1

EXPM511-18GM (HAM) - Global Business

Group Report on IKEA

Group 3 Members

Ao Dong - 1297734

Liuxuan Li - 1327626

Mercedes Isasmendi - 1354305

Shanza Evanson - 1117345

Shiv Arpit Shukla - 1365256

Pooja Gonjari - 1354468

Xiaojuan Yang – 1346924

Words- 1,996 (excluding tables/charts)

2

Table of Contents Introduction ............................................................................................................................................ 3

Background and Operations ................................................................................................................... 3

Competitors ........................................................................................................................................ 5

Key Markets and First Market Entry ....................................................................................................... 5

First Market: Norway .......................................................................................................................... 7

China: a successful case for IKEA ............................................................................................................ 7

Risks .................................................................................................................................................... 8

Future Market: New Zealand .................................................................................................................. 9

Opportunities ...................................................................................................................................... 9

Risks .................................................................................................................................................... 9

Conclusion ............................................................................................................................................. 10

3

Introduction (Ao Dong)

IKEA is a Swedish-founded multinational group that designs and sells ready-to-

assemble furniture, kitchen appliances and home accessories, among other useful goods and

occasionally home services. IKEA has been the world’s largest furniture retailer since 2008.

Since its inception, IKEA positioned itself as a home furnishing supplier, which aims to meet

many different consumer needs, tastes, dreams and financial resources; while at the same

time, hoping to improve the home condition and create a better daily life. In targeting this

market, IKEA’s products are marketed as ‘low price, exquisite and durable’ household goods.

Because of its high quality and low price, new style, good service, and other characteristics, it

is welcomed by the majority of low-income families. The purpose of this report is to identify

IKEA’s home country market, key markets, and potential future market. The operations and

risks involved in doing business in these markets will be examined. In addition, the

attractiveness of these markets will be evaluated according to the analysis of the market

potential.

Background and Operations (Shiv)

IKEA, was founded in 1943 by Ingvar Kamprad and was virtually unknown outside

of Scandinavia 25 years ago. The company was established to serve price-conscious

neighbours in the southern Swedish province of Smaland (IKEA, 2018a). IKEA operates in

50 countries and is a global destination store for home furnishings, ready to assemble

furniture, home accessories and kitchenware. It is the world’s largest furniture retailer with

422 stores. The largest market for the company is Germany with 44 stores, followed by the

United States with 37 and France with 26 (IKEA, 2018). IKEA is a private enterprise and

most of its operations, management, design and manufacture of furniture is run by a trust,

INGKA Holding, headquartered in Delft, Holland. While most of the designs of IKEA

products are made in Sweden, manufacturing has been outsourced to China and other Asian

countries (Loeb, 2012).

4

Source: Statista, 2017

Suppliers, including its own IKEA industry units, manufacture products and either send them

directly to the store for sale, or onto a distribution centre. IKEA have 1,220 suppliers in 55

countries: China, France, Hungary, Lithuania, Poland, Portugal, Russia, Slovakia, Sweden

and the US. The greatest number are based in China (20%), Poland (18%), Italy (8%),

Germany (6%) and Sweden (5%) (IKEA Facts & Figures, 2018).

Region No. Store Distribution Centre

No. Customer Distribution centre

No. Industry Production Unit

Europe 16 18 34

North America

8 8 1

Russia 1 0 6

Asia 5 0 2

Australia 1 0 0

Source: IKEA yearly summary FY17.

5

Competitors

Zara Home, founded in 2003, is part of the Spanish Inditex group and focuses on

selling a variety of homewares. It has approximately 408 stores in 44 countries (Inditex - Zara

Home, 2018).

Walmart is headquartered in San Francisco and has over 11,200 stores in 27 countries.

Furniture is one of the many products sold by Walmart and includes office, lounge, kitchen

and children’s furniture (Walmart Location Facts, 2018).

Amazon’s extensive range of goods makes it a key competitor of IKEA. Amazon

Home offers a variety of indoor and outdoor furniture at low prices and all with the

convenience of online purchasing (Amazon, 2018).

Key Markets and First Market Entry (Pooja)

IKEA is a global company with operations all over the world. Germany, United

States, France, United Kingdom, and China represent its five key markets regarding sales

volume and revenue (IKEA, 2018b).

Source: IKEA Yearly Summary, 2017

6

(Mercedes)

Key

Market Risks Opportunities

GER

MA

NY

Shortage of skilled labour force

Aging population

-Perceive the products as low quality (Reuters,

2016)

Migrations

-Increasing cross cultural risks

Terrorism

Attractive to new competitors

Political uncertainty

-Potential collapse of negotiations to form a

coalition between conservatives, liberals

and greens. Calling for new elections is an

option.

Low corruption country

-Ranked as the 12th less corrupted country in the

world (Transparency International, 2018)

Open investment framework

-There are opportunities to invest in any desired

industry

Stable and resilient economy

-Potential economic growth of aprox 1,5% for 2019

(Global Edge, 2018)

Increasing housing sector

Aging population

-It is a new market target for the company (Reuters,

2016)

Strategically located/Well connected with

Eastern Europe

-3 international ports: Hamburg, Bremerhaven and

Kiel

USA

Highly competitive market

-Strong players such as AMAZON &

WALMART

-Emerging competitors such as ZARA Home

& H&M Home

Potential new protectionist policies

Cyber attacks, natural disasters

Uncertainties on International Trade

Agreements

-United States has withdrawn from the Trans-

Pacific Partnership (TPP) and is seeking a

renegotiation of the North American Free

Trade Agreement (NAFTA) (World

Economic Forum, 2018).

Potential US tax reform

-Simplifying the US tax system to encourage

investments (PWC, 2018)

Low regulatory barriers (Hogan Lovells, 2018)

Transparent and well developed legal system

(Hogan Lovells, 2018)

FRA

NC

E

Private labels increasing retail value

share (Euromonitor, 2018)

Maisons Du Mond, another big

competitor increasing presence due to

new market strategy and potential

acquisition of Casa Or Fly

Structural unemployment (Foreign and

Commonwealth Office, 2018)

High unemployment rate: 9,5%

French business culture

-Formality and language knowledge are

essential

Rebounding of housing, construction and real

estate (Euromonitor, 2018)

Steinhoff, IKEA´s main competitor in troubles

for accounting irregularities.(Euromonitor,

2018)

New tax policies targeting business to

encourage investments (Foreign and

Commonwealth Office, 2018)

Potential relocation to France due to BREXIT

(TMF Group, 2018)

Germany yields 15%, followed by United States at 14% (IKEA, 2018b). IKEA

generated €5.003 billion from the German market and also achieved a growth of 2.8% in

2017 (Euwid, 2018). It also experienced high online growth at 30.75% in the business year

7

2016/2017 (Euwid, 2018). German’s prefer IKEA over other competitors, because they can

identify with the Swedish company, with the brand becoming part of their culture (The

Economist, 2011). In the last year, German customers demonstrated a particular preference

for living room (60%) and bedroom (30%) furniture (Euwid, 2018).

Similarly, in the United States IKEA is the preferred food and furniture brand (US

Today, 2018). It has successfully built a strong network with the US consumers. IKEA

recognises that the market is changing and is adjusting their business model appropriately.

They had planned to open three now stores due to growing sales, but instead shifted towards

online sales, which saw more demand (US Today, 2018).

(Mercedes) France is the third main market of IKEA, with 8% of the total sales in

2017. The company landed in 1981 and today there are 26 stores all over the French territory

(IKEA, 2018c). The success of the company in this market was driven by its ability to

respond to Parisian´s habits and expectations, for example, by creating solutions for small

spaces. In 2019 IKEA plans to open its first retail store in an iconic location in the centre of

the city, and an investment of €450 million is projected for new stores in the next three years

(The Local, 2018).

First Market: Norway

In 1963, IKEA opened its first store outside of Sweden, in Norway (Inter IKEA

Group, 2016). Due to the intensive price of IKEA, many competitors forced suppliers to stop

the supply for the IKEA group (Inter IKEA Group, 2016). To deal with this IKEA, went in

search of suppliers to Denmark and Poland and began its first international operations in

Norway (Inter IKEA Group, 2016). Norway was a growing economy after the start of

industrial era and many changes and growth opportunities were expected, which made it a

good opportunity for foreign entities (Global Tenders, 2016). Today, the scenario is different

wherein IKEA has closed its three service centres in Norway, due to a decline in demand for

furniture (Business Insider, 2018). IKEA slashed its prices by 10%, but the centres still

closed (Business Insider, 2018).

China: a successful case for IKEA (Xiaojuan Yang)

The Chinese name of IKEA is “宜家”, which means comfortable home. This name

appropriately delivers the company’s vision to its Chinese consumers “create a better

8

everyday life for the many people” (IKEA, 2018, para.1). IKEA entered China in 1998 as a

joint venture and placed its headquarters in Shanghai and opened the first store there in the

same year. With China’s rapid growth, IKEA opened 21 stores by 2016. There are 10,624

IKEA employees across China and sales revenue was approximately RMB 12.5 billion in

2016 (IKEA, 2016). The investment to the Chinese market will continue to increase.

IKEA entered China as a joint venture which is a good approach for learning local

consumer needs, competitors and market operations. In order to adapt the market in China,

IKEA adjusted its strategy on marketing position, pricing, sourcing, service and design. In

China, IKEA targets the young, middle-class group living in cities with affordable prices,

instead of a low-price strategy. IKEA keeps cutting product prices to cater to the

characteristics of price sensitive local people, through increasing the percentage of local

sourcing. In addition, it provides assembly services and changes the design of the furniture to

fit apartment sizes, whilst also maintaining a western-style- which is favoured by the

Chinese. The success of IKEA in China is the result of effectively merging globalization and

localization to create value in the local market.

Risks (Cassie)

An obvious risk to IKEA's operations in China is commercial risk. In 2013, IKEA’s

suppliers of more than 10 years decided to stop delivering products to the supply chain, due

to increased raw materials and labour costs; but IKEA lowered product prices so that

suppliers could not break-even (China.org.cn, 2013). IKEA has always been committed to

improving environmental protection and sustainable business, and requires suppliers to

provide ‘green’ products; however, this is difficult to implement in China. When customers

are asked to pay extra for plastic bags, price-sensitive consumers think this is unreasonable.

Finally, IKEA has to compete with a number of local competitors. IKEA was late to enter

Chinese furniture market, with more than 100,000 domestic furniture markets already in

China and more than 40 furniture stores in Beijing. Local rivals include Qumei group, Royal

Furniture and Chengdu QuanU furniture. All of these competitors exercised a heavy pressure

on initial prices as they were selling at lower prices in IKEA (Giunta, 2016). One example is

the price has dropped from 120 RMB to 39 RMB when IKEA first came to the Chinese

market (Hansegard, 2012).

9

Future Market: New Zealand (Shanza)

For more than a decade, consumers have been pushing for IKEA to open its doors in

New Zealand and whilst the company claims to be continuously looking to increase

accessibility to more people, its focus has been on expanding the chain in existing markets

(Abano, 2018). A proposition to open its first New Zealand store in Mount Wellington was

dashed in a 2008 Environment Court ruling, over concerns that the brand’s popularity would

wreak havoc on the city’s already congested roads. A second offer from Hamilton in 2009

was also dismissed, although the brand’s popularity remains strong with over 19,000 people

joining the Facebook page ‘Bring IKEA to New Zealand’ (Molin, 2018).

Opportunities

New Zealand has long held the reputation for being a safe country to do business with

and consistently ranks highly for integrity and honesty. It is currently ranked first for being

the least corrupt and easiest country to do business with, and its open and competitive

economy means that there are few barriers to entry (Export.gov, 2018; Transparency

International, 2018). The housing market has contributed to a relatively robust economy and

spending power is strong, with overall consumer spending reaching an all-time high of

$37833 million NZD in the second quarter of 2018 and $2,332 million NZD being spent on

furniture, furnishings and floor coverings (Abano, 2018; Trading Economics, 2018;

Euromonitor International, 2018). Demand for IKEA products is evident with New

Zealanders willing to pay up to three times the regular price for imported IKEA goods and

Trademe searches for IKEA furniture averaging 100,000 per month (Abano, 2018). Unlike

other markets such as India, which showed reluctance to the idea of building your own

furniture, New Zealand’s Do-It-Yourself [DIY] culture is likely to embrace the concept

(Chaudhuri & Abrams, 2018). Clifton (2012) explains that DIY is ingrained in the New

Zealand psyche, largely due to the nation’s geographical isolation and reluctant dependence

on imported goods. As housing prices continue to rise, the shift towards smaller living spaces

increases the need for multi-functional, compact furniture and this is something only IKEA

appears to making.

Risks

Despite its small size, New Zealand’s furniture market is relatively competitive. The

market consists of numerous high and low end brands, although smaller boutique and

custom-style businesses also appear to be prominent (First Digital, 2015). A report from First

10

Digital (2015) found that consumers were less concerned about whether their furniture was

New Zealand made and were happy buying cheaper, imported goods. This has resulted in an

influx of primarily budget Chinese brands that would inevitably be a big source of

competition for IKEA, who would not be able to compete with such low costs. Another

primary concern of the furniture giant when researching the New Zealand market has centred

on the ability to achieve economies of scale in a widely dispersed, low density population.

Typically, IKEA is found in areas of at least one million people who are within an hour’s

drive of the store- making Auckland the only possible contender for one of its 25,000 square

meter hyper-marts (Breitnauer, 2018). There is also debate surrounding whether demand

exists for stores of this size and by not having the benefit of scale, IKEA would not be able to

provide its full range of products or services and prices would be significantly higher, due to

the cost inefficiencies of shipping smaller volumes of goods (Breitnauer, 2018). For IKEA to

succeed in the New Zealand market, a smaller scale approach like what is currently being

trialled in Australia, would be necessary. In response to changing consumer needs, the

company has modified its business model by opening small-format stores and pick up points

where shoppers can buy top-selling items and collect online purchases (Mitchell, 2015).

While not providing the full IKEA experience, this would extend purchasing opportunities to

consumers who would have otherwise been excluded.

Conclusion (Mercedes)

Innovation is at the heart of IKEA’s success and its focus on making easily transportable,

affordable, quality furniture means that it remains unrivalled by any other furniture company.

What led IKEA to becoming the world’s largest furniture retailer was its ability to analyse the

risks and opportunities of potential markets, whilst also adapting its business model to local

cultures in order to meet the needs of prospective consumers. This facilitated sustainable

business growth and even enabled the brand to become part of the culture in many of its

current markets. The Chinese market clearly exemplifies this point. IKEA is a highly

progressive, glocal company that is constantly in search of new markets. New Zealand was

chosen as a potential market, due to IKEA’s success in Australia, increasing kiwi demand for

the brand and most of all, its highly resilient business model.

11

References

Abano, J. (2018, January 18). IKEA rejects New Zealand launch claims. Inside Retail.

Retrieved from https://insideretail.co.nz/2018/01/18/ikea-rejects-new-zealand-launch-

claims/.

Amazon. (2018). About. Retrieved from:

https://www.aboutamazon.com/?utm_source=gateway&utm_medium=footer

Breitnauer, J. (2018). Will a kiwi IKEA ever happen?. Retrieved from

https://theregister.co.nz/features/will-kiwi-ikea-ever-happen.

Business Insider. (2018, August 29). IKEA is making an unprecedented cost-cutting move in

Norway: ‘We’ve never closed anything before'. Retrieved from

https://nordic.businessinsider.com/ikea-is-shutting-down-city-service-centers-in-

norway-amid-cost-cuts--

Business Today. (2013). Couching tiger tames the dragon. Retrieved from:

https://www.businesstoday.in/magazine/lbs-case-study/how-ikea-adapted-its-

strategies-to-expand-in-china/story/196322.html

Chaudhuri, S., & Abrams, C. (2018, June 23). IKEA’s strategy in India: If we build it, they

will come. Wall Street Journal. Retrieved from https://www.wsj.com/articles/ikea-

lets-some-take-diy-off-the-table-1532338200.

China.org.cn. (2013). IKEA’s China manufacturers face tough times. Retrieved from

http://china.org.cn/video/2013-02/20/content_28010909.htm.

Clifton, J. (2012). New Zealand’s DIY society. Retrieved from

https://www.noted.co.nz/archive/listener-nz-2012/new-zealands-diy-society/.

Euromonitor International. (2018). Consumer expenditure on furniture and furnishings,

carpets and other floorings. Retrieved from

http://www.portal.euromonitor.com.ezproxy.waikato.ac.nz/portal/StatisticsEvolution/i

ndex

Euromonitor International. (2018). Home furnishing in France. Retrieved from Passport

Database website:

http://www.portal.euromonitor.com.ezproxy.waikato.ac.nz/portal/analysis/tab

Euwid. (2018). Ikea sales in Germany surpass 5bn € for first time. Retrieved from

https://www.euwid-wood-products.com/news/furniture/single/Artikel/ikea-sales-in-

germany-surpass-5bn-EUR-for-first-time.html

12

Export.gov. (2018). New Zealand market- overview. Retrieved from

https://www.export.gov/article?id=New-Zealand-market-overview.

First Digital. (2015). Searching for furniture online. Retrieved from

http://www.firstdigital.co.nz/blog/2015/04/23/furniture-online-industry-report-nz/.

Foreign and Commonwealth Office. (2017). Overseas business risk: Germany. Retrieved

from https://www.gov.uk/government/publications/overseas-business-risk-

germany/overseas-business-risk-germany

Foreign and Commonwealth Office. (2018). Overseas business risk: France. Retrieved from

https://www.gov.uk/government/publications/overseas-business-risk-france/overseas-

business-risk-france

Giunta, V. (2016). Ikea in China: A “glocal” marketing strategy. In C. Prange. (Eds.), Market

entry in China case studies on strategy, marketing and branding. (pp. 73-93).

Shanghai, China: Springer International.

Global Edge. (2018). Germany: Risk assessment. Retrieved from

https://globaledge.msu.edu/countries/germany/risk

Global Tender. (2016). Economy of Norway. Retrieved from

https://www.globaltenders.com/economy-norway.htm

Hansegard, J. (2012, March 21). Ikea taking China by Storm. Retrieved from

http://ezproxy.waikato.ac.nz/login?url=https://search.proquest.com/docview/92914

7471accountid=1728

Hogan Lovells. (2018). Doing business in the USA. Retrieved from Hogan Lovells website:

https://www.hoganlovells.com/~/media/hogan-

lovells/pdf/2018/hogan_lovells_doing_business_in_the_us_2018_v2.pdf?la=en

IKEA, (n.d.). IKEA Holding B.V. and its controlled entities yearly summary FY2017.

Retrieved from

https://www.ikea.com/ms/en_US/pdf/yearly_summary/IKEA_Group_Yearly_Summa

ry_2017.pdf

Ikea. (2016). IKEA China FY 2016 sustainability report. Retrieved from IKEA website:

https://www.ikea.cn/ms/zh_CN/pdf/sustainability_report/IKEA_China_Sustainability

_Report_FY16_1CN.pdf

Ikea. (2018a). Company information. Retrieved from https://www.ikea.com/ms/en_US/this-

is-ikea/company-information/index.html

Ikea. (2018b). IKEA facts and figures 2018: Financial year Sep 2017 - Aug 2018. Retrieved

from: https://highlights.ikea.com/2018/facts-and-figures/home/

13

Ikea. (2018c). France. Retrieved from

https://www.ikea.com/ms/en_AU/about_ikea/facts_and_figures/ikea_group_stores/fra

nce.html

Inditex. (2018). Zara Home incorporates the latest ideas and designs into everyday living.

Retrieved from: https://www.inditex.com/about-us/our-brands/zara-home

Inter IKEA Group. (2016). Milestones in our history. Retrieved from

http://inter.ikea.com/en/about-us/milestones/

Inter IKEA Group. (2018). IKEA industry. Retrieved from: http://inter.ikea.com/en/inter-

ikea-group/ikea-industry/

Loeb, W. (2012). IKEA is a world-wide wonder . Retrieved from Forbes:

https://www.forbes.com/sites/walterloeb/2012/12/05/ikea-is-a-world-wide-

wonder/#4e5bbc7727b9

McGee, J. (2018, June,1). Ikea axes three new U.S. stores as it beefs up online sales.

Retrieved from https://www.usatoday.com/story/money/business/2018/06/01/ikea-

axes-three-new-u-s-stores-looks-beef-up-online-sales/662598002/

Mitchell, S. (2015, July 2). IKEA Australia plans small stores ahead of online push. The

Sydney Morning Herald. Retrieved from https://www.smh.com.au/business/ikea-

australia-plans-smallformat-stores-ahead-of-online-push-20150630-gi1e2c.html.

Molin, A. (2018, October 11). IKEA plans to expand to a dozen new markets- but no NZ on

the list. Stuff. Retrieved from https://www.stuff.co.nz/business/107755768/ikea-plans-

to-expand-to-dozen-new-markets-coming-years.

Neidel, B. (2010). Negotiations, Chinese Style. Retrieved from

https://www.chinabusinessreview.com/negotiations-chinese-style

Pricewaterhouse Coopers [PWC]. (2018). Doing business in the United States. Retrieved

from PWC website: https://www.pwc.com/us/en/tax-services-

multinationals/assets/pwc-doing-business-in-the-us-2017-2018.pdf

Reuters. (2016). IKEA eyes higher quality to fend off new rivals. Retrieved from

http://fortune.com/2016/07/08/ikea-quality-improve-competition/

The Economist. (2011). The secret of IKEA's success. Retrieved from

https://www.economist.com/business/2011/02/24/the-secret-of-ikeas-success

The Local. (2018, April 12). Ikea to finally set up shop in central Paris after picking location.

Retrieved from https://www.thelocal.fr/20180417/paris-ikea-to-open-first-store-in-

french-capital

14

TMF Group. (2018). Top 10 challenges of doing business in France. Retrieved from

https://www.tmf-group.com/en/news-insights/articles/2018/july/france-top-10-

challenges/

Trading Economics. (2018). New Zealand consumer spending. Retrieved from

https://tradingeconomics.com/new-zealand/consumer-spending.

Transparency International. (2017). Corruption perceptions index 2017. Retrieved from

https://www.transparency.org/news/feature/corruption_perceptions_index_2017

Walmart. (2018). Location facts. Retrieved from: https://corporate.walmart.com/our-

story/our-locations

World Economic Forum. (2018). The global risks report 2018. Retrieved from the World

Economic Forum website: http://www3.weforum.org/docs/WEF_GRR18_Report.pdf