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(ase Study,l.4,}f.A 'IKEA - flat pack success!' IKEA continues to be a global phenomenon. Ingvar Kamprad founded IKEA in 1943. Today, Inter IKEA systems B.Y. is now the owner and franchiser of the IKEA concept. All IKEA stores opera te on a franchise basis. IKEA of Sweden AB is responsible for the IKEA product range; making sure all IKEA products are endorsed 'Design and Quality, IKEA of Sweden'. The IKEA Group is owned by a charitable foundation in the Netherlands.

IKEA introduced its first store in the UK in 1987. Competition comes from MFI, Texas, B&Q and small and medium-sized mail-order firms. IKEA'scompetitors vary from country to country, although no other furniture company in the UK operates with the same global success. In 2007 IKEA had 264 stores in 36 countries. The IKEA group itself owns 234 stores in 24 countries while the rest are owned and run by franchises. The company employs 118,000 people worldwide and has 1,350 suppliers in 50 countries which help supply its range of 9,500 products. Its sales for the financial year 2006/7 totalled 19.8bn (f13.7bn). A breakdown of some basic facts about IKEA can be seen in Table 14.5.
lable 14.5 Distribution of IKEAsales, purchasing and workforce, 2007 (%) Sales (%) Europe North America Asia/ Australia 82 Purchasing (%) Workforce (%) 82


64 3 33


Source: www.ikea.com. Inter Ikea Systems BV.

IKEA generates over 75% of its turnover from international business. However, the firm does as little as possible to tailor its ranges to local tastes, preferring to opt for a standardisation approach. IKEA in Beijing, China, has the same concept, branding, and many product ranges as IKEA Lakeside (UK). To many customers, part of IKEA's appeal is its Swedishness. As can be seen, IKEA sales to Europe comprise 82 % of its total sales and 82 % of its workforce are based in Europe. However, nearly a third of the purchasing from suppliers takes place in Asia/Australia. The company has 45 Trading Service Offices in 31 countries dealing with purchasing and whose job it is to monitor production quality and test any new ideas from the suppliers. IKEA is renowned for its innovative Swedish-designed furniture. The profile of its 9,500-product range is well-designed, high quality at low prices. The firm's mission is 'we shall offer a wide range of well-designed, functional horne furnishing products at prices so low that as many people as possible will be able to afford them'. IKEA provides a comfortable environment for its customers, with mock room settings so that they can see products in context. These include books in bookcases, lamps on tables and fake fruit in fruit bowls! Many IKEA stores offer ahorne decoration service if customers wish to furnish an entire room or horne, and a kitchen planning service. Using computer simulations, specially trained kitchen planners can help plan and choose a person's ideal kitchen. The company provides free pencils and tape measures for making notes and checking dimensions. Amenities include a restaurant, Swedish food shop, children's play area and hotdog stall. Customers are able to self-select the products they want from pa1lets in the company's warehouse, and then take these to the checkout for payment.

A strong selling point to many people is the fact most of the products are flat packed, making it easier for the buyer to transport. By providing products in this format, IKEA is able to reduce its costs in relation to manufacturing and distribution. The company provides horne delivery for larger items, although this is not included in the produet price. Items are easy to assemble, and the tools required for assembly are sold with the furniture. IKEA produces a catalogue of its product range, which is available in store free of charge. In October 2007 IKEA introduced the UK's first BoKlok flatpack hornes in a joint venture with the Swedish construction company, Skanska. It expected to seil f1ats at under :flOO,OOOand three-bedroomed houses for :f150,000, which it hoped would offer housing at least 20% cheaper than comparable properties in the surrounding areas. The company is mainly a business-to-consumer (B2C) organisation and therefore offers no trade discount for organisational purchasers. In order to portray a customer-orienta ted approach, all employees wear staff uniform, and certain stores in the UK are now open untillO pm weekdays to meet consumer demand for late-night shopping. This is promoted locally with outdoor advertising, whilst TV advertising continues to promote brand awareness. Stores are large, warehouse-style complexes located out of town. An example in the UK is the store based at Lakeside Retail Park in Essex. The company has ongoing environmental action plans, as indicated in its yeady Social and Environmental Responsibilities Report. These reports tend to concentrate on environmental improvements within five areas: products and materials, forestry, environmental work at suppliers, goods transport and environmental work at the stores. A Waste Management Manual for the IKEA Group is established. It means that all stores must, as a minimum requirement, sort the five most common fractions of their waste. This ensures that 75% of a store's waste is reused, recycled or used for energy production. In 2006/7, for example, the proportion of renewable materials used in the production of its products rose to 70%, with a target of 75% by 2009. Similarly, the percentage of waste recycled, reclaimed or used in energy production in its stores and distribution centres reached 80% in 2006/7. Ir also has IWAY,which is the 'IKEA way' of purchasing horne furnishing products from suppliers and is based on a code of conduct which incorporates international conventions on relationships between IKEA and its suppliers. For example, in 2006 IKEA terminated the contracts of 27 suppliers for failure to comply with its standards etc. In order to avoid contributing to the devastation of intact natural forests in need of protection, trees from these forests are not used for the manufacture of its solid wood products. Each store has its own environmental coordinator whose job includes organising and carrying out environmental training for the store's co-workers. The aim of this training is to give people an insight into, an understanding of, and information about the environment in general and environmental work within the IKEA Group. Also included in the Environmental Action Plans is making the stores' energy consumption as efficient as possible. Methods used are energy-efficient lighting, tests with alternative

energy systems such as solar power, geothermal energy and energy from underground aquifers. Up 10 90% of the waste from IKEA stores worldwide goes 10 special ist companies for recycling, which is currently being introduced as a comprehensive waste-sorting programme. IKEA works closely with both suppliers and packaging manufacturers to develop sensible packaging that offers effective, environmentally friendly solutions. The aim is 10 use a single material to make recycling easier. Most IKEA packaging consists of what is probably the most environmentally friendly material of them all, corrugated cardboard with a high content of recycled material. By measuring and monitoring the environmental impact of its transport activities, IKEA hopes to be able 10 improve the systems it uses to assess the environmental work of the freight companies it works with. This will encourage distributors to continue with their own environmental improvement initiatives, at the same time as it makes it easier for IKEA to select the right freight company. IKEA decided in 2007 10 switch its entire UK company car fleet to hybrid vehicles by 2008 by replacing its Skoda cars with Honda Civic Hybrids. In 2007 approximately 1,350 IKEA suppliers in 54 countries manufacture the products that are marketed and sold in the IKEA catalogues and via the IKEA stores. A large proportion of IKEA products come from suppliers in countries where environmental work is, on the whole, weil developed, but the firm also purchases products from countries where environmental work is less developed. IKEA currently employs the advertising agency St Luke's for its UK advertising campaigns. Until 1995 IKEA was promoted through tactical campaigns in the UK, which focused on price and range. St Luke's won the highly competitive pitch for this project on the premise that further growth for IKEA in the UK could not be achieved without tackling the British preference for traditional furniture. By breaking this taboo area for advertisers, with the 'Chuck out the Chint' campaign, the agency fuelled a cultural shift in favour of more modern tastes. The chintz campaign generated an unusual amount of media attention in the months following its launch. Shortly after this campaign came an even more irreverent and 1Ongue-in-cheek series of ads, highlighting the correlation between people's taste in furniture and their habits or lifestyles. Based on genuine market research, the furniture findings campaign went out on posters and TV nationally and stimulated a media debate about contemporary tastes in the UK. The link with St Luke's continues, with the advertising company being given a Silver World Medal for the work it had done for IKEA Germany in 2006. Like all multinationals. IKEA does not always receive positive promotion. For example, IKEA has a complicated corpora te structure whereby profits can be channelled through a non-profit foundation, the INGKA Foundation, which can tend to reduce IKEA's tax burden. In 2007 the Berne declaration, a non-profit organisation that prornotes corporate responsibility, formally criticised IKEA for its tax-avoidance strategies. In addition, IKEA still refused in 2007 to sign up 10 the industry standard international 'Rugmark' which guarantees that child labour has not been used in the manufacture of its products.

This poliey eontinues even though ten years previously the eompany was eritieised in a TV doeumentary for eontinuing to exploit ehild labour in the Philippines and Vietnam.
Source: Adapted from www.ikea.com.

Inter Ikea Systems BV. Reprinted

with permission.

1 Conduet an environmental analysis ofthe eompany. 2 Diseuss a suitable market entry method for IKEA entering South Korea. 3 Seleet one of IKEA's main eompetitors and discuss wh at steps they ean take in order to try to eompete with IKEA.