Business Level Strategy of Ikea

Business Level Strategy of IKEA

According to the exploration of industry environment, a strategy analysis need to be carried on. It could be started by considering the generic strategies which firstly put forward by Michael Porter of Harvard Business School. Generic strategies contains three basic strategies of cost leadership, differentiation, and focus open to any business(Lynch, 1993).

2.1.1. Low-cost Leadership

For low-cost leadership, it is a basic factor in the generic strategy. It is built up by plant, equipment, labour costs and working practices with a low costs in the industry(Lynch, 1993). To compete with competitors in the industry, reduced costs below the rivalry's costs may create this advantage which then benefits the company with a above-average profit or increased market share(Thompson and Martin, 2005). In practice, a low-cost leader needs to explore all the sources with a cost advantage. More specifically, low costs are usually achieved by cutting costs off every factor on the value chain or its producing processes, such as products design, standarded products, centralised and wide-spread supply system and so on(Lynch, 1993).

There are several major elements driving the companies maintain a low cost leadership. They are input costs, experience and product design. First of all, input costs refer to the labour or raw material and companies may achieve competitive advantages by adopting intensive labour, for example, locating operations in labour-intensive countries like India and China. In the case of IKEA, Kamprad has begun his low-cost supply at a very early time, such as doing business in Communist Poland in the late fifties. As IKEA's biggest supplier, China is known for its low cost labour and raw material export. The second comes for Poland, which is also a labour-intensive country. Those low cost suppliers account partially for the success of IKEA' cost leadership.

Experience is a essential source in cost leadership as the more experiences an organization has the more efficient he might be in businiess activities. Usually, the experience comes from two parts. One is the labour productivity a company's staffs learning from years of working. IKEA co-workers are essential to its success. They are attractive and competitive employers that have shared values such as respect, simplicity and cost-consciousness. In that way IKEA contributes a low price of both products and service to the customers. IKEA values their employees as an important resource and makes a full use of them. The other is the market share the organization accumulates. Thus, the experiences generated by companies over a period of time make a difference to the cost reduction. As known, IKEA has a long history in the home furnishing market and expands dramatically in last few decades. By 2007, IKEA's market share has been