Q1. What is the business scenario of IKEA?
Political:
- The countries on which IKEA operates in are members of the WTO which significantly lowers the operating costs of the company
Legal:
- IKEA is subject to various taxation laws in the countries where it operates. Particularly, they are subject to corporation tax or income tax depending on the overall profits made by the local branch.
- The quality of wood should be within the standards accepted. It must be sterilized and the company should have proof of such sterilization.
Economic
- The economic element involves the effect of the exchange rate on the pricing strategy of the products.
- The change in pricing may incur a concurrent change in the demand curve.
Social
- The products they are offering are do-it-yourself (DIY) which gives the consumer a sense of accomplishment upon the assembling of the said furnitures.
- It gives the consumers the convenience of having their furniture delivered without having to go in a mall or a showroom.
Technology
- The technologies used are simple
- The bases of the furniture have no effect on technology.
Ecology
- An increase in the price of the raw material of the company will significantly increase the cost of production
- The manufacture of the products are subject to the environmental laws of the particular market.
Q2. What is the market situation of IKEA from SWOT perspective?
Strengths
- The company has a strong brand recall which appeals to the certain demographics.
- The company does not have a direct competitor as it has a very distinct manner of doing business.
- The company is the primary provider of innovative and stylish designed functional products. It has ingrained in popular culture as synonymous to such items of furniture.
- It minimizes participation of manpower. This reduces the capital costs
Weaknesses
- The good thing about being an international brand is the ability of the consumers to relate it to quality.
- The case of Ikea is different as it ironically depends highly on the Western markets. It has yet to take on the challenge of Asia.
- The low prices as well as the kits provided by Ikea appear to compromise the consumer relationship management of the company.
- Since the products are built by the customers by themselves in the comfort of their home, store employees appear to neglect the company’s goal of complete service.
Opportunities
- The internet has great potential for the company.
- It could engage on e-commerce and cater to all types of demographics who like their products.
- Similarly the Asian market appears to be an enticing prospect for the company.
- The taste of the market is constantly developing in line with their living standards
Threats
- Mainly, the threat to the operations of Ikea, being an international company is the impending recession in some markets.
- The economic meltdown in the United States has considerably taken a toll in other economies dependent to it.
- Exchange rates would fluctuate incessantly hence the cost leadership scheme of the company is widely compromised.
Q3. What is the competitive environment of which IKEA is operating?
Supplier:
- There are a high number of suppliers in the industry which makes its switching costs significantly lower.
- The bargaining power of suppliers are weak
Buyer:
- The switching costs of the market is quite low which makes the bargaining power of the customers high
New Entrant:
- There are no significant legal barriers to new entrants
- The presence of IKEA, given its huge market share is a significant obstacle for new entrants
Rivalry:
- The intensity of competition is considerably weak as IKEA is the leader of the market
- There are no direct competitors
- And IKEA has a huge part of the market share
Substitute products:
- Substitute products are seen in department store and showrooms selling furniture
- They offer great service as compared to IKEA’s DIY culture
Q4 What is the generic business strategy being adopted as well as the strategic direction to go ahead by IKEA?
- Employs a Hybrid business strategy
- This means it employs low costs.
- Products are considerably different from the product mix of the other players in the furniture industry.
- The brand of IKEA is strong as it has an international presence
- The products offered of IKEA are unique with its novel concept of DIY.
Q5. What you advise IKEA to diversify – if so in what ways?
- The company should diversify by means of concentric diversification.
- This means that they should offer a total solution for home furnishing and a package of decoration including design & build.
- This should be done in order to meet the extended market segment which is willing to pay a premium for tailored-made home furnishing services based upon the provision of IKEA products.
- The company should expand their horizon without deviating from its Scandinavian roots.
- Though it is international in operation, they should not neglect the adoption of local trends
- Attempt to integrate their operations
- Backward integrate
- Forward Integrate
Credit:ivythesis.typepad.com
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