November 6, 2010
IKEA – The Global Retailer
1. How is IKEA profiting from global expansion? What is the essence of its strategy for creating value by expanding internationally?
IKEA increased its growth rate by taking its products developed at home and selling then internationally. This expansion allowed the company to offer its products not only to the Swedish consumer, but also to other consumers around the world, in an effort to increase profits and further develop the company. The company had a defined strategy when it chose to make a move on the international market, a strategy that focused on cost reduction that allowed its offerings to be sold faster at a discounted rate. The Klippan, Ikea’s best selling item had such a success that the company decided to work with suppliers in different markets of the world to avoid the costs associated with shipping the product all over the world. This also allowed the company to be closer to its consumers in different market around the world, and to better understand the culture of each of the countries that IKEA sold its products.
When considering the financial costs of expanding internationally and opening stores world-wide one will think of the high costs of developing local supplier links, sourcing its work force, advertising and marketing, and most importantly the cost associated with building, designing and stocking a store. Although on the surface it looks that the company will have to invest and spend lots of money to extend its offerings internationally, by doing so the company will be able to borrow money locally. By doing so the company will protect its borrowing costs from inflation and exchange rates changes, while increasing sales and profits while maintaining low costs.
By expanding internationally IKEA was able to outsource its manufacturing work force, which enabled them to offer a cheaper labor for the same end result. IKEA...