Closing Case of IKEA

QUESTION 1: How has the globalization of markets benefited IKEA? ANSWER: The globalization of markets refers to the fact that in many industries historically distinct and separate national markets are merging into one huge global marketplace in which the tastes and preferences of consumers in different nations are beginning to converge upon some global norm. IKEA has been able to benefit from this trend by following a strategy that is largely standardized. Its basic strategy is to sell Swedish-inspired furnishings and households goods to middle class consumers across the globe at low prices.

The company is able to use the same colors and designs in its warehouse style stores worldwide. Inside the stores are products that are essentially the same from market to market—inexpensive household items and furniture that are sold nearly the same way everywhere. In some cases, though, IKEA has had to adapt to local market needs. In the United States, for example, bedding products were changed to reflect American-style sizing, and in China, delivery services are offered, and stores are located close to public transportation since car ownership is low.

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QUESTION 2: How has the globalization of production benefited IKEA? ANSWER: The globalization of production refers to the tendency among many firms to source goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production, thereby allowing them to compete more effectively against their rivals. The globalization of production has enabled IKEA to focus on efficiency.

IKEA relies on some 1,300 suppliers located in 53 countries.

Because Ikea aims to reduce its prices by 2-3 percent each year, finding the right supplier is critical to the success of the firm. Ikea tries to avoid high shipping costs by working with suppliers in each of its big markets. For example, the company uses ten different suppliers for its most popular sofa frame. IKEA believes that by having suppliers in Europe, China, and the United States, rather than sourcing from a single location, it can minimize shipping costs. In addition, the company gains efficiencies by concentrating production of certain items in markets like China

QUESTION 3: What does the IKEA story teach you about the limits of treating the entire world as a single integrated global market place? ANSWER: Many students will recognize that IKEA ha successfully managed to capture global efficiencies where possible, while still responding to local market needs. IKEA realizes that while there are gains to be made through standardization, standardization is not always the best strategy. Students will probably point out that IKEA learned this lesson in the early 1990s when it tried to sell bedding in the United States that was sized in centimeters rather than the king, queen, twin sizing that is common in the United States. IKEA also found out that Americans liked bigger sofas, deeper drawers, bigger glasses, and longer curtains. Now, as IKEA is expanding into China, it is once again identifying where its strategy can be standardized, and where it needs to be adapted to the local market. So, for example, while the same warehouse style stores are being used, a section for balconies has been added to reflect the layout of many Chinese apartments.