Part I Contents 1. 1 Introduction 1. 2 Problems Identifications and assessments 1. 32 Summary Learning Objectives After Studying this part one should be able to do the following: •Characterize and compare the different problems faced by IKEA in oManagement oPlanning oControl 1. 1Introduction: As this report has comprehensible decision oriented approach. It is divided in 3 parts which describes the various problems identifications and assessments faced by IKEA across its market as the company is moving toward Globalisation. . 2Problems identifications and assessments: The problem faced by IKEA is been divided in various parts and there is a relevant illustration given with each of the problem 1. 21 Flat Pack design: This is quite innovative and cost effective method invented by IKEA . Itis not just selling products but selling philosophy as well which was not doing so well initially in America where IKEA struggled to change the attitude of the consumers, they found it too unswervingly Swedish. The e. g. f the America was not the first time that IKEA struggled to implant the Swedish culture they also tried to persuade the Japanese consumers in 1974 but they had to withdraw from the market facing the same problem 1. 22 Rigid in approach: IKEA was quite rigid in their approach to international market where it refused to adapt the most vital things. For e. g. it was suggested that Americans wouldn’t assemble furniture themselves, rather than yielding its flat packs, IKEA provided better instruction manual and a self assembly service.
It faced a similar problem in Japan as well other where the company denied it by claiming that Japanese culture was similar to Scandinavian. 1. 23 Less Product Variation: In order to keep cost minimal there is standard variants available across IKEA stores, so there was constant pressure for IKEA to sell the same products all over the world for e. g. for Chinese market only 3 variations were added to 6000 to 7000 standard products for the local market from where it source around 23% of its product still no attempts were made in variation of products. . 24 Cultural Insensitivity: IKEA standardised product strategy and Rigid approach have given rise to cultural insensitivity where the keeping the variation standard can cut the variable cost to minimum but it will also give rise to issues when entering the foreign market, IKEA has faced many problems in initially in America where it had to struggle for 2 years before adapting to the American culture when they started losing volumes sales for e. g. he IKEA beds came in centimetres but American liked their beds King size and large beds , the standard book shelves were too small for Americans TV, this was not the first time they faced same problem it had happened in Germany 1974 where the desks were flop just because the Germans were used to 5 legged ones and standard ones in IKEA just had 4 legs. 1. 25 Market strategy analysis: IKEA failed to analyse the market in which they wanted to enter.
IKEA had general plan on entering the market on its standard marketing plan where there was very little scope for analysis, they have to understand the emerging demographics which will force the firm to widen its focus strategy to respond to nation level consumer groups for e. g. the standard plan in entering the Japanese market failed just because the need to understand the requirement of cohort consumers were not taken in to account, hence the failure to lure the Japanese consumers to its store. 1. 6 Customer perception: IKEA faced mixed reaction in terms of consumer perception about its product quality and product design, for e. g. In China the IKEA stores in Malls were still considered expensive as the store for middle class. IKEA is trying to globalise but in Scandinavian style in America the European style sofa were too hard for American bottoms. The IKEA system of self service and self assembly bewildered Americans as in the society was familiar with customer service and customer focus 1. 7 Centralised Control: As IKEA is continuing to expand in to the foreign market there would be more pressure on centralised strategic direction where it would be difficult to balance the country level autonomy and centralised intervention, for e. g. the control over its supplier in terms of quality reassurance, technology shifts and economies of scale may activate the suppliers to assimilate forward and manufacture competitive product for IKEA local competitors other problem may be the common problem of NIH syndrome for employees working in foreign market. 1. 8 Logistic complications: Brisk Internationalization has activated the increase in logistic complexity which would be imposed in central controlling office to maintain high level of control over its supplier for e. g. IKEA central logistics system has to have immense control over its supplier in order to avoid shortages and short supply in the stores which would result losses in sales. 1. 29 Product development lead time: The adaption to international market depends upon the firm’s ability to react on the demand where it needs to be proactive which was not in case of IKEA which would generate bad image in minds of consumer for e. . it took 2 years for company to change the product into deeper drawer with better sides in America just because IKEA Sweden was looking for better affordable way to design it and sourced it to local suppliers in US. 1. 30 Controversies: the grand opening of new stores always seems to create a alarming and enthralling rushing of the consumers, there are couple of tragedy which have been associated with IKEA new store and also been created by them for e. g. In Texas the customer had waited for more than 192 hrs in order to get the $10,000 prize another e. g. f people getting trampled and dying which had been occurred due to people rushing into the stores to get the discount vouchers or coupons in London due to which the store was closed in 30 mins of its grand opening this kind of scandal has negative impact on the brand image. 1. 31 Competition: IKEA expects to gain a good chunk of market share by opening number of stores across the market but it still faces very tough competition by global player like Wal-mart, Carrefour etc but also from local player like in Japan local chain Muji which has more than 100 stores around the nation is famous for its hip but simple design but low prices.
IKEA has to be scrupulous in handling competitions especially in countries like Japan where its second entry is very crucial for its success in that market, another main competitor is Nitori which has 119 stores across the nation and sells the product made in Japan alongside imports low cost from China. 1. 32 Summary: In the current framework the companies enter foreign market in order to utilize the competence which they have already acquired and developed in the domestic market.
The IKEA case shows that company is using similar way of entering being under the impression that their way of managing is universally accepted which they are now struggling with in countries like China, Japan and America. The decision that going global in Scandinavian style in Asian price has preserved the Swedish content and it has managed to fare successfully in European market but not in many international markets.
IKEA has built a strong corporate culture laid by its founder Ingvar Kamprad, which has given it a competitive advantage but IKEA applies same corporate culture in all the market it operates which influences the national culture resulting in cultural insensitivity, It was for the same reason that Hofstede (2001) had doubts about the universal validity of management theories which are developed in one countries and when they are applied in another market due to different environment culture and it may have different impact in different markets.
Due to cultural differences there may be different tastes and choices, consumer in different market may or may not use the same product which is been used in domestic market so even if there is demand of the product there needs to be adaptation made by the company for IKEA adapting the European Market was relatively easier than American Market due to cultural difference for which it had to adapt to the local market. Therefore the difference in values, consumer perception and styles of communication is important to understand the host country culture.