Globalization of IKEA: a case study

IKEA Case Study

How has the globalization of markets benefited IKEA?

Market globalization has benefited IKEA from a branding (Tarnovskaya, Elg, Burt, 2008), supply chain and sourcing (Ghauri, Veronika Tarnovskaya, Elg, 2008) and differentiated product design perspective (Roncha, 2008). As a result the company has been able to expand into 33 different nations, operate 230 stores and have up to 410 million shoppers a year visiting their stores, generating sales of €14.8 billion ($17.7 billion). Globalization has made it possible for the unique Ikea approach of integrating sourcing, supply chain management and retail operations into a single location (Ghauri, Veronika Tarnovskaya, Elg, 2008). Ikea's strategy of having each store as diverse as possible in terms of product selection and additional services has also differentiated their stores from the many other large-scale furniture stores. By concentrating on price points that are affordable for young professionals and families just starting out Ikea has also been able to gain significant customer loyalty in the area of furniture and furnishings purchases (Tarnovskaya, Elg, Burt, 2008). Due to the globalized supply chain the company has, they have been able to shift production of their best-selling items from one location to another to gain greater profits per unit as a result (Ghauri, Veronika Tarnovskaya, Elg, 2008). Finally globalization has made it possible for the company to set the aggressive target of reducing its expenses by 2 to 3% per year as their expertise in supply chains and retail operations make this an achievable objective. Ikea has defined procurement, supply chain and retailing strategies to capitalize on globalization as a competitive advantage.

QUESTION 2: How has the globalization of production benefited IKEA?

Ikea has systematically and thoroughly defined their sourcing and supply chain strategies to capitalize on the cost advantages of global supply chains (Ghauri, Veronika Tarnovskaya, Elg, 2008). The goals of reducing costs by 2 to 3% per year across all products, in addition to coordinating a global network of 1,300 suppliers require Ikea to view globalization as a competitive advantage. The development of their supplier network, which included intensive quality management and product compliance systems (Ghauri, Veronika Tarnovskaya, Elg, 2008) also has a series of audit checkpoints to ensure product quality as well. Ikea sees the relationships of globalization and supply chain performance as a cost advantage (Roncha, 2008) yet also requires very tight controls on product quality and compliance (Ghauri, Veronika Tarnovskaya, Elg, 2008). This is because Ikea sees their brand and product quality as being synonymous with each other. Ikea's unique approach to creating distribution centers and retail locations in the same building has significantly reduced operating expenses while also further accentuating the uniqueness of the brand (Tarnovskaya, Elg, Burt, 2008).

By looking at globalization as a catalyst for growth Ikea has also been able to successful manufacturer highly customized Nordic and Scandinavian designs in lower cost regions of the world (Roncha, 2008). This has had the net effect of giving customers the opportunity to own advanced design furnishings without having to pay designer prices (Roncha, 2008). The idea of providing exceptional value at a low price is the essence of the Ikea value proposition as a company.

QUESTION 3: What does the IKEA story teach you about the limits of treating the entire world as a single integrated global market place?