Essay: Business Strategy For IKEA.

Cost Leadership Approach

Discuss about the Business Strategy for IKEA Company.

Cost leadership is one of the prime options that help companies to gain competitive advantage in the market. IKEA is a company that has been successful in the cost leadership approach where comparatively low priced stylish products are offered to the customers. IKEA ensures that the cost leadership approach is maintained through mass production and supply of the products in flat boxes all around the world. The other point that is to be ensured is the flat boxes contain the materials, which are to be assembled by the customers themselves (Grant 2016). The strategies that are adopted by the company include the complexity in the interdependence of production. This makes other competitive companies hard to imitate IKEA. Instead, on keeping faith on third party manufacturers of suppliers the company ensures that they have the optimum level of engineers. Hence, positioning is cost effective. The employees are self sufficient to help the company strategies cost leadership (Gertner 2013).

In case of location, that company has been successful in selling to most of the countries of the world to young white-collar professionals. In most of the countries of Europe and in US the company has their stores in the suburbs. This is keeping in mind the easy accessibility of the customers. This saves money for the company (Twarowska and K?kol 2013). This is the picture even in countries like those that China as the suburbs of this country is easily communicated through metro and rails. The high fixed costs of the company are maintained by different strategies. Apart from the above-mentioned points, IKEA ensures that the cost of sales executive is lessened. In most of the well-known furniture companies the stores have lavish décor with different settings like bedroom, dining room and so on. However, in case of IKEA stores the décor is maintained with minimal price with all types of Scandinavian inspired furniture at a place. This reduces the cost of maintaining employees (Gummesson, Kuusela and Närvänen 2014). The concept of mass production is the idea that has been helpful in dealing with all the economies. Even in countries where the per capita income low the low cost manufacturing process has been successful in dealing with the customer satisfaction. The company deals with the competitors through their exclusive manufacturing strategies, low cost local manufacturing and easy delivery of the parts. However, the quality of the products is maintained through daily and time-to-time investigation of the production process (Grant and Jordan 2015).

The management of the differentiation strategy of the company is one of the effective measures. In case of the premium range of products the company delivers in the same way as in the case of medium ranged products. The cost position of the company is maintained through this and gain profitability. However, the present strategy of the company is to create differentiation with the local brands instead the international brands. Large-scale procurement is the options that the company undertook in order to beat the competition of the local companies (Larsson 2015). Even if the local companies try to imitate the products in lower price, they would fail because of the procurement strategy of the company.

Flat-Packaging and Mass Production

IKEA delivers some other differentiated strategies that include playrooms for the children, extended hours of service and wheelchairs for elders. In addition to these, the stores in Sweden sell Swedish specialties like biscuits, cakes and bread. This ensures that customers who are young and do not have time to shop separately can buy the products on the go. IKEA believes in the thought that customers are their attachment to the company has given the company to products on mass scale. This is the strength of differentiated products and range of the organisation. The stores of the company ensure that children can play if they are not interested to accompany their parents in furniture shopping (Mendibil et al. 2013). The low space of the stores makes the experience company and less feasible for other companies to take the ideas for showrooms.

The strategies that have been projected above are the reasons that IKEA has differentiated itself from the global and local brands. The company is always close to the suppliers. The production process and the surveillance of the company are very strong. They care of small issues that might be faced by customers. The most important thing about the company is the idea to reach young customers internationally within a stipulated budget. Space management is another key idea that is incorporated by the designers. IKEA family is the loyalty card that has been started by the company, which offers discounts to valuable customers. Hence, apart from low priced products customers receive further discounts (Molino 2013).

The differentiated strategy of the company is “we do our part” which assures that commitment to the clients. The products are multifunctional and usually serve the purpose of household globally. Hence, the demands of the customers are met globally. In order to curb costs IKEA is going to use more of railways around the world. This would make the products and the delivery cheaper. The uniqueness of the brand is the management the emergence of the emotional and the rational level of the thinking of the employees (Giunta 2016).

The expansion of the company on the international front has been based on the strategic global outsourcing. However, the country has faced many adversities in its origin and the maintenance of the global presence approach. In such case, the company chose to have a Swedish company to supply the as low cost source. This has been one of the pivotal steps that have been taken by the company towards expansion. Similarly the supply base of the company has been expanded in Asia with the help of Vietnam  (Jin-Yuan, Miao and Xiao-Ming 2016). The inexpensive material and low labour cost are the primary reasons for IKEA to choose the country. The expansion of the company has been successful because of the following reasons:

• Streamline decision-making
• Maintaining the schedules of delivery
• Filling up the capacity with the suppliers
• Understanding the single global want of the customers

The growth prospect of the country has been targeted in Asia. This is ensured with the help of intervention in the market of China. The dominating idea for entering the country is that China is the second largest economy in the world. The retail growth of the country has been fostered with the favourable policies. This acted as one of the key benefit for the company. IKEA has made used of the low cost Chinese labour and the local location for the low price manufacturing. In China, the cost of wood is lower by 20% in most of the countries around the world (Prange 2016). Hence, the difference of the entry in most of the European countries and China varied in terms of chap labour, low cost material and low cost production process.

Differentiated products

In case of comparing, the entry of the company in India, and China it might be said that IKEA was more indulged in the advanced technological use of the country. However, soon with the use of Indian technology the company understood that production is possible. In case of China, the number of stores includes 11 that is soon to be multiplied by 3. However, in case of India as it is the entry-level stage of the company the number of stores is expected to be 25. In case of China it has been found that the concept of do it yourself that is assembling the furniture is missing. On the contrary, in case of India customers prefer local furniture stores to take the measurement and deliver product accordingly at the place (Gollnhofer and Turkina 2015). IKEA being present in the Chinese market has gained the competitive advantage and the buying proceeds have increased on Saturdays. Whereas, in India the market survey states the fact that Indians like to use products that are delivered to the place assembled with no extra charge. In case of China even after having low cost production, process IKEA faced challenges with the local companies. In India, it might be time consuming as well.

Conclusion

The result obtained by IKEA is 50 years of hard work and understanding of customer needs. In most of the cases, it is found that company gain competitive advantage through differentiation strategy. In case of IKEA the furniture are exclusive with the everyday needs of the customers. The space saving technology that is given by the company is not only attractive but pocket friendly as well. The sustainable strategy of the company was to initiate the business at micro level and then spreading all over the world with the low cost manufacturing process. The sustainability of the company has been handled with the help of 21 foresters to ensure that the fact that the sustainable standards of the organization is maintained. This accounts for nearly 30% of the wood that is used by IKEA. The strategy of the company is to have renewable production by 2020 in the operations sector.

Reference List

Gertner, M.I., 2013. The value chain and value creation. Advances in Management, 6(10), p.1.

Giunta, V., 2016. IKEA in China: A “Glocal” Marketing Strategy. In Market Entry in China (pp. 73-93). Springer International Publishing.

Gollnhofer, J.F. and Turkina, E., 2015. Cultural distance and entry modes: implications for global expansion strategy. Cross Cultural Management, 22(1), pp.21-41.

Grant, R.M. and Jordan, J.J., 2015. Foundations of strategy. John Wiley & Sons.

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Gummesson, E., Kuusela, H. and Närvänen, E., 2014. Reinventing marketing strategy by recasting supplier/customer roles. Journal of Service Management, 25(2), pp.228-240.

Jin-Yuan, Y.U.A.N., Miao, W.A.N.G. and Xiao-Ming, Y.U.A.N., 2016. Analysis for Cost Leadership Strategy and Core Competitiveness Points of IKEA CO. DEStech Transactions on Economics and Management, (iceme-ebm).

Larsson, R.G., 2015. Ikea's Almost Fabless Global Supply Chain—A Rightsourcing Strategy for Profit, Planet, and People. Lean Management of Global Supply Chain, 12, p.65.

Mendibil, K., Rudberg, M., Baines, T. and Errasti, A., 2013. Operations Strategy and Deployment. In Global Production Networks: Operations Design and Management, Second Edition (pp. 61-92). CRC Press.

Molino, A., 2013. " New Targets" for" More Sustainable" Companies: A Corpus-driven Study of the Adidas, Ikea and Vodafone Sustainability Reports. Textus, 26(1), pp.103-114.

Prange, C. ed., 2016. Market Entry in China: Case Studies on Strategy, Marketing, and Branding. Springer.

Twarowska, K. and K?kol, M., 2013. International Business Strategy-reasons and forms of expansion into foreign markets. In Management, knowledge and learning International conference (pp. p1005-1011).