IKEA's Globalization Strategies and its Foray in China

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Case Details:

Case Code : BSTR173
Case Length : 16 Pages
Period : 1995-2005
Organization : IKEA
Pub Date : 2005
Teaching Note :Not Available
Countries : China
Themes :Globalization | International Business
Industry : Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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IKEA's Global Strategy Contd...

IKEA had, in fact, been quite successful with its 'one-design-suits-all' global expansion strategy in many markets. However, industry experts were doubtful as to whether this strategy would translate well into new, culturally diverse and riskier markets. They felt that a higher degree of localization was essential for companies like IKEA to be successful in diverse markets.

The Asian markets, together with the Middle East and Australia, accounted for only 4% of IKEA's total revenues in 2004. The company was keen to increase this share in the future. Upon entry into the far eastern markets, IKEA faced a number of challenges in terms of varied cultural, demographic and market specific needs.

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IKEA opened its first store in China in 1998. Although the company's global strategy had worked well in the past in most of the markets it had entered, it quickly learnt that success in the Chinese market required a different strategy in the areas of Marketing and HR.

IKEA also had to alter two of the most important aspects of its time-tested and proven global strategy when it came to China; while elsewhere in the world, IKEA had always located its stores in less expensive areas and sold its furniture on the do-it-yourself (DIY) principle, these elements had to be changed in China. IKEA claimed that it had decentralized most of its functions including HR and stores management in China, but despite this, there was criticism that IKEA was far too bureaucratic with many of its operations being globally controlled and systematized. Commenting on this, Ian Duffy, IKEA's China retail manager commented, "We need time to learn and change in the (Chinese) market to become a success."5

Background Note

IKEA was founded in 1943 by a Swedish entrepreneur Ingvar Kamprad (Kamprad), who still has control over the company through the INGKA Foundation, based in the Netherlands. In his youth, Kamprad sold matches to his neighbors on a bicycle. One of the important lessons that he learnt was that he could buy matches in bulk at a cheaper rate and sell them in small lots at a higher price to make a profit. At the age of 17, Kamprad started IKEA using some money from his father, and for many years he was its sole employee...

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5] "IKEA Outlines Mainland Expansion Plan,"China Daily, www.china.org.cn, April 06, 2004.


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