IKEA- FURNITURE INDUSTRY | GROUP 2

STRUCTURAL ANALYSIS OF IKEA

Group 2

Anukriti Gupta- PG180118

Neelkumar Prajapati- PG180596

Rajdeep Singh Saluja- PG180778

Sushmita Mulekar- PG181078

Viral Kapadia- PG181198

KEA is a Swedish-founded multinational group that designs and sells ready-to-assemble furniture,
kitchen appliances and home accessories, among other useful goods and occasionally home services.
It has been the world's largest furniture retailer since at least 2008. It was founded in 1943 by 17-year-
old carpenter Ingvar Kamprad. The company sells relatively inexpensive, contemporary, Scandinavian
style furniture and home furnishings.

It has opened its first store in India in Hyderabad in August, 2018 with an investment of Rs1000 cr
having a range of about 7500 products. IKEA is to invest Rs. 10,500 Crore in India. It has identified
Haryana, Andhra Pradesh, Maharashtra and Karnataka to set up its single brand retail stores as part
of the investment. The firm has also proposed setting up 10 furnishing and home ware stores as well
as allied infrastructure. It also plans to open 15 more stores in over 10 years in India. The major
competitors include Godrej Interio, Usha Lexus Furniture, Zuari, Durian, DAMRO, EVOK, Style Spa,
Hulsta, Wipro Furniture, Nilkamal Ltd., Pepperfry, UrbanLadder, FabIndia and Furniturewala. The raw
materials for this industry include Veneer, laminate, Stone, Metal, Wood, Steel, Plastic, screws, nails,
hinges, solid wood, solid iron, iron pipe or iron plate and Adhesives.

IKEA maintains control of product design to ensure the integrity of its unique image and to accumulate
unrivaled expertise in designing for efficient manufacturing. Rather than being sold pre-assembled,
much of IKEA's furniture is designed to be assembled by the customer. The company claims that this
helps reduce costs and use of packaging.

A structural analysis of the industry has been done based on the following parameters.

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 IKEA- FURNITURE INDUSTRY | GROUP 2

Table 1: Rivalry among competitors

Attractiveness Remarks

Low High

1 2 3 4 5

No. of Large Grocery Wide bodied Small

competitors store jetliner

Industry Slow Vinyl Internet Fast

growth record browser

Fixed cost High Steel Real estate Low

agency

Differentiation Low Sugar Beer High

Switching cost Low Diskette Software High

Excess Large Residential Office space in Small

capacity property in South Mumbai
Bangalore

The number of competitors against IKEA in the furniture industry are high as given in the brief on the
first page, hence the attractiveness in the industry is Low. The industry growth for the furniture
industry is high in the recent years as the current market comprises of young and working population
who prefer to buy ready to make modular furniture making it an attractive industry. The fixed cost
required for setting up a furniture store like IKEA is not too high as the industry avoids assembling
providing the customers ready to assemble modular products. The product differentiation is taken as
moderate as most furniture companies in the market produce similar looking products with little
differentiation in the design. The switching cost for the customer between the different furniture
brands is moderate as IKEA is providing relatively low-cost products. Excess capacity is also taken as
moderate as the demand and supply for the furniture industry are at par with each other.
The average score for the above parameters is 2.8 making it moderately attractive for the industry

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 IKEA- FURNITURE INDUSTRY | GROUP 2

Table 2: Barriers to entry

Attractiveness Remark

Low High

1 2 3 4 5

Economies of Small Tea stall Oil Large

scale refinery

Product Low Sugar Beer High

differentiation

Brand identity Low Sugar Cigarette High

Switching cost Low Diskette Software High

Access to Easy Newspaper Petrol Limited

channels of
distribution

Capital Small Tea stall Oil Large

requirement refinery

Access to Easy Generic AIDS Restricted

technology drugs medicine

Government None Tea stall Public bus Substantia

protection in UK l

IKEA being a global brand has its footprint all over the world. The economies of scale is high for the
industry as it enjoys lower cost per unit by producing at high volumes. This makes it difficult for a new
entrant to enter into the market, increasing its attractiveness for IKEA. The product differentiation is
taken as moderate as most furniture companies in the market produce similar looking products with
little differentiation in the design. IKEA comes under the top 5 global furniture brands making the
customers more inclined towards buying from it. This decreases the attractiveness for a new entrant
hence making it more attractive for the industry. The switching cost in shifting to another furniture
industry is not too high, hence it will not be too difficult for the new entrant to gain customers making
it moderately attractive for IKEA industry. A new entrant will have to go through an elaborate process
of distribution in wholesale and retail market to set its foot in the market. This increases the
attractiveness for IKEA. The capital requirement to enter the market is not so high, hence it will not
deter a new entrant from setting up its industry. Setting up a furniture industry is easy as it does not
require access to any new technology. Anyone with a medium expertise can do it. There are no
government regulations or policies required for setting up a furniture industry in India making it very
easy for a new entrant in the industry.
The average score based on the above parameters is 3 making the industry moderately attractive.

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 IKEA- FURNITURE INDUSTRY | GROUP 2

Table 3: Threat from substitutes

Attractiveness Remark

Low High

1 2 3 4 5

Availability of High Fountain AIDS Low

close pen medicine
substitutes

Switching cost Low Diskette Customized High

Software

Substitute’s Better Vinyl record Suburban Worse

price-value trains in
Mumbai

There are no substitutes for the furniture industry which makes it highly attractive. The average score
is 5.

Table 4: Bargaining power of buyers

Attractiveness Remark

Low High

1 2 3 4 5

Number of Small Air bags for Toothpaste Large

buyers cars

Availability of Many Fountain AIDS Few

substitutes pen medicine

Switching cost Low Diskette Software High

Buyer’s threat High Air bags for Cars Low

of backward cars
integration

Industry’s Low Air bags for Oil refinery High

threat of cars
forward
integration

The buyers for the furniture industry include young population which is comparatively higher as per
the Census of India. As there are no substitutes for furniture, the buyers cannot bargain in the industry.
The switching cost as discussed above is moderate between the different products and the buyer of
the furniture cannot threaten to enter into the market by producing their own furniture.
The average score based on the above parameters is 3.6 making it relatively highly attractive for the
industry.

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 IKEA- FURNITURE INDUSTRY | GROUP 2

Table 5: Bargaining power of suppliers

Attractiveness Remark

Low High

1 2 3 4 5

Number of Small PC Tea stall Large

suppliers

Availability Few PC Tea stall Many

of
substitutes

Switching High PC Garment Low

cost

Supplier’s High PC Wide Low

threat of bodied
forward jetliner
integration

The number of suppliers to the furniture industry is high reducing the bargaining power of the
suppliers making the industry highly attractive. There aren’t many substitutes available for the
suppliers in furniture industry decreasing the attractiveness of the industry. The switching cost from
shifting from one supplier to another are not very high increasing the attractiveness for the industry.
The average score for the above parameters is 3.

Table 6: Overall assessment

Attractiveness Remark

Low High

1 2 3 4 5

Barriers to entry

Rivalry among competitors

Power of buyers

Power of suppliers

Threat of substitutes

Overall attractiveness

The overall average score for the five factors is 3.6 making the industry somewhat highly attractive.

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