Words: 739
The company also remained armorial production oriented that is, the Swedish management and design group decided what it was going to sell and then presented it to the worldwide public- often with very little research as to what the public actually wanted. Moreover, the company emphasized its Swedish roots in its international advertising, even going as far to insist on a Swedish blue and while color scheme for its stores. Despite breaking some key rules of international retailing, the formula of selling Swedish designed products in the same manager everywhere seemed to work.
Between 1974 1994 KEA expanded from a company with 10 stores, only 1 of which was located outside Scandinavia, and annual revenues of 210 million to a group with 125 stores in 26 countries and sales of close to 5 billion. In 1994, only 11 of its sales were generated in Sweden. Of the balance, 29. 6 came from Germany, 42. 5 from the rest of Western Europe, and 14. 2 from North America. KEAS expansion in North America was its most recent international venture. The foundation of KEAS success has been to offer consumers good value of money.
KEAS approach starts with a global network of appliers, which now numbers 2,700 firms in 67 countries. An KEA supplier gains long-term contracts, technical advice, and leased equipment from the company. In return KEA demands an exclusive contract and low prices. KEAS designers work closely with suppliers to build savings into the products from the outset by designing products that can be produced at low cost. KEA displays its enormous range of more than 10,000 products in cheap out-of-town stores. It sells most of its furniture as kits for customers to take home and assemble themselves.
The firm reaps huge economies of scale from the size of each store and the big production runs made possible by selling the same products all over the world. This strategy allows KEA to match its rivals on quality, while undercutting them by up to 3. 0 on price and still maintaining a healthy after-tax return on sales of around 7. This strategy worked well until 1985 when KEA decided to enter the North American market. Between 1985-1990 KEA opened six stores in North America, but unlike the company’s experience across Europe, the stores did not quickly become profitable.
Instead, by 990, it was clear that KEAS North American operations were in trouble. Part of the problem was an adverse movement in exchange rates. In 1985 the exchange rate was 1 5. 8 Swedish kronor by 1990 it was 1 8. 6 Swedish kronor. At this exchange rate, many products imported from Sweden did not look inexpensive to American consumers. But there was more to KEAS problems than exchange rates. KEAS unapologetically Swedish products, which had sold so well across Europe, Jarred with American tastes and sometimes physiques. Swedish beds were narrow and measured in centimeters.
KEA did not sell the matching bedroom suites that Americans liked. Its kitchen cupboards were too narrow for the large dinner plates needed to pizza. Its glasses were too small for a national that adds ice to everything. And the drawers in KEAS bedroom chests were too shallow for American consumers who tend to store sweaters in them. In 1990, the company’s top management realized that if it was going to succeed in North America, it would have to customize its product offering to North American tastes. The company set about redesigning is product range.
The drawers on bedroom chests were designed to be 2 inches deepened sales immediately increased by 30 to 40. KEA now sells American style king and queen size beds, measured in inches, and it sells them as part of complete bedroom suites. Currently it is redesigning its kitchen furniture and kitchenware to better appeal to American tastes. The company has also boosted the amount of products being sourced locally form 15 in 1990 to 45 in 1994, a move that make the company less vulnerable to exchange rates. This break with KEAS traditional strategy has paid off.
Between 1990 1994 KEAS North American sales have tripled to 480 million, and the company claims it has been making a profit in North America since early 1993. By 1994 the company had also expanded the number of American stores to 15. Questions What strategy was KEA pursuing as it expanded throughout Europe during the sass and early sass multiplicities strategy, global strategy, or international strategy Why do you think this strategy did not work as well in North America as it did in Europe.