Competitive Market Strategy

In the modern economy, business is often considered as a war. The job of business executives these days is to develop strategies which lead their companies to defeat their competitors. Thus, the word ‘strategy’ perfectly applies in this context. The key ideas of the material lie in the real definition of strategy. The process talks about how a proper strategy can help a company achieve its objectives. The great strategies always answer the questions:

• Which market to choose?
• What should be the uniqueness of the company that will draw clients?
• What resources should be used to achieve the goal?
• How to sustain in the market over time?

The answers to these questions hold the key to success in a market. In a war, knowing the enemy is the first step. In the case of business, knowing “the market” is the first step. The company which is unique in its kind has its edge over its competitors. A strategy highlights the capabilities in a producer’s efficient use of the resources available. The last question looks for the possible ways following which a manufacturer may survive for extended periods of time (Verbeke 2013). According to Henry Mintzberg, there are three strategies present in the market namely, intended, emergent, and realized. Strategies tend to change path when applied in reality. As the intended strategy deviates from its course, the emergent strategy pushes the business to its targets making the company a successful one. “Perfect timing” is crucial while making strategies (Mintzberg 2013).

IKEA, a Swedish Multinational Group of companies, have applied the ideas mentioned above. It produces “ready to assemble” furniture which is inexpensive. IKEA uses the first key idea by targeting the customers with the young mindset over 48 countries and 384 stores. The local competitors could not match IKEA’s design and selling strategies as IKEA’s plan were more market specific and hit the right demographic (Jeston and Nelis 2014). IKEA uses mass production system, and the final assembling is done by the consumer himself. This lowers the cost of production including the shipping charges. IKEA’s complicated production method banks on the “interdependence” of all the elements of production making the imitation process difficult for the competitors. Competing with IKEA requires them to change the manufacturing process, which is costlier than the earnings they will get after imitation (Jonsson 2013). The crucial idea behind IKEA’s operation in market is not going for the high end furniture market and customized furniture market. The precise limits of the company are important for meeting the customers’ demand all over the world. With these clear but sophisticated business strategies, IKEA is managing to stay ahead of its competitors since 1943 (Jeston and Nelis 2014).

 Business Innovation is the essential factor in overcoming path dependency and staying competitive in today’s market. Successful companies like Nokia, Polaroid, etc. had enough knowledge about the market and fund for research and development to sustain in the market. Still, they lose their edge in the market because of the lack of innovation. They concentrated on serving their current client missing the point of reinventing their business model to stay steady in future. Innovation works in two ways. It can increase the customer value of a product or service, or it can lower the cost, creating a competitive advantage in the market. Examples of these two strategies are Apple and Dell, respectively. There are some myths present in the market, like innovation means creating brand new ideas, it requires big resources, and innovation breakthrough needs fascinating technologies (Massa and Tucci 2013). It is the business model along with the innovation that is responsible for surviving in the competitive market. A business model answers four basic questions of production including who are the targeted customers, what is being offered to them, how the value proposition is created and how revenue is generated. Most of the time innovation is learning from other firms in the industry and recreating the business model. This can be done in a structured model of initiation, ideation, integration and implementation. During initiation, current business models are analyzed. During ideation prevailing logic behind the business is questioned. in the integration process, the consistency of the business model is checked. Finally, during implementation, the whole mechanism is run to see if the results are as intended (YouTube, 2016).

The Swedish company IKEA has redefined the way one buys furniture. The furniture IKEA sales are not new, for example, bed, chairs sofas, etc. but the way of selling was new when it introduced its business plan for the first time, making the company a successful one. The business plan followed by IKEA is well researched and was adapted from the different cultures where the clientele of IKEA belongs. This adaptation of the cultures is based on extensive research by IKEA which led to the innovation of business plans. This innovation kept the company moving through business cycles. IKEA does not expand their stores rapidly. Instead, it takes its time to identify its customers in the market (Chesbrough 2013). IKEA does not sell high end furniture. Its targeted customers are especially from the middle-class population and the people around it. IKEA sales its products at a cheaper rate which is possible because of its business plan. IKEA builds furniture which is easy to assemble by the end users. The mass production and urgently looking for ways to reduce production cost which also includes shipping charges are the reasons IKEA can sell its product so cheap in every market. The designs of the furniture are made by the designers of a firm which is internally linked to IKEA. IKEA is always renovating its techniques, which makes the company an evolving one. The company is following the model of initiation, ideation, integration and implementation. It makes the company immune to the changes in demand pattern of the consumers.

According to Pankaj Ghemawat, international trade between two countries depends on several components. These elements measure the similarity or differences between the countries. According to him, the volume of trade is directly related to these similarities or dissimilarities. Countries with more similarities tend to engage in trade more. If two countries have the same language, share the same border, have near about same geographic location, the similarity in per capita income, etc. they are more likely to engage in merchandise trade. He categorized these components into a framework of four parts, and named it CAGE framework, where C stands for Cultural, A stands for Administrative / Political; G stands for Geographic and E stands for Economic (Ghemawat 2013). International companies keep this structure in mind while creating strategies for the global market. CAGE framework is used to see the patterns of capital, trade, people and information flows. It helps the managers to recognize the variations among the countries that might discourage any future chances of improvising the trade. This framework applies to all the MNCs out there. It not only weighs the differences between the two nations, but it also illustrates a manager to what extent the trade is permissible and profitable for the traders. According to Ghemawat, the more two nations have commonalities the trade becomes more free and cost-effective. Examples of cultural differences are differences in language, religion, ethnicity, etc. Administrative differences are like lack of common currency, lack of colonial links, etc. Examples of Geographic distance are differences in time zone, climate, etc. Economic diversity refers to the differences in accessible resources, position in development indexes, etc. (YouTube 2016).

IKEA, a Swedish multinational group of companies, which produces inexpensive “ready to assemble” furniture, should keep the CAGE framework in mind while analyzing their trade pattern and expanding their business in other countries. Sweden is one of the major countries of European Union, which gives it the opportunity of almost free access over the borders of most of the member nations of European Union. Sweden sharing a common currency with the member nations can help IKEA expanding its business in those nations. IKEA can make a profit by mass production of the same design of furniture for the different countries in the European Union due to their cultural, more or less administrative, geographic and economic similarity. IKEA has its business in 29 countries of Europe while, 22 other countries in rest of the world has IKEA stores, which proves Ghemawat’s CAGE framework applies to international trade. Managers, as well as the governments of countries, keep this structure in mind while making trade strategies (Alänge et al. 2016). Strong trade bonds between two governments followed by the CAGE framework help companies like IKEA to flourish in foreign soil. The distances in language, per capita income, etc. is minimum, which makes it easier for IKEA to flow human resources and information from one country to another. This makes the production process simple and transparent for IKEA, helping the company to address the market demand efficiently (Vahlne and Jonsson 2016).

Alänge, S., Clancy, G. and Marmgren, M., 2016. Naturalizing sustainability in product development: A comparative analysis of IKEA and SCA. Journal of Cleaner Production, 135, pp.1009-1022.

Chesbrough, H., 2013. Open business models: How to thrive in the new innovation landscape. Harvard Business Press.

Ghemawat, P., 2013. Redefining global strategy: Crossing borders in a world where differences still matter. Harvard Business Press.

Jeston, J. and Nelis, J., 2014. Business process management. Routledge.

Jonsson, P., Rudberg, M. and Holmberg, S., 2013. Centralised supply chain planning at IKEA. Supply Chain Management: An International Journal,18(3), pp.337-350.

Massa, L. and Tucci, C.L., 2013. Business model innovation. The Oxford Handbook of Innovafion Management, pp.420-441.

Mintzberg, H., 2013. Simply managing: What managers do—and can do better. Berrett-Koehler Publishers.

Vahlne, J.E. and Jonsson, A., 2016. Ambidexterity as a dynamic capability in the globalization of the multinational business enterprise (MBE): Case studies of AB Volvo and IKEA. International Business Review.

Verbeke, A., 2013. International business strategy. Cambridge University Press.

YouTube. (2016). Business Model Innovation. [online] Available at: https://www.youtube.com/watch?v=B4ZSGQW0UMI [Accessed 22 Aug. 2016].

YouTube. (2016). Pankaj Ghemawat about the Global Connectedness Index. [online] Available at: https://www.youtube.com/watch?v=D1XewrFrKRA [Accessed 17 Aug. 2016].

YouTube. (2016). What is Strategy?. [online] Available at: https://www.youtube.com/watch?v=TD7WSLeQtVw [Accessed 22 Aug. 2016].