Chapter 8 Case analysis IKEA (1)

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Hold That Tiger Case Analysis 8 Case analysis IKEA’s International Strategy 1. Based on the information provided in this case, what type of internationalization strategy does ikea employ? I would argue that IKEA employs a global localization strategy. This is because they work hard to keep their established brand identity. That being said, they also modify their products to suit the climate of different nations in which they have markets. For example, IKEA modifies the size of their bed frames in order to fit market norms such as California King mattresses in the United States. Also, IKEA does their R+D in a few different places including the USA, France and Japan. This allows each sector of IKEA R+D to focus on their own region and therefore avoid much ‘cross-contamination’ between sectors. 2. How does IKEA pursue this strategy? IKEA Pursues this strategy by differentiating specific things to cater to the exclusive preferences of the geographical area that they are trying to internationalize in. As mentioned in the previous question the standard sizes of beds differ between countries so IKEA would have to accommodate to each country's standard inorder to sell effectively in those areas. However they recognized the need for some product differentiation, and allowed for 5-10% of the product range to maintain their competitive advantage in economies of scale. This does not only apply to products but to their business strategies as well. For example in China, their prices were considered expensive, due to being undercut by local producers that would produce similar products. Because of this, IKEA had to significantly cut their prices in China, compared to other countries initially, in order to establish themselves in the market. It is important to cater to the different preferences over different regions and cultures to establish a strong standing in the target market, which IKEA has done well in. While IKEA offers some product differentiation, most of the store’s catalog and product designs are standardized as they have proved to be profitable across all regions. Ikea also standardizes other things like: the democratic management system, the appearance, layout and way the stores are presented to the consumers, standardized packaging, and the unique IKEA culture. These all help IKEA keep costs low and their Economies of scale high. IKEA has found that all these factors are factors that aren't that important to different regions, so it makes sense to keep them the same across regions.

Hold That Tiger Case Analysis 8 3. What are the benefits of this type of strategy? IKEA has a low-cost business model, and can be replicated at all new locations. Using Global Localization, replicating and making stores cater to each region they were in was more possible. Making minor adjustments to their products, as it relates to each region, made their stores more personable and the products better reflected the society of each region. Expanding the company globally has led to learning and innovation within IKEA.

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