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1. The basic business strategy of IKEA is “To offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”. Describe how IKEA has adapted its marketing strategy to take advantage of globalization and further develop their competitive advantage. Focus your discussion on raw material, product, price, distribution, promotion, and service.
Raw material
- Competitive advantage in design and organization
- No competitive advantage in the production of raw materials
-Use organizational skills to develop lowest cost suppliers of raw and semi finished goods from all over the world
- by constantly working with suppliers and value added facilities Ikeas streamlines transactions, increases efficiency and as a result get the cheapest price.
Product- All products are designed in Sweden.
- Because IKEA has a competitive advantage in design, all design is done at IKEA Sweden. After they are designed, the product, or even parts of the products, are contracted out to the cheapest producer.
- IKEA further reduces overhead through a standardized product strategy with an identical assortment around the world.
Price-
Ikea offers prices that are 30 to 50 percent lower than fully assembled competing products.
-large quantity purchasing
- low cost logistics
-low cost, suburban store locations
- and DIY marketing
Distribution-
- IKEA has built its own distribution networks. Buying centersà warehouse or store à store
- When purchased from store, consumer takes responsibility for transport
Promotion-
- centered on catalog, and word of mouth
- attention getting promotional efforts; media varies depending on market
- Target audience young, highly educated, liberal cultural values, white-collar, and not concerned with status symbols; this group is similar internationally
Service-
-Little customer assistance
-customer chooses, transports, and assembles products
2. When a company is considering doing business in an international market, it has a choice of three types of market entry modes: export entry, contractual entry, and investment entry. Define each of these entry modes and list the specific types of entry strategies that are classified under each type of entry mode.
Export entry: product is exported/manufactured from outside the country
1. Indirect Exporting: product is exported by a third party in the home country, often without the knowledge or involvement of the manufacturer.
2. Direct exporting: products are exported directly by the manufacturer to either a foreign distributor or direct to the final customer. Usually requires that the manufacturer establish an export sales department or a foreign sales office.
Contractual entry: Long-term non-equity agreements that involve the transfer and use of intangible assets (technologies, ideas, brands, skills) or human skills in return for royalties or some other form of payment.
1. Licensing: transfer to foreign company right to use proprietary property for compensations
2. Franchising: granting of right to use co. name, trademarks, and tech. The franchisor assists the franchisee in organization, marketing and general management under an arrangement intended permanent.
3. Contracting: transfer of services (accounting, marketing) to a foreign entity in exchange for monetary compensation.
Investment entry: acquiring partial or complete ownership of a company in the target country. Include purchase or establishment.
1. Joint venture: ownership of the company is shared with a local partner in varying degrees. The proportion of local ownership is sometimes specified by government policy.
2. Wholly owned venture: full ownership and managerial control is retained by the parent company located in the home country.
3. In his “diamond” model, Michael Porter identified six factors that impact the international competitiveness of a country in a particular industry. Identify each of these factors and briefly define each.
- variables are mutually reinforcing
- favorable national diamonds can lead to international competitiveness
- competitive advantage based on individual variables are unsustainable in long run
- synergy between variables is hard to duplicate in other locations
- key to success, develop effective barriers to entry that protect a firm from competitors
Firm Strategy, structure and rivalry: inward vs outward orientation, attitudes of debt/share holders, composition of capital markets, individual goals/reward systems, managerial attitudes to risk, industry commitment to innovation, domestic rivalry leads to innovation.
Factor Conditions: labor, arable land, natural resources, capital, infrastructure, technology
Demand Conditions: shape rate and character of innovation.
Composition of home demand (consumer expectations/requirements) mechanisms for transmiting domestic preferences to foreign markets, size and pattern of demand growth domestically,
Home demand composition; size of market segments (larger domestic market segments will favor an industry), sophisticated and demanding customers, anticipatory buyer demands (domestic buyers are anticipatory of other markets)
Internationalization of Home demand; mobile or multinational consumers, influences on foreign consumers
Demand Characteristics and their impact on growth; size of home demand (economies of scale), # of indie customers (competition), growth rate of demand (investment), early home demand (establish industry), early market saturation (promotes exports).
Related and Supporting Industries:
Competitive adv.
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