Organisation in Global Economy

This report explores the growth and development of business in the global economy, focusing on the case study of IKEA Czech Republic. It discusses the factors influencing the business environment and analyzes the macro environmental factors using PESTLE analysis and Porter's Five Forces.

Organisation in Global
Economy

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Background to IKEA...................................................................................................................1
Background to Business Environment........................................................................................3
Application of an appropriate analytical approach.....................................................................6
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Organisation in global economy reflects the growth and development of business that has
been affected or influenced by various factors as like employees, customers, clients, supply,
demand, management, government policies and many other as well. Business environment
always being very complex as it includes different factors that keep on changing on continuous
basis (Arvis, 2018). It is the biggest factor due to which company faces a lot of difficulties to
achieve their goals and gain the competitive advantage from the market. It act as the resistor that
resist the performance and effectiveness of the company that operates their business in a certain
country. This report is bases of the case study of IKEA Czech republic that was founded in
Swedish European multinational that design and sales furniture, home accessories and kitchen
appliances. It was founded by Ingvar Kamprad in 28 July 1943 and have the headquarter in
Delft, Netherlands. They decided to expand their business and operates the new branch in
Australia. This report includes the macro environmental factors by using PESTLE analysis,
porter's five forces to analyse the business environment.
TASK 1
Background to IKEA
IKEA stands for the Ingvar Kamprad Elmtaryd Agunnaryd and it is the private owned
company that designed and sales the assembles furniture, appliances and accessories as well and
other goods on the basis of occasion and provides home service (Axtmann, 2018). It has been the
world largest retailer of furniture since 2008 and its founder is the eight richest person of the
world in 2008. it is registered in Netherlands and controls as well as manages by his son. IKEA
is known as the modernist furniture as per their designs and there interior design also being
known for the eco-friendly and its simplicity. IKEA is also known for its balance operation and
their control on costing and continuous improvement, development that decreases its prices to
approx 2-3%.As per the detailing of 2019, IKEA operates their business in 52 countries and have
a worth of €38.8 billion. IKEA has its own websites named as www.ikea.com and it contains
around 12000 products and there are approx 2.1 billion visitors as from the year 2015-2016. It
consumes around 1% of the wood and becomes the worlds commercial product and it makes
them the largest retailer of furnitures. Many of the stores and buildings of IKEA is owned by the
INGKA that is the holding company and controlled by Stitching INGKA foundations, and it is
1

one the most wealthiest foundations all across the world. In addition to this there are some more
background of IKEA is as defined below as:
Mission: IKEA works with the mission to support their vision and by offered the wide
range of best and quality products to the customers and provides the furnitures that is well
designed and sale at low price that attracts the large number of customers base .
Vision: Their vision is to create the better life for many peoples and provide the
diversified range of products to their customers.
Competitors: Their are many competitors of IKEA Czech republic and some of them are
as Target, Amazon, Walmart, Bed Bath and beyond. And they all brings the lot of challenges for
IKEA to measure the success and growth in effective manner.
Size: IKEA stores almost have 300,000 square feet that is approx average of five football
grounds and works with 211,000 number of employee all across the world.
Types: IKEA has works for the wide variety of furnitures as like kitchen accessories,
home appliances and well furnished furnitures as well (Bartley, 2018).
Amenities: IKEA have different kind of services for bathroom, laundry, bedroom,
cooking, furnitures for office, living rooms, lighting, children and many other as well.
Incentives: IKEA presents the best value to the customers in terms of eco-friendly and
pleasant package of furnitures but also provides the best and flexible benefits to everyone who
support them to measure growth. IKEA Czech republic provides bonus programmes to fulfil the
requirement and demand of the customers. Provides gift to the customers and employee in the
occasions and discounts to the loyal customers. Provides free internet access to the employees
and 5 days vacation to the employee in a year and many more other facilities as well.
Considerations: IKEA major considerations is the marketplace and then sale their
product and services with the other's companies product as well. They are to launch their own
place just overcome their limits and provides the wide variety of other home related product.
Ownership structure: IKEA owned and operates their business with complicated array
in which they didn't look forward for profit but for to operate the profit. IKEA is owned by the
holding and it is registered company in Luxembourg.
Franchised: IKEA franchisee pay 3% of their gross salary to IKEA and that is 789 euros.
Cash investment of IKEA is $9,250 and range of investment is $9,250 - $9,250 while the fees of
franchise is $9250.
2

Managed properties: It is the amount that is invested by the company to enhance their
performance and capital it includes the amount that is used to managed the properties to gain ong
term stability (Cano-Kollmann, 2018).
Owned and Leased properties: IKEA has the plan to rent the furnitures as per “ scalable
subscription services” and they didn't offer any shared pricing strategy yet.
Financial performance: IKEA sales has been raised by 6.5% euros in 2019 and that is
equal to 41.3 billion. It enhances the franchisee and whole sale income for the group of IKEA.
Profit & Loss a/c (Figures in millions):
Interpretation: IKEA Czech republic has generated revenue as 1372 million US dollar in
2017 while it increases as compared to 2016 (780 million) and 2015 ( 859 million).
3

Balance sheet of IKEA Czech republic at the end of year 2017:
4

Interpretation: The balance of IKEA Czech republic also clearly shows that liabilities
has been decreased in 2017 as compared with 2016 that is good for the company.
Background to Business Environment
Business environment is the integration of both the factors as like internal as well as
external as like customers, clients, employees, competitors, need and demand of customers,
management, supply, suppliers, governance activities, technological advancement, market trends,
changes in social and economy and many others (De Massis, 2018). The stability and
development of the company on global level depends upon these factors as it has direct influence
on the profitability and performance of the IKEA Czech republic. As company wants to expand
their business even more and open the new branch in Australia thus it is most important for the
company to know about the different factors that affects the growth of the company. IKEA
operates their business on wider platform and abide the rule and regulations of each country and
some of the time many of the rules are same but most of time it is not. Thus IKEA Czech
republic performs and conduct PESTLE analysis that is as described below as:
( Source: Scanning the environment: PESTLE analysis, 2016)
Political: It is the factor that includes the stability and condition of the country that has
been varied and fluctuate as per the change in the rules and regulations of the government. It has
direct impact of the decision-making process of IKEA Czech republic as they want to expand
5

there business in Australia (Gilpin, 2018). Company might face different consequences that has
been varied as per as policies of tax, import and export rate, foreign trade, labour laws and many
other factors too. Opportunities: Australia has more stability and balanced conditions that attracts the
investor to invest some of the amount in their country and it is in favour of IKEA Czech
republic to measure the success with expand business. Australia also have most
transparent legal formats that reduces the rate of corruption as dependency with US and
UK.
 Threats: To manage the consistency in the legal framework Australia has followed more
rules and regulations that might act as the resistance for the growth of new expand of
IKEA Czech republic. Thus company must apply different and unique strategies to gain
the competitive advantage and stability in their business.
Economical: It is the factor that reflects the economic valuation of the country and
affects the buying power of the buyers, But Australia is very much developed country thus the
flow of economic factors is very much free and company must gain the advantage of it. The
sustainability of IKEA Czech republic depends upon the attraction of the customers as they
offers the modernist design with reasonable prices and try to covers the large market (Kennedy,
2018). Opportunities: Australia has more stability with this they have high price for the property
that enhances the rent rate but on the other hand income level of the citizens is more high.
It is the the biggest opportunity for IKEA Czech republic to gain more profit as with this
products and services of IKEA is in more demand.
 Threats: As the income level of the citizens are quite more high thus it may that
competitors or rivals comes with different strategies that divides the taste and attraction
of the customers.
Social: It includes the factors that is related to the change and variation of social trends
that changes the interest, living standard and lifestyle of an individuals. Opportunities: In Australia, the rate of properties are very high thus most of the people
have their resident in rent but with this they are more likely and get attracted towards the
better furnitures (Labonté, 2018). It will enhances the moderateness of the business to
sustain the higher sales for the maximise period of time.
6

 Threats: As many of the people live in rent thus they are not shown there interest to
furnish the interior as most of the time renter provides all the interior and it is not
permitted to the people to change that infrastructure. It is the biggest threat that this might
resist the performance and profit of the company.
Technological – It is factor that related with the advancement that has been induces due
to change in technologies. In furniture industry technological advancement is related to the
modern and unique design of the furnitures that attracts the customers. With the use of these
advancement IKEA Czech republic must reduces its cost and improvise the quality of the
products that are offered by the company. Opportunity- IKEA must implies different technological advancement in their business
by providing different and creative accessories for kitchen and better infrastructure. With
the help of this company must supply the best products with affordable prices that attracts
the large number of customers (Weiss, 2018).
 Threat – IKEA Czech republic must face different challenges while expanding the
business in Australia as they have to provide training and hires the staff that is more
specialised in furnishing and for this company bears the high cost (Lyskova, 2018).
Legal- All the country has their own rules and regulations and it is mandatory for the
business to follow these policies of government in order to achieve the higher sales within the
time. Australia has different laws like trading laws, consumer law and many other for to procure
safety and security to the customers. Opportunity – IKEA Czech republic attains the growth and development as they already
work in different country and has the experience to gain more success by following
different legal frameworks of the governance.
 Threat – IKEA Czech republic has to bear the negative impact as after the terrorist
attacks in Australia thus trading laws changed that imparts more difficulties to manage
their business for longer period of time.
Environmental – Australia has more beaches, forest and more cleanliness and thus it is
attracts the large number of tourist in every year. Opportunity: It helps IKEA as visitors also get attracted with the different furnished and
unique products that enhances the revenue of the company.
7

 Threat : IKEA faces different challenges while expanding in Australia and it is the driest
continent thus has faced more climatic variations that limits and bound the visitor to visit
Australia that reduces the profit of the company (Pécoud, 2018).
Application of an appropriate analytical approach
Analytical approach allows the company to divide the problem into different slots and
then solve it to gain the effective outcome. IKEA Czech republic expands their business and it is
important to know about the different factors that helps to gain the effective and efficient
outcome. Thus company must use porter's five force analysis that is as described below as:
(Source:Porter's five force analysis, 2019)
8

Competitive rivalry: The competitors of IKEA are as Target, Amazon, Walmart that
performs their business on a larger scale and has their business all across the world. Thus IKEA
Czech republic must provide the service with affordable prices and maintains the sustainability
within the business.
Strategies adopted by IKEA Czech republic for intense rivalry:
 By reducing the production cost with maximum utilization of resources to grab the
attention of large number of customers (Sassen, 2018).
Supplier power: This industry has limited number of suppliers that provides the accurate
supply of raw materials thus this power is high. It has direct impact on the pricing strategies of
the company for this IKEA manages the rate of production and reduces the production cost.
Strategies adopted by IKEA Czech republic for suppliers power:
 By managing balanced supply chain and develops the standardisation in the market.
Buyer power: Due to high competition buyers has a lot of option in the market and
purchase the product as per their own requirement. Thus IKEA offers special offers and discount
to the customers and try to attract the large number of customer base to gain the competitive
advantage.
Strategies adopted by IKEA Czech republic for buyer power:
 By providing the unique services with accurate rate and price and try to offers the best
quality furnitures with more advancement.
Threat of substitution: It includes the ability of the different companies to comes up
with new and unique products that affects the profit of the company (Sawhney, 2019). As like
different designs of furnitures and interiors that might changes as per the demand and
requirement of the individual.
Strategies adopted by IKEA Czech republic for threat of substitution:
 By providing the services as per the demand and requirement of the customers and works
with the approach of services oriented rather then product oriented.
Threat of New entrants: It is quite low because IKEA works on more larger scale and
know the different culture and changes that attracts the large number of customers base. It is
needed that company must have skilled and experience workforce that gave shape to every idea.
9

Thus IKEA works with pricing strategies and changes the prices as per the demand (Vaninsky,
2018).
Strategies adopted by IKEA Czech republic for threats of new entrants:
 By produce more designed and creative furnitures that gave the validate reason to the
buyer to purchase the product by their own.
CONCLUSION
It has been concluded from the above report that IKEA Czech republic must conduct
PESTLE and Porter's five force analysis to know about the different factor that affects the
performance of the company while opening the new business in Australia. It has been performed
to know about the different factors to affects the business environment and it make more easiness
for the company to measure the growth in effective manner.
10

REFERENCES
Books and Journals
Arvis, J.F. And et. al., 2018. Connecting to compete 2018: trade logistics in the global economy.
World Bank.
Axtmann, R., 2018. Collective identity and the democratic nation-state in the age of
globalization. In Articulating the Global and the Local (pp. 33-54). Routledge.
Bartley, T., 2018. Rules without rights: Land, labor, and private authority in the global
economy. Oxford University Press.
Cano-Kollmann, M., Hannigan, T.J. and Mudambi, R., 2018. Global innovation networks–
organizations and people. Journal of International Management. 24(2). pp.87-92.
De Massis, A. and et. al., 2018. Family firms in the global economy: Toward a deeper
understanding of internationalization determinants, processes, and outcomes. Global
Strategy Journal. 8(1). pp.3-21.
Gilpin, R., 2018. The challenge of global capitalism: The world economy in the 21st century.
Princeton University Press.
Kennedy, D., 2018. A world of struggle: How power, law, and expertise shape global political
economy. Princeton University Press.
Labonté, R., Ruckert, A. and Schram, A., 2018. Trade, investment and the global economy: Are
we entering a new era for health?. Global Social Policy. 18(1). pp.28-44.
Lyskova, I.E., 2018. The role of the corporative culture in the adaptation of the society to the
new challenges of the global economy. In GLOBAL ECONOMY IN THE XXI
CENTURY: DIALECTICS OF CONFRONTATION AND SOLIDARITY (pp. 420-431).
Pécoud, A., 2018. What do we know about the International Organization for Migration?.
Sassen, S., 2018. Cities in a world economy. Sage Publications.
Sawhney, H., 2019. Global economy and international telecommunications networks. Global
Communication: A Multicultural Perspective, p.21.
Vaninsky, A., 2018. Energy-environmental efficiency and optimal restructuring of the global
economy. Energy. 153. pp.338-348.
Weiss, T.G. and Wilkinson, R., 2018. From international organization to global governance. In
International Organization and Global Governance (pp. 3-19). Routledge.
ONLINE
Scanning the environment: PESTLE analysis. 2016. [Online] Available through:
<https://www.business-to-you.com/scanning-the-environment-pestel-analysis/>.
Porter's five force analysis. 2019. [Online] Avaliable through: <https://medium.com/product-
gyaan/porters-five-forces-analysis-868945aa5846>.
11