Industrial Organization - Essay I
March 17, 2013
Word count: 3397
IKEA is a privately held, Swedish multinational company that is one of the world’s largest furnishings retailers. This international home products company designs and sells ready-to-assemble furniture such as beds, chairs, and desks, appliances, and home accessories. The company is the world’s largest furniture retailer. IKEA was founded in 1943 in the South of Sweden, and its name is an acronym of the initials of the founder’s name, Ingvar Kamprad and of Elmtaryd and Agunnaryd, the farm and village where Kamprad grew up. The company is known for its modern architectural designs on various types of appliances and furniture, often associated with a simplified eco-friendly interior design.
In addition, the firm is known for the attention it gives to cost control, operational details and continuous product development, allowing it to lower its prices by an average of two to three percent over the decade to 2010, while continuing its global expansion. As of October 2011, IKEA has 332 stores in 38 countries. Most of these stores are directly owned but some are managed under franchise by owners outside the company. By doing this, IKEA faces a higher chance of success than in a sole proprietorship. In fiscal year 2010, it sold $23.1 billion worth of goods, a 7.7 percent increase over 2009. In recent years, IKEA purchases from developing countries have grown from 32% in 1998 to 48% in 2003; 29% of its output comes from Asia, 67% from Europe and 4% from the USA (Arrigo, 2005). For a long time, Poland was the second supplier of raw materials after Sweden, but there was recently a giddy increase in China which, in 2004, accounted for 14% of total output, followed by Poland with 12%, Sweden with 8%, Italy with 7%, and Germany with 6% (IKEA.com). To achieve its goal of boosting efficiency while cutting costs and prices to the end consumer, IKEA is constantly looking for convenient new locations. This paper will focus on strategic investments decisions with regard to innovation and advertising and strategic product feature decisions.
IKEA & Supply
IKEA's vision is “To create a better everyday life for the many people.” To meet its vision IKEA provides many well-designed, functional products for the home. It prices its products low so that as many people as possible can afford to buy them. However, in creating low prices IKEA is not willing to sacrifice its principles. “Low price but not at any price” is what IKEA says. This means it wants its business to be sustainable. IKEA supplies goods and services to individuals in a way that has an overall beneficial effect on people and the environment. Customers all over the world have responded positively to IKEA's approach. This is evident in its increasing sales. Supply chain
IKEA has an extremely efficient supply chain and its management was the key source in IKEA in cost management which gave it a cutting edge among its competitors as it products where charged 30% lower than the cost of its rivals. With regard to the supply chain, the flow of production and processes go through three industrial sectors before the end product reaches the customer. Firstly, it starts with the primary sector concerning raw materials. Natural resources such as timber are extracted and developed. IKEA buys products from more than 1,300 suppliers in 50 countries (The Times 100). It uses a number of trading service offices across the world. They negotiate prices with suppliers, check the quality of materials and analyze the environmental impacts that occur through the supply chain. IKEA aims that all the products and materials it takes from the primary sector do not harm the environment. They also keep an eye on social and working conditions at suppliers. The second step is manufacturing...