Tuesday, January 21, 2014

IKEA : Different country, different delivery.

After reading the article on IKEA I also read the article "Learning from Tata's Nano". More than the innovative supply strategy described in the latter article I was struck by the "obvious" need for the innovation in the first place. The need was simple, consumers in different cultural settings would require different supply chain strategies. For example, Indian consumers, specifically those located near rural markets, were in search of cheaper vehicles and were more than willing to give up "A lot of features that Western consumers take for granted—air conditioning, power brakes, radios, etc" as expressed in the article. This got me thinking whether IKEA would change its sales/supply chain strategies based on the needs of the local consumers specifically, in emerging markets. Emerging markets such as China and India, in theory, should offer a greater deal of complexity for IKEA than seen when adapting from European to American markets.

After some research I found that my suspicions were correct. IKEA does market, sell and deliver it's product differently in emerging markets. An article I found, "IKEA with Chinese Characteristics"  tries to identify some of the differences in IKEA's strategy in China as compared to the rest of the world. The differences are apparent from store itself, the store is set up as a Chinese apartment, as that is the most common living unit within the country even including a balcony as most such apartments have balconies. Most importantly however is that in China, the lack of cars in the cities and mass availability of cheap labor have forced IKEA to almost abandon its "Do it Yourself"approach to delivering and assembling furniture! According to the article "IKEA has built its ... stores near public transportation lines, offers local home delivery and long-distance delivery to major cities in China for a fee, maintains taxi lanes, and offers fee-based assembly services". Another major difference was that prices considered low for America and Europe were still not cheap enough for Chinese consumers. As explained in another article "Couching Tiger Tames the Dragon"
, to counter these higher prices IKEA opened a number of factories in China itself so that it could tap into the local cheap labor and source more local raw materials. To give a comparison, IKEA sources 30% of its raw materials from China for its global products but sources 65% of its raw materials from China for local stores. The same articles suggests that when IKEA enters the Indian market it should try and follow a model similar to the one followed in China due to similar characteristics between the markets.

Lastly, I tried to find what level of change IKEA allowed between in its different global operations. According to this academic study published in the "Journal of International Business Studies", IKEA has a two tier "replication" process. Marketing, pricing and supply models are all changeable and are tied to "market based learning" however, values and vision are replicated uniformly. This adherence to core values probably makes IKEA such a vaunted brand across countries and cultures as everyone wants a good quality product. In conclusion, I would like to say that IKEA is a successful model for thinking global yet acting local, a core value of my previous employers; Unilever.

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