Porters diamond illustrates the determinants of national advantage.

This
diamond represents the national playing field that countries establish for their
industries. In IKEAs case, the competitive advantages that the firm possesses
due to its home market and national industry characteristics is revealed.
Factor Conditions:
These relate to the nations position in factors of production,
In IKEAs case
Human Resources - are one of the most important assets to IKEA, having their
employees being able to quickly and properly adapt to the values. It is also
important for their employees to know how to communicate in Swedish, since it
is their cultural language
IKEA emphasises on the fact that to really understand the core values of the
organization, the top management needs to learn Swedish. This will only create
commitment to the core values that are believed to be the key to Ikeas success.
Ikea has created several management and corporate cultural programs, the most
famous one is called the IKEA way. Here employees are taught in the history.
Strategy and product range of the company. Since when expanding in other
countries, other areas are culturally different from Sweden and Scandinavia, such
programs are vital to ensure that the corporate values of the organisation
remains alive.
Knowledge - The firm-specific knowledge is rooted in Swedish culture and
values. This also refers to the product design group which is located in Sweden
therefore It is inspired by Swedish culture, enabling IKEA to try to spread the
image of Swedish designs and preferences across the world. As part of a team,
the designers have to commit themselves to the core value of the corporate
culture
Infrastructure Since the beginning, IKEAS founder understood the
development of infrastructure and the importance of warehouse location and
how private cars were about the change peoples shopping habits. This
procedure of finding inexpensive sites outsides the city centre which is located
near the main roads is still being exercised. This makes it easier for the
customers to drive aware from the city centre, buy their furniture items and
transport it back home in their cars. Such a strategy of infrastructure turned out
to be a great success in Sweden and Norway, therefore IKEA thought of adopting
this concept along any future expansions.
Even though this strategy worked well in countries like Sweden and Norway, this
had to be changed when expanding in China, this was because private cars were
not so common. Therefore. this enabled IKEA to rethink its strategy and to
choose the location where most people can reach the stores in the easiest way.
Demand Conditions
The more demanding the customers in an economy, the greater the pressure
facing firms to constantly improve their competitiveness within the industry.

When IKEA first opened, the company noticed a large and uncovered customer
demand for cheaper home furniture items. The thousands of people visiting the
store every day continued to give the confirmation and belief that the top
management needed for going international. Also, the demand for IKEA products
and style has shown to be amazingly high outside Sweden. This is seen in the
fact that everywhere, huge crowds turn up for the opening ceremonies and the
annual profit of the company keeps on increasing every year. Furthermore, the
fact that IKEA keeps on opening new stores but never have had to close down
any is evidence enough for the demand of IKEA items.
At the beginning, IKEA have struggled against a label of poor product quality.
However, since IKEA sells its own browns, they are very close to the end user and
can more easily and direct catch up with customer preferences and opinions. In
every warehouse, there are small questionnaires for the customers to give
feedback on product range, services and suggestions for improvement. This
valuable information has led IKEA to better product quality over these years. This
shows how IKEA is always considering the demand of its customers.
Therefore, their decision to go international lied in the fact that this demand may
exist in other countries being that the demand kept on increasing in Sweden and
Scandinavia.
Related and Supporting Industries
In IKEAS case, in the early 50s the Swedish furniture industry was impaired by
cartels of manufacturers and retailers. Supply contracts and agreements on
competitive practice amongst cartel members raised barriers of entry for new
entrants and disciplined those who failed to abide by the regulations. Therefore,
this restricted IKEA from signing any contract with manufacturers or established
retailers in Sweden resulting to IKEA being forced to go international to find
suppliers and manufacturers.
Ikea had two choices, either to outsource its production or to set up a production
plan itself. Outsourcing was the least expensive choice but also the mist risky
when it comes to production and quality control and delivery reliance. Setting up
their own production plant required a lot of capital as it meant building or
acquiring production facilities.
Ikea decided to do a bit of both. The Seedwood Group is the only production unit
within the IKEA Group. Here, all the wooden furniture and wooden components
are produced. However, the majority of IKEAs production is outsourced. They
strive to build long term relationship with its suppliers and are bound to order
large volumes over a certain period of time, usually 3-5 years. The suppliers then
oblige to deliver the ordered volume at the agreed time to the agreed price and
quantity.
When it comes to searching for new suppliers, IKEA usually turn to manufactures
in other industries. They may have the necessary production equipment and
skills needed. IKEA then buy free production capacity and gain a win-win
situation for both parties where IKEA gets its productions without major
investment and the supplier utilizes free capacity to earn some revenue. A clear
example of this is a table which legs were made by a car body manufacturer and
some stuffed animals that were made by left-over fabrics.

Therefore, this shows that IKEA managed to remain motivated and encouraged
and because of the cartel situation, IKEA needed to think different than the
traditional firms involved with furniture, leading them to international success.
Firm Strategy, Structure and Rivalry
IKEA has a very distinct Scandinavian management style emphasizing an
informal style when it comes to clothing and the ways co-workers address
themselves and the managers in.
Also, IKEA uses its core values actively in everyday life when it comes to problem
solving and aiming to reach the managements objectives.
Another key factor to success if the entrepreneurial spirit and strong shop
keeping instincts which can be found in Sweden. This spirit has led them to
international expansion and success
Porter stresses the importance of domestic rivalry. As I mentioned above, the
industry structure was not a favourable one for IKEA, however through
outsourcing the majority of the production, Kamprad and his crew were able to
turn an obvious barrier of entry and market imperfection into an advantage.
Chance and Government
Important chance events for the birth and the development of IKEA were the
Second World War and the emergence of private motoring. Post-war economy
and expensive wooden furniture meant that only the wealthy could afford to
renew their home decoration, while the vast majority had to manage with what
they already possessed. By offering non-expensive furniture items and dealing
with the cartel situation, IKEA positioned themselves as an important factor in
the Swedish market. As well, the fact that customers had the opportunity to
bring the newly purchased items home with them in their cars, contributed to
secure its growing popularity.
Regarding government actions, political stability of any country affects business
operations, as it could affect buyer supplier relationships that could disrupt their
plans for international expansion and in gaining competitive advantage.

Conclusion:
It is quite evident that Sweden as the home base provides great competitive
advantage that enhances international growth. It has a favourable business
context (firm strategy, structure and rivalry), it clearly has a large home demand
for IKEAs product (demand conditions) and because of the strong corporate
culture, mainly managers born within the Scandinavian area have been
appointed top positions within the Foundation (factor conditions, Human
Resources). This means that they are seeking a highly specialized workforce, but
the competence they seek cannot be learnt by education. The competence they
want is learnt as a child raised and socialized into a certain set of cultural
attributes. This means that mainly Swedes or Scandinavians have filled the top
positions of the company.

The area where Sweden as the home base cannot satisfy is when it comes to
related and supporting industries. Here IKEA had to come up with its own
solutions on how to overcome this obstacle.
Also despite enthusiastic home customers, the fact that Sweden is a small home
market, continued growth required that an international approach had to be
taken.