Chat with us, powered by LiveChat Business Model and Competitive Strategy of IKEA in India Case Study 6 | acewriters

1.Environmental Analyst -(Job D) (Focuses on trends in the six segments of the general environment including technological, demographic trends, economic trends, political trends, social cultural trends, & global trends—See Chapter 2).2. SWOT Analyst- (Job G). Conduct a SWOT analysis on the company we are studying. You may use a chart for this deliverable. However, you need to make one recommendation based upon the information you provide in your analysis. Deliverables must be 1.5-2 pages in length and have at least one academic source–12 inch font Times New Roman–double spaced. Additionally, it is important to remain cognitive of current events and ethical issues surrounding the organizations/industries we study each week. you need to know, there is 2 questions, so you need to give me 2 documents, and every questions need to be at least 1.5-2 pages, at much include 1 source. You answer must need to be detailed!

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Part 4: Case Studies
Business Model and Competitive Strategy of IKEA in India
Syed Abdul Samad
IBS Center for Management Research (ICMR)
“We are very determined but very patient at the same time.
We started this journey six years ago. Things are finally
moving and we are satisfied with the progress so far…
“I truly believe that the IKEA format is going to work. What
is an IKEA store? An IKEA store has more than 9000 different articles for the entire family. We offer an experience
for the whole family. Also remember, at IKEA we don’t sell
products, we sell inspiration.”1
– Juvencio Maeztu, IKEA’s Country Manager for
India, in 2013
After a year of lobbying and negotiating with and convincing the Indian politicos and bureaucrats, IKEA’s €1.5
billion investment proposal to set up its stores in India
was finally accepted by the local government on May 2,
2013. However, as of July 2013, Juvencio Maeztu (Maeztu),
IKEA’s Country Manager for India, found he still had a
colossal task ahead of him.
IKEA, the Netherlands-based Swedish company, was
the largest furniture retailer in the world with a presence in 44 countries around the globe—in countries like
the US, the UK, Russia, the EU region, Japan, China,
Australia, etc. However, it did not enter into the Indian
market till 2013, though the company had had a presence in the country since the 1980s as a sourcing destination for its global stores. It had even opened its regional
procurement office in Gurgaon, India, in 2007. In 2009,
IKEA tried to enter the country to establish its stores, but
its attempts were thwarted by India’s stringent Foreign
Direct Investment (FDI) regulations. It again applied for
permission for entry in June 2012, after India had made
some changes in its FDI rules. However, IKEA had to
wait another year, hitting many roadblocks on the way,
before it was able to obtain the Indian government’s
approval to establish its stores. The company also had
to tweak its global store model to fit the Indian FDI and
sourcing outlines and Indian consumer preferences.
While Maeztu was tasked with tapping the Rs.* 925
billion Indian furniture and furnishings market, analysts
were keenly waiting to see what strategies the furniture
giant would come up with to win the highly-fragmented,
price-sensitive Indian market—as many Indian middle-class families preferred to have their furniture custom-made from small retailers or local carpenters. No
two Indian homes had the same kind of furniture as
Indians in general showed more of an affinity for unique
woodwork and designs rather than flat geometric furniture. “Living room in India is different from any other
country—a place for socializing and every activity is
around the food. In some countries it is the kitchen and
in some countries living room is used for sleeping,”2 said
Maeztu. More important was the fact the Indian customer did not prefer the concept of do-it-yourself (where
buyers had to assemble different pieces of the product
themselves), a key part of IKEA’s globally successful
business model. Analysts opined that though the company had managed to impress the Indian Government,
getting into the homes of Indian consumers would be an
entirely different ball game.
About IKEA
IKEA was a privately held company. It designed and
sold ready-to-assemble furniture, home appliances, and
accessories. From humble beginnings in 1943, the company went on to become the world’s largest furniture
retailer by the 2000s.3 In the financial year 2001, the company earned revenue of €10.4 billion (Refer to Exhibit 1
for IKEA’s Growth in Revenue). By 2012, the company’s
revenues increased to €27.6 billion with a net income
of €3.202 billion (Refer to Exhibit 2 for IKEA’s Income
Statement). By August 31, 2012, the IKEA Group had
operations in 44 countries, including 30 service trading offices in 25 countries, 33 distribution centers, and
11 customer distribution centers. By August 31, 2012, the
IKEA Group had a total of 298 stores in 26 countries
and employed 139,000 people.4 Globally, the company
had doubled its sales to €27.6 billion in the past decade
and further planned to double them again by 2020 and
to open 20-25 stores a year from 2015.
IKEA was founded in Sweden in 1943 by 17-year-old
Ingvar Kamprad (Kamprad). IKEA was an acronym of
*Rs. = Indian rupees or INR. As of 2013, US$1 was approximately equal to Rs. 62; €1 was approximately equal to Rs.85.
This case was written by Syed Abdul Samad, under the direction of Debapratim Purkayastha, IBS Hyderabad. It was compiled from published sources, and
is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Case 6: Business Model and Competitive Strategy of IKEA in India
Exhibit 1 IKEA’s Revenue Growth (2001–2012)
Total Revenue in Billion €
Source: Adapted from: “Welcome Inside – IKEA Group Yearly Summary FY12”,
Exhibit 2 IKEA’s Consolidated Income Statement (2008–2012)
In million € (for September 1–August 31 of)
Cost of sales
Gross profit
Operating cost
Total financial
income and
Income before
minority interest and tax

Minority interests
Net income
Source: Adapted from
Ingvar Kamprad, Elmtaryd (the farm where he grew
up) and Agunnaryd (his hometown in Småland, South
Sweden). The company’s products were well known
for their modern architecture and eco-friendly designs.
In addition, the firm paid attention to cost control,
operational details, and continuous product development, which allowed it to lower its prices. Instead of
selling pre-assembled products, the company designed
furniture that could be self assembled. This helped it cut
down on costs and the use of packaging. The company’s
website featured around 12,000 products which represented its entire range.
Corporate Structure
IKEA was structured in such a way as to prevent any kind
of takeover of the company and to protect the Kamprad
family from taxes. Though Kamprad was the founder,
he did not technically own IKEA. He wanted an ownership structure that stood for independence, long-term
approach, and continuity. Therefore in 1982, Kamprad
created Stichting INGKA Foundation, a non-profit
organization registered in Leiden in the Netherlands. In
1984, Kamprad transferred 100% of IKEA equity as an
irrevocable gift to the Foundation. IKEA was privately
held by this Foundation. Its purpose was to hold shares,
reinvest in the IKEA Group, and to fund charity through
it. It also protected IKEA from family squabbling and
its inheritance in whole or part by the Kamprad family.
Kamprad said, “My family will never have the chance to
sell or destroy the company.”5 The Foundation was controlled by a five-member executive committee that was
chaired by Kamprad and included his wife and attorney.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Part 4: Case Studies
The Foundation was only controlled (not owned) by
the Kamprad family. The Foundation, however, owned
INGKA Holding BV, a private, for-profit, Dutch company that controlled IKEA’s operations.
IKEA’s structure was a complicated array of notfor-profit and for-profit organizations. It had two main
components—operations and franchising. Operations
included the management of its stores, the design and
manufacture of its furniture, and purchasing and supply functions which were overseen by INGKA Holding.
As of August 31, 2012, only 30 of the 298 IKEA franchisees, while the remaining stores were run by the INGKA
The franchising part (trademark and concept) was
owned by a separate Dutch company called Inter IKEA
Systems. All IKEA stores (franchised and those run by
INGKA Holding) shared 3% of their revenue with Inter
IKEA Systems as a franchise fee. Inter IKEA Systems was
owned by Inter IKEA Holding of Luxembourg, which in
turn belonged to Interogo Foundation in Liechtenstein.
This foundation was also controlled by the Kamprad
family. Apart from these holdings, the food joints that
operated in IKEA stores were directly owned by the
Kamprad family and represented a major part of the family income. This corporate structure allowed Kamprad
to maintain tight control over the operations of INGKA
Holding and IKEA stores (Refer to Exhibit 3 for IKEA’s
Corporate Structure).
Going Global
In 1943, after founding IKEA, Kamprad increased his
product range to include pens, wallets, picture frames,
table runners, watches, and jewelry and nylon stockings
at reduced prices. He initially made individual sales
calls to sell the merchandise. When his business grew,
he advertised in local newspapers and operated via the
mail-order service using the local milk van to deliver the
products to his customers. In 1948, he introduced furniture into the IKEA range. The furniture was made by
local manufacturers close to his home. The furniture met
with good response and Kamprad decided to expand his
range. However, the company’s sales were threatened
by the price wars among the competitors. Therefore, in
1953, he opened a showroom in Älmhult, Sweden, so that
his customers could have a look at the furniture before
placing an order. This helped the company as customers chose the products with the best value for money.
However, the pressure that competitors exerted on suppliers to boycott IKEA led to the company deciding to
design its own furniture. When IKEA began exploring
the packaging of its furniture, one of the workers disassembled a table to fit it into a car for transportation. This
led to the invention of flat packs and the self assembly
concept, which became a huge success.
In 1958, the company opened its first IKEA store
‘Möbel-IKÉA’ in Älmhult, Småland, Sweden, with 6,700
Exhibit 3 IKEA’s Corporate Structure
Interogo Foundation
Stichting INGKA
(The Netherlands)
Inter IKEA Holding
INGKA Holding B.V.
(The Netherlands)
Inter IKEA Systems
(The Netherlands)
Shops & Factories
Franchise &
IKEA group
Range Strategy,
Product Development
& Supply Chain
Industrial Groups
Swedwood, Swedspan
Group Staff Functions
Source: Adapted from “Welcome Inside – Yearly Summary FY09”,
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Case 6: Business Model and Competitive Strategy of IKEA in India
square meters of home furnishings—the largest furniture display in the Scandinavia region during those times.
In 1960, it added a restaurant to the store, which over a
period of time became an integral part of the store concept and layout. However, after this the company began
looking at markets other than in its home country. In
1963, the first store outside Sweden was opened in Oslo,
Norway. Later in 1969, it entered Denmark with its store
at Copenhagen. The company then spread out to other
parts of Europe in the 1970s. In 1973, it went outside the
Scandinavian region and opened a store in Switzerland
followed by a store in Germany in 1974. The global
expansion of IKEA stores took place at a rapid pace
during the 1970s and 1980s. Stores were soon opened in
other parts of the world including Japan (1974), Australia
and Hong Kong (1975), Canada (1976), and Singapore
(1978). In the 1980s, IKEA further expanded its store
network in France and Spain (1981), Belgium (1984), the
US (1985), the UK (1987), and Italy (1989) among other
areas. It further expanded into more countries in the
1990s and 2000s. In 1998, it entered China by setting up
a store in Beijing. In 2010, the company also entered the
Latin American region with a store in Santo Domingo,
Dominican Republic. However, the company did not
have much of a presence in the developing countries.
Germany, with 44 stores, was IKEA’s biggest market, followed by the US with 37 stores. The IKEA store
at Stockholm Kungens Kurva, Sweden, with an area
of 55,200 m2 was the largest in the world, followed by
the stores in Shanghai, China (49,400 m2), Shenyang,
China (47,000 m2), Tianjin, China (45,736 m2), and
Berlin Lichtenberg, Germany (45,000 m2).7 The IKEA
store located in Tempe, Sydney, was the biggest store in
the southern hemisphere with an area of 39,000 m2.8 By
the end of 2013, IKEA planned to open its first warehouse in Croatia and its first shopping center in Vilnius,
Lithuania, which would be the biggest furniture-selling
mall in the Baltic States.
Manufacturing and Other
Unlike the traditional retail stores where the customer
could directly go to the needed section, IKEA encouraged its customers to go through its store in its entirety.
Therefore, its stores were designed in a one-way layout
in the anti-clockwise direction. Most of the IKEA stores
were very large buildings decorated in blue and yellow
patterns. However, the newer stores used more of glass
for functional and aesthetic purposes—to give a better
impression of the product and a better look to the store,
and to use more of natural light to reduce energy costs.
The stores required customers to first go through the
display making note of the required items, then proceed
to the open shelves to make smaller purchases, and then
go to the self serve warehouse to collect the previously
noted products. They were then directed to the in-house
warehouse or external warehouse to collect the products
and make a payment.
All the IKEA products were designed in Sweden but
were largely manufactured in developing countries. The
company had 50 suppliers mostly in Europe and Asia.
China, Poland, Italy, and Sweden formed the top production centers for IKEA. Most of its products were identified by single word names, which were Scandinavian in
origin—like names of places, men and women, rivers,
lakes, flowers, plants, etc.
“People flock to IKEA stores because of price” 9,
said Debashish Mukherjee, partner and vice president
at AT Kearney, a global management consulting firm.
For instance, in China, the company had cut its prices by
60% since it entered in 1998. The secret lay in its designing, sourcing, and packaging. The company’s product
developers and designers worked directly with suppliers
and the concept of do-it-yourself drastically reduced its
cost. Devangshu Dutta (Dutta), chief executive of Third
Eyesight, a retail consultancy, explained, “When they sell
flat packs, there are no assembling costs, no shipment
costs and mostly products are sold on catalogues, which
helps them reduce operational costs and lower prices.
Those flat packs work well with young consumers whose
budgets are normally tight.”10
Most of the IKEA stores included restaurants serving
traditional Swedish food. However, in some countries,
a few varieties of the local cuisine and beverages were
served besides the Swedish staples. For instance, the
IKEA restaurant in Austria offered a free refill policy for
soft drinks, a practice that was otherwise unknown in the
country. Another important feature of the IKEA stores
was Småland (Swedish for Small Lands), where parents
dropped off their children at a gate to the playground,
and picked them up at another gate after shopping. IKEA
also launched a loyalty card called IKEA Family, which
was free of charge and could be used to avail of discounts
on a special range of IKEA products.
IKEA was involved in various charity and social
initiatives. The INGKA Foundation was involved
in several international charitable causes like helping the tsunami victims in Indonesia, Sri Lanka, and
India; the cyclone affected in Burma; Somali refugees;
earthquake victims in Pakistan and China; donating
to schools in Liberia, saving and restoring forests;
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Part 4: Case Studies
and reducing pollution. In September 2005, the IKEA
Social Initiative was formed to manage the company’s
social involvements on a global level. The main partners to IKEA’s Social Initiative were UNICEF and Save
the Children. IKEA also took a proactive stance on
environmental issues and developed an Environmental
Action Plan in 1990, which was adopted in 1992. The
company’s environmental measures included elimination of polyvinylchloride (PVC) from its products
and packaging and minimizing the usage of formaldehyde, chromium, cadmium, lead, PCB, PCP, and Azo
pigments. The company used wood from responsibly
managed forests, stopped providing plastic bags to customers, but offered reusable bags. In August 2008, it
created IKEA GreenTech, a €50 million venture capital fund, to invest in 8–10 companies with a focus on
solar panels, alternative light sources, product materials, energy efficiency, and water saving and purification.
In February 2011, IKEA announced its plans for a wind
farm in Dalarna County, Sweden, to achieve the goal
of running on 100% renewable energy. As of June 2012,
IKEA had 17 stores powered by solar panels in the US,
with 20 additional installations in progress.
In 2004 and 2005, IKEA was named as one of the
100 Best Companies for Working Mothers by Working
Mothers magazine. In 2006, it ranked 96 in Fortune’s 100
Best Companies to Work For. In 2008, IKEA Canada
LP was named one of ‘Canada’s Top 100 Employers’ by
Mediacorp Canada Inc., and was featured in Maclean’s
newsmagazine.11 In addition to these, the company
received many more awards and recognitions.
Global Furniture Industry
The global furniture industry had changed over the years.
It was not restricted to the making of chairs, tables and
beds, but had expanded into the production of a …
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