Globalization Process Leading to Affect IKEA - Case Study Example

The PEST Analysis for the Company IKEA Table of Contents Introduction 3 Brief Overview of the Company 4 of Three Examples of Globalization Process Leading to Affect IKEA 4 Competition 5 PEST Analysis 6 Meeting Consumer Needs and Expectations 7 PEST Analysis 7 Economies of Scale 9 PEST Analysis 9 Describing the Significance of the Examples and Demonstrating Company’s Response 10 Competition 11 Meeting Consumers’ Needs and Expectations 11 Economies of Scale 12 Analyzing How the Nature of the Global Business Environment has Changed in the Period since the Earliest Example with Reference to Comparisons 12 Conclusion 13 References 13 Introduction Globalisation and its effects on business performance can be witnessed as a long-standing phenomenon for the modern marketers. In relation to the unabated changing pace in globalisation, organisations, especially the MNCs often face problems in accomplishing their respective commercial or corporate business goals. The effects derived from the changing pace of globalisation can be characterised into different aspects that have key influence on predetermined visions and/or business objectives of the organisations (Michie, 2011; Shaikh, 2010). In this regard, competition is one of the major factors having major influence on the organisations derived from the pace of globalisation. The acquisition of foreign business into the local markets and continuous deregulation in international business policies of local and overseas governments can also be duly considered as few of the major influencing factors of globalisation leading to affect the performance of organisations at large (Michie, 2011). With this concern, the assignment tends to evaluate the major influencing factors that impacted the overall business performance of IKEA, one of the renowned global home product retailers. In this context, the discussion of the assignment explores three major examples wherein the company faced major hurdles to sustain its leading position in the respective market and industry as well. In order to critically assess the impact of globalisation, the assignment also elaborates the examples of impacts derived from globalisation processes using PEST analysis. In the end, the essay also provides a critical understanding regarding how nature and global business environment has changed in the period since the earliest example of impact derived from globalisation. Brief Overview of the Company IKEA is a Swedish based multinational business corporation, which deals with home furniture along with kitchen items in varied business markets throughout the globe. IKEA performs its business functions through selling flat packs along with essential furniture items in accordance with the needs and the desires of the potential customers. In relation to the recent business functions of the organisation, the extensive retail experience and implementing the strategy of differentiating products into various types are few of the major competitive aspects of IKEA (IKEA Foundation, 2013). In addition, the strategy of maintaining value based as well as reasonable pricing of its products is also regarded as the other core competence of IKEA. Currently the organisation is owned and controlled by convoluted groups comprising different profit seeking and non-profit global corporations (Inter IKEA Systems B.V., 2012). Description of Three Examples of Globalization Process Leading to Affect IKEA The wave of globalisation has long been recognised to stimulate competitive advantages of the organisations and enabled them to build strong and long-term sustainable position. In relation to the recent observation, the increased extent of globalisation has certainly made the multinationals to improve their organisational structure along with practices to accomplish their respective commercial objectives. However, the emerging pace of globalisation is often observed to increase enormous hurdles for the organisations, especially the multinationals to gain full potential in operating business efficiently or attaining superior competitive position over their chief existing rivals within a particular global or local market (Nistor, 2007). A few of the examples wherein the globalisation process has affected IKEA with using PEST analysis is described in the following. Competition Competition amidst the rivals is duly considered to be one of the examples wherein the globalisation process is witnessed to affect the business performance of organisations like IKEA (Blenkhorn & Fleisher, 2005). In this context, it can be affirmed that emerging capability of the multinationals towards adopting the strategy of merger and acquisitions (M&As) or extending subsidiaries across different geographical locations is one of the major outcomes of globalisation. The consequences associated with emerging competition amid the rivals often led towards imposing major challenges on the multinationals (Michie, 2011). In relation to IKEA, the organisation has faced major threats due to the prevalence of extreme business market competition in the global furniture retail market prior to the twenty first century. Apparently noted, the strategy of expanding global subsidiaries from the year 1965 in Stockholm and later across different European nations along with territories is observed to improve the operational and financial position of the company. However, IKEA is also witnessed to face major challenges due to the increasing number of local and global competitors. In order to justify the impact of competition as an example of globalisation process, the following PEST analysis can provide a major understanding. PEST Analysis Political: The emergence of globalisation prior to twenty first century is noted to provide major support to IKEA. However, the company faced challenges in the context of competition due to changing political systems and development of governmental regulations for conducting international trades. The process of deregulation in the international trade operations by the European nations during the late twenty first century had certainly raised the number of other global organisations and led IKEA to face major threats. Economic: The competition amidst the furniture retail organisations fuelled up due to the economic development of different European and North American countries. In this regard, the increasing rate of GDP, balanced inflation rates along with rising individual household income have encouraged the local and global marketers to conduct business in the similar industry wherein IKEA operates. Thus, the scenario further raised major challenges for IKEA to perform its dominant business operations. Social: The varied societal factors such as living standard of the customers and their changing cultural aspects are observed to significantly influence the competitive environment prior to 2000. The evolution in the cultural aspects of the customers certainly affected IKEA in acquiring superior competitive position particularly in the European business markets. Technological: Similar to the social aspect, the evolution of technological integration in the commercial sectors is also observed to have major influence on the competitive environment of IKEA in terms of making more investments concerning the same prior to the year 2000. Meeting Consumer Needs and Expectations The emergence and continuous evolution of globalisation are often observed to improve or change the needs and the desires of the global customers towards any product and/or service. In this regard, the multinationals are highly focused on meeting the changing trends of the consumers with respect to their respective purchasing style and affordability in order to sustain in this competitive business setting (Fitzgerald & Cormac, 2012). The impact of changing consumers’ needs and expectations derived from the globalisation process has remarkably affected the business performance of IKEA in the global furniture retail market (Swiegers & et. al., 2006). The following factors associated with PEST Analysis details about the problems faced by IKEA during the year 1997, wherein the company had radically experienced lower rate of sales in its domestic market i.e. Sweden. PEST Analysis Political: According to the early stage of globalisation i.e. prior to the year 2000, it has been observed that the political systems of the global countries integrated strong measures concerning the regulatory policies in terms of reducing barriers for the international marketers. In terms of meeting changing trends of the global consumers relating to IKEA, the company had faced numerous political issues while intending to expand its subsidiaries across different nations. Changing governmental policies and deregulatory norms along with failure to build strong relationship with political parties had raised disputes for IKEA while performing its international operations prior to the year 2000. Economic: The changing regulatory and legal codes associated with tax rates or unabated changes in the interest rates had radically lowered the business capability of IKEA while meeting customers’ needs and expectations. Moreover, changing economic policies and rapid development of income level of each customer group of consumers were also witnessed to affect IKEA due to the strategy of keeping low price for its range of household furniture items and other accessories prior to the year 2000. Social: The consumers across different global market are well-informed about the effectiveness of any product/service. In this regard, evolution regarding the social involvement of consumers had increased a major threat for IKEA to meet the actual needs and expectations of the global consumers during the year 2007. Technological: Technological advancement is further regarded as an imperative element of globalisation, which determines the changes in purchasing trends of the customers towards any particular product/service. In the context of technological factor, the business strategy of IKEA can be apparently noted to focus less on incorporating advanced industry-based technological tools. Economies of Scale Economies of scale generally refer to one of the key determinants of globalisation. In relation to the business strategy of IKEA, the organisation raised its annual investments towards encouraging research & development along with innovation of its wide range of products. However, during the period aftermath the global financial turmoil in the year 2008, the situation lowered the capability of the organisation to reduce per-unit operating costs of products through manufacturing large volume of furniture items and household accessories (Krugman & et. al., 2012). The following PEST Analysis represents the impact of economies of scale on IKEA during the year 2008. PEST Analysis Political: The scenario aftermath the global financial turmoil in the year 2008 had certainly enabled the marketers to increase economies of scale through reducing operating costs. It will be vital to mention that the minimisation of political barriers and other deregulatory policies eventually created a major hurdle for IKEA towards obtaining adequate and profitable returns of its investments. Economic: The continuous instability in exchange rates persisting in both domestic as well as international business markets and increasing labour costs seem to affect the performance of IKEA since the year 2008. Social: The unprecedented growth in the global furniture retail industry has also developed a major threat for the organisations to build strong economies of scale. In the context of IKEA, the changes in demographic attributes along with unabated changes of the cultural factors in different overseas locations had certainly affected the organisation in terms of declining its competitive position in the respective industry since the year 2008 (IKEA Group, 2011). Technological: Apparently noted, the consumption of energy and its associated costs had lowered the economies of scale of IKEA by a certain degree. This can be justified with reference to the fact that in the year 2008, the company only achieved 11% of its annual product sale in its domestic market i.e. Sweden. However, IKEA experienced major improvements in overseas business locations including France, Germany, the United States and the UK in the same financial year. It can be affirmed in this regard that the factor concerning economies of scale was raised in the above stated overseas locations as compared to the domestic markets due to rapid technological developments made by the company. Thus, in this regard, it is evident that technology is also a major determinant regarding a well-balanced growth of economies of scale, resulting in developing the overall performance of a company like IKEA at large (IKEA Group, 2011). Describing the Significance of the Examples and Demonstrating Company’s Response Based on the above and discussion, it can be ascertained that the changes derived from globalisation have major influence on the overall performance of the organisations. However, the factors or the examples associated with globalisation are also witnessed to affect the organisations in establishing strong and sustainable position in a particular business industry or market (Brooks & et. al., n.d.).In the context of IKEA, the factors or the examples relating to the globalisation process such as competition, meeting consumers’ needs along with demands and economies of scale have influenced the responses and actions of the company towards sustaining its dominant position in the emerging global furniture retail market. These have been explained in detail in the following section. Competition The business environment in the global furniture retail industry is long been witnessed to face unprecedented changes due to increased level of competition amid the rivals. In this regard, the organisations are highly inclined towards developing strong strategic measures in order to build long –term sustainability in this competitive landscape (Godfrey, 2008). Competition amidst the organisations might play an imperative role for IKEA to build its competitive position in the global furniture retail business industry. This factor can enable the organisation to understand the current scenario of the market including changing trends of the customers, their demographic variables and the strategies implement by other local as well as international organisations. The company in this regard is recognised to adopt varied competitive strategies and practices to reenergise its competitiveness over local and global competitors (Miller, 2008). Meeting Consumers’ Needs and Expectations Meeting needs and expectations of the target group of customers can provide major significance to IKEA in terms of establishing its strong brand position in the global markets. This strategy may assist the company to strengthen its potential stakeholder groups to sustain for a longer time period in the emerging furniture retail business industry. In relation to the current business strategy of the company, IKEA is often observed to critically address the needs and the expectations of the customers regarding quality, durability and affordability of each product. In addition, the practice of conducting customer relationship management activities and customer retention programs also helps the organisation to meet the desires of the global customers at large (Miller, 2008). Economies of Scale One of the adequate measures regarding the decrease of per-unit costs by increasing volume of products substantially improves the economies of scale in IKEA. This eventually contributes in supporting IKEA towards stimulating its competitive advantage. The strategy of lowering per-unit costs through increasing volume of products enabled IKEA to drop the prices of its range of furniture items and further facilitated the company to attract a huge segment of new customers in the global markets (Lun & et. al., 2010). Analyzing How the Nature of the Global Business Environment has Changed in the Period since the Earliest Example with Reference to Comparisons The emergence along with the increased extent of globalisation is identified to make radical changes in the regulatory policies and practices of governments belonging to varied nations throughout the globe. Based on the critical observation of the period prior to the year 2000, numerous changes with respect to political along with economic and social as well as technological factors can be witnessed (Hunter & Jones, 2002). The evolution of deregulatory policies along with critical focus on lowering trade barriers for the multinational firms has been widely recognised throughout the emergence of globalisation. The nature and global business environment had experienced pervasive growth and expansion since the evolution of globalisation prior to the year 2000 (Michie, 2011). Specially mentioning, during this period, IKEA adopted a set of effective strategies that played a key role for the organisation to expand its subsidiaries across dissimilar geographical locations. Moreover, the evolution of globalisation in the form of diminishing trade barriers in different foreign countries and continuous development of demographic variables has significantly empowered IKEA to stimulate its business goals. Conclusion Based on the above analysis and discussion, it is quite evident that the nature and global business environment has been radically improved by the emergence and continuous evolution of globalisation. The business environment in the global furniture industry had experienced pervasive improvement in terms of developing operations and also in expanding business in other locations. With reference to the critical observation of PEST Analysis, it can be ascertained that IKEA had effectively addressed with the changes derived from the evolution of globalisation prior to the year 2000. Moreover, the company had also been witnessed to develop effective business strategies and implementation processes in response to the challenges derived from globalisation since the year 2008. References Blenkhorn, D. L. & Fleisher, C. S., 2005. Competitive Intelligence and Global Business. Greenwood Publishing Group. Brooks, I. & et. al., No Date. Globalisation, Challenges and Changes. Chapter 9, [Online] Available at: http://catalogue.pearsoned.co.uk/assets/hip/gb/hip_gb_pearsonhighered/samplechapter/Brooksch9.pdf [Accessed July 15, 2014]. Fitzgerald, N. & Cormac, M., 2012. 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