Any successful business has to reduce costs if it wants to boost profits and succeed. IKEA is a firm which reduces production costs using the global strategy, through using low cost resources in specific countries. The company locates cheaper sources of raw materials and establishes its manufacturing firms in these areas (Hollensen 2007: 396-397). It also uses cheaper labor through establishing its labor intensive activities in countries where low cost labor is available, such as Asia. In addition to this, the company uses simple distribution channels which are relatively cheaper, with very few middlemen.
Centralization and control When undertaking the global strategy, it is important to have control over the process, and this is done to prevent the contractors from flouting the policy of the company. An example can be given of Nike, which subcontracted its activities to Asian countries. Due to allegations of mistreatment of workers in the Chinese factories, Nike lost some goodwill from customers (Bill 1998). IKEA achieves this control through centralizing development and research activities to its headquarters in Sweden.
This provides a centralized decision making environment and allows a central authority to monitor the overall performance of the company (Rugman and D’Cruz 2003: 12-13). Conclusion and recommendation.
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Firms should borrow the favorable characteristics of IKEA which work for them in order to be as successful.
Bill, S. (1998). “Taking a look inside Nike’s factories” Retrieved on December 12, 2008 from <http://www. pathfinder. com/time/magazine>. Hollensen, S. (2007). Global Marketing: A Decision-Oriented Approach. New York: Financial Times Prentice Hall. Rosenhauer, S. (2008) . “Profit is a Wonderful Word”: IKEA’s Strategy Behind the Profit Sweden: GRIN Verlag. Rugman, A. M. , D’Cruz, J. R. (2003). Multinationals As Flagship Firms: Regional Business Networks. London: Oxford University Press.