Business Organisation Report on IKEA: PESTLE Analysis and Porter's Five Forces Model

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Business Organisation
Report
4/18/2018
Student Name

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Contents
Introduction................................................................................................................................2
About Ikea..................................................................................................................................2
PESTLE Analysis.......................................................................................................................4
Impact of opportunities..............................................................................................................6
Impact of threats.........................................................................................................................7
Michael Porter’s Five Forces Model..........................................................................................7
Conclusions and Recommendation............................................................................................9
References:...............................................................................................................................11

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Introduction
IKEA was started in the year 1943 and is the largest furniture retailer. Ikea also makes its
presence in Austria and covers a large share in the market. It offers a large variety of the
designer home furnishing products at a very rational price so that as many as individuals can
able to afford them (Ikea, 2017). Ikea develops those methods of production from which
production can be increased along with increase in effectiveness and efficiency of the
business. It is trying to make and sell ready to assemble furniture, kitchen appliances and
home accessories which are innovative and cost-effective as well. The objective of the report
is to make the understanding of the business environment in Austrian market and
understanding the nature of the business organization. Nature of business organization can
competition can be judged by its type of industry and competitors (Edvardsson and Enquist,
2011). The business environment can be understood by the scanning of the environment to
know the opportunities and threats present in the market. For scanning of the business
environment, some analytical tools are used which include PESTLE Analysis, Swot Analysis,
Porter’s five forces model.
About Ikea
Ikea is Swedish founded Dutch-based multinational group. Ikea product is such which can
easily assemble at any place because of this, sales of the company is showing the increasing
trend. It was founded by Ingvar Kamprad and currently has over 375 stores across 48
countries. The headquarters of Ikea is located in Leiden, Netherlands. The parent company of
the Ikea is Stichting INGKA Foundation. IKEA is owned and operated by a difficult
arrangement of not-for-organisation and for-profit corporation. The structure of the company
is divided into two parts: operations and franchising. The company is dealing in the retailing

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business of furniture. Operations and management activities of many shops are designed,
manufacture and controlled by the INGKA holding, a private company for profit-making
Dutch company. Ikea has its presence in 36 countries and 235 stores are run by the INGKA.
INGKA holding is not an independent company but wholly owned by the Stichting Ingka
Foundation. Ikea sales have been increasing from 2011-2017 around 29% in Austria. The net
profit of the company is also showing the increasing trend and company is growing very fast
in the retail sector (ICAEW, 2018).
The pricing strategy adopted by the Ikea is to give the low-cost furniture to the consumer at
large. Ikea always maintains a good and healthy relationship with its distributors and
influence them to buy new technology so that economies of scale can be achieved and per
unit cost declines. Ikea is using the low-cost leadership by using the low-cost leadership
strategy. There is a better use of new technology and outsourcing of specialist manager by the
company as the company is having the low average cost of production in the end. The
company is having a competitive edge over the market because of its lower price strategy.
Entry for the smaller companies makes difficult because of the existence of the barriers. As
the company is actively present in the market and communicate its policies, CSR activities to
customers also help to maintain a large customer base to Ikea. Ikea has many competitors in
the market which are offering furniture in different styles and functionality. Competitors
include Conrin, Cartel & Barrel, Ethan Allen, and Wal-Mart (Invest in Austria, 2018)
(Marcilla, 2014).
Financial performance of the company found to be increasing day by day because of its
innovative technology and cost leadership strategy. The sales revenue in the year 2013 was
28.5 billion euros and in 2017 sales was marked at 36.3billion euros (Statista, 2018). So these
figures show an immense increase in the sales of the company. Ikea is also planning to
expand its business in other sector and countries also (Rothaermel, (2015).