IKEA case

International expansion through flexible

replication: Learning from the

internationalization experience of IKEA

Anna Jonsson1

and Nicolai J Foss2,3

1Department of Business Administration, School

of Economics and Management, Lund University,Lund, Sweden; 2Department for Strategic

Management and Globalization, Copenhagen

Business School, Denmark; 3Department ofStrategy and Management, Norwegian School

of Economics and Business Administration,

Bergen, Norway

Correspondence:A Jonsson, Department of BusinessAdministration, School of Economics andManagement, Lund University, PO Box7080, SE-220 07 Lund, Sweden.Tel: 46 46 222 36 48Fax: 46 46 222 42 16Email: [email protected]

Received: 18 September 2009Revised: 28 June 2011Accepted: 8 July 2011Online publication date: 8 September 2011

AbstractBusiness organizations may expand internationally by replicating a part of their

value chain, such as a sales and marketing format, in other countries. However,little is known regarding how such international replicators build a format for

replication, or how they can adjust it in order to adapt to local environments and

under the impact of new learning. To illuminate these issues, we draw ona longitudinal in-depth study of Swedish home furnishing giant IKEA, involv-

ing more than 70 interviews. We find that IKEA has developed organizational

mechanisms that support an ongoing learning process aimed at frequentmodification of the format for replication. Another finding is that IKEA treats

replication as hierarchical: lower-level features (marketing efforts, pricing, etc.)

are allowed to vary across IKEA stores in response to market-based learning,while higher-level features (fundamental values, vision, etc.) are replicated in

a uniform manner across stores, and change only very slowly (if at all) in response

to learning (flexible replication). We conclude by discussing the factors that

influence the approach to replication adopted by an international replicator.Journal of International Business Studies (2011) 42, 10791102.doi:10.1057/jibs.2011.32

Keywords: primary data source; case theoretic approaches; internationalization theoriesand foreign market entry; knowledge-based view; organizational learning

INTRODUCTIONBusiness organizations may expand from their home countries toforeign countries by setting up replicas (of parts of) their valuechains in those foreign countries. Well-known examples of suchorganizations are those that expand internationally by replicatinga format aimed mainly at distribution, such as McDonalds(Watson, 1997), The Body Shop (Quinn, 1998), Starbucks (Schultz& Yang, 1999), Hennes & Mauritz (Bengtsson, 2008), and IKEA. Thereplication of a fixed format is associated with benefits, such aseconomies of scale and brand recognition (Winter & Szulanski,2001). However, the international business literature, and notablythe integrationresponsiveness framework (Bartlett & Ghoshal,1989; Devinney, Midgley, & Venaik, 2000; Prahalad & Doz, 1987),has long recognized that such benefits often need to be tradedoff against the benefits of local adaptation. This raises the issuesof how and to what extent international replicators combinereplication and adaptation, and what explains these choices.

Journal of International Business Studies (2011) 42, 10791102& 2011 Academy of International Business All rights reserved 0047-2506

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Unfortunately, there is a dearth of researchliterature in international management that expli-citly addresses international replicators in terms ofhow they build a format for replication, adapt it tolocal circumstances, transfer new learning fromsuch adaptation, and otherwise manage the processof expanding by means of replication (althoughdescriptive work exists on international franchisechains; Quinn, 1998; Schultz & Yang, 1999; Watson,1997). The research literature in strategic manage-ment that deals explicitly with replication, namelythe replication-as-strategy literature (e.g., Winter &Szulanski, 2001), concentrates mainly on nationalfirms (but see, e.g., Szulanski & Jensen, 2006, 2008).Our knowledge about these issues is thereforerather scant, warranting a small-N research design(Piekkari, Welch, & Paavilainen, 2009).

Specifically, we undertake a detailed study ofthe internationalization process and practices ofthe retailing part of the value chain of Swedishhome furnishing giant IKEA. Based on this study,we show that most of IKEAs international expan-sion over almost five decades has, following aperiod of initial exploration, proceeded in termsof replicating a format. However, this is not theexact replication of a fixed format as recommendedby the replication-as-strategy literature (e.g., Winter& Szulanski, 2001). Rather, IKEA seeks to combinethe advantages of format standardization withlocal adaptation. Local adaptation, for example,by country-specific IKEA service offices, results inexplorative learning. The acquisition and internaltransfer of the knowledge that results from suchlearning is coordinated and systematized throughorganizational means. These include dedicatedunits that are responsible for intra-firm knowledgesharing, as well as organizational principles, suchas corporate values that stress the importance ofco-workers questioning existing solutions and con-tinuously engaging in knowledge sharing.

IKEA thus succeeds in combining the advantagesof replication with the advantages afforded bybeing able to adapt and transfer the resultingnew knowledge across the MNC a practicethat we refer to as flexible replication. The key toimplementing and managing flexible replicationsuccessfully lies in treating the format as a hier-archy of more or less flexible features (Clark, 1985):features at the top of the hierarchy notably,the guiding principles embodied in IKEAs IdeaConcept are fixed, whereas features that arecloser to the bottom of the hierarchy (what IKEArefers to as the Concept in Practice, i.e., specific

product offerings, pricing, etc.) are allowed to varyin response to new learning. Based on the case ofIKEA, we put forward propositions regarding thefactors that influence the proportion between fixedand flexible features in the format for replication.We thus strive towards a contingency theory ofinternational replicators.

Overall, we link up with classic issues in interna-tional management theory, such as how MNCs cangain and exploit experiential knowledge fromentering new markets (Johanson & Vahlne, 1977),and combine local responsiveness with global inte-gration (e.g., Bartlett & Ghoshal, 1989; Devinneyet al., 2000). We specifically advance empiricalknowledge about an important international repli-cator, illustrate how it handles the specific integra-tionresponsiveness tradeoffs (Devinney et al., 2000)it faces, and build on the IKEA case to developpropositions about international replicators. Wethus directly address what has recently beenidentified as an important missing element incurrent research on internationalization, namelyan understanding of how the organizationalcharacteristics of an internationalizing firm influ-ence its internationalization process (Malhotra &Hinings, 2010: 331).

REPLICATION IN THE CONTEXT OFINTERNATIONAL MANAGEMENT THEORY

In the following we briefly review research thatexplicitly takes replicators as the unit of analysis,that is, the replication-as-strategy literature devel-oping from Winter and Szulanski (2001), as well asinternational business theory that has a bearingon (international) replicators. Replication is funda-mentally a growth strategy (Winter & Szulanski,2001). As international replicators clearly exist(although only, so far, implicitly discussed andtheorized), replication is a potential strategy for anorganization that seeks to expand by internationa-lization. However, this expansion strategy is nottreated in any detail in the international businessliterature.

Replicating OrganizationsIn principle, business organizations may expandinternationally by replicating their entire valuechain across countries. However, in the contextof strategic management research, replicationconventionally denotes the creation of highlysimilar sales outlets that deliver a typically uni-form product or service (i.e., the McDonaldsapproach; Winter & Szulanski, 2001). Replication

International expansion through flexible replication Anna Jonsson and Nicolai J Foss1080

Journal of International Business Studies

aimed at mass-distributing products or servicescharacterizes a host of industries, from fast foodto mobile communication services, and they havea highly significant international presence.

A related, and arguably more general, notion ofa replicating business organization relates to thetransfer of routines and capabilities from the repli-cating organization to related units that in keyrespects copy features of the replicating organiza-tion (Nelson & Winter, 1982). Thus characterized, itmay be argued that there is an element of replica-tion to all MNCs, because there will be substantialoverlap across subsidiaries with respect to theroutines, standard operating procedures or otherintangible assets that they deploy to their economicactivities, and this overlap is brought about byknowledge transfer. Indeed, replication could be seenas a particular manifestation of global integration(Bartlett & Ghoshal, 1989; Prahalad & Doz, 1987).

In spite of the obvious connotations to interna-tional business on the level of phenomena as wellas on the level of theory the internationalbusiness literature has not dealt systematicallywith international replicators, beyond case studiessuch as Watson (1997), Quinn (1998), and Schultzand Yang (1999) and subsuming them underthe integrationresponsiveness framework. Thereplication-as-strategy framework has mainly, ifnot exclusively (see Szulanski & Jensen (2006) onMail Boxes Etc., and Jensen & Szulanski (2007) onRank Xerox), been developed with reference tonational firms. This means that we possess rela-tively little theoretically informed knowledge aboutwhat features of a business model internationalreplicators replicate across countries, how muchlocal variation they allow for, whether they garnerlocal learning and utilize this elsewhere in theorganization, how they modify the traits that theyreplicate, and so on. However, the replication-as-strategy literature represents an excellent startingpoint for an inquiry into these issues. In effect, webuild on this literature and extend it more expli-citly to an international setting.

The Replication-as-Strategy ViewThe founding contribution to the replication-as-strategy view is Winter and Szulanski (2001);see also Baden-Fuller and Winter (2007), Jensen andSzulanski (2007), Nelson and Winter (1982),Szulanski and Jensen (2006, 2008), and Williams(2007). Winter and Szulanski (2001) build a two-phase model of replication in which an initialphase of exploring in the space of possible formats

for replication is followed by a phase of exactexploitative replication of the decided-upon for-mat. Key to their thinking is the notion of theArrow Core: that is, the full and correct specificationof the fundamental, replicable features of a businessmodel and its ideal target applications (Winter &Szulanski, 2001: 733).

It specifies which traits are replicable, how these attributes

are created, and the characteristics of the environments in

which they are worth replicating. This information set

could be thought of as the complete answer to the question,

What, how, and where should the replicator be trying to

replicate?

The Arrow Core is, however, an ideal that areplicating firm cannot reach, because of ignoranceabout the various features of the Arrow Core. Thusthe specification of replicable attributes of thebusiness model, and the procedures for replicationthat the organizations search efforts result, in willat best approximate the Arrow Core.

Given the costliness of such search, freezing animperfect template is the optimal strategy (e.g.,Winter & Szulanski, 2001: 736).1 Unfortunately,Winter and Szulanski do not identify the exacttradeoffs that determine the point at whichexplorative search has to stop, and the template isfrozen to allow for exploitative replication. Theymerely note that at some point, business con-siderations will make leveraging a priority (Winter& Szulanski, 2001: 736). Such considerationsindeed suggest that exploitative leveraging musttake precedence at some point, as gathering newknowledge, transmitting it, codifying it, embody-ing it in a revised format, and feeding the newformat back into the replication process are costlyprocesses. Economizing such costs indeed suggeststhat continuous revision of the format is ineffi-cient.2 However, Winter and Szulanski seem toconclude that any revision, once the format hasbeen decided upon, is inefficient; replicating orga-nizations should expand on the basis of an entirelyfixed format, and learning gained during theprocess of expansion cannot be allowed to influ-ence the format. As we shall argue, this conclusionmay not be warranted in the face of the hetero-geneous environments that firms confront duringtheir process of internationalization, and thelearning this process gives rise to.

Learning and the Internationalization ProcessFar from representing internationalization as asmooth process of rolling out a fixed format across



new markets, an important research stream ininternational management analyzes internationali-zation as a path-dependent process of learning(Johanson & Vahlne, 1977, 1990; Johanson &Wiedersheim-Paul, 1975).3 In the Uppsala model,internationalization is modeled as a process ofincremental resource commitments, driven byincreasing experiential knowledge. The process startsfrom domestic markets, moves on to culturally and/or geographically close countries, and subsequentlymoves to culturally and geographically more distantcountries. In the process, foreign operations typicallymove from exports to using more demandingoperation modes (sales subsidiaries, etc.). Thus stateaspects (i.e., market knowledge and current marketcommitment) drive change aspects (i.e., decisionsabout future commitments and activities).

Experiential knowledge is vital to the internatio-nalization process, because it not only yields areduction of the risks involved in going abroad, butalso provides a vehicle for acquiring knowledge ofinternal and external resources and of opportu-nities for combining them (Eriksson, Johanson,Majkgard, & Sharma, 1997: 340; see also Petersen,Pedersen, & Sharma, 2003). Obviously, for suchorganizational learning to happen, the acquiredknowledge has to be somehow shared with the restof the internationalizing firm. Johanson andVahlne (1977, 1990) are less forthcoming aboutthis particular aspect,4 and they have been criti-cized for this (Blomstermo & Sharma, 2003;Eriksson et al., 1997; Forsgren, 2002; Petersenet al., 2003). Thus Forsgren (2002) argues that theUppsala model should go beyond the notion thatknowledge is held primarily by subsidiaries in oneparticular market, and should develop by embed-ding its view of knowledge as a driver of inter-nationalization in a view of organizational learningin MNCs. Eriksson et al. (1997: 353) add that theinternalization process is

not only a matter of learning about foreign markets and

institutions. Knowledge must also be gained on the internal

resources of a firm, and what the firm is capable of when

exposed to new and unfamiliar conditions. y a firm mustdevelop structures and competence, and that can guide the

search for experiential knowledge about foreign markets

and institutions.

In other words, for understanding how interna-tionalization progress, we need to understand howknowledge flows within an MNC, and how MNCscan deploy administrative machinery to influencesuch flows in desired directions and at desiredlevels.

Research on internationalization has for a longtime emphasized the driving role of knowledgetransfers from headquarters (HQ) to subsidiaries(Dunning, 1958; Vernon, 1966). The notion of theprojection of a home-market-based advantage toforeign markets may be seen as consistent with thereplication-as-strategy view and the role of thecenter for knowledge transfer of the replicatedformat. However, as argued in recent work on theMNC (e.g., Ambos, Ambos, & Schlegelmilch, 2006;Doz, Santos, & Williamson, 2001), the role of HQ asthe sole or even dominant source of knowledge ischanging: subsidiaries have become importantproviders of knowledge necessary to stay competi-tive in an increasingly global and competitiveenvironment (e.g., Frost & Zhou, 2000; Gupta &Govindarajan, 2000; Holm & Sharma, 2006;Kogut & Zander, 1993; Nohria & Ghoshal, 1997;Schlegelmilch & Chini, 2003). Therefore MNCsare no longer seen as repositories of their nationalimprint but rather as instruments whereby knowl-edge is transferred across subsidiaries, contributingto knowledge development (Minbaeva, Pedersen,Bjorkman, Fey, & Park, 2003: 587). Many scholarshave linked this to the change in many MNCsfrom hierarchical HQsubsidiary relations to morenetwork-based, responsive structures (Bartlett &Ghoshal, 1989; Doz et al., 2001; Hedlund, 1986;Prahalad & Doz, 1987) that can meet differentdemands of innovation and knowledge creation ina dynamic global economy (Nohria & Ghoshal,1997: 3; see also Frost & Zhou, 2000). Yamin andOtto (2004) characterize such MNCs as weaklycoupled organizations (Weick, 1976). One advan-tage of such an organization is that it can undertakemultiple explorative efforts simultaneously, forexample in corporate R&D as well as in subsidiaryfunctions such as retailing, and integrate theresulting knowledge by means of knowledge flowsfacilitated by dedicated administrative apparatus(Gupta & Govindarajan, 2000; Kogut & Zander,1993; Miesing, Kriger, & Slough, 2007; Moore &Birkinshaw, 1998; Mudambi & Navarra, 2004).5

However, Ambos et al. (2006: 295) argue that whilemany scholars have focused on knowledge flowswithin the MNCs, only a few have actually studiedhow MNCs learn at the periphery and benefitfrom the knowledge gained from and shared bysubsidiaries.

Overall, the thrust of the learning literatureon internationalization and MNCs is that MNCsstand to benefit from harvesting and transferringlocally produced, experiential knowledge on a



rather continuous basis, and that it may benecessary to deploy dedicated administrative appa-ratus to also handle lateral and reverse knowledgeflows. This view of flexibility and ongoing organi-zational learning in the process of internationalexpansion is in rather stark contrast to the view offirm expansion in the replication-as-strategy view.

Learning-based Internationalization andExpansion through ReplicationInternational management theory, and specificallyinternalization theory (Rugman & Verbeke, 2003),has long maintained that firms need proprietary orownership advantages to offset the liabilities offoreignness when they enter foreign markets (e.g.,Zaheer, 1995). Relatedly, a key theme in the recentknowledge-based MNC literature is the transferwithin a firm of knowledge that is fungible thatis, specific to the firm but less specific to uses orlocations (e.g., Kogut & Zander, 1993). A format forreplication is an example of knowledge that isboth proprietary and fungible: replicating a tem-plate is a means of maximizing the capture of rentsfrom proprietary advantages, such as a strong brandname.

However, there are also important differencesbetween the replication-as-strategy literature andthe mainstream of international managementthinking. Thus highly influential thinking onglobal strategy stresses the importance for certainindustries and countries of exercising local respon-siveness in terms of product offerings, services, etc.,and analyzes the tradeoffs that arise between globalintegration and such local responsiveness (Bartlett& Ghoshal, 1989; Prahalad & Doz, 1987). In itsoriginal formulation, the Winter and Szulanskimodel rules out local responsiveness. Thus theideal template, the Arrow Core, is a specificationof which traits are replicable, how these attributesare created, and the characteristics of the environ-ments in which they are worth replicating (Winter& Szulanski, 2001: 733). However, it may not bepossible (or worth it) to replicate a templateacross very heterogeneous environments, andthe Arrow Core is therefore not defined for suchenvironments. This raises the question: to whatextent can the replication-as-strategy literaturebe applied to understand international expan-sion beyond rather homogeneous internationalenvironments? Also, the knowledge-based MNCliterature portrays multinationals as engaged inongoing organizational learning that involves thedissemination of best practices (in a broad sense)

across units located in established as well as newmarkets. In the Winter and Szulanski modelorganizational learning does take place, but onlyin the initial, explorative phase while the firm issearching for a replicable format. This raises thefurther question whether in international expan-sion organizational learning can somehow becombined with replication.

From an empirical perspective, it is worth notingthat the empirical basis of the replication-as-strategy literature is mainly national firms, and itcontains virtually no discussions of replication asstrategy in the context of internationalization. Andyet international replicators, such as those men-tioned in the Introduction, exist and thrive, evenin the context of heterogeneous internationalmarkets. This raises the puzzle of how replicationis possible in a world of heterogeneous markets.This may sound like a restatement of the familiarproblem of how global integration and localresponsiveness can be aligned. However, the inter-national management literature has not yet, at leastto our knowledge, studied international repli-cators in a systematic way, including detailing themechanisms by which such replicators balance theneed for global integration with local responsive-ness. This makes a small-N empirical approachwarranted (Geertz, 1973; Ghauri, 2004). Specifi-cally, we develop a single detailed case (Siggelkow,2007).

METHOD

Small-N Research DesignsSmall-N research designs are often regarded assomewhat suspect, as heavy sample bias impliesproblems of external validity (Bryman, 2001; King,Keohane, & Verba, 1994). However, a basic lack ofknowledge about which variables matter, how theyare causally related, etc., often warrants explorativeresearch based on small-N samples (Birkinshaw,Brannen, & Tung, 2011; Doz, 2011; Eisenhardt,1989; Ghauri, 2004; Malnight, 2001; Marschan-Piekkari & Welch, 2004; Merriam, 1998; Westney &Van Maanen, 2011). As noted by Doz (2011: 588),qualitative research methods offer the opportunityto help move the field forward and assist inproviding its own theoretical grounding. And, asDyer and Wilkins (1991: 617) explain, if executedwell, case studies can be

extremely powerful [when] authors have described general

phenomenon so well that others have little difficulty seeing

the same phenomenon in their own experience and



research. We turn to the classics because they are good

stories, not because they are merely clear statements of a

construct.

Such good stories are successful in terms ofidentifying generative mechanisms that otherresearchers can recognize in the cases they investi-gate (Hedstrom, 2005). Therefore Dyer and Wilkins(1991: 615) argue that the ultimate goal of casestudy research is to [y] provide a rich descriptionof the social scene, to describe the context in whichevents occur, and to reveal [y] the deep structureof social behavior.

Piekkari et al. (2009: 584) observe that in manysmall-N studies in IB, authors were not clear aboutthe theoretical purpose of their studies [y] andcase studies were often very thin in terms of thevariety of data sources used per case. In contrast,the present case study is informed by a priori theoryon the mechanisms that may be operative whenfirms internationalize by means of replication:specifically, we relate our study to the replica-tion-as-strategy literature and the knowledge-basedliterature on internationalization and the MNC. Weapproach the case armed with theory, because thisincreases requisite variety [y] it takes a compli-cated sensing device to register a complicated set ofevents (Weick, 2007: 16). The relevant theorieshelp to organize data collection and interpretation,and metaphorically serve as a dialogue partner forthe data. We contribute to the growing need for,and interest in, more qualitative research withinthe IB field, and especially research focusing oninternational management of MNCs and the role ofknowledge flows (e.g., Birkinshaw et al., 2011; Doz,2011).

Data Collection and AnalysisThe data for this study were collected from threeoverlapping sources: in-depth, semi-structuredinterviews; documents; and observation studies.These sources were triangulated to maintain theintegrity of the analysis (Miles & Huberman, 1994;Silverman, 2006). We relied on the notion ofpurposeful sampling, and interviewed managersabout the international expansion of IKEA from1963 to 2009; how this expansion has beensupported by knowledge sharing across units inthe IKEA network; how IKEA replicates, allowingfor local adaptation; and how it modifies its formatfor replication.

In total, 70 interviews were carried out with IKEAemployees from 2003 to 2009 (see the Appendix).

Interviews were conducted in Russia (23), China(11), and Japan (17).6 The reasons for focusing onthese markets were that, by the time the studycommenced, these were all new markets to IKEA;they were clearly quite distant in cultural termsfrom IKEAs home market (cf. Johanson & Vahlne,1977, 1990); and they represent different degreesof development (China and Russia are emergingmarkets, and Japan is a mature market). Thusthey may serve to explore ideas about learningfrom the periphery of the organization. Interviewswere undertaken mainly with managers withinthe IKEA group, but store-level employees werealso interviewed. Interviews were also conductedwith employees at Inter IKEA Systems AB, whichis the part of the IKEA organization that is res-ponsible for the IKEA brand and concept. Inaddition to this, 20 interviews were conducted atthe global service office in Sweden, as well as withIKEA of Sweden (IoS) and Trading & Distributionand IKEA Inter Services AB. These latter interviewsfocused specifically on IKEAs internationaliza-tion approach, strategic orientation, culture, andvalues.

All interviews started with open questionsabout IKEAs international expansion, and themanagement and control of that process. As theinterviews progressed, the questions graduallybecame more structured, delving into proceduresand mechanisms for knowledge sharing withinIKEA, and the specific challenges that IKEA faceswhen entering new markets. Interviews withemployees working in IKEA stores focused moreon the routines for how knowledge was shared andused at the store level. An important aim of theseinterviews was to understand fully how bestpractices are shared. All interviews lasted between90 and 180 min. Our final interviews were withthe global HR manager of the IKEA group andwith the managing director of Inter IKEA SystemsAB, and focused specifically on IKEA as an interna-tional replicator, and the features of the format forreplication that IKEA applies in its expansionprocess. In addition, non-participant observa-tions were made in an IKEA store in Japan duringone week in 2005 in order to develop our under-standing of daily work routines, and of howreplicated best practices were used in a marketthat IKEA had recently entered. Finally, we exam-ined relevant documents, such as IKEA manuals, aswell as books and magazines about IKEAs historyand business ideas (e.g., Salzer, 1994; Torekull,2006). IKEAs intranet, which provides access to



manuals and tools, was systematically examined.The documents not only supplied additionalinformation, but also allowed us to control formemory bias by comparing interview state-ments with the collected document data (Miller,Cardinal, & Glick, 1997).

To analyze the data, we began from Yins (2003)pattern-matching method of analysis. In thisapproach the empirical patterns of the case (andthe embedded cases) are compared with thoseof theory. To emerge at patterns, interviews weretranscribed. A basic coding took place by meansof a color system that focused on key words andphrases. Following triangulation with companydocuments and (to a smaller extent) observation,this procedure allowed for the derivation acrossthe interviews of patterns relating to:

(1) knowledge sharing behaviors within IKEAstores;

(2) knowledge transfer between units in the IKEAnetwork;

(3) the development over time of IKEAsinternationalization; and

(4) the current practice of replication in IKEA.

In the following, these patterns are used to presentan account of the internationalization process ofIKEA, and the role of replication in that process. Inorder to further strengthen validity, respondentvalidation was also applied (Silverman, 2006).

IKEAS PROCESS OF INTERNATIONALIZATION:EXPLORATIVE INTERNATIONALIZATION, RIGIDREPLICATION, AND FLEXIBLE REPLICATION

During its 68-year history IKEA has grown from asmall, family-owned home furniture company intoa global retailer with 321 stores in 38 countries

(as of April 2011), of which the IKEA group owns280 stores in 26 countries (the rest, 41 stores in 17countries, are franchise operations). The companyemploys 127,000 people. IKEA is a privately heldcompany owned by Stichting INGKA Foundation.Global sales were h23.1 billion in 2010. TheFoundation, worth US$36 billion in 2006, andostensibly created to promote and support inno-vation in the field of architectural and interiordesign (Economist, 2006), is registered in theNetherlands, and is effectively controlled by theKamprad family.

Beginning almost five decades ago, IKEA hasembarked upon a massive international expansioneffort, supported by firm-specific knowledge-basedassets, notably reputational capital, a distinctmarketing offering, and well-developed standardoperating procedures for identifying, acquiring,and transferring knowledge between units inthe IKEA network. In the following, we detailIKEAs process of internationalization in terms ofthree successive stages of development: an initialexplorative stage of internationalization, character-ized by much trial and error activity (1963 to theend of the 1970s); a stage characterized by heavyexploitation by means of replication of a fairly rigidformat for replication (approximately 1980 to themid-1990s); and the current stage of what we referto as flexible replication. See Figure 1, which mapsthe three overall stages of IKEAs internalizationexperience, and the key events during these stages.Table 1 maps this process in terms of the variousmarket entries from 1963 until today.

IKEAs Internationalization Process

Explorative internationalizationIKEA began its international expansion in 1963when it entered the neighboring Norwegian market

Phases:

IKEA Idea Conceptand Concept inPractice codified

Key events: Swiss entry(1973)

Explorative internationalization(1963 end of 1970s)

Rigid replication(1980 mid-1990s)

Flexible replication(mid-1990s current)

1963 1980 1995

Failed US entry (1985)Failed JP entry(end of 1970s)

Testament of afurniture dealer (1976)

Kraft 80 IKEA Values (1996)Inter IKEA Systems BV established (1982)

Figure 1 Timeline of IKEAs internationalization process.



as a direct consequence of the saturation of theSwedish market, and based on a belief that largervolumes could enable it to exploit economies ofscale and learning that would support price-basedcompetitiveness. Six years later, IKEA entered theneighboring Danish market. While the two initialforeign market entry decisions are consistent withthe emphasis on sequential, incremental entryin the Uppsala model (Johanson & Vahlne, 1977),

the third one, the 1973 entry into the Swiss market,and a number of those that followed, are not. ThusKamprads rationale for entering the Swiss marketwas that it was probably the most conserva-tive European furniture market. If IKEA could besuccessful there (Martensson, 1988), it probablycould be successful in other markets as well (Salzer,1994). The process and decision are described byan IKEA manager in the following way (in Salzer,1994: 5960):

Have you heard about how we started abroad? By then we

had entered Norway, but that was by mistake, you knowya kind of consultant who had duped us to buy some

building lot. And then they pondered, which market is the

most conservative when it comes to furniture? Well, its

Switzerland. So they took the train to Switzerland. Well, it

was Janne [ Jan Aulin] and Kamprad. And they stood outside

the shops that sold modern furniture in Switzerland,

you know, and they stood there and they asked the people

who stopped and looked in the windows.y And when theyhad been standing there for half a day they were assured

that there were enough people who liked that kind of

furniture but that it was too expensive, so there must be a

market, they thought, and then they went back to Sweden.

And so we bought a building and started the first store in

Switzerland.

A somewhat more systematic approach than theabove example of rather casual market research wasthe opening during the 1970s of so-called teststores in city centers to test whether there was aninterest in IKEA products. Still, IKEAs initial processof entering new markets can be described as ahighly explorative one of trials based on hunchesand intuition, and on learning from the errors thatoften followed trials.

A vivid example of the latter is the rather painfuland expensive entry into Japan during the late1970s. The entrance into Japan was essentiallyunplanned, and occurred because an internal IKEAunit, the export department, had started to sellIKEA products to Japanese firms, which led to IKEAproducts being sold at high prices in small IKEAcorners inside big malls. This was in flagrantviolation of the IKEA concept. Although IKEA hadset up a joint venture with a Japanese partner, itdecided to withdraw from the Japanese marketaltogether, owing to the violation of the IKEAconcept, and because it was not able to control theoperation. The export department was soon closeddown as IKEA realized that it had to control theinternational expansion of IKEA in a superiormanner. Prompted by the problems in Japan, aspecial unit, Inter IKEA Systems, was established

Table 1 IKEAs internationalization process in terms of market

entries

IKEA first store/market entry Number ofstores in 2011

1958 Sweden: Almhult 171963 Norway: Oslo (Nesbru) 61969 Denmark: Copenhagen (Ballerup) 51973 Switzerland: Zurich (Spreitenbach) 101974 Germany: Munich (Eching) 461975 Australia: Artamona 71975 Hong Kong: Hong Kong (Tsim Sha Tsui)a 31976 Canada: Vancouver (Richmond) 121977 Austria: Vienna (Vosendorf) 71978 Netherlands: Rotterdam (Sliedrecht)a 121978 Singapore: Singaporea 21980 Spain: Gran Canaria (Las Palmas)a 131981 Iceland: Reykjavika 11981 France: Paris (Bobigny) 281983 Saudi Arabia: Jeddaha 31984 Belgium: Brussels (Zaventem and Ternat) 61984 Kuwait: Kuwait Citya 11985 United States: Philadelphia 381987 United Kingdom: Manchester (Warrington) 181989 Italy: Milan (Cinisello Balsamo) 181990 Hungary: Budapest 21991 Poland: Platan 81991 Czech Republic: Prague (Zlicin) 41991 United Arab Emirates: Dubaia 21992 Slovakia: Bratislava 11994 Taiwan: Taipeia 41996 Finland: Esbo 51996 Malaysia: Kuala Lumpura 11998 China: Shanghai 92000 Russia: Moscow (Chimki) 122001 Israel: Netanyaa 12001 Greece: Thessalonikia 32004 Portugal: Lisbon 32005 Turkey: Istanbula 52006 Japan: Tokyo (Funabashi) 52007 Romania: Bucharesta 12007 Cyprus: Nicosiaa 12009 Ireland: Dublin 1Total 321

aIndicates that IKEA has at least one franchise operation in the relevantcountry.



to take control of the IKEA non-owned/franchiseoutlets as IKEAs greenfield investments, as thesewere not always undertaken in a sufficientlycontrolled manner. However, the Japanese experi-ence was also instrumental in leading to therecognition at the IKEA top management level thatmuch more effort had to be put into in conceptua-lizing the IKEA business idea in the context ofinternationalization. This became an exercise direc-ted at homogenizing the IKEA product offeringacross countries. The case of the entry into Japanwas a decisive learning experience: It was taken asan example of excessive exploration, and was seenas a call for cutting down on explorative efforts. Infact, for some time the pendulum moved towardsthe exact opposite direction, namely towards astrong emphasis on exploitation.

Exploitative internationalizationThe emphasis on defining the IKEA concept andexplicitly begin building a formula for replicationthat took place in the years around 1980 wasstrongly motivated by an attempt to realize the costefficiencies from exploiting massive economies ofscale that replication on the basis of a relativelyfixed format would entail. The process of concep-tualizing the IKEA business idea in the context ofinternationalization started with an internal docu-ment drafted by Kamprad in 1976. This document the Testament of a furniture dealer is fundamentallyan attempt to codify and document fundamentalIKEA values and beliefs. While these had arguablybeen present since the founding of the firm, theyhad not yet been explicitly codified. Armed withthis (re)statement of fundamental beliefs andvalues at the end of the 1970s, IKEA moved towardsa new phase of its international expansion process,and started to build a well-defined format forreplication.

Consistent with the Winter and Szulanski (2001)two-stage model, the second phase of IKEAsinternationalization process had a much moreexploitative character than the first, highly explora-tive phase. Notably, increasing emphasis was placedon standardized market(ing) solutions. Beginningtowards the end of the 1970s, format stores weredeveloped, and the blue-and-yellow store conceptwas used in all new locations. Stores were alsostandardized to economize on building costs, andto support brand awareness. One example of suchefforts was the decision to paint all IKEA storesblue and yellow, which was made as a result of

IKEAs entry into the German market. Initially,IKEA had chosen to place a moose on top of theroofs of the German IKEA stores (Torekull, 2006).However, when the Germans started to showgreater interest in the moose than in the IKEAbrand, it was decided to take it down. To build apresence in Germany, it was decided to push theSwedish origin of IKEA. To emphasize this, storeswere painted in the colors of the Swedish flag,blue and yellow. IKEA soon realized that paintingthe stores blue and yellow would make it easierfor them to stand out in other areas with manyother retailers. All IKEA stores were now paintedblue and yellow, an example of knowledge gainedon one market affecting the whole of IKEA. Onemore effort towards codification and documenta-tion was the outcome of a project called Kraft 80,which was initiated in 1979.7 The project resultedfrom a concern that IKEA had been growing toofast, and was in danger of sacrificing the economiesof scale that the firm so strongly pursued (Salzer,1994: 66). A global HR manager explains: we grewso fast and there was a notion that IKEA shouldbe different on different markets y we called itmarket units. The ambition with these marketunits (southern Europe, northern Europe, easternEurope, and North America) was to source morelocally and adapt more to the regional markets.However, this organizational setup was not success-ful, and resulted in a situation with a large andhighly dispersed product range, in conflict with theIKEA concept. The same manager explains that itwas ultimately Ingvar Kamprad himself who saidstop; we shall be one IKEA, one business ideaand one culture. Kraft 80 marked an attempt tore-capture those economies of scale by carefullycodifying the business format that would bereplicated in new markets. Kraft 80 and theexperiences of moving away from the IKEA conceptled to IKEA values, an internal document thatKamprad wrote in 1996 (i.e., 20 years after hewrote Testament of a furniture dealer) in order tofurther explicate the overall IKEA concept.

The present ownership and overall organizationalstructure also emerged as a consequence of themajor strategic changes going on at the end of the1970s towards uniformity and replication of astandardized format. Thus in 1982 ownership ofIKEA was transferred to the INGKA StitchingFoundation. IKEA was restructured, and the threelegs IKEA Group (the blue group), Inter IKEASystems (the red group), and IKANO (the greengroup) were created. The green group, IKANO,



is owned by the Kamprad family, whereas the redand blue groups are owned by INGKA Holding BV.The red group, Inter IKEA Systems BV, is the ownerof the IKEA concept (aka the idea concept) and thebrand name of IKEA. This part of the organiza-tion plays a very important role in IKEAs replica-tion process, and will be discussed further below.Three percent of all IKEA store revenue is paid toInter IKEA Systems BV as equity that bolsters IKEAagainst economic hardship. INGKA Holding BV isthe ultimate parent company for all IKEA Groupcompanies, including the industrial group Swed-wood, which manufactures IKEA furniture, thesales companies that run the stores, as well aspurchasing and supplying functions, and IoS,which is responsible for the design and develop-ment of products in the IKEA range. INGKAHolding BV is wholly owned by the StitchingINGKA Foundation. Figure 2 shows the overallorganization of IKEA.

Excessive exploitationWhile IKEA had learned the importance ofstandardizing its format uniform stores, promo-tion, and product range the hard way, it isarguable that it came to resemble too much theview of a precisely replicating firm in Winter andSzulanski (2001). Explorative efforts became fullyconcentrated in HQ functions, and there was noawareness of any need to learn from subsidiaries,or transfer experiential knowledge gained bysubsidiaries back into the rest of the network. Atthe very best, individual learning took place as the

IKEA cowboys moved from one market toanother, setting up new stores, but these lessonswere not shared at a corporate level. However, inthe 1980s a few notorious failures helped IKEAlearn that exploitation in the form of indiscrimi-nate replication would not always work, and thatit was necessary to keep an eye on learningexperiences in subsidiaries that is, in the periph-ery of the organization.

One particularly important failure was the 1985entry into the US market (Torekull, 2006). A typicalproblem of the US entry was the unwillingnessof IKEA to increase the sizes of beds and kitchencabinets, because part of its concept was to offer asingle, global range. These kind of events promptedbroader reflections on the viability of the indiscrimi-nate exploitation model that IKEA was following,and amply illustrates the adaptationreplicationdilemma. In the words of an IKEA manager:

Its more than an issue of product design it extends to how

much we should adapt our organization and culture.

Humility may be a virtue in Europe, for example, but

should we impose it to our US organization?y Should ourbusiness drive our culture, or should our culture drive our

business? (cited in Bartlett, 1990: 11)

Such self-examining reflections were strongly pre-sent throughout the expansion of the 1980s andearly 1990s.

Towards flexible replicationEventually, IKEA began to realize that successfulinternational expansion by means of replication

Stiching INGKAFoundation

INGKAHolding B.V

The IKEA Group

IndustrySwedwood

Group

Purchasing Distribution& Wholesale

RangeIKEA ofSweden

Retail

IKEA Services B.V.IKEA Services AB

Inter IKEASystems B.V.

The Foundation

The ParentCompany

Figure 2 The organizational structure of IKEA.

Source: www.ikea-group.ikea.com.



required the company to allow for local explora-tion within the confines of the IKEA concept,alongside the successful sharing of practices andstandard operating procedures that embodiedexperiential learning gained by subsidiaries. Aspecific lesson learned from the US entry was thatIKEA should stick to one product range, but that,when needed, it should adjust its products to thelocal market, while maintaining, as best as itcould, a focus on high volumes. The US experiencewas arguably also instrumental in making IKEAsapproach to adaptation to local markets morepresumptive (Szulanski & Jensen, 2006). Part ofthis presumptiveness is that although the transferand implementation of well-documented practicesand standard operating procedures have highpriority, there is no requirement that IKEA storesmust copy exactly (Winter & Szulanski, 2001).The aspects that arguably come closest to the copyexactly ideal are the standardized marketingsolutions, which include important parts of storeformat and design, the catalogue, and the productrange.8 These solutions encompass approximately100 practices that are viewed as proven solutions,and are mandatory in the sense that they must beapplied as long as there are no better solutions. Onesuch solution is that there must always be blue-and-yellow bags in the stores. Another is that all IKEAstores must have a set in-store pattern, which startswith the presentation of five living rooms for thecustomer. Those living rooms must reflect fourIKEA design styles: Scandinavian, country, modern,and young Swedish. The idea is that customersshould know what to expect, and the layout,products, and shopping experience should bebasically the same, regardless of the store location( Jonsson, 2007; Lindqvist, 2009). However, beyondthe proven solution, variation is tolerated. More-over, in actuality, experimenting with the provenpractices is tolerated, and to extent to be encour-aged. This reflects a corporate culture that stressesthe questioning of proven and taken for gran-ted solutions, an explorative approach that isexplicitly expressed as one of IKEAs ten corporatevalues.

THE CURRENT FLEXIBLE REPLICATION MODEOF IKEA

The IKEA Idea Concept and the Concept inPracticeA discussion of IKEAs current replication modemay usefully begin from the distinction between

IKEAs Idea Concept and a Concept in Practice. Thisdistinction reflects how IKEA explicitly thinks ofreplication as a hierarchical process, in which somefeatures (embodied in the Idea Concept) must stayfixed, while other ones (embodied in the Conceptin Practice) are allowed to be more flexible. Theneed for such flexibility stems from variation inlocal markets, as well as the need to modify theformat for replication under the impact of newlearning.

The idea conceptThe IKEA Idea Concept contains the guidingprinciples, vision, and culture that managementwants to underpin IKEAs operations and develop-ment, including its process of internalization. AnIKEA managers explains that the

IKEA concept has evolved over more than 50 years as a

result of serious opportunities and experiences, both large

and small in many different areas. The result today is a

strong, tried and tested concept, which has proved that it is

possible to combine global business ideas with local

business opportunities.

The Idea Concept is described as the unique assetthat differentiates IKEA from the competition.9

A manager at Inter IKEA Systems elaborates onthe nature of the Idea Concept:

[It] outlines how we shall offer products for the many

people, our business idea, how to work with low prices, etc.

There are certain eternal truths that will never change. This

is the starting point for all that we do.y The Idea Conceptis something that we will never adjust. For instance we shall

always offer the lowest price, we shall serve the many

people, etc.

The concept in practiceThe Idea Concept is a set of overall guidingprinciples that, while replicated across the IKEAnetwork, offers only general instructions on storedesign, HR management, etc. As a manager at InterIKEA Systems explains:

Everything shall not be clear and in detail. Because then

it will not move. We are an organism that takes the

opportunity. If we should have clear definitions then it

would turn into a lubricated machine and it would not be

IKEA any more.

As this suggests, flexibility and a commitment tocontinuous exploration are at the core of IKEAsself-understanding. While the guiding principles ofthe Idea Concept remain unchanged, the Conceptin Practice that is, the current embodiment of theIdea Concept in terms of product offering, store



design and location, pricing policy, and so on isfrequently modified. In the words of another IKEAmanager:

The Concept in Practice relates to our latest proven

solutions regarding how to run an efficient home furnish-

ing business, the size of the stores, range, etc. All of those

things need to change over time but it has to be in line

with the Idea Concept.

In general, IKEA thinking on the Concept inPractice stresses its process and learning aspects.Kamprad consistently emphasizes the importanceof maintaining the entrepreneurial spirit, andthe necessity of always questioning proven solu-tions. According to IKEA lore,10 for Kamprad theworst situation would be one in which co-workersdid not make mistakes. In fact, one of the tenexplicit values in the IKEA culture stresses that[m]aking mistakes now and again is the privilegeof the dynamic co-worker they are the ones whohave the ability to put things right.

Still, the components that constitute the Conceptin Practice are ordered in a hierarchical manner,depending on how much they are allowed tochange and vary. IKEA considers the product rangeas fairly fixed over the short to medium term.Whereas some products, such as the BILLY book-shelves or the KLIPPAN sofas, have been present inthe product offering for a very long time, otherproducts may be replaced after just a year. Pricing isalso fixed, but only over the 1-year period coveredby the IKEA catalogue. Prices are set at the countrylevel, but must follow the Idea Concept guidelinethat IKEA shall offer low prices for the manypeople. However, a store manager has the author-ity to lower a price immediately if a similar productis being offered by any competitor at a lowerprice.11

In addition to the overall Idea Concept, whichis supposed to be replicated across the whole IKEAnetwork, the (current) format for replicatingIKEAs retail part may be described in terms of aset of variables, the key ones being the productrange, pricing, store format, store design, standardoperating procedures, and local HRM; the variablesare allowed to vary within more or less well-definedranges.

Product rangeThe number of products has obviously increasedsince the founding of the first IKEA store in 1958,but over the last decade has reduced to approxi-mately 9500 products, a significant part of which

comprises ready-to-assemble furniture pieces. Apersistent feature of IKEAs replication process sincethe first expansion beyond the Almhult locationin the beginning of the 1960s is that any store,wherever it is located, must carry the core productrange (e.g., the BILLY bookcase and the KLIPPANsofa). Beyond the fixed product range that any storemust carry there is considerable discretion for eachstore and each market with respect to selectingfrom the overall product range. This means, forexample, that a store in Japan may choose to sellsmaller sofas than a store in the US. The basic ideawith a core product range is that the consumershould be able to recognize the IKEA store and IKEAproducts no matter whether he or she visits a storein Sweden or in Japan. Having one core range, ofcourse, also implies possibilities for economies ofscale and lowering costs. The product range andprice is part of the Idea Concept, and viewed asholy to the business idea. So rather than adapt theproduct range to local markets, it is the productoffering that is adapted to fit the taste and homesof that markets consumers.

PricingOverall, IKEAs competitive strategy emphasizescost leadership. IKEA positions itself as a vendorfor people who happily trade off service againstlower costs (Porter, 1996). When designing a newproduct, the price tag always comes first, as it were(Edvardsson, Enquist, & Hay, 2006). However,recently sustainability has been added to thatstrategy, aiming for more sustainable products,production, and distribution. However, the empha-sis is not just on low prices, but on stable prices.When the yearly IKEA catalogue has been pub-lished, prices cannot change until the next catalo-gue is printed. Finding the right price level innew markets is particularly important in order toattract the target consumers. This is an example oflocal adaptation. This has been especially challen-ging in markets with high import duties, such asChina and Russia. Such challenges have led toa need for more local production, as it is difficultto change the consumers view of acceptableprices a lesson learned in the Polish market,where it took IKEA several years to convinceconsumers that it had lowered its prices to meetthe many people. The issue of finding the rightprice level was a big concern that was extensivelydiscussed before the market entrance into Japan in2006. However, when falling back to the Idea



Concept, IKEA decided to fit with the strategy ofoffering products at low prices.

Store format and designIKEA stores follow a fixed basic format. The size ofan IKEA store has increased over the years.Currently the smallest standard stores that are builtare 32,000 square meters and the largest are 45,000square meters. Having standard stores is also inline with the general cost-efficiency goal. As land isexpensive to buy in some markets, IKEA hascurrently developed buildings with several floors,with parking lots both in the basement and on theroof. This is an example of how the Concept inPractice needs to be adjusted to meet local peculia-rities. A selection of furniture is displayed in room-like settings, adjacent to which is the self-servicewarehouse section, with the ready-to-assemblefurniture placed in boxes on pallets. All stores alsofollow a traffic flow that takes customers throughthe store in a manner that maximizes the exposureof IKEA products in different settings (Bartlett,1990). All stores have a restaurant with essentiallythe same menu (IKEA is Swedens largest foodexporter), in-store child care in the form ofsupervised play areas and ballrooms, hot dog/hotsausage stands, and food markets with traditionalSwedish food near the exits, etc. As stressed, thecharacteristic blue and yellow facade emerged inthe mid-1970s, and has been an IKEA fixture eversince.

Standard operating proceduresIKEAs early expansion phase was characterized bythe establishment of standard operating proceduresin new stores by means of instruction of newemployees by experienced IKEA personnel(Torekull, 2006). During the 1980s standard operat-ing procedures became increasingly codified, andthe number of manuals detailing procedures hasbeen increasing ever since. However, expatriatesplay an important role in ensuring that standardoperating procedures actually function in newstores. It is stressed that it is important to under-stand the IKEA culture and the IKEA Idea Conceptin order to implement and apply standard operat-ing procedures. Prior to the entry into Japan in2006 there was a concern that Japanese employeeswould consider best practices as eternal truths. Anexperienced store manager was therefore recruitedin order to share his experiences about thedifference between the Idea Concept and theConcept in Practice.

HRMWhile IKEA is extremely HRM conscious at thecorporate level, local stores have considerablediscretion with respect to such practices as jobrotation within stores, buddy arrangements (usedto socialize and educate new employees), andrecruitment.

Managing Flexible Replication: Mechanisms forIntra-IKEA Knowledge SharingIKEA management stresses that a fundamentalfacilitator of its internationalization process iscorporate-wide knowledge transfer, notably thetransfer of changes in those practices that consti-tute the IKEA format for replication. In fact, theemphasis on knowledge sharing has clearlyincreased over the years. In a strategic companydocument, the 2001 document Ten jobs in ten years,the importance of knowledge transfer and sharingis strongly emphasized:

When managers and co-workers are genuinely interested in

sharing and accepting ideas from each other, then we will

be using the competence and resources of the whole

company. For this to happen we must be prepared to move

our people and to move information across borders. We

must break down all barriers between functions and

markets, and build an open and trustful working climate,

and that way, act as one IKEA.

Another goal set out in the document is that in2010 IKEA will have a new generation of home-grown managers, building an even more trustfuland motivating working climate, sharing knowl-edge across the organization and bringing IKEAsbusiness and culture forward. The organizationalmechanisms that are deployed in the service ofIKEA-wide knowledge sharing are: dedicated orga-nizational units; standard operating proceduresfor gathering, codifying and disseminating experi-ential knowledge; documents (manuals, internaljournals); values; and the use of expatriates.

Standard operating procedures for gathering,codifying and disseminating experiential knowledgeThe IKEA policy of intensive documentation andcodification of routines and solutions has, if any-thing, been strengthened over the last threedecades. The mandatory routines and solutionsthat must be implemented at the store level aredescribed in manuals that provide instructions onhow to present, for example, a sofa in a store, orhow to sell food in an IKEA restaurant. In total,IKEA works with approximately 75 manuals, of



which the first known as the mother of allmanuals describes the IKEA Idea Concept.Manuals are available in each IKEA store (eachstore manager owns his or her set of manuals), andon IKEAs intranet, where other tools for sharingIKEA knowledge are also accessible. In order tosupport and secure a successful market entry,forward knowledge flows (i.e., knowledge flowingfrom headquarters) are considered crucially impor-tant. In order to support a market entry, bestpractices and standardized work routines are trans-ferred and implemented locally. Much of thisknowledge is explicit, and shared via IKEAs intra-net or manuals from headquarters to subsidiaries.

However, there is also a significant amount ofreverse knowledge flow that is, knowledge flow-ing from lower-level units to headquarters. Thusexploration of new work methods or new productsis strongly encouraged, and takes place at a dailybasis at the store level in all markets. New store-level ideas are passed on to the service office inthe relevant store, then on to the service office inthe relevant market, and finally to the globalservice office. The idea may be rejected, or passedon to the next stage at each consecutive stage. Ifan idea does not fit the Idea Concept, feedback isprovided to the store, and it is communicated on aninformation wall why the idea was not developedfurther and exploited to other markets. If an idearelates to a product, it is IoS that is responsible fordeveloping this idea further. If an idea relates to anew way to present, for instance, an IKEA productin the store, it is Inter IKEA Systems that isresponsible for developing and communicating itvia IKEA toolbox and the various manuals. Thisexemplifies how IKEA learns from the periphery ofthe organization.

There is clear awareness at the corporate levelof the importance of reverse knowledge flowsto IKEAs process of organizational learning. Forexample, when IKEA was planning the entry intoJapan (which eventually took place in 2006), thechairman of the board of directors of IKEA Groupargued that an entry into Japan, where packagingis crucially important, would probably provideIKEA with valuable experiences that would beof use in making more precise demands on IKEAssuppliers. IKEA top management in generalstrongly stressed the new learning experiences thatwould be produced by the entries into Russia,China, and Japan.

Another formal, organizationally embedded rou-tine for identifying new ideas and gathering

experiential knowledge from lower-level IKEAunits, notably local stores, is the commercialreview. This is, first and foremost, an internal auditto ensure that the IKEA concept is followed(specifically, whether the stores adhere to themanuals). However, it is also a means of identify-ing new best practices and new business opportu-nities. Those best practices or proven solutions,sometimes referred to as examples from reality,explored in the review process are published onthe intranet or in the manuals provided by InterIKEA Systems BV, such as Range presentation in thestore the IKEA way or How to improve childrensfurnishing. Inter IKEA Systems BV is responsible foridentifying, evaluating and sometimes improvingcertain solutions (i.e., best practices) found indifferent markets, as well as for sharing this knowl-edge with the rest of the IKEA network. A set ofmanuals is provided to each store manager, and allother IKEA employees receive a light version ofthese manuals in a booklet called Basic knowledge.

The commercial review process may focus on thepresentation of IKEA products in various settings inthe showrooms. When opening a new store in anew market, new solutions are often discovered. InJapan, for instance, Comin, a special unit workingwith the presentation of products in the stores,worked hard at presenting IKEA products so thatthey would fit a typical Japanese home setting. Inorder to convince Japanese consumers that IKEAproducts could fit Japanese homes, 30 showroomswere set up in a park in Tokyo. The purpose of thecommercial review is therefore to ensure that theconcept is followed, but also to accumulate experi-ential knowledge in order to build new businessopportunities and new best practices that is, torenew the format for replication.12 The commercialreview is thus a formalized tool for securing reverseknowledge flows. A manager at IKEA Russia arguesthat the ability to be able to contribute to reverseknowledge flows is crucial, because motivationis increased by being able to contribute to thewhole of IKEA. However, a precondition for thisis an understanding of how IKEA is organized(cf. Lindenberg & Foss, 2011). The managerexplained this in the following metaphorical terms:

It is a story about two guys visiting a quarry and they went

to one guy and asked what are you doing here? Im sitting

here and I am to make a square block from this damned

stone. And they went to another guy who was doing exactly

the same thing and asked what he was doing, and he said

Im part of building the Monument! And I think that this is

very much the way IKEA would like to do it when you



have the information and you know what your part is

about, and you have a feeling y and that is very muchabout that everyone at IKEA is needed, we cannot afford as a

low-price company to have many people running around

who are not needed. And when you are needed, you also

need to know what part of this monument Im creating.

And I think that this is really motivating! And I think that

everyone has to have a broad knowledge about what we try

to create and what I can contribute with. Its a very open

organization.

As another example of a formal routine designedto foster IKEA-wide knowledge sharing, in Novem-ber every year all IKEA country managers meet inAlmhult, Sweden, for the so-called range week.During this week IoS introduces the coming yearsproduct range, thus offering forward knowledgeflow. The week after, all sales leaders responsiblefor their countries meet in order to get even moredetailed information about the range. In additionto IKEAs intranet, information is provided onwallpaper close to the staff canteens. Read Me, aco-worker magazine offered in 15 languages thatreaches about 90% of people in their mothertongue, is another example of how to transferknowledge in a forward manner.

In terms of more informal routines, situationsarise in which IKEA finds it useful to share ideas andexperiences, via lateral knowledge flows, from onemarket with other markets with similar challenges.For example, IKEA in Russia, China, and Polanddeveloped a joint project for the exchange of ideason meeting the specific challenges presented byconsumers with low purchasing power. IKEA inJapan consulted IKEA in Germany on distribution-related questions prior to market entry. In thecontext of lateral knowledge flows, reciprocitybetween units is stressed, and seen as a way toensure a cumulative development of experientialknowledge. As a manager in IKEA Russia argues, it isimportant to

take advantage of other colleagues experience, if it has been

a success in the other store, other country, it should be

stupid of us if we should go into the same area and not use

their experience, reinventing the wheel, and then we try to

do it even better. But then if it isnt a success, then we will

take the next step and try to do it a little bit and develop it

further on.

Often these initiatives for how to improve theconcept in practice are taken by experiencedemployees with a huge personal network withinIKEA. Stories about such initiatives and their out-comes are disseminated both through storytellingand more formally in internal magazines, such as

IKEA Ideas. IKEA stories are also told online viathe IKEA toolbox or in printed booklet versions.The idea is to share

opportunities and experiences that have built the IKEA

concept. IKEA Stories preserves and spreads the stories of

co-workers who helped form the IKEA concept, and gathers

and shares stories from todays IKEA organizations. The

ultimate goal of IKEA Stories is to help maintain a strong IKEA

culture, which is a crucial factor for the continued success of

the IKEA concept. (Inter IKEA Systems B.V., 2006: 3)

ValuesThe ultimate goal of IKEA Stories is to help maintaina strong IKEA culture, which is a crucial factor forthe continued success of the IKEA concept (InterIKEA Systems BV, 2006: 3). In general, IKEA workshard to make knowledge sharing an integral part ofthe IKEA corporate culture. An important IKEAvalue is that youll be able to contribute to thedevelopment of others, for example in the formof knowledge sharing. In general, such values aremade very transparent, and all employees receivetraining in these values. IKEAs ten values werecodified in 1996 as IKEA Values, when IngvarKamprad felt that there was a need to restate hisearlier Testament of a furniture dealer. A marketingmanager explains that although manuals areimportant, it is crucial to grasp that IKEA is basedon values, so that values steer the firm andy putthe person in center y Togetherness is a centralword for us (Halt, 2010).

Dedicated organizational unitsThe central IKEA organization Inter IKEA SystemsBV, which owns and controls the Idea Concept andIKEA brand, and IKEA Group, which owns mostIKEA stores plays an important, coordinating rolein ensuring that experiential knowledge is acquiredfrom different markets and fed into the format thatis replicated. Inter IKEA Systems BV is vested withthe specific responsibility of orchestrating thetransfer of best practices. When changes are made,or new solutions are developed for example,regarding how to present the product range indifferent settings, or how to build an IKEA storewith three floors instead of the usual two floors the relevant knowledge is transferred to a globalservice office controlled by the IKEA Group. Newpractices are examined, and if deemed worthy ofdissemination they are further documented andshared through manuals and via an applicationon the IKEA intranet called the Toolbox.



ExpatriatesPart of IKEAs strategy when entering new marketsis to send expatriates to the new market to sharetheir knowledge about IKEA. Expatriates and cur-rent employees are responsible for sharing thisknowledge with new employees. Buddy practices,in which an experienced IKEA employee helpsa newcomer to the firm, foster the sharing ofstore-level tacit knowledge. In each country, oneIKEA store functions as a learning center for newIKEA stores in that country, and it is given theresponsibility for training new employees in accor-dance with IKEA concepts and procedures. In casesof new market entry, where learning centers do notyet exist in the relevant country, new employeesare sent to other countries to learn about IKEA.Expatriates are not only employed for the purposeof entering a new market and setting up thebusiness, but also to train local employees.

FLEXIBLE REPLICATION: A THEORETICALDEVELOPMENT

IKEAs Use of Replication as an InternalizationStrategyThe dominant theory of replication in manage-ment (Winter & Szulanski, 2001) predicts that repli-cators will follow a two-stage approach, in which aninitial stage of explorative search in the space offormats for replication is followed by a stage ofexploitative replication of the chosen format. Thispartly describes IKEAs internationalization experi-ence. However, as we have stressed, IKEA hasmoved on to a third stage, flexible replication, whichescapes the Winter and Szulanski (2001) model.13

Key to that model is the notion of the unique andpresumably stable Arrow Core that describes theideal specification of the replicable template. IKEAsstrategic thinking implies a denial that there is anArrow Core (and that it may be stable). Thus aninternal document, The future is filled with opportu-nities (Salzer, 1994: 61), explains that:

Today you will find IKEA all over the world and IKEAs size

will give rise to new problems, problems that will be solved

in the same unconventional way that IKEA has always

solved its problems. IKEA will never be completely finished.

Life will feed IKEA with new problems. Problems that create

new ideas and new solutions. Solutions that will change

IKEA.

That is, the sheer diversity of the environmentsthat IKEA confronts and the ongoing changesin those environments call for frequent local

adaptation, not the rigid rollout of a fixed formatfor replication. Thus an IKEA Group managerexplicitly denies that replication in IKEA meanscopying exactly:

To replicate perhaps meansy perhaps sometimes 90% andsometimes 70%, but there must always exist something that

is unique there and then it is important to incorporate

experiences, local knowledge etc.

Such thinking is nourished by the IKEA beliefsystem, which stresses the value of ongoing pro-blemistic search for superior solutions (Cyert &March, 1963; see also von Krogh & Cusumano,2001). Thus, to IKEA, replication is a process thatshould allow for flexible adaptation and learning,not only as a means of staying competitive andinnovative (locally harvested learning is dissemi-nated internally), but also as a means of managingthe complexity of entering and operating indifferent markets. As expressed by a manager atInter IKEA Systems BV:

It is an evolution. We must be able to hold it together and,

at the same time, bring home the experiences and knowl-

edge. There are many that believe that IKEA builds on gut

feeling but that is not the case. y We have tested manythings. A lot of the concept is based on simple tests of how

the customer reacts.

Overall, we may conclude that the case of IKEAsuggests that there is a need to go beyond theWinter and Szulanski two-stage model of replica-tion for the purpose of understanding internationalreplicators. In the following we rely on the case ofIKEA to develop propositions about internationalreplicators.

Theoretical DevelopmentSmall-N studies, such as the present case studyof IKEA, are usefully carried out for the purposeof theory-building. IKEA represents the case of aninternational replicator that has succeeded incombining replication with ongoing, MNC-widelearning and local adaptation that is, flexiblereplication. As we do not have a theory of flexiblereplication, it is important to discuss what canbe learned and proposed, theory-wise, from the caseof IKEA.

The key to IKEAs ability to combine replicationwith learning and local adaptation is the distinc-tion between the Idea Concept and the Concept inPractice, the former embodying the fixed featuresof what is replicated, the latter embodying thoseparts that are more or less flexible in the process ofreplication. This approach is akin to the notion of a



design hierarchy in the product development litera-ture that is, the notion that some functional oraesthetic features should stay fixed, while othersmay change in response to local customer andmarket demands (Clark, 1985). Keeping somefeatures of the format fixed allows for scaleeconomies from the reuse of procedures, routines,principles, and so on across the countries where theformat is replicated. Moreover, some internationalreplicators may decide that certain products areessentially fixed features of the format, and thisobviously also allows for substantial scale econo-mies (as well as brand recognition advantages). Inthe case of IKEA, the KLIPPAN sofa and the BILLYbookshelves arguably are such products. Allowingother features to vary allows for adaptation to localcircumstances. Moreover, updating of the formatfor replication, notably as a result of organizationallearning, takes place in terms of modifying thesefeatures. We conjecture that this approach toreplication may be used by other internationalreplicators than IKEA. This reasoning gives rise toour first proposition:

Proposition 1: International replicators willrealize a higher performance when they adopt ahierarchical approach to replication rather than acopy exactly approach.

The logic behind the proposition is in line with ouroverall argument: The hierarchical approach toreplication allows for simultaneously realizing scaleeconomies and learning economies. A copy exactlyapproach eliminates the latter, almost by defini-tion. There is, of course, still a tradeoff betweenthese two economies. However, as the case of IKEAsuggests, the tradeoff can be influenced in variousways, notably by the design of the format that isreplicated, and by organizational means (in parti-cular, organizational mechanisms that orchestrateknowledge flows across the MNC). Consider each ofthese in turn.

A fundamental design issue concerns the choiceof an optimal proportion between the fixed andvariable features of the format. What determinesthis proportion? Thinking relating to the integra-tionresponsiveness framework (Bartlett & Ghoshal,1989; Devinney et al., 2000; Prahalad & Doz, 1987)identifies basic tradeoffs between the need forintegration (e.g., the importance of scale econo-mies) and the need for responsiveness (i.e., thebenefits from being able to service heterogeneouscustomer demands). As argued above, it makes

sense to keep certain features of the template fixed,essentially for the purpose of meeting needs forintegration, while allowing other features to varyin time and across countries to meet the need forresponsiveness. In other words, the proportionbetween fixed and variable features of the formatchosen by an international replicator can be seen asthe concrete way in which it balances these twoneeds.

The key environmental contingencies that influ-ence this proportion are the heterogeneity anddynamism of the markets in which the replicator ispresent. Suppose those markets were homogeneousand static. Given this, there would be no advan-tages to keeping parts of the format for replicationvariable, but plenty of advantages to freezing theformat and replicating in an entirely uniformmanner. This is essentially the Winter and Szulanski(2001) two-phase model of replication.14 WhileIKEAs internationalization experience until aboutthe mid-1990s can be described in terms of thismodel, IKEA has moved on to a new stage of flexi-ble replication, in recognition of the diversity of theenvironments in which it is present, as well as theneed to feed new learning into revising the template.

The IKEA case suggests that the more hetero-geneous the underlying customer or client prefer-ences, the stronger the pull towards allowing forflexibility in the format for replication. Similarly,the greater the dynamism of the markets in termsof changes in customer or client preferences thatthe replicator targets, the greater the pull towardsformat flexibility. Such changes may be entirelylocal, in which case it makes sense to delegateadaptation to local units. Or they may be changesthat characterize many markets, for example, in aregion, in which case adaptation becomes more ofcorporate issue. The above reasoning motivates thefollowing proposition:

Proposition 2: The proportion of fixed to flexiblefeatures in a format for replication dependsnegatively on the heterogeneity and dynamismof the target markets. Thus replicators that targetvery heterogeneous and dynamic markets willhave relatively many flexible features in theirformats for replication; and replicators that targetvery homogeneous and static markets will haverelatively few such features.

The IKEA case furthermore suggests that the adapt-ability to local circumstances afforded by suchflexibility may yield distinct learning benefits.



Thus, as we have shown, IKEA systematicallyharvests local learning and seeks to transfer itinternally through reverse and lateral knowledgeflows. In turn, such knowledge transfers allows forthe format for replication to be updated byembodying new solutions in the format. IKEA hasdeployed numerous organizational mechanisms toorganize this learning process; notably, the InterIKEA Systems BV part of the central IKEA organiza-tion is fundamentally in charge of the process ofmodifying the format for replication. While it maybe that some lateral and reverse knowledge flowswould happen even in the absence of suchmechanisms, the case description and analysissuggest that their presence in IKEA has greatlycontributed to organizational learning in IKEA.This suggests a more general proposition:

Proposition 3: International replicators thatdeploy organizational mechanisms for lateraland reverse knowledge flows will be better ableto identify, harvest, and transfer local learningthat is useful for the purpose of revising theformat for replication.

Organizational units that are dedicated to MNC-wide knowledge management are, at least in thecase of IKEA, an integral part of the internationa-lization of an international replicator. Proposition 3thus suggests that replication as an internalizationstrategy can in fact be aligned with the knowledge-based view of the MNC and its internationalizationprocess.

Finally, it should be remembered that IKEA tookdecades to arrive at its current flexible replicationapproach in a highly path-dependent process ofinternationalization. During this process it movedfrom a highly explorative to a highly exploitativemode of internationalization, before settling on theflexible replication mode. There is little evidencethat IKEAs environment(s) changed in a way thatwarranted the extremes of a high degree of explo-ration and a high degree of exploitation. However,rather than modulate between the extremes in anattempt to achieve an average fit with the environ-ment (cf. Nickerson & Zenger, 2005), IKEA gradu-ally learned to practice the flexible replicationapproach, very much as a result of a series offailures of the highly exploitative approach in theface of heterogeneous environments. As shown,however, the flexible replication approach hasinvolved establishing dedicated routines and orga-nizational units that take care of IKEAs flexible

replication, and nurturing corporate values andculture that support the overall approach. Thisinvolves irreversible, costly investments in pro-cesses, organizational design, belief management,and so on. Such investments are likely to be warra-nted only in the face of a clear understanding of thecostliness and failures of either a highly explorativeor a highly exploitative approach to internationa-lization. Such an understanding is typically theresult of actually trying it out. It is also an under-standing of the IKEA corporate culture (the IKEAvalues) that is outlined in the Idea Concept forreplicating IKEA. In sum, we do not expect aninternational replicator to adopt a flexible replica-tion approach at the onset of its internationaliza-tion process. This is in coherence with the ideasabout experiential knowledge (e.g., Eriksson et al.,1997; see also Petersen et al., 2003), and also fitswell with the original ideas in the Johanson andVahlne (1977) framework that the more knowledgea firm gains the more resources and commitment.Specifically, we suggest that:

Proposition 4: International replicators adopt aflexible replication approach only after substan-tial experience with either one of the alternativesof highly explorative or high exploitative inter-nationalization, or both.

CONCLUSIONInternational replicators have emerged as impor-tant actors in many industries. Replication is clearlya strategy of international expansion. However,little explicit attention has been given in theinternational business literature to how theseorganizations build a format for replication; howthey trade off the benefits of replicating a formatwith the benefits of adapting locally; how theymodify a format under the impact of experiencegained through the internationalization process;how they organize this process; and what deter-mines the proportion of fixed to flexible features ofa format for replication.

In addition to providing a historical account ofhow IKEA arrived at its current flexible replicationapproach, our detailed study of IKEAs internationalexpansion and its current replication mode con-tributes to an understanding of these questions.While the Winter and Szulanski (2001) two-stagemodel is broadly descriptive of IKEAs internatio-nalization process until the mid-1990s, IKEA has,as it were, moved beyond this model.15 IKEAs



hierarchical approach to the format for replicationis a distinct approach to international replication.Its flexible replication mode not only represents away to resolve the integrationresponsiveness chal-lenge, but also facilitates organizational learning:local learning experiences are fed back to rest of thenetwork through reverse and lateral knowledgeflows orchestrated by dedicated administrativemechanisms and units. By highlighting experien-tial learning in the replication phase, and theorganizational mechanisms that facilitate theMNC-wide use of such learning, the IKEA casesuggests that research on ambidexterity (Gibson &Birkinshaw, 2004; He & Wong, 2004; Raisch &Birkinshaw, 2008) may be useful for further under-standing how replicators can cope with the chal-lenges introduced by flexible replication. Thisresearch represents a first attempt in that direction.

International replicators have different organiza-tional forms. Extant, largely descriptive, workon international replicators is usually concernedwith international franchising chains (Quinn,1998; Schultz & Yang, 1999; Watson, 1997) thatis, hybrid and non-firm governance structures(Williamson, 1996). In contrast, internationallyreplicating firms have captured much less interestfrom IB scholars. However, the difference between afranchising chain and a firm may matter to what isthe preferred replication strategy. Because firms canbetter deploy organizational instruments such asauthority and other modes of control, it may beargued that they are more successful than franchisechains in managing lateral and vertical knowledgeflows (Nickerson & Zenger, 2004; Williamson,1996). They may therefore be more successful inimplementing and executing a flexible replicationstrategy.

In terms of managerial implications, the case ofIKEA suggests that flexible replication is a viableinternational expansion strategy that is particularlywell attuned to heterogeneous international mar-kets. International expansion may be particularlychallenging for retail firms as compared withmanufacturing firms because of the particularimportance of closeness to end consumers, andit thus requires specific considerations (e.g.,Alexander, 1997; Burt & Carralero-Encinas, 2000;Elg, 2003). However, the IKEA case also suggeststhat flexible replication requires strict manage-ment, dedicated organizational units, and a strongcorporate culture. There is no doubt in IKEAregarding who controls and maintains the IdeaConcept, as well as the Concept in Practice. There

may be sometimes considerable latitude for localexperimentation, but such activity is constrainedby the concepts and the hierarchical ordering ofthe format for replication. In order to yield validmanagerial implications, future research shouldaddress the extent to which other internationalreplicators adopt a similar approach to replication.A comparative case approach may usefully beginfrom the four tentative propositions outlined inthis paper.

ACKNOWLEDGEMENTSWe thank (without implicating) Tamer Cavusgil, UlfElg, Kristina Eneroth, Jasper Hotho, Ram Mudambi,Torben Pedersen, Bent Petersen, Claus Rerup, SidneyWinter, and, in particular, Peter rberg Jensen, JulianBirkinshaw, and the three reviewers of this journal forexcellent co

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