Introduction
IKEA International is a global corporation that offers home accessories to all global clients. Headquartered in Sweden, IKEA provides quality furnishings in various global markets. IKEA aspires to provide quality products and services to its global clients. To realize this vision, IKEA offers various properly designed and serviceable house-furnishings at very low prices across the global markets.
In the global markets, IKEA is acknowledged for the provision of quality furnishings that cannot be assembled easily, but can be transported without problems. IKEA furnishings are evident in the City Festivals and residential places. Since its inauguration in 1943, IKEA has globalized its operations and businesses.
However, globalization presents various threats and opportunities to IKEA while exposing its strengths and weaknesses to market competitors. The strategic management issues affecting IKEA’s global operations are analyzed through Value Chain Analysis, VRIN, PESTL, and Porters Five Forces frameworks (Sekhar, n.d). The internal and external global environments have been analyzed using these analytical tools and recommendations have been provided.
The current operations and businesses of IKEA
In the 1980s, IKEA began to expand its business operations to the United States and other parts of the European markets. These markets attracted the company due to several reasons:
- the regions had very large customer base,
- the local residents who had travelled considered themselves risk-takers,
- the market was fragmented and
- the potential customers could be identified with regions.
The success of IKEA business relied on the consumers sensitivity to the product attributes regardless of origin (Doole & Lowe, 2008). IKEA entry into the United States markets was focused on the consumers the company perceived to be the potential customers. The firm opened its first US store along the coastline. While going global, IKEA believed that people living along the coast and Islands were exposed to foreign products (Gillespie, Jeannet & Hennessey, 2010).
The reason to focus on the travelling consumers was that the company was determined to sell products with European standards. The success of such products would be uncertain in areas where consumers have no foreign experience. The success of this entry mode in Europe was to form the basis for establishment before expanding the business operations elsewhere.
The entry mode adopted by IKEA when expanding to the European markets occurred in form of a market-seeking investment undertaken to exploit new markets. The Swedish markets are saturated and the markets can only offer limited growth opportunities. The company was motivated to this investment by the constant market growth and large market sizes of Europe, and IKEA aimed to serve the larger markets.
According to Uppsala theory, after understanding the local market the company could move to the nearest market (Switzerland), then to Germany, and so on. In the European markets, IKEA was met with great success after focusing on providing the cheapest solutions to gain competitive advantage (OECD, 2007).
The success in the European markets was not a straightforward endeavor given that established firms that had huge capitals pursued foreign investments. Although IKEA had made a good fortune in the Sweden market, moving capital from the country was a challenge.
The capital controls in Sweden prohibited investing abroad with home gained capital. However, IKEA had to make quick profits and get a positive cash flow by adopting the foreign investments strategies. The European business was reorganized, and tighter controls were introduced. The company changed from offering European styled products to the American styled ones in the other global markets (OBG, 2010).
IKEA Value Chain Analysis
Primary activities
Inbound logistics
In the European and USA, IKEA has established a wide base of producers and supplies responsible for manufacturing and supply of furniture parts. The far-reaching groups of area warehouses are incorporated with resourceful administration of supplies driven by the necessitation to make certain that the exact ingredients go to the defined clientele at the requested moment. Storing the furniture components as a single package is a cost saving approach, as the stores need not to be very big as expected for a furniture company (Wagener, 2008).
Operations
IKEA has continued to expand and increase its customers across all market segments including Africa, Europe, Asia, and America. Isaksson and Suljanovic (2006) observe that IKEA is the only firm in the global furniture industries that has managed to attract customers across the world without changing the original concept of management.
This has been accomplished via creating inimitable merchandise designs founded on revered perseverance. Other strategic operations include market and product research, which add to the competitive strength of the business.
Outbound logistics
In an industry that is considered local by many people, IKEA has become global because of its comprehensive distribution network. The firm now delivers low cost, but quality furniture to major markets such as Europe, and America. It is the only distributor in the industry to have established on a global scale. It has stores spread in Europe, and North America and recently established operation in Asia.
The low cost of distribution in the global markets is enabled through the innovative way of dealing with the logistic sourcing and retailing whereby the products are knocked down and shipped in flat boxes (Gillespie, Jeannet & Hennessey, 2010), involving consumers in value addition process by transporting, and assembling the furniture by themselves.
Marketing and sales
IKEA marketing in the global markets is accomplished through the renowned IKEA catalogue, which has existed for years. This marketing tool is the cornerstone in the firm’s concept and is distributed free of charge to the households within the stores’ principal market areas.
The sales returns generated by IKEA increase because of the numerous customers who visit the global stores. Every year, the company experiences an increase in the number of visitors due to the new products advertised though the catalogues.
Services
The great success of IKEA has been enabled through the homely services offered in the stores. The stores have been likened to IKEA homes where a customer can get any household services including dining, children playing zones and instructions on how to assemble products on their own. This kind of high-level service maintains the attractiveness to and competitive advantage of the firm.
Activities offering support
Procurement
For the corporation to set up an enduring aggressive pro, IKEA has put more prominence on the division of premeditated resourcing. The firm has developed a durable partnership with furniture manufacturers and other suppliers. As Thomson and Martin (2010) note, this relationship is founded on the capacity of these stakeholders to supply long runs of components. These producers are mainly located in regions where low materials are available, especially in Scandinavian forests, which form the larger part of the material base.
Human resource management
To have an effective and motivated workforce, IKEA has adopted unique management style and practices. Administrators are anticipated to allocate info to other workforce besides sharing with them their understanding and proficiency. In fact, workforces at every echelon are positive to formulate their individual assessments and crafted slip-ups are cherished as ‘erudition via acting’.
The management approach in IKEA is egalitarian which makes it easy for motivated staff to climb the ladder with little training (Nankervis, 2005). The IKEA-Way supports employee development through discussions rather than extensive, costly training programs.
Firm’s infrastructure
IKEA’s organizational structure is vertical integration where hierarchy is not emphasized. In countless supplies, there are merely three planes of errands untying the administrators from workforce. In fact, employees are referred to as co-workers and problem solving as well as decision-making is through consensus.
Technology development
IKEA uses modern technology such as RFID when shipping products as a way of managing inventory effectively. Producers have also been encouraged to use new technologies when manufacturing components to an extent of the firm providing them with technical assistance to increase productivity. The firm created a lasting relationship with technology firms to track new technologies.
IKEA external analysis using PESTEL
Political
The global market environment where IKEA operates is politically polarized. Minimum wage policies are strictly observed to avoid infringing labor rights. However, in most nations including the UK and US, the political parties ensure the business environment is stable. Foreign business policies are accommodative to all multinational corporations. The taxation policies allow foreign corporations such as IKEA to join the European markets (Sandıkcı & Rice, 2011).
Economical
The prices charged by IKEA on its products and services are reasonable to the consumers in the global markets even during the economic slump. Given that most IKEA products are locally produced, it is advantageous for IKEA to operate in almost all regions across the globe.
IKEA has the advantage to capture and grow in various markets because national incomes are high while the rates of inflation are low. Consumers are encouraged to purchase products since interest rates are low and the currencies are strong (OBG, 2008).
Social
In its global operations, IKEA has upheld a just societal status. IKEA has improved its stores in all countries to suit the citizens’ lifestyles. The customers can do shopping anytime because IKEA offers flexible and odd working hours. Playing grounds are there for kids and restaurants for parents accompanying the kids.
Technological
In various countries, IKEA has been able to endorse or market its services and products easily via the internet. The products dimension and detailed info are available online, and this allows clients from these regions to make purchases. IKEA also derives its strength through the online catalogue services. IKEA initially wanted clients to go to the stores to pick up their products, but technology has now enabled the company to use computer operated lifts to deliver products to the clients (Sandıkcı & Rice, 2011).
Porter’s Five Forces
The IKEA’s competitors
There is extreme competition amongst the existing corporations in the international markets. In Europe and America, the company functions in a very competitive business environment typified by other economical furniture manufacturers. Besides, these producers are kin-run dealings that generate low overheads well known by focusing on expensive designs. These expensive and focused designs translate to small-scale fabrication to suit the local souks (Czinkota & Ronkainen, 2007).
The established experiences offer dissimilar opinions on product location and contributions according to inside accounts. To compete successfully, large vendors like Furniture mall, and Nova generate inexpensive products to benefit from economies of scale. Thus, IKEA appears to face stiff rivalry and opponents from other countries. IKEA currently faces little pressure from fresh market entrants while the emergence of novel market competitors is also negligible (Kendrick & Vershinina, 2010).
The bargaining power of suppliers and buyers
As the local and universal furniture dealer, IKEA presents substitutable and broad choices of products and services to the consumers owing to the level of competition. Thus, corporation offers strong bargaining power for the customers. The consumers pose a plausible threat of backward incorporation to the traders. However, retailers look for diverse means of improving performance in order to participate efficiently and generate profits.
IKEA’s deliberate networks and business schemes are based on market associations intended to motivate and construct enduring consumer affiliation and dealers devotion. This informs IKEA’s assimilation practice strategy amid consumers, retailers, and suppliers (Hoskisson, Hitt & Ireland, 2008).
IKEA seeks to enhance the reliability of the customers in relation to the purchasers’ power in the business. It focuses on improving the existing consumer association by scheming on how to win and secure the new-fangled customers to an enduring rapport with the corporation.
IKEA’s threat of substitutes
The problem of searching for additional replaceable products that can do the same function requires an alternate product. However, there are hardly any replacements of furnishings for the other products in the global markets. With technical advancements, various people, the account of organization supplying merchandise, and the mode of supplying services and products are extremely substitutable.
It is realistic for the shopping judgment placed against the garments since customers would make an effort to appraise if the furniture is fit (OBG, 2012). To evaluate the aptness of purchasing manufactured goods, it is important for the computer imaging to forget the establishment of rooms. Such substitutes stay put, as components of the company’s competitive advantage and online business remains underutilized.
The corporation prospective entrants
In the provision of departmental stores, there are numerous furniture traders such as Courts and Nova as well as high-end vendor like Lorenzo in the Asian markets. A higher degree of opposition results from diminishing levels of customers’ trustworthiness. This industry is experiencing threats from the innovative competitor entering into the big business.
There is an obligation for renting store space since capital investment necessary for furnishings could be high. The competitors must source the designs and build the factories. Before the market entrants could produce low cost products to rival the entrenched firms, they must capture a dominant market share (Segal-Horn & Faulkner, 2010).
Analyzing IKEA internal operations using VRIN tool
Valuable
According to Dahlvig (2011), the strengths of IKEA currently instigates from distinctive resourcing, compactly directed logistics, along with inimitable blueprint aptitudes. The firm offers products that are unique enough to give market recognition, reduce inventory, and secure sourcing for long runs. This strength has ensured that the firm leads in the industry and steadily increases the market share in most countries.
Rare
Throughout history, IKEA has been able to produce new designs and offer products next door from the stores. IKEA is the only industry player that has been able to offer a variety of designs to the wide customer base found across the world (Isaksson & Suljanovic, 2006).
Inimitable
As the activities of the value chain suggest, IKEA has a strong relationship with their customers starting from the products offered to the services given. Many of the competitors found in the markets lag behind in terms of customer loyalty and the locals only know a few that surface. IKEA enjoys global recognition due to its ability to offer the typical Swedish furniture taste, yet with a sense of the differing consumer needs (Walker & Butler, 2010).
Non-Substitutable
The iconic aspect of self-assembly emphasized in IKEA is more of an imagination. The developments that have led to this achievement have taken years and whole commitment of the firm corporate leaders. Even if, other competitors found in the markets tried to imitate such an approach, they will not only invest costly in building trust with producers, but must do better than IKEA to dissolve the recognition the company has gained (Daft & Vershinina, 2010).
Major strategic issues and challenges IKEA should address
IKEA has various options to make sure it improves its performances in the depressing economic setting founded on environmental dynamism and the state of the industry. To accommodate average regulars with minimal wages and discretionary expenditure powers, it may manufacture low priced designs. The company could invest in R&D to fund its expenses and improve on the status of its product designs.
Through employing products promotion strategies, IKEA could widen its sales and become the market leader in the various nations (Ahlstrom & Bruton, 2009). Its present promotional campaigns are based on cultural awareness and exclusive marketing situations for every nation and globally differ across marketplaces (OBG, 2008).
To convey the alternative and innovative television spots across the world, IKEA has worked with diverse advertising bureaus for more than a year. Hence, IKEA gives the marketing agencies the liberty to discover some of the uncharted and fascinating ideas that generate additional attraction.
IKEA stores across the globe appear positioned and arranged in a way that one cannot leave without seeing all the available products or furniture. This strategy lures the customers to buy IKEA products. IKEA takes advantage of this in getting new personnel to help customers walk through the shop and see the commodities they need (Zentes, Morschett & Schramm-Klein, 2011).
The system enables the clientele to buy more furniture than what they planned to purchase. Further, the corporation generates returns from the vigorous corporation-materials provider alliance and its cost saving scales of economies. The company might surpass the long-term agreements for the low cost supplies from the clientele by providing leased technological support and equipment.
It should uphold brand positioning by offering low priced and quality products while preserving the value image in the universal markets (Pride & Ferrell, 2007). The existence of differentiated merchandises in the value added phase permits IKEA to offer options for preference, transfer, and transportation of furniture.
Recommendations
IKEA is cautious about the societal and cultural aspects of the markets where it operates. IKEA should provide a commission on its products and services and allow every department to make its own management decisions. In the regional markets where IKEA currently functions, such preparations will ensure that assorted units can respond promptly to any state of crisis.
By focusing on the superiority and low manufactured goods overheads, IKEA should pursue the principle of reaching out to the cost conscious customers. This can be realized via putting extra energy on its business operations and sourcing the supply chain resources to minimize the operation costs. Hence, IKEA International should reduce the resource leasing to lower the operating fixed costs.
This can be realized through choosing a shopping quarter in the suburban areas while evaluating the existing guidelines. While operating in the global markets, IKEA should provide excellent services during sales periods and over the weekends when the clients overwhelm personnel in service. For IKEA to sanction the employees to supply more than one category of manufactured goods, the company must cross-train its workforces in diverse fields.
IKEA should let the deployment of workforce from other sections when a given sector faces many enquiries from the clientele. To fill vacant positions over the weekends, the corporation must hire more part time workers from the nearby communities and train them appropriately. The tradition of customers’ discontent over quality services and the surge in customer enquiries over the weekend should be dealt with through this implementation.
IKEA must also influence the clients to shop online so that it can take advantage of the accessible information technology. This can reduce the weekend tension on the available human resources. The corporation must dispose the delivery free of charge strategy to attract more clients in online shopping since its catalogue is wide-ranging and the customers should access it effortlessly.
Conclusion
IKEA has grown-up into a multi-million corporation from the fully-fledged family business since the year 1943. The corporation will breed new business sections and sustain the present marketplace strategy of low priced quality merchandise as it progresses into the next years.
To nurture its businesses, it will make sure that there is recurrent upgrading of consumer services to make them remain its business contents whilst using technical internet shopping. It has a strong prospective of increasing its business operations in various global markets through limiting its expenses and improving market share. This is enhanced through its established background and the influence it has in the industry.
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