The Analysis of SWOT for IKEA - Case Study Example

IKEA is a furniture retailer and has been in existence since 1943. “IKEA is the world largest furniture retainer and sells furniture, bathroom fittings, accessories and kitchen fittings”. (Company Website, 2010) The company has grown from a small one to “presences in 37 countries and having more than 300 stores”. (Company Website, 2010) IKEA has been working on the model “to provide furniture to people at affordable prices thereby ensuring that they work on low cost strategy”. (Company Website, 2010) This has enabled IKEA to have operation in Europe, USA, Australia, Israel, and Asia to name a few”. (Company Website, 2010) IKEA has been successful because “it had followed the same strategy by designing the store similarly and ensuring that customers can look at the products”. (IKEA, 2010) The company like any other company has ensured that “the market their products, retain customers by having loyalty programs and continuously renovate”. (IKEA, 2010) The company has also looked into the societal aspects. It has “contributed towards charity, disasters, and to save the environment it charge $1 extra for plastics as compared to paper bags”. (IKEA, 2010) This has made IKEA move from one step to other. The further analysis of SWOT, the environmental factors and Porter’s Five Force Model will help to determine as to why IKEA moved to other countries and how successful the company was in its strategy. SWOT Analysis The analysis of SWOT for IKEA helps to highlight the following points. This point presents the picture why IKEA decided to move to other countries to launch its products and the efficiency with which it was able to achieve it. Strengths IKEA has its own production unit which has helped them “to ensure that the product is of high quality and is under the banner Swedwood”. (SWOT Analysis of IKEA, 2010) The advantage from this is that “IKEA has been able to maximize production at the same time ensure that there is minimum waste”. (SWOT Analysis of IKEA, 2010) IKEA designs its product itself which has ensured that “they keep in trend with the latest development and seeing that the furniture matches the market trends”. (SWOT Analysis of IKEA, 2010) Strong brand image due to “presence in many countries has ensured that it is one of the top most ranked in the world which is helping IKEA to retain customers”. (SWOT Analysis of IKEA, 2010) Strong “relation with suppliers which helps them to procure the raw materials at the lowest cost”. (IKEA SWOT Analysis, 2010) This is helping them to work on the business model which has been successful for them The uniqueness of their business model will help them to gain more customers Specialist area in certain field is helping IKEA dominate the market as they are unique in their operation. Acquiring companies abroad and ensuring that they meet all the requirements. Weakness Distribution Channel not as per the requirement is hampering as there are few stores in countries which is “making customers to switch to other brands who have their stores near their homes”. (SWOT Analysis of IKEA, 2010) Regularly “calling back the product due to some fault is resulting in creating a negative perception”. (SWOT Analysis of IKEA, 2010) This is because it is done regularly and customers feel that the products lack quality. Opportunities “Sourcing the furniture from China is an option as it is a low cost producer”. (SWOT Analysis of IKEA, 2010) IKEA also works on low cost model so it will help the company and provides an opportunity to grow. “Prospects to increase sales by going online as the penetration level of internet have increased which will help to improve sales”. (SWOT Analysis of IKEA, 2010) IKEA can “work on the green movement and can promote itself” (IKEA SWOT Analysis, 2010) by stating that they are not harming the environment. Threats IKEA might face “global pressure due to the different regulations which different countries have which might effect their production”. (IKEA SWOT Analysis, 2010) Reducing disposable income in the hands might affect the sales pattern for IKEA. The analysis of these internal factors will help to find out how it can be integrated with the environmental factor so that a better understanding can be drawn as to why IKEA moved abroad and established such a big chain. Environmental Analysis The analysis of the external factors will help to understand why IKEA has been able to expand overseas. It also helps to find out why their launches in different countries have been successful and how the analysis of this factor has contributed. Political IKEA has looked into the political situation of different countries to identify the potential markets. “Distinguishing themselves by understanding the political situation in the global extent has helped IKEA to find the correct markets”. (PESTEL Analysis, 2010) This analysis can be seen from the fact that “IKEA has not expanded their business model in India which poses a huge potential because the political situation of the country prohibits foreign ownership for a single brand”. (Corporate News, 2010) IKEA while deciding to move to a different country “they have ensured that home market or where they are presently in operation like Australia is able to meet the demands”. (PESTEL Analysis, 2010) IKEA has also looked carefully in the policies framed by the country where they wish to enter. IKEA looks into the benefits the company will get and the stability of the government. This helps IKEA because a stable government helps to come up with favourable polices which is helping IKEA enter the country. Economic This is a very important consideration. It helps to determine the purchasing power and the growth the economy poses. IKEA has ensured that “it enters countries where the standard of living is high and people have disposable income in their hands”. (PESTEL Analysis, 2010) IKEA has been successful because it had launched its products in “countries where the inflation level is under control as it puts extra pressure on cost”. (PESTEL Analysis, 2010) IKEA has also been successful as it has chosen countries “where the demographic prefer furniture and willing to upgrade themselves”. (PESTEL Analysis, 2010) This can be seen from Australia where the culture is outward and has a high standard. The company has been successful there. Also launching in Israel has been on similar lines. The country has a huge potential and the high disposable income makes it possible to market easily. IKEA while launching has also seen that “they get special benefits so that they can save especially when it is related to taxes”. (PESTEL Analysis, 2010) Considering the growth and the past and expected future trends has helped to identify IKEA the correct destinations and launch themselves. Social IKEA have analysed the social factors very properly. They have chosen places “where the population is outward and are willing to spend”. (PESTEL Analysis, 2010) IKEA has also looked in the trends the country has. This has enabled them to launch the correct furniture. Like in Israel realizing their customs and trend IKEA has launched the furniture brand. IKEA has also considered the “customers needs and requirements and launched their furniture range accordingly”. (PESTEL Analysis, 2010) This is one of the prime reasons why IKEA wants to enter India. The demographics out here support their business model. IKEA wants to tap this market as it gives a huge potential and the recent change in trend towards furniture supports IKEA framework. “The facts that IKEA being a low cost provider has been able to properly evaluate the social factors and also tap countries which are par below developing”. (PESTEL Analysis, 2010) Thus the overall analysis of the social factors and the changing pattern, the change in demographics, increased brand awareness and the ethnic factors have contributed towards IKEA success. The company still has opportunities to follow the same model and enter into other countries by properly evaluating the factors. Technological IKEA was able to move and enter other countries because of technological growth. “The use of RFID all around the globe enabled IKEA to send its furniture all around the world as it saved time”. (PESTEL Analysis, 2010) Technology enabled IKEA to move with its same business model of low cost. IKEA was able to find countries where production would be cheap. This has allowed for movement all around. This has helped IKEA “to inculcate the technological advancement in its way of working”. (PESTEL Analysis, 2010) This can be seen from the fact of RFID. Radio Frequency Identification Device helped IKEA to market abroad. The code enabled the price to be quoted and using the computer it was easy for marketers. This also helped IKEA to “understand the change in customer preference and trends by the different tools and thereby mould them accordingly”. (PESTEL Analysis, 2010) The technological changes acted as a positive signal. It provided ample opportunities. This enabled IKEA to put this strategy in its main strategy. This has immensely been a boon to IKEA as it gave them a direction to move. Environmental The analysis of environmental factor has helped IKEA immensely. This factor has guided IKEA. This has enabled “to develop the staff by providing training and guidance so that they are effective”. (PESTEL Analysis, 2010) It also looked into factors especially the political ones. Looking into these factors has helped IKEA “to understand the customers’ value and use it while designing their furniture so that it suits their requirements”. (PESTEL Analysis, 2010) IKEA by looking into this has ensured that “they have proper staffs which help in installations of furniture and it is seen especially in their kitchen segment where they have specialist who help to fit those”. (PESTEL Analysis, 2010) Identifying this has helped IKEA to distinguish itself. Customers look for IKEA as they are specialist and with such an experience IKEA has been able to draw many takers. IKEA by studying this has been able to “ensure that the morale of the staff both in house and out house is not affected and various tools have been devised to ensure that they are high on confidence”. (PESTEL Analysis, 2010) IKEA thus, by analysing it has ensured that it has considered these factors in their plan of things. This has enabled IKEA to understand the global atmosphere and has helped them to move in other countries. Legal IKEA has been very careful while analyzing this. This has been their fundamental and has ensured that “they don’t waste the time and resources by entering a particular country and later been prohibited”. (PESTEL Analysis, 2010) This stands as a prime reason for IKEA not entering India. IKEA has looked into the legal aspect and in India “foreign brands are not allowed to establish single brand stored by itself” (Corporate News, 2010) thereby prohibiting them from entering this market. IKEA has also considered the “employment regulations and look that they adhere to it”. (PESTEL Analysis, 2010) IKEA has looked into the fact that their pay and hours of work match the standards. Even the “environment has been considered and measures have been taken to ensure that they don’t harm it”. (PESTEL Analysis, 2010) This has helped them win the confidence of customers. IKEA thus, by analyzing all this factors have been able to carve a path. Proper understanding of this has helped IKEA to move to different countries. This has helped them to grow in the furniture market and create a market. Porter’s Five Force Model This analysis will help to provide insights into IKEA and they brought about changes in vital decision taken by the company. This will improve our understanding as to why IKEA expanded into other countries and launched its products. “It will also help to find the factors which were critical” (Wylick, 2010) for IKEA. This will “provide a proper understanding and help in the formulation of further strategies”. (Wylick, 2010) Rivalry within an industry The competition level is high. IKEA being a low cost furniture provider faces “stiff competitions from small stores who are family owned and work on similar model”. (SCRIBD, 2010) The characteristics of this shop is that “they provide furniture according to the wants of the customer and design those accordingly which has given them a reputation at the local market”. (SCRIBD, 2010) There are other manufacturers like “Nova, Furniture mall and Courts who work on similar lines”. (SCRIBD, 2010) They also provide low cost furniture thereby intensifying competition. This makes it tough for IKEA. It faces both the local and global competitors. IKEA thereby has been successful as it has entered the low cost country like China and using its experience working on the model to ensure growth. Bargaining Power of Suppliers The suppliers have a high bargaining power because “this forms a major part of the input cost and the concentration of supplier is giving a headache”. (Porter 5 Forces, 2010) To reduce this IKEA has worked on “backward integration of the supplier”. (SCRIBD, 2010) This will ensure that they have a relative supply and don’t lack. IKEA to reduce the bargaining power also has “its own methods of producing and designing the furniture which has helped it to improve its relationship marketing with the suppliers ensuring timely availability of raw materials”. (SCRIBD, 2010) This has enabled IKEA to reduce the bargaining but still when we look at the global level it’s strong. The presence of certain regulation is making it tough for IKEA. Bargaining power of Customers The customers have a mixed bargaining power. “Due to less differentiation and backward integration possible customers switch easily”. (Porter 5 Forces, 2010) IKEA on this front to reduce their power and retain customers has worked heavily. IKEA “provides loyalty programs to its customer by ensuring that people have appositive experience while shopping”. (SCRIBD, 2010) IKEA to reduce and enhance customer satisfaction has given them “100 days return program, a hotline where people can solve their queries and designing the shops in such a way that people get a real feel of it”. (SCRIBD, 2010) This all has ensured that IKEA has been able to win customers and retain them. This has helped them to move in different countries. Threat of Substitutes The threat of substitutes is less. IKEA on this front has an advantage as “there is hardly anything that can be substituted for furniture”. (SCRIBD, 2010) This has made it easy for IKEA to launch in other countries. This also ensures that proper marketing and quality will help to ensure customers as they have little choice. IKEA still on the substitute front has a problem “with furniture being sold online as there are many takers and customers unlike clothes don’t have to try and can order by visualizing on their screens”. (SCRIBD, 2010) Still, when we consider it to other product IKEA is sound on this. With little or no substitute available is creating ample opportunities for IKEA which will help it to move to other countries as well. Threat of Potential Entrants There is little competition here. There are many stores like “Nova, furniture mall and Courts who are entering other markets”. (SCRIBD, 2010) Even on the high end we have Lorenzo. Still the new entrants are few. The high cost involved is a reason. IKEA on this front has used it by entering countries and slowly others are trying to replicate it. The cost involved “in setting a store and stores get economics of scale only after certain percent of the market has been captured in making few entrants follow” (SCRIBD, 2010) this path. This is a good sign for IKEA. The company due to its size and nature can risk by entering other countries and their business model will support them to grow. Conclusion IKEA has been successful as they have evaluated all the factors carefully. Their ability to produce furniture cheaply and of high quality has earned a brand name. The PESTEL analysis also supports this statement. The SWOT has highlighted the various opportunities IKEA still has. The five forces have ensured that IKEA has a solid foundation and ground to cover. Their business model is their strength. This has helped them face the worst of times. IKEA due to its strategy will be able to launch itself in different countries and ensure that their growth trajectory continues as they pose a huge potential for growth. 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