The company applies the same basic formula worldwide: Open large warehouse store festooned in the blue and yellow colors of the Swedish flag that offer 8,000 to 10,000 item, from kitchen cabinets to candlestick. Use wacky promotions to drive traffic into the store. Configure the interior of the stores so that customers have to pass through each department to get to the checkout. Add restaurants and child care facilities so that shopper stay as long as possible. Price the item as low as possible. Make sure that product design reflects the simple, clean Swedish lines that have become IKEA’s trademark. And then watch the results customers who enter the store planning to buy a $40 coffee table and end up spending $500 on everything from storage units to kitchenware.
IKEA aims to reduce the price of its offerings by 2 to 3 percent per year, which requires relentless attention to cost cutting. With a network of 1,300 suppliers in 53 countries, IKEA devotes considerable attention to finding the right manufacturer for each item. Consider the company’s best selling Klippan love seat. Designed in 1980 , the Klippan, with its clean lines, blight colors, simple legs, and compact size, has sold some 1.5 million units since its introduction. IKEA originally manufactured the product in Sweden but soon transferred production to lower cost suppliers in Poland. As demand for the Klippan grew, IKEA then decided that it made more sense to work with suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. Today there are five suppliers of the frames in Europe, plus three in United States and two in china. To reduce the cost of the cotton slipcovers, IKEA has concentrated production in four core suppliers in China and Europe. The resulting efficiencies from these global sourcing decision enabled IKEA to reduce the price of the Klippan by some 40 Percent between 1999 and 2005
Despite its standard formula to achieve global success IKEA had to adapt its offerings to the tasted and preferences of consumers in different nations. IKEA first discovered this in the early 1990s when it entered the United States. The company soon found that its European style offerings didn’t always resonate with American consumers. Beds were measured in centimeter, not the king, queen, and twin sizes with which Americans are familiar. Sofas weren’t big enough, wardrobe drawers were not deep enough, glasses were too small, curtains too short, and U.S. size appliances didn’t fit in the kitchens. Since then, IKEA has redesigned its U.S. offerings to appeal to American consumer, which has resulted in stronger sales. The same process is now unfolding in China, where the company plans to establish 10 stores by 2010. The store layout in china reflects in china reflects the layout of many Chinese apartments, and since many Chinese apartments have balconies, IKEA’s Chinese store include a balcony section. IKEA also has had to adapt its locations in china, where car ownership is still not widespread. In the west, IKEA stores are generally located in suburband areas and have lots of parking space. In china, stores are located near public transportation, and IKEA offers delivery service so that Chinese customers can get their purchases home.
Case Discussion Question
1. How has the globalization of markets benefited IKEA ?
2. How has the globalization of production benefited IKEA?
3. What does the IKEA story teach you about the limits of treating the entire world as a single integrated global marketplace?
The company applies the same basic formula worldwide: Open large warehouse store festooned in the blue and yellow colors of the Swedish flag that offer 8,000 to 10,000 item, from kitchen cabinets to candlestick. Use wacky promotions to drive traffic into the store. Configure the interior of the stores so that customers have to pass through each department to get to the checkout. Add restaurants and child care facilities so that shopper stay as long as possible. Price the item as low as possible. Make sure that product design reflects the simple, clean Swedish lines that have become IKEA’s trademark. And then watch the results customers who enter the store planning to buy a $40 coffee table and end up spending $500 on everything from storage units to kitchenware.IKEA aims to reduce the price of its offerings by 2 to 3 percent per year, which requires relentless attention to cost cutting. With a network of 1,300 suppliers in 53 countries, IKEA devotes considerable attention to finding the right manufacturer for each item. Consider the company’s best selling Klippan love seat. Designed in 1980 , the Klippan, with its clean lines, blight colors, simple legs, and compact size, has sold some 1.5 million units since its introduction. IKEA originally manufactured the product in Sweden but soon transferred production to lower cost suppliers in Poland. As demand for the Klippan grew, IKEA then decided that it made more sense to work with suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. Today there are five suppliers of the frames in Europe, plus three in United States and two in china. To reduce the cost of the cotton slipcovers, IKEA has concentrated production in four core suppliers in China and Europe. The resulting efficiencies from these global sourcing decision enabled IKEA to reduce the price of the Klippan by some 40 Percent between 1999 and 2005Despite its standard formula to achieve global success IKEA had to adapt its offerings to the tasted and preferences of consumers in different nations. IKEA first discovered this in the early 1990s when it entered the United States. The company soon found that its European style offerings didn’t always resonate with American consumers. Beds were measured in centimeter, not the king, queen, and twin sizes with which Americans are familiar. Sofas weren’t big enough, wardrobe drawers were not deep enough, glasses were too small, curtains too short, and U.S. size appliances didn’t fit in the kitchens. Since then, IKEA has redesigned its U.S. offerings to appeal to American consumer, which has resulted in stronger sales. The same process is now unfolding in China, where the company plans to establish 10 stores by 2010. The store layout in china reflects in china reflects the layout of many Chinese apartments, and since many Chinese apartments have balconies, IKEA’s Chinese store include a balcony section. IKEA also has had to adapt its locations in china, where car ownership is still not widespread. In the west, IKEA stores are generally located in suburband areas and have lots of parking space. In china, stores are located near public transportation, and IKEA offers delivery service so that Chinese customers can get their purchases home.Case Discussion Question1. How has the globalization of markets benefited IKEA ?2. How has the globalization of production benefited IKEA?3. What does the IKEA story teach you about the limits of treating the entire world as a single integrated global marketplace?
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