IKEA – The Global Retailer

1. How has the globalization of markets benefited IKEA?
Economy of scale determinates globalization advantages. Economy of scale influenced on IKEA. In case it was mentioned that IKEA’s target market is the global middle class who are looking for low-priced designed furniture. And leaders of the global retailer aimed to make prices of items as low as possible. So company aimed to reduce the price of its offerings by 2 to 3 percent per year, which requires attention to cost cutting.

Furthermore the scale of IKEA, its ubieties in several countries and collaboration with different suppliers in different countries enabled IKEA to reduce the price of the best-selling Klippan by some 40%. Also the globalization allowed transferring production to lower-cost suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. The globalization of market made IKEA establish its stores almost in every country in the world as the cost of transportations, labor, and materials can be reduced.

But globalization has its own disadvantages, for example national economic differences, first level – differences in utilization of products and markets of consumer goods keep special features. All these concerned IKEA. Despite its standard formula, to achieve global success IKEA had to adapt its offerings to the tastes and preferences of consumers in different nations. The company found that its European style offerings didn’t always resonate with American consumers. IKEA has redesigned its US offerings to appeal to American consumers, which has resulted in stronger sales. The same process was unfolding in China, where the company had to adapt to Chinese offerings. 2. How has the globalization of production benefited IKEA?

Globalization of production benefited IKEA also by letting them save in the shipping department. They were able to adapt so seamlessly to the new markets because everything has now adapted itself to newer markets. With a network of 1,300 suppliers in 53 countries, IKEA devotes considerable attention to finding the right manufacturer for each item. There are five suppliers of the frames in Europe, plus three in the United States and two in China. To reduce the cost of the cotton slipcovers, IKEA has concentrated production in four core suppliers in China and Europe. The resulting efficiencies from these global sourcing decisions enabled IKEA to reduce the price of the best-selling Klippan by some 40% between 1999 and 2005.

IKEA originally manufactured the product in Sweden but soon transferred production to lower-cost suppliers in each of the company’s big markets. IKEA’s success is based on principal marketing strategies that remain the same throughout the world, which include a catalogue that is printed in different languages, for many counties, and the use of the colors of the Swedish flag, blue and yellow, in the IKEA logo. 3. What does the IKEA story teach you about the limits of threating the whole world as a single integrated global market place? In my opinion every country is unique and has different cultures. If the strategies to provide low price of product offer a company must identify what and which factor that can bring the lowest cost in term of labor, transportation, materials and so on. This story teaches us that the key to success is to be able to adapt and compromise to cater to the local tastes and trends.