IKEA is the largest furniture retailer in the world. In 2017 IKEA had 2.3 billion visits to their website and 936 million visits to their stores. All those visits resulted in 36.3 billion euros in sales. In 2017 IKEA opened 14 new stores, bringing their total to 403 stores globally.
This case study of IKEA's transnational strategy provides insight into the company's strategy and operations. It highlights the company's aim to produce high-quality products at low prices to achieve a competitive advantage, drawing buyers' attention and increasing profitability. The success of the company can be attributed in part to the loyalty of its customers. This is evidenced by the number of young and price-conscious consumers who have bought into the IKEA concept. We will analyse Ikea's transnational strategy and the various challenges that IKEA has faced in its international expansion. This will reveal the company's solutions to specific problems and how their global strategy helped the company become one of the most successful furniture retailers in the world.
Before we get into the main discussion of IKEA's transnational strategy, let's find out about its history.
An introduction to IKEA
IKEA is a furniture and home décor company founded in 1943, in Sweden, by Ingvar Kamprad. After years working with furniture makers and suppliers, the young entrepreneur was able to establish a method that involved supplying furniture to be assembled directly by the customer in their home. The company started by developing innovative modular designs and sourcing components from Eastern Europe. The company then expanded throughout Scandinavia.
Stores were located in areas that could accommodate a large number of vehicles. The design and layout of the IKEA store remained the same throughout the years. The store's inventory is always large and customers can pick out their own furniture. In most cases, they do so without waiting for the store to deliver their order. Furniture can be assembled in various configurations, and the buyer can decide on the size and style of the pieces. Additionally, IKEA is a company that makes the purchasing journey an experience in itself.
INGKA Holding BV is the parent company of the IKEA Group companies. This includes the Swedish furniture retailer IKEA of Sweden, the industrial group Swedwood, which makes the furniture for IKEA, sales companies and the purchasing and supply functions relating to IKEA.
IKEA Transnational Strategy
There are four types of international business strategy: Global Standardisation Strategy, Transnational Strategy, International Strategy, and Localisation strategy (See Figure 1). The matrix emphasises two types of pressure faced by a multinational company when expanding abroad: local responsiveness and cost reductions.
Fig. 1 - International Business Strategies, StudySmarter
Due to its poor performance in the 1990s, the company was forced to move to a transnational strategy that emphasises cooperation and interdependence of the home country's headquarters and its international subsidiaries and stores. To keep design and furniture at an affordable price, Ikea also adopts a global standardisation strategy so that its products, services, branding, and marketing strategies retain a level of 'sameness' everywhere. Some adaptations, however, are made to advertising and products offered in local markets.
The organisation of IKEA follows a matrix structure where each country has a Service Office (SO) and a national headquarter with support units. The SOs are responsible for the development and expansion of the stores in their local markets. Depending on the complexity of the project and the market conditions, Ikea may even choose to establish a country manager and a retail director for a country.
For IKEA, the importance of transferring corporate values, culture and concepts throughout their global divisions emphasises the need for knowledge sharing.
Knowledge sharing is the act of distributing existing knowledge from the headquarter to subsidiaries by a multinational firm.
The advantages of knowledge-sharing include:
Capitalising on market advantages of foreign operations (such as labour costs, proximity to natural resources, or shipping lanes)
Competitive edge in local markets
Organic, locally-driven decisions and organisational structure
Wider market penetration and brand awareness
IKEA's knowledge sharing is primarily supported by a matrix organisational structure where each country's service office is linked to the Global Service Office at its core. Through this network, knowledge and information are shared throughout the organisation. Training also plays an important role in information sharing. Through onboarding programmes, each new employee is familiarised with the company's history, culture, and working methods. This is best reflected in IKEA's HR policy:
As an IKEA employee, you are willing to share your knowledge and experience with all IKEA employees.
Being an open company is another key factor, allowing IKEA to promote knowledge sharing among its employees. All the company's projects, important news, financial data, etc. can be viewed on bulletins and corporate newsletters.
IKEA's hybrid strategy
The IKEA hybrid strategy combines cost leadership and differentiation strategies. This allows companies to create differentiated products at low cost while still satisfying the expectations of their customers (see Figure 2 below).
The hybrid strategy is one where the company tries to gain two competitive advantages at the same time: low prices and high-quality products.
IKEA's strategy aims to achieve a competitive advantage by producing at the lowest cost. It allows the company to charge lower prices and increase profitability. To achieve its goals, IKEA cuts costs and is always looking for the least costly suppliers. It also tries to offer lower prices to its wider audience.
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