“Each step in the manufacture of a product or the delivery of a service can be thought of as a link in a chain that adds value to the product or service. This concept of a how business fulfils its mission and objectives is known as the value chain” (Needles et al, 2007, p.836) Michael Porter argues that an organization can enhance its competitive positioning by performing key internal activities in the value chain at a lower cost and better than its competitors.

 

The value chain approach identifies two major activities - primary and secondary. Primary actives contribute value directly to the product as it moves along. Secondary activities, on the other hand, are identified as support processes to primary activities. The ultimate purpose of the firm is to add as much customer "value" in each of the primary activities.

In this global sourcing strategy, the customer is a supplier of time, labour, information, knowledge and transportation. The company actively desires that customers do not just consume value, but rather to create it. They assist in the value chain by performing the transportation and assembly processes. IKEA also controls cost by first identifying the key cost-drivers and then working to manage them. It determined that customers would be willing to integrate themselves into the assembly process for the sake of saving money; this eliminates non-value added links in the value-chain.

 

On the other hand, the suppliers are customers, receiving technical assistance from IKEA's corporate technical headquarters through various business services. This long-term supplier relationship does not only produce superior products, but also add internal value to the suppliers (Normann et al, 1993: 72). In addition, this value-chain modification differentiates IKEA from its competition.

 

IKEA also keeps prices at the low level by packing items compactly in flat standardized cartons and stacking as much as possible to reduce storage space during and after distribution in the logistics process. Thus, IKEA's role in the value chain is to mobilize suppliers and customers to help them further add value to the system. This approach will make IKEA furniture attractive to Indian consumers and establish them as market leaders.