Executive Summary
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 in Dubai, Kuwait, Abu Dhabi, Saudi Arabia, and other global markets.
Thus, since its inauguration in the fiscal 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 weaknesses and strengths have been analyzed through Value Chain Analysis, VRIN, PESTL, and Porters Five Forces frameworks. In fact, the internal and external environment where IKEA operates have been analyzed using these analytical tools and recommendations have been provided.
Introduction
IKEA International is a global corporation that offers home accessories to all global clients. Being headquartered in Sweden, IKEA provides quality furnishings in the Europe, Africa, and Middle East markets. The company has recently set its presence in Gulf Corporate Countries such as Omar, Qatar, and Kuwait.
In fact, in the United Arabs Emirates and GCC, IKEA is acknowledged for the provision of quality furnishings that cannot be assembled easily, but can be transported without problems. In fact, IKEA furnishings are evident in the City Festivals and residential places.
Despite being globally recognized, Dubai constructed its first IKEA store in the fiscal 1995. However, the largest IKEA store was opened in the year 2005 in the Dubai Festival City. In the year 2011, Abu Dhabi launched the largest IKEA International store in the Island of Yas. Besides, IKEA has one store in Kuwait as well as two other stores in Saudi Arabia (Daft & Vershinina, 2010).
The purpose of this paper is to analyze the current business and operations of IKEA, external and internal analysis, the competitiveness of IKEA, as well as the strategies and challenges faced by IKEA. Analytical tools such as Value Chain Analysis, VRIN, PEST, and Porters Five Forces are used in the analysis of IKEA’s business and market operations.
The Current Operations and Businesses of IKEA
IKEA was first inaugurated in the fiscal 1943 in Sweden. In the 1980s, IKEA began to expand its business operations to the United States, UAE, GCC, and other parts of the European markets.
These markets attracted the company due to several reasons: (1) the regions had very large customer base, (2) the local residents who had travelled considered themselves risk-takers, (3) the market was fragmented and (4) the potential customers could be identified with regions.
The success of IKEA business relied on the sensitivity of the people to the product attributes regardless of the origin. If people regarded local products more than foreign products, then IKEA business would probably have been in danger (OBG, 2012).
IKEA entry into the United States, UAE, and GCC 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 the Dubai and Abu Dhabi stores were opened in the Dubai Festival City and Marina Mall.
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 the UAE, GCC, and 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, UAE, and GCC markets occurred in form of a market-seeking investment undertaken to exploit new markets. The Swedish, GCC, and UAE 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, UAE, GCC, 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, UAE, GCC, and so on.
In the Dubai and European markets, IKEA was met with great success after focusing on providing the cheapest solutions to gain competitive advantage (Walker & Butler, 2010).
However, the success in the European and UAE 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. The UAE nevertheless, offered a favorable environment for the company to invest its capital. 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 UAE, and GCC markets (OBG, 2010).
IKEA Value Chain Analysis
Primary Activities
Inbound logistics
In the UAE and GCC, IKEA has established a wide base of producers and supplies responsible for manufacturing and supply of furniture parts.
The extensive array of Middle East regional warehouses is integrated with an efficient management of inventory driven by the need to ensure that the right parts go to the right customer at the right time.
Storing the furniture components as a single package is a cost saving approach, as the stores need not to be as big as they might be expected for a furniture company (Gillespie, Jeannet & Hennessey, 2010).
Operations
IKEA has continued to expand and increase its customers across all market segments including the UAE and GCC. Isaksson and Suljanovic (2006) observe that IKEA is the only firm in the UAE and GCC furniture industries that has managed to attract customers across the world without changing the original concept of management.
This has been achieved through the development of unique product designs based on sacred dedication. Other 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, Africa, UAE, America, GCC, and Australia.
Indeed, it is the only distributor in the industry to have established on a global scale. It has stores spread in Europe, North America, Asia, and recently established operation in the UAE and GCC.
The low cost of distribution in the UAE and GCC 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 by transporting, and assembling the furniture by themselves.
Marketing and Sales
IKEA marketing in Dubai, Kuwait, Saudi Arabia, and Abu Dhabi 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 Marina Mall and Dubai Festival City stores. Every year, the company experiences an increase in the number of visitors due to the new products advertised though the catalogues.
No other forces drive sales in IKEA much like the catalogue, which is reinforced by the homely environment of the stores.
Services
The great success of IKEA has been enabled through the homely services offered in the Dubai, UAE, Saudi Arabia, Kuwait, and Abu Dhabi 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.
IKEA External Analysis Using PESTEL
Political
The UAE and GCC environment where IKEA operates is politically polarized. Minimum wage policies are strictly observed to avoid infringing labor rights. However, in most nations including UK, Dubai, Abu Dhabi, and US, the political parties ensure the business environment is stable.
Foreign business policies are accommodative to all multinational corporations. For instance, the taxation policies allow foreign corporations such as IKEA to join the UAE, European, and GCC markets (Sandıkcı & Rice, 2011)
Economical
The prices charged by IKEA on its products and services are reasonable to the consumers in the UAE and GCC markets even during the economic slump. Given that most IKEA products are locally produced in Asian countries, it is advantageous for IKEA to operate in regions like Dubai, Abu Dhabi, and GCC.
IKEA has the advantage to capture and grow in various Asian, Middle East, and European markets because the 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 business operations, IKEA has upheld a just societal status. IKEA has improved its stores in all countries such as Dubai, Kuwait, Qatar, and Abu Dhabi to suit the citizens’ lifestyles. For instance, customers can do shopping anytime because IKEA offers flexible and odd working hours (OBG, 2008). There are playing grounds for kids and restaurants for parents accompanying the kids.
Technological
In the UAE and GCC 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 Dubai, Kuwait, Saudi Arabia, and Abu Dhabi 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).
Analysis of the Competitive Position of IKEA Using Porter’s Five Forces
The IKEA’s Competitors
There is extreme competition amongst the existing corporations in the international markets like the UAE and Abu Dhabi. For instance, in Dubai and Abu Dhabi, the company functions in a very competitive business environment typified by other economical furniture manufacturers. B
esides, these producers are kin-run dealings that generate low overheads well known by focusing on expensive designs. Conversely, these expensive and focused designs translate to small-scale fabrication to suit the local UAE and GCC souks (OBG, 2012).
The established experiences offer dissimilar opinions on product location and contributions according to inside accounts. To compete successfully, some large vendors like Furniture mall, Courts, and Nova generate inexpensive products to benefit from the economies of scale.
Thus, IKEA appears to face stiff rivalry along with opponents from countries like Dubai, Kuwait, and Abu Dhabi. Furthermore, IKEA currently faces little pressure from fresh market entrants while the emergence of novel market competitors is also negligible (OBG, 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 UAE and GCC 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.
This can be realized through implementing deliberate work and business schemes based on the creation of market associations. The motivation aspires to construct enduring consumer affiliation and dealers devotion.
Hence, this informs IKEA’s assimilation practice strategy amid consumers, retailers, and suppliers (OBG, 2010).
IKEA seeks to enhance the reliability of the UAE and GCC 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 (OBG, 2008).
The provision of excellent customer services with optimistic shopping knowledge is important.
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 UAE and GCC.
With technical advancements, a significant part of the 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 Dubai, Kuwait, Oman, and Abu Dhabi 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. Nonetheless, 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 GCC and UAE markets. In fact, a higher degree of opposition results from the 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. Hence, the competitors must source the designs and build the factories.
In addition, before the market entrants could produce low cost products to rival the entrenched firms, they must capture a dominant market share (OBG, 2008).
IKEA Internal VRIN Framework Analysis
Valuable
The strength of IKEA at present originates from unique sourcing, tightly controlled logistics, and unique design capabilities. Therefore, 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 countries such as Dubai, Abu Dhabi, Oman, and Europe.
Rare
Throughout history, IKEA has been able to produce new designs and offer products next door from the Dubai and Abu Dhabi stores. IKEA is the only industry player that has been able to offer a variety of designs to the wide customer base found in the UAE and GCC nations (Isaksson & Suljanovic, 2006).
Inimitable
As the activities of the value chain suggest, IKEA has a strong relationship with their UAE and GCC customers starting from the products offered to the services given. Many of the competitors found in the UAE and GCC markets lag behind in terms of customer loyalty and the locals only know a few that surface.
IKEA enjoys global recognition in Dubai, Kuwait, Saudi Arabia, and Abu Dhabi 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 leaders.
Even if, other competitors found in the UAE and GCC 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. The company can focus on the business operations to boost its UAE and GCC market dominance.
To accommodate average regulars with minimal wages and discretionary expenditure powers, it may manufacture low priced designs. The company could invest in the research and development 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 UAE and GCC nations (OBG, 2008).
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 UAE, Dubai, Kuwait, Saudi Arabia, and Abu Dhabi marketing agencies the liberty to discover some of the uncharted and fascinating ideas that generate additional attraction. Furthermore, the corporation has a stockpile that attracts additional clientele to the Dubai and Abu Dhabi IKEA stores.
In Dubai, Kuwait, Saudi Arabia, and Abu Dhabi, the IKEA stores appear positioned and arranged in a way that one cannot leave without seeing all the available products or furniture. This strategy lures the Middle East 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 (Sandıkcı & Rice, 2011). The system enables the clientele to buy more furniture than what they planned to purchase. Further, the company profits from the healthy firm-supplier association and its economies of scale.
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 UAE, Kuwait, Abu Dhabi, and Saudi Arabia markets (OBG, 2008).
The existence of differentiated merchandises in the value added phase permits IKEA to offer options for preference, transfer, and transportation of furniture. This should be the strategy in the Middle East operation, and should IKEA fail to obtain the goodwill, it may incorporate the service costs into the price of manufactured supplies.
Recommendations
IKEA is cautious about the societal and cultural aspects of the UAE and GCC 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 Dubai and Abu Dhabi markets where IKEA currently functions, such preparations will ensure that assorted units can respond promptly to any state of crisis. Conversely, by focusing on the superiority and low manufactured goods overheads, IKEA should pursue the principle of reaching out to the costs 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 in Dubai, Abu Dhabi, and Oman should reduce the resource leasing to lower the operating fixed costs.
This can be realized through choosing a shopping quarter in the suburban areas in the UAE and GCC while evaluating the existing guidelines.
While operating in the UAE and GCC markets, IKEA should provide excellence services during sales periods and over the weekends when the clients overwhelm personnel in service.
For the UAE and GCC to sanction the employees to supply more than one category of manufactured goods, they must cross-train their 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 up the vacant positions over the weekends, the corporation must hire more part time workers from the GCC and UAE populace and train them appropriately. Thus, the usage customers’ discontent over quality services and the surge in customer enquiries over the weekend would be dealt with through this implementation.
IKEA found in the UAE and GCC must also influence the clients to shop online so that it can take advantage of the accessible information technology. In fact, this can reduce the weekend tension on the available human resources.
Above all, the corporation must dispose the delivery free of charge strategy to attract more clients on 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 UAE and GCC 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 UAE and other GCC markets through limiting its expenses and improving the market share. This is enhanced through its established background and the influence it has in the industry.
References
Daft, K & Vershinina, N 2010, Management-international edition, Cengage Learning EMEA, Andover, Hampshire.
Gillespie, K, Jeannet, J & Hennessey, D 2010, Global marketing, Cengage Learning, Florence, KY.
Isaksson, R & Suljanovic, M 2006, The IKEA experience. Web.
OBG 2008, The report: Kuwait 2008, Oxford Business Group, Gabon.
OBG 2010, The report: Oman 2010, Oxford Business Group, Gabon.
OBG 2012, The report: Qatar 2010, Oxford Business Group, Gabon.
Sandıkcı, O & Rice, G 2011, Handbook of Islamic marketing, Edward Elgar Publishing, Cheltenham United Kingdom.
Walker, J & Butler, S 2010, Oman, UAE & Arabian peninsula 3, Lonely Planet Publishers, Gurgaon, India.
Zentes, J, Morschett, D, & Schramm-Klein, H 2011, Strategic retail management: text and international cases, Springer Publishers, New York City.