Table of Contents
Introduction to Background
Method
External Factors
PESTEL Analysis
An assessment of Porter’s Five Forces is a means to analyze the competition of a business.
Organization’s internal atmosphere
VRIO Analysis
IKEA’s mission is to help people live better lives. We support this vision with a range of high-quality, functional products for the home at affordable prices.
Background and IntroductionIngvar kamprad, a Swedish businessman founded Ikea in 1943.
IKEA is a shorthand for Ingvar Kamprad and Elmtaryd Agunnaryd – the names of Kamprad’s farm and village. Kamprad started his company as a one man operation, selling magazines, fish, vegetable seed, and magazine to local customers.
Before opening stores in Switzerland (1973) or Germany (1974), the company had opened shops in Norway and Denmark. The company opened its first American store (Philadelphia) in 1985 after expanding in Europe.
IKEA, a global retailer of home furnishings, appliances and ready-to-assemble furniture as well as kitchen accessories, was active in 41 different countries by December 2012. With over 301 shops and 30 franchised locations, it is the biggest furniture retailer in world. Germany has 44 stores and the United States 37. Recent reports claim that the privately held company’s sales volume exceeds $24 Billion dollars, and $3 billion of it comes from US sources. 533,000,000 people visited the stores, according to IKEA. IKEA is the only company that sells IKEA exclusive products. They are typically designed with a modern architecture and reflect IKEA’s Swedish heritage.
The top five IKEA locations in the world by December 2012 are:
552,000 square feet in Stockholm, Sweden.
Shanghai, China. 494,000 sq. ft.
Shenyang in China has 470,000 square foot.
457,000 square feet in Tianjin, China.
Berlin, Germany.
The company offers armchairs and bean bags as well as bath suites and bed linens. It also provides desk accessories and cord management. The Company also offers diningware, entertainment, floor lamp, frames, musical instruments for kids, kitchen organizers or kitchen units.
ApproachThis report analyzes the Strategic Management of IKEA Company. By identifying, analyzing and evaluating:
Discover the external environment using tools such as “PESTEL” or “Five Porters”, to identify threats and opportunities for your company.
The internal environment using the “VRIO” tool for analysis to evaluate the Company resources and therefore the
External EnvironmentA PESTEL AnalysisA PESTEL Analysis (also known as a PESTEL framework) is used by marketing professionals to monitor, analyze and assess the external marketing environment factors. The results of which are used to identify weaknesses and threats.
IKEA, as one of the biggest furniture companies in the World, is successful because it can identify external Political, Economics, Socio-Culturals, Technological and Environmental factors that may influence its activities.
Government affairs
IKEA has operations in more than 41 countries. The political forces that can impact its business, from the Supply Chain Process up to the sales, include:
a. Bureaucracy of the government
IKEA actually faced this problem when it opened its branch in Samara. The company waited many years for the required documents, and in 2009 IKEA froze its investment.
b. Stability of political systems
IKEA’s largest business is in Europe & United States of America. These countries have stable political systems, providing investors with a safe environment. IKEA however does not do any business in Africa due to the instability of some nations.
c. Government policy on taxation and tariffs
Multinational countries are affected by the different tax rates of other countries.
In 2016, Ministers from the European Parliament accused IKEA of avoiding over 1 billion of taxes in the last six years. It was also published that Ingvar kamprad created the complex tax system in the 1980s in order to avoid Sweden’s high-tax regime.
Changes in trade policies and tariffs will impact the business of IKEA, especially since most IKEA products are made abroad and imported into different countries.
IKEA had to pay heavy import taxes when it opened in China in 1998. China exported almost everything. Approximately 22% of IKEA’s range is manufactured in China.
Finances
a. Growth rates of countries
IKEA should choose countries where there is a high rate of growth to expand or open in. This will have a positive impact on IKEA sales and the wages of employees.
b. Economic downturn
IKEA’s prices are not enough to make a business successful. The world economy is what determines the profits of any business. IKEA could have entered the Chinese Market as it was least affected.
c. Currency rates
IKEA’s business will be affected by unstable exchange rates. As we have already mentioned, the majority of IKEA’s furniture is manufactured in other countries.
Interest Rates
It is common for companies to be exposed to interest rates, especially if they have interest-bearing loans.
Personal tax rates, unemployment rate and inflation rates
IKEA’s revenues are directly affected by high personal income taxes, unemployment rates or inflation.
Scio-Cultural
a. Different tastes
IKEA must cater to the diverse tastes of customers around the globe.
The Company was confused about the number of vase they sold when it entered the United States. It wasn’t until the Shop employees informed them that Americans didn’t use the vases with flowers but to drink out of.
b. Creative thinking
However, the company might be using the best possible procedures for gaining profits.
IKEA and its two executives in France, who were allegedly spying on them by obtaining police records for their employees or hiring private detectives.
c. Different Cultures
IKEA’s Saudi Arabian catalog was criticised for removing women from its literature, and IKEA felt the heat.
Ages of consumers
IKEA’s consumers range in age from 20s to 30s. IKEA should take this into account while designing and producing its products.
High-Tech
a. Adoption and use of new technology
The impact of technological changes on the performance and effectiveness of a company, as well as its employees is significant. IKEA website includes the latest catalogues. Customers can order online or contact Customer Service.
b. Increased Connectivity Worldwide
IKEA, for example, could grow faster due to the growing number of Internet users.
Environmental
a. Environmental laws for natural resources like wood
IKEA’s business relies heavily on the use of wood, and as such, the company must adhere to all applicable environmental laws. IKEA uses only wood that has been sourced according to the IWAY Forestry Standard. It prohibits any wood derived from sources who are involved with forest conflicts or illegal harvesting.
b. Using Renewable energy
IKEA has committed to producing 100% renewable energy, to help reduce climate change.
Recycling
IKEA recycles as much wood, plastics and metals as possible.
Permissible according to the law
Health and Safety, Equal Opportunities, Advertising Standards, Employment Laws, Consumer Rights and Laws, Tax laws. IKEA’s operations must not violate laws and regulations of different countries.
IKEA faced a dilemma with Indian workers who wanted overtime work contrary to its daily limit (8 hours).
Porter’s Five Forces AnalysisPorter’s Five Forces Analysis is a model which identifies, analyzes, and reveals five forces that influence every industry. It also helps to determine the industry’s strengths and weaknesses.
Threats of Entry
IKEA is under threat from competitors who want to steal its market share.
IKEA is a relatively small company with low entry barriers. But, new players will not have the same scale economies, cost advantage and product differentiation.
It would require time, energy and investment if IKEA was to be able to compete.
The threat posed by a new competitor is very low.
Rivalry
Wal-Mart Stores Inc. Wayfair, Sears and Tesco are some of the brands and supermarkets that compete with IKEA in selling furniture for a relatively low cost.
IKEA continues to be the leader in low-cost and discount items, even when competing with online giants like Amazon, EBay or Alibaba [19].
Substitutes
IKEA faces a low risk of competition from other brands.
IKEA’s Image, IKEA built a brand image that was accompanied with trust from consumers.
b. The variety is so wide that it’s hard to find anywhere else.
The prices are very affordable.
d. Customer services system.
The threat of powerful suppliers
IKEA has the ability to switch suppliers easily.
IKEA works with 1380 different suppliers in 54 different countries. It has developed its own set of rules that suppliers must follow. IKEA and their suppliers have developed an “IWAY” code which includes:
a. Preventing child labour and supporting young workers
b. Protection from forced or bonded work
c. The right to non-discrimination
Right to association
A minimum wage, plus overtime pay
f. A healthy and safe work environment. This includes preventing air pollution, water pollution, and groundwater contamination.
Suppliers are required to share this code with their sub-suppliers and co-workers to ensure that IKEA’s requirements for operations are met.
IKEA audits its suppliers around 1,000 times a year to make sure that they are following these guidelines.
The threat of powerful buyers
IKEA is not at risk of being overtaken by powerful buyers because the market offers a wide range of options.
IKEA’s Low Prices
IKEA is known for its high quality
IKEA’s Marketing Strategy
IKEA’s Customer Service
Internal EnvironmentVRIO AnalysisVRIO Analysis provides a powerful analytical tool for evaluating a company’s assets and thereby its competitive edge. It analyzes the resources in terms of their value, rarity, costs to copy, and organization.
Worth
IKEA has a lot of resources. IKEA can respond to external threats by using its resources and capabilities.
Differentiation of competitors
Innovation in the business models and value chains which help to produce new products.
Rarity
IKEA created a friendly atmosphere in the stores and the employees were able to enjoy their jobs as if the store was “a day out with the family”. Its competitors were unable to make these processes so simple.
IKEA created a combination that is rare.
Low prices
b. good quality
c. innovative modern designs
Shopping is a great experience.
Cost of imitating
IKEA is the best at what it does and will remain so for a long time. This is due to the company’s extensive experience and learning curve. To imitate IKEA’s model, competitors must have the resources, time, and efforts to do so.
Organization
IKEA has been in the furniture business for many years and is a major player in several countries.
a. you need to have the necessary knowledge and experience.
The required investment
To maximize the use of its resources and abilities.
IKEA used its resources and abilities to enter different countries, including China, India and Saudi Arabia, with cultures and tastes that were very different.
