caselet in strategic management :National Competitive Advantage of IKEA Group, a Swedish company founded in 1943 with its
headquarters in Denmark, is a multinational operator of a chain of stores for home furnishing and
furniture. It is the world’s largest retailer, which specializes, in stylish but inexpensive Scandinavian
designed furniture. At the end of 2005 the IKEA Group of Companies had a total of 175 stores in 31
countries. In addition there are 19 IKEA stores owned and run by franchisees, outside the IKEA store
around the world.
In Sweden, nature and a home both play a big part in people’s life. In fact one of the best ways to describe
the Swedish home furnishing style is to describe nature-full of light and fresh air, yet restrained and
unpretentious.
To match up the artist Carl and Karin Larsson combined classical influences with warmer Swedish folk
styles .They created a model of Swedish home furnishing design that today enjoys world-wide renown. In
the 1950s the styles of modernism and functionalism developed at the same time as Sweden established a
society founded on social equality .The IKEA product range –The IKEA product range- modern but not
trendy, functional yet attractive, human-centered and child friendly – carries on these various Swedish
home furnishing traditions.
The IKEA Concept, like lots founder, was born in Samaland. This is a part of Southern Sweden where the
soil is thin and poor. The people are famous for working hard, living on small means and using their
heads to make the best possible use of the limited resources they have. This way of doing things is at the
heart of the IKEA approach to keeping prices low.
IKEA was founded when Sweden was fast becoming an example of the caring society, where rich and
poor alike were well looked after. This is also a theme that fits well with the IKEA vision. In order to give
the many people a better everyday life, IKEA asks the customer to work as a partner. The product range is
child-friendly and covers the need of the whole family, young and old. So together we can a better
everyday life for everyone.
In addition to working about around 1,800 different suppliers across the world, IKEA produces many of
its own products through sawmills and factories in the IKEA industrial group, Swedwood.
Swedwood also has a duty to transfer knowledge to other suppliers, for example by educating them in
issues such as efficiency, quality and environmental work.
Swedwood has 35 industrial units in 11 countries.
Purchasing: IKEA has 42 Trading Service Offices (TSO’s) in 33 countries. Proximity to their suppliers
is the key to rational, long term cooperation. That’s why TSO co-workers visit suppliers regularly to
monitor production, test new ideas, negotiate prices and carry out quality audits and inspection.
Distribution: The route from supplier to customer must be as direct, cost- effective and environmentally
friendly as possible. Flat packs are important aspects of this work: eliminating wasted space means we
can transport and store goods more efficiently. Since efficient distribution plays a key role in the work of
creating the low price, goods routing and logistics are a focus for constant development.
The business Idea: The IKEA business idea is to offer a wide range of home furnishings with good design
and function at prices so low that as many people as possible will be able to afford them. And still have
many left! The company targets the customer who is looking for value and is willing to do a little bit of
work serving themselves, transporting the items home and assembling the furniture for a better price. The
typical IKEA customer is young low to middle income family.
The Competition Advantage: The competition advantage strategy of IKEA’s product is reflected through
IKEA’s success in the real industry. It can be attributed to its vast experience in the retail market, product
differentiation, and cost leadership.
IKEA Product Differentiation: A wide product range The IKEA product range is wide and versatile in
several ways. First, it’s versatile in function. Because IKEA think customer, shouldn’t have to run from
one small specialty shop to another to furnish their home, IKEA gather plants, living room furnishings,
toys , frying pans, whole kitchens i.e.; everything which in a functional way helps to build a home – in
one place , at IKEA stores.
Second, it’s wide in style. The romantic at heart will find choices just as many as the minimalist at IKEA.
But There is only one thing IKEA don’t have, and that is, the far- out or the over-decorated. They only
have what helps build a home that has room for good living.
Third, by being coordinated, the range is wide in function and style at the same time. No matter which
style you prefer, there’s an armchair that goes with the bookcase that goes with the new extending table
that goes with the armchair. So their range is wide in a variety of ways.
Cost Leadership: A wide range with good form and function is only half the story. Affordability has a part
to play – the largest part. A wide range with good form and function is only half the story. Affordability
has a part to play- the largest part. And the joy of being able to own it without having to forsake
everything else. And the customers help, too, by choosing the furniture, getting it at the warehouse,
transporting it home and assembling it themselves , to keep the price low.
Questions
1. Do you think that IKEA has been successful to utilize Porter’s Five force analysis?
Give reasons.
2. Where do you think can IKEA improve?