Business Strategy: Analysis of IKEA's Internal Environment and Competitive Positioning

This document provides an analysis of IKEA's internal environment and capabilities through VRIO and SWOT analysis. It also explores the competitive positioning of IKEA using Porter's Five Force Model. The report discusses the impact of external factors on IKEA's business and suggests strategies for entering new markets and dealing with substitute products.

Business Strategy

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
PESTEL Analysis........................................................................................................................3
TASK 2............................................................................................................................................5
Analyse internal environment and capabilities of IKEA.............................................................5
TASK 3............................................................................................................................................9
Porter’s Five Force Model...........................................................................................................9
TASK 4..........................................................................................................................................13
Strategic Planning for Organization in Market Place................................................................13

INTRODUCTION
Business strategy can be considered as the group or set of various competitive moves of
organization which can be used by the company in the competitive market to gain effective result
from the market place. Most of organization used to plan their business strategy in order to gain
high profit from market place. This report is about IKEA. IKEA is a n international furniture
manufacturing organization that was established in year 1943 by Ingvar Kamprad. The
headquarter of the organization is in Delft, Netherlands. Company is operating on 433 locations
around world to run their business effectively in international business scenario. Organization is
working on global level with its creative and effective furniture products. In this report the
impact of external business environmental factors has been explained in the report (Johnson,
2016). For the macro factor analysis PESTEL Analysis can be used by the organization to get
better overview about the market place. The internal capabilities of the organization also has
been considered in the report. Different tools like SWOT and VRIO analysis will be used in
there port to evaluate the internal capability of the organization. Porter’s Five force model will be
used in report to analysis the competitive positioning in market place and Ansoff matrix will be
used to evaluate proper strategy the can be used by organization for new market.
TASK 1
PESTEL Analysis
IKEA operates more than 375 stores which have their various parts in the globe which have the
global level of presences which is brand of subjects by the several forces. In this era level of
globalization form the political to economic, social and technological, there are several forces
that affect the brands and their business. IKEA have been affected with more furnishing products
in towards provide their lower prices along with greater quality. This is able to have their strong
brands in able to respond by changing the marketing dynamics faster.
Political factor
IKEA have the clear operating more than 41 countries as the political factors as there is in every
nation effecting the business. In order to have their supply chain activities to have sale which is
being political factors. There is leads to economic stability which is turned means which have the
better sales and profits. The government have the attitude towards foreign brands which have the

policies too have proper mattering. This have led to supply chain disruption the different
countries have lowered the political barriers foreign brands which have the presences of the
international brands. IKEA is planning more level of domination towards the emerging Asian
market. There are barriers are reducing with IKEA supply chain by having activities in supply
chain located in Europe and political disruption can affects which is more deep manner.
Economical factor
Economic forces play a very special roles in the business environment as the condition with
respective world economy have the description of unlimited profit and revenue which is earned
by business (Gattorna, 2017.). There is existence pf several ageing brands which are considered
to be more level of poor in shape during the time period of recession. This have recent level of
causes. which leads to declines which have results in loss of varies job. On other hand Brexit
have the current level of impact on there company which have results in increased prices of
products.
Social factor
Social factors have the deep impact on the business as well as profits in order to have there
important understanding in respecting local cultural values. The firm have experienced level of
failure as Ikea has not always gotten these local nuances right. The company came under fire for
Photoshopping women out of its catalogue in Saudi Arabia and for removing a lesbian couple
from its magazine in Russia. In order to that’s firm have tried to have proper ensuring the wrong
things don’t have the show up their right culture.
Technological Factor
Technology have turned out to be service in order to have the providing the better level of
customer service to customer in all level of perfectives. IKEA ids having the proper level of
focusing on their providing the more kind of experience with help of explained digital channels.
On the other hand, the firm have also argument reality to improve the level of customer service it
provides. Now, consumer expectations are heightened and most focus has to be on better
customer service. Technology such as the artificial intelligences along with cognitive one have
proper enabling to retailer in order to have the understanding between level of consumer
behaviour and provide them better level of customer experience.

Environmental Factors
The impact of business activity of IKEA is hue on the environment. The products of the
company are mostly related to the wooden furniture and it is forcing the company to cut down
the trees to acquire effective amount of furniture to maintain their business performance effective
in market place. As the wood used in the development and manufacturing of furniture is grown
by organization in their farms and company is also performing sustainable business strategy to
reduce its impact on the environment and wild life. This is how the sustainable strategies that are
used by the organization are providing them the help of government and legal support. The
government strategies are proving them opportunities to develop their business in the local and
international market.
Legal Factors
This are major factor for the business organization like IKEA. This is important for them
to follow all the rules and regulations in order to maintain their operation free from
considerations that are falling out of law (Bıçakcıoğlu, Theoharakis and Tanyeri, 2019). They
have to follow all the legal standards like Employment act, Health and safety act and other acts
in the business practices to keep their business run effectively in market without any legal issues.
This is how organization can prevent any kind of legal action against them.
TASK 2
Analyse internal environment and capabilities of IKEA
The internal environment is presented inside organisation in which business operate. The
factors which can be impact on their operations are strength, threat, suppliers, etc. so, it is
necessary to analyse it so that accordingly strategies and plans are developed. Also, effective
decisions can be taken (Gürel and Tat, 2017). There are various concepts and models available
to analyse it. Similarly, in order to evaluate internal environment of IKEA VRIO and SWOT
analysis is done. It is as follows : (VRIO of IKEA, 2018)
VRIO- it is a framework which is used by company to identify their competitive advantage
within the industry. Through it, organisation is able to find out whether their resources are
valuable or not. In this there are four elements included which are:

Valuable – IKEA financial resources are highly valuable as it helps them to invest in various
areas where they find out any opportunity.
The local food products offered by IKEA are valuable as well. It has resulted in generated
customer value
Employees working in IKEA are valued. This is because most of them are highly skilled and
trained so it results in higher productivity. Moreover, staff is loyal as well and retained by them.
The partners of company are valued as they sell its products and services without any
interference of competitors.
It is stated that cost structure of organisation is not valuable. Here, cost is higher than as
compared to competitors (Lopes, Farinha and Silveira, 2018)
Alongside it, R&D of IKEA is not valuable as the cost incurred by them in innovation is more
than profit generated
Rare- The financial resources of IKEA are found to be rare as they are only possessed by a few
companies in the industry.
The local food products are found to be not rare as it is easily provided in the market by other
competitors. This means that competitors can use these resources and inhibit competitive
advantage.
employees of IKEA are a rare as they are highly trained and skilled, which is not the case with
employees in other firms. The better compensation and work environment ensure that these
employees are loyal.
The patents of IKEA are rare as it not easily available and possessed by competitors.
Imitable – financial resources are costly to imitate as assets have been gained by the organization
through delayed benefits throughout the years. New companies would require same benefits for
long time (Rothaermel, 2016).
The workers of company are not expensive to copy as recognized as other organisation can also
provide training to staff and enhance their skills and knowledge. They can also provide benefits

and create a positive culture through which they can be retained. By hiring qualified employees
competitive advantage can be gained.
Patent of IKEA is difficult to imitate as it is not allowed in legal manner for any firm to copy
patent and produce similar products and services.
Organisation
IKEA uses its financial resources in effective way. They develop strategies on how to invest in
the market. Thus, it has enabled company to gain competitive advantage within industry.
Patent are used to their full potential by organisation. This has impacted on their other resources
as well. Moreover, competitive advantage can be lost if patented products are sold after patent
expire (Simenstad and Johnsen, 2017).
The distribution network of IKEA is organized as there is strong network established to reach out
to its customers by ensuring that products are available on all stores. Therefore, it is a source of
sustained competitive advantage.
SWOT- this is another model which is used to evaluate internal environment of business.
Basically, it is used for strategic planning. There are four things in it which is specified as :
Strength
The company is having a strong vision which has enabled them to attract large number of
customers. They have defined their business strategy in well manner. The strategy simplifies
retail sector and have been useful in gaining competitive advantage.
Anther strength is that IKEA furniture is assembled by customer which helps in reducing its cost.
Thus, with cost leadership strategy company have built a strong brand image in furniture market.
Organisation uses KPI to measure its performance. In this the indicators used are renewable
materials use, etc. (Vecchio, Benfratello and Sabet, 2018) this has allowed in creating a strong
supply chain network and high efficiency.

IKEA operate at global level having stores in most of countries. Hence, its presence and large
customer base is strength.
Weakness
IKEA is facing some issues related to its quality of products and services. This is because of its
large scale operations due to which it is difficult for them to manage its operations.
They are also involved in some of environmental issues as they are not able to properly
communicate policies and practices related to environmental policies to their stakeholders and
customers.
Opportunities
IKEA can emerge and enter in those markets which are developing like India and China. In that
they can attract more customers and generate more revenue and profits. Also, by offering
products at low cost company can gain competitive advantage easily (Gürel and Tat, 2017).
Organisation can focus on implementing green business model. It will be useful in resolving
environmental issues as well. Alongside, through this approach ethical consumers can be tapped
into different countries.
Threats
The change in shift of online shopping in future can be a threat to IKEA. This can make result in
impacting on its overall growth and sustainability. Moreover, IKEA does not develop new
strategies.
Cost leadership concept can be copied by many other businesses to enter in furniture market. It
will lead to rise in competition and segregating of customers.
Thus, it is evaluated that IKEA is having a strong network at global level and brand
image which has resulted in gaining competitive advantage.

TASK 3
Porter’s Five Force Model
There are different forces in market place can affect the business of company in
competitive market. This model can be used by the business organization to find the competitive
positioning of the organization in market place (Yuliansyah, Gurd and Mohamed, 2017). There
are various forces are available in market that can affect the business of organization in target
market. As an organization works in the local or international market then various factors can be
considered by the organization to evaluate their positioning. By analysing this asset and forces
organization can evaluate the performance of the organization in international competitive
market. The forces that are used to considered in the porter five analysis are- Threat of entering a
new market, threat of substitute product, bargaining power of customer, bargaining power of
supplier and rivalry with the existing competitors of organization. Porter’s five force model can
help the Ikea to develop effective business strategy for business in target market to improve the
productivity of the organization in market place. The result of the Porter Five forces model can
be used to designing effective business strategy for organization.
Threat of Entering a New Market
This is most important for the organization to analyse the threat for the organization to
entering in new market. This is difficult for the organization to enter new market with no
available customer in market or only few customer in the market place. IN this condition the
threat for the IKEA is not that much because IEA is one of the most famous organization around
the world. Organization is providing top quality furniture to its customer. This is how the threat
of entering new market is very low for IKEA in new market place. these threat can be more
reduced by applying better marketing and promotional strategy in market place. This is how
more people can be addressed by the company to keep them aware of their product and services
in new market.
Threat of Substitute Product
As a furniture developing organization this is very difficult for organization to sell their
products in market place along with other competitors in market place. There are some other
organizations are also working in same field and providing services to the customers. This threat

for the organization is moderate in market place. Due to high effectiveness of IKEA in market
place this is difficult for other organization to give tough competition to IKEA in market place.
This threat of the substitute can be more reduced by providing products to the customers at
effectively low pricing (Holotiuk and Beimborn, 2017). This is how more people can be attracted
by the organization in target market. There is one other process also can be used by the
organization to reduce this threat. IKEA can improve the creativity in their products ad
Bargaining Power of Customer
This threat is considered as, if the cost or quality related demands of the customer are not
followed or full filled then they might switch the company with other services provider. This is
one of the biggest threat for an organization. This threat is also not that high for IKEA because
the products that are provided but the organization to the custom are unique and best in class.
The products provided by the organization are also cost effective. This is how the bargaining
power of customer for the case of IKEA is low and organization have much higher power. This
can be considered as opportunity to the company that it will help the organization to grow in
particular market in market place. This power of organization can be increased by provide large
range of selection criteria to the customer with effectively low cost. This process can make their
customers loyal for long time and it will help the organization to complete their long term
business objectives.
Bargaining Power of Supplier
Bargaining power of supplier can be explained as the power of the supplier to threatening
the organization by selling them raw material at much larger cost as compared the their actual
cost and if organization do not pay them this cost then they might with their customer. This is
how suppliers can force the organization to buy the raw material at much higher price. This
threat is also negligible for IKEA because all the raw material that is used by the IKEA company
if produced by them. The wood that is used in the construction for furniture is grown by the
company in their farm. This threat of the organization is very low or negligible. Organization
also can reduce these power of supplier by developing ore farms and increase the number of
supplier to keep more power in their hand in order to run the business cost effectively.
Rivalry with the Existing Competitors of Organization

There are different organizations are there in market place who are performing business
in the same market. This is difficult for the organization to make effective profit in market place
by selling their product and services to the customers. Other organizations are competition to
organization and they can affect the business of IKEA. This is major threat for organization in
market place. These rivalry can lead the companies into pricing battle to attract more customer
base. If the competition in the business organization is positive then it can improve the condition
of the market place and help the organization to grow effectively. If the competition in the
market place is negative then it can affect the profit of the company (Hsieh, Ma and Novoselov,
2019). As per the policies and uniqueness of product these threat for organization is low and it
can lead to positive competition in market place. The negative impact of rivalry can be reduced
by providing differentiated product to the customer at effectively low cost in order to gain higher
profit in market place.
This is how from the overall Porter’s Five Force Analysis the condition for IKEA in
market place is more effective than the other organization with similar product. The positioning
of the organization in target market is effective and they are effective with their business
strategy. For effective performance of the organization in market place company can use
different business strategy to gain higher profit in market place. Effective business strategy can
be evaluated with Ansoff MAtrix.

Figure 1Ansoff Matrix
(Source: Ansoff Matrix, 2020)
As per the Ansoff Matrix there are four strategic positioning can be used by the organization in
market place. For each condition particular strategy is provided in the Ansoff Matrix. According
to the current condition for organization market development strategy will be most effective. In
this strategy organization can use different practices that can help them to develop their business
in market place. Organization can perform Segmentation, targeting and positioning in order to
improve their sales in the market place. By this process organization can gain higher and
effective customer in market place. New domestic market can be used by the organization a new
target to sale their products and services. Company also can use international market which is
consists of more opportunities of business. This is how by using market development strategy
organization can effectively improve their business and lead it to growth.

TASK 4
Strategic Planning for Organization in Market Place
There are different activities can be used by the organization to gain higher profit in the
market place. As per the market analysis performed for the organization there are different
processes can be used by the organization to gain higher benefits from the market place. These
processes can be used by the organization to gain higher benefits from target market. According
to the Ansoff Matrix organization can use market development strategy in order to generate
higher effectiveness in market place. Market development strategy is mainly considered as the
process of entering a new market with higher effectiveness (Habib and Hasan, 2017). In the
process of entering a new market organization have to consider various factors in order to
establish business in new location with effective strategy. This is important for the organization
to collect effective data about the organization. There are different operations can be performed
by the organization to enter in new market. For example market research is most important for
the organization. By conduction effective market research organization can make effective
business plan for the particular market. for the example marketing is one of the most effective
process to promote the business operation of the organization in market place. Organization need
to create effective market place in order to perform marketing effectively in market place. Proper
marketing plan can be developed by the organization to gain higher profit from market place.
Processes like segmentation can help IKEA to select right customer for the organization and
targeting process can provide them opportunity to effectively perform marketing and promotion
for the people who are targeted by the organization. After the segmentation and targeting
company can use cost and place positioning in the market place to attract the particular target
people to improve the business of the organization in newly emerging market.
CONCLUSION
This report is concluding the importance of the business strategy for IKEA in development of
their business in new market. Various internal external factors has been analysed in report that
can be used by the organization to make effective business strategy in market place. Competitive
analysis also has been performed in the report to get better result with competitive strategy of
organization in market place.

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