IKEA's growth part I - the Scandinavian years ~ Sounds + Food 'n' Retail

This is part I of my coverage on IKEA's growth, based on my reading of the book "The 11 secrets of IKEA" (more on this at the end of this article). You can read a previous blogpost on IKEA's "strange alien values" here. I'll continue this series as follows. Starting with Scandinavia, I'll go into how Ikea grew in this area. I'll then continue with Europe, and finally finish with the giants, the USA, China, and Russia.

swedish meatballs.jpgSome years ago, I worked on a project where we would try to find out how businesses expanded internationally. In this case, we looked at the tire-industry, and three companies, Bridgestone, Goodyear, and Michelin, and dug through tons of annual reports and news-releases to understand where, when, how, and why these companies expanded beyond their national borders.

The reasons these three companies make such an excellent case-study, is that they all originated from different continents and thus reflect different cultures. It is nearly an unwritten rule that US-companies perceive the world as a single market and make little effort to adapt to local conditions; that Japanese companies are very hierarchical in their structure; and that European companies, as a consequence of the cocktail that is Europe, internationalise quite quickly (or not at all). And for all international activities, it is another soft rule that they would expand to countries with some cultural, legal, and linguistic similarities first.

IKEA is of course a European firm, or rather, a Swedish one, and a preliminary conclusion would be that it would internationalise quite quickly also, yet starting in Scandinavia, then the rest of Europe, then the world. Another assumption would be that it would thread carefully (read: slowly or not at all) in areas which reflected alien values (to IKEA). As will be shown, this did indeed happen.

Ingvar Kamprad and Sweden
A business usually has different components, many of which reflect the values of the founder, and again the values of the society he or she grows up in. IKEA's founder, Ingvar Kamprad, was born in 1926, on a small farm in Sweden. He respected the feeling of community he experienced there. His grandmother, who had migrated from Germany at the end of the 19th century, taught him the value of hard work and encouraged his entrepreneurial spirit.

Ingvar Kamprad had started IKEA as an import-export business, and much of the way IKEA would be run would reflect that idea. When you're a trader, the idea is that the product doesn't matter and to be as efficient as possible (a modern-day example: eBay). In order to save costs, IKEA tried to get preferential treatment with its suppliers, started with selling products via mail-order, and ultimately set up a storefront, which was actually just a warehouse.

Of course, Sweden itself, with its strong socialist values, had a large degree of influence in the way IKEA took shape. Internally, the business was run quite informally, and in many ways reflected the communal environment where Ingvar Kamprad had grown up in. Similarly, the business of IKEA was not meant to be elitist, rather aimed at middle-class families, a large component of Swedish society. Sweden also had a long tradition in furniture and design and that was another influential factor.

IKEA was set up in 1943, already a successful mail-order business, and soon after Kamprad would start a business-degree to learn the theory of distribution. After some years of studying, working for other businesses, and finally military service, IKEA's first employee was hired in 1948. This was also the year that Kamprad decided he wanted to make IKEA big and to that effect, started a folder-campaign via a regional newspaper.

The competition in this business was tough, however, plenty of mail-order-businesses in Sweden, and the competitive landscape orientated itself around lowering prices. A natural consequence was that the quality of products also went down. Because Kamprad was made aware of this through countless letters from customers, he came up with the idea of having customers check the products themselves, which is how IKEA, the store, was born.

Two features were important here, one was that the primary way to order was still the catalogue, and the store a complementary service. And two, the self-assembled furniture, which grew out of the need to ship products more safely. This also brought a new degree of involvement by IKEA with their suppliers, essentially bringing innovation upstream, which help suppliers to save costs, and downstream, as self-assembly became a large cost-saver for customers also.

At the same time, IKEA's new retail-focus brought in a new level of competition, that of other furniture-retailers. Afraid of the popular and far cheaper business-model of Kamprad's, and angry at the obvious copying of designs that IKEA was doing also, these retailers started pressuring local suppliers to no longer work with IKEA. This forced Kamprad to use some questionable business-practices, such as starting anonymous daughter-companies to deal with these suppliers, amongst others. In the end, it also lead to him to having to look abroad for new suppliers, which I will write more extensively about in following blogposts.

Noteworthy was that before expanding to the Swedish capital, Stockholm, IKEA had already opened an outlet in Oslo, Norway's capital, in 1963. Two years later, the first IKEA was opened in Stockholm, which turned out to be a massive success. IKEA was well-fitted for the times also. The Swedish socialist government had implemented an ambitious plan for urbanisation, which involved building a million houses between 1965 - 75. Since IKEA was well-able to meet the booming demand for cheap furniture, this was a match made in heaven.

In 1971, IKEA unleashed another innovation. A restaurant, which served food to the clientele at affordable prices. This was another way for IKEA to become a lifestyle-trendsetter, and also started the urban legend that meatballs were Swedish (IKEA's recipe was actually British).

While IKEA was already established in Norway, and had suppliers in Denmark, it opened its first retail outlet there also, in 1969. Towards the end of the 70s, there were altogether 6 different IKEA-stores in the rest of Scandinavia. All of which were personally owned by Ingvar Kamprad.

It was not long after, 1973, that he and his family also moved to Denmark, to flee the insane taxation-system in Sweden, which I explained in my last post.

Final thoughts
Clearly, much of what made IKEA successful world-wide, started with innovations introduced in Sweden. IKEA's mail-order- and warehouse-model, its close integration with suppliers, its focus on providing cheap lifestyle products, and also its internal frugality—which I did not speak of, but IKEA-employees are traditionally paid below market-value. All of which fits with my philosophy of "where you are from and when you are from matters a great deal to where you are going."

IKEA's international expansion started with Scandinavia, which was a region with a lot of cultural similarities to Sweden. As I will explain later, this is a trend that would continue in Europe also. At the same time, the reason that IKEA expanded internationally, could also in large part be explained by the competitive pressures inland—IKEA's troublesome relationship with Swedish suppliers—and with the socialist regime, which was largely incompatible with running a profitable business, and forced Ingvar Kamprad to look elsewhere for a more business-friendly environment. This was also the philosophy, when expanding into Europe, which I describe in a future post.

All in all, IKEA makes an interesting case-study, because it is a European business, and it is interesting to see which of its values were compatible with other countries and which countries presented more difficulty and why. Much more on this in future posts.

The book "The 11 secrets of IKEA" is sadly not available in English. If you do read Dutch, I do recommend picking the book up here, and for German, check the German Amazon-store here. For other book-reviews, check out my look at eBay's "The Perfect Store" here, McDonalds "Grinding It Out" here and here, as well as at Starbucks' "Pour Your Heart Into It" here and here. The picture is courtesy of Culinaryartsblog.com


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