IKEA

1. Why did IKEA, which originates in Sweden, set its headquarters in Netherlands?
What is the relation between INGKA Holding B.V. and Inter IKEA Systems?

2. The IKEA business strategy is at the core value of “affordable solutions for better
living”. Does its global sourcing strategy keep alignment with this core business
strategy?

3. With global sourcing, how does IKEA transfer comparative advantages of locations
to corporation competitive advantages? Which competencies have they achieved?
1. Why did IKEA, which originates in Sweden, set its headquarters in
Netherlands?
IKEA’s legal structure was set up in the Netherlands for two reasons:

2. The Netherlands allows for a legal structure which creates the possibility to avoid hostile
takeover or trouble because a large shareholder wants to get rid of the shares

2. The legal structure of IKEA allows for limited pay of taxes

Sweden became part of the European Union in 1995, long after the EU initial foundation in
1958 and expansion in the early 70’s and 80’s.
Sweden was a country which taxed people and corporations on a massive scale.
Yet it shows how heavy taxing was in the 1970’s in Sweden, when IKEA was already moving it’s
legal corporate structure to the Netherlands.

We might consider that Amsterdam airport (Schiphol) is one of the largest airports in the
world and is easily reached from Leiden (the corporate office is on top of the train station) and
Delft, allowing for quick international travel. We might also consider that the Dutch are very
international oriented, although we might say the same from the Danish people.
What is the relation between INGKA Holding B.V. and Inter IKEA Systems?
While most IKEA stores operate under the direct purview of Ingka Holding and the Ingka Foundation, the
IKEA trademark and concept is owned by an entirely separate Dutch company, Inter IKEA Systems. Every
IKEA store, including those run by Ingka Holding, pays a franchise fee of 3% of the revenue to Inter IKEA
Systems. The ownership of Inter IKEA Systems is exceedingly complicated and, ultimately, uncertain. Inter
IKEA Systems is owned by Inter IKEA Holding, a company registered in Luxembourg. Inter IKEA Holding, in
turn, belongs to an identically named company in the Netherlands Antilles that is run by a trust company
based in Curaçao. The owners of this trust company are unknown (IKEA refuses to identify them) but are
assumed to be members of the Kamprad family.

Because INGKA Holding is owned by the nonprofit INGKA Foundation, none of this profit is taxed. The
foundation’s nonprofit status also means that the Kamprad family cannot reap these profits directly, but
the Kamprads do collect a portion of IKEA sales profits through the franchising relationship between
INGKA Holding and Inter IKEA Systems.

Inter IKEA Systems collected €631 million of franchise fees in 2004, but reported pre-tax profits of only
€225 million in 2004. One of the major pre-tax expenses that Inter IKEA systems reported was €590
million of “other operating charges.” IKEA has refused to explain these charges, but Inter IKEA Systems
appears to make large payments to I.I. Holding, another Luxembourg-registered group that, according to
The Economist, “is almost certain to be controlled by the Kamprad family.” I.I. Holding made a profit of
€328 million in 2004.In 2004, the Inter IKEA group of companies and I.I. Holding reported combined
profits of €553m and paid €19m in taxes, or approximately 3.5 percent.
2. The IKEA business strategy is at the core value of “affordable solutions for better living”.
Does its global sourcing strategy keep alignment with this core business strategy?

Recently IKEA announced that the company decided to replace some Asian suppliers with
Italian ones “that are able to make better quality goods at lower prices” (Lars Petersson, CEO
of IKEA in Italy in the interview to The Economic Times). Even before Italian furniture
companies were well performed in the list of IKEA’s global suppliers; and now the company
started buying the drawers, taps and toys from three new Italian suppliers . As for now, Italy is
one of the most perspective markets for Italy in terms of supplying goods as the company buys
in the NorthEast of Italy more than in Sweden or in Germany in order to decrease costs. In the
world of globalization consumers’ tastes are merging, and IKEA uses this information to
produce standardized products on the global market. IKEA’s costumer expectations of service
levels are, by definition, fairly low what allows cost reductions as customers are ready to
transfer the product home and build it there their selves. “IKEA's role is not only to globally
integrate operations and centrally design products, but also to find an effective combination of
low cost, standardization, technology, and quality” (IKEA Affordable solutions for better living,
Barnes, Buck & Beard, 2008).
3. With global sourcing, how does IKEA transfer comparative advantages of locations to
corporation competitive advantages? Which competencies have they achieved?

As a world famous furniture company, the secret of success behind IKEA is the strategy.

cost leadership
The strategy of overall cost leadership is always the IKEA’s biggest aim. We can find the
history of IKEA is also the history of looking for low price. We can find IKEA try to find the low
price at every part of the process. For example, before they design a product, they already
confirm the price. They use “flat-package” to reduce the cost of transport. They reduce the
staff in store to reduce the cost of store. They also use the scale effect to purchase goods from
all over the world.
Differentiation
Today's IKEA range consists of 9,500 home furnishing articles, designed to be functional and
good looking but at a low price. You can find almost everything you need in IKEA. Both
romantics and liberals can find the style they like. Customers need the goods low price and
good quality. Low price or good quality is easy to achieve, but it is not easy to get both of
them. At start, IKEA chose a different way which is stand on the side of everybody. IKEA also
take children to their customer, and the spirit of care for children really wins many customers’
heart. IKEA also does a good job in environment protection.
Focus
There are three main part of IKEA: IKEA office, home storage, Children’s IKEA. The target
customer is everybody. According to the “life system”, they segment the market to many
parts. That will be better meet the requirement of different customers. Especially the new
design for child, it helps IKEA win many hearts from the customers.

Even these 3 strategies are interacting and affect to each other, IKEA use these strategies
flexibly. That is the reason that IKEA can get much more competitive advantage than other
competitors.