IKEA is one of the largest furniture makers and retailers in the world and is well known for its lowcost, stylish furniture and bold, sometimes controversial, advertising campaigns. Established by Swedish entrepreneur Ingvar Kamprad in 1943, by 2015 the company had an estimated turnover of €31.9 billion (A$46.5 billion), net profits of €3.5 billion (A$5.1 billion) and 328 stores in 28 countries. While IKEA has undoubtedly succeeded in foreign markets, establishing stores in countries as far apart as Australia and Romania, around 70 per cent of its sales still come from Europe and its overseas expansion has not always progressed smoothly. Adapting the company’s culture to national norms has proved challenging and there have been mistakes along the way.

A brief company history

Brought up in a small farming community in southern Sweden, Kamprad was an enterprising individual who even as a boy sold small items like matches and Christmas cards to his neighbours. He came up with the name IKEA by combining his initials (IK) with the first letters of the name of the farm and village in which he grew up (Elmtaryd, Agunnaryd). At first, IKEA was a vehicle for Kamprad’s trading and mail‐order activities. He added furniture to his product lines in 1947, mainly by accident, but quickly recognised that there was a growing demand in post‐war Sweden for inexpensive household goods. Owing to problems with Swedish manufacturers, the company started to procure furniture from Poland and found this to be a cost‐effective strategy. By 1951, Kamprad had decided to focus exclusively on furniture and the first IKEA showroom was opened in Sweden in 1953 to allow mail‐order customers to establish the quality of the items they were ordering by seeing and touching them. In 1955, the company started designing its own products and a few years later opened retail stores. 

The company offered well‐designed, stylish items that drew on Swedish design traditions at inexpensive prices. Costs were kept down by designing furniture with a target price in mind. Furniture was flat‐packed to minimise transportation costs, assembled by the customer to keep operating costs low and production was sourced from low‐cost locations. IKEA became known for its cost‐minimising approach and its associated capabilities in cost‐efficient design, sourcing and logistics. Kamprad, reflecting on his upbringing in a Southern Swedish farming community, placed a high value on thriftiness and morality and shaped IKEA’s culture accordingly. The company’s stated mission was to ‘offer 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 co‐workers were recruited as much on the basis of their values and beliefs as on their experience and skills. In 1976, Kamprad published his manifesto, The Testament of a Furniture Dealer, which contained slogans like ‘expensive solutions to any kind of problem are usually the work of mediocrity’; in many respects this document represented the credo of the company.

The pattern of IKEA’s internationalisation

The company’s forays into international markets began first by opening stores in other Scandinavian countries but the company quickly moved farther afield. In the early years, the formula for international expansion was a simple one. The company identified markets with the potential for high sales volumes and then purchased cheap land on the outskirts of a big city to establish a base. A tight‐knit team of trusted and experienced Swedish managers relocated to the country in question and supervised the building of the new store, led the operational team and ran the business until it was deemed mature and could be handed over to local managers. Once a beachhead was established, IKEA tended to cluster further stores in the same geographical area.

In its first phase of internationalisation, IKEA entered new markets by keeping its product catalogue and its management processes the same. There were sometimes minor adjustments to items to reflect national differences, for example standard bed sizes tended to differ between countries, but the overwhelming majority of the products sold by IKEA were common across countries. The Swedish roots of the company were celebrated as a source of distinctiveness not only in the design of the firm’s products but also in its management style. Managers across the organisation were strongly encouraged to adopt a Swedish, open and non‐hierarchical management style because Kamprad felt that this mode motivated employees and had universal appeal. A pragmatic problem‐solving style and egalitarian approach to decision making became the cornerstone of IKEA’s unique culture and was referred to by the founder and his team as the ‘IKEA way’.

The challenges of internationalisation

As the company moved further from its Scandinavian base and became more dependent on overseas operations, the pressure for the company to be more nationally responsive grew. One of IKEA’s first challenges came when it entered the US market. The company expected its standard range to sell as well as it did in Europe but instead faced some unexpected problems. IKEA executives were, for example, initially perplexed by the number of vases they were selling until they realised that Americans were buying vases to drink from rather than put flowers in because European style glasses were too small for American tastes. Conversely, IKEA’s first forays into Japan were unsuccessful, partly because its furniture products were viewed as too large to fit into small, Japanese living spaces. While recognising the need to adapt some of its products to local demands, IKEA’s low‐cost business model depended on the high volume sales that came from standardisation. The IKEA headquarters team recognised the need for some country‐specific adaptations and made it possible for area managers to put forward suggestions, but to achieve economies of scale, the extent of adaptation was limited to 5–10 per cent of the product range.

QUESTIONS

1. Porter’s diamond model explains why some nations have an international competitive advantage with respect to particular industries. Does IKEA gain a competitive advantage from being Swedish? If so, how?

2. List five pros of IKEA globalising its supply chain.

3. IKEA has attempted to standardise its stores, product range and management practices in all the countries in which it operates. List some drawbacks of such an approach.