Market Structure of IKEA Group

This document provides an analysis of the market structure of IKEA Group. It discusses the company's history, products, and services. It also analyzes the market since its inception and identifies the market structure in which the company operates. The document explores the characteristics of the market structure and considers the nature of the industry in which the firm operates. The market structure of IKEA Group is described as monopolistic competition, with a focus on differentiation and cost management.

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INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Describe the company, its products & services along with its history....................................1
2. Analyse market since its inception, identify that in which market Structure Company
operated........................................................................................................................................2
3. Did company operated in different market structure in the history, discussed the
characteristics of market structure...............................................................................................4
4. Considering the nature of the industry in which firm operated...............................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Managerial economics is among the key principles that characterize the convergence of
multiple economic ideas with market strategies in order to make rational decisions (Armstrong
And et.al., 2019). Such actions are based on projected benefits and productivity maximisation, by
efficient activities and outputs. For the better understanding of this concept, IKEA Group is
selected which is Dutch based multinational Company and established in 1943. This assessment
covers the several topics such as market situation as well as the framework under which it
conducts business, it analyses total historical data for this firm's financial position. In addition,
several ideas for larger or smaller state intervention on its development are also decided to make
in this paper, taking into account the value of society.
MAIN BODY
1. Describe the company, its products & services along with its history
IKEA is Netherlands based Swedish Multinational Company which is sell ready to
assemble furniture, home accessories, kitchen applications and other home services appliances
which are useful goods which helps a person to do smart work. Company founded in 1943 and
has been the world’s largest furniture retail entity since 2008 (Blair and Whitman, 2018). The
Company is renowned for its modern products for different types of appliances and accessories,
and its interior decorating work is also synonymous with eco-friendly functionality. However,
the firm is mainly dedicated to cost management, organizational specifics, and constant product
growth, which helped IKEA to reduce its costs by such an average of 2 to 3 %.
The corporation is a commercial business run by Inter IKEA Systems B.V. Listed in the
Netherlands, and managed by its creator Ingvar Kamprad's family. The IKEA Corporation has a
complicated organizational framework, which members of the national assembly have claimed
was structured to escape over € 1 billion in tax expenses over the 2009–2014 cycles. It is owned
by several organizations located in the Dutch and Liechtenstein. In 1943 Ingvar Kamprad
established IKEA as an online delivery company but started selling furniture five years later. In
1958, the very first offline store was opened in Älmhult, Småland, underneath the name Möbel-
IKÉA (Möbel means "furniture" in Swedish).
Most of IKEA's furniture is crafted to be installed by the customer, instead of being
delivered pre-made. The organization argues that this tends to minimize prices or use of packing
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by not handling air; for example, the width of a bookshelf is slightly lower because it is delivered
unassembled instead of installed (Bridge and Dodds, 2018). It is even more convenient for
people who use public transit, as it is safer to carry flat packs. IKEA says it was a
groundbreaking factor in innovative solutions to the world of mainstream consumerism.
Kamprad terms this "economic planning," which means the company is implementing an
integrated manufacturing and design approach.
2. Analyse market since its inception, identify that in which market Structure Company operated
IKEA is an operated in monopolistic market structure with many competitors; but, trying
to compete with IKEA; what distinguishes the others from it concept price of DIY. Many other
rivals including Seamens, John Lewis, and B&Q offer similar furniture items but their costs are
not available for everybody. Every customer wants to get a wonderful home with well designed
furniture to make things appear fantastic, and within everyone’s budget and IKEA will satisfy
this vision with millions of their beloved customers all over the world. IKEA is among the
biggest and most competitive, making the market a good competitor.
IKEA’s economic research and focused on the history of IKEA, it demonstrates that a
philosophy and vision begins with just one idea and, throughout the case of IKEA, Ingvar
Kamprad 's vision of offering an assortment of home decor items that are cost effective to the
people have gone viral after becoming highly successful worldwide (Coles and Li, 2020). IKEA
's vision is 'Building a better daily life for millions' IKEA offers its ambition by holding purpose,
quality , design and beauty together-always with safety in mind. IKEA will keep prices under
track precisely because they pay attention to their intelligence information, they include costs
and they deliver limited quality furnishings for all of us.
The basic assumption of IKEA is to provide a large showroom covering several thousand
kilometres of criteria. This method appears to gain new people, as a specialty shop is determined.
There is one IKEA in Dayton in Ohio and encompasses the southern side like Kentucky,
Indianapolis and Memphis and the next one is in Columbus that also covers northern part of
Ohio. Industries still often start competing with rivals on demand in a monopolistic market; it
still has a degree of power for both the price of its goods. Nevertheless, Furniture Company has
many connections as they prefer to market the same items as tables, chairs, tables, wardrobes;
there is a significant gap between IKEA and its competitors.
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Business owners can start raising the price of their products & services with the help of
such differences which they offer to their customers to maintain their uniqueness without losing
all its consumers as the item is distinct in quality, brand, and category and so on. IKEA has been
well known for offering eco-friendly and self-assembled furnishing products at affordable prices
to manage more individuals, which differentiates them from their current rivals. There are such
obstacles to new entrants joining and leaving in monopolistic market.
100,000 independent retailers across the UK, making up an increasing retail network,
dedicated to improving and best practices amongst organisations and their members involved in
the independent retail industry. The Netherlands is Britain’s 7th largest economy and the
European Union’s 5th largest (Kliestik And et.al., 2018). The nation has a history for its secure
labour ties, a significant trade surplus and then being the older region's most advanced
transportation centre. There are 390 Dutch retailers and chains in the Netherlands which are
listed for each of the 18 industries by turnovers. As per the current report, In 2019 IKEA Group
has around 211000 employees all over the world where they operated.
Trends of last five years:
Items 2019 (In
millions)
2018 (In
millions)
2017 (In
millions)
2016 (In
millions)
2015 (In
millions)
Sales 23986 23651 36295 35691 32658
Cost 20703 20228 23730 20260 18221
Profit 1485 1449 2473 4200 3512
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From the above data, it has been concluded that sales value from 2015 to 2017 incareses
but after that it was reduces in 2018 and 2019 (Dinçer and Yüksel, 2018). Similarly, cost of
manufacturing goods incraeses and it was 18221 in 2015 and in 2019 it was 20703. Overall
performance of the company decreases and because of low profitability, IKEA Group reduce
their staff capacility in order to reduces cost and maximise propfitability. It is also obseved that,
net profit of the company also reduces throughoput the period from 2015 to 2019.
3. Did company operated in different market structure in the history, discussed the characteristics
of market structure
IKEA is rapidly expanding internationally, IKEA announced the launch of its first ever
branch in India in 2018. It is big news for every company to have its business founded because
of the population in India. So far as IKEA is concerned, as they aim continues providing their
loyal consumers with inexpensive furniture; India would be among the best countries to launch
the location at. IKEA is expected to spend over $2 billion over a period to open 10 stores in
India. "According to Kowitt," China, wherever IKEA has eight of its 10 largest outlets, is the
fastest-growing market for the brand. An outlet is arriving soon in Morocco, the biggest outlets,
is the fastest-growing market for the business. An outlet is arriving early in Morocco and these
are signs that Brazil might not be very behind. IKEA group owns 276 stores in 25 countries as
per IKEA (Kotorri and Krasniqi, 2018). There are around 37 stores that own and manage their
franchisees in 17 nations outside of the IKEA group. Taking 313 stores in 38 countries /
territories their grand total. The nations that are part of a regional expansion include China,
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Australia, Argentina, Finland, Switzerland, Canada, India, France, Germany, Norway, Russia,
Hungary, Spain, Italy , Sweden, Slovakia, Belgium Japan, the Netherlands, Poland, the United
Kingdom, Portugal and the United States.
In Monopolistic market structure, it is a combination of monopoly characteristics
and competitive markets structure. Basically a dynamic monopolistic competition would be one
with independence of entrance and departure, but businesses should distinguish their goods.
They also have an inelastic curve of demand, and so they will their products fix prices.
Nevertheless, as there is freedom of competition, supernormal profits would allow more
companies to enter the overall market leading to average profit.
There are several characteristics of selected market structure which help the organization to
perform accordingly and formulate their strategies as well. In addition, it also helps the new
enterprises to think about, in which market structure they need to perform. IKEA Group follows
monopolistic competition market structure and its characteristics are as follow:
Large number of buyers and sellers: There are several buyers and sellers in this market
structure but not more than perfect competition. Organizations can control their price structure
because every single firm follows independent price structure.
Free entry and exit of organizations: In this market structure, entry and exist is totally
free, there are no charges any organization has to pay to the government while starting and
existing from any market.
Differentiation in products: In order to maximise their sales, firms need to introduce
some uniqueness in their product range to attract large number of customers to maximise their
profit margin. Product distinction describes a condition where the company's buyers distinguish
the product from another. Basically, the various firms' goods are not completely incompatible;
they're subtly various from others.
Cost of Selling: Another characteristic of the monopolistic market is that each corporation
tries to advertise its commodity by various forms of investment (Lee And et.al., 2018).
Advertising is the most essential element of the cost of sale which influences both demand and
product prices. The monopolist's primary aim is to gain full profits; thus, he changes spending of
this sort accordingly.
Lack of perfect knowledge: Neither buyers nor sellers have full business awareness.
There's many countless items which are each a near replacement for the other. The buyers aren't
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familiar with all of these product lines, their qualities and price increases. It is very essential to
have perfect knowledge regarding market to select best product at affordable cost.
More elastic demand: Curve of demand becomes more elastic under monopolistic
competition. The companies have to slash their price to sell further to maximise sales and make
strong customer base.
4. Considering the nature of the industry in which firm operated
Critically evaluate different market structure:
From the starting of IKEA Group, company follow the monopolistic market structure
because there is no such unique products company offer, but they offer assemble furniture which
has uniqueness from its competitor’s products.
The structure of the market could be described as the organisation and main
characteristics of a given region in which a company conducts its business. Monopolistic
competition, monopoly, perfect competition and oligopoly, it can be generally divided into four
major classes according to profitability and price degree (Malmendier, Pezone and Zheng, 2020).
Hereby, the oligopoly market has been described as an environment where only a few firms have
a role as price drivers, while only one company has the ability to do the same among monopoly
markets. Perfect competitive market, on the other hand, shows different firms behaving as price-
takers, while monopolistic companies demonstrated certain organizations' willingness to provide
market control.
Inside the retail sector, a variety of firms fight to each other to meet the consumer
demand i.e. have something new and creative along with swift service which satisfy consumers.
Yet each one of the businesses used to deliver both matching and differentiating items to satisfy
the requirement either less or more. As retail business consumers tend to come into company
delivering creative competitive & services with wonderful goods, rather than flawless
alternatives. Therefore, as various firms offer competitive and differentiated goods within the
retail sector, it regarded firms as merely having their goods distinct from others, according to the
opinions of policymakers.
In context of IKEA, where a monopolistic market structure has multiple customers,
entrants are free as well as exit from the market or oligopoly where there are few alternatives; it
operates with a monopolistically competitive industry (Nadar and Vijayan, 2020). The market
structure reveals a variety of competitive manufacturers that sell different goods with specific
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features that attract consumers to their goods. It was then examined that the best way for IKEA
would be to conduct business in a monopolistic capitalist market alone. This will allow this
company the opportunity to obtain long-term market leverage and set demand on any of its
distinct goods in order to generate sustained growth in the retail sector.
Government intervention in the operations of IKEA Group:
Government intervention in the organizations is beneficial because it helps in preventing
several causes that is good for the entities but not for the consumers. Government helps in
making public policies, set the maximum price level for the particular product, so companies
unable to charge higher value in order to maximise their profit margin through exploiting people.
Public policy also includes the minimum wage rate for labours to avoid employee’s exploitation.
There are several rules and regulations are formulates to maintain government interference to
help employees and consumers.
Being a global corporation working internationally, IKEA will support and abide by the
country it operates (Ostoj, 2018). However, certain nations can have differences in their rules
and regulations; this is not necessarily the case. As with the laws, political stability and economic
prosperity go hand in hand. In order to be able to work effectively in a country, one must obey
rules and bear the repercussions if necessary.
In order to achieve competitive advantages, IKEA group need to follow government rules
and regulations to prevent their intervention in the operational activities. All the regulations
regarding retail companies should be implemented such as customer right of getting quality and
fair price products. Management of IKEA Group need to review taxation policy regularly, if any
changes found then need to implement it immediately and also information their other staff
members regarding the changes. IKEA Group follows every government policy which helps the
society to trust this organization and further invest their money for maximum returns.
Government intervention also make sure that, in the manufacturing unit there will no child
labouring, people get equal fare without any discrimination on the basis of gender or also make
sure that company follows all the health and safety rules to prevent accidents.
Government need to bring awareness about customers and employees rights which helps in
improving their knowledge so further they can fight for it, or in case organization does not
followed it then they should report it (Teece, 2019). In addition, UK government banned the
false advertisement and warn retail sector organizations that show only accurate or right
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information about their products. If government found any firm who make false promises just or
maximise their sales or profit margin, government will take big actions such as fine or closer of
the operations.
Nudging is a method to the implementation of public policy that adjusts the climate for
decision taking to enable people to make a specific choice. This notion has been reinforced by
structured policy reports on Nudges using words such as 'fresh' and a 'additional tool.' By using
this theory, government will modify several policies as per the benefit of society.
CONCLUSION
From this overall report, it is analysed that economic management is the crucial aspect that
makes a business right choices by evaluating its financial position on the markets in a timely
manner. To forecast future success, businesses can apply different hypotheses of managerial
economies such as financial records, market dynamics, current and prior position etc. they can
select optimum market structure to run their operations. Therefore, in connection with this study,
it was made mostly on retail industry, by opening an investigation in this respective industry, it
was evaluated that related companies in any economic situation benefit potential for sustained
business development. In addition, they get help in creating sustainability through policy actions
on retail industry by providing consumers safe and good quality items.
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REFERENCES
Books & Journals
Armstrong, C. S. And et.al., 2019. The economics of managerial taxes and corporate risk-
taking. The Accounting Review, 94(1), pp.1-24.
Blair, R. D. and Whitman, J., 2018. Resale price maintenance: A managerial
perspective. Managerial and Decision Economics, 39(7), pp.751-760.
Bridge, J. and Dodds, J.C., 2018. Managerial decision making. Routledge.
Coles, J. L. and Li, Z., 2020. Managerial attributes, incentives, and performance. The Review of
Corporate Finance Studies, 9(2), pp.256-301.
Dinçer, H. and Yüksel, S. eds., 2018. Handbook of research on managerial thinking in global
business economics. IGI Global.
Kliestik, T. And et.al., 2018. Searching for key sources of goodwill creation as new global
managerial challenge. Polish Journal of Management Studies, 17.
Kotorri, M. and Krasniqi, B. A., 2018. Managerial characteristics and export performance–
empirical evidence from Kosovo. South East European Journal of Economics and
Business, 13(2), pp.32-48.
Lee, C. C. And et.al., 2018. Managerial ability and corporate investment
opportunity. International Review of Financial Analysis, 57, pp.65-76.
Malmendier, U., Pezone, V. and Zheng, H., 2020. Managerial duties and managerial biases.
Nadar, E. N. and Vijayan, S., 2020. Managerial economics. PHI Learning Pvt. Ltd..
Ostoj, I., 2018. Reasons full-time students of economics in Poland undertake jobs. Managerial
Economics, 19(1), pp.117-131.
Teece, D. J., 2019. A capability theory of the firm: an economics and (strategic) management
perspective. New Zealand Economic Papers, 53(1), pp.1-43.
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