Page 1 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 ASSIGNMENT 1ST SEMESTER : ADVANCED GLOBAL MARKETING 4 (AGM401) DUE DATE : 15:00 ON 14 MARCH 2017 FOR UPLOAD TO ELEARN IN PDF FORMAT TOTAL MARKS : 100 MATERIAL SUPPLIED : ARTICLE – IKEA INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete 'Instructions to Students for Completing and Submitting Assignments' must be collected from any IMM Graduate School office or can be downloaded from eLearn. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1) You are required to submit ONE assignment per module. 2) The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however, the examination papers will count out of 100%. 3) Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4) Number all the pages of your assignment (e.g. page 1 of 4) and write your name and surname, student number and module at the top of each page. 5) The IMM Graduate School requires this assignment to be presented in PDF format. MS Word copies will not be marked. Unless otherwise specified, this assignment must be completed within a limit of 3 500 words, excluding the reference list. Students who exceed the word limit may find that only part of the submitted assignment will be marked. 6) A separate assignment cover, which is provided by the IMM Graduate School, must be attached to the front of each assignment. 7) Retain a copy of each assignment before submitting, in case the original does not reach the IMM Graduate School. 8) The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 15:00 on 14 March 2017 for upload to eLearn. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark if received after 15:00 on 14 March 2017 and up to 17:00 the following day, after which no assignments will be accepted. 9) If you fail to follow these instructions carefully, the IMM Graduate School cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM Graduate School website, www.immgsm.ac.za, on Saturday, 6 May 2017.Page 2 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 Answer ALL the questions Advanced Global Marketing is designed in such a way so as to expose you to the realities and challenges of the discipline through case studies, scenarios and practical examples. This assignment assesses your knowledge of global marketing in a practical way. The prescribed textbook: Lee, K. & Carter, S. (2012) Global Marketing Management. 3rd ed. Oxford University Press, and the article on IKEA and references should be addressed. Since the goal of this module is to extend your knowledge of marketing to the global context, it is important that you do understand the impact of different marketing environments on marketing strategy development and also be familiar with how a global marketer manages its operations abroad before you attempt this assignment. Answer the questions stated below. Your assignment must be typed and should adhere to the general rules of the IMM Graduate School of Marketing pertaining to the style and format of assignments. QUESTION 1 [21] The global marketing environment demands a very different approach to doing business. It is key to giving a company a strategic advantage in satisfying the changing needs and wants of consumers worldwide, with different cultures and backgrounds. Applying the knowledge that you have gleaned from Lee and Carter (2012, Chapter 1) and Study Unit 1, discuss how the aspects mentioned below can impact on the strategy of IKEA. Motivate your responses.  new economic powerhouses (3)  global engagement (3)  the new consumer (3)  competition (3)  global service economy (3)  technology (3)  global media (3) QUESTION 2 [26] With reference to IKEA, describe how it developed/can further enhance a sustainable competitive advantage for its product offering. Include the following models and aspects in your answer: 2.1 Application of the SELECT model to the IKEA offering (18) 2.2 New sources of competitive advantage (8)  corporate social responsibility  knowledge management  information technology  relationshipsPage 3 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 QUESTION 3 [29] In order to expand their global market, IKEA are investigating expansion into Southern Africa. To do this IKEA would need to undertake research and address market segmentation. 3.1 Discuss the international marketing research process IKEA would need to follow with respect to introducing its brand and product offerings to Southern Africa Give examples for the various steps in the process relative to the brand. (14) 3.2 Global market segmentation  Discuss the various methods/approaches to segmentation that IKEA could use. Give examples. (6)  Identify with examples the different bases that IKEA can use for segmentation. (6)  Suggest and motivate a specific approach for IKEA to follow in its selection of target markets. (3) QUESTION 4 [24] Should IKEA decide to enter Southern Africa discuss the elements of a creative plan in advertising that they should consider. Reference should be made to their current corporate campaigns (refer the article and references to IKEA) and comment on the applicability thereof to Southern Africa, e.g. language and cultural differences. You are required to comment on each element of the plan vis-à-vis IKEA's current communications as reflected on their website and discussed in the article supplied. PRESENTATION MARKS [-20] Unless otherwise specified, a maximum of 20 marks may be deducted for not meeting the required presentation standard, based on the following aspects: Structure and grammar: (up to -5 marks) The content of the document should have a logical flow, guided by numbered headings and subheadings for the various sections. Incorrect numbering, unsuitable language (non-academic and/or unprofessional), poor syntax and spelling errors will be penalised. Students are to follow the required guidelines in terms of font type, font size, line spacing, justification, etc. as set out in the IMM Graduate School Yearbook. Citation: (up to -5 marks) When including a quotation/reference in an assessment from a book, textbook, paper, author or other sources, correct in-text referencing of the source is required. Referencing: (up to -10 marks) Referencing includes both in-text referencing and the reference list. References must conform to the style and format provided by the IMM Graduate School's 'Harvard Referencing System Guide'. Markers must indicate the presentation mark allocated to the student, on the cover sheet of the assignment. This mark is final. ASSIGNMENT TOTAL: 100Page 4 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 Articles – IKEA About IKEA Since its 1943 founding in Sweden by Ingvar Kamprad, IKEA has offered home furnishings and accessories of good design and function at low prices so the majority of the people can afford them. IKEA's vision is to: 'Create a better everyday life for the many people'. Its business idea is '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'. The IKEA concept is based on their market positioning statement 'Your partner in better living. We do our part, you do yours. Together we save money' and focuses on a commitment to product design, consumer value and clever solutions. By using inexpensive materials in a novel way and minimising production, distribution and retail costs, their customers benefit from low prices. IKEA has more than 590 million visitors per year to its stores all over the world. In addition to the visitors in the stores, some 450 million visitors are tracked entering the IKEA website. IKEA's main marketing channel is its catalogue that is distributed worldwide as 191 million copies (in 56 different editions and 27 different languages) displaying some of IKEA's 9 500 different products. Sales for the IKEA Group for the financial year 2009 increased by 1,4% to a total of 21,5 billion Euros. At the end of the 2009 financial year, there were 267 IKEA group stores in 25 countries stocking everything for home furnishing under one roof. In 2007 the European market constituted 82% of sales, followed by North America with 15% and Asia/Australia with 3%.Page 5 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 The IKEA group has 123 000 co-workers spread across functions such as purchasing, distribution, wholesale, range, retail, support functions and the Swedwood Group (see below for further details). Today IKEA's product range consists of 9 500 home furnishing articles, designed to be functional and good looking but at a low price. Each item is developed by IKEA of Sweden, which is also responsible for giving each product its unique name, such as BILLY and KLIPPAN. The company designs its own furniture, which is made by about 1 220 suppliers in more than 55 countries. IKEA has 31 trading service offices in 26 countries so that production can be monitored, new ideas tested, prices negotiated and quality checked while an eye is kept on social and working conditions. Furniture is also sourced through Swedwood, an IKEA-owned manufacturer of woodbased furniture and components. However, third party suppliers provide the bulk of the company's inventory, in line with its beliefs in flexibility and its strategy of limiting investment in productive capacity. IKEA incorporates environmentally friendly efforts into day-to-day business and continuously supports initiatives that benefit causes such as children and the environment. To cut transportation costs, IKEA uses flat packaging; customers assemble the products at home. IKEA's supply chain has a global spread with growing sales and purchasing in all major regions of the world. What makes its supply chain really complex is that its stores are spread across many countries, that it has 1 220 suppliers in 55 different countries making its furniture and that the stores are supplied from 31central distribution centres in 16 different countries or directly from suppliers. In some cases, an IKEA store opening is a national event, with people sometimes travelling hundreds of kilometres to shop there. IKEA products are manufactured all over the world When IKEA sources suppliers to manufacture IKEA products, the aim is to find those who can produce products of good function and design at the lowest possible price (although not at any price). Some of these, in the Swedish forests around the birthplace of IKEA, have been working with IKEA since its earliest days. Others have their production plants in China, Poland or Germany. But no matter where in the world its suppliers are, IKEA is always committed to long-term cooperation and does its best to cultivate close and cordial relations. IKEA buys production capacity rather than product quantities. In other words, they order 10 000 hours of production from their suppliers rather than 10 000 bookcases. Local offices near to the suppliers The operative purchasing work is divided up among four trading agents, supported by 31 trading service offices in 26 countries. This means that IKEA is always close to its suppliers, which is one way of creating good business relations between the companies involved. The trading service office's employees can make frequent visits to suppliers and follow the production process closely, enabling new ideas to be tested and regular quality controls to be made.Page 6 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 They are also responsible for the important task of monitoring working conditions, social conditions and the external environment around the factories, and for checking that these are constantly being improved in accordance with the code of conduct in The IKEA Way on Purchasing Home Furnishing Products. The suppliers, in turn, can have confidence and faith in IKEA. While IKEA know they are a demanding customer, they also feel that they are fair, professional and honest in their dealings. China – number one on the IKEA purchasing list Today the majority of IKEA products are purchased from manufacturers in Europe. However, the largest single country for purchasing is China. Topsix purchase countries and regions are: • China • Asia • Poland • Sweden • Italy • Germany As a rule, best-selling products are manufactured by a number of different suppliers. Optimising production potential and concentrating volumes are essential in order to achieve low prices. Thanks to the fact that the IKEA range is the same all over the world, large volumes can be ordered. IKEA has developed a variety of tools to help its purchasers to find the best suppliers. Competition is a natural part of this work. But so, too, is cooperation and collaboration. IKEA also purchases raw materials and hardware in bulk, which it then sells to IKEA suppliers. Long-term agreements give lower prices Bigger volumes mean lower prices and the aim is for the already low prices to become even lower still. To make this feasible, IKEA signs long-term contracts with its suppliers. This enables them to make the necessary investments and to ensure the supply of raw materials over a long period of time. In certain instances, IKEA may also support suppliers by providing financial assistance. This creates unique business opportunities, enabling IKEA to continue to offer a wide range of welldesigned, functional home furnishing products at prices so low that as many people as possible are able to afford them. IKEA opens 10–20 new stores every year with a goal to double sales. Considering the pace of growth in sales, the many stores and warehouses, and the fact that some business areas change up to 30% of its assortment every year, supply chain planning is a real challenge. The supply chain needs tight control and high levels of visibility to keep costs down and avoid obsolete inventory and/or stock outs. The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders. Consequently, the entire supply chain is heavily dependent on forecasts. The regions and the stores have traditionally had a strong power and a high degree of local freedom in terms of planning and placing replenishment requests. This has led to a fragmented supply chain planning with local optimisation and a lot of manual intervention with plans throughout the supply chain. Furthermore, due to frequent shortage situations some regions have purposely overestimated demand to ensure delivery, which in turn has led to imbalance in terms of demand coverage. Hence, some markets have suffered from stock outs during long periods, whereas other markets have ended up with obsolete inventories.Page 7 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 Forecasting has been done on a regional level with approximately 120 users striving for different goals and using different methods. Part of the explanation for this is that IKEA has lacked a common and structured tactical planning of demand and replenishment. In terms of capacity planning, all different parts of the supply chain (stores, warehouses, regions, etc.) tried to optimise their own part of the supply chain, leading to a set of imbalanced supply plans with a low and unstable total throughput with long replenishment times for the supply chain as a whole. To overcome the difficult situation, IKEA initiated a programme (a group of projects) aiming to taking better control of its supply chain, and enhance performance in terms of delivery service and costs. A new global planning concept was developed. Its cornerstones are mutually integrated planning processes, a centralised planning organisation, a focus on data quality and use of advanced software support. Distribution From supplier to store For IKEA, distribution is an important part of the equation of creating home furnishing articles at prices which are as low as possible. Approximately 9 500 IKEA products are manufactured by suppliers and transported to IKEA stores around the world, often via one of the company's central warehouses and distribution centres. At IKEA, distribution is all about making the route from the manufacturer to the customer as short as possible. In the early days of IKEA, the 'warehouse' was a shed on Elmtaryd Farm in the south of Sweden where the founder of the company, Ingvar Kamprad, lived with his parents. In those days products were despatched from Elmtaryd with the help of the county milk van that visited the farm each day. However, things have changed a bit since then. Today IKEA operates many distribution centres in countries around the world. From here IKEA products are delivered to stores around the world. Large volumes + flat packs = low costs IKEA works in various ways not only to rationalise and simplify distribution, but also to minimise the impact this part of the business has on the environment. The secret is to calculate as exactly as possible how many products will be needed to satisfy demand. This eliminates any unnecessary costs for production and warehousing. The hallmarks of IKEA distribution are:Page 8 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 - a global distribution network - large volumes - flat packages - low costs The aim of course is to make sure that the right products are always available at the store when the customers wish to buy them. Better efficiency means lower prices The fact that IKEA products are sold packed flat means that they can be transported with greater efficiency. By minimising 'wasted space' it is possible to transport and store more packages at a time. And by increasing what is known as 'the filling rate' in containers and so on (in other words, reducing the amount of wasted space), the cost of transporting each item goes down. One good example of this is HOTT kettle. Making better use of the available space by stacking some of the kettles upside down makes it possible to fit ten kettles into a box instead of just six. As a result, less packaging materials are needed and distribution costs are kept lower. Today 60% of all IKEA freight is transported by road, 20% by rail and 20% by sea. Less than one percent is air freighted. The aim is to constantly increase the proportion of goods transported by rail. Within the next three years 40% of all IKEA freight within Europe will be moved by rail. Again, because IKEA is represented on many continents the use of containers has increased. For some years now, all the freight companies working with IKEA have been required to provide statistics for an 'Environmental Performance Sheet' that details how their operations impact on the environment. This enables IKEA to keep a check on these companies' environmental work and to monitor what measures they are introducing to reduce the use of fuel and minimise emissions. Sustainability IKEA has been doing so much for so long to promote sustainability, there is an encyclopaedia worth of information on the particular details of the topic. They have had many of these programmes in place for many years even before these specific programmes. IKEA decided to transform its conscious efforts into a sustainability action plan. The Environmental Action Plan included 10 key initiatives: 1. Replace polyvinylchloride (PVC) in wallpapers, home textiles, shower curtains, lampshades, and furniture. 2. Minimise the use of formaldehyde in its products, including textiles. 3. Eliminate acid-curing lacquers. 4. Produce a model of a chair (OGLA) made from 100% pre-consumer plastic waste. 5. Introduce a series of air-inflatable furniture products into the product line to reduce the use of raw materials and transportation weight and volume. 6. Reduce the use of chromium for metal surface treatment. 7. Limit the use of substances such as cadmium, lead, PCB, PCP, and AZO pigments. 8. Use wood from responsibly managed forests that replant and maintain biological diversity. 9. Use only recyclable materials for flat packaging and 'pure' (non-mixed) materials for packaging to assist in recycling. 10.Introduce rental bicycles with trailers for customers in Denmark.Page 9 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 IKEA has made substantial progress and become a place where consumers can confidently buy products sourced, manufactured, packaged, shipped, and sold in an environmentally friendly way. IWAY or the highway For furniture makers, wood is everything. But in a world where deforestation has become a hot-button topic, it can also be a source of frustration. Where did the wood come from? Are forests in that region responsibly managed? If so, how can that be proved? The long-term goal is to source all of the wood used in products from forests certified as 'responsibly managed'. To guide that effort, IKEA created the IWAY code of conduct – minimum requirements suppliers must meet in order to do business with the company. According to IWAY's environmental and forestry standards, suppliers must agree to: work to reduce waste and emissions to air, ground and water; handle chemicals in a safe way; dispose of hazardous materials in a safe manner; contribute to the recycling and re-use of products; use wood from known areas and, if possible, certified as responsibly managed. To help spread the word and aid suppliers in meeting IWAY standards, IKEA created a network of Trading Service Offices. The offices train, support, and monitor suppliers to ensure compliance. They also have their own forest specialists who spread knowledge about forest management and help them to trace wood back to its origins to verify that the IKEA wood requirements are met throughout the entire supply chain. Beyond the training and monitoring, IKEA also conducts regular surveys of its suppliers and audits them on a regular basis. While its goals are lofty and standards strict, IKEA understands most suppliers will not meet all of IWAY's rules without a little help. That is why the company created a four-level staircase model of its requirements that suppliers can work on over time. The company's goal was to have 100% of its suppliers at the minimum Level 1 requirement by 2009 and 30% at the highest requirements of Level 4 shortly after. This was achieved. Help from my friends Going it alone is never easy, and in working with wood suppliers around the world to promote sustainable forestry, IKEA has had more than a little help from its friends. Through partnerships with organisations including the World Wildlife Foundation (WWF) and the Rainforest Alliance, the company has armed itself to better tackle problems like illegal logging and lack of Forest Stewardship Council (FSC) certification. Projects are currently underway in Laos, Cambodia, Vietnam, Russia, China, Romania, Bulgaria, Ukraine, Latvia, and Lithuania, and to date, more than 5 000 individuals have been trained in topics related to sustainable forest management and certification. In China alone, more than 1,8 million acres of forest have become FSC certified under IKEA's programme. Beyond the trees IKEA's aggressive effort to use sustainable, responsible materials in its products is just the first step in a long line of green initiatives. From the initial design stage through the product's life cycle, IKEA designers, product developers, and technicians consider all safety, quality, and environmental aspects.Page 10 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 As a result, all of the company's home furnishing products are comprised of 71% renewable material and include as much recyclable material as possible. When these environmentally friendly products are produced, IKEA works with its manufacturers to ensure safety, efficiency, and sustainability are top goals. Those products are then shipped using IKEA's well-known flat pack strategy. The 'assembly required' products are shipped in smaller and fewer containers, allowing the company to get more boxes in vehicles, thus reducing trips, energy use, and emissions. IKEA takes it a step further by making sure optimal loading techniques are used, vehicles run on cleaner fuels, and more fuel-efficient driving practices are followed. To top it all off, only recyclable materials are used for flat packaging. The result of IKEA's supply chain initiatives is end products that consumers can confidently label as "green." It is impressive when you consider that the supply chain is just one piece of the company's comprehensive environmental strategy. Marketing The IKEA brand is the sum total of the emotional and rational values that consumers associate with the IKEA trademark and reputation of the company. The brand image is the result of over 50 years work by IKEA co-workers at all levels all over the world. The overall task of IKEA marketing communication is to build the IKEA brand and inspire people to come to the stores. The IKEA concept builds on a relationship with the consumer. Nine key messages are used within the IKEA marketing communication to build this relationship. These are:  The IKEA concept focuses on commitment to product design, consumer value and clever solutions.  The IKEA product range is developed to be extensive and to have something that appeals to everyone.  IKEA is the home furnishing specialist.  Low price is not appealing unless it represents good value for money. This is where IKEA makes a difference by having good relationships with suppliers and having flat packed furniture cutting down on transportation and assembly costs.  Function – IKEA products are based on a functional approach to design.  The right quality – products are subjected to rigorous tests to ensure they meet national and international safety standards.  Convenient shopping – the IKEA stores offer 'everything under one roof', most of it with immediate take away. They make it easy for the customer to choose and have a simple returns policy.  A day out for the whole family – IKEA encourage people to touch, feel and use products on display. They also have play areas for children, special events, grocery store, restaurants, and so on.  Swedish IKEA – the key IKEA messages all have their roots in the Swedish origin of IKEA. Swedish furniture is light and fresh yet unpretentious. The warm Swedish style has become a model of simplicity, practicality and informality that is now world renowned.Page 11 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401 The IKEA marketing mix consists of four different areas of focus. 1. The IKEA product range. All communication is used to amplify the product range. 2. The store is the IKEA retailer's primary medium for presenting and communicating the range, the low price and concept. 3. The IKEA catalogue is the main marketing tool with about 70% of the annual marketing budget being spent on it. It is produced in 38 different editions, in 17 languages for over 50 countries. Well in excess of 110 million catalogues are circulated. However, is should be noted that the internet has become a major tool for the distribution of the catalogue (www.ikea.com ) 4. The IKEA advertising, PR and other types of communication complement the IKEA range, store and catalogue activities. IKEA has a loyalty card programme called the 'IKEA Family'. It allows discounts of up to 25% in stores including the restaurants. Social and environmental initiatives Some of the initiatives that IKEA has been involved with over the years include the following: Charitable giving IKEA is involved in several international charitable causes, particularly in partnership with UNICEF. These include:  In the wake of the 2004 Boxing Day Tsunami, IKEA Australia agreed to match dollar for dollar co-workers' donations and donated all sales of the IKEA Blue Bag to the cause.  After the Pakistan earthquake of 2006, IKEA gave 500 000 blankets to the relief effort in the region.  IKEA has provided furniture for over 100 'bridge schools' in Liberia.  In 2008 after the Sichuan earthquake in China, IKEA Beijing sold an alligator toy for US$5.89 with all proceeds going to the children in the earthquakestruck area. IKEA also supports American Forests to restore forests and reduce pollution. Links with Education in 2008 IKEA was a supporter of the Design Wales Fires Awards, providing a creative brief for undergraduate design competition. Social initiatives In September 2005 the IKEA Social Initiative was formed to manage the company's social involvements on a global level. The main partners to IKEA are UNICEF and Save the Children. Examples are:  The soft toy project raised in excess of E16.7 million so far.  IKEA provided toys to children in cyclone-affected Myanmar.Page 12 of 12 © IMM Graduate School Assignment: 1st Semester 2017 AGM401  For every Sunnan solar-powered lamp sold one Sunnan will be donated with the help of UNICEF. Environmental impact IKEA has now introduced plastic bags (reusable) plus reusable plates, etc. in their restaurants and toilet facilities. Their aim is to commercialise green technologies. SOURCES Excerpts have been taken from: www.staffs.ac.uk/.../international supply chain management www.aeunike.lecture.ub.ac.id/files/2012/03case-ke The material supplied is taken from the above-mentioned either directly or indirectly as well as from the following sources, with the overall document edited and collated by Stephen Kelly (March 2010). Bartlett, C., Dessain, V. & Sjoman, A. (2006), IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (B). Harvard Business School Publishing. Ikea. (2010), Multiple Pages [Online]. Available from www.ikea.com Jonsson, P., Rudberg, M. & Holmberg, S. (2008), Global supply chain planning at IKEA. Working Paper. Lief, C. (2008), IKEA: Past, Present and Future. IMD International.Retail Merchandiser. (2009), IKEA: The I-Way [Online]. Available from www.retail-merchandiser.com/cover-story/164-ikeas-way.html More information can be obtained from; www.ikea.com www.interikeagroup.com