1. Using concepts and theories from Block 1, explore how the marketing and operations functions are integrated at IKEA. You should consider what might be some of the challenges IKEA faces in maintaining a consistent and integrated business strategy. (20 marks)

IKEA has a long history of expansion beyond its natural markets in Western Europe.

IKEA has always adopted an ethnocentric strategy for internationalisation, weighing up the effect of the local culture against IKEAs own to select relevant products. In the early days IKEA often ignored local tastes and preferences in favour of keeping costs low, but learned the hard way in the US that this wasnt appropriate and adapted to the way furniture is purchased there. To do this greater control was handed over to the US subsidiary, allowing them to customise products for the local market. This led to increased costs, but this localisation approach was essential in order to see market growth in the US. This strategy has been repeated in other markets to help IKEA adapt to local culture and purchasing behaviour.

Over recent years, IKEA has been looking for growth by expanding into emerging markets with a growing middle class, such as China and India. In August 2018, the company opened its first Indian store in Hyderabad and saw around 40,000 customers on its first day (TNN, 2018). Further stores are to be opened in Mumbai and Delhi.

In order to remain successful IKEA needs to further adapt its product lines to local demand and ensure that pricing strategy is correct. We are selling many products from our global portfolio at a lesser cost in India and working on lower margins, but we know the volumes will make up for this, Amitabh Pande, Strategic Planner at IKEA India said (Das, 2018). On IKEAs India website, the leading corner sofa-bed is tagged at about 37,500 Indian Rupees, while the same item is sold in the UK for about 43,000 Indian Rupees, representing a significant price difference between the two markets. Average income is still much lower in emerging markets, meaning prices have to be lower, and with many people still only using public transport central city locations are essential. Consequently, IKEA is having to change a traditional part of its business model. In developed markets, customers assemble the furniture themselves. In India this is not common practice, so IKEA has partnered with home services company, UrbanClap, to help customers put together their furniture after purchase (Das, 2018).

The company says it realised localisation of products to suit the needs of Indian families and customers was the key ingredient to win over a market that is extremely sensitive to price. In adapting to the Indian market IKEA undertook more than 1000 home surveys to see how Indians lived (Goel, 2018). There is nothing more powerful than watching and talking to those people in their natural environment. We watched how they cooked, slept, and sat, and then we thought how we could tweak our existing products to suit them, an IKEA India spokesman said (Das, 2018). Indian families tend to spend a lot of time together, far higher than global averages. So IKEA added more folding chairs and stools that could serve as flexible seating. Indians are also known to prefer hard mattresses for sleeping, a complete opposite to the global norm, which made IKEA work with its local suppliers to launch such mattresses just for Indian consumers (Goel, 2018).

IKEA is associated with products that are simple, low cost but also stylish. This has given IKEA a very broad appeal to different groups of consumers and ensured that IKEA products appealed in both the business and consumer markets. Starting as early as 1956, the company were the pioneers of flat-pack furniture. This offered a great solution for all sorts of customers who were looking for stylish high quality furniture at an affordable price. The flat-pack approach to furniture design allows IKEA to reduce costs across the supply chain, from initial design, standardised manufacturing of components, to transport costs and warehousing. Part of the approach to cost saving is in store location. IKEA stores are commonly built on the outskirts of cities where business rates and operational costs are cheaper and customers can park easily.

Due to the way IKEA produces and sells its furniture it has also ensured that it is readily available and convenient. Conventional furniture makers often only begin production once an order has been placed by a customer. This means that it can often take several weeks for delivery. By contrast, IKEAs products are instantly available in their stores and easy to transport home in customers own vehicles. The flat-pack business model has continued to be beneficial for IKEA as it allows a further significant cost saving at the end of the value chain. Effectively, IKEA have outsourced the highly costly assembly part of the value chain directly to customers who are willing to trade the extra work of self-assembly for a large saving on the retail price they pay. This helps IKEA maintain high profits.

The IKEA business model is reliant on a highly effective approach to procurement. With 31 trading service offices of procurement staff in 26 countries, IKEA sources from over 1400 worldwide suppliers. With the bulk purchasing power behind IKEA and the large procurement team it is able to negotiate prices between 20% and 40% lower than any of its competitors. Over time, IKEA has demonstrated that it can successfully manage global suppliers while also maintaining the quality of its products, key to maintaining its brand reputation. The network of service offices is crucial to their global procurement activity, as each office is geographically spread out so that they can cultivate strong working relationships with all local suppliers, wherever in the world they happen to be.

IKEA staff also visit all of the suppliers on a regular basis, not only to continue to build relationships with their suppliers but also to build on their quality control processes. As part of this, IKEA is a strong believer that it should only work with ethical suppliers and as such it inspects the working conditions and the social conditions surrounding the factories, ensuring it adds value to the local communities it works with. Some 66 per cent of IKEAs products are sourced from Europe. However, to keep costs down IKEAs largest supplier is China, which provides 18% of all IKEA products. Production of a single product is spread across multiple suppliers and optimised in order to reduce prices. IKEA also purchases raw materials and hardware in bulk, which is sold to its suppliers to help them keep the final cost down.

IKEAs supply chain is supported by cutting-edge IT infrastructure. The complexity of the supplier network and the large range of products has meant that over time IKEA has found it necessary to develop its own systems. This is more expensive than buying standard IT systems to manage its stocks. However, this does mean it can manage the demands of stores and ensure effective distribution of its stock between them. Ensuring that nothing stays in storage for long is key to keeping IKEAs inventory costs low as everything is built to shelf rather than built to order like most other furniture manufacturers.