some of the rules of its industry, home furniture retail. In this sense, IKEA is compa-
rable to innovators like Starbucks, Southwest Airlines, Amazon, Netflix or Swatch.

What distinguishes these innovative firms and successful firms in general is not
really operational effectiveness (performing similar activities better than rivals per-
form them), but rather strategic positioning (performing different activities from ri-
vals, or performing similar activities in different ways), as Porter (1996) would say.
This implies a unique, rational choice of trade-offs and a system of fitting or even
mutually reinforcing activities. For example, Southwest Airlines offers frequent, re-
liable flights at very low prices, for only short routes and with only essential service
features (e.g. no seat assignments, no baggage transfers, no meals), through high air-
craft utilization, standardized fleet (Boeing 737), and productive gate crews (Porter,
1996). Talking of trade-offs, we can say that, especially in the case of Southwest Air-
lines, it is the limits and boundaries that define a companys focus and strategic posi-
tioning. Besides, sustainable strategic positioning is not only a matter of single activi-
ties, but also of how the activities are combined to generate value.

What are the elements of IKEAs business and what is IKEAs competitive advantage?
How are these elements related? This work will answer these questions with the help
of existing literature. The many issues or themes are addressed in dedicated chapters,
mainly for analytic reasons and with the purpose to go into a reasonable level of de-
tail. Still, we will see how it is sometimes difficult to make precise separations, as
there are many overlapping themes and issues.

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2. HISTORY OF IKEA

2.1. Company evolution

If we look at IKEAs history, we can notice that some of its important strategic ele-
ments were not present right from the start (Barthlemy, 2006; Lief and Denison,
2008; Baraldi, 2008; Moon, 2008).

IKEA named after Ingvar Kamprad (founder), Elmtaryd and Agunnaryd (farm and
village where he grew up) was founded in Sweden in 1943, to sell small practical
objects like pens, pencils, matches and wallets. Five years later, furniture becomes
part of the product range; the related success will inspire a then 25-year-old Kamprad
to focus solely on furniture since 1951. Flat packs are introduced around 1956 to re-
duce transportation costs and eventual damage during transport. The invention oc-
curred while trying to fit a table into a car: co-worker Gillis Lundgren solved the
problem by removing the tables legs to pack them horizontally, in line with the ta-
bletop (Lief and Denison, 2008).

Low prices have always been a feature of IKEA products; a feature that in the 50s
gave Swedish retailers who were all keen on high prices and high margins the rea-
son to threaten to stop buying from any supplier selling to IKEA. Many suppliers in
Sweden then started to boycott IKEA, in order to serve this huge base of Swedish
retailers. Ultimately, IKEA focused only on its own-designed products, and shifted its
manufacture in 1961 from Sweden to Poland, where costs were lower. Sourcing in
countries where costs are lower will then become a common practice for IKEA
(Barthlemy, 2006; Baraldi, 2008).

In 1965, the company opened its largest store so far (in Stockholm), where for the
first time an integrated warehouse is open for self-service, so that customers can pick
up items directly. This store would also include a restaurant, given the previous suc-
cess of such a service: IKEA introduced the first in-store restaurant in 1963, in its
first point of sale (the store in lmhult) after two years of activity. The famous reason

7
behind this service is that Ingvar Kamprad had seen too many customers leave the
lmhult-store because they were hungry (Stenebo, 2011). In any case, both self-
service and restaurant are still nowadays two key features of IKEA stores.

Another important period for the company evolution is given by the 70s and early
80s, when now-classic products like the Billy bookcase, the Klippan sofa and the Lack
coffee table were launched into the marked. Furthermore, in 1976 IKEA published
Kamprads Testament of a Furniture Dealer, product of the founders professional
makeover, which officially established the IKEA culture, both externally and inter-
nally (Stenebo, 2011).

In 1982 the IKEA Group was formed, and in 1991 Swedwood (the industrial group of
IKEA) was formed. During the 90s IKEA started to produce furniture for children
and IKEA 365+, a line of kitchenware. In the later decade IKEA raised its concern for
environmental and social issues: this includes the birth of the IKEA Foundation, and
collaborations with WWF, UNICEF and Save the Children.
By 2011 IKEA had 287 stores in 26 countries (IKEA Group, 2011). (For further de-
tail: themes of international expansion and global operations are addressed later in
this dissertation, in dedicated chapters.)

Whether the company was for long time deliberately experimental, like Barthlemy
(2006) claims, is probably hard to say. However, it is clear that chance, learning and
refinement played a big role in the early decades of IKEA: the role of defining specific
activities, or principles, that today are still present at IKEA (i.e. selling own-designed
furniture that is manufactured in lower-cost countries; flat packs; stores with restau-
rant and self-service). Throughout the chapters we will see how important they are.

8
2.2. Relevant dates

1943 Ingvar Kamprad founds IKEA.

1948 Furniture becomes part of the product range.
1951 IKEA focuses solely on furniture retail and publishes its first furniture catalogue.
1953 First showroom (in lmhult, Sweden).
1955 IKEA starts designing its own products.
1956 Introduction of flat packs, invented by Gillis Lundgren the year before.
1958 First IKEA store (in lmhult).
1960 First in-store restaurant (in lmhult).
1961 IKEA establishes manufacture in Poland.
1963 First store outside of Sweden (in Oslo, Norway).
1965 Largest store is opened (in Stockholm, Sweden) and self-service is introduced.
1976 IKEA publishes Kamprads Testament of a Furniture Dealer.
By this time IKEA is present in Europe (Sweden, Norway, Denmark, Switzerland,
Germany), Australia and Canada.
1978 Introduction of the Billy bookcase, which will become a classic.
1980 Introduction of the Klippan sofa, which will become a classic.
1980 Introduction of the Lack coffee table, which will become a classic.
1982 IKEA Group is formed.
1986 Kamprad retires as CEO of IKEA Group (succeeded by Anders Moberg), and is now
advisor at INGKA Holding, the parent company of IKEA Group.
1991 Swedwood, the industrial group of IKEA, is formed.
1997 IKEA goes online (www.IKEA.com), furniture line for children is launched, and
IKEA 365+ (kitchenware) is launched.
1999 Anders Dahlvig becomes CEO of IKEA Group.
2000 IWAY (code of conduct for co-workers and suppliers) is introduced,
Online shopping is now available (in Sweden and Denmark).
2002 First collaboration with WWF, famous organization for environmental protection.
2005 IKEA Foundation (formerly IKEA Social Initiative) is formed.
2006 IKEA introduces its own food label, IKEA Food.
2011 By this time IKEA is present in 26 countries with 287 stores.

(sources: Barthlemy, 2006; Lief and Denison, 2008; Moon, 2004; IKEA.com, retrieved in January 2012)

9
3. IKEA TODAY

3.1. Corporate structure

When we talk of IKEA we refer to IKEA Group: a constellation of companies that

cover different functional areas, from strategy to retail (Figure 1).

Figure 1: the structure of IKEA Group and related entities

(sources: The Economist, 2006; IKEA Group, 2011)

IKEA Group uses the IKEA concept and trademarks through a franchising granted by
the Dutch firm Inter IKEA Systems BV, which is parented by Inter IKEA Holding in
Luxembourg (The Economist, 2006). IKEA Groups parent company is INGKA
Holding BV, which is based in the Netherlands and includes founder Igvar Kamprad
as well as one of his sons, Jonas Kamprad in the supervisory board (IKEA Group,
2011). INGKA Holding BV is owned by a Dutch-registered, tax-exempt, non-

10
profit-making legal entity called Stichting INGKA Foundation (The Economist,
2006). The financial assets of this entity are managed by Stichting IMAS Foundation,
and philanthrophic operations are funded by Stichting IKEA Foundation.

This complex structure, which was developed during the 80s, has probably two pur-
poses. On one hand it is a way to distribute power through various entities, in order
to prevent takeovers and radical changes to IKEA. For example, changes in the prod-
uct range policy have to be approved jointly by the boards of Inter IKEA Systems BV
and INGKA Holding BV (Kamprad, 2007). On the other hand, this complex struc-
ture may be an efficient scheme of ownership splits to minimize taxes, as The
Economist (2006) pointed out in an article called Flat-pack accounting. In particular,
Dutch private foundations (Stichtingen) have tax benefits for assets that are passively
owned (i.e. assets managed by a third party).

3.2. Key facts and figures

As of 2011, IKEA Group is active worldwide with operations in 41 countries, 287

stores in 26 countries and 1026 suppliers in 53 countries (see Figure 2). Most of the
purchasing (40%) is made in China and Poland, while IKEAs top sales are in Ger-
many (15%), USA (11%) and France (10%) (IKEA Group, 2011).
Total annual revenues, which include both sales and rental income, grew from 10,4
billion Euro of 2001 to 25,2 billion Euro in 2011. Most of the assets on the balance
sheet of 2011 are cash (40%) and fixed property (39%) (IKEA Group, 2011).
The employees, or co-workers, are 131.000; about 76% of them (100.000) operate
in retail activities, while the remaining are in the industrial group Swedwood (16.000)
and in other functions like purchasing, distribution, wholesale, et cetera (IKEA
Group, 2011).
The products of IKEA cover every category of home furnishing, ranging from cup-
boards to kitchenware, with a catalogue of about 9.500 products (IKEA Group,
2011).

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 Figure 2: IKEA Group at a glance (source of the data: IKEA Group, 2011)

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4. IKEAS PRODUCTS

4.1. Product range and features

As already mentioned, IKEA offers every kind of home furnishings. The following
product range (IKEA.com, retrieved in April 2012) is usually worldwide:

- outdoor furniture,
- desks and tables,
- chairs, sofas and armchairs,
- storage furniture and storage items,
- TV stands and media solutions,
- childrens furniture and toys,
- bathroom furniture,
- beds and mattresses,
- kitchen cabinets and appliances,
- eating and cooking utensils,
- dishware and glassware
- textiles and decoration,
- flooring,
- lighting and mirrors,
- tools and fittings,
- small items and accessories for any kind of room.

Low price, basic shapes and simple colorings characterize the majority of the items.
Besides some rustic-looking products, the appearance or style of IKEAs products is
referring to Modernist design of the early and mid-twentieth century from Scandina-
via, Germany and the Netherlands. This includes masters like Alvar Aalto, Arne Ja-
cobsen, Eero Saarinen, Mart Stam and Ludwig Mies van der Rohe. IKEA has exten-
sively imitated (or drawn inspiration from) their pieces: see Figure 3 and Figure 4
for some examples. Stenebo (2011) claims that IKEA conducted plagiarism especially
during the 1970s and 80s.
What we can add is that designs can be patented, but even today imitation without
legal repercussions is often possible, simply with the help of slight dissimilarities in

13
geometry. Furthermore, masterpieces of industrial design are often overpriced and
maliciously classified as aristocratic, as if they were objects destined for a restricted
elite. So, mainstream presence of low-cost imitations can cause original products to
be perceived as even more exclusive, thereby permitting price increases for original
products. IKEA probably exploits the two above-mentioned issues: easiness of imita-
tion (in order to rely on shapes that already work) and related price boosts for origi-
nal pieces (in order to propose an even more accessible range of low-priced prod-
ucts).

Since low price is an important feature of IKEA products, they are designed in a way
that keeps manufacturing costs and transportation costs low.
A general rule is that IKEA uses higher-quality materials only for the visible surfaces
of a product, while lower quality ones are used for the many less visible parts (Mar-
gonelli, 2002). In fact, the company makes extensive use of cheap but moderately re-
sistant materials like: foam rubber, particleboard, and board on frame made of paper
honeycomb (which is an hexagonal structure of paper and fiberglass).
Furthermore, IKEA furniture is sold unassembled and packaged in flat packs. Custom-
ers are called to self-transport the purchased products and to subsequently self-
assemble them. For this purpose an IKEA product consists of as few components as
possible that are shaped to be packed horizontally (flat-packed), in order to reduce
volume and make transportation uncomplicated.

Also interesting is that the product names are mainly Swedish and are the same
around the world. Since the 70s the names have been given according to a precise
system (Spitra et al., 2003; Stenebo, 2011). For example:

- chairs and desks have Swedish male names,

- textiles have Swedish female names,
- rugs are called after Danish places,
- beds and clothing storage is called after Norwegian places,
- dining tables and dining chairs are called after Finnish places,
- outdoor furniture, upholstery, coffee tables and shelves are called after Swedish places.

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 Figure 3: examples of IKEA imitating (or drawing inspiration from) other products;
first year of production is indicated if available.

(sources: IKEA.com, FritzHansen.com, Artek.fi, retrieved in April 2012)

15
 Figure 4: examples of IKEA imitating (or drawing inspiration from) other products;
first year of production is indicated if available.

(sources: IKEA.com, Knoll.com, FritzHansen.com, Thonet.de, retrieved in April 2012)

16
4.2. Product development

When IKEA starts developing a new product the price literally comes first (Mar-
gonelli, 2002). In order to find gaps in the companys product line and to define the
new products identity an important tool is the matrix shown in Figure 5 (Mar-
gonelli, 2002; Moon, 2004; Stenebo, 2011).

Figure 5: the IKEA product matrix (sources: Margonelli, 2002; Moon, 2004; Stenebo 2011)

The first dimension of the matrix is the price category, which ranges from high to
BTI. BTI stands for breath-taking item; an item that displays a special yellow
price tag and that is an obvious bargain for the customer. A well-known example is
the Lack side table. Made of particleboard, fiberboard, paper, ABS plastic and acrylic
paint, with a size of 55cm x 55 cm x 45cm, it can hold up to 25kg, and is sold at 9,95
CHF for basic colorings (IKEA.com, retrieved in May 2012).
The second dimension of the matrix is the style category, which includes four styles:

- Scandinavian (usually displaying sleek wood),

- Modern (similar to the previous style but with simpler shapes and less visible wood),
- Country (rustic),
- Young Swede (similar to Modern but with more extravagant colors and shapes).

Such a matrix is used for each type of items (e.g. coffee tables, dining chairs, book-
shelves) especially to detect gaps in the current portfolio. For example, it is easy to
check whether the current portfolio does not offer a coffee table with medium price

17
and Country style. At IKEA a gap in the product line is often regarded as a market
opportunity (Margonelli, 2002; Stenebo, 2011; Moon, 2004). In this sense we can
affirm that IKEA is product centered, rather than customer oriented.

Once the new products price and style are decided, the project team appoints de-
signers from IOS (IKEA Of Sweden) or external freelance designers. The next step,
before designing the product, is conducted together with suppliers and regards the
evaluation of possible manufacturing techniques and (flat) packaging. This usually
occurs at Swedwood headquarters (Stenebo, 2011), right next to IOS headquarters
and right next to the IKEA Test Lab, in lmhult (Ultimate Factories: IKEA, 2009).
After the design of the product, and after the final prototype passes the test, the
product is ready to be licensed for manufacturing at one or more suppliers that
agreed on forehand about techniques and shipping. Ultimately, the product is intro-
duced into the market.

Weve seen that in the development phase IKEA is mainly focused on: the new prod-
ucts position within the portfolio, the price, the style, related efficiency of manufac-
turing, transport and (self) assembly. Customer orientation is low in this phase; it is
reasonable, since the company has a wide product range to manage.
In IKEAs business the focus on the customer side rather occurs in another context,
which represents another strategic theme: the service offering and related shopping
experience.

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5. IKEAS SERVICE OFFERING

What reinforces IKEAs product offering is the configuration of the stores and the
associated activities conducted by both retailers and consumers. While it is true that
the act of retail involves a transaction (money in exchange of a tangible good), in the
case of IKEA we can notice that there is a certain degree of customer participation in
the value creation, and a specific process (Figure 6).

5.1. The process or shopping experience"

The starting point is that an IKEA customer has to get to the store by car, since
IKEA stores are usually located out of town and since purchased items have to be
self-transported. For this reason, the store offers an ample parking lot (free of charge)
in front of the entrance. Upon entering the store, families have the chance to park
their kids too. Parents can leave them at Smland, a childrens play area with super-
visors that will take care of them (60 minutes of stay are free of charge).

Customers can now enter the showroom area (usually in the upper floor), where the
vast majority of the products can be seen and touched in real-life examples of room
settings. The space is articulated in thematic areas, through which the customer is
guided by a path defined by arrows depicted on the floor. The showroom-journey
usually starts with the exhibition of living rooms, followed by bedrooms, bathrooms,
dining rooms, kitchens, home offices, and is concluded with childrens rooms. In this
phase, customers have the chance to note down the specific product code printed on
the price tag, in order to find and pick up the respective item later, at the open ware-
house downstairs.

After exiting the showroom, on the same floor customers approach the restaurant
area, where simple and low-priced meals are offered through counter service. Also
here, the Swedish origin of IKEA is expressed, as Swedish food (e.g. meatballs and
apple cake) is part of the menu. This phase can be identified as a sort of break.

19
In the last phase, customers enter the lower floor, which usually starts with areas
dedicated to home decoration and small items, which can be picked up and put in
the provided shopping cart or Ingvar bag (large blue synthetic bags). Customers are
then lead to the warehouse, where they have to find and load the large flat-packed
products on provided trolleys. Payment occurs at the cash registers located at the
warehouse exit. After exiting the warehouse customers can find a grocery store selling
products of IKEA Food. All purchased items can then be loaded into the car, trans-
ported home, and ultimately assembled.

Figure 6: the process in brief

5.2. The involved services

The services involved in the shopping experience are summarized in Figure 7. We

can identify three classes of services: core services, complementary services, and
lower-order complementary services. The core services are directly related to the

20
products, while complementary services support the customers presence and comfort
at the store. Lower-order complementary services are extras that are essentially not
part of the process. Since IKEA doesnt want to invest much in these extra activities,
the related pricing is high, in order to reduce their attractiveness and at the same
time to exploit the few customers that are willing to pay for these extras. In fact,
home delivery and installation are two activities that are rather part of a traditional
business model of furniture retail, and not of the IKEA concept. No wonder that they
were originally not included in IKEAs service offering.

Figure 7: IKEAs services involved in the process

It can be argued that the customers movements are the completing puzzle-piece in
the set of services. Each of the core and complementary services make sense if en-
acted in the context of the process or shopping experience.
For example, the restaurants function is not merely to offer food, but it is a way to
ensure the customers long stay and to energize the customer after the long way
through the showroom and before completing the task at the warehouse. Another
striking example is the availability of free parking. It is not just a bonus; it is neces-
sary. If customers dont come by car, or if customers cannot park in front of the

21
store, they dont buy (much) furniture, since it has to be self-transported. IKEA
wouldnt probably exist if it didnt offer parking lots.

So far weve also noticed how a service perspective can enrich our understanding of a
system of value offering. Furthermore, we may claim that IKEAs retail strategy is not
limited to the transaction of goods, but also considers a related formula to manage
customers. In this sense, we may also confirm that the more a firm moves [] away
from a transaction-type [approach], the more the market offer expands beyond the
core product, as Grnroos (1994) claims.

5.3. Further details about the store

As weve seen in the previous sections of this chapter, it is impossible to describe the
IKEA shopping experience without making reference to features of the store. Just like
the process, together with the set of services and the products, the store configura-
tion is standardized.
IKEA stores are usually:

- located out of town, where land cost is not high and where customers from different
towns can reach by car (through highway, freeway and land road),
- large in size,
- with a huge parking area,
- articulated into two floor levels
(showroom and restaurant on the upper;
main entrance, childrens area, open warehouse and grocery on the lower),
- designed to implement the process (Figure 6) and services (Figure 7).

Regarding the store layout, we may add that the showroom has a particular spatial
plan. With no natural lighting (no windows) and with many examples of room set-
tings in which the customer is free to touch and test the products, the showroom en-
acts an artificial but entertaining atmosphere. This sort of amusement park, or hy-
perreallity (Edvardsson et al., 2003), is recognized by Alan Penn (2005) as the living
counterpart of the IKEA catalogue. In a similar way in which the reader can flip

22
through 200 pages of colorful pictures of ideal room settings, the customer is guided
(by arrows printed on the floor) through a long sequence of live versions of these
ideal rooms. In particular, the showroom is a disorienting and unintelligible space
(Penn, 2005), where the customer can do nothing but follow the prescribed route,
thereby facing the whole sequence. Shortcuts are provided but not much visible.

Figure 8: how random-moving individuals of a computer simulation

walk through an IKEA showroom (source: Penn, 2005)

Figure 9: how actual customers walk through an IKEA showroom (source: Penn, 2005)

23
By comparing the random movements of simulated agents with forward-facing vision
(Figure 8) with the movements of actual customers (Figure 9), Alan Penn (2005) has
pointed out that movements within an IKEA showroom are constrained by the hu-
man field of view. If we look at the two figures (8 and 9), we can notice that the
movements are quite the same. Second, he maintains that this disorientation is
probably planned. It may be aimed at ensuring a first, submissive phase (Penn,
2005), where the customer cant buy but only try products, in order to later unleash
impulse buying in a second phase, where the customer is provided with a trolley and
overwhelmed with pallets of goods. Besides preliminary persuasion through a coercive
path of ideal room settings, a key factor is of course low price, which converts furni-
ture into commodities (Penn, 2005).

In general, we can conclude that at IKEA the act of retail is pretty much enhanced by
the shopping experience, the related services and the place or servicescape to
use a well-known definition by Bitner (1992). The importance of these themes is un-
deniable.

24
6. ORGANIZATIONAL CULTURE AT IKEA

Besides few official documents by the company, like the well-known Testament of a
Furniture Dealer by founder Ingvar Kamprad, the literature on IKEAs organizational
culture is quite poor. A reason could be that for researchers and journalists it is hard
to penetrate the massive blue and yellow faade [of IKEA], as former IKEA-
manager Johan Stenebo (2011) claims.
Johan Stenebo, who worked for the company from 1989 to 2009 (even as Kamprads
assistant during the 90s), can be an interesting source of information about the orga-
nizational culture. In his recent The truth about IKEA (2011) he dedicates a chapter
and several passages in other chapters to this subject matter. Of course, we have to
take into account that the entire book represents his truth, as the result of a reflec-
tion on twenty exciting years with IKEA, during which an honest, open and criti-
cal dialogue about IKEA [was missing] (Stenebo, 2011).

Strong influence on the IKEA-culture is Ingvar Kamprad, who in the early 70s re-
freshed his image and his view on management. It is the time when Testament of a
Furniture Dealer was written and when the IKEA-culture came to birth (Stenebo,
2011). This includes the nine principles to create a better everyday life for the many
people (Kamprad, 2007):

- product range as identity,

- passionate commitment,
- profit as a resource,
- good results with small means,
- simplicity as a virtue,
- being different,
- focus on work,
- responsibility on every level,
- continuous self-improvement.

The company structure is flat (Lief, Denison, 2008), the dress code is quite informal,
everybody calls Ingvar Kamprad by his first name, and everybody is expected to repre-
sent the above-mentioned values, always. For example, employees who have to travel

25
and stay overnight are accommodated in comfortable but never luxurious hotels,
which must be officially approved. In this sense, IKEA is also strict. Johan Stenebo
(2011) writes that a well-known anecdote among co-workers is that of a top manager
taking a flight in business class, who got spotted by Kamprad while boarding on the
same plane: a promising career is at an end in a comfortable first class seat. Fur-
thermore, storytelling can be seen as a tool to fortify the IKEA-culture among em-
ployees, especially if the narration involves the figure of Ingvar Kamprad.

An interesting issue is the invisible hierarchy (Stenebo, 2011) within the company.
Employees who are blessed by Kamprads moral support have more decisional power
than others; a thing that is possible through informal networks reaching Kamprad
and notifying him of any unusual action: If you, for example, get the idea to change
material on a product, networks at IKEA of Sweden AB start rumbling. [] Col-
leagues will perhaps approach you and tell you clearly what Ingvar thinks. (Stenebo,
2011). For this matter, Stenebo also uses the term network of spies, while he still
acknowledges that, on the practical side, it is a way for the corporation to deal with
dangerous individual moves at an early stage.

Also Swedish culture plays an important role. Top managers spoke only Swedish for a
long time; therefore, new executives were forced to learn Swedish. English language
had been diffused only since the end of the 90s, mostly resulting in a pidgin, the
IKEA-Swenglish (Stenebo, 2011), a mixture between Swedish and English. The pe-
culiarity is that it is a toned-down language that becomes very vague. It somehow
reflects the co-workers way of making decisions, which is mainly focused on pointing
out positive and negative aspects of a suggestion, rather than putting it into practice
for testing. Ultimately, it can be added that, despite the previously mentioned strict-
ness, the working environment is filled with a sense of pride, probably due to admira-
tion by external people. However, Stenebo (2011) argues that this sense of pride is
dangerous, as it causes to overlook relevant flaws (e.g. low salaries, overestimating
past success, underestimating market changes).

26
7. BRAND AND COMMUNICATION OF IKEA

7.1. Furniture and national identity

Historically, the making of furniture was for long time tied to the use of local materi-
als and to the notion of style. Specific production techniques and physical features
were often related to place and time. In this sense, also consumers could recognize
different pieces of furniture, basing their observation on explicit, aesthetic features.
With the international impact of Modernism, the attention of designers and later
also the attention of consumers has shifted towards more conceptual aspects of fur-
niture, such as form, function and shape. While many pieces of furniture made during
the 20th century can easily be traced to specific places, movements, or aesthetics (es-
pecially products of DeStijl, Wiener Werksttte and Art Deco), it can be argued that
products of the late 20th century and of today are less distinguishable in terms of na-
tional origin or national style. This is probably due on one hand to the international
diffusion of materials and manufacturing techniques, and on the other hand to the
results of intellectual debates sparked by Modernism, concerning essential issues of
industrial design: form, function, shape, style, efficiency, harmony.

In other words, national identity of furniture (in terms of exterior features) is some-
thing that is mainly tied to the past; this is especially true for Western society. How-
ever, this does of course not exclude that todays consumers can perceive certain
products to be Italian, Scandinavian, et cetera. There are many ways to give a na-
tional imprint to furniture: alluding to aesthetics of the past is just one. Besides na-
tional differentiation, another issue is brand differentiation. We will see how the case
of IKEA shows an interesting relation between these two.

7.2. IKEAs brand

IKEA is very attached to its place of origin and tries to express this bond whenever it
is possible. This starts from the logo, which uses the colors of the Swedish flag (blue

27
and yellow) (Figure 10). These are also the main colors in most of the graphic mate-
rial by the corporation (e.g. brochures, flyers, display signs, website, documents)
along with neutral colors (white, black, light grey) for long texts. In general, the
graphics are very elementary and functional, with the underlying principle that sim-
plicity is a virtue (Kamprad, 2007). A good example of this is given by IKEAs prod-
uct assembly instructions, which guide the customer simply through icons and draw-
ings, thereby avoiding verbal directions (Figure 11). Besides, IKEA often makes use of
colorful photographs in promotional graphics, in order to project also the ideals of
togetherness, harmony and fun (Figure 12).
We can notice that all the values cited so far, from simplicity to fun, are also ex-
pressed by product features (e.g. shapes, colors, names, similarities to Scandinavian
Modernist design). Furthermore, all these values go quite along with the interna-
tional stereotype of Swedes as rigorous but cheerful people. Whether this stereotype
is true plays little role, since IKEA seems to reinforce positive stereotypical features
to make them part of its intended brand image.

Figure 10: the logo (source IKEA.com, retrieved in April 2012)

Figure 11: some pages from the assembly manual for the Expedit shelving unit
(source: IKEA.com, retrieved in April 2012)

28
 Figure 12: an advertisement for the loyalty program IKEA Family
(source: IKEA.com, retrieved in April 2012)

7.3. Keystones of IKEAs communication

Some fundamental aspects of IKEAs communication have already been highlighted

in the previous section of this chapter (e.g. incorporating national elements into the
brand, expressing certain values through graphics and products).
Another strong component is the corporate vision statement:

The IKEA vision is to create a better everyday life for the many people.
We make this possible by offering 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. (IKEA.com, retrieved in April 2012).

This is a recurring gospel in interviews and in public relations. For example, in the
documentary Ultimate Factories: IKEA (2009) it is stressed by Mari Gustafsson, store
manager in lmhult (We want to create a better everyday life for the many people)
and by Michael ORourke, store manager in California (Our vision is not only good
form, or design and good function, but also low price, and thats how we deliver on
the better everyday life for the many).
Ingvar Kamprads Testament of a Furniture Dealer, first published in 1976, is a famous
handbook on IKEAs vision. Also here the themes of democracy and affordability are

29
emphasized along with related corporate values that are often referenced through a
brand (or catchall term): the IKEA way.

Quite interestingly, intellectuals of industrial design argue that democratization [of

design] is an empty slogan (Paola Antonelli in Objectified, 2009), as it is mainly a
product of the publics misunderstanding on the purpose of design.
The idea that good products of industrial design are by nature expensive and re-
stricted to an elite of individuals has been challenged by intellectuals for about half a
century. Bruno Munari (1981), a prominent figure in design and an important con-
tributor to design methodology, made a famous statement on this topic: luxury is
not a matter of design, because luxury is the expression of the uncivilized rich, who
want to impress those who are still poor. Luxury implies wrong use of expensive
material that does not improve function (e.g. using golden taps). Munari is also
known for speaking against the peoples common vision of industrial designers as ce-
lebrities who offer exclusive, contemplative objects. Munaris position is that indus-
trial design is by definition a practical discipline, concerned with the usability of ob-
jects in daily human life (and therefore regarding everybody).
What we can conclude is that IKEA takes advantage of common beliefs and misun-
derstandings to draw attention to IKEAs characteristics, in terms of products and
values.

An important tool of product communication is the IKEA catalogue, which accounts

for 70% of the annual marketing budget (Burt, Johansson, Thelander, 2010). The
catalogue is a free item that is published each year, displaying products, prices and
special offers through colorful photographs of ideal home settings (Figure 13). It is
always titled with a motto (e.g. Spazio per nuove idee in the Swiss Italian catalogue of
2012) and almost 200 million copies are published, in 56 different nations and in 27
languages (Burt, Johansson, Thelander, 2010). The catalogue is quite standardized
internationally: editions differ by little adaptations like language, prices and extra sec-
tions with descriptions of IKEAs concept for countries where the company is new.

30
 Figure 13: two pages from the Swiss Italian catalogue of 2012
(source: IKEA.com, retrieved in April 2012)

Another tool that is worth to mention is the companys official website, which pro-
vides rich descriptions of all products, online shopping, embedded planning applica-
tions (for kitchen, bathroom and storage products), some interactive guides, and
plenty sections with general corporate information. Also this tool is standardized in-
ternationally.

7.4. IKEAs online presence

As already mentioned, the official website is an important component of IKEAs

product communication. More specifically, we can add that it generates moderately
high traffic. According to Alexa, a well-known provider of web analytics, IKEA.com
which includes all national adaptations is at place 297 of the global rank and at
place 371 of the U.S. rank, with a bounce rate of 19%.
Just to compare, the website of the NBA, National Basketball Association, is at place
258 of the global rank and at place 144 in the U.S., with a bounce rate of 32%. (The
just-mentioned data was retrieved from Alexa.com on April 21st, 2012. A bounce rate
indicates how many of the total visits are just one-page visits.)

31
IKEA is also officially present on social media like Twitter, YouTube and Facebook,
through national channels (i.e. IKEA France, IKEA Italia, IKEA U.S.A., etc.). How-
ever, these channels do not cover all countries and IKEA.com is by far the companys
most significant Internet platform.

Notable online brand communities are IKEAFANS and IKEA Hackers. They are both
independent and have no affiliation to the IKEA Group.
IKEAFANS is an American fan-made website started in 2005, that includes forums,
galleries, blogs, and other sections where reviews, guides and facts about products are
collected. More interesting phenomenon is that of IKEA Hackers: a blog started in
2006, which hosts pictures and descriptions of handmade customizations (hacks) of
IKEA products. The proposed creations range from simple reassemblies of the com-
ponents of a product (e.g. Frosta side table, Figure 14) to more demanding crafts that
involve refining and recombining multiple products (e.g. desk made of drawer chests,
tabletop and other components, Figure 15).

Figure 14: a Frosta stool hacked as a side table (original IKEA product in the upper left)
(sources: IKEA.com, IKEAhackers.net, retrieved in June 2012)

32
 Figure 15: components of various IKEA products hacked into a desk
(sources: IKEA.com, IKEAhackers.net, retrieved in June 2012)

33
8. GLOBAL OR LOCAL

Globalization is definitely a relevant issue within economics and management. The

opportunity to operate in, or to communicate with distant places may shape the vi-
sion and the scope of activities undertaken by a company.

8.1. A flat world

Today a common perspective is that the world is highly integrated, or in other words,
that the world is flat, as Thomas Friedman (2005) claims, who mainly focuses on
the communicational aspect of globalization. In a lecture held at MIT on May 2005,
Friedman summarizes the key points of his theory.
In his view globalization is reaching its third phase, where individuals are the main
protagonists, while the two preceding phases were lead first by countries and gov-
ernments and then by companies.
Friedman (2005) also identifies ten major forces of globalization, ten flatteners, to
see and think of the world as a flat planet:

- the year 1989 (when the Berlin Wall came down and the Windows came up),
- the introduction of Internet browsers to mainstream audience,
- the potential of automatic workflow,
- the six new forms of collaboration
(outsourcing, offshoring, uploading, supply chaining, insourcing and massive inform-
ing),
- and ultimately the steroids, which are all the digital devices allowing individual con-
tent production, manipulation and consumption.

These ten flatteners are conceptually linked to the triple convergence, three proc-
esses that gave form to a flat world. The first convergence is the mutual enhancement
of the ten flatteners, the second is defined as the horizontalization (collaboration)
between companies, and the third is the emerging political and economic openness of
one-time communist countries after the fall of the Berlin Wall.

34
Quite interestingly, Friedman doesnt cite the English language as a flattener. The
English language has for long time been a way to get in touch with other cultures,
partially for political and historical reasons, partially for technological reasons (Eng-
lish is the language of computers), and partially thanks to the possibility to tweak or
mispronounce English terms while still getting easily understood by others. On the
other hand, it is crucial to identify language in general as a relevant barrier between
cultures, if not as the anti-flattener by excellence. Of course, there are also other im-
portant factors that hinder global integration (e.g. physical distance, social values and
norms) or factors that enhance it (e.g. proximity, international interdependence and
governmental agreements).

Friedmans statements leave much room for fruitful debate; a fact that, together with
his ability to highlight theoretical key issues of globalization, demonstrates how his
contribution is valuable to the topic.

8.2. A round world

A different perspective is that of Pankaj Ghemawat (2007), who asserts that the
world is currently far from being flat. Ghemawat is concerned with the enormous
amount of literature on globalization and with related exaggerated visions. While
Friedman relies on strong theoretical reasoning that is backed up with specific cases
and examples, Ghemawat is keener on statistics (more than 90 percent of the fixed
investment around the world is still domestic) in order to draw conclusions.
These are, as mentioned, that most activities are still local. A particular reference
should be the [low] levels of internationalization associated with cross-border mi-
gration, telephone calls, management research and education, private charitable
gving, patenting, stock investment and trade as a fraction of gross domestic product.
The issues of language, cultural distance and physical distance are also cited, along
with some recent cases of global business activities that struggled with the need for
local responsiveness (e.g. TCS in Latin America, Google in Russia).

35
Ghemawat (2007) fairly reminds us that we have to be cautious when talking of
globalization and that although the barriers at borders have declined significantly,
they havent disappeared.

What we can add is that, first, it is important to distinguish between potential integra-
tion and actual integration, in order to avoid unwanted confusion between concepts
and observation. Second, it is useful to specify what is integrated (which aspect,
which dimension), in order to avoid vague statements that often generate misunder-
standings.

36
9. GLOBALIZATION DRIVERS
FOR THE HOME FURNITURE INDUSTRY

Weve argued that, at the current state, the world is torn between global integration
and local differentiation; and this is also the case of many international companies.
However, there are some industries that are quite suitable for global integration,
other industries require local responsiveness, and there are also some that are in the
middle ground.
Since we are analyzing IKEAs strategy, including the related international success,
we may ask: what can we say about home furniture? The application of the frame-
work by George Yip (1989) can provide us a concise and effective description of the
globalization drivers for this industry.

9.1. Market drivers (Medium)

There are several reasons to claim that across the world there is medium similarity of
customer needs for this industry. On a general level, we can say that, as human beings,
we all need certain objects for our everyday life in order to sit, rest, eat, store, et cet-
era. However, the use of home furniture is very related to how people dwell. Among
different nations and cultures there may be differences in traditions, in the usual
household members, in the expected permanence, in the common features of residen-
tial buildings (e.g. size, spatial configuration, position within the city), and in several
other aspects that define home as place and life.
In this sense, there may also be differences in the custom of purchasing home furni-
ture. For example, U.S. citizens have for long time been used to megastores and DIY
products (do-it-yourself products), while people from other countries would rather
prefer showrooms and home delivery. Still, it is possible to affirm that the most
known and traditional way of selling furniture is through showrooms, which are usu-
ally located in a central city area, displaying only part of the whole product line and

37
providing delivery and installation. So, there is medium-high similarity of channels for
this industry.
Considering the medium differences of customer needs together with the other differ-
ences mentioned so far, we could say that there is medium transferability of marketing
operations.

9.2. Cost drivers (Medium)

Economies of scale are possible. However, it often depends on the specific product
characteristics (how many pieces compose the object, how and when they are assem-
bled, which materials and manufacturing techniques are used, sizes, etc.). It also de-
pends on the type of the object: for example, chairs are certainly produced and sold
in larger quantities than couches. Thinking of product lines, there are many products
that are complementary (e.g. chairs and tables, beds and nightstands) but economies
of scope are possible if these products have characteristics in common.
What weve just mentioned suggests that there is medium potential for both economies
of scale and economies of scope.
Because of size and weight of the products, transportation costs are usually high. Fur-
thermore, transportation costs are raised by the fact that many products (cupboards,
chairs, tables) occupy a considerable amount of storage volume with air. In other
words, storage volume is hardly optimized.
Differences in cost across countries can exist because of dissimilar availability of raw mate-
rials (e.g. wood, metal) and because of dissimilar cost of labor.

9.3. Competitive drivers (Medium-low)

The home furniture industry is a rather fragmented industry. In many countries there is
presence of both local players that operate in few cities or towns (e.g. carpenters of-
fering customized solutions), and larger players that operate nationally. The industry
is also fragmented in terms of product range. Besides the fact that producers of

38
kitchen furniture usually focus only on the kitchen sector (mostly because it involves
at least a medium degree of customization), there are several companies that focus
only on a specific sector (e.g. Osborne & Little offers home fabrics, Hstens offers
bedroom products, Thonet offers seats and tables, Artemide offers lighting, Iittala
offers kitchenware). Only a few companies cover the whole range of home furnishing
products (e.g. Target, Walmart, Conran Shop, Muji, Zara Home), since it requires a
large customer base. Worth to say is also that not many competitors are globalized.
For example: Muji operates in Japan, U.S. and Europe; B&B Italia operates in
Europe, U.S. and Japan; Habitat operates only in Europe; Ralph Lauren Home op-
erates only in U.S. and United Kingdom.
Another issue is the low feasibility of protecting intangibles. Designs can be patented,
but imitation without legal repercussions is often possible with only slight dissimilari-
ties in geometry.

9.4. Government drivers (Medium)

There is medium similarity of technical standards across the world. There are no general
standards in the European Union; it is rather the single nation that expresses its
guidelines, or rules, on the treatment of materials for safety reasons (e.g. flammable
parts, toxic pigments) and on resistance to weight.
Limitations on specific sizes and distances are usually imposed for kitchen compo-
nents, since bad configurations can compromise safety or, more generally, the ability
to perform certain movements. The underlying criterion is of course that kitchen fur-
niture is strongly related to home appliances: stove, oven, fridge, dishwasher, washing
machine, et cetera. The presence of limitations on kitchen components is practically
worldwide; however, there can be differences in specific requirements.
Talking of standards, it is worth to mention that there are international agreements
on standards for the most various issues (e.g. products, processes, policies) through
the ISO (International Organization for Standardization), which involves 163 coun-
tries today (ISO.org, retrieved in May 2012). ISO standards are not laws; they are

39
used on a voluntary basis. This does not exclude that an ISO standard can be cited or
used as a reference in a governmental law.
Across the world, there are also medium differences in taxation and in regulations to-
wards eco-friendliness.
Policies for furniture trade across countries of the European Union are favorable,
since barriers are quite low. Across the world, specific barriers are usually imposed if
the products that are about to be brought into the country fail to follow local stan-
dards of safety. For example, U.S. authorities block the import of furniture that con-
tains too much paint. As with technical standards, there are medium differences in
trade barriers worldwide.

9.5. Dealing with the middle ground

We can conclude that the home furniture industry is truly in the middle ground (see
Figure 16). We have seen that, on the production level as well as on the retail level,
there are both elements that favor global integration and elements that trigger the
need for local differentiation.

Figure 16: globalization potential for the home furniture industry (framework by Yip, 1989)

It can be argued that such a condition can give opportunity for innovative solutions
for international operations. Consider the home appliances industry, which also offers

40
medium potential for global integration, as many factors are influenced by the nature
of the products. Again, they are large, heavy, partially subject to local standards, and
their use is related to how people dwell. Now consider the example of the Chinese
company Haier: it penetrated the U.S. market in the late 90s, by offering only two
products (compact refrigerators and electric wine cellars) from its whole catalogue,
thereby focusing on two niches. The related success made it possible for Haier to
widen its customer base and offer more products.

Interesting is also how IKEA took advantage of some factors that are globally (and
also generally) unfavorable for the home furniture industry, such as high transporta-
tion costs and low feasibility of protecting intangibles. As already mentioned in previ-
ous chapters, IKEA manages to reduce transportation costs through flat-packing and
customer self-service, while the low protection of intangibles is exploited through re-
interpretation (or imitation) of classic pieces of Modernist design. Furthermore, the
potential for economies of scale and scope and therefore the potential for global
integration is raised by the choice of providing a wide product range, and by the
extensive use of particleboards and foam rubber. This potential is also enhanced by
the modularity of IKEAs product components.
However, it is worth to mention that IKEA underestimated certain factors that are
unfavorable for global integration, like differences in customer needs, especially if we
think of IKEAs experience in the United States and in China.

41
10. IKEAS INTERNATIONAL EXPANSION

Weve pointed out that the home furniture industry is affected by many factors that
require local responsiveness, but is also marked by many features that are suitable for
global integration. Weve also mentioned that IKEAs business model makes some of
the unfavorable factors like high transportation costs, low feasibility of protecting
intangibles and medium potential for economies of scale and scope less unfavorable
for the company, thereby resulting in a competitive advantage, both on a general level
and on a global level.
As of 2011, IKEA is present in 26 countries with 287 stores (IKEA Group, 2011).
What is and what was the companys strategy as a worldwide retailer?

10.1. Strategies for operating abroad

To understand IKEAs strategy as a worldwide retailer it might be useful to adopt

some definitions by Bartlett and Ghoshal (1998) from their critically acclaimed work
Managing across borders, first published in 1989. The two main dimensions that we
can consider when describing a companys strategy outside of the home market are
global integration and local responsiveness. Bartlett and Ghoshal (1998) define four
related archetypes.

The multinational or multidomestic model has high local responsiveness and low
global integration. In this configuration the subsidiaries are intended as a portfolio
of independent businesses (Bartlett, Ghoshal, 1998) that get hold of much deci-
sional power and assets, in order to be nationally self-sufficient and highly reactive to
local market changes. Most of the knowledge that is produced in this kind of sub-
sidiaries is usually not transferred to headquarters or to other subsidiaries. In short,
the multidomestic firm is highly decentralized (Figure 17).

42
 Figure 17: the multidomestic organization (source: Bartlett, Ghoshal, 1998)

A model that includes a little more coordination is the international organization.

Here the subsidiaries are still decentralized and in possess of many assets and deci-
sional power. However, in this model the moderate capabilities of the subsidiaries
imply supervision and knowledge transfer by headquarters (Figure 18). In this sense,
the international configuration treats foreign operations as appendages to a central
domestic corporation (Bartlett, Ghoshal, 1998), resulting in a system with low local
responsiveness and low global integration.

Figure 18: the international organization (source: Bartlett, Ghoshal, 1998)

High global integration and low local responsiveness are the main features of a global
configuration. This is an organization with a central hub that retains most of the stra-
tegic resources and responsibilities (Figure 19). The subsidiaries work as delivery
pipelines that implement the plans developed at the center (the headquarters), in
order to serve a unified global market (Bartlett, Ghoshal, 1998). In particular,
these subsidiaries usually perform product assembly and sales activities. We can say
that the main feature of the global model is that the organization approaches the
world as one single market, with the aim to be efficient on large scale.

43
 Figure 19: the global organization (source: Bartlett, Ghoshal, 1998)

The fourth and last model proposed by Bartlett and Ghoshal (1998) is the transna-
tional organization, which has both high local responsiveness and high global integra-
tion. This model takes the form of dispersed, interdependent and specialized sub-
sidiaries (Bartlett, Ghoshal, 1998). It is a highly integrated network where specialized
resources and capabilities are distributed to every local unit or node. The nodes of
the network cooperate and coordinate in an environment of shared decision mak-
ing (Bartlett, Ghoshal, 1998), without a strong center of power (Figure 20).

Figure 20: the transnational organization (source: Bartlett, Ghoshal, 1998)

10.2. IKEA as a global organization

In earlier chapters weve seen that IKEA focuses much on the product and on related
physical features, in order to achieve high efficiency of manufacturing, transport and
(self) assembly. The product range is the same in most countries (IKEA.com, retrieved
in April 2012). Furthermore, decision-making in the product development phase is
quite centralized through IKEA Of Sweden in lmhult (Stenebo, 2011). Weve also
seen that IKEA relies on a standardized configuration of the stores, including a prede-

44
fined set of services, in order to enact a shopping experience that follows a specific
process. Also the main promotional tool (the catalogue) and the projected brand im-
age are the same worldwide. So, both marketing and retail concepts are standardized
(Burt et al., 2010), with a central hub that takes most of the decisions regarding the
related working principles.
For the above-mentioned reasons we can definitely affirm that IKEA pursues high
global integration, with rather low local responsiveness. In the terms of Bartlett and
Ghoshal (1998) we would say that IKEA resembles the model of the global organiza-
tion (Figure 21).

Figure 21: IKEA worldwide (source: adapted from Bartlett, Ghoshal, 1998)

10.3. IKEAs experience as a global organization

IKEA adopted the strategy of the global organization early on and is still successful
with it. However, the home furniture industry is a very fragmented industry (Barth-
lemy, 2006), with only medium potential for global integration. Not by chance,
IKEA has also experienced some trouble in treating the world as a single integrated
market in which similarities are more important than differences (Bartlett, Ghoshal,
1998).

45
One of IKEAs most popular experiences abroad is its expansion to the United States
in the 80s. IKEA penetrated the US market as any other market, with standardized
products and practices. Problems emerged very soon because of differences in cus-
tomer needs: compared to Europeans, North Americans are accustomed to larger
sizes for many objects of everyday life.
IKEA offered curtains, beds, sofas and kitchen cabinets that were too small; and for
the same reason US customers preferred IKEA vases instead of IKEA glasses for
drinking (Leland, 2002; Moon, 2002; Capell et al., 2005). Furthermore, certain
product measurements were displayed in centimeters (Moon, 2002; Capell et al.,
2005) and the color palette was not rich enough to meet the taste of Californian
Hispanics (Capell et al., 2005). Through product adaptation and probably also
through the US customers quick understanding of the IKEA concept, IKEA man-
aged to stay in the North American market. Nevertheless, today this market accounts
for only 14% of IKEAs worldwide sales, second to Europe, which accounts for 79%
(IKEA Group, 2011).

Another country in which IKEAs blueprint had to be modified to fit with local pe-
culiarities is China.
Here people buy less but visit the store more often. As a consequence, the home set-
tings displayed in the showroom are rearranged frequently, with the aim to keep cus-
tomers excited (Burt et al., 2010). Compared to other IKEA stores in the world, the
ones in China are closer to central city areas and are always near to public transporta-
tion hubs. Furthermore, independent local businesses that offer delivery and assembly
emerged next to IKEA stores. The presence of these complementary businesses is due
to the fact that the Chinese are unfamiliar with DIY (do-it-yourself) and are more
used to full service, since labor is inexpensive in China (Burt et al., 2010).
Cost and price are important issues in this country. In fact, to achieve low price
IKEA had to increase production in China in order avoid offering too many Euro-
pean-made products to Chinese customers. The product offering is also affected by
the local size of the apartments, which are smaller than European apartments. There-
fore, IKEA focuses much on providing spatial solutions and on storage configuration
(e.g. kitchen components and wardrobes) when dealing with the Chinese market.

46
This implies also a different management of promotional tools. In particular, the
IKEA catalogue is a weak tool in China, as there is more weight on thematic bro-
chures that are published during the year (e.g. kitchen brochure, living room bro-
chure, wardrobe brochure) (IKEA.com, retrieved in May, 2012). These brochures of-
ten emphasize IKEAs focus on spatial solutions by displaying photographs taken
from a central perspective, in order to make proportions clear to understand.
In any case, China is rather important as a sourcing region, as it accounts for 22% of
IKEAs purchases. Poland is second on IKEAs list, with 18% (IKEA Group, 2011).

10.4. Important store openings

1958 Sweden (lmhult)

1963 Norway (Oslo)
1969 Denmark (Copenhagen)
1973 Switzerland (Zrich)
1974 Germany (Munich)
1975 Australia (Artamon)
1976 Canada (Vancouver)
1977 Austria (Vienna)
1979 Netherlands (Rotterdam)
1981 France (Paris)
1984 Belgium (Brussels)
1985 U.S.A. (Philadelphia)
1987 U.K. (Manchester)
1989 Italy (Milan)
1990 Hungary (Budapest)
1991 Czech Republic (Prague) and Poland (Platan)
1996 Finland (Espoo) and Spain (Madrid)
1998 China (Shanghai)
2000 Russia (Moscow)
2004 Portugal (Lisbon)
2006 Japan (Tokyo)

(source: IKEA.com, retrieved in April, 2012)

47
11. IKEA AND GLOBAL SOURCING

A contributing factor to IKEAs success and worldwide presence is global sourcing.

With the definition of global sourcing we refer to the set of resources that are situ-
ated in various countries and how these resources are managed.

11.1. IKEAs relationships

IKEAs practice of using foreign resources can be traced back to the 1960s, when the
company was forced to reach outside of Sweden due to a boycott by local suppliers.
IKEAs move was to opt for manufacturers in Poland; a country where much of the
companys purchasing still occurs today (IKEA Group, 2011).
At the current state, IKEA relies on 1.300 external suppliers and 10.000 related sub-
suppliers, scattered over 60 countries (Baraldi, 2008). Other external actors in the
companys industrial network are 500 logistic partners. As shown in Figure 22,
IKEAs boundary of ownership includes: 26 distribution centers in over 12 countries,
40 trading offices, 220 stores, and IKEA Of Sweden, which plays a pivotal role in
coordinating relationships (Baraldi, 2008).

Figure 22: the industrial network of IKEA (source: Baraldi, 2008)

48
Relationships inside the boundary are under the unilateral influence and control of
IKEA Of Sweden, IKEAs central unit. For external relationships IKEA relies mainly
on long-term agreements (Baraldi, 2008; Ghauri, Tarnovskaya, Elg, 2008; Stenebo,
2011) that include a mutual advantage.
For example, IKEA is very demanding towards suppliers in order to achieve low price,
and often induces them to upgrade their equipment (Baraldi, 2008; Ghauri,
Tarnovskaya, Elg, 2008). At the same time, the general policy is that suppliers should
not depend on IKEA for more than 50% of their revenues (Baraldi, 2008). In this
way, suppliers wont be significantly hurt in case of decreasing sales by IKEA, and can
also make worth of the upgraded equipment for deals with other clients. IKEAs ad-
vantage is in turn low price, knowledge of the suppliers manufacturing techniques
and the fact that the supplier can develop new skills through experience with other
clients. This last point is quite important for IKEA, which is always seeking for re-
finements in manufacturing procedures to cut costs.

The length of a relationship is closely related to the complexity of the product in

terms of materials, components and involved labor. More specifically, IKEA relies on
short-term relationships for simple products (e.g. kitchenware and rugs), and on
long-term relationships for complex products (e.g. cabinetry and sofas), which often
are developed through joint investments (Baraldi, 2008).
Since IKEAs suppliers are labeled with different statuses in relation to their com-
mitment, they also have different routines of order management. Call-off suppliers
receive orders every 4 weeks and must deliver within the following 4 weeks, while
Order Point Distribution Centers (30% of IKEAs supplier base) receive daily orders to
be served within 12 days (Baraldi, 2008). Vendor Managed Inventory suppliers are only
1% and are highly experienced IKEA suppliers. They are responsible for both delivery
and planning, by performing tasks like forecasting, transport coordination and inven-
tory management (Baraldi, 2008).

49
11.2. IKEAs strategic use of resources

In the previous section weve seen the basic structure of IKEAs industrial network
and the different relationship types with suppliers. But how does IKEA take advan-
tage of resources and related locations?
Baraldi (2003) proposes four dimensions for the analysis: product features, facilities,
business units and business relationships.

As already discussed in other chapters, physical product features certainly affect the
ability to handle production in an efficient manner.
For IKEA, the way in which products are packaged (flat-packed) and sold (in few un-
assembled components) is a valuable resource. Flat-packed products are quite mo-
bile since size or cost for transport is not high and can therefore be manufac-
tured also in places that are far away. Furthermore, by inducing customers to self-
transport and self-assemble the items, IKEA simply cuts the last step of the furniture
supply chain (home delivery and installation).
Another aspect is that each IKEA product has to be consistent with the whole cata-
logue. This is achieved through design and control by the central unit in lmhult
(IKEA Of Sweden). However, a products consistency is mainly based on style,
price and packaging. For this reason, internal construction details and technical so-
lutions are seldom decided centrally in lmhult (Baraldi, 2003), and are rather de-
veloped by cooperating with suppliers across the world.
This kind of heterogeneity is somehow reflected in the items: most IKEA products
display the inscription Design and Quality: IKEA Of Sweden next to the inscrip-
tion that indicates the country of production (e.g. Made in China).

In terms of facilities, we can consider IKEAs use of: storage and distribution facilities,
means of transport, and production facilities.
IKEA stores are equipped with an integrated warehouse and are located in peripheral
areas of large or midsized cities. These are areas where land prices are low, and where
cars and trucks can easily reach. Furthermore, each store is within 600km of distance

50
from a distribution center (Baraldi, 2003), in order to ensure moderate transporta-
tion costs and reasonable stock replenishment times.
Talking of transport, IKEA relies on external partners that own the dedicated facili-
ties. Trucks are used for short routes (from distribution center to store) and trains or
ships for long routes (from supplier to distribution center) (Baraldi, 2003).
Also manufacturing is handled by external partners that own the dedicated facilities.
Still, it could be that IKEA possesses some production assets through its ownership
stake in Swedwood, an industrial group.

In terms of business units, we can mention the importance of IKEAs trading offices,
which are located in countries with favorable taxation (e.g. Netherlands) or favorable
purchase opportunities (e.g. China) (Baraldi, 2003).
China offers low-cost manufacture and is therefore IKEAs top purchasing country
(IKEA Group, 2011). Poland is also relevant for IKEAs purchases, since there are
experienced suppliers that can provide moderate quality at fair prices, together with
the advantage of being in Europe, IKEAs biggest sales region (IKEA Group, 2011).
Other relevant sourcing countries are also European: Italy and Sweden are attractive
for their excellent production quality.

Ultimately, business relationships are useful to make worth of activities and local pecu-
liarities without being physically present in the specific place.
For the case of IKEA, we can again highlight the importance of the coordinating cen-
ter (IKEA Of Sweden) and the set of suppliers and sub-suppliers, which can collabo-
rate through joint projects to improve manufacturing efficiency.

51
12. IKEAS STRENGTHS, WEAKNESSES,
OPPORTUNITIES, THREATS

IKEA is well known as a successful firm. Its longevity may demonstrate that the
adopted business approach is sustainable in the long term. However, like every com-
pany, IKEA is not immune to weaknesses and market conditions.
In the following sections we will summarize the main internal and external factors
that affect IKEA today, and the improvements that can be made (Figure 23).

12.1. Internal factors (strengths and weaknesses)

IKEA relies much on standardization and global efficiency, while offering a wide
range of products through an enchanting (or coercive) store setting. These are the
companys main strengths, together with its worldwide experience and reputation.
Furthermore, weve seen that there are many strong, mutually reinforcing connec-
tions between the adopted strategic elements (e.g. manufacturing-oriented design,
transport-friendly packaging, customer participation, shopping experience, brand,
corporate vision).

Most of the weaknesses are nothing but the other side of the coin. Heavy standardi-
zation does not leave much room for custom solutions; and offering the whole range
of home furnishing products obviously requires careful administration. Similarly, a set
of interdependent strategic elements is not without flaws: it is inflexible towards
changes to single elements. Changes to a single element may harm the whole system.
For example, eliminating the restaurant area from the stores would imply shorter vis-
its and probably smaller customer groups (e.g. only one family member); this would
in turn heavily reduce impulse buying (and buying volume in general).
Ultimately, IKEAs enthusiastic corporate culture can be dangerously intensified by
the companys success and good reputation. A result is excessive pride, which can
lead to incautious management.

52
12.2. External factors (opportunities and threats)

At the current state, IKEA already has a large presence, so it faces more threats than
opportunities.
In particular, IKEA is confronted with competition by low-price giants like Target
and Home Depot in the U.S., and by fashionable retailers like Zara Home and
Muji in Europe. These competitors have a varied portfolio of products and medium
to high market presence; all of this clearly compromises IKEAs differentiation and
market shares. Other threats are the global recession with its consequences on con-
sumer behavior and the increasing trend of online shopping. Even if it is actually
possible to buy on IKEAs website, this trend can hurt the companys overall sales,
since its business model relies much on the physical shopping experience (to trigger
impulse buying) and on customer participation (for self-transport and self-assembly).
A competitor with better resources and a more suitable business model for online
shopping could take advantage of the situation.
Among the opportunities we can mention that the presence of an IKEA store can at-
tract other retailers to set up stores in the same area. Such an effect is positive for
IKEA if it involves retailers of complementary products like home appliances.

12.3. Possible improvements (SO, ST, WO, WT)

Regarding the opportunity of attracting complementary retailers to IKEA store loca-

tions, IKEA could use its experience and reputation to collaborate. IKEA could con-
sider joint product offerings with companies like Media Markt. Examples could be:
special price or delivery for IKEA kitchen sets and living room sets equipped with
electronics from Media Markt; or complete product packages to furnish entire studio
apartments.
Given IKEAs high standardization of the product offering, an alternative option
could be to simply invest in land or construction in the areas of IKEA stores, in order
to rent or sell property to incoming retailers.

53
Talking of stores, the threat of reduced visits due to online shopping could be low-
ered through online promotions (e.g. discounts, bundles) that require customers to
visit IKEA stores.
IKEAs position in certain markets could be enhanced by a reduction in the local
product portfolio, in order to emphasize the quality of certain products that already
are in the current portfolio. This could play on the weaknesses of local competitors.
For example, against a competitor who is strong on home accessories and weak on
cabinetry and beds (e.g. Muji), IKEA might reduce its catalogue of accessories and
highlight its assortment of cabinetry and beds. Communication would of course carry
an important role in such a move.
Nevertheless, we must again keep in mind that IKEA has built its power on global
integration, and has therefore a corporate structure and a strategy that are not shaped
for local responsiveness. Introducing changes can be costly and can harm the capabili-
ties of the organization. For this reason, IKEA could consider to exit from markets
where much local responsiveness is needed, and rather focus on becoming even more
globally efficient for regions where little or no adaption is sufficient. In the same way,
the company should be careful about further international expansion, and avoid ex-
panding just for the sake of it.

In general, a lot of drawbacks and external threats regarding IKEA are related to is-
sues of global strategic management. Concerns of this type are probably common to
most companies that have large presence across the world.

54
 Figure 23: IKEAs strengths, weaknesses, opportunities, threats, and possible improvements
(figure is rotated for reasons of size)

55
13. CONCLUSIONS: A MATTER OF PLACE

Throughout the chapters we have noticed that there are many overlaps between
IKEAs strategic elements, since many activities or choices are interdependent. This
gives us certainly a good reason to claim that IKEA relies on a solid business model.
To better illustrate this model we may consider Porters (1996) map of IKEAs activ-
ity system as included in his famous article What is Strategy? and see if it confirms
the analysis conducted so far (Figure 24).

IKEA is definitely cost oriented. This approach is reflected in the products them-
selves, which are all designed as modules that can easily be manufactured, flat-
packed, transported and assembled. This efficiency is leveraged both on the customer
side and on the supplier side: customers are called to self-transport and self-assemble
the products, while suppliers can smoothly produce and deliver large quantities.
IKEA enhances this last point by setting long-term agreements with suppliers (to
benefit from economies of scale) and by opting for a wide product portfolio with
moderate variety of materials (to benefit from economies of scope). Thinking again of
the customer side, IKEA tries to make its large quantities readily available to the cus-
tomer, through stores that have ample inventory on site. All items are displayed and
can be picked up (self-selected) by customers at the store, since the place is designed
for high customer traffic. Stores are therefore also equipped with ample parking lots
and are located in peripheral city areas, in order to be reached from various destina-
tions.

For sure, Porters (1996) mapping can be confirmed (see Figure 24), and it is true
that the higher-order strategic themes around which all of IKEAs activities relate
are: limited customer service, self-selection by customers, modular furniture de-
sign and low manufacturing cost (Porter, 1996).
However, throughout the chapters we have seen also other relevant activities that
can be added to the map (see Figure 25). In particular, an important factor related to
impulse buying and to the store layout is given by complementary services (e.g. res-
taurant, children care, grocery store), which in turn are tightly linked to the IKEA

56
shopping experience. This shopping experience follows a specific process that is en-
acted through the set of complementary services and through the architectural fea-
tures of the store. It is a highly visual and participative experience that is aligned with
IKEAs projected brand image; an image of fun, harmony, togetherness, simplicity,
affordability and usefulness. Most of these ideals derive from IKEAs corporate cul-
ture and vision. Both of them notoriously underline the importance of cost-focused
product design.

Furthermore, we have seen throughout the chapters that IKEAs strategic elements
are mostly tied to specific places (Figure 25).
This peculiarity can be summarized through the following categories:

- place of origin,
- place of production,
- place of storage,
- place of retail,
- place of consumption.

IKEAs place of origin is Sweden. This is where the decisional and coordinating center
of the corporation is physically located. Swedish culture is directly related to the or-
ganizational culture and vision, and is also symbolically embedded in IKEAs logo,
which uses the colors of the national flag. As already mentioned in this chapter,
IKEAs culture and vision are tightly linked to the projected brand image and to the
companys cost-oriented product design. Swedish culture is also somehow integrated
in the appearance of the products, since IKEA often imitates pieces of Scandinavian
Modernist design.
The places of production are selected by taking advantage of product features. IKEA
has a wide variety of products that are easy to be manufactured and transported;
therefore, production can also occur in places that are far away. As of today, 40% of
the companys sourcing is in China and in Poland (IKEA Group, 2011), mainly to
achieve low cost of manufacturing.

57
 Figure 24: the map of IKEAs activity system according to Porter (source: Porter, 1996)
(figure is rotated for reasons of size)

58
 Figure 25: proposed upgrade to Porters map of IKEAs activity system (adapted from: Porter, 1996)
(figure is rotated for reasons of size)

59
The place of storage is another important theme. Each IKEA store is not much distant
from a distribution center. At the same time, IKEA stores are provided with a big in-
tegrated warehouse, which is open to customers to let them directly pick up the
products. In other words, IKEA relies on the physical proximity of place of storage
and place of retail, to ensure that items are readily available for the customer.
The place of retail is also linked to the shopping experience, which is functional in
triggering impulse buying and in inducing the customer to handle the final step of the
furniture supply chain (home delivery and installation).
In principle, IKEA avoids providing delivery and assembly: in this sense it avoids di-
rect connection to the place of consumption (the customers home). However, the
product offering full range of furnishings at low price and the shopping experience
are certainly aimed at invading the customers home.

The importance of the above-mentioned places suggests that the notion of place
can be seen as a carrying strategic theme for IKEAs business. The inclusion of the 5
place categories place of origin, place of production, place of storage, place of retail,
place of consumption within the map of the activity system can enrich our view on
IKEAs strategic positioning and make it more understandable (Figure 25).
This does of course not contradict Porters (1996) emphasis on limited customer
service, self-selection by customers, modular furniture design and low manufac-
turing cost: these are 4 key factors that are enhanced by the 5 place categories.

For the field of strategic management, IKEA is definitely an interesting case. It shows
how interdependence between elements is the basis for a sustainable business and for
innovative solutions. Furthermore, the case of IKEA somehow reminds us of the
common saying that retailers care only about three things: location, location, loca-
tion.

60
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Sources of figures (or of data used in graphs) are noted below the specific figure.
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