Internationalization case study - IKEA

1. Brief story of the company

The IKEA story begins in 1926 when founder Ingvar Kamprad was born in Småland in southern Sweden. He was raised on 'Elmtaryd', a farm near the small village of Agunnaryd. Even as a young boy Ingvar knew he wanted to develop a business.

1920’s

At the age of five, Ingvar Kamprad starts selling matches to his neighbors and by the time he was seven, he starts selling further afield, using his bicycle. He finds that he can buy matches in bulk cheaply in Stockholm and re-sell them individually at a very low price but still make a good profit. From matches he expands to selling flower seeds, greeting cards, Christmas tree decorations, and later pencils and ball-point pens.

1980’s

IKEA expands dramatically into new markets such as USA, Italy, France and the UK. More IKEA classics arrive such as KLIPPAN, LACK and MOMENT. IKEA begins to take the form of today's modern IKEA.

1990’s

IKEA grows even more. Children's IKEA is introduced and the focus is on home furnishing solutions to meet the needs of families with children. The IKEA Group is formed.

2000’s

IKEA expands into even more markets such as Japan and Russia. Everything for the bedroom and kitchen is explored and presented.

The company´s name is similar to the Greek word òikia`, which means `house` and comes from the initials of Ingvar´s father.

2. Why/how internationalized IKEA

IKEA has applied a conservative policy to internationalization. As a general rule, the firm never enters a new potential market by opening a retail outlet. Instead, a supplier link with the host nation is established. This is a strategic risk reducing approach in which local suppliers can provide valuable input on political and legal, cultural, financial and other issues which provides for opportunities and/or threats to the IKEA Concept.

IKEA has concentrated its international expansion in Europe and in North America mainly through company-owned subsidiaries. Franchising, on the other hand, has been extensively utilized in expanding to other areas of the world.

Expansion by fully owned subsidiaries.

IKEA establishes subsidiaries in stable markets which are identical to the Scandinavian market. These subsidiaries are set-up by an expansion team from the central expansion group located in Sweden. This group is responsible for store location and layout, training, logistics and marketing.

All capital requirements are sourced from the headquarters. The primary purpose of the expansion group is to ensure standardization, operational control and provide a smooth entry into to a new market.

When everything is properly set-up and functioning, the local operational team will take over the responsibility for running the store. The expansion team, on the other hand, will move on towards new expansion projects.

Expansion by franchising.

IKEA approaches unknown, relatively small, and high risk markets by franchising.

The expansion group is active in this field as well, as it provides the same pre-opening activities as in opening firm-owned subsidiaries.

Franchisees have to carry basic items, but have the freedom to design the rest of the product mix to fit local market needs. The basics core items amounts approximately 12,000, simple and functional products. The centralized head office is actively involved in the selection processes and provides advice. In addition, all products have to be purchased from IKEA's product lines.

In order to maintain service, quality and logistic standards, individual franchisees are periodically audited and compared to overall corporate performance. Extensive training and operational support is provided from the headquarters. All franchisees pay franchise fees to IKEA holdings. All catalogues and promotional advertising is the responsibility of the headquarters. Franchising has been used as a vehicle to the company's generic focus strategy.

Supporting organizational structure

The present organizational structure can be defined as highly functional with a global market strategy.