Case Study on IKEA
Content
ELEVATOR PITCH
IKEA is one of the most famous furniture retailers in the world. A Swedish man Mr. Kamprad is
the founder of IKEA. He started business career in his early age. First he was involved in retail
business of small accessories, for example match. Then he involved in furniture retail business.
He hired a guy named Lundgren. Lundgren’s main duty was to design furniture & make
catalogue. IKEA’s goal of business is to provide quality furniture to people of all classes. To
obtain the goal they faced various challenges. The first challenge was to get supplier with
reduced cost. The other challenge was to maintain quality of the furniture. The competitor’s
forced the local manufacturer not to sell to IKEA. This forced IKEA to find a manufacturer.
Fortunately they found one in Poland. The manufacturing cost of furniture war lower than that of
Sweden. Thus IKEA was able to lower the cost of their products notably. IKEA’s competitor’s
then claimed that IKEA’s product quality is low. But a test conducted by a Swedish business
magazine resulted in favor of IKEA. The magazine says that IKEA’s product quality is not only
good as others but also cheap compare to others; almost 60-70%. Thus IKEA became well
known to the Swedish market specially to the middle income people. The key of their success
was self-assembling feature of furniture. This is not only comfortable for customer to carry but
also cost efficient in manufacturing process. IKEA first stablished their store in a suburban area
near Stockholm. All of IKEA’s stores have the same pattern. They are located in suburban area
near down town with huge spaces, facility of parking and food restaurant. Each store has the selfloading furniture facility to customer for purpose of avoiding lengthy trafficking. Their concept
of such store facility became very successful and highly acceptable by local customers.
The secret of IKEA’s success is its “clean” image all over the world. This helps them to expand
their international business. IKEA’s superiority was its innovation over the years and good
products in low costs. At first they expand their business through the Europe. After successful
run in these territories they eyed on American region. Jan Aulino was in the charge of European
expansion. But it was so difficult for them to transfer profit to other countries form Sweden. So
Aulino took the strategy of making quick profit and faster cash flow. The expansion in UK was a
little bit slow, but they made success in Canada. The situation in Europe and America were not
5
same. In America, they have found some problems like size and styles of furniture, high costs,
store location and space. To develop the situation IKEA adopt American culture and emphasized
on young generation who prefer disposable furniture. IKEA brought change in their design and
style. Did some eye catching commercials that support their marketing style. The change in
strategy worked for them in a positive way. Their revenue increased in just four years from the
American market. In china, IKEA made their stores using the Chinese concept. They include
balcony in their stores to be familiar with Chinese consumers. They have started home delivery
service so that the Chinese people can their products at home. In Russia they fired out two
executives for bureaucratic practice and corruption in the organization to stable its clean image.
Now they have targeted India.
IKEA target the global middle class who need attractive furniture in a low price. They
constructed their warehouse in an attractive and decorative way so that customers can easily look
through its all sorts of products and easily decide to buy. Their each department combined in a
manner that boosts up the sales. For example IKEA design their tool section beside home textile
department for those men who before waited weary for their wives in textile departemnt. They
also have the restaurant and child care facilities to hold the customer long period. The product
strategy council of IKEA prepare priorities for product line up. The council works continuesly
for product development which will lead the decrease of price. With a goal to locate the
appropriate suppliers and cheap materials IKEA had 1380 suppliers in 54 countries in 2008. For
each of its item IKEA tried best to chose right supplier. For its best selling Klippan love seat,
IKEA decentralized its production from Poland to Europe, United States and China, who are the
supplier of frames. For slipcover, they ordered four manufacturer from China. IKEA collect 90%
product from independent suppliers and 10% produce internally. Due to the collapse of
Communism in Eastern Europe in 1990, IKEA face problem regarding price level, technology,
competitors and the relationship with manufacturer started to break. To cope with the difficulties
they purchase Sweedwood to buy and run furniture manufacturer in Eastern Europe. This new
plant help them to acquire vast manufacturing knowledge, product design and build relationship
with suppliers. To engage in Asia, IKEA target the Vietnam market which was cheap in raw
materials and labor. IKEA provide good margin to the suppliers of Vietnam than other foreign
5
buyers. They establish a long term relationship and advises regularly about technology,
management, source of raw materials etc.
IKEA’s organizational structure and management practice is just mirror of Kamprad’s
philosophy. He is casual and economical. All the employees of IKEA follow and practice the
Kamprad’s philosophy in workplace and even in their personal life. There is no chain of
command in IKEA and all the employees here are treated as colleague. IKEA prefer young
dedicated people rather than highly educated or qualified people. New initiative, innovative ideas
which is beneficial to management or customer is highly appreciable from the employees. The
secret behind the successful management is mutual affection. Employees prefer their residence
near each other. Kamprad once financed for the tour of 80 employees as a reward of hard work.
IKEA’s management practices anti-bureaucracy. After expansion of the business generally it is
preferable by the business organizations to involve in share market. It would allow them to get
access of more capital. But Kamprad never interested to make IKEA a public company. His logic
against being a public company was that it will hamper the business growth to maintain
regulations regarding public company. It is completely reversing of his philosophy regarding
business that growth of business irrelevant to business cycle.
Kamprad was anxious about his company’s future. He was afraid that after his absence his sons
will fight for the right of the company and thus will destroy it. He solved the future of the
company in a creative way. He transferred all his interest to a Dutch trust organization which is
exempted from tax. This organization owns Ingka Holdings which is owned the all family
members of Kamprad. Besides he shifted the brand name and patent of business concept to
IKEA Systems, a company based on Netherland. This company has a parent company named
IKEA system based on Luxemburg. Further IKEA system is owned by Netherland Antiles,
another company which recipient assumed to be Kamprad. So IKEA system successfully made
franchise agreement to every IKEA store. The franchisee is Ingka Holdings. Thus Kamprad
successfully managed and secured the transfer of fund both for his company and family. By
transferring the fund he is able to exempt the tax rate of Sweden. Now he lives in Switzerland.
He is retired from IKEA although works as brand ambassador and adviser in IKEA.
5
From the perspective of international business we have learned a lot of things. First of all we
have learned generalizing the target market and understanding their consumption pattern around
the world is important. Another important lesson is to find proper supplier to minimize
manufacturing cost and build up a long term relationship. Furthermore we have learned that
becoming a public company is not beneficial for large business all the time. Above all, affection
and bindings among employees themselves and with owner in a business organization is a key
factor to get success in international business.
Question/Answer
1. The source of competitive advantage was manufacturer in Poland which is 50 percent
cheaper than that of in Sweden. Moreover their self-assembly concept is highly
appreciable by the customers. This self-assembly style also reduces the transportation and
manufacturing cost. Their innovative style of furniture store outside the downtown and
special rack to carry furniture by car also gave IKEA competitive advantage.
2. IKEA’s expansion of business in Europe went so well for various reasons. European
furniture market was splinted by some traditional furniture retailer. Their products were
expensive, most of their stores were in downtown and usually it took long time to deliver
furniture to customers. On the other hand IKEA was able to provide various designed
good quality furniture in notably cheap rate. Moreover their well decorated store with
huge in suburban location and good transportation facility attracts European customer.
But IKEA subsequently stumbled in America. American people are used to different size
of furniture compares to European standard furniture. As a result IKEA’s products were
not suitable for Americans. For example their mattresses did not suit in IKEA’s bed.
Moreover their store was not huge and properly placed compare to European store. This
is reason for primary failure of IKEA in America. One important lesson IKEA learned
that people’s choice varies from demography and culture. Ignoring the preference of
customers from different demography results in disaster. IKEA now applying this lesson
5
by analyzing people’s culture, their choice, their habit of consumption pattern before
entering into a new region.
3. IKEA’s prior strategy in America was almost similar to its strategy in Europe. Make
quick profit by providing good quality furniture in cheap price. IKEA’s present strategy is
redesigning furniture according to the changing preference of customer, cut
manufacturing and transportation cost by assigning local supplier and make pricing of
products in local currency.
4. IKEA’s strategy toward its suppliers is to provide guarantee of long term relationship,
technical knowledge and help for quality improvement and cost reduction with minimum
profit margin to the supplier.
5. Supplier and manufacturer of IKEA all around the world is the source of their success.
IKEA is able to provide high quality products in cheap rate by using this unique source.
They analyzed a lot and spent a lot of time and money to build up this relationship. From
my point of view IKEA has a weakness. That is to maintain equal profit margin from
different region. Cause the cost of raw materials and purchase ability of customer varies
in different region. Providing same quality products with same pricing rate is not possible
in different region all over the world.
5
IKEA is one of the most famous furniture retailers in the world. A Swedish man Mr. Kamprad is
the founder of IKEA. He started business career in his early age. First he was involved in retail
business of small accessories, for example match. Then he involved in furniture retail business.
He hired a guy named Lundgren. Lundgren’s main duty was to design furniture & make
catalogue. IKEA’s goal of business is to provide quality furniture to people of all classes. To
obtain the goal they faced various challenges. The first challenge was to get supplier with
reduced cost. The other challenge was to maintain quality of the furniture. The competitor’s
forced the local manufacturer not to sell to IKEA. This forced IKEA to find a manufacturer.
Fortunately they found one in Poland. The manufacturing cost of furniture war lower than that of
Sweden. Thus IKEA was able to lower the cost of their products notably. IKEA’s competitor’s
then claimed that IKEA’s product quality is low. But a test conducted by a Swedish business
magazine resulted in favor of IKEA. The magazine says that IKEA’s product quality is not only
good as others but also cheap compare to others; almost 60-70%. Thus IKEA became well
known to the Swedish market specially to the middle income people. The key of their success
was self-assembling feature of furniture. This is not only comfortable for customer to carry but
also cost efficient in manufacturing process. IKEA first stablished their store in a suburban area
near Stockholm. All of IKEA’s stores have the same pattern. They are located in suburban area
near down town with huge spaces, facility of parking and food restaurant. Each store has the selfloading furniture facility to customer for purpose of avoiding lengthy trafficking. Their concept
of such store facility became very successful and highly acceptable by local customers.
The secret of IKEA’s success is its “clean” image all over the world. This helps them to expand
their international business. IKEA’s superiority was its innovation over the years and good
products in low costs. At first they expand their business through the Europe. After successful
run in these territories they eyed on American region. Jan Aulino was in the charge of European
expansion. But it was so difficult for them to transfer profit to other countries form Sweden. So
Aulino took the strategy of making quick profit and faster cash flow. The expansion in UK was a
little bit slow, but they made success in Canada. The situation in Europe and America were not
5
same. In America, they have found some problems like size and styles of furniture, high costs,
store location and space. To develop the situation IKEA adopt American culture and emphasized
on young generation who prefer disposable furniture. IKEA brought change in their design and
style. Did some eye catching commercials that support their marketing style. The change in
strategy worked for them in a positive way. Their revenue increased in just four years from the
American market. In china, IKEA made their stores using the Chinese concept. They include
balcony in their stores to be familiar with Chinese consumers. They have started home delivery
service so that the Chinese people can their products at home. In Russia they fired out two
executives for bureaucratic practice and corruption in the organization to stable its clean image.
Now they have targeted India.
IKEA target the global middle class who need attractive furniture in a low price. They
constructed their warehouse in an attractive and decorative way so that customers can easily look
through its all sorts of products and easily decide to buy. Their each department combined in a
manner that boosts up the sales. For example IKEA design their tool section beside home textile
department for those men who before waited weary for their wives in textile departemnt. They
also have the restaurant and child care facilities to hold the customer long period. The product
strategy council of IKEA prepare priorities for product line up. The council works continuesly
for product development which will lead the decrease of price. With a goal to locate the
appropriate suppliers and cheap materials IKEA had 1380 suppliers in 54 countries in 2008. For
each of its item IKEA tried best to chose right supplier. For its best selling Klippan love seat,
IKEA decentralized its production from Poland to Europe, United States and China, who are the
supplier of frames. For slipcover, they ordered four manufacturer from China. IKEA collect 90%
product from independent suppliers and 10% produce internally. Due to the collapse of
Communism in Eastern Europe in 1990, IKEA face problem regarding price level, technology,
competitors and the relationship with manufacturer started to break. To cope with the difficulties
they purchase Sweedwood to buy and run furniture manufacturer in Eastern Europe. This new
plant help them to acquire vast manufacturing knowledge, product design and build relationship
with suppliers. To engage in Asia, IKEA target the Vietnam market which was cheap in raw
materials and labor. IKEA provide good margin to the suppliers of Vietnam than other foreign
5
buyers. They establish a long term relationship and advises regularly about technology,
management, source of raw materials etc.
IKEA’s organizational structure and management practice is just mirror of Kamprad’s
philosophy. He is casual and economical. All the employees of IKEA follow and practice the
Kamprad’s philosophy in workplace and even in their personal life. There is no chain of
command in IKEA and all the employees here are treated as colleague. IKEA prefer young
dedicated people rather than highly educated or qualified people. New initiative, innovative ideas
which is beneficial to management or customer is highly appreciable from the employees. The
secret behind the successful management is mutual affection. Employees prefer their residence
near each other. Kamprad once financed for the tour of 80 employees as a reward of hard work.
IKEA’s management practices anti-bureaucracy. After expansion of the business generally it is
preferable by the business organizations to involve in share market. It would allow them to get
access of more capital. But Kamprad never interested to make IKEA a public company. His logic
against being a public company was that it will hamper the business growth to maintain
regulations regarding public company. It is completely reversing of his philosophy regarding
business that growth of business irrelevant to business cycle.
Kamprad was anxious about his company’s future. He was afraid that after his absence his sons
will fight for the right of the company and thus will destroy it. He solved the future of the
company in a creative way. He transferred all his interest to a Dutch trust organization which is
exempted from tax. This organization owns Ingka Holdings which is owned the all family
members of Kamprad. Besides he shifted the brand name and patent of business concept to
IKEA Systems, a company based on Netherland. This company has a parent company named
IKEA system based on Luxemburg. Further IKEA system is owned by Netherland Antiles,
another company which recipient assumed to be Kamprad. So IKEA system successfully made
franchise agreement to every IKEA store. The franchisee is Ingka Holdings. Thus Kamprad
successfully managed and secured the transfer of fund both for his company and family. By
transferring the fund he is able to exempt the tax rate of Sweden. Now he lives in Switzerland.
He is retired from IKEA although works as brand ambassador and adviser in IKEA.
5
From the perspective of international business we have learned a lot of things. First of all we
have learned generalizing the target market and understanding their consumption pattern around
the world is important. Another important lesson is to find proper supplier to minimize
manufacturing cost and build up a long term relationship. Furthermore we have learned that
becoming a public company is not beneficial for large business all the time. Above all, affection
and bindings among employees themselves and with owner in a business organization is a key
factor to get success in international business.
Question/Answer
1. The source of competitive advantage was manufacturer in Poland which is 50 percent
cheaper than that of in Sweden. Moreover their self-assembly concept is highly
appreciable by the customers. This self-assembly style also reduces the transportation and
manufacturing cost. Their innovative style of furniture store outside the downtown and
special rack to carry furniture by car also gave IKEA competitive advantage.
2. IKEA’s expansion of business in Europe went so well for various reasons. European
furniture market was splinted by some traditional furniture retailer. Their products were
expensive, most of their stores were in downtown and usually it took long time to deliver
furniture to customers. On the other hand IKEA was able to provide various designed
good quality furniture in notably cheap rate. Moreover their well decorated store with
huge in suburban location and good transportation facility attracts European customer.
But IKEA subsequently stumbled in America. American people are used to different size
of furniture compares to European standard furniture. As a result IKEA’s products were
not suitable for Americans. For example their mattresses did not suit in IKEA’s bed.
Moreover their store was not huge and properly placed compare to European store. This
is reason for primary failure of IKEA in America. One important lesson IKEA learned
that people’s choice varies from demography and culture. Ignoring the preference of
customers from different demography results in disaster. IKEA now applying this lesson
5
by analyzing people’s culture, their choice, their habit of consumption pattern before
entering into a new region.
3. IKEA’s prior strategy in America was almost similar to its strategy in Europe. Make
quick profit by providing good quality furniture in cheap price. IKEA’s present strategy is
redesigning furniture according to the changing preference of customer, cut
manufacturing and transportation cost by assigning local supplier and make pricing of
products in local currency.
4. IKEA’s strategy toward its suppliers is to provide guarantee of long term relationship,
technical knowledge and help for quality improvement and cost reduction with minimum
profit margin to the supplier.
5. Supplier and manufacturer of IKEA all around the world is the source of their success.
IKEA is able to provide high quality products in cheap rate by using this unique source.
They analyzed a lot and spent a lot of time and money to build up this relationship. From
my point of view IKEA has a weakness. That is to maintain equal profit margin from
different region. Cause the cost of raw materials and purchase ability of customer varies
in different region. Providing same quality products with same pricing rate is not possible
in different region all over the world.
5
