Question

Swedish Takeout

In this mini-case, IKEA is expanding internationally via franchising and other means. This case focuses on efforts in the United States, Europe, and Russia.

Expanding markets around the world have increased competition for all levels of international marketing. Cost containment, customer satisfaction, and a greater number of players mean that every opportunity to refine international business practices must be examined in light of company goals. Collaborative relationships, strategic international alliances, strategic planning, and alternative market-entry strategies are important avenues to global marketing that must be implemented in the planning and organization of global management.

Here we focus on a variety of alternative market-entry strategies, including exporting, licensing, franchising, strategic alliances, and direct foreign investments.

Read the case below and answer the questions that follow.

Fifty years ago in the woods of southern Sweden, a minor revolution took place that has since changed the concept of retailing and created a mass market in a category where none previously existed. The catalyst of the change was and is IKEA, the Swedish furniture retailer and distributor that virtually invented the idea of self-service, takeout furniture. IKEA sells reasonably priced and innovatively designed furniture and home furnishings for a global marketplace.

The name was registered in Agunnaryd, Sweden, in 1943 by Ingvar Kamprad—the IK in the company’s name. He entered the furniture market in 1950, and the first catalog was published in 1951. The first store didn’t open until 1958 in Almhult. It became so incredibly popular that a year later the store had to add a restaurant for people who were traveling long distances to get there.

IKEA entered the United States in 1985. Although IKEA is global, most of the action takes place in Europe, more than 70 percent of the firm’s $36 billion in sales. Nearly one-fourth of that comes from stores in Germany. This level compares with only about $5 billion in NAFTA countries. The firm has stores in more than 40 countries around the world.

One reason for the relatively slow growth in the United States is that its stores are franchised by Netherlands-based Inter IKEA Systems, which carefully scrutinizes potential franchisees—individuals or companies—for strong financial backing and a proven record in retailing. The IKEA Group, based in Denmark, is a group of private companies owned by a charitable foundation in the Netherlands; it operates more than 350 stores. The Group also develops, purchases, distributes, and sells IKEA products, which are available only in company stores.

1. The fact that IKEA has stores in more than 40 countries around the world and sells to many markets likely means that the company experiences benefits of global marketing? List four benefits and explain.

2. The fact that Ikea strives to lower costs, minimizes materials and packing, and has catalogs that are completely recyclable shows what type of company commitment?

3.Why has IKEA seen slower growth in the United States using the franchise market-entry strategy?

4. Which mode(s) of foreign market entry has IKEA used?

Answer 1

1. The benefits of global marketing for IKEA are:

1. Economies of scale in production and distribution of their products. – refers increased cost savings due to increased production and distribution which eventually increase the revenue of the firm.  

2. Diversifying company markets through growth and expansion means its market share and customer base is increased.

3. Company’s reputation is improved- IKEA has now become world famous and the market leader in the industry.

4. IKEA’s power and scope of business has increased in the multiple markets which has made IKEA the most sought after furniture retailing company in Europe and Germany.

2. The fact that Ikea strives to lower costs, minimizes materials and packing, and has catalogs that are completely recyclable shows the company’s Corporate Social Responsibility (CSR) towards the community.

3. One reason for the relatively slow growth in the United States is that its stores are franchised by Netherlands-based Inter IKEA Systems, which carefully scrutinizes potential franchisees—individuals or companies—for strong financial backing and a proven record in retailing.

4. IKEA has used franchising and distribution as the mode of entry into the foreign market.