IKEA company overview:
Background:
IKEA was founded in 1943 by Swedish native Ingvar Kamprad (Freden, 2020). Initially Ingvar’s business consisted of him riding his bike around his home town selling miscellaneous items, such as lighters and pens (Lewis, 2016) . It wasn’t until 1947 that Ingvar first began selling furniture made by local manufacturers (Lewis, 2016). Business was good and IKEA was beginning to generate a profit until 1955 when the manufacturers that supplied IKEA boycotted the business due to pressure from competitors having to compete with IKEA’s lower prices (Lewis, 2016). Determined, Ingvar began designing his own furniture and outsourcing manufacturing to neighboring countries, such as Denmark and Poland (IKEA website, 2020). This led to the development of the revolutionary and cost efficient process of “flat packing furniture”, which will later revolutionize the company (Freden, 2020). Over the following years, IKEA saw a large amount of international expansion throughout Europe during the 1970’s and overseases to the United States and Asia in the 1980’s (Freden, 2020). Today IKEA has exploded as a titan of industry with over 400 stores worldwide, 211,000 employees, and $44 billion dollars in sales (O’Connell, 2019; Magnusson).
Vision:
“To create a better everyday life for the many people” (IKEA Website, 2020).
By optimizing their value chain and establishing solid supplier relationships, IKEA strives to “offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” (IKEA website, 2020).
Global Strategy:
Globalization:
With each passing day, the world is continuously getting smaller and smaller. Globalization has given companies the opportunity to expand beyond its home country’s borders and has facilitated the movement of people, products, information, and money across the globe.
Following the end of WWII, in 1957 the European Committee was formed by the Treaty of Rome as a way of unifying European nations and establishing a common market (Lasserre, 2018). Europe saw an explosion of business as more and more countries joined together in more political and economical integration, thus leading to the creation of the european union in 1993 (Lasserre, 2018).
During this time period was when IKEA had an explosion of international expansion (Lewis, 2016). While there were many speed bumps along the way, IKEA was still able to attract shoppers that were looking for modern furniture at cheaper prices (Freden, 2020).
European expansion
After much pressure from competitors, local Swedish manufacturers boycotted IKEA and forced the company to outsource product manufacturing and adopt a global sourcer stance (IKEA Website, 2020). The boycott later proved to be very beneficial as this was when IKEA was able to benefit from even cheaper production costs and could adopt an even stronger low-cost strategy. After much success in the Swedish ...
IKEA company overviewBackgroundIKEA was founded in 1943 by .docx
1. IKEA company overview:
Background:
IKEA was founded in 1943 by Swedish native Ingvar
Kamprad (Freden, 2020). Initially Ingvar’s business consisted
of him riding his bike around his home town selling
miscellaneous items, such as lighters and pens (Lewis, 2016) . It
wasn’t until 1947 that Ingvar first began selling furniture made
by local manufacturers (Lewis, 2016). Business was good and
IKEA was beginning to generate a profit until 1955 when the
manufacturers that supplied IKEA boycotted the business due to
pressure from competitors having to compete with IKEA’s
lower prices (Lewis, 2016). Determined, Ingvar began designing
his own furniture and outsourcing manufacturing to neighboring
countries, such as Denmark and Poland (IKEA website, 2020).
This led to the development of the revolutionary and cost
efficient process of “flat packing furniture”, which will later
revolutionize the company (Freden, 2020). Over the following
years, IKEA saw a large amount of international expansion
throughout Europe during the 1970’s and overseases to the
United States and Asia in the 1980’s (Freden, 2020). Today
IKEA has exploded as a titan of industry with over 400 stores
worldwide, 211,000 employees, and $44 billion dollars in sales
(O’Connell, 2019; Magnusson).
Vision:
“To create a better everyday life for the many people” (IKEA
Website, 2020).
By optimizing their value chain and establishing solid supplier
relationships, IKEA strives to “offer a wide range of well-
designed, functional home furnishing products at prices so low
that as many people as possible will be able to afford them”
(IKEA website, 2020).
Global Strategy:
2. Globalization:
With each passing day, the world is continuously getting
smaller and smaller. Globalization has given companies the
opportunity to expand beyond its home country’s borders and
has facilitated the movement of people, products, information,
and money across the globe.
Following the end of WWII, in 1957 the European Committee
was formed by the Treaty of Rome as a way of unifying
European nations and establishing a common market (Lasserre,
2018). Europe saw an explosion of business as more and more
countries joined together in more political and economical
integration, thus leading to the creation of the european union
in 1993 (Lasserre, 2018).
During this time period was when IKEA had an explosion
of international expansion (Lewis, 2016). While there were
many speed bumps along the way, IKEA was still able to attract
shoppers that were looking for modern furniture at cheaper
prices (Freden, 2020).
European expansion
After much pressure from competitors, local Swedish
manufacturers boycotted IKEA and forced the company to
outsource product manufacturing and adopt a global sourcer
stance (IKEA Website, 2020). The boycott later proved to be
very beneficial as this was when IKEA was able to benefit from
even cheaper production costs and could adopt an even stronger
low-cost strategy. After much success in the Swedish market,
IKEA began to realize their potential in becoming a global
player and began developing global ambitions fueled by market
seeking objectives (IKEA Website, 2020).
IKEA’s first, and most logical, step in international expansion
was into the neighboring scandanavian countries, such as
Norway and Denmark (Lewis, 2016). This was a very wise
decision as it eliminated many of the barriers normally
encountered with international expansion. While Scandavian
countries may have some differences in language and culture,
many Scandinavians are still able to communicate and relate
3. closely to one another. Not only this but the close proximity did
not put too heavy of a strain on IKEA’s supply chain, which
drastically contributed to IKEA’s success.
Following an overwhelming amount of success in Scandinavia,
in the 1970’s IKEA set its eyes on expanding into mainland
Europe (IKEA Website, 2020). Using the business model and
products developed in Sweden, IKEA was able to utilize their
unique operational techniques to establish themselves as a first
mover in new markets (Shoulberg, 2018). Switzerland was
chosen as the first non-country as it shares many customs and
traditions (Lewis, 2016). At that time there was an untapped
niche of those who were not typically able to afford new
expensive furniture and did not have any cheaper alternatives
(Freden, 2020). IKEA’s low-cost strategy was accomplished
through a well organized supply chain that utilized the
localization of Swiss suppliers and materials (Shoulberg, 2018).
By catering to less affluent individuals, IKEA essentially
created their own market poised on providing modern and
minimalistic furniture for affordable prices that allowed the
company to spread all over Europe .
North American expansion
After an overwhelming success in the European Market,
IKEA had decided to take its business across the pond and
tackle the North American Market IKEA (Website, 2020).
Before jumping into the United States Market, in 1976 IKEA set
up shop in the Canadian market due to the many similarities
shared between the two countries (Lewis, 2016). Carrying over
the same successful advertising campaign used in Europe, IKEA
was able to gain a firm foothold in the Canadian Market (Lewis,
2016). Much like IKEA’s European business model, by
localizing the manufacturing of products, coupled with
European imports, IKEA was able to maintain its Swedish
identity while consistently maintaining their lower than average
price points (Shoulberg, 2018). However, there were some
growing pains in the Canadian market as much of the
managerial style used in Europe was too ambiguous and less
4. structured than managerial styles typically used in Canada
(Shoulberg, 2018). Nonetheless, IKEA has continued to perform
well in the Canadian market and has since opened 14 stores and
generated over $2.5 billion dollars in sales during 2019 (IKEA
Canada, 2019).
IKEA’s success in the Canadian market encouraged their drive
to enter the United States market and did exactly that in 1985
(Bhasin, 2012). However, IKEA’s entrance into the U.S. market
did not go as smoothly as the Canadian market. American
consumers called for more customization and adaptation of
products to American households (Hirst, 2014). Many of the
displays used in stores did not accurately depict the typical
American household and became less attractive to customers
(Hirst, 2014). After revising store layouts and studying exactly
what the American market demanded, IKEA was able to find a
happy medium of modern sweidsh styles that could be
functional in American households (Bhasin, 2012).
Additionally, by improving the check out process and
implementing less strict return policies, American consumers
were no longer deterred by long lines and felt more confident in
their purchases (Hirst, 2014). The whole concept of supply
chain optimization through localization of manufacturing
coupled with customization and tailoring products, marketing
and managerial styles came to be an extremely effective formula
for any market IKEA entered.
Assessing the Brazilian Market:
BRICS Countries
In 2001, Goldman Sachs identified Brazil, Russia, India, China,
and (in 2010) South Africa (BRICS) as countries whose
economies were projected to be some of the fastest growing
economies in the world (Majaski, 2020). Currently the BRICS
countries are growing at a faster rate than the G-7 nations and
are on track to be wealthier than today’s current economic
powers by 2050 (Majaski, 2020). While these countries are not
in any formal political alliances nor entered into any official
trade agreements with each other, the five heads of state issued
5. a declaration of intent to “ Coordinate actions at a global level
to reach maximum economic growth” (Devonshire-Ellis, 2019).
It is very possible that if harmoniously executed, by 2030
BRICS could account for over 50% of the global GDP and could
tie together expansive Free Trade or Preferential Trade areas
(Devonshire-Ellis, 2019). Brazil is currently a part of a free
trade area, named Mercsosur, that includes: Argentina, Brazil,
Paraguay, and Uruguay. The Mercsosur nations are also
currently in a preferential trade agreement with India and could
potentially see more unification of BRICS nations and could
further link the Brazilian market to far reaches of the world
(Devonshire-Ellis, 2019).
Brazil’s Middle Class
Since the beginning of this century, Brazil has experienced
a fluctuating degree of economic progress that has led to over
106 million Brazilians rising up from poverty and joining the
middle class (Woinarski, 2019). Prior to the economic setback
in 2015, Brazilian middle class consumers lead more of a
materialistic lifestyle and would spend and flaunt their new
found wealth (Woinarski, 2019). However after the 2015
recession, there was a sharp increase in the demand for more
cost-effective shopping experiences causing the middle class to
become more conscientious consumers (Woinarski, 2019).
Despite a fluctuating market, multinational corporations are still
interested in establishing a foothold in Brazil, with companies
such as Ford, General Electric, and Apple investing in Brazilian
expansion (Choenni, 2018). The ability for Brazil’s middle
class to consume beyond subsistence level is a prime example
of how the middle-class effect drives the demand in consumer
goods and services (Lasserre, 2018)
Brazil’s Furniture Market
As previously mentioned, Brazil’s economy has been
gradually improving and has led to the growth of a sizable
middle class over the last 20 years. As such, the furniture
industry in Brazil has had a significant amount of growth since
the country first saw foreign investors enter the market during
6. the 1990’s (Eucatex, 2020). Brazil is a country that has an
abundance of natural resources and cheap labor (Singh, 2019).
The cheap resources and labor has led to a boom in furniture
manufacturing that is projected to produce over 1.1 billion
dollars in revenue in 2020 (Statista, 2020). Many local furniture
manufacturers are heavily investing in their supply chain and
upgrading production equipment as a means of competing with
imports from abroad (Redaccion, 2019). As such, there is an
abundance of local suppliers that are actively competing to have
the most attractive prices for buyers both local and foreign
(Redaccion, 2019).
Brazil’s Infrastructure
While Brazil has experienced economic improvement over the
years, its infrastructure has been neglected and led to a serious
issue with intermodal transportation of goods (Michelon, 2019).
The road systems in Brazil have not kept up with the economic
demand and are not poised to sustain the volume of traffic that
the country is expected to have in the upcoming years
(Michelon, 2019). This would make any initial investment in
Brazil from a multinational corporation more difficult and
costly as a comprehensive and complicated supply chain would
need to be developed to circumnavigate this complication.
However, with the expectation of considerable foreign
investment, Brazil has set goals to significantly improve its
infrastructure through the use of partnerships and privatization
(Endo, 2019). Brazil has announced its intent to double the
country’s yearly infrastructure budget to $65 billion dollars by
2022 (Endo, 2019). In addition to a sharp increase in
infrastructure improvement, Brazil is working on reorganizing
and improving the bureaucratic infrastructure acquisition
process (Endo, 2019). This means that any proposed
infrastructure improvements would not get caught up in red tape
and can be streamlined and function more efficiently. While
these are very promising goals, the wheels of government do not
move quickly and will take some time before significant
improvements are made.
7. Marketing in Brazil
The primary goal of our marketing managers operating in Brazil
is to understand the needs of Brazil’s consumers. Some
important factors to take into account would be income, social
habits, and convenience. IKEA’s brand identity is focused on
low prices with high style. By giving Brazilian consumers
access to low-priced furniture options that are sleek and
desirable, we become a successful competitor to current
industry leader, Tok & Stok. We have taken into consideration
Tok & Stok’s strategy of home delivery, and developed our own
delivery operations using consumer proximity from stores.
Further on, IKEA has set a level of product standardization that
can address similar consumer needs in different areas of the
world. This was made possible since IKEA is considered a
global brand that is marketed across the world under our
business name. According to Professor John Quelon (1999),
there are common features among global brands that IKEA also
possesses. These include: consistent product positioning,
addressing similar consumer needs worldwide, a name that is
easy to pronounce, and being associated with the product
category, furniture. Which then leads into the use and
importance of global pricing, or in other words, keeping prices
consistent across our global markets.
To conclude, our marketing strategy is going to include the
delivery at home feature and furniture that gives you the ability
to have a beautifully furnished home without spending a
fortune. With Brazil being a country that has a “driving-
obsessed” population, similar to the US, we must have stores
that are accessible for purchases and repairs if needed.
8. Operations and Networking
The location decision for the integrated network of
procurement, production, distribution and servicing centers are
crucial for our success in Brazil. When deciding where we will
build our centers of operation, we considered the placement of
regional resources, such as the ports and similar areas being
used for industrial factors, risk characteristics, and customer
proximity. All these factors led us to develop most of our
production and service facilities in Sao Paulo, Brazil.
Continuing, the prime strategic reasons for setting up operations
in Sao Paulo include: the access to lower cost production, the
skills and knowledge available, and the relatable markets.
When deciding to have production facilities in Brazil, rather
than importing the goods, we will avoid the high costs of
importing in this country. In 2018, IKEA partnered with the
Chilean retailer, Falabella, to open stores in South America,
such as Colombia, Peru, and Chile under a franchise agreement.
This was a strategy used to accomplish the goal of increasing
IKEA’s customer base to 3.2 billion by 2025. Another approach
that has been useful is the investment in online services, these
aids in adapting to the rise in e-commerce and home delivery.
In summary, to penetrate the furniture market in Brazil, we
must have a very strategic plan. By changing some details to
operations, we can market our low prices, stylish products
available for delivery to consumers and manage to keep
production costs low by setting up our network domestically to
save on any importing costs.
https://www.reuters.com/article/us-ikea-falabella/inter-ikea-
grants-franchise-rights-to-saci-falabela-for-peru-chile-and-
colombia-idUSKCN1II2W4
Financial Management
Brazil is the last of the BRIC countries without an IKEA store
operating within it. There has been much success with the stores
9. in Russia, which has 14 stores, and China, which has 29. IKEA
just entered into India with its first location. We think Brazil is
the perfect landing spot for the next IKEA store. The type of
currency used in Brazil is the Brazilian Real, which is worth
about half that of the Swedish Krona, and about twenty percent
of the Euro. This can enhance the impact of the change in these
currency values and becomes a great advantage. This strategic
exposure translates into a change in future cash flow potential
which takes us into market perception and translation exposure.
The reported valuation of assets and liabilities of global firms is
affected by currency variations; this in turn may affect market
perception and ultimately the market value of IKEA.
Brazil is a very attractive market for IKEA, especially since its
furniture imports have experienced a growth of over 16% since
2006 and a more industrial emerging economy since then. In the
year 2018, IKEA’s revenue was reportedly 37.1 billion Euros.
The net profit for the year FY18 was 1.5 billion Euros. In total,
IKEA invested 2.8 billion Euros in stores, distribution and
customer fulfilment networks, shopping centers, renewable
energy and forestry. IKEA is huge with sustainability and will
treat the forests of Brazil with great care.
IKEA looks to take financial responsibility on its growth and
transformation. It’s liquidity is in excess of 21 billion Euros
which gives us a solid foundation to invest in our future with
expansion projects such as Brazil. Customer visits to the stores
have increased by 3%, and visits to IKEA.com have increased
by 12%. IKEA has five investment portfolios: Renewable
Energy, Resource Independence, Venture & Growth Capital,
Business Development and Treasury Assets.
With all of the above in mind we come to the conclusion that
IKEA is always looking to expand and innovate, and sets apart a
good size of its resources to do this. There will be a big chunk
of change needed, in order to make this project a possibility,
approximately 70 to 90 million Euros. This includes land
purchases, store construction, commercial build-up and
stocking, staff costs, and marketing.
10. Human Resource Management
One of the toughest parts of expanding into a new market is
staffing and the company makeup. There is a need to adopt a
worldwide policy of international movement of personnel. HR
will need to differentiate within the pool of managers of which
will follow a “global” career from those who will follow a
“local” career. Expatriate managers who are seeking a global
career will be needed to make sure the company's goals
transcend across this new market in Brazil. Local managers will
be needed to run the day to day operations in the store. Both the
finance and business navigation functions span the whole
company, and the work is performed in a similar way regardless
of location. This must continue in Brazil.
Human resources teams lead the work of attracting and inspiring
co-workers and creating a stimulating and enjoyable work
environment. Acculturation is the process by which group
members from one culture adapt to the culture of a different
group. Expatriate managers must be ready to learn the Brazilian
culture in order to thrive.
There is a lack of brand strength in the Latin American
furnishing market. This in turn makes it somewhat easy for new
businesses to enter the market. Examples of such businesses,
however, are those well-established diversified retailers, such as
IKEA. We are keenly aware that the continued success of IKEA
businesses depends on the continual development of IKEA co-
workers, especially in this new market of Brazil.
Sheet1Solve for Ending BalanceSolve for Starting
Balance/Maximum Loan PossibleSolve for Loan PaymentSolve
for RateSolve for Number of
PeriodsRate?0.25%Rate?0.33%Rate?0.43%Number of periods?
(Months or Years)15Rate?0.33%Number of periods? (Months or
Years)36Number of periods? (Months or Years)180Number of
periods? (Months or Years)360Payment?$ - 0Payment?$
473.00Payment?$ 100.00Payment?$ - 0Beginning Loan
20. - 0$ - 0$ - 0489$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0490$ -
0$ - 0$ - 0$ - 0$ - 0$ - 0491$ - 0$ - 0$ - 0$ - 0$ -
0$ - 0492$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0493$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0494$ - 0$ - 0$ - 0$ - 0$ - 0$ -
0495$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0496$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0497$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0498$ -
0$ - 0$ - 0$ - 0$ - 0$ - 0499$ - 0$ - 0$ - 0$ - 0$ -
0$ - 0500$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0501$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0502$ - 0$ - 0$ - 0$ - 0$ - 0$ -
0503…
MTH 101Module 2-3 Finance, Credit Cards, and Mortgages
Show all work to receive credit. Any written questions should
be at least 3 sentences long.
Finance
1. Jim opens a savings account with $22,500. His account pays
3.5% simple interest. At the end of 5.5 years, Jim closes the
account. How much interest does he earn? What is the total
value of his account when he closes it?
2. Jim opens a savings account with $22,500. His account pays
3.5% interest compounded yearly. At the end of 5.5 years, Jim
closes the account. How much interest does he earn? What is the
total value of his account when he closes it?
3. Jim opens a savings account with $22,500. His account pays
3.5% interest compounded daily. At the end of 5.5 years, Jim
closes the account. How much interest does he earn? What is the
total value of his account when he closes it?
21. 4. If you were Jim, which scenario would you prefer: simple
interest, interest compounded yearly, or interest compounded
monthly? Explain your answer choice. Which scenario would
you prefer if you were the banker paying the interest?
Credit Cards
You have a credit card with a current balance of $1500. The
interest rate is 15.99%.
Reminders:
· You will use the Amortization Worksheet Excel Workbook to
complete this assignment.
· If your minimum payment is a percent, be sure to change cell
C3 to “Percent of Balance”
· If your minimum payment a dollar amount, be sure to change
cell C3 to “Dollars”
Use Excel to answer the following questions:
5. If your minimum payment is 15% of your new balance, what
is the balance of your card month 24?
6. If your minimum payment is $75, what is the balance of your
card month 24?
7. What do you think is a better idea: Paying a percentage of
your monthly balance or paying a fixed amount each month?
Why?
22. Mortgages
You decide to buy a house! The home is priced at $279,000 and
the bank has agreed to finance your home at 5.1% for 30 years.
(Note: Excel approximations do not include property taxes or
insurance.)
Use the Amortization Worksheet and Module 2 Formula Sheet
to answer the following questions:
8. What is the monthly payment?
9. How much of the first payment is interest? How much of that
first payment actually goes to reducing the principal?
10. At which month did you pay approximately half of the
mortgage? Is this halfway through your mortgage?
Let’s explore making extra payments on your mortgage. Change
the payment value in cell B3 to be $100 more than it is now.
11. If you pay just $100 more each month, when will you make
your last payment?
12. How much time does that cut off of your mortgage (how
many months do you not have to make a mortgage payment)?
13. If you make the payments which are $100 larger, how much
do you pay over the life of the loan?
14. If you made the originally payments, without paying an
extra $100 per month, how much do you pay over the life of the
loan?
23. 15. Therefore, by paying an additional $100 per month, you will
save ________ over the life of the mortgage.