Business Strategies for IKEA - Example

Executive Summary The report looks to present the international business plan for IKEA. To develop a business plan the report is divided in three parts. The first part focuses on the external analysis factors which analyze the manner in which cultural and economical factors are having an impact on the economy and the overall demand for goods and services. The second part highlights the objectives which IKEA wants to achieve. This is followed by identification of the marketing strategy and other strategy which will devise the path based on which IKEA has to perform. The last part works on the internal resources and developing a contingency plan. This helps to understand the manner in which IKEA will use its resources and capabilities and achieve its goals. This is matched by the development of a contingency plan and proper monitoring. The overall impact will thereby ensure that IKEA will be able to develop a business plan which will help them to be successful and provide an opportunity through which they will be able to improve their reach and attract more customers from different countries around the globe. Table of Contents Introduction 3 About the Organization 3 Part A 4 Cultural Analysis 4 Economic Analysis 5 Part B 7 Description about the product 7 Market Information 7 Competitors Information 8 Marketing Plan 8 4P’s of Marketing 9 Part C 10 Capabilities, Resources & Financials 11 Contingency Plan 14 Measurement 14 Conclusion 15 References 16 Introduction This report analyzes the international business plan for IKEA which is one of the world’s leaders in home furnishings. The report dwells on different aspect and has been segregated into different parts. Part A looks at identifying the cultural and economic analysis for IKEA by dwelling on different factors like religion, language, population, cultural issues, working conditions, labor force and so on. Part B looks to provide description about the product offerings, the market information, competitor analysis, marketing strategy and thereby helps to determine the manner the business will look to work in an international environment. The last part i.e. C concentrates on identifying the different resources, capabilities and financials which the organization has and the manner in which it will help them to be successful. This section also concentrates on the contingency plan and strategy to monitor the entire performance so that any deviations can be identified and steps can be taken at the appropriate time. Thus, the overall analysis will help to understand the manner in IKEA has performed and will help to identify the future strategy based on which success can be ensured in the future. About the Organization IKEA is one of the world’s largest homes furnishing group which has continued to grow and show its power and existence over players in the market. The organization stated in business in 1950’s when it opened its first store in Sweden and since then the organization has grown in size and volume. IKEA has over 165 stores in Europe, North America and Asia. The organization instead of producing all the products by itself also sources some of the products and has more than 1600 suppliers from 55 countries. The strong culture of IKEA which is to improve the life of people on an everyday basis has been a corner stone which has helped them to be successful. This policy has governed them over the years and has ensured that even the products which are sourced are taking into consideration to social and environmental considerations thereby ensuring that the legal framework is adhered to. The overall dimension of IKEA has been thereby to bring a change in the style of working and transform the culture where better opportunities of growth can be identified. Part A This aspect of the report will look towards an external analysis by concentrating on the cultural and economical aspect of the analysis. The aspect looks to analyze the condition of Sweden where IKEA is already operating and aims towards understanding the manner in which the different factors had an impact on the overall growth and performance of IKEA. The prime reason for choosing Sweden is to understand the manner in which the international environment was dealt and will focus on important aspect so that the overall style of working can be better developed. While looking to cover both the aspect smaller and important fundamentals will be considered and this will help to develop the required parameters for other important areas Cultural Analysis The Swedish culture is one which is tolerant and not only does it have general high manner but also has the presence of general rules, law and government intervention and activities. The cultural policy allows for freedom of expression and provides for an opportunity of cultural integration between nations through a wide array of domestic and foreign programs. Sweden considers human rights an important aspect of their constitutions and ensures to protect the dignity and respect of all individual. This is matched by the equity that is established between men and women and equal treatment is imparted to both. This has resulted in an equal distribution of power, equality with regard to leaves and salaries and an opportunity to work on a continuous basis and have equitable position in the society (Cuthbertson, 2007). Sweden further has a monarchy form of government where the political condition is stable. The market possibilities allows for both the domestic and international players to ensure efficient services. This is matched by a wide array of rules and regulations which has been developed for each sector and continuous presence of government or other bodies ensures that business is able to carry out its different functions efficiently. This is matched by a policy of transparency which has ensured an environment where decisions which are taken help to ensure productivity for all. In a similar manner Sweden has also witnessed a continuous growth in technological innovation and has multiplied the wide opportunities so that better services are rendered. Sweden had looked at both the external and internal changing environment and based on it have revolved their style of working so that better productivity is ensured over a longer period of time. Economic Analysis Sweden economic development has been developed on four pillars which are developing sustainable community, ensuring proper health, dealing with the demographic challenges, and ensuring sustainable growth. This shows that the economy is oriented towards economic and medical enhancement conditions. The economy has been able to sustain growth and development due to the fact that the economy has stayed competitive. This has helped to deal with the different issues associated with trade unions and has provided the leverage through which maximum gains and productivity have been ensured. A look at the GDP condition of the economy shows that it has achieved the level of SEK 2838 million. The growth is on a continuous basis and has reduced the impact of recession which was recently encountered. The economy has also witnessed an increase in import in comparison to exports as Swedish market is providing an opportunity for other players to make extra income (Capell, Sains, Lindblad, 2005). The inflation level is low and circulates around 2%. This is the benchmark which has been decided by the national bank of Sweden and keeps a flexibility of 1% on either side. Sweden also follows floating exchange rate. The employment rate for Sweden is very high which has ensured that people looking for job has been provided with one. The tax rate for Sweden is very high and is around 48% at the present level. Changes have been made in the tax rate by reducing it but it will take a longer period of time before matching the international levels. The international trade policies are clear and simple. The government follows a formal process but at times makes necessary arrangements and eases the rules to ensure that the economy is able to gain from international trade. The overall aspect of Sweden thereby looks strong and provides an opportunity for other players to be able to use it and develop their product and services based on the requirements of the economy. Part B This section looks to provide information about the product, the market size, the competitors, and the marketing strategy. This thereby concentrates on the internal analysis and helps to formulate strategy for better performance and growth. Description about the product IKEA works in the retail industry and had started their business as a pioneer in the furniture industry. Since, its inception the product line for IKEA has been growing at a rapid pace. IKEA product line includes not only beddings and furniture but a range of different products like decorative accessories, textiles, home accents, lighting, appliances, house-wares, and tabletops (Anderson, 2006). In addition to it IKEA has constantly grown its product line by having both local as well as goods from international player. This has helped them to ensure that they are able to target every segment of the customers and has been able to create a niche market for its products and offerings. This has helped IKEA to grow and has provided them with a working culture which is aimed at maximum productivity and proper use of the resources. Market Information The entire market is witnessing high growth rate due to increase demand which has increased the consumption of goods and services. The market which mainly forms part of the organized sector has seen a tremendous peak in demand and services which is growing at a rate of more than 19%. The presences of different players like Bostic-Sugg, Target, Ashley Home Goods, and Bed, Bath and beyond along with IKEA has brought about a change in the market and has increased the degree of competition. Competitors Information IKEA faces stiff competition from both the organized and the unorganized sector. Bostic-Sugg, Target, Ashley Home Goods, and Bed, Bath and Beyond are some of the major competitors which IKEA has to deal with. The degree of competition intensifies as all the organizations work on the same business model which has thereby multiplied the complexities and made it difficult for IKEA to compete against them. Bostic-Sugg markets high priced furniture which is aimed basically for the high end consumers. Target sells different variety of goods and is aimed to attract all section of the society. Ashley Home Goods also sells costly furniture which is usually assembled as done by IKEA thereby following the same business model. Bed, Bath, and Beyond is a store similar to IKEA providing many products thereby ensuing an opportunity to choose from different options (Gabbot, 2004). The degree of competition is therefore very stiff and IKEA has to look to deal with the unorganized sector as well. The unorganized sector has a good percentage of the market share and creates difficulties for IKEA as having different stores at all places in the nearby areas has made it difficult to deal with the degree of intensifying competition. Marketing Plan The marketing plan developed for IKEA aims to achieve the following marketing objectives To improve penetration of IKEA into foreign markets by identifying the manner in which continuous and consistent performance can be ensured To improve the market share and continue with the same fundamental of providing quality services to the customer so that the organizational culture is met. To develop a pool of loyal customers by providing quality service and ensuring that the customers are provided with an opportunity to ensure better productivity and develop a pool of loyal customers To ensure consistency with the environmental and legal environment and continue to develop policies which support growth but at the same time looks to contribute positively towards the society. 4P’s of Marketing The 4P’s of marketing dwells on product, price, place and promotion the details of which are as under Product: IKEA provides a wide range and array of products to its customers to choose from. IKEA product line includes not only beddings and furniture but a range of different products like decorative accessories, textiles, home accents, lighting, appliances, house-wares, and tabletops (Anderson, 2006). The organization provides a wide range of products and at the same time ensures that the customers have an opportunity to choose from different variants and brands which are available under the same place. Price: IKEA has priced is product in such a manner that it fits every pocket size. The management has products for every person visiting the store and has ensured a policy of minimal pricing and penetration pricing. This has ensured that IKEA is able to develop the required fundamentals and price it product in such a manner that they are able to attract people from all segment and society (Lee, Smith, Grimm & Schomburg, 2003). Place: IKEA has over 165 stores in Europe, North America and Asia. The organization instead of producing all the products by itself also sources some of the products and has more than 1600 suppliers from 55 countries. The management has ensured that the retail store is at places where they can attract more and more people so that the footfall increases. This has provided an opportunity to ensure that all section of the society is attracted. Promotion: IKEA mostly uses catalogue advertising to promote their products. This is matched by other promotional tools like media advertising, print advertising, pamphlets, loyalty addition points, special offers and gifts. IKEA to ensure maximum customer satisfaction has also hired the best employees from the industry so that quality service can be provided to them. The organization also ensures that they have loyalty programs and look to inform the customer so that they can choose from the different products. Part C This section focuses on identifying the capabilities and resources that IKEA has so that the marketing objectives can be achieved. This is followed by the financials for the organization. This section also provides information pertaining to contingencies and measurement so that steps can be taken which will help to make the necessary changes and ensure better productivity. Capabilities, Resources & Financials IKEA has looked forward towards using the internal capabilities and its resources in such a manner that maximum productivity can be generated for the business. To ensure that maximum possible growth becomes possible IKEA uses a new management system which has helped to grow and compete in international competitive markets as the new process has ensured flexibility, independency and developed entrepreneurial abilities. This has been matched by the fact that IKEA trains its employees and managers by ensuring that Swedish managers visit the stores of other country and pass on the message through which proper work can be ensured (Björk, 2000). This has ensured that IKEA continues to use the same business model and grow. A more detailed analysis of the different capabilities and resources that IKEA has is shown through the Value Chain Analysis The primary objectives which has been achieved through the resources and capabilities for IKEA is as Inbound Logistics: IKEA used different techniques to maintain its inventories and uses stock level and ordering level process to determine the amount of inventory it has to carry Operations: IKEA to carry out its operations sources its products both from the local and international player. In addition to it IKEA also ensures that it manufactures some of the product in house and has looked to gain operational efficiency through its style of working Outbound Logistics: IKEA looks to outsource its products from different players and have more than 1600 suppliers from 55 countries which have developed their network. This is aided by the strong supply chain which ensures timely availability of all products across its outlets. Marketing & Sales: IKEA uses catalogue advertising as their prime form of advertising. This is matched by other promotional tools like media advertising, print advertising, pamphlets, loyalty addition points, special offers and gifts. IKEA to ensure maximum customer satisfaction has also hired the best employees from the industry so that quality service can be provided to them (Hochwald, 2000). Services: IKEA has also hired the best employees so that they can assist the customers with their needs and requirements. This has helped to satisfy the needs of the customers and has also ensured that customers are able to search and get their needs satisfied by taking the help of different sales personnel within the organization. The primary objectives are being assisted by the secondary objectives so that the goals of the business can be better achieved Infrastructure of Firm: IKEA has developed their retail chain keeping in mind the needs of the customers. Further, the stores are designed in a similar manner and have most of the products being displayed so that customers can choose the product after seeing them. The organization further ensures sufficient inventory so that it can be supplied to the different stores and the needs of the customers can be easily met. Human Resource Management: IKEA looks towards hiring the best employees from the market and provides them the required training so that they are able to understand the customer needs and based on it deliver superior services as per the customer wants. Technology: IKEA continuously works and strives to bring a change in technology and looks to adopt the best technology so that they are able to deal with competition and are able to create the required dimensions through which IKEA can grow Procurement: IKEA to carry out its operations sources its products both from the local and international player. In addition to it IKEA also ensures that it manufactures some of the product in house and has looked to gain operational efficiency through its style of working The financial analysis compliments the use of resources and capabilities that the organization has and justifies the fact that IKEA has been able to bring the required transformation which has ensured growth for the business. The financials for IKEA shows that the annual revenue was 210 million in 1974 which has grown continuously and has increased to over 8.6 billion. A break up of the percentage wise sales highlights that around 8% of the sale occurs in Sweden, 21% from Germany, 50% from Europe and the remaining is contributed from other parts of the world. The expansion strategy in Asia had helped IKEA as the contribution from Asia has grown to over 5%. The organizations for its strong business has also altered and modified the manner in which they work by making changes in the business models so that it suits the local requirements. The process of innovation and continuous change has helped IKEA to grow its business and contributes immensely towards the growth of IKEA. Thus, IKEA has been able to use its resources and capabilities which have shown positive results through their financials and working on the same strategy will ensure that IKEA continues to grow and will be able to bring the required change in their style of functioning. Contingency Plan IKEA needs to ensure that apart from the main objective a contingency plan has to be developed. This will help IKEA to carry out their objectives even if the main plan goes wrong. Contingency plan has to be prepared early and the necessary resources have to be deployed so that in time of difficulties the business is able to take the necessary steps. This has to be matched by the fact that the contingency plan should be fool proof and will be used as the main plan in case of difficulty (Gosselin, 2004). This will require that the contingency plan is developed after keeping in mind the externalities so that steps and process can be developed to deal with the environmental and other changes. Measurement IKEA further has to measure the actual performance with the standard performance to find out the deviations. In case deviations occur than IKEA needs to develop strategies which will look to fill the void. Having regular checks will ensure that the deviations are noticed early and based on it steps can be taken at the appropriate time. This will thereby help to save the resources and provide the manner and direction based on which the employees and other resources have to be used. Conclusion The report thereby helps to develop an international business plan for IKEA by working on different areas which includes the external and internal analysis. This is matched by the identification of marketing objectives and the steps the business will take to achieve the objectives. The identification of different areas which has to be worked on lays down the platform based on which better and superior performance can be delivered. This will thereby help IKEA in bringing the required transformation and ensuring that the business is able to grow and expand its business in other markets. References Anderson, K. 2006. Furniture stores see market share slipping. Furniture Today. Retrieved August 16, 2013 from http://www.furnituretoday.com/article/CA6365162.html Björk, S. 2000. IKEA: Entreprenøren – Forretningsideen – Kulturen, Index Publishing AS, Oslo Capell K., with Sains A. in Stockholm, Lindblad C. 2005. in New York, Palmer A. T., IKEA, Business Week. 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