Research Paper 2: IKEA Analysis

This project analyzes IKEA's international expansion strategy, examining its competitive strategy, organizational structure, entry strategies, operational control, and human resource management across borders. The project includes a written report and presentation, offering recommendations for improvement.

Analysis of IKEA

EXECUTIVE SUMMARY
The purpose of this business report is to perform the analysis of Ikea that has expanded
its operations across borders into foreign market. Analysis is done by taking into consideration
overview of the company current operating position, by reviewing of company international
competitive and entry strategies used to enter other countries. Moreover supply chain
management of Ikea and the key issues or opportunities for management along with
recommendation for improvement is being specified in this report. Therefore after analysis it is
to be concluded that Company uses porter's generic strategy in order to expand business at
international level. Moreover it is also being concluded that company uses franchising entry
strategies to enter into new foreign market as it render lower financial risk of investment and also
have tight control over brand and strategy.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Overview of the company and current operating position ....................................................1
Review of company’s international competitive strategy......................................................1
Existing organisational design structure and control issues...................................................2
Entry strategies used to enter other regions/countries ...........................................................2
Operational control, production and distribution/supply chain management........................3
Management of Human Resources across borders ................................................................4
Identify key issues or opportunities for management ............................................................4
Recommendations to management for improvement.............................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
IKEA is one of the privately held international home product retailer who deals in selling
accessories, flat pack furniture, bathroom and kitchen items in their retail stores all around the
world. Additionally Ikea was founded by 17 year old Ingvar Kamprad in Sweden during 1943
and was originated in Smaland, Sweden and terms to distribute its products through its different
retail stores. This business report is specifically explains about the overview of the company
current operating position along with review of company international strategy. In addition to
this, entry strategies used to enter other nations along with the key issues or opportunities for
management is specified in this file. Lastly, existing organisational design structure along with
recommendation for management is being specified in this report.
MAIN BODY
Overview of the company and current operating position
Ikea is one of the Swedish founded multinational group which generally sells and design
ready to assemble furniture, home accessories and occasionally home service. It was founded in
1943 by Ingvar Kamprad and began to sell furnitures five years later. Whereas first mobel Ikea
retail store was opened in Smaland, Almhult in 1958. Slowly Ikea began to open its retail store in
other part of nation as well like in Japan, Australia, France, United states, United Kingdom etc.
By November 2018, it has been seen that near about 424 Ikea store were opened in near about
52 countries(Grant, 2016). Moreover Ikea has certainly met their strategic goals through
execution of diverse marketing strategic tools which has made them to achieve the success that
they are. Ikea was also awarded for introducing Scandinavian language in 2017.
Review of company’s international competitive strategy
IKEA is mainly based on Porter's Generic Strategies which was proposed by Michael
Porter. “Cost Leadership strategy” is mainly taken into consideration by Ikea who seeks for
suppliers and could fabricate well fashioned sub-assemblies at the lowest cost(Hrelja, Isaksson
and Richardson 2012). Therefore, this method of Generic strategy helps the Ikea company to
save delivery cost for both the customers and producers. In order to receive different segment
customers, this method allow the manufacturer of Ikea to reduce a lot of cost taking into
consideration the customer affordability to pay for the products. This is also termed to be Ikea's
“Focus Strategy” for low cost. As by setting competitive price the organisation could easily
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achieve vast market segment as well as can achieve competitive advantage in market. Beside all
this strategy company Ikea also follow “Differentiation strategy”, as every retail store of Ikea
term to be a unique building with its brand symbol and style as compared to other furnishing
retail store. It render suggestions and choices to its customers to decorate their rooms as well as
provide prototype rooms which terms to be stylish and miscellaneous(Hultman and et. al., 2012).
Furthermore, Ikea also take into consideration “Focus strategy” on differentiation, as it can be
seen that IKEA store in china term to render lot of traditional designed furniture as per the
preferences of Chinese customers so as to meet the satisfaction level of different types of
customers.
Existing organisational design structure and control issues
Organisation structure of the every business company refers to a formalized practice of
action that connect the company technologies, people and tasks (Jonsson, Rudberg and
Holmberg, 2013). Basically, there are four types of organisational structure and they are namely;
functional, simple, divisional and matrix. Generally each structure has its own significance
which helps in rendering additional level of value to the management.
Therefore, “Divisional level of organisation structure” is followed by IKEA. It means
that the company product market, products or projects are sorted internally. The top level
management will be the president of Ikea and under whom there will be different divisional
managers (Ledin and Machin, 2017). Moreover division of Ikea is based on geography and each
retail store of Ikea is assigned with manager for each functional activity. Therefore there are
basically 12 functional activity which are being carried out under Ikea organisation and they are
namely interior design, product development, communication, customer relation design, business
and finance navigation, information technology, logistics, human resources, restaurant,
purchasing, sales, sustainability, marketing and communication.
Additionally while growing at an international level Ikea may faces different issues like
there may arise shortage of funds, lack of skilled workforce, so in order to over such issue
company have to make proper plans and strategies. This can be controlled if the management
department of Ikea make sure that there is sufficient amount of resources available in the form of
funds so that they can carry out there production process smoothly while operating at
international level.
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Entry strategies used to enter other regions/countries
There are different types of entry strategies which can be used by different organisation
in order to enter a foreign market, as use of single strategy will not be prove to be beneficial
while operating business at an international market. This is because, there are number of factors
which influence the choice of strategy but not limit to transportation or marketing cost, degree of
adoption of required product etc. Some of the types of entry strategies are franchising, direct
exporting, licensing, joint ventures etc.
Therefore, IKEA implement the Franchising strategy in some countries so that it can
manage minority stores. Additionally, the main concept of using franchising strategy is due to
the objective of inter IKEA system B.V (Norton, Mochon and Ariely, 2012). Thus the meaning
of this objective is to increase the availability of IKEA products by world wide franchising the
IKEA concept. Thus, it encourages IKEA to create infinity for Ikea. As per the franchisees who
have allowed using Ikea concept, trademark to carry out the business have to pay 3% revenue
back, as the value and culture differ from country to country. Before going into international
market, IKEA committees evaluate the local market of different country and identifies the future
expansion opportunities. Thus, the main purpose of using this expansion strategy is to ensure
standardization, operational control and for smooth entry into a new international market.
Moreover, franchising strategy not only helps in building tight control of strategy and brand but
also lower the financial risk of investment.
Operational control, production and distribution/supply chain management
Ikea is one of the most successful furniture retail company with its 276 store in 36
countries and they have managed there own special way of selling furnitures to its final
customers which has lead in increase in sales. Thus, because of which IKEA start ordering its
own self-designed products from local manufacturer. But innovation has dramatically reduces
its selling cost which include the idea of selling its furnitures as self-assembly flat packs.
Moreover in order to improves its operation control Ikea has designed stores to facilitate the
smooth flow of customers.
Operation function refers to the series of process which are interdependent to each other
and consumes resources as an input in each stage of operations. Therefore operation function of
Ikea is based upon three important process which are specified below:
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 Fist step is about designing process and in identifying requirement which is refereed to as
a planning stage. During this stage operation manager of Ikea identify the mechanism and
process of their executions well as identify the list of raw materials, technical tools and
human resources requirement.
 Next stage come of process which is another most important operation function like Ikea
takes into consideration just in time and lean approach in order to operate production
process safely, which would help in giving result on time with best quality in output
taking into consideration that low cost is incurred.
 Last come monitoring and reviewing stage under which an operation manager of Ikea
perform the function of monitoring functions at time of processing of different activities.
Therefore in case of Ikea product quality is being monitored and in case if it does not
meet the standard of quality then the current process of production of process is being
rejected and is again sent back to manufacturing department for correction. Therefore it
is essential to review the quality and cost of developed product so that the company get
profits.
Ikea takes into consideration lean management and just in time approach to control the
overall production process of the company. Therefore lean management is the approach with the
help of which an Ikea company supports the concept of continuous improvement. Additionally
with the help of this approach an organisation also seeks to achieve small, incremental changes
in the production process so as to improve the quality and efficiency of an organisation.
Whereas, other approach taken into consideration by Ikea company is Just-in-Time approach
which is one of the common inventory management technique which is being used by company
in order to increase efficiency, decrease waste by receiving products only whenever required as
well as to cut cost. Moreover it also help in improving cash flow, as it reduces the cost of storing
large volume of inventory. Additionally this approach also less the dead stock as well because
inventory level relies upon customer demand.
The supply chain at IKEA take into consideration flow of production and processes
through each of the three types of industrial area namely, primary, secondary and territory. The
primary sector involve the development of raw material. In Secondary sector manufacturer create
IKEA products from raw materials and design product so that smallest amount of resources can
result with best products. Whereas, in territory sector IKEA retail store add value to
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manufactured goods by rendering a form of shopping which will seem to be different in
comparison to usual high street experience.
Management of Human Resources across borders
As the main vision of Ikea is to “create better everyday life for many individuals like for
customers, employees, community etc. As per human resource philosophy of Ikea, it is being
believed that employees term to be more productive and committed towards their respective task
only when the company take care of them and their respective needs. So taking this concept into
consideration Ikea has adopted paternalistic approach towards their employees which result in
promoting employee empowerment. Although company uses positive HR philosophies towards
their employees but this doesn't work well, as different workers had different preferences (Qu
and Zhang, 2013). Thus, Ikea promoted strong and nurturing cultural environment which has
resulted in building creativity and diversity. Additionally, the company has also stated adopting
the democratic leadership style so as to make employee feel that they are bing considered just
like the family members of the company. Moreover company has also stated involving each
employees participation in different activities of an organisation especially in decision making
process so as to create a flexible working environment for the workforce. Thus, it has helped
organisation to reduce employees turnover ration and has also lead in creating brand value in the
market.
Identify key issues or opportunities for management
Key issues or opportunities for Ikea management can be identified only if Ikea admits its
weakness and threats so that they can be controlled and overcome. Thus, it will help in assisting
IKEA to set their goals to expand business at an international level Major key issue for
management of Ikea is the volume and level of its worldwide business which becomes difficult
for management to manage standards and superiority. In addition to this, in number of countries
Ikea products are being made and where legislation to manage its operational environment is not
being applied which lead in symbolizing a fragile connection in IKEA supply chain as well as
also lead in upsetting customers viewpoint towards Ikea products items. On the other hand, main
key issue is that Ikea may face threat while operating at international market from social trends
which may arise due to delay in new buyers in housing market.
Therefore Ikea counter this issues through reversal ways like by controlling the threats
and weakness so as to render optimistic result. In order to over come from the threat of social
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trend IKEA is planning to make available online assistant to final customers for better
sustainable life. In addition to this employees of Ikea is also being taught on sustainability,
inflammation like in about how IKEA is undergoing and how each one of them can become an
important part in becoming sustainable for themselves.
Recommendations to management for improvement
 It is to be recommended that IKEA can take into consideration joint venture strategy for
expansion of business at an international level (Rese, Schreiber and Baier, 2014). As this
strategy terms to be good because it assist company to enter into different cultural
market.
 Second recommendation it can be suggested to IKEA is that the company can use wholly
owned subsidiary strategy to enter Brazil, the reason for entering Brazil is that it has
stability in its political economy environment which at a certain level reduces various risk
of business.
 Ikea also need to go for in-depth study of cultural values of the international market
before entering in it. For example for us market Ikea should give the feeling of active and
young look in their products.
 For better work information processing marketing management should improve their
products extrinsic and intrinsic cues.
 Ikea also should develop a favourable attitude towards their products through trail bases
as home furnishing is considered to be high involvement product in which individuals
make attitude before making purchase decision.
 Lastly, it can be recommended that Ikea should develop a complete feedback process so
as to get to known about customer expectation and their satisfaction level. Thus, it will
help the Ikea company to render better quality services to its customers.
CONCLUSION
From the above report, it can be concluded that this report was based on analysis of Ikea
company. It uses porter's generic strategy in order to expand business at international level.
Moreover, it is also being concluded that company uses franchising entry strategies to enter into
new foreign market as it render lower financial risk of investment and also have tight control
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over brand and strategy. In addition to this, it is also being concluded that divisional level of
organisation strategy is being used so as to make proper hierarchy level in an organisation.
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REFERENCES
Books and Journals
Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hrelja, R., Isaksson, K. and Richardson, T., 2012. IKEA and small city development in Sweden:
planning myths, realities, and unsustainable mobilities. International Planning Studies.
17(2). pp.125-145.
Hultman, J and et. al2012. An interaction approach to global sourcing: A case study of IKEA.
Journal of purchasing and supply management. 18(1). pp.9-21.
Jonsson, P., Rudberg, M. and Holmberg, S., 2013. Centralised supply chain planning at IKEA.
Supply chain management: an international journal. 18(3). pp.337-350.
Ledin, P. and Machin, D., 2017. The neoliberal definition of “elite space” in IKEA kitchens.
Social Semiotics. 27(3). pp.323-334.
Norton, M. I., Mochon, D. and Ariely, D., 2012. The IKEA effect: When labor leads to love.
Journal of consumer psychology. 22(3). pp.453-460.
Qu, Y. and Zhang, J., 2013, May. Trade area analysis using user generated mobile location data.
In Proceedings of the 22nd international conference on World Wide Web (pp. 1053-
1064). ACM.
Rese, A., Schreiber, S. and Baier, D., 2014. Technology acceptance modeling of augmented
reality at the point of sale: Can surveys be replaced by an analysis of online reviews?.
Journal of Retailing and Consumer Services. 21(5). pp.869-876.
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