Page 64 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes

Case Study IKEA: Earning through Five Forces

ational Competitive Advantage of IKEA IKEA Group, a Swedish company
founded in 1943 with its headquarters in Denmark, is a multinational operator
Nof a chain of stores for home furnishing and furniture. It is the world's largest
furniture retailer, which specializes, in stylish but inexpensive Scandinavian designed
furniture. At the end of 2005, the IKEA Group of Companies had a total of 175 stores in
31 countries. In addition, there are 19 IKEA stores owned and run by franchisees, outside
the IKEA Group, in 12 countries. During the IKEA financial year 2004-2005,
323 million people visited our IKEA stores around the world.
In Sweden, nature and the home both play a big part in people's lives. In fact, one of the
best ways to describe the Swedish home furnishing style is to describe nature – full of light
and fresh air, yet restrained and unpretentious.

To match up, the artists Carl and Karin Larsson combined classical influences with warmer
Swedish folk styles. They created a model of Swedish home furnishing design that today
enjoys world-wide renown. In the 1950s the styles of modernism and functionalism
developed at the same time as Sweden established a society founded on social equality.
The IKEA product range – modern but not trendy, functional yet attractive, human-centered
and child-friendly – carries on these various Swedish home furnishing traditions.
The IKEA Concept, like its founder, was born in Småland. This is a part of southern
Sweden where the soil is thin and poor. The people are famous for working hard, living
on small means and using their heads to make the best possible use of the limited resources
they have. This way of doing things is at the heart of the IKEA approach to keeping prices
low.

IKEA was founded when Sweden was fast becoming an example of the caring society,
where rich and poor alike were well looked after. This is also a theme that fits well with
the IKEA vision. In order to give the many people a better everyday life, IKEA asks the
customer to work as a partner. The product range is child-friendly and covers the needs of
the whole family, young and old. So together we can create a better everyday life for
everyone.
In addition to working with around 1,800 different suppliers across the world, IKEA
produces many of its own products through sawmills and factories in the IKEA industrial
group, Swedwood.

Swedwood also has a duty to transfer knowledge to other suppliers, for example by
educating them in issues such as efficiency, quality and environmental work.
Swedwood has 35 industrial units in 11 countries.

Purchasing: IKEA has 42 Trading Service Offices (TSO's) in 33 countries. Proximity to their
suppliers is the key to rational, long-term co-operation. That's why TSO co-workers visit
suppliers regularly to monitor production, test new ideas, negotiate prices and carry out
quality audits and inspections.
Distribution: The route from supplier to customer must be as direct, cost-effective and
environmentally friendly as possible. Flat packs are an important aspect of this work:
eliminating wasted space means we can transport and store goods more efficiently. Since
efficient distribution plays a key role in the work of creating the low price, goods routing
and logistics are a focus for constant development. Contd...

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