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edu/26083251/Title_Strategic_Drivers_and_Barriers_Ess
ay_of_IKEA_in_the_case_of_internationalisation

Title: Strategic Drivers & Barriers Essay of IKEA in the case of

internationalisation.
Introduction:

The formulation and implementation of the major goals and initiatives are taken
by the industry’s management is known as strategic management. These
strategic are based on internal and external environments of an organisation
that it competes with current market or for globalizations.

To achieve organisation’s goals strategic management provides in general

direction involves with organisations plans, developments, objectives and also
apportioning possessions to implement the plans. In the context of complex
environments and competitive dynamic practicing managers and academic
managers are requires to develop numerous models and frameworks to assist in
making strategic decision. According to Vladimir.K, (2009) strategic
management is a system of finding, developing, and formulating a doctrine
through these organisations expand their life and ensure a long run success.

In this assignment we are discussing IKEA as become globalization company and

its includes with theoretical models of Michael Porter, PESTLE, SWOT, generic
strategy, marketing mix analysis as barriers and strategic thinking with
limitation in the term of internationalisations.

Company overview: “IKEA” the name represent the global furniture retailer.
The main concept of this Swedish brand retailer is producing wide range of ready
to assemble furniture with quality but in low price. The brand has established
themselves in furniture market with well design and modern architectural
especially in appliances and home accessories. IKEA is operating now globally.
The organisation is operating in 43 countries and has 345 stores in worldwide. In
fiscal year 2010 the company sold nearly 1 billion goods amount of 23.1 billion
US Dollars which represent 7.7% increase in overall turnover for the year 20009.
IKEA started their journey to china in 1998 and still now the company is running
16 branches. Though the brand is popular for its products and low price as well
its facing unusual problem. The law price of products is making confused to
aristocrat Chinese consumers.

Environmental barriers and drivers of organisations: it is always difficult

for an organisation at first while they are interesting in expanding their activities
for internationalisation ( Juran, J.M 2005). Environmental facts play a vital role
to achieve success in international market of the analysis and understanding set
out right. An organisation always has two environmental issues as external and
internal both can be drive them toward success or create barriers to them. IKEA
is well recognised Swedish home furniture company operating more than 42
countries. The macro environments are responsible for IKEA’s external
competition and micro allow taking decision internally to face competition (Wall,
2012). Environmental analysis assist organisation to locate barriers and also
accumulate to understand key drivers as well as allow re structure if necessary.

Macro environment of IKEA in internationalisation:

1. PESTLE:

1.1. Political: for entering international market IKEA faces several

barriers one of them increase in fiscal deficit that rose from 1.7% to 1.9%
also upcoming year it will be increased more to 2.1% ( Scherrer 2010).
This will tremendously affect IKEA for expanding their activities in
international level. Apart from these export import law, political issues,
governments regulations, taxes and so on IKEA needs to face. Such as tax
rate in European countries are comparatively 20% higher than Asia (FY of
IKEA, 2012).

1.2. Legal factors: IKEA faces barriers with corruption, copyright and
authority’s unwillingness. These barriers are sometimes goes viral and
facing by IKEA more in Asian (Graham, E, 2005).

1.3. Economic factors: globally economic growth is lower at present.

An IKEA operation does affected by the national income of a country. If
country’s economic growth increase than purchase will increase too. On
average westerner countries economic growth is higher than Asia. Though
in Dubai and China the national income has increased by 1.9% that will
assists IKEA to drive further in profitability.

1.4. Technology: on average in almost every country that IKEA

currently operating their business are making and innovating same kind of
product (Rowley and Slack 2003).

1.5. Environmental: on globally IKEA maintaining green issue as

carbon emission, disposal of hazardous, recycling and supplier behaviour,
manufacturing waste in the environment and so on (Mintel Oxygen, 2010).

2. Porter’s five forces:

2.1. Rivalry: in an extreme competitive industry IKEA operates, worldwide

they need to compete with low cost, good quality furniture manufacturers
 such as Argos from UK, Wal-Mart from USA, and Metro from China and so on.
Competition in this market is very high.

2.2. Threat from new entry: Current global situation and existing tough
market does not allow new entry. IKEA, B&Q, Home depo all these
organisation are making barriers to new entry globally.

2.3. Bargaining power of supplier: create a strategic relationship with

suppliers is value to IKEA. In certain extent they empower their its suppliers
excluding their bargain power but still working with a global giant as IKEA
suppliers keep their bargain power low. Therefore IKEA actually sanction the
corporation to maximise profit and optimise resources.

2.4. Bargaining power of customers: worldwide customers bargain

power is high as customers always have option to choose low cost
competition. Especially in China IKEA needs to maintain a very low price
strategy as Chinese markets got lots of option to choose.

2.5. Threat of substitute: again comparatively IKEA faces high threat of

substitute. There is always a chance that local markets copy IKEA’s product
and catalogue and releasing them in market with low price.

Five force UK USA China Sweden

Rivalry High High High High

Threat of substitute Low Low High Low

Bargaining power of Low High High Low

customers

Threat from new entry Low High Low Low

Bargaining power of Low Low High Low

supplier
Micro environment of IKEA in internationalisation:

3. Value chain analysis: value chain analysis is an internal process introduced

by Michael Porter in 1985. There are two main activities primary activities and
supportive activities. Primary activities are response for running internal
activities of a business while supportive activities are response for outside
operations. Below we present IKEA’s value chain analysis

Primary activities Supportive activities

Inbound  in each store 25% job Infrastr-  operating by INGKA

logistics share holding B.V
ucture
 well organised  operating through large
structure sized stores

Operation  Operating 42 countries HR  High level practice of

manage- HR
 Through franchising ment
and own share  High investment in
company stores are raining and
running development

Outbound  Customers pay Technolo-  Constant innovation

logistics transportation gy
 R&D activities carried
 Manufacturing through out in Sweden
outsourcing

Marketing  As advertising unit Procure-  Giant establishment in

and sales usage of stores ment retail

 Less reliance on  Facilitates to local

conventional suppliers
advertising channels
 Woking close with
Services  Customer service is communities
limited

 Information provides
through catalogue
4. SWOT analysis: another remarkable analysis for internal activities of an
organisation is SWOT analysis. This is a strategic tool that helps organisations
to find out its strength, weakness, threat and opportunity. This analytical tool
assists firms to achieve their competitive advantage. By analysing opportunity
and threat firms can control their external exertion and by transforming
weakness into strength a firm can deflate threats and grasps opportunity.

Strengths:

Concept of low cost: in furniture industry IKEA established themselves as cost

leaders. Up to 65% discounts in family package, student discounts and other
packages making tough market for competitors.

Optimise material: optimising material is IKEA’s biggest strength and reduction

in manufacturing cost. IKEA keeps pressurise suppliers to provide product in less
expense but in maintain quality.

Creative design and research and development: globally IKEA has best research
and development team. They are responsible for continuous innovation,
development, unique creativities, maximising profitability through minimising
cost.

Brand recognitions globally: IKEA is a global brand from Sweden to UK,

Germany, Switzerland in Europe, than turn to Asia in Japan, China, and Russia
and all the way across the Atlantic to USA and Canada. By achieving consumers
trust and reliability IKEA become a global brand.

Weakness:

Issues with culture: IKEA is a global organisation but it cannot cope with
countries culture. Mostly they focus on western culture and that is not very
familiar with Asian countries such as China, Japan etc.

Sub contracted manufacturer: IKEA relied with their sub contracted

manufacturer as they don’t manufacture their own furniture.

Easy to replicate: in local market IKEA’s products are replicating especially in

Asia. Even legal actions sometimes get offended.

Opportunity:

High tech product: IKEA has opportunity to use high tech on their product but
because of focusing on low cost manufacturing for middle class and lower middle
class customer they cannot afford high technology.

Decentralization: mostly in bigger city IKEA operate their business they are not
very decentralize. But if they are able to make their stores decentralize they
may increase their sell.
Product customization: IKEA can do product customization by taking idea from
their loyal customers as they want to build their kitchen or living room IKEA can
construct that. By providing this service IKEA can bring change on their service
system as well as satisfied their customer too.

Threat

Changing social trend: to compete with competition IKEA making their cost low
but question can arise on customer mind about the quality of the product of
IKEA.

Intense Competitors: globally and especially in Asia (China) IKEA needs to face
lots of competition. So to keep pace with competition they requires constant
innovation, well designed and creativity.

5. Industry Globalization Drivers:

To create potentiality of an industry George yip identified four drivers which

highlights the situations as follow

Customer’s drivers: This pattern includes the needs of customer’s

distribution that has identified to meet all over the world. Even though
customers are from different part of the world the basic demand is same. So
these drivers assist organisations to find out how much differentiation varies
 in customers need. So IKEA needs to standardize their product by depending
on local demands.

Globalization cost drivers: it is important to differentiate the global scale

before giving a shape to the company as its effect on experience between
regions or countries. To cope with globalization IKEA maintain their product
quality by keeping its pricing strategy low. This low cost strategy allow IKEA t
move Far East in Asian country such as India, Pakistan and Bangladesh. Also
by reducing bargaining power of suppliers IKEA can integrate their cost down
in the case of globalization.

Competitive drivers: import volume and export volume are response for
industries sales fluctuations. IKEA’s competitors are mainly two types’ global
competitors and local competitors. An organisation is ripe for globalizations
as there are many global competitors exist. Also an organisation matures for
globalizations when competitors begin leveraging their global position
through cross subsidization (Johson, S. 2010)

Government drivers: policies, regulations, trade policies are mainly

considered as government drivers. These elements statistically affect
organisations globally. Industries need to rely on government in the past to
negotiate the rules and regulations of the global competition. But at present
this situation is changing as political and economical global competition is
becoming more entangled (Nialson, A 2012) and through this situation
multinational companies are attracting non market dimensions.

6. Examples of countries IKEA is operating to identified barriers and

drivers:

Pricing policy

i. Sweden: IKEA is a Swedish company and from the beginning IKEA pricing
strategy was low.

ii. UK: pricing strategy in UK is fixed. Accordance with UK law IKEA is not
allow to keep its price low than the market price. Also under UK law IKEA
needs to do price agreement with competitors, suppliers and distributors.

iii. China: IKEA does not need to follow market price and they are allow to
keep their price low than the competitors or market price. In Shanghai
 IKEA’s low price strategy was very effective (Moller, 2006). This low price
strategy allows them to increase their sales by 27% to 30%.

Place as barriers

i. Sweden: IKEA is decentralized and most of its store is outside of the city
because of its shapes. Transportation paid by the customers most often
(Usunier, 2005)

ii. UK: since 1987 IKEA operating their business in UK and in the capital of
UK IKEA only has 9 stores and they are really far away from central
London. Customers need to pay transportation cost if they are shopping
on IKEA or need to have their own car.

iii. China: still decentralised, since they start their journey they have 16
stores in overall China. Because of the hue store size IKEA operate its
activities from out of the cities (Ministry of Culture, P. R. China).

Promotion as drivers:

i. Sweden: catalogue, family card, loyalty card and club cards provided by
IKEA in Sweden as their promotion and increase in sales. In Sweden 1.7
million people are using IKEA’ loyalty card.

ii. UK: by campaigning and social media IKEA considers their promotion in
UK. Google, Facebook, pinterest online survey all plays vital role to
increase their promotion. Mostly promotion offered by digital catalogue
and online options.

iii. China: IKEA focus on brochures and mostly they send them to customer’s
house several times during the year. Apart from this media
advertisements, IKEA family discount, vouchers also promoting their
products and services (Armstrong and Kotler 2006).

7. IKEA’s business strategy to develop in globalisations:

i. Cost leadership: low pricing strategy allow IKEA to operate their

activities globally. And still this furniture giant organisation keeps
maintaining their price with most of the local similar products. Still IKEA
need to adopt various strategies such as low cost labour, less exporting,
internal resources reuse, and so on to keep their price low especially in
Asian market (Kotler, 2000).

ii. Differentiations: to become successful in globally IKEA needs to bring

differentiate to their product than its competitors. They need to invest
more on their R&D, high tech policies to cope with twenty centuries
 demands. In UK IKEA does modern folded and easy removal furniture.
Tough the technology expensive but still they need to introduce this
system to Asia such as in Japan and China. Nowadays DIY (Do it
yourself) furniture are preferable and its less fixing cost as well IKEA need
to develop this technology globally (Pearce & Robinson 2005 p 15-36).

iii. Focus: focus can provide an organisations competitive advantage. IKEA is

global leading furniture company its operating its business in Europe,
America and in Asia. But in Asia its just operating selected countries while
they have opportunity to move on further east of Asia. IKEA can develop
their market moe by focusing on Chinese market that will allow them to
have growth expansion and increasing in revenue (Byars.L. 2001).

8. Recommendations:

 IKEA need to emphasize a pull marketing strategy in order to get high

market share in different country. Requires promote furniture market as a
fashion statement. People will be aware of good quality furniture by pull
market.

 With more than 3 million population Asia is considered as emerging

largest market so without time consuming IKEA need to build more store
in these countries to facilitate easy access.

 To achieve competitive advantage IKEA can design web sitewhich that will
help customer to customise their own designing furniture. Through this
IKEA can get large market customer segmentation that allows customers
to design their own furniture.

9. Conclusion:

With hundreds of store across around the world IKEA is well established global
brand. It must assess its external factors and competitive environment in order
to improve its performance. IKEA need to considers its opportunities and deals
with its threats to take advantage in this competition market. To become more
internationalisation IKEA need to face its barriers but maintain pricing strategy,
technology, innovations they can drive out from these barriers (Robinson, R
2005). By considering both micro and macro factors IKEA is able to generate the
strong growth and keep hold on a strong identity in the market.

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