Case Discussion Questions: 1. How is IKEA profiting from global expansion?

What is the essence of its strategy for creating value by expanding internationally?

IKEA, Swedish corporation, is now considered the largest furniture retailer in the world. In 2010, IKEA has 313 stores in 37 countries in Europe, North America, Asia, and Australia (IKEA). In other words, IKEA apparently became one of the biggest multinational companies and has been making a huge profit for many years because of their globalization strategy. However, how is IKEA profiting from global expansion? Their low-cost strategy and differentiation strategy play very critical parts to answer this question. In order to reduce the price of its offerings and products, IKEA needs to lower their overall costs. Therefore, IKEA desperately looks for the low-cost suppliers, like China. In addition, in order to be more competitive, IKEA concentrates on their attractive designed products. For the second question: what is the essence of its strategy for creating value by expanding internationally, the answer to the question is, briefly, to maximize its profitability; in other words, to maximize the value of the firm. Further speaking, IKEA is trying to simultaneously achieve low costs through local economies, economies of scales, and learning effects and differentiate their product offering across geographic markets to account for local differences (Hill, 2009, p. 398).

2. How would you characterize IKEAs original strategic posture in foreign markets? What were the strengths of this posture? What were its weaknesses?

IKEAs original strategic posture in foreign markets was called global standardization strategy in order to decrease their costs because IKEA planned to reduce the price of their products by 2 to 3 percent every year, which needs to lower their cost as well. Therefore, standardization or mass production was their first step to reach their goal, because there are some strengths behind; that is, IKEA could just pay attention on finding the primary suppliers to create the products and shipping from those suppliers in order to save the costs. IKEA could save money from economies of scale and learning effects. However, there is one big challenge with regard to the global standardization strategy; that is, what if the IKEAs standard products are not in accordance with the local peoples taste and preference? For instance, IKEA had hard time marketing their European-style products in America in the early 1990s, because Americans do not know centimeters of the measurement on their beds, but only familiar with the king, queen, and twin sizes. Additionally, Americans complained harshly about the small sized sofa and wardrobe drawers, and more. So IKEA failed at that time in America and were forcedly to redesign their offerings to match American taste and preference.

3. How has the strategic posture of IKEA changed as a result of its experiences in the United States? Why did it change its strategy? How would you characterize the strategy of IKEA today? As mentioned previously, IKEA encountered some hurdles while entering in America market in early 1990s, because of their global standardization strategy. Americans grumbled about almost everything, such as short curtains, tiny glasses, small cupboards, undersized sofas, confusing measurements, and so on. Consequently, IKEAs standard products did not fit American market. Afterwards, in order to succeed in America, IKEA redesigned their products in terms of Americans taste and preference. In other words, IKEA gave up their global standardization strategy, but pursued a transnational strategy in order to be more competitive, because IKEA does not only concern about the cost pressure, but they worry about the strong pressure for local responsiveness. With the transnational strategy, IKEA constantly expands their market to most of the developed and developing countries in the world.

References Hill, C. W. L. (2009). Global Business Today. New York: The McGraw-Hill Companies, Inc.