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    Case 6 - Sweden's IKEA

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    nimkarsujit
    IKEA was established in Sweden in the 1940s and grew rapidly globally in the 1970s and 1980s by sticking closely to its founder's vision of selling a basic, "typically Swedish" product range worldwide. This strategy of ignoring national tastes was very successful in Europe but led to problems when IKEA entered the North American market in 1985. Products like narrow beds and small glasses did not appeal to Americans. By 1991, IKEA realized it needed to customize products for North America and began redesigning items to better suit American tastes and lifestyles. This new strategy proved effective, with North American sales tripling between 1990-1994 as IKEA adapted products like offering American-sized beds and kitchen items.

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    Case 6 - Sweden's IKEA

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    nimkarsujit
    260 views3 pages
    IKEA was established in Sweden in the 1940s and grew rapidly globally in the 1970s and 1980s by sticking closely to its founder's vision of selling a basic, "typically Swedish" product range worldwide. This strategy of ignoring national tastes was very successful in Europe but led to problems when IKEA entered the North American market in 1985. Products like narrow beds and small glasses did not appeal to Americans. By 1991, IKEA realized it needed to customize products for North America and began redesigning items to better suit American tastes and lifestyles. This new strategy proved effective, with North American sales tripling between 1990-1994 as IKEA adapted products like offering American-sized beds and kitchen items.

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    IKEA was established in Sweden in the 1940s and grew rapidly globally in the 1970s and 1980s by sticking closely to its founder's vision of selling a basic, "typically Swedish" product range worldwide. This strategy of ignoring national tastes was very successful in Europe but led to problems when IKEA entered the North American market in 1985. Products like narrow beds and small glasses did not appeal to Americans. By 1991, IKEA realized it needed to customize products for North America and began redesigning items to better suit American tastes and lifestyles. This new strategy proved effective, with North American sales tripling between 1990-1994 as IKEA adapted products like offering American-sized beds and kitchen items.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    260 views3 pages

    Case 6 - Sweden's IKEA

    Uploaded by

    nimkarsujit
    IKEA was established in Sweden in the 1940s and grew rapidly globally in the 1970s and 1980s by sticking closely to its founder's vision of selling a basic, "typically Swedish" product range worldwide. This strategy of ignoring national tastes was very successful in Europe but led to problems when IKEA entered the North American market in 1985. Products like narrow beds and small glasses did not appeal to Americans. By 1991, IKEA realized it needed to customize products for North America and began redesigning items to better suit American tastes and lifestyles. This new strategy proved effective, with North American sales tripling between 1990-1994 as IKEA adapted products like offering American-sized beds and kitchen items.

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    SWEDEN’S IKEA

    Established in the 1940s in Sweden by Ingvar Kamprad, IKEA has grown rapidly in recent
    years to become one of the world's largest retailers of home furnishings. In its initial push to expand
    globally, IKEA largely ignored the retailing rule that international success involves tailoring product
    lines closely to national tastes and preferences. Instead, IKEA stuck with the vision, articulated by
    founder Kamprad, that the company should sell a basic product range that is "typically Swedish"
    wherever it ventures in the world. The company also remained primarily production oriented; that is,
    the Swedish management and design group decided what it was going to sell and then presented it to
    the worldwide public—often with little research as to what the public wanted. The company also
    emphasized its Swedish roots in its international advertising, even insisting on a "Swedish" blue and
    gold color scheme for its stores.

    Despite breaking some key rules of international retailing, the formula of selling Swedish-
    designed products in the same manner everywhere seemed to work. Between 1974 and 1997, IKEA
    expanded from a company with 10 stores, only 1 of which was outside Scandinavia, and annual
    revenues of $210 million to a group with 138 stores in 28 countries and sales of close to $6 billion.
    Only 11 percent of its sales were generated in Sweden in 1997. Of the balance, 29.6 percent of sales
    came from Germany, 42.5 percent from the rest of Western Europe, and 14.4 percent from North
    America. IKEA is now expanding into Asia, with the opening of stores in mainland China.

    The foundation of IKEA's success has been to offer consumers good value for their money. IKEA's
    approach starts with a global network of suppliers, which now numbers 2,400 firms in 65 countries.
    An IKEA supplier gains long-term contracts, technical advice, and leased equipment from the
    company. In return, IKEA demands an exclusive contract and low prices. IKEA's designers work
    closely with suppliers to build savings into the products from the outset by designing products that can
    be produced at a low cost. IKEA displays its enormous range of more than 10,000 products in out-of-
    town stores. It sells most of its furniture as kits for customers to assemble themselves. The firm reaps
    huge economies of scale from the size of each store and the big production runs made possible by
    selling the same products all over the world. This strategy allows IKEA to match its rivals on quality,
    while undercutting them by up to 30 percent on price and still maintaining a healthy after-tax return on
    sales of about 7 percent.

    This strategy worked well until 1985 when IKEA decided to enter the North American market.
    Between 1985 and 1996 IKEA opened 26 stores in North America, but unlike the company's experience
    across Europe, the stores did not quickly become profitable. As early as 1990 it was clear that IKEA's
    North American operations were in trouble. Part of the problem was an adverse movement in exchange
    rates. In 1985, the exchange rate was $1=8.6 Swedish kronor; by 1990, it was $l=Skr5.8. At this
    exchange rate, many products imported from Sweden did not look inexpensive to American
    consumers.

    But there was more to IKEA's problems than adverse movements in exchange rates. IKEA's
    unapologetically Swedish products, which had sold so well across Europe, jarred American tastes and
    sometimes physiques. Swedish beds were narrow and measured in centimeters. IKEA d i d not sell
    the matching bedroom suites that Americans liked. Its kitchen cupboards were too narrow for the
    large dinner plates. Its glasses were too small for a nation that adds ice to everything. The drawers in
    IKEA's bedroom chests were too shallow for American consumers, who tend to store sweaters in
    them. And the company made the mistake of selling European-sized curtains that did not fit
    American windows. As one senior IKEA manager joked later, "Americans just wouldn't lower their
    ceilings to fit our curtains."

    By 1991, the company's top management realized that if it was going to succeed in North
    America, it would have to customize its product offering to North American tastes. The company set
    about redesigning its product range. The drawers in bedroom chests were made two inches deeper—
    and sales immediately increased by 30 to 40 percent. IKEA now sells American-style king and queen-
    sized beds, measured in inches, and it sells them as part of complete bedroom suites. It has
    redesigned its kitchen furniture and kitchenware to better appeal to American tastes. The company
    has also boosted the amount of products being sourced locally from 15 percent in 1990 to 45 percent
    in 1997, a move that makes the company far less vulnerable to adverse movements in exchange
    rates. By 1997, about one-third of IKEA's total product offerings were designed exclusively for the
    US market.

    This break with IKEA's traditional strategy seems to be paying off. Between 1990 and 1994,
    IKEA's North American sales tripled to $480 million, and they nearly doubled again to about $900
    million in 1997. The company claims it has been making a profit in North America since early
    1993, although it does not release precise figures and does admit that its profit rate is lower in
    America than in Europe. Still, the company is pushing ahead with plans for further expansions in
    America, including the 1998 opening of a $50 million IKEA superstore in Illinois, which the company
    claims is the first of a new generation of larger stores.
    http://www.ikea.com
    Sources: "Furnishing the World," The Economist, November 19, 1994, pp. 79-80; I tX^arnegy,
    "Struggle to Save the Soul of IKEA," Financial Times, March 27, 1995, p. 12; J. Flynn and L.
    Bongiorno, "IKEA's New Game Plan," Business Week, October 6, 1997, pp. 99-102; and IKEA's
    Web site athttp://www.ikea.com.

    Case Discussion Questions


    1. What strategy was IKEA pursuing as it expanded throughout Europe during the 1970 and
    early 1980s—a multidomestic strategy, a global strategy, or an international strategy?
    2. Why do you think this strategy did not work as well in North America as it did in Europe?
    3. As of 1998, what strategy is IKEA pursuing? Does this strategy make sense? Can you see any
    drawbacks with this strategy?

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