Primer Parcial Caso Ikea

PRIMER PARCIAL CASO IKEA – Jorge Martínez A00399003
a) IKEA’S SWOT analysis

STRENGHTS WEAKNESS OPORTUNITIES THREATS
Brand name Same designs Smaller stores Trends changing
everywhere fast
Affordable Do not assemble Technology to show High increase on
designs catalogue. competitive peers.
Flat packaging Do not deliver to the High student´s Cheap labor force in
innovative model consumer’s house population increase emergin economies
Wide design’s Cheap designs Poor Cultural differences
variety competitiveness for among countries
the economic high
class
Original designs Low identity to the Non exclusive
brand, easy to copy. contracts for
suppliers
Modern designs Targeted to
economic low class
b) Porter’s industry análisis

To analyze an industry´s attractiveness and likely profitability, it is bes suitable to
implement a analysis based on Porter´s 5 forces.
1- Competitive rivalry : For IKEA, even before it started sales on furniture, the market
was already matured enough to be segmented on the red ocean, meaning all
competitors were basing their sales on the cheapest price.
Ikea innovation´s was the flat packaging, which helped it to succeed in the market
and have potential growth around the globe. Unfortunately for IKEA, patenting a
way to sell is far more difficult than patenting a color, recipe etc. if not so, it´s just
not possible.
This allowed it´s competitors to sell under the same ideology (easy to
take/assemble).
Nowadays IKEA is not only facing direct competitors that focus their sales only in
products, it also shares the market with indirect competitors that have a wider
variety of products, such as Office Depot, Home Depot, and other retail stores.
2- Bargaining power for buyers : for IKEA´s entrance into the Chinese market, it was
force to have adaptation to it, by decreasing their profit margin for a better price
offered to their consumers. We would say that Bargaining is a practice meant to be
implemented from B2B or B2C businesses, not for B2C, because the prices are
based on an analysis of the market that will fit well to the objective profitability.
Said that, IKEA´s buyers have no power for bargaining in a store.
3- Threat for substitution: This refers to the likelihood of the final consumer, finding a
different way of getting what you sell, the main reason of why a consumer may go
to a substitution product is mainly price, nowaydays it is very easy to find products
that substitute IKEA´s ones.
4- New entrants: for all those companies that want take part on the furniture market, it
is very late for them to gain power on it, unless they come up with disruptive
innovation models related to the market, it will take a lot of time and money to grow
in the already mature market.
5- Bargaining power for suppliers: different to the power of bargaining with
consumers, KEA has a strong power for bargaining with suppliers; since the amount
of orders required is in huge amounts, the prices can be extremely cheap.
c) According to the EPRG model of Perlmutter, which kind of model does IKEA
applied before 2000s when they entered new international markets? What kind of
operation decisions from the company’s headquarters justifies your answer?
Howard Perlmutter identified a way of classifying alternative management orientations,

which is commonly referred as Perlmutter’s EPRG model. He states that businesses and
their staff tend to operate in one of four ways, Ethnocentric, Polycentric, Regiocentric and
Geocentric… as for IKEA , the way the company operated in the market before the 2000´s
was the Ethnocentric, which stands for believing that the home country is superior. When
they look to new markets they rely on what they know and seek similarities with their own
country. Typically, these companies make few adaptations to their products and undertake
little research in the international markets.
The operation decisions from the company´s headquarters that justifies the previous answer
is that the basic assumption behind IKEA’s global strategy was “one design suits all”, as for
mentioned in the case: Andres Dahlvig, the CEO of IKEA, had once said, “Whether we are
in China, Russia, Manhattan or London, people by the same thins. We don´t adapt to local
markets”.
D) How does the IKEA´s corporate culture influenced their success in the hard discount
furniture industry? Mention 3 factors that you think helped to achieve high operational
efficiency and reduced costs in their stores operations.
The values of IKEA were togetherness and enthusiasm, constant desire for renewal,
humbleness, willpower, cost-conciousness, simplicity and leadership by example. IKEA’S
management style and operations strategy is generally associated with informality,
openness and simplicity. one of the key features of IKEA that distinguish it from its
competitors is the way they organize their stores, that ensures unique experience for their
customers. All of the stores are designed as a house setting, where customers can find
everything they might need at home: from wardrobe to kitchen knives. They also provide
free pencils, paper and tape-measure, so customers can do everything by themselves, which
not only makes shopping easier but also helps to minimize need in staff and therefore save
money on it. IKEA also minimize its costs by setting their manufacture in countries with
cheap labor and raw materials, like China, so they base their operational strategy on large
volume production with minimal costs. All in all, these 3 factors: 1). design of stores, 2).
self-service and 3). manufacturing in China ensure its success in furniture industry.
d) How did they manage to reduce price, what did they do different from its
competitors?
IKEA´s innovation was key in reducing costs, which helped them to reduce prices and
be more competititve. By selling products that can be assembled at home and be taken
in flat packages, costs on transportation and assembling were taken away from the main
price. Having this innovation as an aggregated value, they could take the advantage of
mass production in a low quality, translated into a cheaper price.
e) what do you think IKEA did “right “ in terms of global expansion? Do you think
their “cautious approach” was the best choice for china´s market entry?
In My opinion, the cautious approach was a very good decision from IKEA, getting
slowly into a market with differences in culture to measure the acceptance of the
product, political risks etc. was an effective way for expansionism, allowing them to
avoid risks that could lead to important profit losses.
g) If you were part of IKEA´s leadership, what would you suggest to the company´s top
manager to succeed in China’s expansion next steps.
For company to sustain it´s competition in the market, it is fundamental to actualize to the
market needs, most companies disappear from the market for not implementing a strategy
that adapts to what the consumer needs. My advise to the IKEA top manager would be to
increase their investment in the innovation department and in the research and development
in order to have a correct adaptation and actualization to the new trends and differences on
the target market.
H) Do you think that other emerging markets such as India, Korea or Mexico could
behave similarly to China in terms of IKEA´s market perception? Or each one would have
their own challenges?
I believe that in terms of how IKEA used to do business, other emerging markets will face
similar problems like China did, as for example the price reduction. And as for in the other
hand we will also have different challenges characteristic from Mexico, different to what
India or Pakistan would have; Challenges may include not only price, but a wide
consequences from what a culture produces, such as tastes, spaces, sizes, materials, etc. and
this just for what they buy, theres also differences between times, and places from when
and where they buy it, as for example, South Korean people have a higher tendency to buy
products through internet than Mexicans.
I) Analyze how political and bureaucratic decisions can influence the strategies of
global companies as IKEA
Just as the protectionism implemented by United States towards China, other political
decisions may affect directly or indirectly a company´s strategy to penetrate or achieve its
goals in a specific market. Taking as for example the protectionism implemented by
country “x” is going to affect the prices that a company from country “y” will have to bring
up to the final consumer. if we are talking about a company which competes in a low-price
strategy, they will be forced to reduce their profit margin in country “x” in order to remain
competitive, and in some cases, protectionism reaches a level that obligates the companies
from country “y” to seek for other business opportunities in country “z”.
Bureaucracy has become an indirect way to affect businesses between countries, resulting
into an inflexible system that makes it more difficult to have business with, by adding
regulations and papers, certifications, etc.
J) Explain the need for IKEA to find a balance between globalization and national
responsiveness (differentiation) in China and other emerging markets.
The perfect balance between globalization and national responsiveness is the point to which
a company is selling same products differently (characteristics, ways, amount) without
loosing the path from the mission of the company and keeping the specific thing that
differentiates it from the rest and makes its image on the products recognizable. It is
important for the companies to expand into a broader market, but not even less important to
respect and adapt to national differences, which will allow them to have a better
responsiveness to local demands.

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PRIMER PARCIAL CASO IKEA – Jorge Martínez A00399003

a) IKEA’S SWOT analysis

b) Porter’s industry análisis

Howard Perlmutter identified a way of classifying alternative management orientations,

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