CASE STUDY ANALYSIS-IKEA INDIA
The report will discuss in detail about the company called IKEA. IKEA is one of the world’s biggest retailers in furniture creating more than twelve million dollars in terms of profit by the year 2002. The company sells furniture as well as other so many products at low prices permitting so many people to buy the products. The company further sets a starting standard with regards to the overall pricing as well as cut the prices which is more that twenty to fifty percent to make sure customers of all walks of life can buy these items. The company is pretty clear that only permitting the upper class to buy their products removes a huge number of potential consumers. The overall concept of the company relies on providing a huge range of well structured and designed home furniture-based products at different prices that are low that many people can comfortably afford them.
General environment analysis (PESTLE) 5
The industry environment (Porter’s five forces) 7
IKEA resources Tangible and intangible 10
Corporate strategy and international strategy 12
Future strategies and recommendation 13
The report will discuss in detail about the company called IKEA which was founded in the year 1943. The founder of the company was a person called as Ingvar Kamprad who used all his entrepreneurial methods to sell the catalogue and constantly expanding where the stores is situation in thirty countries. The company sells furniture and many other products for household at a low cost and the motive is that people can afford it (Agarwal, 2017). The company always wants to save money on things like packaging and other options to save the money. IKEA has been planning to enter the market of India from a very long time and finally opened its first store in Hyderabad, India. The country is considered as one of emerging nation and provide IKEA a great option and the company is planning all sort of things related to household to attract the market.
As discussed, India is an upcoming nation which is considered as the largest democracies worldwide. With large population in World, it provides a great option for the companies like IKEA to invest. An issue however with large population is the wide array of income which ranges from immensely wealthy to low class that may function for little like a dollar a day. The furniture sector in the country only comprise of .05% of the complete GDP which is another factor IKEA has great potential and opportunity to get success in India. India has an immense opportunity for FDI since the current economic situation and the rapid development rate of the nation as per the GPD and other economic level indicators (Bawa and Singh, 2017). The company in India will maintain its logo and also plans to target lower middle class and above in India.
General environment analysis (PESTLE)
The fact that IKEA decided to invest in India is communicating a positive sign to many other investors to were hesitant before to do so. Being a developing country, India is in need for different FDI that can bring different modern form of technologies. The company’s decision to be part of India is based on the heels of government of India and the whole decision is based on relaxing the rules on one brand international retailers of the nation. The company will now source approx. thirty percent of its production from the market of India (Bhatt, 2017). FDI in supermarkets has hit a major hurdle in political environment as it can be seen as a threat to different owners of local shops which covers approx. ninety percent of retail sector of India. The country provides the company a popular market while the government is facing criticism over management of India when development is slipping to its weak speed in 9 years.
The country has further rebuffed some request by company in order to relax rules to buy goods domestically, increasing the prospect of any kind of delay in the world biggest furniture market that enter the country’s retail sector (Bhatti and Negi, 2018).
The company offers low prices develop to appeal the mass in current tough times financially. It is important to set the prices low especially when the retail industry is towards the downhill. The pricing strategy by the company mainly target customers with restricted financial resources. The products will also attract to people with high budgets via high quality as well as design. The organization must make sure that it is at all times can be identified as having low prices on market in coming future (Magazine, 2018). The fluctuation in prices of raw material and commodity in India has resulted in raising the cost of purchase for IKEA (Ehsan Ullah et al., 2016). This can influence on current margins of the company and might address with passing over the cost of the customers by raising costs of many things of the supermarket. In addition, rise in cost of fuel will have specific kind of implications in whole course of the supply chain of the company’s leading to the whole case of rising prices, as a result in decreased level of competition. The crunch of credit can influence IKEA in negative manner as it can decrease the purchasing power of customer and the fact that they will still purchase the important things with some caution. In addition, furniture industry unlike fast paced goods of consumers that are durable by nature and can also last for many years and along with uncertainty economically (INDORIA, 2016). Customers are also reluctant to transform what they can assume to be still service based sets. People can also spend less expenses on many luxury items, which is something that has a great margin in profit for IKEA.
At the same time, the country ranks 122nd all across the world when it is based on comfort of doing business that one can mention that the general surrounding economically is favoured for IKEA. There has been continuous growth in GDP in last few years and the Indian currency is stable also. The society of India has been impacted by a strong caste system in past which save many people from free selection what work for the business. This has transformed and urban areas that get more and more liberal based on initial caste affiliation that rural regions (Khamis, 2016). The population of India is increasingly using the Internet however still behind in the global comparison.
Technology based transfer RFID which is also called Radio Frequency Identification Device can be used for important advantages to the supply chain of the company. When adopted, the technology will address to less amount of inventory for the firms, as an outcome in low cost for the organization that can translate cheap prices. The company has used high quality technology as well as systems to advertise the short queues, right schedule, trading and tracking methods as well as staffing (Magazine, 2018).
As discussed as India is the second highly populated nation worldwide with about one billion inhabitants. There are major railway station, ports and airports that are the base for the nations with decent infrastructure. In addition, the country is considered as the largest democracy worldwide and has stable political environment. The society of the country has been impacted by a very strong system of caste in past which save many people from free selection on what work or business is entering (Magazine, 2018). This has transformed and local regions that tend to be freer related to starting of classification than any rural region.
Legal compliance of the company is strict executed with important and applicable policies and laws that can pertained to the current environment, working situation and social. The organization also have scheduled the immensely demanding needs to be particular to maintain the list of laws as well as regulation and with the processes.
The industry environment (Porter’s five forces)
Following is the detailed discussion: –
Threat of new entrant
The rivalry is intense in the international market of discounted furniture and the important players in the sector include Euromarket Designs Inc., Wal-Mart store and many more. But presently, the company is considered as the market leader in the sector of discounted furniture in the international level (Mathew et al., 2015).
Threat of substitute
The current presence of many substitute items can lower sector attractiveness and profit since they restrict the level of prices. The threat of substitute product relies on the willingness of buyer to substitute. The performance as well as relative price of the substitute along with cost of switching (McNamara and Descubes, 2016).
Bargaining power of the suppliers
Suppliers are the business that also supply material as well as other products in the sector. The overall cost of items bought from the suppliers can have major influence on the profitability of the company. When suppliers have high bargaining power on the organization, then the organization’s sector is not very attractive. The bargaining power of the suppliers will be high especially when there are different number of buyers as well as few suppliers. There are immensely valued and undifferentiated products. For instance, IKEA, in recent time, had heard from its consumers that many offerings of the furniture were very complexed to be collected by the consumer, showing the power of supplier in order to make some difference (Mishra, 2017).
Bargaining power of Buyers
The buyers are those people who develop demand in the sector. The bargaining power of the buyer is much bigger when there are some dominant buyers as well as different number of sellers in the sector and there are standard products. Buyers actually have big deal of impact on product line as well as direction of IKEA.
The company is planning to enter India with designs which are Indian and can help in placing the company in an important position as far as competition is concerned. The philosophy is to stay close to the roots of the company and do what is best in providing something unique in the market. The management is firmly believing in the democratic design of the company with mixing functions, values and styles (NIGAM and D JAIN, 2017). People are of belief that a great part of the success is based on the fact people produce a mix of different kinds of styles. It is also backed up by the immense competition.
Opportunities and threats
The company has come up with its green business model and the organization has an immense option waiting regarding attracting consumer who looking to buy these products. The increase in the number of ethical customer or the procedure of buying called as Ethical Chic which also based on consumers that under ideal situation will buy products that environmentally aware is becoming an option that needs to be tapped. Most probably, the biggest opportunity that a company has is its cost leadership which is also based on single minded aim on cost at the expense of other things (Otto et al., 2014).
The low-cost strategy business model has further been imitated as well as copied by the rivalry which also refers to an organization that constantly require to innovate even if it is based on staying ahead and can be copied by the rivals. It also means that the organization requires to innovate constantly to stay ahead in competition.
IKEA resources Tangible and intangible
The tangible resources of IKEA consist of Wood, Cotton, food and waste that are called to be material to manufacture the end products. All the intangible resources of the company are HR which are being utilised and function the organization (Strid, 2017).
The strategic capabilities of the IKEA are their strengths, like skilled HR and effective value chain as well as distribution channels. The organization growth strategies to overcome all the weaknesses as well as convert those factors into strengths that any company can capitalize based on gaining competitive gain. The standardization of the production procedure in the production of their products permits IKEA to rise its production outputs with right in accuracy and effectiveness (Strid, 2017).
Following are the core competences of the company: –
To maintain the low cost of the products, the packages made by the organization is simple as well as less expensive.
The organization also maintain the overall design as well as model. The company also get the patent ideal whenever the design can be seen by the consumer, the manager automatically maintain an image of the IKEA.
Strength and weakness
The largest strength that company has a clear idea of vision, that helps in adding value to its consumer despite the market conditions. This further translated as well as articulate along with well structured business strategy and approach based on retailing which start in its simple and target competition and impactful in the positioning.
Other important points of the organizations, where the concepts which helps in translating into an array of different products which assemble the consumers themselves lead to major reduction in cost that are then passed to the consumers (Tommysdotter, 2016). The focus is single minded based on cost leadership and the company has further emerged as the world leading retailer in furniture market.
It is important to understand that IKEA operate in so many nations worldwide, it is based on high scale as well as a large size of business which means that it is challenging to control the standard across varied locations. The company and the management try its best to execute to control varied standard across different locations. The company also try in best way possible to execute uniform kind of quality across different product range as well as in different locations, that are scalable and replicable control of quality is important weakness (Tooteja and Prateeksha, 2018).
The main focus is always on cost leadership because of which quality at time goes towards downhill specifically in the current context where the cost different inputs as well as raw materials has also gone up and which has influenced the overall profitability of the organization.
Value chain analysis
Corporate strategy and international strategy
The fact is that the corporate and international strategy of IKEA make sure that the manufacturing procedure of the furniture can be standardised to enable that effectiveness and controlling the quality can be done in an efficient manner. The furniture is comfortably made available when it was packed in different boxes where the consumer does not have to pay with added costs to have delivered that can self-transport as well as collect (Trivedi, 2018).
The mission of the company is to given low-cost furniture with high quality which can satisfy the requirement as well as expectations of the consumer base. The workforce is immensely trained as well as empowered with the authority to make decision making and take accountability for the decisions. The company can also execute processes as well as policies to make sure that their core manufacturing as well as production concepts are standards on international scale at all of three hundred stores in the thirty-five nations that can operate (Trivedi, 2018).
Corporate level diversification strategies can be divided into three kinds: limited diversification-based strategies, related diversification strategies as well as unrelated diversification strategies. Limited or restricted diversification is based on when companies stay within on sector as well as market or all of its business function is aiming within a single business (Trivedi, 2018).
ANS off Matrix
The company use market penetration strategy for many of its current products. The decision making of selling the food as well as opening so many restaurants in the store that can be used for conglomerate-based diversification.
Future strategies and recommendation
For constant survival of the company’s brand, it is critical that comprehensive environmental methods are conduct which can decide what is the best kind of strategies to be executed to meet the transforming needs as well as taste of new market and the current market. In the fast-changing evolved world in market where customer require are continuously transforming at a faster pace, combined with economic issues of international recession, the company must do it in diligent manner test their products as well as the ability to meet the future requirement of their customers (Vinay et al., 2017).
The company is well-known international brand with so many stores world wide. To improve the overall performance, it should evaluate its external as well as competitive culture. This will highlight the key options it can take benefits of and the overall threats it should deal with the company answering internal as well as external challenges in a more dynamic manner by utilising its strengths as well as reduction in overall weaknesses (Vinay et al., 2017). The company also offer a wide variety of functional products related to home furnishing with simple conventional designs at low prices so that as many people can afford them.
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