Global Strategic Management

IKEA: Analyzing industry globalization potential; strategy as revolution

IKEA CASE SUMMARY

To assess the globalization potential of an industry requires an analysis of customers, costs, competitors, and government (see globalization framework). IKEA transformed the industry from being local to regional/global by overcoming the cost barriers to globalization. Previous barriers included:

a) high cost to transport a bulky product, and b) costs of damage during transport.

By using knock-down kits (which allowed for volume production) and including the customer in the value chain (e.g., to transport the product, and replace assembly labor in the plant) IKEA created cost advantages over local competitors.
Professor Jeff Dyer

IKEA CASE SUMMARY

REMEMBER THAT:

IKEAs strategy was successful because customers in different countries were willing to buy similar designs/products. IKEA encounters greater difficulties in markets (e.g., the U.S.) where customers have more differentiated needs (for customized products and services) and where standards are different.

Professor Jeff Dyer

Assessing Industry Globalization Potential

Customer Drivers
Location of strategic resources Differences in country costs Potential for economies of scale, innovation, flexibility Cost of shipping (value/bulk) Common customer needs Global customers Global channels Transferable marketing know-how and global brands

Cost Drivers

Industry globalization potential

Government Drivers
Trade policies Technical standards Regulations

Global competitors Competitors leveraging global position (i.e. cross subsidizing).

Competitive Drivers
Professor Jeff Dyer

DEFINITION OF A GLOBAL INDUSTRY

An industry in which firms must compete in virtually all world markets where the product/service is used in order to be successful and/or survive. In such an industry, a firms competitive position is significantly affected by its competitive position in other national markets (due to scale benefits or sharing of resources across markets).
Professor Jeff Dyer

General Globalization Forces

CUSTOMER/MARKET DRIVERS

Per capita income convergence among industrialized nations Convergence of lifestyles and tastes

Increasing travel creating global consumers

Organizations beginning to behave as global customers Growth of global and regional distribution channels Establishment of world brands Push to develop global advertising
Professor Jeff Dyer

General Globalization Forces

COST DRIVERS

Continuing push for economies of scale (but offset by flexible manufacturing) Accelerating technological innovation Increasing cost of product development and technology relative to market life Decreasing communication and transportation costs Emergence of newly industrializing countries with productive capability and low labor costs
Professor Jeff Dyer

General Globalization Forces

GOVERNMENT DRIVERS

Reduction of tariff barriers

Reduction of non-tariff barriers

Creation of new trading blocs

Decline in the role of governments as producers and consumers Adoption of global standards Liberalization of labor laws
Professor Jeff Dyer

Factors Inhibiting Globalization

1. Heavy transportation or storage costs (i.e low value to bulk products). 2. A lack of economies of scale (flat experience curve slope). 3. Strong, established local distribution channels and sales organizations. 4. A complex, segmented local market in which customers demand very different products (more suitable for a local firm more intimately embedded in it). 5. High cost/difficulty in providing intensive local customer systems, service, or other needed customer interaction. 6. Government barriers (i.e. tariffs).
Professor Jeff Dyer