In 500 words, debate the relative merits of fixed and floating exchange rate regimes.
In 500 words, from the perspective of IKEA, critically appraise the most important criteria in a choice between the systems.
Case study reference below
IKEA’s Global Strategy
Walk into an IKEA store anywhere in the world, and you would
recognize it instantly. Global strategy standardization is rampant!
The warehouse-type stores all sell the same broad range of
affordable home furnishings, kitchens, accessories, and food. Most
of the products are instantly recognizable as IKEA merchandise,
with their clean yet tasteful lines and functional design. With a
heritage from Sweden (IKEA was founded in 1943 as a mail-order
company, and the first store opened in Sweden in 1958), the outside
of the store will be wrapped in the blue and yellow colors of the
Swedish flag. IKEA has sales of €34.2 billion euros annually (about
$37 billion U.S. dollars) and more than 150,000 employees.
Interestingly, IKEA is responsible for about 1 percent of the
world’s commercial-product wood consumption.
The IKEA name comes from its founder—the acronym consists of the
founder’s initials from his first and last names (Ingvar Kamprad)
along with the first initials of the farm where he grew up
(Elmtaryd) and his hometown in Sweden (Agunnaryd). Overall, Sweden
has 20 IKEA stores, which are only fewer than in Germany (49 IKEA
stores), the United States (42), France (32), and Italy (21). Spain
also has 20 stores. With 351 stores in 46 countries, IKEA is the
largest furniture retailer in the world. Basically, the furniture
market is one of the least global markets, with local tastes,
needs, and interests much different than for many other products
across industries. The largest IKEA store is in Gwangmyeong, South
Korea, at some 640,000 square feet.
The IKEA store itself will be laid out like a maze that requires
customers to walk through every department before they reach the
checkout stations. The stores are often structured as a one-way
layout, leading customers counterclockwise along what IKEA calls
“the long natural way.” This “way” is designed to encourage
customers to see the store in its entirety. Cut-off points and
shortcuts exist but are not easy to figure out. It is even
difficult to get back out after having a meal in the famous IKEA
restaurant with its Swedish food (meatballs anyone?).
Immediately before the checkout, there is an in-store warehouse
where customers can pick up the items they purchased. The furniture
is all packed flat for ease of transportation and requires assembly
by the customer. Value is stressed to a great extent (the price
customers pay for the quality furniture they get). If you look at
customers in the store, you will see that many of them are in there
20s and 30s. IKEA sells to the same basic customers worldwide:
young, upwardly mobile people who are looking for tasteful yet
inexpensive “disposable” furniture of a certain quality standard
for the price they are willing to pay.
A global network of more than 1,000 suppliers based in more than 50
countries manufactures most of the 12,000 or so products that IKEA
sells. IKEA itself focuses on the design of products and works
closely with suppliers to bring down manufacturing costs.
Developing a new product line can be a painstaking process that
takes years. IKEA’s designers will develop a prototype design
(e.g., a small couch), look at the price that rivals charge for a
similar piece, and then work with suppliers to figure out a way to
cut prices by 40 percent without compromising on quality. IKEA also
manufactures about 10 percent of what it sells in-house and uses
the knowledge gained to help its suppliers improve their
productivity, thereby lowering costs across the entire supply
chain.
Look a little closer, however, and you will see subtle differences
among the IKEA offerings in North America, Europe, and China. In
North America, sizes are different to reflect the American demand
for bigger beds, furnishings, and kitchenware. This adaptation to
local tastes and preferences was the result of a painful learning
experience for IKEA. When the company first entered the United
States in the late 1980s, it thought that consumers would flock to
its stores the same way that they had in western Europe. At first,
they did, but they didn’t buy as much, and sales fell short of
expectations. IKEA discovered that its Europeanstyle sofas were not
big enough, wardrobe drawers were not deep enough, glasses were too
small, and kitchens didn’t fit U.S. appliances. So the company set
about redesigning its offerings to better match American tastes and
was rewarded with accelerating sales growth.
Lesson learned. When IKEA entered China in the 2000s, it made
adaptations to the local market. The store layout reflects the
layout of many Chinese apartments, where most people live, and
because many Chinese apartments have balconies, IKEA’s Chinese
stores include a balcony section. IKEA has also had to shift its
locations in China, where car ownership lags behind that in Europe
and North America. In the West, IKEA stores are located in suburban
areas and have lots of parking space. In China, stores are located
near public transportation, and IKEA offers a delivery service so
that Chinese customers can get their purchases home.
In 500 words, debate the relative merits of fixed and floating exchange rate regimes. In 500...
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