Question

Given that IKEA had to change its strategy for American market, did the company had to change itsinternationalization strategy for its entry into the Indian market?

The furniture industry is an example of an industry that did not lend itself to globalization before the 1960s. The reasons for that are its features. Furniture has a huge volume compared to its value, relatively high transport costs and is easily damaged in shipping. Government trade barriers also were unfavorable. But IKEA – company established in the 1940s in a small village in Sweden, has become one of the world’s leading retailers of home furnishings. In 2002 it was ranked 44th out of the top 100 brands by Interbrand, topping other known brands such as Pepsi. In 2002, it had more than 160 stores in 30 countries. How did IKEA achieve it? The IKEA business idea is: ‘We shall offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’ By the early 1960s the Swedish market was saturated and IKEA decided to expand its business formula outside Sweden. They noted: ‘Sweden is a very small country. It’s pretty logical: in a country like this, if you have a very strong and successful business, you’re bound to go international at some point. The reason is simple—you cannot grow any more’ (Retrieved from http://www.ikea.com). IKEA’s internationalization strategy in Scandinavian countries and the rest of Europe has not paid significant attention to local tastes and preferences in the different European countries. Only necessary changes were allowed, to keep costs under control and IKEA’s low responsiveness to local needs strategy seems to work well in Europe (Kling K., Gofeman I. 2003).

The first challenge came in 1985 when IKEA entered the US market and faced several problems there. The root of most of these problems was the company’s lack of attention to local needs and wants. US customers preferred large furniture kits and household items. As a result of initial poor performance in the US market, IKEA’s management realized that a standardized product strategy should be flexible enough to respond to local markets. In the early 1990s IKEA redesigned its strategy and adapted its products to the US market. Thanks to it IKEA’s sales in the US increased significant and by 2002 the US market accounted for 19% of IKEA’s revenue. As the case study illustrates, in several industries firms with effective strategy do not have to change their core strategy significantly when they move beyond their home market. IKEA does not significantly change its corporate strategy and operations to adapt to local markets unless there is a compelling reason for doing so. IKEA’s strategy in the US during the 1980s demonstrates that even the most successful formula in the home market can fail if multinational companies do not respond effectively to local business realities.

Question: Given that IKEA had to change its strategy for American market, did the company had to change its internationalization strategy for its entry into the Indian market?

Answer 1

IKEA is a Swedish-origin Dutch-headquartered multinational group that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories, among other useful goods and occasionally home services. The IKEA business idea is: ‘We shall offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’ IKEA’s internationalization strategy in Scandinavian countries and the rest of Europe has not paid significant attention to local tastes and preferences in the different European countries. Only necessary changes were allowed, to keep costs under control and IKEA’s low responsiveness to local needs strategy seems to work well in Europe. In the US market, IKEA’s management realized that a standardized product strategy should be flexible enough to respond to local markets. In the early 1990s IKEA redesigned its strategy and adapted its products to the US market.

The world’s largest furniture retailer opened its first outlet in Hyderabad, India on August, 2009. Ikea employees also visited about 1,000 homes in various cities to understand how people lived and what they needed. The company had to change its strategy to enter the Indian market.

In India, with a growing middle class, people buy furniture, lighting and household items like bed linens and cookware. 95 per cent of these are sold through small shops that offer custom-built products such as wooden furniture or lamps, and free assembly and delivery. IKEA revolutionized furniture buying in the West with its wide range of ready-to-assemble products at affordable prices but many Indians think why they have to do it themselves. Ikea is aware of this problem, so it changed its DIY strategy to ‘Do it for you’ by with the help of UrbanClap which provides handymen for such work.

Given India’s lower income levels, the Hyderabad store features hundreds of products priced at less than 100 rupees. Most Indians eat with spoons and they don't need knives, so the company changed its cutlery packs and spoons.

Indian women are generally shorter than Europeans and Americans so the company decided to showcase some cabinets and countertops at lower heights.

Indian children often sleep in the same room as their parents, so company added a child’s bed with all other furniture in model bedroom.

In India, there are lot of relatives coming in everyday, so the company added more folding chairs and stools that could serve as flexible seating.

"We want to be as relevant as possible,” says Nick Elliott, an Australian who heads interior design for Ikea’s Hyderabad store.