Challenges Faced by IKEA in Growing as a Multinational Company

This report discusses the challenges faced by IKEA in its growth as a multinational company. It covers the company profile, management approach, and the impact of these challenges on IKEA's performance.

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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
The Company...................................................................................................................................3
Profile..........................................................................................................................................3
Management Approach................................................................................................................6
The Business Challenge...................................................................................................................7
Description of challenge..............................................................................................................7
Impact of challenge on IKEA......................................................................................................7
RECOMENDATIONS....................................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
IKEA, 2021. [ONLINE]. Available through :< https://www.ikea.com/in/en/this-is-ikea/>..........10

INTRODUCTION
IKEA is a multinational company which designs and sells furniture, kitchen appliances and
many other home accessories. The products from IKEA are read to assemble. It is the largest
company in furniture retailing industry. The company has earned many loyalty points from the
customer’s side as the performance of this company is outstanding. IKEA is a Sweden based
company set up in the year 1943 (Lee, and et.al., 2019). It has its operations in many countries
with more than 300 stores running in different parts of the world. IKEA launches wide range of
new products every year with the help of their in house designers and some external designers
through their contracts.
Moreover, the pricing strategy of IKEA to provide its customers with products having best
and affordable prices has lead to the major growth of the company. The company carries out
their production very thoughtfully and is moving on by taking new projects. Having low
production costs in IKEA made the company offer high quality products at low costs. After all
the company still has to face many blockages in their success and some challenges which lead
the company go through a rough patch. This report deals with the challenges IKEA has to face
while growing as a whole. There is detailed discussion on the profile of IKEA along with the
impact of these challenges o the company.
The Company
Profile
IKEA is a multinational conglomerate which deals in designing and selling ready to
assemble furniture, accessories used in homes and the appliances used in the kitchen along with
other useful goods and accessories used at homes. It is headquartered in Sweden. The company
is considered as the world’s largest furniture retailer from 2008. The company is well known for
its modern designs for various types of furniture and appliances and the interior design work
along with its eco-friendly simplicity. The company was founded on 28 July 1943 by Ingvar
Kamprad but due to the rapid success, there are more than 440 stores till 2021 in more than 50
countries. The revenue of the company is more than €41.3 billion which is because of its
strategies of marketing as well as its talented employees working for the company (IKEA, 2021).
The company facilitates millions of customers worldwide through its well designed products and
services which are available for every room in home. The company also focuses on the
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sustainability, safety and forestry along with good home furnishing which is together referred as
Democratic Design.
SWOT
SWOT analysis focuses on the strengths, weaknesses, opportunities and threats of the
company. IKEA strives much hard to enhance its strengths by making use of the opportunities
and to reduce its weaknesses by minimizing the threats. This is how, SWOT analysis model can
be used to enhance the growth of the company.
Strengths
The company provides same and good quality products worldwide. IKEA offers broad
range of functional and well designed products at very affordable prices. The major strength of
the company is that it uses renewable materials. Also, the company believes in having good and
long term partnerships with suppliers. IKEA also uses new technologies in products like IKEA’s
OGLA chair (Wu, 2020).
Weaknesses
The scale and size of products is very challenging for standardising the products. This led
to weak relationship in the supply chain of IKEA which affects the products of IKEA. The major
weakness is to keep the balance between dealing with the good quality products which are to be
sold at lower prices.
Opportunities
Focusing more on sustainability can provide various opportunities to the company as the
demand is increasing for the reduced water usage and lower carbon footprints. This can be done
by UNICEF, World Wildlife Fund and Save the Children.
Threats
The competitors are the biggest threats of the company which include Amazon,
Pepperfry, Walmart, Wayfair, Target etc. Also the recession turn down consumer spending
which led to reduction in disposable income.
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PESTLE ANALYSIS
This analysis focuses on the micro-environmental factors such as Political, Economic,
Social, Technological, Environmental and Legal. Among these, the first four factors play the
most important role in IKEA.
Political: This includes the government policies, corruption, tax policy, trade restrictions etc.
IKEA is the biggest firm which is successful in both global and Scandinavian market. The
political condition of the company is stable which eases the conditions for the company. IKEA
can make use of these for entering in other markets.
Economic: The economic factor includes the global recession which affects the company
greatly. IKEA needs to maintain its customer base for maintain the progress of the company. The
company deals in selling the products at affordable prices which is why the economic factors do
not impact the profitability of IKEA (Garnier and Poncin, 2019).
Social: These factors impacts the company because IKEA contributes towards the society
through insurance, pensions, providing stylish furniture at low prices, helping the customers
online for sustainable life and many more. The social factors create need for the company to
engage in such social services.
Technological: These factors create need to the company to make use of technology systems for
promoting shorter queues, trading and tracking patterns and staffing. Also, the company is in
right position after making use of these technological innovations (Garnier and Poncin, 2019).
Porter’s 5 Forces Model
This model helps in analysing the competition in the industry in which the company like
IKEA operates. IKEA make use of this model and its five forces as follows:
Power of the buyers
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This power is very low because the customers have very less or no option for getting
quality furniture at very low prices. The company is having many options unlike the customers
which make it unique among the competitors.
Power of Suppliers
This is also low because IKEA has so many suppliers to take the raw materials from. This
affects the bargaining power of the suppliers and through which the company can also implement
the strategy of low pricing.
Competitive Rivalry
This power is very weak because the competitors offers completely different products
and even at higher prices (Li and Fleyeh, 2018). The company IKEA delivers complete package
of low price with quality products which result in weak rivalries.
Substitutes
This power is very low as there can be no product which can be considered as alternate of
the products offered by IKEA.
New entrants
This power is very low because it will take a large amount of time and capital along with
unique brand name and supply chain for new entrants to compete with the company IKEA.
Management Approach
At the company IKEA, each function includes the co-workers which reports to the
managing direction of that particular function. There are various styles of leadership and
management such as autocracy in which the manager sets the goals and then allocates the staff
with the tasks, democracy in which the managers encourages the employees for decision making,
laissez faire in which the employees are led to get relaxation and many more. But the company
IKEA follows the paternalistic leadership style in which the managers focus more on the social
needs as well as the views of the people. They act as father figure in whom they try to make the
employees happy and satisfied (IKEA, comfort at your home, 2021). The decisions taken by the
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managers are according to the interests of the employees who makes the management efficient
and effective for the company as well as the employees.
The Business Challenge
Description of challenge
IKEA tend to provide affordable furniture based products to the customers at an affordable
pricing and because of which the company is being able to achieve a large number of customer
bases. But there are several challenges as well which are being faced by IKEA, this include
challenges like development of suitable strategy. It becomes important because IKEA primarily
perform its business operations in the outer skirt of the city and because of which customers have
to travel a long distance to achieve the tangible products. Therefore because of which the
company often faces limitations in attracting the targeted market audience, due to their busy
lifestyle. IKEA provide a base standard level of products all across the globe and because of
which company is not being able to provide products as per the taste of the local customers. This
happens because the corporation tend to implement a uniform level of operations all across the
globe for showcasing uniformity and high quality (Schneider and Bermudez, 2018). But due to
this company is not able to proper manage the diversity in its customer bases, therefore because
of which the corporation tend to face limitations in terms if managing its efficient organizational
sales. Also company tend to implement several efforts to increase its organizational sales to
overseas market for attracting high sales. But also at the same time faces significant challenges
as well, like company often buy a land and establish its physical stores, therefore because of
which high initial expenditures have to be made.
Impact of challenge on IKEA
IKEA tends to perform its operations at various geographic locations and provide tangible
furniture based products to its customers, therefore because of which the company is being able
to implements several innovative approaches. While there are certain challenges as well which
are being faced by the corporation and this can be seen in the following cases. IKEA provide
furniture based products to its customers which are primarily the younger generation of the
society because of their level of engagement in terms of purchasing best in class products at an
affordable pricing. Since the organization primarily focuses on a specific group set, therefore it
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faces limitations in terms of achieving a diversity in the customer base. Due to which its
economic growth is being affected. With that IKEA has to ensure that it is having a efficient
economic growth to maintain its economic growth, but company often tend to develop its
physical stores (Song, 2021). Therefore high expenditures have to be made by the corporation,
due to which overall return of investment is slow and overall profit margin of the company is
also being affected. With that IKEA extend its operations to that overseas market, but faces
limitations in terms of providing products as per the requirements of the specific customer base,
therefore because of which its performance within the specific geographic region is being
affected.
RECOMENDATIONS
Although, IKEA is growing it will have to face up many challenges to keep growing and
developing at this fast pace. The company must take a step back and look into the areas which
require more focus (Alrubah, and et.al., 2020). IKEA has to always be planned and stay at alert
with the changing market conditions. By this the company can move forward to while avoiding
unnecessary expenses. It can recommended for the company to built few stores in the rural part
of the areas as it is difficult and costly for the people buying IKEA products to drive into the
major cities for furniture shopping. IKEA works while taking pride in their Swedish culture.
The management of the company should continue preserving this cultural spirit and helping
the company make decisions which will help the strategy of the company. The company cannot
predict the actions of their competitors so they must not underestimate their power just because
IKEA is performing well now (Li, Y.). IKEA must promote their products their products by
organising different events to make more brand awareness. The company must even try giving
back something to some charity, this well in gaining more customer attention and doing a good
deed.
CONCLUSION
The success of the company IKEA is based on their vision. IT has successfully pierced
into the international markets because of their capability to remain consistent for their customers.
The company has fulfilled the need of having affordable pricing for providing best quality
products. Company’s personal values have influenced the employees and the customer
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experience. Just like any other company, IKEA has to face many challenges for the future
growth of the company. With the correct strategy the company can overcome anything coming in
the way of success.
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REFERENCES
Books and Journals
Garnier, M. and Poncin, I., 2019. Do enriched digital catalogues offer compelling experiences,
beyond websites? A comparative analysis through the IKEA case. Journal of Retailing
and Consumer Services. 47. pp.361-369.
Pires, A. and et.al., 2019. The potential of value analysis application in the furniture industry–a
case study at IKEA. International Journal for Quality Research. 13(4). pp.863-874.
Song, J.W., 2021. How MNE subsidiaries transfer HRM practices in distant environments: A tale
of two IKEA subsidiaries. Journal of International Management. 27(2). p.100850.
Schneider, M.A. and Bermudez, V., 2018. Challenges of transforming a Business Model to a
Sustainable Business Model-A case study based on IKEA and Tetra Pak.
Lee, and et.al., 2019. IKEA furniture assembly environment for long-horizon complex
manipulation tasks. arXiv preprint arXiv:1911.07246.
Alrubah, and et.al., 2020. Factors Affecting Environmental Performance: A Study of
IKEA. International journal of Tourism and hospitality in Asia Pasific, 3(3), pp.79-89.
Li, Y., Business Insight: Leadership and Human Resource Management Analysis for IKEA.
Li, Y. and Fleyeh, H., 2018, August. Twitter sentiment analysis of new ikea stores using machine
learning. In 2018 International Conference on Computer and Applications (ICCA) (pp.
4-11). IEEE.
Wu, Y., 2020, February. The Marketing Strategies of IKEA in China Using Tools of PESTEL,
Five Forces Model and SWOT Analysis. In International Academic Conference on
Frontiers in Social Sciences and Management Innovation (IAFSM 2019) (pp. 348-355).
Atlantis Press.
Online
IKEA, 2021. [ONLINE]. Available through :< https://www.ikea.com/in/en/this-is-ikea/>
IKEA, comfort at your home, 2021. [ONLINE]. Available through :<
https://managementikea.wordpress.com/leadership/#:~:text=At%20IKEA%2C%20each
%20function%20has,tasks%2C%20and%20strongly%20encourages%20obedience. >
Rachel072519, Buy furniture?Ikea!, 2016 [Online]. Available through:<
https://mpk732t22016clusterb.wordpress.com/2016/07/24/buy-furniture-ikea/>
IKEA, FY20 financial results, 2021 [Online]. Available through:<
https://www.inter.ikea.com/en/performance/fy20-financial-results>
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Appendix
PESTLE
Source: Rachel072519, 2016
Finance
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Source: IKEA, 2021
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