A CASE STUDY ON IKEA : FURNITURE RETAILER TO THE WORLD
Abstr Abstrac actt : The case study will look into the development of IKEA from a small Swedish furniture company to global home furnishing giant that it is today.
Keywords : IKEA, case study
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The term competitive advantage, advantage , despite its widespread use and popularity, has no uniformly acceptable definition !eteraf "##$, pg %&'(. )ost oftenly, it is decribed as opposed to defined( in term of superior financial performance *inter, %++$ cited in !eteraf "##$,p. %&+(. In !eteraf and arney "##-, p.-% cited in !eteraf "##$,p. %&+(, competitive advantage has been described as follows /
0 An enterpr enterprise ise has a competitive advantage if advantage if it is able to create more economic value than the marginal breakeven( competitor in its product market.1
)ichael !orter %+'$, p.- cited in redrup %++$,p. -(, the strategic management guru who popularised the term described competitive advantage as /
“Competitive advantage grows out of value a firm is able to create for its buyers that exceeds exceeds the firm's cost cost of creating creating it. Value Value is what buyers buyers are willing willing to pay, pay, and superior superior value value stems stems from offering offering lower prices prices than competitors competitors for equivale equivalent nt benefits or providing providing unique benefits benefits that more than offset a higher price. price. There are two basic types of competitive advantage advantage cost leadership leadership and differentiation.!
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2ase studies on IKEA3s competitive advantages area abound. According to 4rol and Schoch %++', p.'+(, IKEA strength comes from its mastery of three key aspects of value chain, namely, uni5ue design capabilities, uni5ue sourcing and tightly controlled logistics.According to 4rol and Schoch further, this mean that the company is able to produce products that are distinctive enough to provide market recognition, secure sourcing for the long runs at profitable levels and reduce inventory costs through regional warehouses which works very closely with stores.
Though 4rol and Schoch directed their comments on IKEA3s strength nowadays, this paper submits that it is the same strength that gave IKEA competitive advantage in the %+&#s.The distinctiveness i.e. its stylish functional and minimalistic designs( of IKEA products was the factor that attracts customers to IKEA in the pre %+&# period. Secure sourcing, meanwhile, was guaranteed by long term contracts with their !olish suppliers who charged $#6 less than Swedish suppliers.
This paper proposes to analy7e IKEA source of its competitive advantage by the early %+s by looking at ways in which IKEA of the early %+&#s fits into the !orter3s classical 8iamond )odel developed by )ichael !orter. Although the model was developed by !orter to e9plain factors contributing toward a particular nation:s competitive advantages as against other nations, this paper submits that with conte9tual modification, the model is also applicable to e9plain factors contributing toward a particular business3 competitive advantage as against other business.
!orter3s 8iamond )odel ;igure %( )cKinnon "##+,p."#+( comprises four integers which are related to each other and which together, promote or impede the creation of competitive advantage for a particular business. The four integers are factor conditions, demand conditions, related and supporting industries and firm strategy, structure and rivalry. According to 8iamond )odel3s theory these four integers shape "
the nature of pressures on a particular company to invest and be innovative to attain the hallmark of competitive advantage i.e. cost leadership and differentiation.In other words, these four integers are the source of competitive advantages.
Firm strategy,structure and rivalry Factors condition
Demand conditions
Related and supporting industries
;igure % / !orter3s 8iamond )odel
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The factors conditions
According to )cKinnon "##+,p."#+( factors conditions consist of human resources 5uantity, 5uality, accessibility and cost of land and other natural resources including climatic conditions and location(, knowledge resources scientific technical and market knowledge(, capital resources amount and cost of capital to finance industry( and infrastructure. )ost of these factors were favaourable to IKEA in the years leading to the %+&#s. ;or e9ample, the article mentioned about the innovative 4illis
=ther e9ample of factors conditions favourable to IKEA was the !olish suppliers knowledge resources >Kamprad knew where to source 5uality e9pertise at the fraction of the price in Sweden( and the location of their third stores in Sweden at the outskirts of Stockholm with ample space for parking and good access roads which is infrastructure factors in !orter3s 8iamond )odel(. -
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"emand conditions
2onsumers demand for IKEA3s products in the years leading to the %+&#s were strong as IKEA3s products were not only competitively priced but were also of high 5uality as proven by comparison done by the Swedish maga7ine #llt i $emmet. As stated by the article under review this publicity made IKEA products acceptable to public and sales began to take off.
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%elated and supporting industries
!orter identified two mechanisms through which a competitive advantage in one industry could benefit other related industries. ;irst, a supplier industry may provide a downstream industry with regular supplies of low costs resources and possibly privileged access to these resources. Second, close working relationships between suppliers and an industry will result in more sharing of information and may result in more rapid innovation.
In IKEA3s case, the first mechanism is being represented by IKEA3s relationship with their !olish suppliers who could supply IKEA with resources at a fraction of the price had IKEA sourced the same from Sweden. The second mechanism is represented by the statement of one of the !olish managers 5uoted in the article under review that / 0A third advantage of working with IKEA( was that IKEA introduced new technologies. =ne revolution for instance, was a way of treating the surface of wood1. These two mechanisms translate to IKEA being able to lead in term of price and differentiation i.e. new innovative products always on the shelves(.
