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1 Project Background
2 Project Objective(s)
3 Literature on best International Business and Competitive Strategy practices perceived to be applicable to the case project/organisation
4 Review industry best practice models where available
5 Develop a conceptual model of the key factors or theories to consider when developing your Project Plan
6 Summary
It is important for an international organisation to develop good relationship with the management and customers to seek success on the global platform. The paper has been developed to analyse the international relations and competitive strategy of IKEA which is a market leader in the furniture retail industry. IKEA has its operations in more than fifty countries across the globe and aims to be one of the leading retailing brands. Some of the primary markets for IKEA are the United Kingdom, the United States, Australia and the European market. Along with that, IKEA has started expanding in the developing countries of Asia in the recent years. It has more than 1300 suppliers and 100 designers to create innovative products for the customers across the globe.
The study has been developed to conduct a literature review on international relations and competitive strategy. The literature review has been conducted to analyse the theories and apply them in the international expansion of the business.. The literature review aims to technically check the application of internationalisation and competitive strategy theories in the real world practices of IKEA (Holt & McNeillis, 2007). Furthermore, the paper presents the best practices of the industry to create an international development plan for IKEA.
The primary aim of the paper is to analyse the literature on international relations and competitive strategy. Along with that, the paper aims to observe the best practices of the industry and compare it with the literature presented by different authors on international competitive strategy (Holt & McNeillis, 2007). Finally, the study presents proper recommendations for IKEA by presenting an international development plan using the theories presented in the literature review to maintain its international retails and competitive strategy. The paper presents suitable factors of the conceptual models that can be used to carry on the growth of IKEA in the international market. Hence, the objective of the study is to understand the theoretical models and apply them in real world practices of IKEA.
The original strategic posture of contemporary organisations can be identified through the analysis of best international business practices and global competitive strategy model of the furniture manufacturing company. Herein, the global standardisation strategy of the firm has been evaluated to discuss the strengths. Along with that, an understanding of the competitive practices has been mentioned for further discussion point of view.
The global standardisation strategy of modern organisations has included three primary factors such as the elimination of sales personnel, ready-to- assemble (RTA) furniture manufacturing and global sourcing decision.
Elimination of sales personnel: Contemporary business firms have developed a compelling self-service model in the international business platform that enables the visitors to shop according to their preferences removing the sales personnel (Azevedo, 2013). By developing large stores at the posh suburban areas, furniture manufacturing companies can promote their furniture and other products to the target demographics without spending on sales personnel.
Ready-to- assemble (RTA) furniture manufacturing: Ready-to-assemble furniture has been one of the unique selling points of modern furniture manufacturing industry as the organisation has agreed to manufacture furniture according to the requirements and design of the client. Such efficient selling point has provided the edge over the competitors in the global market (Whitelock & Pimblett, 2007).
Global sourcing decision: Global sourcing decision is another vital instrument of Global Standardisation Strategy as it will reduce the cost of production in case of large volume manufacturing (Baraldi, 2008). Such active supply feature can control the retail price of products by controlling production cost.
By understanding the unique methods applied in Global Standardisation Strategy, the strengths of the strategy must be identified to assess the advantages of the practice in global market operations (Caridi, Pero, & Sianesi, 2012). As shown in the given figure, first of all, the elimination of sales personnel can save significant cost on the human resources. The showrooms and large stores of furniture selling business can establish the retail presence of the business firm alongside with the online stores. Secondly, RTA furniture manufacturing decision is the unique selling point of the business as customers can get what they demand.
Figure: Global Standardisation Strategy
Source: (Edvardsson & Enquist, 2012)
Such strategy has been the strengths of the firm. Finally, due of the global sourcing decision, modern furniture selling business organisations such as IKEA has managed to reduce the price of the products by 40% in the last decade or so (Edvardsson & Enquist, 2012). By producing volume, products have been the economies of scale as far as production cost is concerned.
During the foreign expansion decision-making, furniture manufacturing organisations have identified the essence of setting up a competitive strategy to secure robust growth out of European countries. Hence, the management has evaluated three of the most suitable ideas as presented in the underlying section. Through the identification of Porter’s Five Generic Competitive strategy, the best competitive model has been identified.
Figure: Porter’s Five Generic Competitive strategy
Source: (Porter, 2010)
Minimise Production Cost: Minimise the production cost has been one of the tactical decisions of competitive strategy. Modern furniture manufacturing industry has developed low-cost supply chains through outsourcing. Following the same trend, approximately, 1400 suppliers of IKEA have manufactured products for the company at an affordable price range reducing the cost of production. Hence, the firm can provide unique and quality products at a reasonable range of the target demographics creating competitive advantage (Chung, 2008). Through the establishment of Swedwood, furniture industry based organisations have evolved into a vast manufacturing house allowing necessary allowance to the outsourcing companies. In this way, the company can get products at the most reasonable cost price to market it (Porter, 2010).
Transnational Strategy: The transnational strategy is another significant point of the business model. The organisations have originated extraordinary multinational tactics for different countries. For instance, in the Chinese market, the company has gone for compact stores as the locations are too many to be accessed. For effective selling point, balcony facilities and other layouts have been added in the stores only for the Chinese stores of IKEA (Nachum, 2012). In-home delivery service, rare car ownership facility has been added to the list of the Chinese counterparts. Such effective transnational strategy has raised the attention towards the stores.
Marketing Strategy: The optimised stores of furnishing businesses are one of the prime factors of sales marketing. The stores and large showrooms have provided with a perfect layout so that customers can access the furniture according to their comfort (Fahey, 2007). Furthermore, the company has offered optimised furniture shopping options to the customers providing design advisory and catalogues for identifying the best products suitable for their needs. Such assistance and unique complimentary services have been satisfactory for the customers to create decisive, competitive advantage and retaining customers.
Modern furniture industry based businesses have identified unique buying behaviour of the purchasers in the furniture industry to promote evident service and products. Other competitors have unmatched the Global Standardisation Strategy in comrade to the best in the business. Therefore, the discussion has delivered a conclusion to review the best ideas and strategic practices of the industry.
In modern furniture industry, sustainable business supply chain and developing safe working procedure and environment can be identified as most significant practices model. Through the identification of modelling supply chain management of industry’s best business operators, IKEA can utilise the business resources for significant benefits.
The furniture manufacturers such as Herman Miller have identified the most suitable practices of the industry to establish efficient relationship with the human resources. By realising the common industrial hazards of the furniture industry, Herman Miller has provided effective safety measures and guidelines to be followed by the woodworking machine staffs (Longo, 2011). On basis of the same, IKEA must ensure same sort of workplace environment to improve the operations management within the firm. The safety model of the human resources of Haworth, another best organisation of the industry has provided efficient training to the new staffs so that the proper and careful use of powered and non-powered handheld tools can be advised. Along with that, the safety practices model includes installation of machine guard and splitters to prevent any accidents and casualties at the workplace (Qi, Shen, & Dou, 2013). In addition to that, proactive panels and sheaths must have been installed within the blades ensuring safety of the operators (Hisjam, Guritno, Supriyatno, & Tandjung, 2015). Such instrumental safety measures and tools will provide adequate support facilities promoting safe working atmosphere. Hence, the organisation has got one of the best workplace environments to manufacture efficient furniture following safe working methods. Being a manufacturing company of the furniture industry, the safety policy model of IKEA must be implemented to decrease the number of fatal injuries in the working condition (Walcott, 2011).
Modelling sustainable supply chain management practices have been another significant aspect to maintain high standards in business environment. Open source platform has been followed by most of the leading furniture manufacturers such as Herman Miller, IKEA and Haworth. In this way, the organisations can promote outsourcing of products to get the best deals from the suppliers at the global front. As a result of the value chain model, the leading furniture manufacturers of the industry can develop high profit margins by saving production costs to a certain limit (Jae-Woong Byun, 2011). By removing the authoritative bodies from the middle of the supply chain management, leading furniture manufacturers can provide quality products at an affordable pricing creating competitive advantage. Industrial collaboration and internet platform have increased the growth of the furniture industry at the international market. Therefore, sustainable supply chain model has ensured effective revenue for the leading furniture manufacturing firms.
It is important for IKEA to develop proper conceptual model that can be used to develop better international relations and competitive advantage in the market. It needs to create a competitive environment and values for the customers (Porter & Porter, 2013). The company needs to make strategic choice to grow in the international market. The organisation’s international development plan to seek competitive advantage in the international market is presented in this section.
The competitive environment model has been applied in this section to develop the positioning of IKEA in the international market. The primary competitor of IKEA is Wal-Mart that provides the company with high rate of competition. Hence, there is a need of internationalisation to beat the immense competition executed by the major rivalries (Porter & Porter, 2013). Along with that, there are several local competitors that copy the designs and products of the IKEA and sell them at cheaper prices. Hence, international competitive strategy can be applied by choosing between cost advantage and product differentiation strategy.
The Value Chain model helps to create value for the customers that develop the relationship of the organisation in the international market. The value chain model has been developed on the basis of industry best practices. The value chain model for IKEA has been presented herein below:
Figure: IKEA’s Value Chain Model
Source: (Porter & Porter, 2013)
Primary Activities | |
Operation | IKEA designs the products and gets it manufactured by sub-contractors. |
Inbound Logistic | The long term contracts with sellers helps in smooth operations of the company. |
Outbound logistic | The merchandise are distributed to large distribution centers. |
Servicing | IKEA provides good after sales services. |
Sales & Marketing | It has a team of professionals for sales and marketing. |
Support Activities | |
Procurement | It has more than 1300 sub-contractors all across the globe. |
Product & technology development | It designs the products using innovative ideas with the help of a professional and expertise research & development team (Michelsen & Fet, 2009). |
The international strategy of the company provides the company with different benefits. Application of the internationalisation models can be helpful to seek competitive edge and internal relations. It helps to sale the goods and services outside the domestic market that expands the market reach and opportunities for the company. The incentives of international strategy are presented below:
International strategy helps in increasing the market size of the company.
It provides the company with greater return on investment.
International strategy enables the company to seek economies of scale by locating its production sites at different parts of the world (Michelsen & Fet, 2009).
The company gains competitive advantages of locations and seek high reputation in the market.
It helps to extend the lifecycle of the products that are not in demand in the domestic market.
In order to expand in the international market and develop international relations to gain competitive advantage, IKEA needs to make strategic choice out of the four available strategies as presented in the diagram given below:
Figure: Internationalisation strategy based on cost reduction and local responsiveness
Source: (Porter & Porter, 2013)
International business level strategy reduces the pressure of the company. IKEA has moved to different advanced economies that reduce the burden of the company to focus on cost leadership and product differentiation (Jae-Woong Byun, 2011). But, to maintain its growth, it needs to keep on moving on its strategic direction of cost leadership and differentiation.
According to multi-domestic strategy, the company needs to focus on product differentiation. It helps the company to seek competitive advantage in the international market and create good relationship. It helps the company to customise the products and marketing strategy to match with the changes in the market (Jae-Woong Byun, 2011).
Under global strategy, the companies mainly focus on cost leadership that helps them to seek competitive advantage over the rivals (Klavans, 2014). It makes the company focus on profit maximisation through cost reduction. IKEA initially used the global strategy but shifted to transnational strategy with the downfall of the US market.
The competitive condition in the market is high that enforces IKEA to follow the transnational strategy. It focuses on product differentiation and cost leadership to enable the company with competitive advantage over the rivals (Klavans, 2014).
The recommended strategy for internationalisation on the basis of theories and conceptual models are presented herein below:
Product differentiation: IKEA needs to differentiate its products to match the changing needs of the customers. Along with that, innovative products will help the company have a better market positioning and growth on the global platform.
Cost leadership: IKEA needs to reduce its cost and price of products to gain higher positioning in the market. It will help the company to beat the level of competition and seek growth in the international market (Hoffjan & Weide, 2009).
International Management: There is a need of international management by recruiting different management executives for different markets. It will help to take quick decision and the entire organisation will work for a common goal.
Adequate Supply chain system: An appropriate supply chain system will help the company produce exact amount of product at a particular point of time (Hoffjan & Weide, 2009). It will help in maintaining a high demand in the market will adequate amount of supply.
International marketing strategy: IKEA needs an international marketing strategy that will help it to use customise promotional techniques according to the variations in the markets.
Analysing the above scenario, it can be seen that IKEA is a well reputed international brand in the furniture retail industry. The company can use different internationalisation strategy to further expand its market and seek competitive advantage. Along with that, it has its operations in major developed economies that provide the company with competitive edge. Furthermore, since its global exposure the strategic choices made by the company has supported in market growth of the organisation. IKEA can seek success on the global platform by using the conceptual models such as adequate supply chain system, international management, competitive pricing, international marketing strategy and differentiation of products. Furthermore, the transnational strategy is an appropriate model for developing international relations and seeking competitive advantage.
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