Review the characteristic of the global and transnational ...
International Marketing Strategies
Case 5: IKEA
YUNHUA XIE
4213581
August 8th , 2013
1. Review the characteristic of the global and transnational companies. Based on your reading of case, would IKEA be described as a global firm or transnational firm?
Global companies are companies with multi national branches and head quarters such as Wal-mart, Coke, Toyota, GE, Siemens, FedEx, Sony, and Microsoft. They have invested and are present in many countries. They market their products through the use of the same coordinated image or brand in all markets. Generally one corporate office that is responsible for global strategy. Emphasis on volume, cost management and efficiency.
Transnational companies are much more complex organizations. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market. A transnational company has its headquarters in one country and operates wholly or partially owned subsidiaries in one or more other countries. The subsidiaries report to the central headquarters.
In this case, I think IKEA is a global firms. As it has many shops in different countries. It has already stored in 38 countries. The company is operated independently in its target market, sourcing furniture from a network of more than 1.600 suppliers in 55 countries. They have invested and are present in many countries like countries in Europe, Germany,Japanese, etc. They market their products through the use of the same coordinated image or brand in all markets, as they create the image like that Sweden is the source of high-quality products and efficient service. And this company keep creating consistent value for its customers by consolidating such image.
2. Managers of IKEA stores have a great deal of discretion when it comes to setting price. In terms of ethnocentric/polycentric/ regiocentric / geocentric (EPRG)framework, which management orientation is inevidence at IKEA?
In term of management, the ethnocentric orientation means company personnel see only similarities in markets and assume the products and practices that succeed in the home country will, due to their demonstrated superiority, be successful any where.
The term polycentric describes management’s belief that each country in which a company does business is unique.This enable each subsidiary to develop its own unique business and marketing strategies in order to succeed.
Regiocentric means management views regins as unique and seeks to develop an integrated reginal strategy.
A company with a geocentric orientation views the entire world as a potential market and strives to develop integrated world market strategies.
In this case, I think IKEA use regiocentric orientation as its strategies when it comes to setting price. There are a few difference in pricing method according to different market for IKEA. For example, the price in central and east Europe have to be relatively lower than any other market because consumers in those region have relatively low purchasing power, as a result , IKEA may offer a small selection of goods, design some special products for the cramped living styles in this region. What’s more, in the Asian market especially the example of Japanese market, since the consumers there are seeking alternatives to paying high price for quality goods. So , IKEA should start up at a higher price in order to convince their consumers.
What does it mean to say that , in terms of Porter’s generic strategies, IKEA pursues a strategies of “ cost focus?”
Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintaincompetitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency).
He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable.
According to Porter’s generic strategies , in order to lower the price, we have to be more cost focus, to achieve this goal , the company should pursue a narrow market strategies.That means the company should concentrate on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better served by focusing entirely on it . For example, throughout Europe, IKEA benefits from the perception that Sweden is the source of high-quality products and efficient service. So the company target on and market on this segment, it will help the company to save some cost or effort as this group of people has already be loyalty to this brand.
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