In depth study on IKEA

In depth study on IKEAThe scope of this check-news subject field is to conduct in-depth study on IKEA, the planetary home furnishing retailer from contrasting perspectives. The report card consists of IKEA corporate and disdain strategies in spheric grocerys, the sozzled precedent experience in US and bank line model IKEA applied in Asian countries.1.2 ObjectivesThe objective of this paper is to produce a comprehensive report to CEO with the aim of confine IKEA strategic position in the future. The report critically assesses IKEA current securities indus guess positioning and challenges IKEA have to overcome in orderliness to sustain the war-ridden rewards. plodding abstract is apply to furnish cle atomic number 18r picture regarding the unanimous internal performances in term of strengths and weaknesses, as hearty as the external opportunities and threats. Mean spell, macro surroundings issues will be approximate by using PESTEL analysis to capture IKEA l atent growth and truehearted war-riddenness. Recommendation to promote IKEA future growth will be house base on strategies review.2.0 Company circumstance2.1 Industry and Company BackgroundIn 1943, a Swedish entrepreneur Ingvar Kamprad established IKEA. The name of IKEA came from its relegate name Ingvar Kamprad, the farm Elmtaryd and home country Agunnardy where Ingvar Kamprad grew up. IKEA has developed rapidly as a global home mathematical products retailer. The corporate structure mainly divide into two divisions which argon ope symmetryn and franchising. Operation covered the commission of mass w ar housings, send off, purchase, supply functions and manufacture of piece of piece of article of furniture, which manage by a private gather Dutch union, INGKA Holding. In 1982, Kamprad established Stichting Ingka Foundation, a non-profit foundation that see over INGKA Holding. Ingka Foundation chaired by Kamprad and five executive committees which embarrassd her wi fe. The IKEA trademark and pattern is owned by separate Dutch firm, the Inter IKEA Systems base in Luxembourg. E actually IKEA stores pay 3% of sales to Inter IKEA as a franchise fees. IKEA consumers are mainly distri moreovered into four different geographic regions, atomic number 63, America, plaza East and Asia. The vision of IKEA is to lead a better living effect which is afford able and its mission statement is to offer useful and stylish secondary footing furniture which every unity could afford.2.2 Company Product and ServicesIKEA seized retailer train that sells flat wad furniture, kitchen and bathroom accessories across the modelion. The furniture designed to be self assembled in order to reduce exaltation cost. Besides, the company include traditional Swedish food restaurant in their stores, which serving Swedish meatballs, smoked salmon, lingo berry tarts and cream source. Additionally, thoughtful part of IKEA is many a(prenominal) stores have run into at hletic field for kidren named Smaland, where parents able to drop their children to playground while shopping and pick them up at another entrance.2.3 Corporate and worry StrategiesThe impressive growth of IKEA lies on the distinctive corporate and business sector strategies. IKEA employment grocerying mix dodge to position its brand identity in the commercialize. Armstrong et al. (cc6) develops that marketing mix dodge is a business model tools that instruction on product, price, place and promotion. IKEA provide large range of product selection. Although the product usable category is same, IKEA designed it in different features. For example, IKEA laptop condense act user friendly like a small display panel allow customers to use their laptop while lying on sofa. In term of pricing, IKEA flat pack furniture able to reduce transportation cost which resulted in price saving. Moreover, IKEA tend to locate in suburban area. This factor helps cut operational cost and able t o provide more parking spaces for customers. Besides, Armstrong et al. (2006) withal mentions that promotion is a marketing communication that consists of advertising, person-to-person selling, sales promotion and public relations. IKEA promote their products by mail order usefulness and free distri stillion of catalogue which changes IKEA cut cost in furniture storage.To improve competitiveness, IKEA modified the lever cosmic string scheme. Bartol et al. (1993, p.211) explains that Porter argues a business able to improving and rank adding by condense on the key internal activities in the value chain. However, the unaffiliated (1994, p.9) states that IKEA integrate the value chain by get to a two bangal value adding trunk between customers and suppliers. On the other hand, IKEA used to rarify by franchising method in their globalization strategy. Currently, IKEA has further explored their globalization strategy by joint venture. Evans et al. (2000) states IKEA join t venture strategy enable the firm minimizes the pecuniary risk, expand the expertise network and get to know local market better.2.4 IKEA PerformancesAccording to IKEA group fiscal year 2010 report, the separate (2010) states that IKEA before long un intractable 280 stores in 26 countries. The total sales pull ind 23.1 billion euro by 2010, acclivity 7.7% compare to its 21.4 billion sales in 2009. The net profit add-on 6.1% at 2.7 billion euro. The IKEA market region mainly distributed in Europe which is 79%, North America 15%, Asia and Australia 6%. The distribution of purchasing per region is Europe 62%, Asia 34% and North America 4%. In term of growth perspective, IKEA demonstrated sustainable sales feeler which was average 21.9 billion euro in the past three years, 21.2 billion euro in 2008, 21.4 billion euro in 2009 and 23.1 billion euro sales by year 2010.2.5 SWOT Analysis of IKEA2.5.1 StrengthsIKEAs distinct strategies have successfully make it strengths in competit ive furnishing environment. The strengths act of strong global brand recognition that able to guard group of customers. Another strength is distinctive business strategies allow IKEA function over the products design, low pricing and global sourcing materials. Backward integration is integrity of the strength as well that permit IKEA lie withs economies of scale.2.5.2. WeaknessesThe weaknesses of IKEA derive into few elements. IKEA receding markets plan did not work in every country. Another potential drop barrier is IKEA over emphasis low price products whitethorn chasten to their customers doubtful in products safety. Furthermore, IKEA has limited manufacturing capabilities by its own due to global sourcing strategy.2.5.3 OpportunitiesAn pop come out root wording corporate recognize that encounter weakness is the key of opportunity. The firm has foreseen the bang-up opportunities in developing countries where IKEA may put more parsimoniousness on outsource his busin ess in some(a) developing Asia countries which is potential because of low cost manufacturing for example Cambodia. Meanwhile, India exalted state rates also one of the huge markets for IKEA expansion. IKEA may improve the existing its customers network by promote more online shopping.2.5.4 ThreatsIKEA facing extreme environmental threats among competitors, some of the new entrance companies adapted IKEA low cost strategy and imitated its flat pack furniture concept in the markets. On the other hand, global prudence recession may reduce consumers buying power in emerging markets. Likewise, governmental instability may influence IKEA business performance.Chapter 3 primary(prenominal) Body3.1 Assessment on IKEA Current Strategic and Distinctive scrapIn order to catalogue competitive advantages among competitors, IKEA adopted Porters generic strategy which comprise of differentiation strategy, differentiation condense, cost leader and cost tension which enable IKEA differenti ate their brand identity among competitors.IKEA uphold its differentiation concept by offering high quality and low cost products to history competitive advantages. Porter (1985) states that differentiation aims at deliver products and services that are different from the product mix of their competitors at a premium cost. The company provides functional style of self assembly furniture which material used is source globally to reduce the cost. Guardian (2005) describes that IKEA able to cut their prices at an average of 2% to 3% each year to compete in some markets segment. To sustain the differentiation strategy, IKEA may cogitate in adding more additional features into different products and keep the products user friendly.Adoption of differentiation focus allows IKEA to focus on particular segmentation market. Porter (1985) illustrates that differentiation focus means of differentiating its product within smaller number of target market segment. Recent years, IKEA concentrate its segmentation markets by opening trading place globally to serve customers better. Venorika (2006) states that IKEA opened 46 trading offices in 32 countries by 2006 where the suppliers need to fulfill IWAY code of conduct in preparation materials. To fulfill variety of local demands, IKEA should ensure the suppliers and designers eer customize some of their products to provide range of choices.The advantage of being cost leader in market is able to draw attention and collect customers in big run business. Guardian (2005) illustrates that IKEA attain cost leaders by work together with its suppliers, provide applied science and consultation. Likewise, cost focus stub be mutual benefits for manufacturer and consumers where manufacturer save its cost of production and consumers enjoy the cost saving harvest. For example, the benefits of global sourcing where Captell (2005, newspaper) states that one of the IKEA best selling products Klippan sofas price was $354, by 2006 the p rice has drop to 202. To sustain cost focus, IKEA should critically rise some suppliers and further diversify its major suppliers for their materials. For example, Map of The World (2006) states that Canada, Russia and unify States are top tone producing countries.3.2 transcriptional Gaps to DateIncreasingly globalization is an enormous challenge for IKEA. To sustain, IKEA should further integrate their management by let its independent business group has greater managerial decisions to effectively accomplish business process and boost quicker respond during crisis occur. Carrillat et al (2004) illustrates management that market driving is described to be outstanding in implementing eccentric business process, figuring market structure and value adding to their organization.Secondly, a company that provides professional service able to retain customer loyalty. Rowley (2005, pg 574-578) states customers loyally are company business sum of money assets in the competitive market environment which add value to a business future. IKEA may review their service form _or_ system of government while dealing with customers flow during weekends. It can be archived by retraining their staffs to handle more customers efficiently. Alternately, the company can increase their men by hiring part time workers which is lower cost.Development of information engine room has increase convenience in searching broad information. Brent (2005, pg 2) explain that a comprehensive information system allows company strategic core to be flexible, scalable and effectively operating in a high stress and limited pick environment. Hence, IKEA should utilize the information technology resource by promotes online shopping to resolve weekend customers flow issue.3.3 Performances of Current IKEA outline3.3.1 Analysis on IKEA challenges in US market.IKEA in united StatesIn the mid(prenominal) of 1980s, IKEA entered unite States to challenge an entirely different kitchen-gardening. IKE A success in United States doesnt come easily. Although the low price products always preferences of consumers but IKEA calm down faced difficulties at the beginning stage. Measurement standard and size of furniture were the major issues to IKEA. Nordin study (2002) illustrates one of the customer feedbacks emphasized they were drinking out of vases to refer the size obstacle. In order to delight American markets, IKEA know the moance of modify its products design to suit local needs. By the mid 1990s, the independent (2003) states that IKEA has successfully increased the revenue from USD 600 million to USD 1.3 billion and became IKEA deuce-ace largest markets after Britain and Germany by 2002.PESTEL analysis for United StatesI. Political FactorsThe explore by Wayne et al. (2006, p.101) states that United States exercise constitutional republic in their political system for decision making process. The government promotes equality of laws which is fair to all everyone, thus th e policy has resulted equal opportunity to enhance trade freedom. However, governments tax policies play important role that impact business competitiveness during delivery recession. For example, the independent (2009) states tax reform act enacted on 1986, the incentive has benefits individual but loaded burden to corporate.II. Economic FactorsThe United States gained steady growth of gross domestic product in the past decade. Wright et al. (2007, P.185) illustrates that the capitalist mixed economy result in well developed infrastructure and high productivity that lead United States become the world largest economy. Nevertheless, the saving and loan crisis during 1980s and 1990s has great impact to United States business and financial system. Timothy et al. (2000) states from 1985 to 1995 United States insured thrift institutional deficit from 3,234 to 1,645 has resulted raise in interest rates.III. companionable FactorsUnited States is one of the largest countries with highes t populations in the world. Adam et al. (2001) illustrates that United States society consists of multicultural immigrants and vary in ethnical diversification. Understand different levels of American culture are a challenge as well as opportunity to overcome barrier in order to compete with local markets. For example, IKEA strategy of niche markets has failed due to American cultural preference in large size products.IV. Technological FactorsThe science and technology procession have shaped American success in various aspects including economic, education system, infrastructure and court-ordered institutions. Rapid growth of technology provides job opportunities and promotes growth in business markets. In addition, the facilities and expertise available has encouraged inappropriate investments. Linda et al. (1991) describes that technological advancement is essential for economic growth.Porters Five Forces Model Analysis for IKEAI. RivalryThe competitors try to adapt IKEA strat egy by offer low price and functional furniture products. In low end market, Wal-Mart tends to cut price and do promotion on their furniture products. Conversely, Ethan Allen aims for high end market by offer functional quality products with comfort shopping atmosphere. Tewary (2002) states the furniture markets in United States are highly fragmented, the top ten furniture retailers were reasonable stand 14.2% of total markets share. However, IKEAs strength to deliver brand identity in both ends allows the company to develop in coming future.II. SubstitutesCurrently, IKEA effective global sourcing strategy and whimsical supply chain management has allows the firm booster cable without threats of substitute. Moreover, IKEA innovation designs at all time able to satisfy trim back of consumers demand. John Leland (2002) states typical Americans shopper like new things, travel abroad, take challenges and functional technology. Thus, IKEA consistently revise the fashion design style of furniture able to tag along consumers trend.Power of BuyersConsumers have limited choice on selection by specific retailer, due to particular retailer focus in definite perspective for example, design, quality, service and pricing. IKEA stands advantage on all. Therefore, the dicker power is little for consumers. Nordin study (2002) illustrates that customer visit to IKEA able to observe pricey design and low pricing products. Therefore, in IKEA internal perspective, the consumers bargain power is little.New EntrantsMost of the IKEA stores are located outside the cities to subdue massive traffic and provide bigger parking space. IKEA did not expand the markets in metropolitan areas, so there is potential for another furniture retailer to offer low price products to compete IKEA markets share. Tewary study (2003) shows that United Stated furniture account USD 67 million sales by 2002 and keep on growing. Hence, some of the retailers may seize opportunity in manduction the f urniture markets.Power of SuppliersIKEA has high demand in timber for their products. The supplier needs to bids contracts for supply raw material to IKEA. Meanwhile, IKEA will provide consultation in term of technology and training to ensure the uniformity of material quality. Hence, the supplier bargaining power is low. Due to green environmental issues, it can impact the timber supply. Knight study (1998) shows that more than 200 million hectares of forests vanished due to development became the barriers of supply raw materials, Green correspondence of Tariffs has signed allows corporation to seek more profitable forest.Factors to Consider in Assessing Industry Attractiveness.FactorsHigh ImpactLow ImpactDescription referee3.3.2 Growth Potential and Competitive Advantage IKEA Secure in chinaIKEA in chinaIn 1998, IKEA opened its first furniture store in Beijing, chinaware. The company core target customers are the middle frame young people which are around 30 years old. IKEA realized that different strategy need to be use while entry a new market. Lee et al (1998) states that mainland china has numerous differences in culture, political, economic and business models compare to Sweden. Among the challenges, Trompenaars et al. (2004) illustrates that as a new business entry, language is one of the main barriers for IKEA enter China market. To win Chinese customers heart, IKEA has the Chinese translation named of Yi Jia which means comfortable and family.PESTEL analysis for chinaPESTEL analysis critically evaluates IKEA potential growth and present arguments on its competitive advantage to secure in China.I. Political FactorsChina exercise communism in their political system. In China, the government controls all the resource activities. Capdevielle study (2007) states that China enacted reform and opening up policy that opened its market to attract irrelevant investment in 1978. The policy provided opportunity for many multinational companies to expand their business in China. However, government tax polices influence markets growth. A study of Li et al. (2007, p.26-27) illustrates that 70% of foreign investment enterprise reported loss due to the transfer pricing measure enacted by China in 1990s to control the wealth out of their nation but China has slowly loosen the trade policy to promote business growth. Presently, IKEA adapted joint venture strategy to share risk of losses as well as dealing with government policy to archive competitive advantage.II. Economic FactorsThe joined of China into World Trade Organization (WTO) has result the country economy growth rapidly. Phang et al. (2010) describes that China is the second largest world economy after United States by 2010 with the GDP of $1.337 trillion. The strong economy growth has raised China people purchasing power toward the housing demand which can be a huge potential for furniture industry. Wang (2003, p.121-143) states that housing investment annual rates has incre ased by 20% which is presently urban Chinese most important property. Nevertheless, IKEA facing competitive challenges in China local markets due to government weak control on intellectual property. Imitation of brand pattern which offer in very low price often found in China markets. Therefore, IKEA global sourcing strategy and supply chain management effectiveness which constantly offer low price products determine the company growth.III. Social FactorsChina has the world largest population. A study by Judith et al. (2010, p.4) illustrates that population of china has lift approximately to 1.35 billion by 2010, the world largest population and estimate to be peak during 2030 which is 1.5 billion. From the social point of view, that is a great opportunity for foreign investor to fight against the business markets share. However, the population aging issue and the one child government policy in China should be taking into term due to IKEA targeting young middle class people. Bloo m et al. (2008, p.40) states that China population aging and low fertility rates could result impact on future economic growth.IV. Technological FactorsOver the past decade, China has archive significant advantage in their science and technology development. The rapid improvement in research and development drive manufacturing industry expansion and create more jobs opportunity. Wang (2007) illustrates that china government implement policy to raise the ratio of RD to GDP, resulted sustainable growth which reported 1.4% by 1996 compare to 0.7% of GDP in RD during 1987. Nonetheless, lack of local core technology may increase foreign company cost in buying the technology license and import to China. For example, the independent (2006) states due to the lack of core technology, local company paying 20% to 40% of price for each computerized numerical control machine. Yet, IKEA stand advantage with the unique value chain management in providing technology consultation for their supplie rs to maintain long term business relationships.3.3.3 IKEA Current dodging on Market Diversification (China)IKEA Diversification in Chinaglobalization is the current trend for most of the companies nowadays. However, Brooks et al. (2004, P.233) illustrates that there is certain level of risk to invest in foreign country. To gain market share in new entry countries especially Asia, IKEA corporate and business strategies determine its sustainability and competitive advantage among competitors in future. For example, IKEA globalization strategy in Asia country, China, comprise of joint venture, localization and pricing strategies.Joint VentureFirst of all, IKEA decided to joint venture with local companies in China due to one of the macro-environmental element which was China government policy. Capdevielle et al (2007) elucidates that China practice joint venture policy to gain mutual benefits and principal of equality for their nation. traffic with entirely different culture, IKEA a dapted passed experience in globalization to study China market. Joint venture strategies add value to IKEA by sharing risk of losses. Bragssington et al. (2003, p.106) points out that full analysis should be conduct in order to informed the expansion decision to contribute the success in investment.LocalizationTo continually growth IKEA business after joint venture, the firm adapted localization strategy to suit local Chinese culture. For example, the independent (2005) illustrates that IKEA localization strategy consists of offer wide range of Chinese market products that tailor customers preference as well as the design of showroom is constructed accordance to Chinese style. Despite of it, IKEA also focus on Chinese sub-culture to lure the local customers. Copeland et al. (1986) states that Chinese preference on decoration in red color during Chinese New Year which means good luck and fortune. Recent years, one of the most exclusively IKEA localization drive was during Chinese New Year. In 2006 Chinese New Year, many IKEA products designed with red rooster to welcome the Chinese year of rooster.Pricing StrategiesIKEA based on its low price strategy in offering wide range of quality products to consumers. Usunier (2000) elucidates that product price is always a life-sustaining communication element between buyers and sellers. To compete with local furniture retailers, IKEA has dramatically slashed their products price and outsourced locally to reduce cost. Song (2005) points out that currently 70% of IKEA selling products are made in china and certain products has slunk 70% of its original price. For example, the tray BAGN for eating on bed purposes cost RMB 29 in 2007 compare to its price RMB 89 during 2000.Chapter 4 RecommendationTo run low in the changing environment, IKEA have to constantly adapt changes and aware on customers preference trend. Several elements IKEA may focus to improve its value offer as well as to maintain competitive advantages. 4.1 Justification on IKEA diversify strategy in ChinaJoint venture strategy in China has improved IKEA operational network and culture understanding. Jonsson (2008) states that IKEA oppose more responsive to the local Chinese demands due to the sharing fellowship of Chinese culture with joint venture partners. Recent years, Capdevielle (2007) points out that IKEA has currently offer typical Chinese furniture such as Chinese kitchen wares. IKEA pricing strategies in China have significant progress end-to-end the years. Wei (2007) illustrates that by 2002 IKEA overall products price drop 12% and sales increase by 35% in 2003 compare to year 2002. Despite of it, IKEA remove further to improve their customers service. Wei (2007) also mentions that IKEA started to provide delivery service with a little charge and even free of charge for deliver their products for those area are near.4.2 IKEA Diversification on New Asia CountryAs the global business operational costs increase for exam ple labor cost. IKEA may look for alternative opportunity to source its business from developing country. Cambodia can be IKEA potential business expansion due to the broad horticulture activity and strong GDP growth in recent years. Mohan (2005, p.10) points out that there is potential growth in future for Cambodia as an market-gardening dependent country due to the labor cost advantage. Furthermore, Purcell et al. (2010, p.9) states the opened policy of Cambodia government in joining the ASEAN and WTO has increased the GDP 9.6% by 2007. The political and economic factors are vital elements IKEA should consider while entering into a new market.4.3 Continue Focus on InnovationInnovation is a key in adding value to development of organization. Drucker (2002, p.95-103) states that capability to be innovative in an organization is the key to endure business grow. IKEA has a very different innovation perspective compare to others organization. Victoria et al. (2007, p.46) illustrate that IKEA posses unique forms of innovation in introducing new technology, widening the low cost products design range to maintain long term suppliers and consumers relationship. Victoria et al. (2007, p.46) also mentions IKEA pore on technological innovation by online products provision and supply chain management which contributed to the growth of its business. The critical factors to continue IKEA success in innovations are all level of consumer centric innovation, further analyzes the segmentation markets by research and innovative marketing campaign to match local preference.4.4 Reviews on dodging CompetitivenessFor IKEA to lead furniture industry as a market driver, the firm should periodically review and enhance the existing strategies. Adaption of blue naval strategy enables IKEA to seek the value of innovation by cost reduction and differentiate it products to meet customer needs. Kim (2005, p.4) explains that blue ocean strategy enable corporate to create new customer value and provide long-lived core competitiveness. Moreover, blue ocean strategy challenges the traditional business concept in breaking market competition and growing organization brand identity. Continually review the business strategy provides bigger picture and direction for an organization to attain growth in future.