IKEA’s Global Strategy Walk into an IKEA store anywhere in the world, and you would recognize it instantly. Global strategy standardization is rampant! The warehouse-type stores all sell the same broad range of affordable home furnishings, kitchens, accessories, and food. Most of the products are instantly recognizable as IKEA merchandise, with their clean yet tasteful lines and functional design. With a heritage from Sweden (IKEA was founded in 1943 as a mail-order company, and the first store opened in Sweden in 1958), the outside of the store will be wrapped in the blue and yellow colors of the Swedish flag. IKEA has sales of €34.2 billion euros annually (about $37 billion U.S. dollars) and more than 150,000 employees. Interestingly, IKEA is responsible for about 1 percent of the world’s commercial-product wood consumption.

The IKEA name comes from its founder—the acronym consists of the founder’s initials from his first and last names (Ingvar Kamprad) along with the first initials of the farm where he grew up (Elmtaryd) and his hometown in Sweden (Agunnaryd). Overall, Sweden has 20 IKEA stores, which are only fewer than in Germany (49 IKEA stores), the United States (42), France (32), and Italy (21). Spain also has 20 stores. With 351 stores in 46 countries, IKEA is the largest furniture retailer in the world. Basically, the furniture market is one of the least global markets, with local tastes, needs, and interests much different than for many other products across industries. The largest IKEA store is in Gwangmyeong, South Korea, at some 640,000 square feet.

The IKEA store itself will be laid out like a maze that requires customers to walk through every department before they reach the checkout stations. The stores are often structured as a one-way layout, leading customers counterclockwise along what IKEA calls “the long natural way.” This “way” is designed to encourage customers to see the store in its entirety. Cut-off points and shortcuts exist but are not easy to figure out. It is even difficult to get back out after having a meal in the famous IKEA restaurant with its Swedish food (meatballs anyone?).

Immediately before the checkout, there is an in-store warehouse where customers can pick up the items they purchased. The furniture is all packed flat for ease of transportation and requires assembly by the customer. Value is stressed to a great extent (the price customers pay for the quality furniture they get). If you look at customers in the store, you will see that many of them are in there 20s and 30s. IKEA sells to the same basic customers worldwide: young, upwardly mobile people who are looking for tasteful yet inexpensive “disposable” furniture of a certain quality standard for the price they are willing to pay.

A global network of more than 1,000 suppliers based in more than 50 countries manufactures most of the 12,000 or so products that IKEA sells. IKEA itself focuses on the design of products and works closely with suppliers to bring down manufacturing costs. Developing a new product line can be a painstaking process that takes years. IKEA’s designers will develop a prototype design (e.g., a small couch), look at the price that rivals charge for a similar piece, and then work with suppliers to figure out a way to cut prices by 40 percent without compromising on quality. IKEA also manufactures about 10 percent of what it sells in-house and uses the knowledge gained to help its suppliers improve their productivity, thereby lowering costs across the entire supply chain.

Look a little closer, however, and you will see subtle differences among the IKEA offerings in North America, Europe, and China. In North America, sizes are different to reflect the American demand for bigger beds, furnishings, and kitchenware. This adaptation to local tastes and preferences was the result of a painful learning experience for IKEA. When the company first entered the United States in the late 1980s, it thought that consumers would flock to its stores the same way that they had in western Europe. At first, they did, but they didn’t buy as much, and sales fell short of expectations. IKEA discovered that its Europeanstyle sofas were not big enough, wardrobe drawers were not deep enough, glasses were too small, and kitchens didn’t fit U.S. appliances. So the company set about redesigning its offerings to better match American tastes and was rewarded with accelerating sales growth.

Lesson learned. When IKEA entered China in the 2000s, it made adaptations to the local market. The store layout reflects the layout of many Chinese apartments, where most people live, and because many Chinese apartments have balconies, IKEA’s Chinese stores include a balcony section. IKEA has also had to shift its locations in China, where car ownership lags behind that in Europe and North America. In the West, IKEA stores are located in suburban areas and have lots of parking space. In China, stores are located near public transportation, and IKEA offers a delivery service so that Chinese customers can get their purchases home.

2. IKEA has narrowed down its market entry mode (into Vietnam) to three options i.e. franchising; a joint venture with a host-country firm or setting up a new wholly owned subsidiary in Vietnam. Critically evaluate these options. Which one would you recommend? (1000 words)

Topic: Choice of Exchange Rate Regimes for Developing Countries: Better Be Fixed or Floating? Countries: Russia and Kazakhstan

How selected countries Exchange Rate Regimes are changing before 2020?

How selected countries Exchange Rate Regimes are changing during year 2020?

Marigold Industries purchased a truck at the beginning of 2020 for $109300. The truck is estimated to have a salvage value of $3200 and a useful life of 117000 miles. It was driven 21000 miles in 2020 and 29000 miles in 2021. What is the depreciation expense for 2021?

Marigold Corp. issues $30600000 of 10-year, 7% bonds on March 1, 2020 at 97 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

The Free Group issues $100,000 of 6% bonds on January 1, 2020 for $107,795. The bonds will mature on December 31, 2029 (10 years). The market yield for bonds of similar risk and maturity is 5%. Interest is paid semiannually on July 1 and January 1.

a. Free Group has a calendar year-end and issues financial statements as of December 31.

Prepare the journal entry to record the issuance of the bonds on 1/1/2020 and any other journal entry(ies) required in 2020 related to this bond issuance. Free Group uses the effective interest method

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,820,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below:

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:
Compute the amount of gross profit recognized during 2020 and 2021.

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,730,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below:

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:
Compute the amount of gross profit recognized during 2020 and 2021.

Demand function : Q^D(P) = 56 - 1/2P

Supply Function : P^s(Q)= 6Q

(1) Compute the market price and quantity in equilibrium.

(2) Compute the consumer and producer surplus in equilibrium.

In March 2020 an increase occurred, while the supply function did not change, the new reservation price for the demand function was found to be $200, while the slope of the demand function did not change.

(3) Compute the new market price and quantity in equilibrium as of March 2020.

(4) Compute the new consumer and producer surplus in equilibrium as of March 2020.