Business Strategy of IKEA - Doc

Running head: BUSINESS RESEARCH
BUSINESS RESEARCH
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Executive Summary
IKEA entered the Indian business domain in the wholly subsidised business mode. After the
initial stage, the organization faced several hindrances from the conservative Indian furniture
market. In the Introduction section of the report, the various steps that IKEA have adopted to
make its market launch successful have been highlighted. In the discussion section of tis
report, the multi-channel business strategy of the organisation have been thoroughly studied.
The most important and popular avenues of sales like physical sales and e-commerce sales
have been adopted by the organisation. Moreover, a detailed evaluation of the external
business environment of the furniture industry of India have been evaluated in the report.
SWOT analysis of the competitive strategy of IKEA in India have also been provided in the
discussion section of the report. However, even after 2 years of successful implantation in the
country, the sales quotient of the country has not expanded. Therefore, recommendations for
enhancing competitive advantage of IKEA have been provided in the scope of this report.

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Table of Contents
1. Introduction............................................................................................................................3
2. Discussions.............................................................................................................................3
2.1 The Multi-Channel Business Model.................................................................................3
2.2 Present Scenario of the Furniture sales and manufacture industry of India.....................4
2.3 Roadblocks faced by IKEA due to government regulations............................................4
2.4 Corporate partnership strategy and economic competency of IKEA...............................5
3. Environment Analysis of the retail business of IKEA in India..............................................6
3.1 SWOT analysis.................................................................................................................6
3.1.1 Strengths....................................................................................................................6
3.1.2 Weaknesses................................................................................................................6
3.1.3 Opportunities.............................................................................................................6
3.1.4 Treats.........................................................................................................................7
4. Recommendations..................................................................................................................8
4.1 Demographic market segmentation of Indian Customers................................................8
4.2 Advertising Campaigns....................................................................................................9
4.3 Increase in the annual investments...................................................................................9
Conclusion................................................................................................................................10

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1. Introduction
IKEA have been operating for 30 years in Pan-Indian market domain. In India, IKEA was
forced to tweak its global strategy to compete in the price competitive low run economy. In
order to keep the prices affordable, the organization has adapted the strategies of self-
assembling and DIY designing. This strategy along with other important corporate strategies
like complex corporate structural planning have been discussed in the findings section of this
report. In order to fit in the Indian retailing periphery, the organization has adopted several
basic plans like price competitiveness, quality retention and the DIY conceptualisation.
Various other cross cultural and demographic factors that plays a decisive role in shaping the
success of IKEA in the Indian market have been discussed and analysed in detail in the
course of this report.
2. Discussions
2.1 The Multi-Channel Business Model
In order to create an impactful presence in the Indian terrain, the Swedish company planned a
multi-channel business strategy in India. According to Ehsan Ullah, Karlsson and Dada
Olanrewaju, 2016, Indian customers have the access to both online and offline stores of
IKEA in India. Recently IKEA opened a new distribution facility in Pune. The facility is well
connected to its Hyderabad warehouse. The 372,000 square feet facility is aimed at
maintaining the supply of entire Deccan region. Within, 2022, the company is planning to
invest at least INR 750 Crores more, in order to express itself as a Pan-Indian company.
The spread of online retail business in India has prompted IKEA to launch its products in the
e-commerce websites also. Other eminent furniture manufacturers in India like Godrej and
Durian has their own retail websites. According to Fragouli, 2016, at the moment, IKEA has

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planned to expand their sales through tertiary e-commerce website operating in India like
Amazon, Flipkart or Snapdeal.
2.2 Present Scenario of the Furniture sales and manufacture industry of India
Branded furniture companies occupy only 12 to 15 % of the business of the furniture sector
of India. The rest of the sector is occupied by small enterprises. However, about 48% of the
Indian customers prefer to customise their own furniture. They hire craftsmen who prepare
furniture at their demand. As per the data provided by Govind, 2108, the reason why the
demand of readymade branded furniture in India is less because of the following issues:
 Price Competitiveness
Majority of the Indian customers’ suppose that buying readymade furniture would be
costlier than customising them by local craftsmen. Besides, they also suppose that
timber quality of purchased customers is of under graded quality. Hence, the rate of
procurement of branded furniture is particularly low.
However, recently about 18 to 20 % of the Urban middle and lower middle class
people have showed the trend of purchasing branded furniture, owing to their
contemporary design and finer finishing.
 Chances of Customisation
The Indian customers want the designs of customers to be befitting with their homes.
Hence, they find it easier to appoint local craftsmen to build furniture at home.

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The Major outlook of the Indian furniture customers
(Source: Kumar, A. and Singh, Y., 2014, p.121)
India is one of the fast growing economies with large number of youth. Hence, expectedly,
the purchase powers are supposed to be high. However, as per Hansen, Jensen and Petersen,
2016, the low income range of majority of Indian families are a major problem in realisation
of the business scope of IKEA in India.
2.3 Roadblocks faced by IKEA due to government regulations
Recently, the Indian government have launched the Make In India campaign. The regulations
of this campaign requires the peering manufacturing MNCs of India to have 30% of their
inventory manufactured in India. Further clauses states that Indian artisans should be
employed in the manufacturing units. As a matter of fact, Indian craftsmen work in much
lower pay. However, their level of operational skill are low. They are not acquainted with
mass manufacturing techniques or tools. According to the ideas of Sandeep Kanan, another
major hindrance is the slackened government regulations regarding local business operations.
Under the union criteria of the EU, the business organizations need to maintain government
Majority of the Indian
customers’ suppose that buying
readymade furniture would be
costlier than customising them
by local craftsmen
The Indian customers want the
designs of customers to be befitting
with their homes. Hence, they find it
easier to appoint local craftsmen to
build furniture at home

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permitted chemical standards in the items like table tops or cutlery. However according to the
ideas of Bharti and Agrawal, 2018, the Indian suppliers do not maintain the permissible level
in their items. As an outcome, the table tops that the Indian suppliers provide, contain, high
level of formaldehyde content, which makes them prone to leach chemicals in to food.
2.4 Corporate partnership strategy and economic competency of IKEA
In order to ensure their business sustenance in the new markets like India and China, IKEA
has followed the strategy of localised joint ventures. They have partnered with local
enterprises and utilised them as manufacturing units in the respective countries. As per
Kumar and Singh, 2014, this enables IKEA to become acquainted with the Macro
environment of the industry. In China, this subtle strategy has helped the organization to gain
market penetration of about 45%. Moreover, the organisation has also adopted the price
segmentation strategy in the new markets. They are offering discounts over bulk purchases of
over $400 US Dollars over their entire range.
However, in India, tis business policy of corporate grouping has not worked well for the
organization. The number of potential all India business organisations trading in furniture are
very few. On the top, the investment scale of them is very low in comparison of IKEA hence,
mutual partnership between them has not been possible. This is why the market penetration
rate of IKEA India have been low. Besides, the Indian customers look up to furniture as
assets rather than products. That is why, as Mani, Agrawal and Sharma, 2015, states, they
prefer items that are more sturdy and durable.
The low income range of the Indian customers and their disinterest in purchasing furniture
outside the traditional designs have slowed down the sales expansion rate of IKEA to 1.5%
per year.
3. Environment Analysis of the retail business of IKEA in India

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3.1 SWOT analysis
3.1.1 Strengths
The organization is successfully operating in 44 countries across the globe. The
contemporary design, competitive price and the light weight have made the products of IKEA
more attractive. Moreover, the lesser use of ammonia, lead or other toxic chemicals in their
products makes them eco-friendly also. The organization comes up with new and classy
range of furniture on a regular basis. The manufacturing and distribution facility of IKEA in
India is also quite large and firm.
3.1.2 Weaknesses
One of the major disadvantages of IKEA’s business operations is that the IKEA retail stores
are located on the outskirts of the city. As an impact, the major and potential; customers of
IKEA who are the urban middle and the upper middle class, are having issues in accessing
the stores. As an instance, the Hyderabad facility have been opened far away from the prime
city location. The second weakness is that even after operation of manufacturing facility for 2
years in India, the company stills has very few retailing channels (Ikea.in, 2018).
3.1.3 Opportunities
Since, the products of the company are of low cost, they are capable to successfully spread
their business operations in the low end economies like India. Besides, the locally sourced
timber in India, is readily available and comes in various price and quality ranges. As an
outcome, the organisation will also be able to incorporate products of various price ranges in
India. Furthermore, the popularity of e-commerce shopping websites in India is going to open
up tertiary markets for expansion of sales in the country.
3.1.4 Treats

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E-commerce websites are also allowing the small enterprises to sell their merchandise online,
alongside the larger brands, hence, the competitive advantage that IKEA would be getting is
low. Another major threat of the company is the political roadblocks that the company f aces
in India. The regulations of the Indian government like discriminatory tax rates for the MNCs
or setting a bar of 30% manufacturing rate in house, makes market expansion problematic
and difficult in India.
Figure 2: SWOT Analysis of the Indian furniture market
(Source: Mani et al. 216, p.239)
4. Recommendations
4.1 Demographic market segmentation of Indian Customers
In India, IKEA should allow a demographic survey based on the purchase capability and
purchasing trends of the customers. The purchasing power and the disposable money limit of
1. Strengths
The contemporary design, competitive price and the light weight have made the products
of IKEA more attractive.
The organization comes up with new and classy range of furniture on a regular basis.
2. Weaknesses
The IKEA retail stores are located on the outskirts of the city.
even after operation of manufacturing facility for 2 years in India, the company stills has
very few retailing channels
3.
Opportunities
the organisation will also be able to incorporate products of various price ranges in India.
the popularity of e-commerce shopping websites in India is going to open up tertiary
markets for expansion of sales in the country
4. Threats
The regulations of the Indian government like discriminatory tax rates for the MNCs
the political roadblocks that the company faces in India

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the urban population of India, basically comprising of the salaried person are much higher in
comparison to the rural and semi-urban population, who do not work in the organised sector.
Hence, the IKEA stores should be centrally located in the prime city locations. This would
obviously hinder in creation of an all India brand image. However, at this point of time, the
ascent in the sales rate in the Indian market is much more important for IKEA.
SMART table for recommendation 1
Specific These actions are specifically aimed at
increasing the point of sales of IKEA in
India
Measurable This recommendation is measurable by the
pattern of shop openings in the various
sections of the country.
Attainable These actions are highly attainable, since
IKEA scouts have already conducted a
demographic market survey in the country.
Hence they have the necessary framework
in India required for the market survey.
Realistic This target is realistic as various customer
groups of India have various requirements.
Hence, an equal sales strategy is not
applicable to all of them.
Time Bound These targets are achievable within 6
months.
SMART table for Recommendation 1
(Source: Created by the Researcher)

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4.2 Advertising Campaigns
In India, IKEA should launch advertisement campaigns that highlight the features of their
products like low cost, durability and weather proof nature. The advertisement campaigns
need not focus on the elegance or global approach of the company. This would help the
customers to realise that branded furniture of IKEA are also equally value producing.
Moreover. They should also bring out a product range based on the furnishing trends of the
average Indian customers. Marketing franchises have a great role in promoting home décor
stuff in the villages in India. Hence, local franchises and enterprises should also be allowed to
sell furniture of IKEA other than manufacturing customised furniture. Lastly, IKEA should
also highly advertise the DIY feature of their furniture. There are very rare Indian companies
who offer branded furniture that can be customised.
4.3 Increase in the annual investments
According to the data provided by Burt, Johansson and Dawson, 2015, the compounded
annual growth rate of the home décor and home furnishing sector of Indian has grown about
10.2% in between 2010 and 2016. Hence, the rate of further growth of the industry is going to
higher. This is a sharp opportunity for IKEA to invest in the branded furniture sector of India.
Conclusion
In this report, the market strategies of IKEA have been discussed. Analysing the product
features and proven business strategy of the organisation, it might be concluded that a well-
studied market segmentation will lead the way for a successful market penetration by IKEA.
Moreover, the market situations that IKEA are facing in India have also been analysed.
Studying the conditions, it might also be concluded that the distaste of the Indian customers
towards branded furniture is the main hindrance in market expansion of IKEA in India.

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Necessary steps like franchise marketing or backing up local start-ups might provide brand
equity to IKEA in India.

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