The Competitive Advantage of Ikea

DEPARTMENT OF applied science AND BUILT ENVIRONMENT The matched payoff of IKEA and IKEA in china Zhi Li June 2010 surpasss Thesis in Logistics and existence Man sequencement Master of Science in Logistics and Innovation Management Supervisor Lars Steiner abridgment Title Author Supervisor re work on The agonistic wages of IKEA and IKEA in china Zhi Li Lars Steiner The chief(prenominal) purpose of this e genuinely excogitationatecome dissertation is to describe the IKEA purpose and talk of the application in chinaw be.after explore the bill of IKEA, c tout ensemble into enquiry with the autobus of IKEA remembering, and learn the study from the entanglement and dissertation, wont the theory of emulous emolument to describe the IKEA plan and the militant utility which is the steering that IKEA utilise to germinate the expediency. Secondly, controert the application in china and bound IKEA the implyions to break up the rivalrous returns in chinaw ar securities assiduity turn up. Methods Beca exercise IKEA is non a populace political actuatey, I fecal matter non call in up in addition often selective education.I browsed the official entanglementsite of IKEA to strike more than(prenominal)(prenominal)(prenominal) than entropy ab off the trigger of IKEA incorpo regularised goal, strategies, co touch offner, hi bosh and the data of IKEA financial and campaign separate. I as certainly virtu ally face and Chinese books, thesis and reports try to demote more(prenominal) data and more equit equal ideas of Chinese scholars. Visit and observe the IKEA line of descent and none my psyches. I tried to acquire an consultation with IKEA repositing in china, scarcely failed. Fortunately, I got an call into oppugn with Hans Karlsson which is the logics director of IKEA bloodline in Gavle.He beated the warring dodge of logistics, the agonistic favorable respectable IKEA and the attached footmark IKEA may do in china. testify to analysis the antithetical culture and separate paradox that IKEA bewilder to face. Analyze solely the data and the idea I de put outr got and put on the theory of Michael Porter to termination this thesis. IKEA should sport some an weeer(a)(prenominal) innovations to reconcile to the china grocery. At IKEA our resourcefulness is to create a damp e truly(prenominal)day t maven for the umteen mass. Our line of motiveing idea supports this vision by offer a wide err of thoroughly-designed, in operation(p) basis furnishing outputs at expenditures so small(a) that as more nation as possible al dep permited for be able to pass them. (Our vision and business idea, http//www. ikea. com/ms/en_US/ to the highest degree_ikea/the_ikea_ mode of manners/our_busine ss_idea/index. html) It seems non build throughd in chinaw be mart yet. Firstly, IKEA should expand greater cooperation with local anest hetic anesthetic anaesthetic providers to enamor more free-enterprise(a) pro jeer of toll leaders. Secondly, concord 1 Conclusions to the enduringness of chinaw be mart, IKEA should necessitate some more ad rightment to satisfy so more an a nonher(prenominal)(prenominal) mainland china mathematical reaping picky nodes. Thirdly, IKEA should intensify propaganda manoeuver to let more nodes understand and correspond the IKEA toughie. As an out comer, in that respect is a persistent dash to be the bring home the baconner in this huge and potential food foodstuff. by and by a coarse cartridge holder to investigate the chinaw be market, IKEA al packy understand the china market more than out front. With accelerating the revive of expand, the success of IKEA in china market is exclusively the communication channel of time. chance upon words IKEA, agonistical advan brande, IKEA set, china market 2 Contents page 1. k this instantledgeableness 6 1. 1. Background .. 1. 2. innovation 7 1. 3. Research question.. 7 1. 4. complex body damp of the thesis .. 7 2. Theoretical simulation . 8 2. 1.The volt agonistic forces that unsex sedulousness favourableness . 8 2. 1. 1. bargain author of suppliers 9 2. 1. 2. Bargaining federal agency of customers. 9 2. 1. 3. curse of advanced entrants . 10 2. 1. 4. Threat of substitute crops 0 2. 1. 5. competitiony rivalries inwardly an fabrication 10 2. 2. generic wine wine wine combative strategies . 10 2. 2. 1. terms lead 11 2. 2. 2. oppositeiation . 12 2. 2. 3.Focus 12 2. 2. 4. Pursuit of more than ane generic system . 12 3. Methodology .. 13 4. Findings . 15 4. 1. The introduction f IKEA .. 15 4. 2. The history of IKEA from the web of IKEA. 16 4. 2. 1. 1920 .. 16 4. 2. 2. 1940s-1950s.. 16 4. 2. 3. 1960s-1970s.. 7 4. 2. 4. mid-eighties 17 4. 2. 5. 1990s 17 4. 2. 6. 2000s 18 4. 3. The data from the web of IKEA .. 19 4. 4.The information from interview .. 19 3 4. 4. 1. The logics process of IKEA . 19 4. 4. 2. The market fraction . 22 4. 4. 3. The logistics dodge all allplace the dry land. 22 4. 4. 4. The mainland mainland chinaware market .. 2 4. 4. 5. The coterminous step that IKEA sight do to accession the agonistic benefit intermiticularly in logistics. 23 4. 4. 6. The contest of IKEA. 23 4. 4. 7. The top hatow of IKEA .. 23 4. 5. The compare with the competitor of IKEA 3 4. 6. The spatial relation of IKEA in china at this stage. 24 4. 6. 1. The ground of the legal injury problem . 24 4. 6. 2. The substance of the IKEA predicament in chinaware 24 4. 6. 3. The reason that the speed of IKEA develop s modester than the competitor .. 24 4. 6. 4. The challenge and the innovation of IKEA in China .. 25 4. 6. 5.The outrage of IKEA in China. 25 4. 6. 6. The model of IKEA .. 25 5. Discussion 25 5. 1. The agonistical advantage model of IKEA .. 25 5. 2. The terce slip fashion apply to enlarge the militant advantage .. 26 5. 2. 1. general worth leading 26 5. 2. 2. preeminence . 27 5. 2. 3. Focus 27 5. 2. 4. Pursuit of more than wizard generic outline . 27 5. 3. The suggestion for IKEA in China .. 8 5. 3. 1. The announcement . 28 5. 3. 2. The company culture 28 5. 3. 3. The cooperation of local supplier .. 28 5. 3. 4. The milieu-friendly ontogenesiss .. 29 5. 3. 5. conciliatory strategies.. 9 6. Conclusions . 29 4 consultation 31 Appendix 32 5 1. Introduction The purpose of this chapter is introduction the orbit of IKEA, the purpose, the look for questions. 1. 1.Background The IKEA conceit is found on offering a wide mold of well designed, practicable home furnishing increases at outlays so rugged that as many an(prenominal) raft as possible result be able to hold them. or else than marketing expensive home furnishings that l 1some(prenominal) a few mass vitiate, the IKEA imagination amazes it possible to serve the many by providing diminished- impairmentd products that carry to encourageing more people live a punter life history at home. (http//franchisor. ikea. com/ appearingContent. asp? swfId= theory2). The IKEA Concept guides the way IKEA products are designed, manufactured, delighted, sold and assembled.All of these factors contri moreovere to transforming the IKEA Concept into a reality. In the leaflet the contiguous is filled with opportunities, Ingvar Kamprad, the damp of IKEA, says that IKEA does not just indispensability to win your brain. IKEA to a fault wants to win your heart. No matter whom you are, prescribed education or informal education, a worker or a manager, you back uncovering IKEA is a place which is expert of opportunities. It is up to you is a common convention in IKEA. (Salzer, 1994) IKEA starts the article of furniture business in the 1940s. From a small company pass away to a cosmos noted multinational corporation, the outgrowth speed of IKEA is very fast. agree to the IKEA at a gl ance- financial year 2009, the IKEA earmark re grants the leading home furnishings filth in the world with more than 300 terminals in more than 35 countries, more than 15,000 co-workers and 46 production units. They sold resumeed 21. 5 billion Euros at 2009. (http//www. ikea. com/ms/en_US/ or so(predicate)_ikea/pdf/FF09_GB. pdf, 2010-5-29). How does IKEA develop quickly and assert sozzled ambition in the furniture industriousness? That makes me deplete strong interesting most IKEA. With China join the WTO, more and more impertinent companies prefaceed China market. IKEA entered the China market in 1998.Recently the reliable- flavorgest IKEA shop class class in Asia undefendable in Shenyang. just outright at that place are unless(prenominal) 12 storages in China now. Compared with another(prenominal) contradictory furniture companies, the reading speed of IKEA is seems in addition s broken in in China. On the other hand, China is already fabricate to the thumpinggest check country which is round 20%. nevertheless the sales per arena are hardly 5% in Asia and Australia. What is the problem IKEA progress to in China? What should IKEA lurch in China? I stool out recitation theory of private-enterprise(a) advantage to let on the reason why IKEA terminate conquer the success. Beca phthisis the IKEA is not a humankind company, I laughingstocknot chance upon besides more data. So I 6 carry to research the model of IKEA.I tried to experience an interview with the manager of IKEA cut in in China to know the note and the in livestock(predicate) plan of IKEA. Unfortunately, they did not defecate time. I tried to connect with the manager of IKEA in Gave. Luckily, the logics manager Hans Karlsson gave me a chance to motif the interview. So we knock against at 2010-05-21. He interposed the logics process of IKEA and answered some questions I pee-pee. yet he sightnot give me the data either. I browsed the websi te of IKEA, and read many books, journeys, heretofore report report to image the data, the introduction of IKEA model, and the opinions of im sensible and Chinese scholar nearly IKEA.The research of this thesis contains the history of IKEA in Sweden, the IKEA invention, out of doors(a) expansion periods. Then I reckon out what IKEA should change in the approaching to adapt the China market better. 1. 2. Purpose The purpose of this thesis is to describe the IKEA concept and discuss the application in China. later research the history of IKEA, interview with the manager of IKEA blood line, and find the data from the web and the thesis, employ the theory of militant advantage formulate the advantage, single out, and situation of IKEA. harmonise to the limited situation of China market and Analysis the una alike(p) opinions of IKEA, discuss how to develop the concept of IKEA to keep the competitive advantage of IKEA in China market. Finally, guide the experience to the se remote companies which want to enter China market and these Chinese foreign companies which are salve in the premature stage. 1. 3. Research question As the topics of this thesis are competitive advantage of IKEA and IKEA in China. After hoard and analysis the information I got, these research questions al unhopeful for be take ind.A, what is the competitive advantage of IKEA? B, what is the problem that IKEA have in China market? C, what is the side by side(p) step IKEA should do to increase the competitive advantage in China market? 1. 4. Structure of the thesis The structure of this thesis is as the fol miserable steps 7 Chapter 1- introduction This chapter is to publish the background of IKEA, the research purpose, the research question and the structure of this thesis Chapter 2- theoretical theoretical account This chapter is to introduce the theory of competitive advantage which we go away be apply. in that respect are including the quintuplet competitive forces that visualize industry profitability and generic competitive strategies. Chapter 3- regularityology This chapter is to describe the process that I find the question and economic consumption the ruleology to solve the question. Chapter 4-finding This chapter is to introduce the information I collected. on that point are including the history of IKEA, the data from the web of IKEA, the information from interview and the opinions from other thesis. Chapter 5-discussion This chapter is use the theory and the finding to analysis the competitive advantage model of IKEA and discuss the three slipway sed to increase the competitive advantage. Then, finds out the reason that benefactors IKEA get success. Chapter 6- conclusion According to the situation of China market, finds out the disadvantage of IKEA in China and gets the suggestions. 2. Theoretical framework The purpose of this chapter is to do the literature critical review of the pentad competitive forces the determine indus try profitability and the generic competitive strategies. 2. 1. The five competitive forces that determine industry profitability The kickoff fundamental determinant of a upstandings profitability is industry attractiveness.In any industry, whether it is domestic or internationalisticistic or produces a product or a portion, the rules of op mental attitude are embody in five competitive forces the compliance of crude competitors, the threat of substitutes, the bargain agency of buyers, the negotiate source of suppliers, and the rivalry among the actual competitors. (Porter, 2008) The collective strength of these five competitive forces determines industry 8 profitability. physique 1 the five forces that shape industry competition http//sites. google. com/site/greenlightgocoaching/ invigorateds 2. 1. 1.Bargaining power of suppliers The bargaining power of suppliers is likewise described as the market of inputs. The suppliers influence the profitability and product sc rap by increasing the impairment of inputs elements and step-d induce the unit flavour value. The bargaining power of suppliers is depend on the inputs elements. When the inputs elements is big part of perfect apostrophize, the inputs elements is very weighty in the product process or influence the prime(a) of buyer product, the suppliers have strong bargaining power. (Porter, 2008) 2. 1. 2. Bargaining power of customers The bargaining power of customers is lso described as the market of outputs the ability of customers put the faithful under pressure, which to a fault affects the customers 9 sensitiveness to price changes. The customers influence the profitability by requesting for embarrassed price, correct role and supporter. (Porter, 2008) 2. 1. 3. Threat of unexampled entrants When the balance of supply and demand is imbalance, the new entrants will be attracted by mel humiliateded returns of the profitable market. tender entrants not except bring new technolo gy and mental picry, passive likewise precipitate the profitability of all companies in this industry. (Porter, 2008) 2. . 4. Threat of substitute products Because the products could substitute, ii companies which are in care industry or in contrary industries may compete with to each one other. Firstly, the profitability could be boil d deliverd by the substitute products. Secondly, because of the substitute products, companies have to modify the quality, minify the damage and price, or make product more features. (Porter, 2008) 2. 1. 5. Competitive rivalries in spite of appearance an industry For more or less industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.Competitive rivalry is likely to be based on dimensions much(prenominal)(prenominal) as price, quality, and innovation. expert advances protect companies from competition. This applies to products and services. Companies that are successful with introducing new technology are able to appoint higher prices and execute higher profits, until competitors reproduce them. (Porter, 2008) 2. 2. Generic competitive strategies Though a sure groundwork have a myriad of strengths and weaknesses compared with its competitors, in that location are 2 elemental types of competitive advantage a rigid stooge possess small woo or antitheticiation. (Porter, 1985) The two basic types of competitive advantage influence the five competitive forces that determine industry profitability. The two basic types of competitive advantage combine with the scope of activities for which a firm examines to arrive at them lead to three generic strategies for achieving above-average carrying into action in an industry comprise leaders, note, and charge. The centering schema has two variants, price direction and distinction com committee. (Porter, 1985) 10Figure 2 three generic competitive strategies distributively of the generic stra tegies involves variant route and object lens to competitive advantage, The appeal leadership and differentiation strategies seek competitive advantage in a kind chain of mountains of industry incisions, plot focus strategies aim at cost advantage (cost focus) or differentiation (differentiation focus) in a narrow element. (Porter, 1985) 2. 2. 1. Cost leadership Cost leadership is the clearest of the three generic strategies. In this system, firm should try their best to reduce the cost. If a firm house achieve and sustain boilersuit cost leadership, past it will be an above-average performer in its industry provided it foundation command prices at or near the industry average. At equivalent or lower prices than its rivals, a cost leader low-cost position translates in to higher returns. A cost leader, however, crowd outnot ignore the bases of differentiation. If its product is not sensed as comparable of acceptable by buyers, a cost leader will be forced to discount prices well below competitors to gain sales. This may prohibit the benefits of its favorable cost position. (Porter, 1985) if customers stand for the product is not good as the product of competitor, the firm has to reduce the price. The firm can get high profitability until a cost leader gets the cost leadership parity in the bases of differentiation. 11 2. 2. 2. Differentiation The second generic strategy is differentiation. In a differentiation strategy, a firm seeks to be unique in its industry a coherent some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as classic, and uniquely positions itself to join those adopts.It is rewarded for its uniqueness with a premium price. The core for differentiation is peculiar to each industry. Differentiation is based on the product itself, the speech communication system by which it is sold, the marketing approach, and a broad range of other factors. (Porter, 1985) If the duplication cost for differentiation is less than the premiums price, the firm which has the competitive advantage of differentiation can get better profitability than other firms in the industry. Because the duplication cost for differentiation is the disadvantage of the differentiation, the firm cannot ignore the cost position.So, only if based on the price is almost the comparable as competitor, the discriminator could get the high profitability. 2. 2. 3. Focus The tierce generic strategy is focus. This strategy is instead different from the others because it rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segment in the industry and tailors its strategy to parcel them to the exclusion of others. By optimizing its strategy for the range segments, the focuser seeks to achieve a competitive advantage in its target segments make up though it does not possess a competitive advantage overall.The focu s strategy has two variants. In cost focus a firm seeks a cost advantage in its target segment, while in differentiation focus a firm seeks differentiation in its target segment. (Porter, 1985) The firm can focus the time, the resource and the money on the segment to get the competitive advantage. If the firm can get the competitive advantage of cost leadership or differentiation in its target segment, the firm could provide customer the better service and meet the redundant requirement. Because of the different requirements of customer, there are al shipway many segments in one industry. . 2. 4. Pursuit of more than one generic strategy Each generic strategy is different way to create and sustain competitive advantage. normally a firm has to choice one of them or it will become stuck in the middle. The benefits of optimizing the firms strategy for a particular target segment (focus) cannot be gained if a firm is simultaneously serving a broad range of segments (cost 12 leadership or differentiation). Achieving cost leadership and differentiation are in like manner usually inconsistent, because differentiation is usually costly.Conversely, cost leadership often requires a firm to dis lodge some differentiation by standardizing its product, reducing marketing overhead, and the like. (Porter, 1985) If a firm can use the strategies flexible, like use more than one strategy at the very(prenominal) time, this firm will get a great competitive advantage and market share. 3. Methodology Before I went abroad, I know many worlds Fortune cholecalciferol companies. All of them have the mystifying of success, like Coca-Cola have the unique recipe, the Volvo famous for the natural rubber of the car and so on.But I neer heard the IKEA before. When I started to study in Gavle, I want to buy some cheap articles for daily use, everyone told me to IKEA. Not only that, when I travelled in Europe, I found I can find the IKEA retentivity almost in every city. Why IKEA i s so popular? What is the secret of success? And why I never saw IKEA salt away in China? Does IKEA do not want have the market of China or IKEA is in a dilemma in China market? These questions attracted me so deeply. After I browsed the web of IKEA, I got some information of IKEA.The concept of IKEA is based on a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them and to gartering more people live a better life at home. Simply, the target customer is everyone. The strategy is low price. And they use many ways to achieve the aim of low price like flat packs and self-assembly furniture. I find that the China had already become the biggest purchase country which is close to20%. On the contrary, the sale per region in Asia and Australia is only5%.IKEA have 192 stores in Europe, 12 stores in Russia, 48 stores in magnetic north America, but only 12 stores in China & Japan. (Source financial ye ar 2009 of IKEA) From the archetypical IKEA store afforded in China in 1998 to now, IKEA only open 8 stores in 10 years. The speed is much unhurried than other foreign furniture companies like British B which already had 38 stores in China. The strategy of IKEA is low price, but the China is already became the world factory and the logo made in China is became to the synonymous with low price.After read some thesis and report about IKEA written by Chinese scholar, I find the price is excessively high to Chinese people because of the swap rate. The concept of IKEA is providing most people low price furniture to help them have a better life at home, but most Chinese people cannot afford the price now. So I think IKEA must be in a dilemma in China. Then I wrote a these named the dilemma of IKEA in China and made in China. I wanted to analysis the situation of IKEA and suggest IKEA increase the issue forth of purchasing from China to reduce the cost of goods. 3 When I discussed wi th my professor Lars Steiner, he have a different opinion. He asked me mayhap IKEA do not want let most Chinese people afford the price, and maybe IKEA just want China to be a good purchasing base. That question really puzzled me a long time. Indeed, IKEA could treat China as a good purchasing base. Because the situation of China market is finicky, the change to adapt the China market may affect the world(prenominal) strategy of IKEA, even affect the earning performance. data observed, experienced or recorded imminent to the event, are the nearest one can get to the truth, distortions inevitably occur as the proximity to the event decreases (Walliman,2005) So I want to have an interview with the manager of IKEA to get the further reason. Because I want to research the China market of IKEA, I wrote email to the customer service of IKEA store in Beijing and Shanghai. They replied me that thank me draw up the letter to them they already localise my e-mail to the manager and let me wait the resolve of manager.After two month waiting, I accepted nothing. So I have to give up. After that, I try to salve e-mail to the customer service of IKEA store in Gavle. Similarly, they replied me that thank me write the letter to them and let me to wait for the reply. Fortunately, Hans Karlsson which is the logics manager of IKEA store in Gavle told me I can get a chance to have an interview with him and he is very glad to help me. So I hurried to fain the interview questions and get suggestions from my professor Lars Steiner.We meet each other in provide office of Gavle IKEA store on 2010-05-21. The first sentence of Mr. Karlsson is very sorry he cannot allege me too much data about IKEA because IKEA is not a public company. He introduced the history of IKEA, the concept of IKEA, the competitive strategy of logistics which is the most important way to keep the low price, the strategy of market segmentation, the situation of IKEA in China, explaining some good mod ellings according to the model of competitive advantage, analyzing the next step which IKEA will do to adapt the problem of China market.IKEA is a world famous company and an example of success, but there are not too much theses and books to research IKEA, especially about IKEA in China market. thus far I have a further understanding about IKEA though this interview, I quiet think it is not enough to explain the situation of IKEA in China. Because Mr. karlsson is the manager of IKEA and China market is not one part of his job, he maybe just tell me the good side of IKEA and the opinion about China market is too one-sided. I think I also should confabulate to other peoples opinions which have suggestions to IKEA and deeper understanding of China market.That will be having a recognize understanding about IKEA in China. So I ask help to my friend Guanying Liu which is studying the outperform of international economics in Shenzhen University. Unfortunately, she does not know too mu ch about IKEA, but she provided me some theses and reports from the data subroutine library of her university. I collected the data, opinions and suggestions from these materials. After that, I found even these materials is not too much, I can get a general idea about the situation, the problem and the suggestions of IKEA in China.That make me have a more complete knowledge about the questions I want to research. 14 After the data-gathering process, I read the The Five Competitive Forces that Shape Strategy and Competitive advantage written by Michael Porter who is one of the most influential management experts in the world right away. These theories in these books are very good tools to help a company to get the competitive advantage to extending hoi polloi growth. I use these theories in these books to analysis these data I collected. I find the success of IKEA is not got by lucky.The model of IKEA is a very good example to remediate Michael Porters theories. These methods of IKEA used could learn by other companies, especially these Chinese companies which are still at an early stage. 4. Findings In this chapter, I will introduce the findings from the web, the history of IKEA, the information from interview. 4. 1. The introduction of IKEA Figure 3(http//cache. gizmodo. com/assets/images/gizmodo/2008/08/ikea. jpg) IKEA is one of the world famous furniture companies. It was founded in 1943. As a 15 and which is one of Sweden band which have good unique bearing and brand image, IKEA band constantly strives to provide customers with the furniture which is pyretic, beautiful and practical, people can afford the household articles for use. 4. 2. The history of IKEA from the web of IKEA The IKEA story begins in 1926 when founder Ingvar Kamprad is born in Smaland in southern Sweden. He is brocaded on Elmtaryd, a farm near the small village of Agunnaryd. stock-still as a young boy Ingvar knows he wants to develop a business. 4. 2. 1. 920 At the age of five Ing var Kamprad starts marketing matches to his nearby neighbors and by the time he is seven, he starts interchange further afield, employ his bicycle. He finds that he can buy matches in peck cheaply in Stockholm and re-sell them one by one 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 posterior pencils and ball-point pens. 4. 2. 2. 1940s-1950s The root of a furniture bargainer Ingvar Kamprad is entrepreneurial in developing IKEA into a furniture retailer.This period sees the exploration of furniture design, self assembly, advertising, the use of a compose and a showroom to reach the many people. plank 1 1940s-1950s In 1951 IKEA founder sees the opportunity to sell furniture on a larger scale use a compile. The IKEA catalog that we know today is born. In 1953 piece of furniture showroom opens in Almhult, Sweden, This is an important import in the development of the IKEA con cept for the first time customers can see and touch IKEA home furnishings before ordering them. The innovation is a success people wisely contract the products with the best value for money.In 1955 They start to think about the flat incase 16 4. 2. 3. 1960s-1970s The IKEA concept starts to take shape. dodge 21960s-1970 In 1960 The first IKEA restaurant opens in the IKEA store in Almhult, Sweden. In 1961 IKEA begins quality test its products using Swedish testing standards. In 1962 Marian Grabinski designs the MTP bookcase. Developing this and other woody products develops strong relationships surrounded by IKEA and Polish suppliers during the 1960s. These relationships continue today and are an important reason for IKEA maintaining low prices so that the many people can afford them.In 1965 The stores success leads to the arising of a self-serve storage warehouse an important part of the IKEA concept is born. Additionally, Accenten is opened, where customers can buy quality cooking items at a low price. In 1976 Ingvar Kamprad writes The Testament of a Furniture Dealer and in 1976 it is published it documents IKEAs vision and business idea and has a strong influence on the development and vigor of IKEAs culture. 4. 2. 4. 1980s IKEA expands dramatically into new markets such(prenominal) as USA, Italy, France and the UK. More IKEA classics arrive such as KLIPPAN, LACK and MOMENT.IKEA begins to take the form of todays modern IKEA. Table 31980s In 1982 The IKEA sort is organize and its owner is a foundation, the Stitchting INGKA Foundation, which is based in the Netherlands. In 1984 IKEA FAMILY, the new customer club, is launched. Today, IKEA FAMILY is in 16 countries (over 167 stores) and has about 15 meg members. The IKEA catalog print run expands to 45 cardinal copies, in nine languages. In 1985 IKEA now has 10,000 co-workers and 60 stores in the IKEA Group. 4. 2. 5. 1990s IKEA grows even more. pincerrens IKEA is introduced and the focus is on h ome 17 urnishing solutions to meet the takes of families with children. The IKEA Group is formed and responsibility for people and the environment is seen as a prerequisite for doing good business. Table 4 1990s In 1991 IKEA acquires its own sawmills and production plants and establishes the industrial group Swedwood to produce wood-based furniture and wooden components. In 1997 Childrens IKEA is launched. IKEA decides to develop a range specifically for children. In 1998 IKEA arrives in China. The first IKEA store opens in Shanghai. In 1999 The IKEA group grows to 50,000 co-workers and has 158 stores in 29 countries.On IKEA have the Big Thank You event. The broad(a) of all sales on this special October day, worldwide, is divided among all co-workers in total about 84. 85 9, 1999 million Euros. It is a great way to thank hard- operative IKEA co-workers for alter to the companys ongoing success. 4. 2. 6. 2000s IKEA expands into even more markets such as Japan and Russia. Everythi ng for the bedroom and kitchen is explored and presented in co-ordinate furnishing solutions. This period also sees the successes of some(prenominal) partnerships regarding social and environmental projects.Table 52000s In 2000 The code of conduct called The IKEA Way on Purchasing Home Furnishing Products (IWAY) is launched. It defines what suppliers can gestate from IKEA and specifies what IKEA expects from its suppliers in terms of legal requirements, working manoeuvers, active prevention of child wear upon, out-of-door environment and forestry management. In addition to this, IKEA also introduces The IKEA Way on Preventing Child comminute to ensure that no child labor is used by suppliers or their sub-contractors. Child rights project in India. E-shopping is launched in Sweden and Denmark.Since so many other markets have started offering online shopping at IKEA. In 2001 The IKEA Group trials running its own racetrack trading operations through IKEA Rail AB. The use of r ail continues to be an important part of the IKEA strategy to promote sustainable bringation of IKEA material and products. A new product-recovery concept is apply in more than 100 IKEA stores in Europe to ensure that returned products are, where possible, 18 In 2002 In 2005 In 2006 repaired instead of universe prodigalityd. Everything for the bedroom under one roof.IKEA customers help children in assume The IKEA Group exceeds 100,000 co-workers and operates in 44 countries. 4. 3. The data from the web of IKEA The IKEA opened 15 new stores at 2008 and in august 2009 had 267 stores, which welcomed a total of 590 million visitors during the year. A further 34 stores are owned and run by franchisees outside the IKEA group. IKEA group sales totaled 21. 5 billion Euros. IKEA food services report sales of 1. 03 billion Euros. The IKEA group had 31 trading service offices in 26 countries, and 28 scattering centerfields and 11 customer distribution centres in 16 countries.The swedwoo d group, the IKEA industrial group had 15,000 co-workers and 46 production units. (source IKEA at a glance- financial year 2009) Table 6 the top 5 selling and supplier countries IKEA Germany The United States (10%) China (22% ) Poland (16% ) Italy (8%) Sweden (6 % ) Germany ( 6% ) Britain ( 9% ) France (9% ) Sweden ( 7% ) selling altitude (16%) 5 countries IKEA TOP 5 supplier countries (http//www. cnstock. com/paper_new//html/2007-07/20/content_57549571. htm) 4. 4. The information from interview In this chapter, I will introduce the information from the interview with Mr. Karlsson on 2010-05-21 at Gavle IKEA store. . 4. 1. The logics process of IKEA Mr. Karlsson introduced the logics process of IKEA. The following pictures show the process. there are quaternary main parts in the logics process supplier (factory), distribution centre (warehouse), store, the customer. 19 provider (factory) IKEA focus their force to the design. At this step, they count the low price when they desig n new product. And accordingly IKEA try to find the supplier all over the world according to many factor like the geographical position, the price, the quality and so on. Distribution centre (warehouse) IKEA has 28 distribution centres in 16 countries.These distribution centres use the like computing device system. They collect the information about the sales volume of every product, the quantity of inventory, and so on. The distribution centre soften the goods amid factory and store, even sometime they packet boat the goods which from different factories. The distribution centre also is the warehouse of this area. For example, the distribution centre in shanghai is the biggest distribution centre in Asia. They forever and a day gather the goods from all over the world to here. And then they organize the different number of goods to every store in Asia according to the sales volume.The high expertness of logics is the biggest strategy is a good way to keep the low price. S tore there are two part of IKEA store open hall and warehouse. In the exhibit hall, customer can get the complete information about the product. Through the open hall, IKEA show its function of products, quality and low price to customer furniture with the third-dimensional way. After the customer decided the product they want to buy, they can go to the warehouse to take the unopened product. There are not too much shop assistants in the store, which is a good way to reduce the direct expenses of store and keep the low price.Customer after the customer brought the goods, they disco biscuitation system the goods by themselves. That is a way to reduce the cost of enrapture and keep the low price. There are 3 ways which IKEA used in logics process 1, the DC lurch Figure 4 the DC address process In this process, they transport the goods from the factory to the distribution centre all over the world. Then according the condition of demand, they transport the goods to different st ores. After the customers buy goods from the store, the store collect the information and send the information to the distribution centre.After analysis the information, IKEA send the new order to the factory. That is a loop. This way is the most common way IKEA used now. 2, the transit legal transfer 20 Figure 5 the transit delivery process Sometime, the goods are not produced by one factory. These goods ingest produced different parts by more than two factories and maybe these factories are in different countries. At this situation, they transport all parts of the goods from these factories to the distribution centre. They package these parts to a complete one in the distribution centre and then transport the goods to the store.The rest logics process is comparable like the normal way. 3, the direct delivery Figure 6 the direct delivery process This way is a special and high efficiency way. In this process, the goods do not bring to transport to the distribution centre. The go ods are directly delivered to the stores. So, they can pitch the cost of one time transport. And also this way can increase the use ratio of the warehouse. Mr. Karlsson told me this way of direct delivery is less than 50% in the total logics process and IKEA wish to increase the rate of this way to reduce the cost of transport.Actually, there are so many kinds of goods in IKEA and there are so many suppliers 21 and stores in all over the world. The process of logics is much more composite than these pictures. 4. 4. 2. The market segment The target customer of IKEA is everybody. So the market segment is a very important part of IKEA strategy. After visited the IKEA store, I think the market segment of IKEA is the different part of house, like the kitchen, the bedroom, the bathroom. Actually, the market segment is according to the life situation. The life situation creates the need of the home furniture.IKEA do not select the customer, IKEA just select the offer from the life situat ion. For example, I am a student. I need the bookshelf, desk and I do not need the kitchen because I do not live in my own place now. But after 10 years, the need of life situation will change. I will need other things. The most important point is that I am everlastingly the target customer even in different ages. And IKEA always provide customers the things they need. I think that is a good method that IKEA used to service the customers and win the patrol wagon of the customers. Even there are so many products in IKEA.Not all of the stores have the similar goods. According to the local situation, IKEA define the goods in IKEA store. For example, there are not too much students in Gavel, so there will be less products for students than other IKEA store like the IKEA store in Stockholm or Linkoping. That is a good way to increase the use ratio of the store and the warehouse, and also smirch the cargo backlog. 4. 4. 3. The logistics strategy all over the world When I start to res earch the IKEA, I have a question whether the goods in IKEA store are the same price.So I compare the price of the same kind of good on the web of IKEA store in different countries. I found the price is almost the same. So I thought IKEA use the same logistics strategy all over the world. The replace rate between RMB with Euro is the biggest reason that Chinese customer cannot afford the price of IKEA goods. But Mr. Karlsson told me that the logistics strategy of IKEA have difference between different country. The price of goods is decided by the cost of all of the process. The different place has the different cost, just like the big deal of McDonald, it will changed by different request of customer. . 4. 4. The China market Mr. Karlsson thinks the China market is huge potential. At the moment and in the early, IKEA will find more business opportunities include the supplier and the 22 market. IKEA is always changing. So the situation of IKEA in China will be better. For the quest ion do you think increase the purchasing quantity in China can reduce the cost and increase the competitive advantage? Mr. Karlsson has the different opinion he thinks the price is decided by the cost in the total produce and transport process.With the development of the China economy, China market seems not the cheapest place any more. 4. 4. 5. The next step that IKEA can do to increase the competitive advantage especially in logistics Mr. Karlsson think IKEA will continue to use and work with the concept of IKEA. There still have many places they can do to increase the competitive advantage, like increase the direct delivery, use more train and so on. 4. 4. 6. The competitor of IKEA Mr. Karlsson thinks the IKEA is already an international company and IKEA is growing. So at the present time, the competitor of IKEA is not the international competitor.With the development of IKEA, the competitor of IKEA is the local competitor. Sometimes, the local competitors repeat the good idea or misrepresent the goods of IKEA. To this situation, the important way IKEA used is the low price. IKEA get the lower price though the large-scale procurement. emit price, good quality, gentle service and new design methodology or technology help IKEA tenanted the market quickly. 4. 4. 7. The uniform of IKEA When I have the interview with Mr. Karlsson, I noticed that everybody ware the same uniform in the office.So you cannot carve up who is the manager and who is the normal employee. And Mr. Karlsson told me IKEA not only service the customer but also provide a comfortable environment for their employees. 4. 5. The compare with the competitor of IKEA After I research the data from the internet, I get a form about the competitor of IKEA 23 Table 7 The foreign furniture company Sweden IKEA British B&Q American Home Depot The time and the place of the first The number of store store in China now 1998 shanghai 8 1999 shanghai 50 At the end of 2006 successfully 12 purchased 12 stor es in China. . 6. The situation of IKEA in China at this stage This chapter is to introduce some Chinese scholars opinions about the situation of IKEA. Chinese scholars could understand China market more clearly. So, I think their opinions could let me get deeper understand about IKEA in China at this stage. 4. 6. 1. The reason of the price problem There are 3 reasons that make the concept of IKEA change a, the competitive advantage of low price is not clear and the price is always too high to customer. B, the challenge of high exchange rate make IKEA cannot have the same price in global.C, IKEA seems have the strategy of the high-grade brand positioning in China. (Sa Wang and Licheng zhang, 2008) 4. 6. 2. The substance of the IKEA dilemma in China The substance of the IKEA dilemma in China is which one is more important between localization and calibration. One side, IKEA use the standardization to run the China market. On the other side, IKEA the strategy of IKEA in China does no t give full consideration to standardization. That makes strategy of IKEA do not have a good effect in China market. (Xiaofei Zhao, 2005) 4. 6. 3.The reason that the speed of IKEA develop slower than the competitor The IKEA stores in China are just the image shops. From 1998 to 2005, IKEA open 2 stores in China. These stores are used to collect the information and cultivate customer go habits. From 2005 to now, IKEA enters to the acceleration stage. IKEA is developing in its own rhythm. (Chunhua He, 2009) 24 4. 6. 4. The challenge and the innovation of IKEA in China The challenge A, IKEA is the later comer. Compared with other competitor, the speed of development is later. B, IKEA is the Mr. construe.Because of the high price, the paradise of wage earners becomes to the place of high income bracket. C, IKEA is the outcomer. The Chinese customers still do not adapt the management style of Northern Europe. The innovation A, IKEA changes the place of store from suburbs to prosperous areas. B, increase the number of service staffs C, increase the way of advertising (Benshun Cui 2003) 4. 6. 5. The disadvantage of IKEA in China A, do not provide the free transport service and free install service B, IKEA always buy land and build the store by them. This way is not only need a long time but also need too much money. Xiaofei Zhao, 2005) 4. 6. 6. The model of IKEA The model of IKEA could be generalized as a square one core, two strategies, three marketing, and four fulcrums One core insist on Recreational Shopping Two strategies a, low price b, the model of range of mountains operating Three marketing a, transparent promotional material b, catalogue c, one-stop shop for marketing 4 fulcrums a, cost mastery b, brand control c, management control d, and image control (Daqian Li, 2005) 5. Discussion 5. 1. The competitive advantage model of IKEA After the long time research, there is so much knowledge about IKEA.From the web, the interview, and especially follow t he history of IKEA, we can find many methods which IKEA used to improve the competitive advantage. According to the theory of competitive advantage, I summarize these methods in to the table 8. 25 Table 8 the competitive advantage model of IKEA The five competitive The methods IKEA used forces that determine industry profitability Bargaining power of 1, looking for the suppliers from all over the world suppliers 2, cooperating with more than one suppliers 3,IWAY defines what suppliers can expect from IKEA and specifies what IKEA requires from its suppliers.Bargaining power of 1, low price customers 2,good quality 3, good service 4, high quality of design 5, wide varieties Threat of new 1, Catalog is a good way to proclaim entrants 2, the scale effect 3, high-efficiently of logics 4, develop new products Threat of substitute A special team develops new products, updating technology, products promoting technological development Competitive rivalry 1, using the scale effect to get the low price 2, improving the public image within an industry 3, the model of chain operating 5. 2.The three ways used to increase the competitive advantage As a world famous furniture company, the secret of success behind IKEA is the strategy. 5. 2. 1. Overall cost leadership The strategy of overall cost leadership is always the IKEAs biggest aim. We can find the history of IKEA is also the history of looking for low price. We can find IKEA try to find the low price at every part of the process. For example, before they design a product, they already confirm the price. They use flat-package to reduce the cost of transport. They reduce the staff in store to reduce the cost of store.They also use the scale effect to purchase goods from all over the world. 26 5. 2. 2. Differentiation Todays IKEA range consists of 9,500 home furnishing articles, designed to be functional and good looking but at a low price. You can find almost everything you need in IKEA. both(prenominal) romantics and liberals can find the style they like. Customers need the goods low price and good quality. Low price or good quality is blowzy to achieve, but it is not easy to get both of them. At start, IKEA chose a different way which is stand on the side of everybody. IKEA also take children to their customer, and the feel f care for children really wins many customers heart. IKEA also does a good job in environment protection. 5. 2. 3. Focus There are three main part of IKEA IKEA office, home storage, Childrens IKEA. The target customer is everybody. According to the life system, they segment the market to many parts. That will be better meet the requirement of different customers. Especially the new design for child, it helps IKEA win many hearts from the customers. 5. 2. 4. Pursuit of more than one generic strategy Even these 3 strategies are interacting and affect to each other, IKEA use these strategies flexibly.That is the reason that IKEA can get much more competitive advantage than o ther competitors. A, cost leadership and differentiation Differentiation always needs the extra cost, and cost leadership always need company forego some differentiation by standardizing its product. The method IKEA used to solve this problem is design the price tag before design the product. They can seek the differentiation inside the price tag. The flat-package and self-assembly not only save the cost of transport but also give the originator more room to seek the differentiation.B, cost leadership and focus If a firm services too much segment markets, it will not get the profitability of focus. IKEA use the life system to find out what the customer really need at different age. The people at different age need different furniture. After the segment though life system, the designer could understand the need of customer. So the designer could design the product which is low price and useful to the customer. This method not only segment markets very well but also can focus the res ource to the cost leadership. It makes sure everything they produced is useful to people.After the research of the 27 local situation, IKEA could find out the need of local customers and change the goods in IKEA store. That could improve the use ratio of store and prevent the waste of transport. 5. 3. The suggestion for IKEA in China According to different situation, IKEA should change the strategy flexibly. 5. 3. 1. The advertisement The normal way IKEA used to advertise is the Catalog. If IKEA wants to get a good effect in China, IKEA should not only use the catalog. Because of the number population in China IKEA will find out the Catalog may spend a lot of money in the future.Because there are still a little stores in China, IKEA still a new name in China. If IKEA wants to open more stores in new city, IKEA should take the advertisement to the city before the store opened. 5. 3. 2. The company culture IKEA is already 60 years in Sweden. The customer already understands the compa ny culture and the model of IKEA. Even IKEA already entered China about 11 years, Chinese customers still do not understand the model and company culture of IKEA. In the shadow of the high price, the concept which wants to improve the quality of life seems like an empty talk. IKEA need time to achieve the concept in China.But if the customer do not confidence and support IKEA, the future of IKEA will not look good. So, the mission of IKEA right now is to advertise the inwardness of IKEA to customer. Only after get the trust of customer, IKEA could have a better future in China. 5. 3. 3. The cooperation of local supplier There are 3 logics process that IKEA used. In the future, IKEA should increase the direct delivery to get more competitive advantage of cost leadership. Because China is a developing country, every technology and environmental awareness is still not complete. If IKEA want to find more cooperators in China, IKEA could provide more help to the cooperator.So IKEA can get more cooperation with the suppliers which fit the requirement of IWAY. Only increase the number of purchasing in China and get the scale effect, IKEA could achieve the aim that everybody can afford. 28 5. 3. 4. The environment-friendly products IKEA is a company which focuses on the environmental protection. In China, the environmental awareness of people is not good as the Sweden people. Sometime, people will not choose the environment-friendly products because they think these products must be more expensive than normal product. If IKEA add the advantage of technology