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International expansion through flexible replication: Learning from the internationalization experience of IKEA

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Abstract

Business organizations may expand internationally by replicating a part of their value chain, such as a sales and marketing format, in other countries. However, little is known regarding how such “international replicators” build a format for replication, or how they can adjust it in order to adapt to local environments and under the impact of new learning. To illuminate these issues, we draw on a longitudinal in-depth study of Swedish home furnishing giant IKEA, involving more than 70 interviews. We find that IKEA has developed organizational mechanisms that support an ongoing learning process aimed at frequent modification of the format for replication. Another finding is that IKEA treats replication as hierarchical: lower-level features (marketing efforts, pricing, etc.) are allowed to vary across IKEA stores in response to market-based learning, while higher-level features (fundamental values, vision, etc.) are replicated in a uniform manner across stores, and change only very slowly (if at all) in response to learning (“flexible replication”). We conclude by discussing the factors that influence the approach to replication adopted by an international replicator.

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Notes

  1. Thus the exploitation/exploration tradeoff they examine is more of a life cycle phenomenon than a tradeoff existing at any given point of time. Accordingly, the dynamic capabilities they deem relevant are primarily those residing in the corporate center related to matching knowledge of the business model in its template form with the ability to recognize a suitable environment in which to deploy that model. In other words, exploration takes places at the corporate center.

  2. Moreover, for some replicators, part of the business proposition is that the format stays relatively fixed, spatially and temporally. This is likely to be true for those replicators where maintaining or expanding the value of brand name capital is an important concern (Klein & Leffler, 1981). The basic value proposition of such replicators (e.g., McDonald's and Starbucks) is to deliver uniform quality, potentially including service, type of location, styling, etc., and having outlets that differ in ways that influence the customer's perception of quality is viewed as distinctly counter-productive. For such replicators, the case for freezing the template in the process of replication seems strong.

  3. Among the many contributions to this stream are Chetty and Eriksson (2002), Eriksson et al. (1997), Fletcher (2001), Pedersen and Petersen (1998), Araujo and Rezende (2003), Blomstermo and Sharma (2003), Steen and Liesch (2007), Petersen, Pedersen, and Lyles (2008), and Malhotra and Hinings (2010).

  4. In their later article Johanson and Vahlne (1990) acknowledge that general experience from internationalization activities may have an influence, but they do not develop this at any length.

  5. For example, Björkman, Barner-Rasmussen, and Li (2004) examine how MNCs can control intra-organizational knowledge transfer, specifically focusing on the role of personal networks for lateral knowledge flows. Inter-unit communication has also been emphasized as a means for lateral, as well as reverse, knowledge flows (Ghoshal, Korine, & Szulanski, 1994), and some research has considered the role of temporary and permanent integrative mechanisms in influencing lateral knowledge flows (Person, 2006).

  6. In each country, interviews were carried out with employees from different parts of IKEA, including national service office and store managers, as well as a number of employees responsible for certain product categories in the stores (see Figure 2 for an organizational chart).

  7. Kraft is the Swedish word for “force” or “power”.

  8. IKEA conducts an annual audit (called Brand Capital), which measures how consumers perceive IKEA, in terms of low price, product preferences, store layout, etc. The survey is motivated by the recognition that local adaptation may be required in order to project the business idea of IKEA consistently – that is, to “create a better everyday life for the many people by offering 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”. For example, in new markets, such as Russia and China, it is important to find an appropriate price level so that IKEA can “reach the many people”, as addressed in the IKEA business idea. In markets such as Japan low price is sometimes perceived as low quality, and in order to attract “the many Japanese people” more emphasis was placed on the product offering, and how it could be placed in a Japanese home, than on price.

  9. As Anders Dahlvig, former CEO of the IKEA Group, explains: “We have taken the concept and planted it in many different countries. Since the concept has been unique and together with the Swedish touch, in terms of Scandinavian style, we have stood for something different from the local, domestic competition. That uniqueness has given us the same advantages in each country that we had in Sweden in the early days” (Kling & Goteman, 2003: 32).

  10. IKEA lore is explicitly regarded as a tool for maintaining the IKEA culture.

  11. Note that while IKEA has in-house R&D, design, production, and logistics that tend to follow replicable formats across regions, we have restricted our focus to the format stores. The consideration of value-chain replication introduces additional complexity, and is beyond the scope of this paper.

  12. The Commercial Review was recently modified. It used to consist of a list of items that were somewhat mechanically checked and evaluated, which resulted in a score that would tell the management how well a given store met the concept. However, in order to eliminate the risk that some stores would focus only on items on the list (i.e., dimensions on which they are easily measured) rather than always striving to do all things right, or constantly trying to improve and search for new opportunities (cf. Kerr, 1978), the Commercial Review was revised. It now focuses more on the work processes in the store rather than on evaluating certain issues following a predefined list, and is conducted over a span of several days, in which representatives from different parts of the organization join store management to examine the store in detail.

  13. In a discussion of Winter and Szulanski (2001), Bengtsson and Lindkvist (2006: 25) also question the replication-as-strategy model, and point out that what may happen in a third phase or later life stages is not discussed, as it is beyond the analytical scope of their article.

  14. Presumably, environmental changes may render a format ineffective, leading to new explorative search in the space of formats for replication, followed by another phase of exploitative replication, as in a punctuated equilibrium model (Gersick, 1991). However, this is not modeled in their paper.

  15. However, caution is called for with respect to exploring the implications of the IKEA case for the strategy-as-replication literature. In fact, it is conceivable that IKEA's approach is simply inefficient, and that it persists because IKEA does many other things well, leading to an acceptable aggregate performance. While this possibility cannot be entirely ruled out, it is not particularly plausible, given the strong financial and growth performance of IKEA over several decades. Still, further inquiry into the performance consequences of different approaches to replication seems warranted.

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Acknowledgements

We thank (without implicating) Tamer Cavusgil, Ulf Elg, Kristina Eneroth, Jasper Hotho, Ram Mudambi, Torben Pedersen, Bent Petersen, Claus Rerup, Sidney Winter, and, in particular, Peter Ørberg Jensen, Julian Birkinshaw, and the three reviewers of this journal for excellent comments on earlier drafts as well as discussions. Anna Jonsson would also like to thank Handelsbanken's research foundations, HUR, SSAAPS, and SI for funding the case study, as well as the co-workers at IKEA for their help and contributions.

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Accepted by Julian Birkinshaw, Guest Editor, 8 July 2011. This paper has been with the authors for four revisions.

APPENDIX

APPENDIX

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Table A1 List of interviews

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Jonsson, A., Foss, N. International expansion through flexible replication: Learning from the internationalization experience of IKEA. J Int Bus Stud 42, 1079–1102 (2011). https://doi.org/10.1057/jibs.2011.32

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