Business Organizations and Environments in a Global Context: IKEA's Expansion in Finland

This assignment examines the global business environment and IKEA's expansion into Finland. It explores the various types of business organizations, including sole proprietorships, partnerships, and public and private sectors. The assignment analyzes the legal structure, organizational structure, and business strategy of IKEA, highlighting its cost leadership approach. It then delves into the Finnish business environment, conducting a PESTLE analysis to assess political, economic, social, technological, legal, and environmental factors. The assignment also applies Porter's Five Forces model to understand the competitive landscape in Finland. Finally, it presents data and graphs illustrating IKEA's store locations, labor costs, and business areas, concluding with a discussion of the potential for IKEA's continued success in Finland.

Business Organizations and
Environments in a Global Context
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Table of Contents
1 Introduction...................................................................................................................................3
2 Backgrounds to Business Organization........................................................................................5
3 Business Expansions in Finland...................................................................................................6
4 Data/Graphs/Tables....................................................................................................................10
Conclusion:....................................................................................................................................13
5 References...................................................................................................................................14
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1 Introduction
The assignment is about the business expansion of IKEA in Finland. Globalization and
digitalization evidenced the radical change in the international business environment. Similarly,
competitive dynamics, advanced technology and intercultural effectiveness are the prime
derivers of current global business environment. Current Global business environment is
interrelated with industrial structure, technological change and international trades. Based on the
complete market research report IKEA, Swedish homecare organization, decided to shun Finnish
emerging market. The aim of the assignment is to describe the global business environment
along with Ikea’s business expansion in Finland.
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Global business environment
Current economy is highly influenced by retail industry. The internationalization of several retail
organizations is increasing Foreign Direct Invest of the country. There are various types of
business organization based on size, scope, legal structure, operational and functional area,
production types and others. The business is actually a process which is dealing with the scarcity
of human life. However, the allocation of different types of business organization is to diminish
multiple scarcity of current and future living.
Legal structure
Legal structure defines the ownership of a start up business to determine its operation and
functional area. The organizations need to add a mark or sing at the end of their name to present
their category in the business environment. Sole proprietors are owned a by a single owner
which are mainly home based business. This types of organizations need not to pay any tax to the
government at the time of establishment. Sole proprietors are best for a start up business with
high risk factor. The profit is enjoyed only by the owners. However this business structure is
very hard to grow up rapidly and the owner is responsible for every loss and debt. From the very
beginning, IKEA is following this legal structure. On the other hand, partnership is owned by
two or more shareholders. The profit and loss is also shared among shareholders and lowered the
risk factor. This business model is suitable for gaining rapid growth in the competitive market.
On the other hand, the global business environment has three different sections, based on size,
scope and functions. Public sector is partially or fully owned and operated by the government.
The objective of this type of organization is to deliver necessary service to the public in
exchange of low payment. The rail network of United Kingdom is the example of public
organization. Therefore, private sector organization aims to earn profit from the competitive
market. Private organization provides the products to satisfy the prime scarcity of society. This
organization owned by a singular owner or by shareholders. IKEA group is an example of
private organization. Voluntary organization works for the wellbeing of the society. This type of
organization is also known as non-profit organization. The profit share is enjoyed by the needy
and poor people of the society. The Care UK is the example of volunteer organization.
Issues for business expansion in global context:
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The major issues for business expansion in global context are to increase the sales of products
and service. The hike in sales percentage is automatically providing the growth in profit margin.
Business expansion in emerging market is less vulnerable in terms of short term business
projects. Therefore, the long-term marketplace provides stability and security to the organization.
The entrance in the global business environment increases the innovative power of the
organization under the international competitive market. On the other hand, the exclusive market
information uplifts the capability of the management team to enhance the product design and
quality. The entrance in new emerging market put an additional star in the brand image of the
organization. The international companies enjoy extra savings on taxes. The international
demand rates break the glass ceiling percentage of the organizaito0nal history. This entry
lowering down the per-unit cost of several products which is balanced with the selling
percentage.
2 Backgrounds to Business Organization
IKEA
IKEA, the renowned private organization, is founded in 1943 in Netherlands by Invar Kamprad.
IKEA is the homecare retailer which is recently grabbing the international market. It is private
company with a single owner. Presently, 1, 94,000 employees are working for IKEA. There are
355 stores in 29 IKEA group countries. Current revenue of the organization is €35.074 billion.
The objective of this organization is to offer the customer, a wide range of home decors with
attractive design, quality and durability at low price. The mission of IKEA group is providing
well designed and furnished product at lowest price to gain customer retention. Vision of this
organization is to create a better daily life to the customer with affordable and comfortable home
decors.
Legal structure
Invar Kamprad is well known business personality for his drastic success in international
business world. The key to his success is the strategic business planning. After evry annual
financial report, Invar Kamprad decided to expand his business in international business
platform. Nowadays, sole proprietors are an obsolete legal structure in global business context.
However, Kamprad is growing his business area with this risky ownership. The organizational
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structure and function which is selected by the owner is responsible to tackle financial flow and
stability in the current market. In the global context, the organization always puts its special
focus on financial strength. On the other hand, digitalization has formed the powerful driver to
the business.
Organizational structure
IKEA System follows the matrix organizational structure which is different from traditional
organizational structure. Matrix organizational structure is generally complex in order to achieve
target or goal. However, the employees enjoy dual power to their position. The adaptation of
matrix organizational structure provides opportunities to the organization to grab the wide
market area. Therefore, this organizational structure uplifts the efficiency level of the employees.
According to (), this organizational structure is best suitable to compete with the dynamic
international competitive market.
Business strategy
Invar Kamprad commented that their financial strength push them closer to the customer ihn
order to gain the positive impact in retail industry. The furniture giant is dominating the current
household section of trade market. Nowadays, IKEA System is gaining the customer retention
with the low pricing strategy. The owner of this organization believes in creating unique design
products. The objective of this business strategy is to provide stylish space saving solution to the
customers. The organization added outstanding offer price with additional variety of products.
Suppliers are also in special focus of IKEA system. At the end of 20th century, the organization
adopted cost leadership strategy to expand their business area. Board of directors invests on the
market research report to get the detail information about current market.
3 Business Expansions in Finland
IKEA System believes in business expansion in international business market. In this context,
the next project of this organization is to increase the store numbers in Finland. IKEA System
established their first store in Finland in 1996 in Helsinki Espoo with 18,600 m2. After that, they
have opened three several store in Helsinki Vantaa (2003), Raisio (2008) and Tampere (2010).
The next target of the organization is to open a large store in Olulu which is fourth densely
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populated city. The Finnish business environment is predictable and stable. The country has low
rate of corporate tax and gathering of several foreign investors. Government of Finland
welcomed tech giant companies to enhance the revenue of the country. The annual statistical
report of IKEA System influenced the Board to expand business in the country. Olulu city is full
of hi-tech multinational companies and standard lifestyle. These two factors positively impacted
on the business environment of IKEA System. The Finnish government has opened an official
website to invite foreign investor to set up or grow their business in Finland. This site provides
necessary information to the investors about how and why invest in Finnish market is profitable.
The labor cost is very affordable in the country.
Pestle Analysis
IKEA stands as a reputed company in Finland dealing in furniture products. In order to expand
its business, its environment is taken into consideration. Finland’s Business environment can be
analyzed with the help of PESTLE framework. It is the member of European Union and the
Nordic Community (Ye and Jiang, 2013).
Political
Finland is a meagerly occupied country. The expansion in business for companies like IKEA is
favorable with respect to political factors. It enjoys being a translucent economy .It is modern,
competitive and has vivacious relations and communication technology sectors. Finland enjoys
in being a world leader in the field of business economy. Therefore, the business environment is
conducive for reputed companies like IKEA. Finland enjoys economic freedom and is free from
corrupt practices. High government spending and inflexibility of the labor market restricts its
soaring level of economic freedom. Being a meagerly populated country, it is faced with
demographic challenges in the shape of aging population and dwindling workforce. These could
pressure the development of the government’s capability to sustain its liberal spending programs.
Economic
Finland has judicious tax rates and a comparatively high level of general taxation. Finland uses
euro as its legal tender. Between 2006 and 2008, its yearly rate of inflation was 3.1%. Being an
affiliate in EU’S Agricultural policy the government sponsors agricultural production deforming
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the rates of agricultural products. Its refined financial system provides with a diverse range of
services.
Social
In order to run an efficient business for companies like IKEA in Finland its social aspects are
also taken into consideration. The rate of population established in 2009 was 5.25 million.
Literacy rate accounts to 100% for both genders. Taxing labor market regulations obstruct
service opportunities and efficiency growth. Its population growth established in 2009 accounted
for 0.10%. Its social factor contributes to improvement in people’s lives by raising their standard
of living.
Technological Factors
Modification in Technology results in advantages and disadvantages to establish business in
Finland. Innovation in technology seeks to enhance the competiveness in Finland for the
business industry, with the advent of the Internet; it is easier to establish business in Finland for
reputed companies like IKEA products.
Legal
Finland is widely known for its position of being under the rank of the “Best Countries of the
World”. However, there are some legal measures in Finland benefiting its business economy like
Employment Policy, Health and Safety Policy and Trade and Policy Principles. Inflation rate is
stumpy in Finland. However, the rate of unemployment is high in Finland. Therefore, the legal
regulations have an impact on IKEA such as by forming a joint venture.
Environmental
The environmental factors are considerably mild for establishing a reliable business in Finland
for reputed companies like IKEA. The climate is usually mild. Problems like air pollution,
contrived from power plants and loss of habitat poses a serious threat to wildlife populations
However, the environment has an impact on IKEA and it deals mostly in Recyclable products.
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Porter’s Five Forces
The analysis of Porter’s Five Forces is effective to identify the business scope in the country
Finland. The Finnish Market is always welcomed the foreign investor to enter into the emerging
market (Farahat, 2012).
1 threat of entry ( of new competitors)
The Finnish market is full of new entrance of foreign and domestic companies. This is the major
issue for the Ikea group to open new furniture store in Olulu.
2 Bargaining power of suppliers
The suppliers of Finnish market are often used to bargain to the business dealings. However,
excessive supply of liquidity in the country and the low corporate rates is the opportunity for the
new entry group..
3 bargaining power of customers
The standard of living is very high in the city Olulu. This factor present the low bargaining rate
of the customers.
4 Threat of substitute products or services
The unique design and low cost rate of IKERA products find no threat for the substitute
products. this low cost leadership strategy provides the potentiality to organization to gain major
market share in the Finnish market.
5 Jockeying for position among current competitors
The market status of four stores in Finland is the key power to the organization to beat the
current competitors.
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4 Data/Graphs/Tables
Figure 1 : Store location of IKEA System in Finland
(Source: Ikea.com, 2018)
The above table is taken from the home page of IKEA system. This table is showing the last four
store location in Finland. Finnish market is nowadays trendy and emerging market which is best
for business expansion in retail industry.
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Figure 2 : Labor cost comparison in Finland
(Source: Investinfinland.fi. (2018)
Secondly, Invest In Finland is the official site of Finnish government. The aim of this site is to
provide necessary information to the foreign investor. The Finnish government is keen to gain
revenue from FDI. The labor cost is comparatively low in the country which is effective to bring
profit to the organization.
Thirdly, the online referencing (Ikea.com, 2018b) presents the current business progress of
IKEAL system in Finland. This link is the evidence of wide market engagement of the
organization in the allocated country.
Figure 3: IKEA Inter Group
(Source: Inter.ikea.com, 2018).
According to the online link (Inter.ikea.com, 2018) is the complete business environment of Ikea
system. The business area of IKEA System is not under the boundaries of home décors. The
business has expanded in different section. The above mention table is about the range of
business area. IKEA franchising, IKEA range and supply and furniture sector are different sector
of Ikea group.
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Figure 3: vision and business idea of IKEA
(Source : IKEA /US/EN, 2018).
The above figure is about the vision and business idea IKEA System. This figure helps to
identify the vision and business idea of the organization in order to determine the market
segment. The aim is to gain sustainability in the business growth in the international business
platform.
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Conclusion:
The assignment is successfully described the global business environment and its suitability to
the business expansion. IKEA System is the chosen organization to discuss the benefits of
business expansion in the international trade market. The main aim of this project is to utilize
FDI in the emerging market of Finland. The analysis of PESTEL and Porter’s Five Forces of
Finnish market has successfully depicted the business environment of the country Finland. The
Government policy of the country welcomed the foreign investor to invest in Finnish market.
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5 References
Farahat, M.F., 2012. Competitive analysis of the higher education sector in the Gaza Strip by
adapting Porter’s five forces model. Unpublished MBA Thesis, Islamic University of Gaza.
Hämäläinen, S., Näyhä, A. and Pesonen, H.L., 2011. Forest biorefineries–A business
opportunity for the Finnish forest cluster. Journal of Cleaner Production, 19(16), pp.1884-1891.
IKEA /US/EN. (2018). About the IKEA group - IKEA. [online] Available at:
https://www.ikea.com/ms/en_US/this-is-ikea/company-information/index.html [Accessed 17
Mar. 2018].
Ikea.com. (2018a). Finland - IKEA. [online] Available at:
https://www.ikea.com/ms/en_JP/about_ikea/facts_and_figures/ikea_group_stores/finland.html
[Accessed 17 Mar. 2018].
Ikea.com. (2018b). Ihanaa olla kotona - IKEA. [online] Available at: https://www.ikea.com/fi/fi/
[Accessed 17 Mar. 2018].
Inter.ikea.com. (2018). Our Business in brief - Inter IKEA Group. [online] Available at:
http://inter.ikea.com/en/about-us/business-in-brief/ [Accessed 17 Mar. 2018].
Investinfinland.fi. (2018). Competitive workforce - Invest in Finland. [online] Available at:
https://www.investinfinland.fi/competitive-workforce [Accessed 17 Mar. 2018].
Laukkanen, T., Nagy, G., Hirvonen, S., Reijonen, H. and Pasanen, M., 2013. The effect of strategic
orientations on business performance in SMEs: A multigroup analysis comparing Hungary and
Finland. International Marketing Review, 30(6), pp.510-535.
Scozzese, G., 2013. A Potentially Successful Market for the IKEA Group: Argentina.
Ye, Z. and Jiang, T., 2013. Importing Neoglory Jewelry to Finland.
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