Global Presence and Management of the Brand (IKEA)
The original store owned by IKEA was opened in 1958 in Sweden. The company has since expanded and opened stores outside Sweden in the subsequent years of its operations including Norway in 1963 and Denmark in 1969. During the 1970s, IKEA embarked on expansion to other European countries such as Switzerland in 1973 and Germany in 1974. In addition, the same decade saw IKEA expand its global presence to other parts such as Japan in 1974, Canada in 1976, Hong Kong and Australia in 1975, Singapore and Netherlands in 1978. Germany is the largest market of IKEA with 45 stores followed by the US having 38 stores. At present, IKEA has 338 stores in at least 40 countries. Nevertheless, it is imperative to note the brand has not expanded much to developing countries; this is because it is critical for the store location to be close to freeways, major roads and public transport.
It is undeniable that IKEA is a successful global brand owing to its sustained expansion and growth in its operations. The distinctiveness of the company’s corporate DNA is one of the primary reasons why the brand is successful at a global level. The IKEA brand stands for providing “affordable contemporary household goods”. With regard to brand management, the IKAE brand denotes the total sum of the rational and emotional values that customers associate with the company’s trademark and its respective reputation. The company’s brand work is the outcome of at least 50 years of operation since its inception. The global success strategy adopted by IKEA stems from its unique selling point that comprises of low cost, unique brand identity, fair quality, and social and ethical responsibility. The strategy adopted by IKEA comprises of diversity in business; retailer selection that is standardized; management style that is country specific; focusing on individual market instead of mass marketing; and self assembly to cut features and operational costs.
Internal Analysis (SWOT)
The first strength of IKEA is its low concept of low cost that keeps the company ahead of competition in the industry. According to Balmer & Gray (2003), the company is the cost leader in the furniture industry. Consequently, the concept of low cost provides the company with its biggest competitive advantage, keeping it ahead of competition in the furniture industry.
The second strength of the company is the company’s ability to effectively combine good quality and low cost production. The higher the price of a product, the better quality of the product. The company’s product is not only priced low but is also has better quality (Chopra 2009).
The third strength is the Research and Development team that finds ways to change designs in order to save on costs related to manufacturing (Coff & Blyler 2003). The research and development team of IKEA frequently finds alternative ways of designing its products in order to reduce the costs of manufacturing, which gives IKEA with more strategic options such as cost leadership; this can be used as a competitive edge.
The use of cheap labour that keeps its costs low and provides them with a competitive edge is strength (Gibson 2012). IKEA’s top five countries suppliers of cheap labour include China, which supplies 21 per cent; Italy, which provides 8 per cent; Poland, which provides 17 per cent; Germany, which provides 6 per cent; and Sweden, which provides 6 per cent. Cheap labour is advantageous in that it allows the company to charge its customers low pieces and helps it maintain a competitive edge.
The strong long-term relationship with its suppliers is also strength for the company that provides it with competitive advantage (Kalafaties, Tsogas & Blankson 2000). The company has established a very strong long-term relationship with its suppliers of raw materials over the years that it has been operating.
The organizational culture of IKEA can be one of the demotivating factors for its employees. The company’s organizational culture is non-hierarchical, team-based and privileges and titles are a taboo at IKEA. Employees pay is not certainly high and there are no perks for the company’s senior manager. Tuckwell (2007) cites that the company’s culture is egalitarian.
The company is not customer-focused. The company seems to be focused on reducing the cost of operations. According to Al-Rousan & Qawasmeh (2009), the focus of IKEA is to keep the costs as low as possible. Nevertheless, the 21st century transformed the world of business with many companies shifting their focus to the needs, wants and preferences of customers.
Businesses deploy their strengths in capitalizing on the opportunities that arise. The company strongly believes that its environmentally oriented business conduct will yield positive returns even in price sensitive markets (Alessandri & Alessandri 2004). The company is presently developing efficient solutions for its consumers to support them recycle or reuse used products (Chopra 2009).
The company can also expand its line of products by manufacturing high-end furniture (Balmer & Gray 2003). From its establishment, the target market of the company has been ranging from the middle class to the lower class individuals. This approach has been deployed for a very long time. The company can manufacture furniture that is designed for high-class consumers who are sensible concerning quality and design.
The company can also expand its business by manufacturing crockery products and investing in interior design. IKEA has the ability to widen its primary business of furniture to another level. According to Coff & Blyler (2003), the company can place kitchenware furniture with crockery products.
The changing social trend poses a threat to the survival of IKEA. The objective of the company is to offer customers with products that are cheaper compared to their competitors. According to Gibson (2012), this objective does not acknowledge the necessity of constant improvement of quality and design. The company might lose a significant portion of its market, especially customers that cherish quality and well-designed furniture (Chopra 2009).
The US furniture market is extremely fragmented, and poses significant competition to IKEA. Some of the key retailers in the US include Office Depot and Wal-Mart (Edvardsson & Enquist 2002). In addition, there are also some high-end retailers selling well-designed and high quality furniture.
External Analysis (PESTEL)
The political environment in countries that IKEA has stores is table, which provides a health business environment for the company. Fundamentally, political risk can be considered low for the case of IKEA.
The greatest economic issue for the company is financial recession. In addition, the company seemed to be completely incapable of understanding the impact of floating rate of currency cross-countries. The cost of raw materials from Sweden was increasing, as Swedish currency was getting stronger against the US dollar.
The differences in culture between Europe/Scandinavian countries and the United States might play a pivotal role in the business strategy of the company. According to Edvardsson & Enquist (2002), European nations tend to emphasize on perfection and design of products. On the other hand, Americans tend to emphasize on the functional capability of the product.
According to Kalafaties, Tsogas & Blankson (2000), technological issues play a crucial role in lowering the barriers to entry into an industry, reducing the minimum levels of production and influencing outsourcing decisions. The company introduced some unique features, such as self-assembly, in the industry of furniture. Balmer & Gray (2003) pointed out that this feature allowed the company to ship its furniture products in flat-packs, which reduced the risk of damage during transportation. According to Alessandri & Alessandri (2004), the company also used quality systems and technology in promoting shorter queues, tracking and trading patterns, proper scheduling, and staffing.
Coff & Blyler (2003) pointed out that the legal conformity of the company is stringently implemented with applicable and relevant regulations and laws regarding the environment, working and social conditions. IKEA also put in place the most demanding requirements, in particular, in maintaining the list of regulations and laws.
In relation to environmental issues like noise, water, and air, inspections are being adopted to make sure that the company takes corrective measures within the predetermined time. According to Gibson (2012), environmental inspections are a requirement stated by environmental authorities and in the legal documentation.
History of the Brand
IKEA was established in 1943 by Kampard Ingvar in Smaland, Sweden. Ever since its inception, the brand has managed to position itself as the largest furniture retailer on the globe. Besides establishing itself as one of the most global iconic consumer brands, IKEA focuses on the sale of Scandinavian furniture made using light and bright colours and natural materials and textiles. In addition, IKEA has managed to distinguish itself from other furniture brands by offering complete solutions for contemporary lifestyles and designs. This business strategy has enabled IKEA to position itself as providing unique customer experience with a global presence in at least 40 countries with over 300 stores worldwide.
Porters Five Forces Analysis
Porter’s five forces analysis is an approach for analyzing an industry and developing a business strategy. The five forces include rivalry within an industry, suppliers’ bargaining power, buyers’ bargaining power, threats of new entrants, and threats of substitutes.
Rivalry within the Industry
Sweden has a handful of firms involved in the furniture industry. In addition, there are many retailers in the market. The Swedish furniture industry is dominated by Wal-Mart, Home Depot, Costco and other small retailers. This shows that the competition in the furniture industry is extremely high.
Bargaining Power of Suppliers
The company has many suppliers all over the world that set their standards when delivering raw materials. According to Gibson (2012), most of the suppliers work in the company and are rivals. Due to the low prices, the company’s profit margin has a substantial impact in the prices of raw materials. It can be concluded that the suppliers’ power is low. The company enjoys a well-established relationship with its suppliers all over the world. Until 20008, the company has about 1380 suppliers in the 54 nations, 21 per cent of which are Chinese suppliers.
Bargaining Power of Buyers
Chopra (2009) also points out that there are many importers importing furniture from China. This results in direct competition in the furniture industry. Consequently, as the number of competitors increases, the power of buyers increases. Consumers of IKEA furniture seem to have very many alternatives. Consequently, the bargaining power is high.
Threats of New Entrants
The furniture industry is an open industry and anyone can join. However, the high level of competition might scare off any potential entrants. The fact that the starting capital is not much, many individuals might opt to enter this industry. Individuals aspiring to have retail stores can open furniture stores with small investments. New entrants must also choose appropriate locations for outlets. These will demand a lot of capital and patience. This implies that the threats of new entrants are high for entrants who wish to do business for a very long time.
Threats of Substitutes
The furniture industry is shifting from the use of wood to manufacture furniture products to using plywood, plastics and rot iron. As the industry is becoming concerned environmentally, many furniture companies are adopting strategies of going green. However, the basic functional need has remained the same. This implies that IKEA is not experiencing threats of substitutes.
IKEA is the largest retailer of furniture in the entire world. The first strength of IKEA is its low concept of low cost that keeps the company ahead of competition in the industry. The company’s ability to effectively combine good quality and low cost production enables it to maintain a competitive edge. There is an ultimate business potential for the company, which allows customers to live a sustainable life at home. The situation of politics is stable and political bodies respect the contracts made between the government and multinational companies. The 2008 financial recession was not good to business in the entire world. Technology allows the company to ship its furniture products in flat-packs, which reduced the risk of damage during transportation. . In relation to the Porter’s five forces, rivalry within the industry is high, suppliers have less power, buyers have a high power and the threats of new entrants are high for entrants wishing to do business for long-term.