IKEA: Resource-based strategy, VRIO analysis, and expansion strategy

This article discusses IKEA's resource-based strategy, VRIO analysis, and expansion strategy. It also includes a PESTLE analysis of IKEA venturing into the Indian market. The article explores IKEA's mode of entry into the Indian market, the Indian furniture industry, and the five forces analysis.

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GLOBAL BUSINESS MANAGEMENT
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Introduction
The IKEA group majors in selling Scandinavian designed accessories and furniture.
The company sells a wide variety of furniture for bedrooms, kitchens, children rooms, and
living rooms. As in August 2014, the company was operating in 50 countries across the
world. Ingvar Kamprad founded Ikea in 1943, and it initially majored in selling picture
frames, table, pens watches, jewelry, nylon stocking and table runners. According to
Christopher, (2006)In 1947 the company started stocking furniture made by local
manufacturers in its stores. It was to later launch its first furniture catalog in 1951, and then it
set up a furniture warehouse by 1953 by 1955 it had already started its furniture design. The
company began experiencing massive growth when it began expanding its business into the
rest of Europe and other global markets. By 2000 IKEA had a lot of store across the world.
One of the group's main agenda is to offer a good and well-designed furnishing products at an
affordable to price . Thus the company aims at providing quality products to customers at
affordable prices.
Resource-based strategy in IKEA Company
The company is mostly using resource-based approach when trying to invest in
emerging markets. According to All Business, (2015), the Resource-based approach includes
view the firms' resources and capabilities and later coming up with the best plan. According
to Carlsson (2016), This theory views firms as an institution made of many resources. The
way these resources are combined is what makes the company stand out from the rest. This
means that the first thing that should be done by examining the internal environment of a
firm.

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Resources
Resources in a firm are made of organizational processes, firm attributes, capabilities
and all assets. They are considered as all inputs that make up the IKEA Company. According
to Carlsson, (2016) not all resources that make up an organization are relevant some are not
relevant. Based on All Business, (2015) argument For the IKEA Company to be competitive
in its emerging markets it should pot ray the following four attributed. These are commonly
referred to as VRIN characteristics
The VRIN Characteristics
 Valuable- When some resources are capable of bringing value to a firm they provide
the firm with a competitive advantage
 Rare- This characteristic states that resources must deliver unique characteristics for
the company to have a competitive advantage
 Inimitable- Some resources become the means of competitive advantage if rival firms
cannot obtain them
 Non-sustainable- Resources should not be able to be replaced by other sustainable
resources
VRIO Analysis of IKEA
A VRIO framework is a tool used to range the strengths and weakness of a firm. This
framework is usually made up of several questions to be asked concerning the firm. These
questions are further summarised below . They concern the Ikea company according to
(Christopher, 2016)

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The following table demonstrates how VRIO has been applied in IKEA according to Miller
(2010)

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Expansion strategy
IKEA global expansion strategy was established in the 1940s by its founder. Further,
the company has continued with this vision up to date. This vision stated that the company
should sell typically Swedish product wherever it ventures in the world. The company
decided what to produces and later offered it to customers without doing much research. The
company always demonstrated its Swedish roots even when doing advertisements in the
international markets. It has continued to maintain some culture all cross its stores globally. It
continued to maintain a level of standardization because it wanted to offer its customers a
Swedish experience. It believed that localizing the business would not have made the
company unique instead it would have made it just one among many others in the industry
Localization in Global Markets of IKEA
The IKEA company it mainly targeted the global middle class who had some shared
habits. However, the company realized that for it continues being relevant in the market it
had to localize. Thus it started making its advertisement based on a cultural heritage of each
country which differed significantly across different markets. Because of some cultural
differences, IKEA has faced some cultural challenges such as different tastes, many demand,
and social culture.
WHY IKEA DECIDED TO INVEST IN INDIA
India is made up of 1.295 billion people with 7.3% GDP growth and $2.049 trillion
GDP. It also happens to be the world's fourth-largest economy and world largest democracy.
It is expected that India will have the largest workforce in the world. It has also been said that
10 million people usually migrate to towns and cities each year in India. The government has
also put some strategies which have helped in transforming India into a global manufacturing

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hub. Since its liberalization inn1992 the economy of India has been in the process of
integrating with the global economies thus attracting investors from all over the world. The
government has been running camping of ‘make in India' thus giving an opportunity ton
many firms to make direct investment in India. Also, the government has come up with many
initiatives which are meant to foster innovation, facilitate investment and protect intellectual
property.
Pestle Analysis of IKEA Venturing in the Indian market
Political Factors
This is the degree to which a government intervenes in the economy. They include
 Trade Freedom
 Business Freedom
 Constitutional System
 Stability of the government.
Ikea decision to invest in India came at a time when the Indian government want to suspend
some rules on foreign companies venturing in the Indian market. Thus this is the right time
for IKEA to invest in India.
The economic factor they include
 Growth of the GDP
 Growth of the economy
 The Exchange rates
 Unemployment rate in the country
 Interest Rates in the economy

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Ikea strategy mainly targets middle-class consumers. However, the product will still
appeal to those people with a high income because of the design and also quality. The
company must always make sure that it products go at the lowest prices in the markert. price
changes of raw materials and commodity p in India may make the purchasing cost for IKEA
to rise. This is likely to bring about the high prices of products to consumers. The rising fuel
industry is also expected to affect the IKEA bringing about rising in prices
Social factors
 Safety and security
 The age of most of the people in the country.
 The Population Growth
 Employment rate and pattern
 Educational systems
Most of Asian society happen to be savers than spenders, and in such an economy
people might be unwilling in buying new furniture thus opting to save for just in case of
anything.
Technology Factors
Some technological factors that may affect how the IKEA functions in India include
automation technology, R&D activity, and the rate at which technology is changing. These
factors can as well determine barriers to entry or even outsourcing decisions.
 Emerging Technologies
 some the emerging technologies include
 Technology Incentive

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 The rate of Technology change
 Impact of the internet, reduced communication costs
 R&D activity (SEZs)
Radio Frequency Identification Device technology can be of great use to the IKEAs’
supply chain. If adopted it is likely to bring about less inventory for the supermarket which
brings about a lower cost for the company and translates to lower price.
Environmental Factors
They include factors like climate weather and climate change. Environmental factors
can greatly affect industries such as insurance, farming, and tourism. Being aware of how
climatic change usually affects the operation of companies and the products they typically
offer. On the other hand, the government put various measures to try and protect the
environment they usually impose regulation meant to protect, prevent and control pollution.
In India, the government has collaborated with other NGOs working to control the Mother
Nature.
Legal Factors
 Employment terms and the Law that govern it
 Laws on Discrimination
 Laws on consumers

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Safety and health Laws legal compliance of IKEA is usually effectively implemented
with the most applicable and relevant laws that are based on environmental Social and
working conditions.
What IKEA considered when venturing into the Indian market
IKEA considered very many factors before venturing into the Indian market. But they
were already present in the market because they had warehouses ‘suppliers and production. It
was easy for them to enter the Indian market because they had some operation otherwise they
would have begun from scratch. Miller, (2010) states that IKEA was always sourcing from
India for the last 28 years thus venturing into the Indian market became very much
accessible. Before venturing into any market, IKEA company must do some market analysis
about how many people live there and also how much they earn. The company also have to
check on how people live their life at home. This is because one of the companies agenda is
to give people the best home experience. Bengtsson, (2010 pg., 59) states that one of the
significant challenges for IKEA when venturing into new markets are coming up with home
furnishing which is of great interest to the local people. Artisan, (2017) argues that People
across the world have different tastes thus coming up with a product that fits each person
becomes an enormous problem.
Mode of Entry in the Indian country
IKEA commonly uses franchising to enter into different markets. Business Week,
(2005) argues that IKEA international happens to be the owner of the IKEA brand, and other
legal assets. IKEA Franchise in many countries. ICMR India, (2010) states that the IKEA
group happens to be a franchise that has most of the stores in Asia Europe, and the United
States. However, the company has to do a lot of advertising in India to attract customers.

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India Furniture Industry
The furniture industry in India can be thought to be non-organised because it is made
up of a small percentage which is about 05 percent. However, this percentage has been
increasing in every year. The furniture industry happens to be organized in different
categories why handicraft category is considered as the primary category. The wooden
furniture is also a significant category in the non-organised furniture industry and deals with
demand for home items of furniture. Order for household furniture's is commonly affected by
various factors such as interest rates, disposable income, and employ level
The five forces analysis
 Barriers to New Entrants
According to Kumar, (2010), barriers to entry can be explained as reasons that could
hinder various companies from venturing into the market. The following are the barriers to
enter the Indian furniture market .
 Cost of capital requirements
ICMR India, (2010) argues that the capital needed to venture into the furniture industry could
be very high making it difficult for companies to venture into this market
 Experience and knowledge
Since furniture is usually considered as a shopping, good .customers need to select what they
want. According to Bartlett, Dessain& Sjoman, (2006 pg., 89) companies' reputation is very
important in this industry. Imported furniture is booming in India thus designs are also
critical. Leggett, (2014) states that One must have a good relationship with his customers and

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suppliers to succeed in this market. Being able to maintain value chain and healthy
relationship with customers will ensure sustainability of accompanying in this industry.
According to Times (2010) developing relationship will require one to have knowledge and
experience in this field which can be easily acquired or collected while operating in the
market. Given this factor, it is, therefore, easier to note that the furniture industry in India is
bests for those companies that have been in the market for so long.
 Legislation
The legal part is not that important in the Indian furniture industry. Instead it offers excellent
opportunities to newcomers like lower tariffs.
 The bargaining powers of suppliers
Artisan, (2017) states that the capabilities of suppliers are equal to the power of buyers in
this industry meaning that it can squeeze profitability out of business. (ICMR, 2013) Argues
that Suppliers can use their bargaining power by raising prices of goods or even offering the
low-quality product. In the Indian furniture Industry, the bargaining by customers happens to
be very low. The modern design furniture quickly transforms to become the trend. The
manufacturer is also said to come up with products according to instructions given by
customers this has greatly hindered the supplier power
 The bargaining power of buyers
IKEA, (2017) argues that In the Indian furniture industry, the bargaining power of a buyer is
usually very high. The buying process usually includes shopping or buying for products one
the customer has decided; he goes ahead to purchase the product from a retailer or a supplier.
Product design usually becomes a trend in the market. Bengtsson, (2010 pg,26) argues that

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manufacturers have to meet the requirements of customers, Porters suggests that retailers
power become vital if they can be able to convince their buyers to purchase their product
 The Threat of substitute products or services
Mellahi (2017) states that the higher the substitution rate, the less profitable a business is.
Wooden furniture happens to be the dominant product traded in the Indian furniture industry.
According to Times ( 2010), Wooden furniture can significantly be substituted with non-
wooden items of furniture such as plastics or aluminum. Aluminum stands to be the
significant substitutes of wooden product in the Indian furniture industry. However, wood
products are still preferred because they are much cheaper as compared to the aluminum
products
 Rivalry among existing competitors
There can be the fierce rivalry between companies competing in the industry. The more
aggressive the competition, the more unprofitable that business seems to be. ICMR, (2013)
states that for a company to be more profitable, it needs to know its competitors.
 Number of Rivals
The furniture industry in India does not have the intense rivalry because there are very few
firms in the industry. Dalvik, (2011 pg78) foreign companies play a very significant role in
this market because of the growing interest in imported products for customers.
 The industry growth
Slow growth usually brings about increasing competition. From various research, we have
found out that the slow growth in the Indian furniture market has brought about an increase in
the growth of furniture industry every year thus rivalry is not expected to be that high.

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 Product differentiation
Dalvik, (2011) states that Product differentiation plays a significant role in protecting the
company and also helps the customers to identify a product efficiently. In the Indian industry
design usually make a product different from any other, and it also makes the product a trend.
Recommendation
From the five force analysis, we can see an excellent opportunity for the furniture
industry in India. According to Business Week, (2005) IKEA venturing in India happens to
be quite a promising idea. The IKEA Company should consider hiring an interior designer to
visit people in their homes and apartment could make the company have more sales. An
experienced interior designer will help build a lot of sales for the company. Many customers
usually do not have a clue of where to get some of this products. This interior designer should
have cat logs when they are visiting the customers. Having an interior designer will make the
company make more sales because he can quickly push the product on people.
Conclusion
IKEA is a company that has contributed significantly to making furniture fashionable
disposable and cheap. It continues to show innovation in different product design. It has come
up with varying strategies of expansion in Indian. It hopes to succeed in the Indian market
despite some cultural differences.
.

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