Globalization and the Swedish Design Economy
Posted on February 21, 2013
Sweden’s brand of design is often closely associated with the distinctly Scandinavian decor that fills the halls of every IKEA showroom in major cities around the world. Like many Asian countries, Sweden is primarily an export-driven economy; one that has built known international brands like H&M, Sony Ericsson, and Volvo over the last few decades. It is also currently the 3rd largest exporter of music after USA and the UK, with Swedish pop music group, ABBA, paving the way since the 1970s.
Its capital city, Stockholm, is widely recognised as one of the top design capitals of the world and is currently the 3rd largest exporter of European furniture after Italy and UK. A considerable feat for a nation that was once considered one of Europe’s poorest countries before the First World War
Part of the Arctic Circle region, Sweden’s summer nights are short and winter days are often dark with little daylight; forcing many of its citizens to spend most of their time at home outside of work. Its modest population of just slightly over 9 million represents a small but affluent domestic market. In 2006 alone, Sweden spent $320 billion kroner (~US$58.7 billion) on furniture and home decor with a population of just 6 million people then. On average, that’s about $53k kroner (or ~US$9800) per person. More than half of that spending went to furniture giant IKEA, which has the largest market share in Sweden for furniture goods.
The dilemma based on governance
Since 2004, the Swedish government has designated the design industry as one of its 3 pillars of economic growth; the other 2 pillars are research-intensive sectors like Bio-Technology and Microelectronics.
Despite strong government support and solid infrastructure, the Swedish design industry is not without its challenges. Most Small-Medium Enterprises (SME) often does not have the luxury to hire an in-house designer due to high tax rates, high minimum wages and pro-employee benefits. A population with more designers than doctors means many young Swedish designers, most of which specialise in industrial design, will struggle to find suitable job openings in the workforce. Even larger firms like IKEA do not hire often enough to counter the problem.
In order to take on freelance projects legally, many young designers have to set up sole-proprietorship company entities. Some fall back on social welfare assistance, which ensures a minimum standard of living. However, many cannot rely on social welfare assistance indefinitely and resort to waiting tables in a restaurant if attempts at finding a suitable job in their chosen field prove unsuccessful.
The effects of globalization
Globalization has reaped an unfriendly benefit for companies looking to take advantage of cheaper labor elsewhere in Asia. To keep its supply chain cost-efficient, firms like IKEA limit the scope of their manufacturing within Sweden and rely on a global sourcing and global manufacturing approach. Overtime, if more companies outsource their production facilities to stay competitive, the Swedish manufacturing industry will eventually shrink in scale.
Swedish industrial designers who choose to manufacture their products locally often face the challenge of price pressure and a lack of option in complex manufacturing techniques. This is partly why Swedish product designers have to keep designs simple while trying their best to innovate within constraints.
The availability of affordable design by IKEA also primes shoppers to expect low prices whenever they seek designer goods. What most shoppers fail to question when making a purchase decision is the origin of the product. What are the working conditions like while workers manufacture the product? Are the materials from sustainable sources? Can I support a local manufacturer who produces a similar product? Is the product built to last?
Brands that position their products for the middle market segment are often the most at risk. On one end of the spectrum, shoppers may ask, “If a similar product can be bought cheaply, why pay more?” On the other end, boutique brand owners question, “If this particular design/style sells in the market, isn’t it easier to play it safe?”
A Tale of Two Cities
Apparat, once quoted by UK Wallpaper magazine as Stockholm’s top 10 shops sold home furniture and goods priced for the middle market. Apparat no longer exists today. In the book, co-owner, Nadia Tolstoy, lamented to author Max Wang of the high social welfare contribution for each employee and high minimum wages (about 120 kroner or USD$21.50 per hour), which stopped them from hiring a store representative. Manning the store itself becomes a daily grind as the 2 owners are left with little time to plan their marketing or product line-up.
It’s tough to compete for the smaller half of the market against IKEA and more established stores without a distinct competitive advantage. To most Swedish shoppers, Apparat is just one of the many stores curating well-designed furniture and household goods. The average shopper is spoilt by choice.
At an IKEA store in Hong Kong, Causeway Bay. A newlywed couple eagerly sign themselves up for IKEA’s Home Design service. Due to popular demand, they must wait for more than a month until the end of March 2013 before receiving consultation to fit their homes with IKEA furniture.
The distinctly Scandinavian home decor has become somewhat of a role model for the Chinese, as economic growth fuelled by its manufacturing and export sector has led to affluence and a growing middle class. With more than 300 stores around the world today, IKEA has indirectly become an ambassador of Scandinavian design: homely, functional and affordable.
Read more about the Design Ecosystem in Sweden in the next part of this series, “Ties that bind the Swedish design ecosystem“.