Content

No Topic Pages

- Contents 1

1.0 Background of IKEA Company 2-3

2.0 Macro environment analysis 4-8

2.1 Company analysis 9-11

3.0 Internal company analysis 12

3.1 External company analysis 13-14

4.0 Recommendations 15-16

5.0 Conclusion 17

6.0 Reference 18

7.0 Coursework 19-29

1.0 Background of IKEA Company

In 1943, a Swedish capitalist Ingvar Kamprad established IKEA. The name of IKEA

came from its originator name Ingvar Kamprad, the farm Elmtaryd and home country

Agunnardy where Ingvar Kamprad grew up. IKEA is an internationally known home

furnishing retailer. It has grown rapidly since it was founded in 1943. Today it is the

world's largest furnishings vendor, documented for its Scandinavian style.

The majority of IKEA's furniture is flat-pack, ready to be assembled by the shopper.

This allow a decrease in costs and wrapping. IKEA carries a range of 9,500 products,

including home furnishings and garnishes. This wide variety is available in all IKEA

stores and customers can order much of the range online through IKEA's website. There

are 18 stores in the UK to date, the first of which opened in Warrington in 1987. In July

2009 IKEA opened a store in Dublin too its first in Ireland. In 1998, IKEA opened its

first furniture store in Beijing, China. The company core target customers are the middle

class young people which are around 30 years old.

According to IKEA group fiscal year 2010 report, the independent (2010) states that

IKEA currently opened 280 stores in 26 countries. The IKEA market share 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%.

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In term of growth perspective, IKEA demonstrated sustainable sales improvement

which was average 21.9 billion euro in the year 2008, year 2009 and year 2010.

The impressive growth of IKEA lies on the distinctive corporate and business strategies.

IKEA employ marketing mix strategy to position its brand identity in the market.

Armstrong et al. (2006) explains that marketing mix strategy is a business model tools

that focus on product, price, place and promotion. IKEA provide wide range of product

selection. Although the product functional category is same, IKEA designed it in

different features. For example, IKEA laptop stand act user friendly like a small table

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.

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2.0 Macro Environmental Analysis

Political Factors:

IKEA operate across more than 41 countries. The political forces are there in every

population and involve the businesses. From contribute sequence behavior to sales, all

of them are pretentious by the biased services. Political stability leads to financial

constancy and in turn it way better sales and income. Apart from it, the governments

mind-set towards the overseas brands and its policies too substance. How friendly the

governments policies are decides how constructive the surroundings of a convinced

country is for commerce brands. Political unsteadiness on the other hand can disturb the

commerce surroundings. Furthermore, allegations that IKEA founder Ingvar Kamprad

was a vigorous recruiter for Swedish Nazi group has sparked argument with apathetic

effects on the manufactured goods picture. An additional terrific example of the shock

of following factors on IKEA relates to its doll called Lufsig, which is a Swedish word

for clumsy. While conversion of Lufsig into Chinese does not cause any issues, in

Cantonese dialect Lufsig sounds similar to insulting term mothers c***. In 2013 a

photo of an occasion where a campaigner threw a Lufsig toy at Hong Kongs chief

decision-making, Leung Chun-Ying gained media attention causing Lugsig toy ahead a

symbolic role among Cantonese people disgruntled with the administration in Hong

Kong. Lufsig had sold out in Hong Kong within a single day and Facebook page

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enthusiastic to the burlesque movies of the toy in various location was created, marking

the supporting turn of the occurrence.

Economic factors

Signify the factors which influence the commerce decision construction and operations

of the firms. These factors include: Inflation rate, Interest rates, Economic growth

The economic growth of a marketplace influence the income of its firms. For instance,

countries with speedy rising financial system supply high standard of living. Therefore,

the throwaway profits of the customer augment all along with its purchase power, thus

the command also increase as well as the firms income. The rising country (China,

Vietnam, India...) showing high wealth increase, promise a brilliant prospect to IKEA

Company.

Increase rate is an significant factor touching businesses income by plummeting the

consumers purchase power. For illustration, the high price rises rate in the United

Kingdom (BBC news 2012) changed the consumers performance and generate the

scarcity of recourses caused by the destabilize marketplace which had a negative effect

on IKEA by radically decreasing its profit in UK.

Other feature such as the price of effort has some collision on business as healthy In

nations like China and India well-liked for their low-cost yet skilled manual labor,

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offers the company far above the ground profit periphery. That is the main reason why

IKEA open a developed firm in China, civilizing the low-cost strategy of the company.

Technological:

Technology has turn into middle to nearly all in the 21st century. From promotion to

sponsorship and purchaser service all over the place businesses are using information

machinery to supply better service to their consumers. Brands like IKEA are focusing

lying on provided that a kind of knowledge from their digital channel that feels like real

life shopping knowledge. IKEA is also using greater than before reality to improve the

level of purchaser overhaul it provide. Now, customer expectations are sensitive and

most center has to be on enhanced customer service. It is since research has also prove

that better purchaser service also leads to better purchaser service. Technologies like

Artificial Intelligence and Cognitive Intelligence have enabled the retailers to appreciate

purchaser actions better and to make available them a new level of understanding.

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Legal

Legal intimidation are for all time a major difficulty before the big businesses. It is

because laws and rules are dangerous and even a small hassle with the law can prove

expensive. Labor laws are an significant anxiety but there are other laws too that

necessitate observance and can raise prepared costs. Product superiority is also an

significant matter. IKEA has faced some suitcases of tipping over and death in the past

caused by its fittings. In addition, laws vary from marketplace to market. In the Asian

markets particularly, the legal web is quite complex. India is an important retail market.

Though piercing it has been tough for IKEA. The motivation is that the government

needs such overseas brand to go after the system it has situate. IKEA would need to

create at least 30% of its register in India. Once more this brings IKEA face to face with

the Red Tape. Many more overseas brands are badly wedged in the ensnare of Red Tape

in India.

Social factors

Pass on to demographic and the educational aspect of the surroundings. For example,

when the customers become more fitness awareness, the command for the firms

product may decrease. Other examples include: Age distribution, Population growth

rate, Emphasis on safety, Career attitudes.

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Changes in demographic variables of countries influence the strategic decisions taken

by firms. For example, aging population such as Japan and Germany are less likely to

buy fixtures. Though, young populations demand for more price of cash and simplicity

item such as good-looking intended furnishings such as IKEAs products.

The difficulty of some foodstuffs are prejudiced by demographic changes. For example,

a large shift from rural to built-up area by the population will lead to an increase in the

demand for furniture (low-cost) since new families need to settle descending. IKEA will

turn into one of the best choice. Therefore, the proceeds of the corporation will augment.

In the same way, fashion trends, cultural factor, consumers behavior and taste also

manage demand, less bulky, trendier, and easy-to-assemble furnishings.

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2.1 Company Analysis

Potential Entrants

Most of the IKEA stores are located outside the cities to avoid 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 reported

USD 67 million sales by 2002 and keep on growing. Hence, some of the retailers may

seize opportunity in sharing the furniture markets.

Power of Suppliers

IKEA 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 consistency 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

Agreement of Tariffs has signed allows corporation to seek more profitable forest.

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Power of Buyers

Consumers have limited choice on selection by specific retailer, due to particular

retailer focus in certain perspective for example, design, quality, service and pricing.

IKEA stands advantage on all. Therefore, the bargaining power is little for consumers.

Nordin study (2002) illustrates that customer visit to IKEA able to find good design and

low pricing products. Therefore, in IKEA internal perspective, the consumers

bargaining power is little.

Substitutes

Currently, IKEA effective global sourcing strategy and unique supply chain

management has allows the firm leading without threats of substitute. Moreover, IKEA

innovation designs at all-time able to satisfy trend 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.

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Rivalry

The competitors try to adapt IKEA strategy 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 just 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.

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3.0 Internal company analysis

Strengths

IKEAs strengths include leadership position in the global marketplace and strong brand

recognition, effective marketing strategy of the company, as well as its financial

maturity. IKEAs distinct strategies have successfully shaped it strengths in competitive

furnishing environment. Another strength is distinctive business strategies allow IKEA

control over the products design, low pricing and global sourcing materials. Backward

integration is one of the strength as well that permit IKEA enjoys economies of scale.

Weaknesses

The weaknesses of IKEA derive into few elements. IKEA niche markets concept did not

work in every country. Another potential barrier is IKEA over emphasis low price

products may lead to their customers doubtful in products safety. Furthermore, IKEA

has limited manufacturing capabilities by its own due to global sourcing strategy.

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3. 1 External company analysis

Opportunities

An outstanding corporate realized that encounter weakness is the key of opportunities.

The firm has foreseen the great opportunities in developing countries where IKEA may

put more concentration on outsource his business in some developing Asia countries

which is potential because of low cost manufacturing for example Cambodia.

Meanwhile, India high population rates also one of the huge markets for IKEA

expansion. IKEA may improve the existing its customers network by promote more

online shopping.

Threats

IKEA facing extreme environmental threats among competitors, some of the new entry

companies adapted IKEA low cost strategy and imitated its flat pack furniture concept

in the markets. On the other hand, global economy recession may reduce consumers

buying power in emergent markets. Likewise, political instability may influence IKEA

business performance.

At the same time, IKEA management has to address a range of threats the business is

faced with. For instance, due to the changes in social trends consumers may prefer

buying pieces of furniture associated with high class in society. Moreover, the brand

image might suffer some damages as a result of poor working conditions in IKEA

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contractor companies in developing countries revealed by the media. Also, the fears of

some economists regarding another economic crisis in US in the near future may prove

to be right and this may result in financial losses for IKEA.

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4.0 Recommendations

In my opinion, strengths could include a company's specialist marketing expertise or its

location. They are any aspect of the business that adds value to its product or service.

IKEA's strengths include a strong global brand which attracts key consumer groups.

It promises the same quality and range worldwide and a strong concept based on

offering a wide range of well designed, functional products at low prices. These

strengths contribute to IKEA being able to attract and retain its customers.

One way IKEA measures its strengths is the use of Key Performance Indicators

(KPI). KPIs help IKEA to assess the progress of its vision and long-term goals by

setting targets and monitoring progress towards these. IKEA has strengths right through

its production processes increasing use of renewable materials IKEA improved its

overall use from 71% in 2007 to 75% in 2009.

IKEA has to acknowledge its weaknesses in order to improve and manage them.

This can play a key role in helping it to set objectives and develop new strategies.

IKEA's weaknesses may include the size and scale of its global business. This could

make it hard to control standards and quality. Some countries where IKEA products are

made do not implement the legislation to control working conditions. This could

represent a weak link in IKEA's supply chain, affecting consumer views of IKEA's

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products. The IWAY code is backed up by training and inspectors visiting factories to

make sure that suppliers meet its requirements.

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5.0 Conclusion

IKEA is a well-known global brand with hundreds of stores across the world. In order

to improve performance, it must assess its external and competitive environment. This

will reveal the key opportunities it can take advantage of and the threats it must deal

with. IKEA responds to both internal and external issues in a proactive and dynamic

manner by using its strengths and reducing its weaknesses. Through this, IKEA is able

to generate the strong growth it needs to retain a strong identity in the market. IKEA

believes that there is no compromise between doing good business and being a good

business. It aims to go beyond profitability and reputation. IKEA is intent on becoming

a leading example in developing a sustainable business. IKEA has discovered a business

truth being sustainable and responsible is not just good for customers and the planet, it

is also good for business!

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6.0 Reference

Text Book BBA 4001 (Strategic Management)

http://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-business-

planning/introduction.html#axzz37eKRcaVl

https://www.scribd.com/doc/186383158/Pestle-Analysis-of-Ikea

http://www.cheshnotes.com/ikea-pestel-analysis/

http://research-methodology.net/ikea-pest-analysis/

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7.0 Coursework

Name : Law Sin Yee

Student ID : 202455

IC NO : 960315-01-7252

Please describe impact of globalization.

Today, everything has changed. Globalization, the integrated internationalization of

markets and corporations, has changed the way modern corporations do business. As

Thomas Friedman points out in The World Is Flat, jobs, knowledge, and capital are now

able to move across borders with far greater speed and far less friction than was possible

only a few years ago. For example, the inter-connected nature of the global financial

community meant that the mortgage lending problems of U.S. banks led to a global

financial crisis in 2008. The worldwide availability of the Internet and supply-chain

logistical improvements, such as containerized shipping, mean that companies can now

locate anywhere and work with multiple partners to serve any market. To reach the

economies of scale necessary to achieve the low costs, and thus the low prices, needed

to be competitive, companies are now thinking of a global market instead of national

markets. Nike and Reebok, for example, manufacture their athletic shoes in various

countries throughout Asia for sale on every continent. Many other companies in North

America and Western Europe are outsourcing their manufacturing, software

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development, or customer service to companies in China, Eastern Europe, or India.

Large pools of talented software programmers, English language proficiency, and lower

wages in India enables IBM to employ 75,000 people in its global delivery centers in

Bangalore, Delhi, or Kolkata to serve the needs of clients in Atlanta, Munich, or

Melbourne. Instead of using one international division to manage everything outside the

home country, large corporations are now using matrix structures in which product units

are interwoven with country or regional units. International assignments are now

considered key for anyone interested in reaching top management. As more industries

become global, strategic management is becoming an increasingly important way to

keep track of international developments and position a company for long-term

competitive advantage. For example, General Electric moved a major research and

development lab for its medical systems division from Japan to China in order to learn

more about developing new products for developing economies. Microsoft's largest

research center outside Redmond, Washington, is in Beijing. According to Wilbur

Chung, a Wharton professor, "Whatever China develops is rolled out to the rest of the

world. China may have a lower GDP per-capita than developed countries, but the

Chinese have a strong sense of how products should be designed for their market." The

formation of regional trade associations and agreements, such as the European Union,

NAFTA, Mercosur, Andean Community, CAFTA, and ASEAN, is changing how

international business is being conducted. See the Global Issue feature to learn how

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regional trade associations are forcing corporations to establish a manufacturing

presence wherever they wish to market goods or else face significant tariffs. These

associations have led to the increasing harmonization of standards so that products can

more easily be sold and moved across national boundaries. International considerations

have led to the strategic alliance between British Airways and American Airlines and to

the acquisition of the Miller Brewing Company by South African Breweries (SAB),

among others.

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Please describe FOUR responsibilities of business.

Carroll's Four Responsibilities of Business

Friedman's contention that the primary goal of business is profit maximization is only

one side of an ongoing debate regarding corporate social responsibility (CSR).

According to William J. Byron, Distinguished Professor of Ethics at Georgetown

University and past-President of Catholic University of America, profits are merely a

means to an end, not an end in itself. Just as a person needs food to survive and grow, so

does a business corporation need profits to survive and grow. "Maximizing profits is

like maximizing food." Thus, contends Byron, maximization of profits cannot be the

primary obligation of business.

Social Responsibilities

Economic Legal Ethical Discretionary

(Must Do) (Have to do) (Should Do) (Might Do)

Figure 4-1 Responsibilities of Business

As shown in Figure 4-1, Archie Carroll proposes that the managers of business

organizations have four responsibilities: economic, legal, ethical, and discretionary.

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1. Economic responsibilities of a business organization's management are to produce

goods and services of value to society so that the firm may repay its creditors and

shareholders.

2. Legal responsibilities are defined by governments in laws that management is

expected to obey. For example, U.S. business firms are required to hire and promote

people based on their credentials rather than to discriminate on non-job-related

characteristics such as race, gender, or religion.

3. Ethical responsibilities of an organization's management are to follow the generally

held beliefs about behavior in a society. For example, society generally expects firms to

work with the employees and the community in planning for layoffs, even though no

law may require this. The affected people can get very upset if an organization's

management fails to act according to generally prevailing ethical values.

4. Discretionary responsibilities are the purely voluntary obligations a corporation

assumes. Examples are philanthropic contributions, training the hard-core unemployed,

and providing day-care centers. The difference between ethical and discretionary

responsibilities is that few people expect an organization to fulfill discretionary

responsibilities, whereas many expect an organization to fulfill ethical ones.

Carroll lists these four responsibilities in order of priority. A business firm must first

make a profit to satisfy its economic responsibilities. To continue in existence, the firm

must follow the laws, thus fulfilling its legal responsibilities. There is evidence that

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companies found guilty of violating laws have lower profits and sales growth after

conviction. To this point Carroll and Friedman are in agreement. Carroll, however, goes

further by arguing that business managers have responsibilities beyond economic and

legal ones. Having satisfied the two basic responsibilities, according to Carroll, a firm

should look to fulfilling its social responsibilities. Social responsibility, therefore,

includes both ethical and discretionary, but not economic and legal, responsibilities. A

firm can fulfill its ethical respon-sibilities by taking actions that society tends to value

but has not yet put into law. When ethical responsibilities are satisfied, a firm can focus

on discretionary responsibilitiespurely voluntary actions that society has not yet

decided are important. For example, when Cisco Systems decided to dismiss 6,000 full-

time employees, it provided a novel severance package. Those employees who agreed to

work for a local nonprofit organization for a year would receive one-third of their

salaries plus benefits and stock options and be the first to be rehired. Nonprofits were

delighted to hire such highly qualified people and Cisco was able to maintain its talent

pool for when it could hire once again.

As societal values evolve, the discretionary responsibilities of today may become the

ethical responsibilities of tomorrow. For example, in 1990, 86% of people in the U.S.

believed that obesity was caused by the individuals themselves, with only 14% blaming

either corporate marketing or government guidelines. By 2003, however, only 54%

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blamed obesity on individuals and 46% put responsibility on corporate marketing and

government guidelines.

Thus, the offering of healthy, low-calorie food by food processors and restaurants is

moving rapidly from being a discretionary to an ethical responsibility. One example of

this change in values is the film documentary Super Size Me, which criticizes the health

benefits of eating McDonald's deep-fried fast food. (McDonald's responded by offering

more healthy food items.) Carroll suggests that to the extent that business corporations

fail to acknowledge discre-tionary or ethical responsibilities, society, through

government, will act, making them legal re-sponsibilities. Government may do this,

moreover, without regard to an organization's economic responsibilities. As a result, the

organization may have greater difficulty in earning a profit than it would have if it had

voluntarily assumed some ethical and discretionary responsibilities.

Both Friedman and Carroll argue their positions based on the impact of socially

responsible actions on a firm's profits. Friedman says that socially responsible actions

hurt a firm's efficiency. Carroll proposes that a lack of social responsibility results in

increased government regulations, which reduce a firm's efficiency. Friedman's position

on social responsibility appears to be losing traction with business executives. For

example, a 2006 survey of business executives across the world by McKinsey &

Company revealed that only 16% felt that business should focus solely on providing the

highest possible returns to investors while obeying all laws and regulations, contrasted

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with 84% who stated that business should generate high returns to investors but balance

it with contributions to the broader public good. A 2007 survey of global executives by

the Economist Intelligence Unit found that the percentage of companies giving either

high or very high priority to corporate social responsibility had risen from less than 40%

in 2004 to over 50% in 2007 and was expected to increase to almost 70% by 2010.

Empirical research now indicates that socially responsible actions may have a positive

effect on a firm's financial performance. Although a number of studies in the past have

found no significant relationship, an increasing number are finding a small, but positive

relationship. A recent in-depth analysis by Margolis and Walsh of 127 studies found

that "there is a posi-tive association and very little evidence of a negative association

between a company's social performance and its financial performance." Another meta-

analysis of 52 studies on social responsibility and performance reached this same

conclusion. According to Porter and Kramer, "social and economic goals are not

inherently conflicting, but integrally connected." Being known as a socially responsible

firm may provide a company with social capita, the goodwill of key stakeholders, that

can be used for competitive advantage.

Target, for example, tries to attract socially concerned younger consumers by offering

brands from companies that can boost ethical track records and community involvement.

In a 2004 study conducted by the strategic marketing firm Cone, Inc., eight in ten

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Americans said that corporate support of social causes helps earn their loyalty. This was

a 21% increase since 1997.

Being socially responsible does provide a firm a more positive overall reputation. A

survey of more than 700 global companies by the Conference Board reported that 60%

of the managers state that citizenship activities had led to (1) goodwill that opened

doors in local communities and (2) an enhanced reputation with consumers. Another

survey of 140 U.S. firms revealed that being more socially responsible regarding

environmental sustainability resulted not only in competitive advantages but also in cost

savings. For example, compa-nies that take the lead in being environmentally friendly,

such as by using recycled materials, preempt attacks from environmental groups and

enhance their corporate image. Programs to reduce pollution, for example, can actually

reduce waste and maximize resource productivity. One study that examined 70

ecological initiatives taken by 43 companies found the average payback period to be 18

months. Other examples of benefits received from being socially responsible are:

Their environmental concerns may enable them to charge premium prices and gain

brand loyalty (for example, Ben & Jerry's Ice Cream)

Their trustworthiness may help them generate enduring relationships with suppliers and

distributors without requiring them to spend a lot of time and money policing contracts.

They can attract outstanding employees who prefer working for a responsible firm (for

example, Procter & Gamble and Starbucks).

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They are more likely to be welcomed into a foreign country (for example, Levi Strauss).

They can utilize the goodwill of public officials for support in difficult times.

They are more likely to attract capital infusions from investors who view reputable

com-panies as desirable long-term investments. For example, mutual funds investing

only in socially responsible companies more than doubled in size from 1995 to 2007

and outper-formed the S&P 500 list of stocks.

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