International International BusinessBusiness

Jeff ShayUniversity of Montana

What business is IKEA in?What business is IKEA in?

Who is beingWho is being satisfied?satisfied?

Customer Customer Groups Groups

What is beingWhat is being satisfied?satisfied?

Customer Customer Needs Needs

How areHow arecustomer needscustomer needs

satisfied?satisfied?Distinctive Distinctive

CompetenciesCompetencies

DefinitionDefinitionof Businessof Business

Who are IKEA’s customers?Who are IKEA’s customers?

Individuals and families for whom price is more important than cultural valuesStarting a new home and have no or very little furnitureTransient – makes functional, easy to assemble and disassemble furniture a must

Can you come up with an ideal cultural profile to use when selecting potential markets?

What needs are being satisfied?What needs are being satisfied?

Need to buy a whole array of furniture at an affordable price

What is a distinctive or core competencyWhat is a distinctive or core competency

“A bundle of skills and technologies (rather than a single discrete skill or technology) that enables a company to provide a particular benefit to customers” Example: Pepsico’s unique distribution, franchising, and branding skills bundled together allowed for quick penetration of Asian market with KFC

What distinctive competencies does IKEA possess?

LogisticsOutsourcingCustomer serviceAny more?

IKEA’s StrategyIKEA’s Strategy

What is IKEA’s strategy?

Types of Business-Level StrategiesTypes of Business-Level Strategies

Offers Products toOnly One Group

of Customers

Offers Products toMany Kinds of

Customers

Offers Low-Priced Products

to Customers

Offers Uniqueor Distinctive Products toCustomers

Focused Cost-Leadership

Strategy

Focused Differentiation

Strategy

DifferentiationStrategy

Cost-Leadership

Strategy

Generic Business-Level StrategyGeneric Business-Level Strategy

How would you characterize the How would you characterize the industry?industry?

Potential competitors

Potential competitors

RivalryRivalry

Substitutes

Substitutes

Supplier power

Supplier power

Buyer power

Buyer power

What about the macro-environment?What about the macro-environment?

Political and LegalEnvironment

TechnologicalEnvironment

DemographicEnvironment

Social Environment

Macro-EconomicEnvironment

Potential competitors

Potential competitors

RivalryRivalry

Substitutes

Substitutes

Supplier power

Supplier power

Buyer power

Buyer power

Competitive advantageCompetitive advantage

A relatively unique characteristic of an organization that provides greater opportunities over rival organizationsExample: American Airlines Sabre system

What competitive advantages does What competitive advantages does IKEA possess? What does it do better IKEA possess? What does it do better than the competition?than the competition?

Are these competitive advantages Are these competitive advantages sustainable?sustainable?

What are competitive advantages built on?What are competitive advantages built on?

SuperiorQuality

SuperiorQuality

Competitive Advantage:•Low Cost•Differentiation

Competitive Advantage:•Low Cost•Differentiation

SuperiorInnovation

SuperiorInnovation

SuperiorEfficiency

SuperiorEfficiency

SuperiorCustomer

Responsiveness

SuperiorCustomer

Responsiveness

Summary of the Impact of Efficiency, Quality, Innovation, and Customer Responsiveness on Unit Costs and Prices

Innovation

Lower Unit Costs

Higher Unit Prices

CustomerResponsiveness

Quality

Efficiency

The Roots of Competitive AdvantageThe Roots of Competitive Advantage

Distinctive Competencies, Distinctive Competencies, Resources, and CapabilitiesResources, and Capabilities

ResourcesResources

HigherProfits

DistinctiveCompetencies

Capabilities

Differentia-tion

Low Cost

ValueCreation

Superior

•Efficiency•Quality•Innovation•Customer Respon- siveness

Describe IKEA’s growth Describe IKEA’s growth since its inceptionsince its inception

BCG Growth-Share MatrixBCG Growth-Share Matrix

Relative Market Share

Star Question Mark

DogCash Cow

High

MarketGrowth

LowWeakStrong

BCG Growth-Share Matrix:Quadrant Characteristics

Relative Market Share

StarEarnings: high stable, growingCash flow: neutralStrategy: hold or invest for growth

Question MarkEarnings: low, unstable, growingCash flow: negativeStrategy: increase market shareor harvest/divest

DogEarnings: low, unstableCash flow: neutral or negativeStrategy: harvest/divest

Cash CowEarnings: high stableCash flow: high stableStrategy: hold or add marketshare

30%

MarketGrowth

-10%

.110 1.0

Using the Model: SymbolsUsing the Model: Symbols

Product APrevious

Market Sizeand Position

B

MarketShare

Product ATotalMarket

Product B MarketSmaller but firmhas greater share

Plotting Your SBU’sPlotting Your SBU’s

Relative Market Share

Star Question Mark

DogCash Cow

30%

MarketGrowth

-10%.110 1.0

A

BC

A

C

B

What Strategic Alternatives did What Strategic Alternatives did your group come up with?your group come up with?

What has allowed IKEA to be so successful What has allowed IKEA to be so successful with a relatively standardized product and with a relatively standardized product and product line in a business with strong product line in a business with strong cultural influence?cultural influence?

Consumers with low status concern, low conservatism, high education, white-collar workers, and also high income groups have fewer cross-cultural differences than other consumer groups—more open to adapt values to new views

Did adaptations to this strategy in the Did adaptations to this strategy in the North American market constitute a North American market constitute a defeat to their approach?defeat to their approach?

North American adaptations changes IKEA from a standardizer to a global marketerSome adaptation might be transferable to other markets (i.e., sofa beds in Europe)

What international trade and investment policies have hurt or might hurt IKEA?

Which have helped or might help IKEA?

What were some of the concepts from the text that you applied to the case?