IKEA's global expansion strategy and competitive positioning

IKEA was founded in the 1940s as a home furnishings company and quickly expanded into its current form. The companies mission is to "offer home furnishing products of good function and design at prices much lower than competitors by using simple cost-cutting solutions that do not affect the quality of the products" (Ikea.com, 2011). The company operates on a franchise model. There are IKEA stores in 41 countries around the world. The company is privately held, but does publish its revenue figures in an annual report. According to this report, the company earned €21.8 in revenues and €2.5 billion in profit.

Internal Environment

Ikea's success derives from several strengths. The company has earned a strong brand, and this means that wherever it opens a store there is immediately a strong demand. People in places with no Ikea know the brand and that pent-up demand allows the company to easily expand to new markets. The brand strength is driven by the design of the furnishings and the concept of the company, both of which have strong appeal to a mass consumer audience. A further strength is the store design, that encourages consumers to spend long periods of time in the store shopping, thereby increasing the average ticket. There are few weaknesses apparent at Ikea -- what it does, it does well. The company does not overextend its own capabilities. It may, however, be dependent on Kamprad's leadership, since he has always been at least the spiritual leader of the company.

External Environment

There are many opportunities in the environment, in particular with respect to overseas expansion. Ikea is under-represented in the United States and China, and does not even operate in some major markets like Brazil. There are a number of threats in the external environment however. The furniture industry is highly fragmented, so there is intense competition. The state of the global economy also drives consumer purchasing power, something that can impact Ikea's sales negatively, especially poor economic performance in Europe (or a decline in the value of the euro).

SWOT

The company's brand strength and the fact that it has significant room for geographic expansion are a natural match. The under-representation in the U.S. And the struggles of the European economy and the euro currency in particular indicate that further American expansion will boost the bottom line as the euro weakens against the dollar. However, the intense competition that Ikea faces could harm it, in light of the fact that it operates the same business model over the world. Local players that know local market conditions better could outflank Ikea, costing the company market share in some countries.

Structure and Controls

Ikea has a high degree of centralized control. The company establishes a presence in new countries through a franchise model, and thoroughly vets franchisees. Ikea exerts tight control over every aspect of the franchise business, including the merchandise, store layout and other elements of the system. Strategic direction for the company is set in Sweden as well. This highly-centralized management system is appropriate for a company that seeks to replicate a single business model around the world. It allows for consistency in decision-making, and it allows for the key decision makers to work closely together. The franchisees are also subject to strict monitoring from head office based on feedback systems at the store level.

Recommendations

Strategically, Ikea's path is simple and is consistent with the company's pattern of growth. Its current focus is primarily on strengthening its existing markets. This is the right strategy at this point in time. Ikea has some good franchisees with whom it is working, and these are capable of exploiting the markets that are currently underserved, which for Ikea are some of the largest markets in the world. The primary recommendation therefore is to stay the course. The secondary recommendation is to expand into new markets where opportunities are strong. Such potential new markets include India, Indonesia and markets in South America such as Brazil or Argentina. These new markets have significant middle class populations. In some cases, such as Indonesia, existing franchisees (from either Malaysia or Singapore) could be used to gain market access. A third recommendation for Ikea is to ensure that the leadership transition is smooth. Kamprad is no longer CEO, but still maintains a presence at the company. Ikea will need to ensure that it does not rely on him in the future, since he is now 85 years old.

Works Cited:

China Daily. (2003). IKEA's low price strategy remains. China Daily. Retrieved November 20, 2011 from http://www.chinadaily.com.cn/en/doc/2003-08/27/content_258713.htm

Ikea 2009 Annual Report. Retrieved November 20, 2011 from http://www.ikea.com/ms/en_CN/about_ikea/press/press_releases/annual_report.html#

Ikea.com (2011). Retrieved November 20, 2011 from http://franchisor.ikea.com/showContent.asp?swfId=concept3

QuickMBA. (2010). Porter's generic strategies. QuickMBA.com. Retrieved November 20, 2011 from http://www.quickmba.com/strategy/generic.shtml