IKEA in China and Saudi Arabia - Case Study Example

IKEA in China and Saudi Arabia Contents Introduction 2 1.Overview of the company and its business objectives and goals 2 2.Comparative industry analysis of IKEA in China and Soudi Arabia 4 2.1.Pestle Analysis 4 2.2.Porter’s Five Forces Analysis 5 2.3.Industry Life cycle: 6 Recommendation 6 Conclusion 7 References 9 Introduction IKEA is a Swedish company which has been registered in Netherlands. It designs and sells all the ready-to-assemble furniture and other home accessories. On January 2008, the company becomes world’s largest furniture retailer. The company was well known for its architectural designs for different types of appliances and furniture. The firm is also known for its cost control, operational details and for continuous product development. In the year 1943, IKEA was founded by Mr. Ingvar Kamprad as a mail-order furniture selling business. It started to sell furniture after 5 years. The first store was Mobel-IKEA which was opened in Almhult, Samaland in the year 1958. Afterwards the company was spread into more countries in the year of 1990s and 2000s. IKEA has biggest market in Germany with 44 stores which is followed by United States with 37 stores. By the last quarter of 2013, the company planned to set up the first warehouse near Zagreb, in Croatia. The company faced some issues while building the store, so the construction took place on 28 August 2013 and hoping to finish it by mid of 2014. In the year of 2013, IKEA opened its first outlet in Qatar. Al-Futtaim was operating the Doha outlet. In the same year the vacant Shopping Centre of Merriam Village in Johnson County has been demolished. Kansas was preparing for the IKEA stores that will measure approximately 400,000 sq ft. IKEA announced that a new 389,000 square foot store will begin construction in 2014 in St. Louis, Missouri in the City’s Midtown. The report provides a brief description on IKEA, and the problem that has been identified in the case. The external analysis was concluded by using theories like Pestle, Porter’s five forces and industry life cycle. 1. Overview of the company and its business objectives and goals The stores are usually large blue building with yellow accents and few windows. The stores are often designed in a one-way layout. The leading customers counter clockwise along and IKEA was called it “the long natural way” which is designed to encourage the customers to see the stores. Today most of the stores have same layout that is having the showroom upstairs followed by the market place and self-service warehouse downstairs. Some of the stores are single level while the others have a separate warehouse that has some more stock to be stored. The vast majority of IKEA stores are located outside of city-centre because of the land cost and the traffic access. IKEA’s one of its best features is the long opening hours. Some of the stores are opened 24 hours a day but for restocking and maintenance of the stores throughout the night. Public opening hours are very longer than other retailers. In U.K most of the stores are open in around 9 am to 10 am. IKEA stores of Saudi Arabian market have longest business hours that is from 10 am to midnight and that is for 7 days a week. IKEA is Paramus is the only stores that do not open on Sundays for some local laws. Every store has a restaurant that serves traditional Swedish food. In several locations, the opening time of IKEA restaurants is earlier than rest of store and serves inexpensive and quality breakfast to the customers (Hill and Jones, 2007). IKEA’s furniture is designed for the self-assembling. The company says that this helps to reduce cost and use packaging. It has also said that many of the chain’s European customers use the flat-pack methods for easier transport. IKEA has become a pioneering force in the sustainable approaches for huge consumer culture. It was called “democratic design” for the company to apply an integrated approach for manufacturing and design of the products. IKEA also use wood, plastic, and other materials for making of furniture and other products. The product of IKEA is flexible, adaptable home furnishing and it is used for both small and dwellings as well as for large houses. IKEA has expanded its products to include flat-pack houses to reduce the price of the products. In the year 2013, the company announced that solar panel packages will be sold in UK for more than 17 stores. IKEA‘s household products and furniture are designed in Sweden as because they are largely manufactured in the developing countries for keeping the cost down. China for about 2.5% times supply as much as Sweden. Swedwood, a subsidiary of IKEA it handles the production of the company’s wood based products with largest Swedwood factory that is located in Southern Poland. The company sells 100 million pieces of products annually. In recent years the company sales have been reduced. A downturn in economic conditions in the company’s core European market has played a considerable part in declaration. Another most important factor for the slowdown is lack of strategic directions. After the improvement the economic climate in Europe has developed its business in China, Japan, and Russia (Roy, 2011). The objective of IKEA is to provide wide range of furniture and accessories at a reasonable price so that most of the people can buy the products. Its success is based on simple idea of keeping the cost between manufactures and the customers. It also indicates the cost leadership strategy the company has applied an indirect differentiation. The buyers who search for stylish and fashionable furniture are IKEA’s targeted market segment. For these reasons the customers offers home furnishings that are combined with good design and functionality and acceptable quality at low prices. As the low price is always a priority. 2. Comparative industry analysis of IKEA in China and Soudi Arabia 2.1. Pestle Analysis Political: IKEA has the possibility to achieve the success in both domestic and international market. The company has introduced the Scandinavian style for furniture that is combined with flat packaging which is a global brand today. Economic: the strength of IKEA comes from the ownership transfer of the business to stitching Ingka. Due to some economic changes and trends the company is adopting different kinds of strategies. The economic condition effect the market performance and declared the slowdown because lack of strategy directions. For generating high performance IKEA should be careful in examining the key factors that can be involved in any business aspects. Social: IKEA has contributed much in society as they are providing opportunity to the people and employees who are involved in different benefits such as insurance and pensions. The company has promised to provide better quality products to the customers. Technological: IKEA uses quality technology and system to promote the shorter queues, trading pattern and proper scheduling. The system helps IKEA to understand that right number of staff in a right place. The company is basically focused into supply chain and to manage the workforce to create an efficient store and to make the customers happy (Press, 2006). Legal: IKEA is strictly performed with the relevant and applicable laws and regulations that are pertaining in the environment and in work place. Environmental: IKEA has some environmental factors such as air, noise, and water and inspection are performed to make sure that the company is providing corrective actions within the stipulated time. The environmental factor is the part of legal documentation as the business maintains the competences (Md. Hasan, 2013). 2.2. Porter’s Five Forces Analysis Power of the Buyers: the power of buyers is low because of the existing low price options. Furniture and some small items have an alternative and limited for the consumer choice which makes IKEA is different among its competitors. The low-price strategy can be stated as another factor in which the company’s buyers respond most. Power of Suppliers: IKEA have a whole lot of supplier that set standards in delivering the materials. Once for some products IKEA compete with other suppliers and they have got less bargaining power. The profit margin of IKEA also affects the prices in raw materials. Rivalry: the competitors of IKEA provide different styles and functionality. Conrin provides a new low cost target for furniture line; Cartel & Barrel provides the furniture in box which provides high prices. IKEA is most successful in delivering the complete packages for the customers District (Henry, 2011). Substitutes: there are particularly no products that can be used as a substitute of IKEA. It has to keep up with latest trends and design. There is an advantage and that is, while cutting and leading technology, IKEA will not be able to copy any new styles and take the products to its stores. New entrants: another furniture company is involving on low-cost strategy and should compete with IKEA as the excellent company in delivering the furniture and warehouses. IKEA do not move in small towns and this is the opportunity for the new brands to move into small markets (Slamanig, 2013). 2.3. Industry Life cycle: The industry life cycle is comprises of five stages that an organisation will go through. The cycle has development stage, growth Stage, shakeout stage, maturity stage and decline stage. IKEA was first introduced in the market of retailing was in 1943. The retailers hold about 5-10% of the furniture industry. The introduction stage has becomes short for IKEA because of different concept that provides low cost “Do It Yourself” styled furniture which is flat packed. The introduction for the Arabian market has got numerous shoppers who are attracted to store vouchers. Towards the growth and maturity stage the company was able to look at the competitors and made a reduction in the price and sell the IKEA products. There were a times when IKEA had miss the tastes and preference of the customers in Hispanics and the Italians. In Japanese market it has failed 30 years ago and enters the market with some more knowledge and experiences. These are some challenges that IKEA has to face throughout the industry life cycle (Stark, 2011). Recommendation IKEA is a global brand known to everyone for its home furnishing market with number of stores across the market. The research says about the economic conditions of the country and organisation where it has been crater the market by providing innovative designs. It should focuses in generating designs through a huge network. IKEA is mainly targeting the people who search for low price products. This brand provides innovative designs and multiple functionalities to the user in quite cheaper rates. It should also focus in providing some high ends product which will cover a huge market in domestic and in international market as well. It should follow a price strategy in which both low price products and high price products for the different groups of the customers. The price of the products is not very high it can be afforded by everyone. The price of the raw materials is hike up but the prices of these products is very reasonable. If the company could do its business with high price products it would earn more profit in the by providing elegant products to the customers. Many of the customers are more eager to buy high price products. The value of the research is that it has made understood the strategy. IKEA offers some differentiated features that attract to its targeted customers by providing in-stores playrooms for children, wheelchairs for the customer purpose and the extended hour of the stores. The brand has focused on delivering the products to the retail stores to all over the world by using the control points in the distribution cycles. The brand competes with the same products that a different brand for high price. This company has a number of young buyers who want to buy products in lesser prices but a better quality product. IKEA first design the price than it incorporates into product and see whether the price suits the product that they will designed. IKEA follows the porter’s strategy; its mission is to indicate a cost leadership strategy. It also has a position in which the stores display various items to the customers. The most important thing that has been discussed in the research paper is that after facing the problems and the slowdown of the company it has tried to take the market again and to provide the best quality product in a reasonable price. The company has lots of targeted customers for buying the products which provides innovative design. From the research paper it have cleared that IKEA has started its business by selling fish, vegetables etc. it has now took a change by introducing the innovative design furniture in low prices with best quality. These products basically valued the young customers who want to buy furniture with low price and multi functionally products. IKEA has many activities for keeping the cost low. One of the major function it play for keeping the price low is that it does not rely on the third party manufacturers but it design low cost modular furniture that are ready for assembly by the customers (Sehgal, 2010). Conclusion In this paper it has been clearly discussed about the IKEA market research in China and Saudi Arabia. The company deals with self resembled furniture products. It has point out the issues that have been faced by IKEA. The business grew very well and it is best known for its Scandinavian style. The company has also sold fish, vegetables, magazines and many more. Number of stores was also included with restaurants and cafes. The sales growth has reduced in the recent years. Another factor for the slowdown of sales for the company is lack of strategic direction. An improvement in the economic condition in Europe has strongly developed its business in China. The case describes the different types of problem that IKEA faced while doing business in new markets or in the existing markets. For example the performance in Japan had geared up IKEA to take a place in Japanese market and a high attractiveness which had caused deaths in Saudi Arabia. The report provides with the pestle analysis, porters five force models to make an analysis for the company. In pestle we can make out the political, economical, social, technological, legal, and environmental factors of any organisation. Porter’s five forces model analysis the power of buyers, suppliers, threats involved in entering a new market, substitute of the products. It helps to understand the power of the buyer and suppliers that involved in each of the organisation to know whether the power is high, low, and medium. The industry life cycles shows the introduction, growth, shakeout, maturity and decline of the organisation. It states the introduction of the market when it is entering into a new market, the growth rate of the product in the market, shakeout of the company, the maturity and finally the decline where it says about the slowdown of the company. References Henry, A. (2011). Understanding Strategic Management. New York: Oxford University Press. Hill, C. and Jones, G. (2007). Strategic Management. New York: Cengage Learning. Md. Hasan, R. (2013). An Analysis: PESTEL analysis. London: GRIN Verlag. Press, K. A. (2006). Life Cycle for Clusters. London: Springer. Roy, D. (2011). Strategic Foresight and Porter's Five Forces. London: GRIN Verlag. Sehgal, V. (2010). Supply Chain as Strategic Asset. New York: John Wiley & Sons. Slamanig, M. (2013). Pest Analysis Hungary. London: GRIN Verlag. Stark, J. (2011). Product Lifecycle Management. London: Springer. Read More