Report Strategies And Structure Of Ikea.pdf

The company’s major product categories span many aspects of the customers’ needs, the category is as follows: Furniture, Storage & Organization, Kitchen & Appliances, Bed & Mattresses, L

Class: EL1702 Group: 3 IBI101 - Introduction to International Business Lecturer: Nguyen Mai Lan

REPORT

Strategies and Structure of IKEA

MEMBER LIST:

1 Hoàng Khả Vy - SA170005

2 Phạm Hoàng Phương Thảo - SA170006

3 Nguyễn Phan Quỳnh Thư - SA170016

4 Nguyễn Huỳnh Phong - SA170078

5 Nguyễn Việt Dũng - SA170105

I Introduction 4

1 Company’s background 4

II Strategy and structure of IKEA 5

1 Company’s strategy 5

1.1 Affordability and Variety: A Winning Formula 5

1.2 Experiential Marketing: Creating a Destination 5

1.3 Sustainability for a Green Future 6

2 Company’s organizational structure 6

3 Operation activities in foreign markets 7

3.1 Market Research 7

3.2 Production & Logistics 8

3.3 Marketing 8

3.4 Competitive Advantage 8

3.5 Success and failure in Asia markets 9

III Introduce the new foreign market 9

1 Skilled labor and supporting Industries 9

2 Trade barriers 10

3 Exchange Rate Expectation 10

4 Transportation Costs 10

5 Foreign Direct Investment Regulations: 10

IV Difficulties the company may encounter, strategy to penetrate with long-term vision and detailed

action plan/solutions, and detailed evaluation of different entry methods 11

1 Difficulties the company may encounter when entering Vietnam’s market 11

1.1 Cultural and price sensitivity 11

1.2 Supply Chains and Logistics 12

1.3 Competitive market 12

2 Strategy to penetrate 12

3 Evaluation of Entry Methods: 13

V Conclusion 14

VI Reference list 16

I Introduction

1 Company’s background

History: IKEA is a household-Swedish-based company formed in 1943 by Ingvar Kamprad The name is an acronym for 4 words (Ingvar, Kamprad, Elmtaryd – his family name, and Agunnaryd – this childhood village) (Quito, 2022) The company has many notable remarks since its establishment:

1943: 17-year-old Ingvar started to sell stationery and build his company

1958: The first IKEA retail store was opened in the town of Älmhul and introduced the flat-packaging method

1963: IKEA became an international retailer after the first store in Norway and has been expanding till today

Size and Global Reach: As of 22 January 2024, there are 471 IKEA stores globally in 63 markets with the distribution as follows: 281 in Europe, 81 in Asia, 73 in North America, 11 in Ocean, 4 in Africa, and 3 in South America (How We Work – IKEA Global, n.d.) The 2023 revenue of IKEA hits 47 billion Euros ($51 billion) and has been annually increased by an average of 10% from 2001 to 2023 (IKEA Annual Revenue 2023 | Statista, 2024) There are also approximately 219,000 employees worldwide, the annual customer visits reach about 860 million in 2023 (Number of IKEA Employees Globally 2023 | Statista, 2024)

Core business, major product categories: IKEA’s core business is to sell furniture, household appliances, decorations, and other home services The company’s major product categories span many aspects of the customers’ needs, the category is as follows: Furniture, Storage & Organization, Kitchen & Appliances, Bed & Mattresses, Lighting, Home textiles, Home Décor, Kitchenware & Tableware, Baby

& Kids, Flooring, Bathroom, Outdoor, Plants & Planters, Home improvement, Laundry & Cleaning, Pet accessories, Home electronics, Smart home, IKEA Food & Swedish restaurant, and Winter holidays (Products, n.d.)

International business: IKEA’s international business model is the combination of cost leadership, product uniqueness, and a strong brand image to achieve worldwide success The cost leadership strategy allows IKEA to efficiently manage the supply & production chain and not to mention the flat-packaging technology (turning the product into parts for the customer to assemble, cutting storing and shipping expenses) The Scandinavian features in IKEA’s products make them stand out more compared to others, not to mention the diversified category of products that can meet even the most niche customers Having made a name internationally for almost a century, not only that IKEA products’ quality, cost, and services are famous in the global scene, but their fast-adapting attitude allows them to gain trust and favor from markets around the world (Tayade, 2023)

II Strategy and structure of IKEA

1 Company’s strategy

1.1 Affordability and Variety: A Winning Formula

IKEA prioritizes affordability, making designer furniture accessible to a broad customer base (O’Neill, 2023) This focus is evident in their pricing strategy, which leverages economies of scale and efficient manufacturing processes to deliver cost-effective products A cornerstone of IKEA's affordability is its flat-pack furniture design (Dudovskiy, 2023) This allows for efficient packaging and transportation, reducing costs The iconic Billy bookcase exemplifies this strategy Its simple design, flat-pack format, and affordable price make it a popular choice for budget-conscious consumers

Their extensive product catalog offers a wide range of furniture and homeware items to cater to diverse styles, needs, and budgets They release around 2,000 new products every year, ensuring their collections are constantly evolving to keep pace with changing customer preferences and design trends (IKEA, 2023)

1.2 Experiential Marketing: Creating a Destination

IKEA goes beyond simply selling furniture; they curate an in-store experience that fosters customer engagement (O’Neill, 2023) Their stores are designed to be more than just retail spaces; they

are destinations that inspire and engage customers IKEA's showrooms are meticulously designed to showcase furniture in real-life settings, sparking decorating ideas for customers (O’Neill, 2023) This experiential approach allows customers to visualize how products might enhance their own homes IKEA offers various in-store amenities, including restaurants, childcare facilities, and home planning services These services enhance the customer experience and encourage longer dwell times within the store (Dudovskiy, 2023) For example, the one-way traffic flow within IKEA stores, while sometimes criticized for length, ensures customers encounter a variety of product categories, potentially leading them to discover unexpected purchases

1.3 Sustainability for a Green Future

IKEA has placed a strong emphasis on sustainability (IKEA, 2023) This commitment resonates with environmentally conscious consumers and positions IKEA as a forward-thinking company IKEA actively integrates eco-friendly practices throughout its operations, which includes sourcing materials like bamboo and recycled wood, alongside implementing energy-efficient manufacturing processes This focus on sustainability strengthens IKEA's position as a leader in the furniture retail industry, appealing to environmentally conscious consumers For example, the Kungsbacka kitchen series utilizes recycled wood and paper-based materials, demonstrating IKEA's commitment to environmentally conscious production

2 Company’s organizational structure

IKEA operates through a complex yet strategic organizational structure IKEA stores around the world are owned and operated by independent franchisees, not IKEA itself IKEA utilizes a franchise model, with Inter IKEA Systems B.V acting as the franchisor and individual IKEA stores operating as franchisees (Dudovskiy, 2022) This model allows IKEA to expand rapidly and adapt its offerings to local markets

Source: “IKEA Organizational Structure – overview,” by John Dudovskiy, 2022

The structure creates a separation between the franchisor (Inter IKEA Systems B.V.), the brand owner (IKEA of Sweden AB), the product supplier (IKEA Supply AG), and the product manufacturer (IKEA Industry Holding B.V.) This separation is designed to protect the IKEA brand and concept and to ensure that IKEA products are manufactured to a high-quality standard Inter IKEA Systems B.V ensures consistent brand presentation across franchises, while IKEA of Sweden AB focuses on product development and design IKEA Supply AG sources products according to IKEA of Sweden AB's specifications, and IKEA Industry Holding B.V manufactures these products to the required quality standards

IKEA has a presence in over 50 countries with its stores The franchising model and the geographically separated but functionally integrated structure allow IKEA to maintain global reach while remaining adaptable to local contexts IKEA franchisees can tailor their product assortment and marketing strategies to meet the needs of their local customers

3 Operation activities in foreign markets

3.1 Market Research

Before entering a new market, IKEA conducts extensive research to understand consumer preferences, purchasing habits, and living space configurations (Dudovskiy, 2023) IKEA meticulously researches typical home sizes, layouts, and cultural influences on furniture use This research helps IKEA tailor its product offerings and store layouts to the specific needs of Southeast Asian consumers

3.2 Production & Logistics

IKEA operates a complex production and logistics network to supply its stores worldwide To maintain affordability, IKEA likely sources furniture from factories situated strategically within Southeast Asia and neighboring regions, taking advantage of the region's manufacturing capabilities and competitive labor costs (Haghdadeh, 2022) This approach optimizes transportation costs and allows for quicker response times to local market demands Countries like China, Malaysia, and Thailand with established manufacturing bases are probable production hubs However, IKEA also faces challenges in managing this network, including ensuring efficient transportation of bulky furniture items across Southeast Asia's diverse infrastructure landscape

3.3 Marketing

IKEA's marketing strategy in Southeast Asia emphasizes its core brand values of affordability, functionality, and Scandinavian design IKEA doesn't employ a one-size-fits-all marketing strategy IKEA understands the importance of cultural adaptation in Southeast Asia, the company tailors its marketing campaigns to local tastes and cultural nuances, using a combination of traditional and digital media channels (Dudovskiy, 2023)

IKEA also leverages its iconic brand image and its customer experience through its stores to attract customers (Lightfoot, 2022) IKEA stores themselves serve as a key marketing tool The iconic in-store experience, with its room displays and self-service concept, allows customers to visualize how IKEA furniture can transform their living spaces, fostering a sense of inspiration and connection with the brand

3.4 Competitive Advantage

IKEA's competitive advantage in Southeast Asia stems from several key factors The company's large-scale production allows for economies of scale, resulting in lower prices for consumers (Haghdadeh, 2022) IKEA's signature flat-pack furniture design allows for efficient transportation and storage, reducing costs and making products more affordable (O’Neill, 2023) This, coupled with the

self-assembly model, fosters a sense of accomplishment and personalization for customers Additionally, IKEA offers a diverse range of home furnishing products at various price points, catering to a broad customer base (Prajwal, 2023) This product variety allows customers to find furniture solutions that align with their budget and style preferences IKEA's unique self-service shopping experience and its focus on creating inspiring room settings differentiate it from competitors Furthermore, IKEA's commitment to sustainability resonates with a growing segment of environmentally conscious consumers in the region

3.5 Success and failure in Asia markets

The company has successfully expanded its footprint across the region, with stores strategically located in major cities throughout Thailand, Malaysia, and Singapore

IKEA's core value proposition of stylish yet affordable furniture resonates strongly with many Asian consumers, particularly in rapidly developing economies The rising middle class in these regions prioritizes both functionality and aesthetics in their homes, making IKEA's offerings highly attractive Additionally, the concept of the "IKEA experience" – which goes beyond just furniture sales and incorporates showrooms, restaurants, and play areas – caters perfectly to the growing emphasis on leisure and family time in Asian households

However, IKEA's expansion hasn't been without its challenges A major hurdle has been overcoming cultural misunderstandings The company's initial "one-size-fits-all" approach backfired in some markets For instance, IKEA's initial foray into Japan in the 1970s proved unsuccessful In Japan, IKEA's furniture sizes were often too large for the typical compact living spaces (IKEA Museum AB, 2024) This highlights the importance of understanding local preferences and adapting product offerings accordingly

III Introduce the new foreign market

There are 5 main factors to consider when the business wants to enter the new market

1 Skilled labor and supporting Industries

Availability of skilled labor: Vietnam boasts a plentiful labor force, with the government aiming for 30% of the workforce to be educated by 2025 (Khanh Linh, 2023)

Supporting Industry: Although Vietnam is willing to welcome more supporting industries, they still have not developed their whole potential, most of them are small and medium-sized enterprises, facing many difficulties in the market, technology, human resources, capital The Vietnam government is trying to provide more benefits and support for this industry (Viet Duy, 2023)

2 Trade barriers

Vietnam participates in numerous organizations of Free Trade Agreements (FTAs), leading to reduced tariffs and optimized import/export processes This is a potential market for international businesses to expand and develop However, Vietnamese regulations can raise hurdles for foreign businesses These include quotas on certain imports, designed to support domestic industries, and licensing requirements that can cause delays and extra costs Overall, these measures make importing goods to Vietnam more challenging and expensive (Tổng cục Hải Quan Việt Nam (n.d.)

3 Exchange Rate Expectation

The exchange rate is forecasted to remain high in the first 6 months of 2024 because of negative external factors such as low external demand and concerns over China’s economic slowdown However, there's a chance of the exchange rate coming down in the latter half of the year This is because central banks in major countries might stop raising interest rates and even reduce them Vietnam's central exchange rate rose 1.08% to VND23,866 on December 30, 2023, from VND23,612 on December 30,

2022, according to the State Bank of Vietnam (SBV) (Tri Duc, 2024)

4 Transportation Costs

On the one hand, Vietnam's nationwide infrastructure improvements help transportation in the country become easier On the other hand, many factors, such as fuel, labor, and salary, lead to the cost of the logistic fee increase Even the transport industry in Vietnam faces a complex outlook in 2024, with