Strategic Analysis of IKEA: PESTLE, SWOT, VRIO & Competitive Forces

This report provides a comprehensive analysis of IKEA's business strategy, starting with a PESTLE analysis covering political, economic, social, technological, legal, and environmental factors impacting the company. It includes a stakeholder analysis, mission and vision statements, and IKEA's objectives. The report then delves into a SWOT analysis, identifying strengths, weaknesses, opportunities, and threats, followed by a VRIO analysis assessing the value, rarity, imitability, and organization of IKEA's resources. Finally, it applies Porter's Five Forces framework to evaluate the competitive intensity within IKEA's industry and interprets the strategic direction the company is taking to maintain its market position and achieve its goals. Desklib provides a platform for students to access similar solved assignments and study resources.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
PESTLE Analysis of IKEA-.......................................................................................................3
Stakeholder Analysis-.................................................................................................................5
Mission and Vision Statement of IKEA- ...................................................................................5
Objectives of IKEA-...................................................................................................................5
TASK 2............................................................................................................................................6
SWOT Analysis of IKEA- .........................................................................................................6
VRIO Analysis of IKEA-............................................................................................................7
TASK 3............................................................................................................................................8
Porter's Five Force Analysis of IKEA-.......................................................................................8
TASK 4 .........................................................................................................................................10
Interpreting strategic direction..................................................................................................10
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
A business strategy is a set of competitive moves and actions that a business uses to attract
customers, compete successfully, strengthening performance, and achieve organisational goals. It
outlines how business should be carried out to reach the desired ends. IKEA is a European
multinational group that designs and sells ready-to-assemble furniture, kitchen appliances and
home accessories, among other useful goods and occasionally home services. Founded in
Sweden in 1943 by 17-year-old Ingvar Kamprad, IKEA has been the world's largest furniture
retailer since 2008. This report covers questions such as PESTLE Analysis of IKEA, Stakeholder
Analysis, Mission and Vision Statement of IKEA, Objectives of IKEA SWOT Analysis of
IKEA, VRIO Analysis of IKEA, Porter's Five Force Analysis of IKEA.
TASK 1
PESTLE Analysis of IKEA-
Political Factors-
IKEA is a multinational company which means they operate in many countries and that is
41 to be exact. The company has to follow the regulations of each and every country. On the
positive side every company is getting benefits from the political stability in different countries.
If these measures are not taken then economic stability will be impossible. It states that company
may earn or loose according to who is in charge in the concerned country. For instance if the
government of the country is not friendly then company will face issues in exporting or
importing the goods. The company tries to maintain a stability between these factors so that the
revenue of the company does not get on the line. On the contrary if they have good relationship
and there is a scope for developing countries in India and China because they are more open to
multi national companies. IKEA is planning to make a move in the Asian markets as they have
seen the positive shift. (Mahmood, Chung and Mitchell, 2017.)
Economic Factors-
As the company is serving in many markets so they have to keep the worldwide economy
in mind as they are the factors which will help the company to generate more revenue. Some
companies are still suffering from the recession which came in 2008. That time there were no
jobs and people lost their existing jobs. Company observed the behaviour of the consumers at

that time and they were conscious to make decisions regarding buying. After observing they got
to know that the consumers were buying only those things which they wanted to fulfil their need
rather than luxury. This analysis forced the company to make changes and they made their prices
of products more on a conservative approach. This has made the image in the eyes of the people
that whenever they need quality products at affordable prices then IKEA is the best. Sales of the
company is on the level of rise.
Social Factors-
This factor is concerned with following the different culture of different society. IKEA
follows all these measures not just to improve their sales but also to avoid offending the people.
For instance in Russia homosexuality is considered shameful so the company removed the image
of same sex couple sitting on their furniture in a Russian magazine. After that they started to
change their appearance and way of thinking. The mistake was company assumed that these
issues does not affect in developed countries but now they make according to their thinking.
These type of factors can affect the profitability of the business. Still after keeping all of these
factors in mind the company get negative reviews from the critics and people.
Technological Factors-
IKEA needs to change their way of working and cope up with the technological factors.
They still use paper catalogues and their competitors display it online. Every business has their
own website which leaves the company behind their competitors. Website can do everything
such as provide detailed information asks for the final order and these all things cannot be done
through paper catalogues. (Grayson and Hodges, 2017.)
Legal Factors-
If a company has to serve in any market then they will have to follow these factors
otherwise they won't be allowed to run their operations. That is why IKEA follows every law and
regulations of every country they serve in. labour laws are the most essential for the company as
they operate their services in physical stores. On the top of that the companies is loosing their
image because they are getting criticized for poor quality of products such as their products have

fallen over which has led to death and injuries among people. Company has to handle these
issues so that they don't have to deal with lawsuits.
Environmental Factors-
Company has taken initiatives such as they have invested $ 1 billion in renewable energy
in nations which are poor. They have set their aim to make their store which runs fully on the
renewable energy. They are thinking of investing in wind and solar panels. Above that they are
thinking of extracting things such as cotton and wood from sustainable sources. (Bentley-Goode,
Newton and Thompson, 2017.)
Stakeholder Analysis-
It is a process of identifying the people before the beginning of the project. So that they
can be put into the group according to their interest, level of participation and influence in the
project so that it can be determine who is the best person to involve and communicate with them
throughout the whole process.
Mission and Vision Statement of IKEA-
The mission and vision of the company are the same things and that is they believe to
create a better life for many people. Idea of the company is to support this vision by providing
their customers with wide range of well-designed, functional home furnishing products at prices
so low that as many people as possible will be able to afford them.
Objectives of IKEA-
 To earn more profits.
 To have a reputed brand image in the market.
 To have the leverage of competitive advantage in the market.
 To satisfy more and more customers and increase the customer loyalty.
 To make furniture which is affordable by the general public.
 To expand the business in more markets. (Teh and Corbitt, 2015.)

TASK 2
SWOT Analysis of IKEA-
Strength-
Vision of the company is considered to be as their biggest strength that is to bring more
value to their customers. The company does not concerns about the conditions of the market.
This has gave the company a well defined strategy to retail business. This has also benefited the
company to target their customers in an easy way as they are making their positioning better.
IKEA gives the credit of their strength to the method of KPI as they have started using resources
which are renewable and the raw materials they used before now they do it in a optimized
manner. The company has maintained and established their relationship with the suppliers for a
long time which has given the leverage of synergy from the factor of economies of scale.
Another strength of the company is their cost reduction strategy at the time of manufacturing it is
all because of their clear concept but they pass it all on to their customers. The focus of the
company is single minded which has established them as largest retailer in furniture industry.
(Gumusluoglu and Acur, 2016.)
Weaknesses-
IKEA is a multi national company which means that they have to maintain their operations in
many countries which sometimes is difficult for the company because every company has
different standards. IKEA is trying to build the products with the same uniform and quality in
whichever country they operate so that they can overcome this weakness. Company is known for
their cost leadership strategy but now company is facing loss because of it as the cost of raw
materials are increasing which is making it difficult for the company to maintain their operations.
Apart from this company is also facing some issues regarding the environment they have to
make it clear soon to their customers and shareholders. (Oldman and Tomkins, 2018.)
Opportunities-
The company has the opportunity to make products for the people who wants green and
eco friendly products as they have changed their business model so its time to change the target
customers. Another opportunity is their cost leadership strategy as some of them think that the

quality of the product may not be good but most of them think that they are getting things worth
their money. Another opportunity for them is to set their market in developing countries such as
India and China as they want to increase their profitability and they are confident that their cost
leadership strategy will benefit them a lot.
Threats-
The business model which IKEA made has been copied many of its rivals which has bring a
threat for them because now they continuously need to innovate their strategies in order to beat
their competitors. Apart from this company is also facing threats from online retailers because
DIY is no longer the ley strategy to success and their cost leadership strategy won't be effective
because online retailers provide products at lower cost as compared to IKEA which is a risk for
the company.
VRIO Analysis of IKEA-
Valuable-
This analysis helps to prove that the resources that the company has are high in value.
The reason behind it was because they help in taking out the opportunities which are external.
On the top of that they also help the company to face external threats. This analysis also
highlights the fact that their local food products are considered highly differentiated in the
market. The company considers their employs as a valuable resource to them. The reason behind
this is they have highly trained some of them because of which they get better results in the
output of production. The retention level of the company is also high because their employees
are loyal. This helps them to generate greater customer service. Company also consider their
patents as resourceful because they reduce the factor of competitive interference and allows the
firm to generate more revenue. Company also considers their network of distribution valuable.
This helps the company reach more customers and helps the company in doing more and more
promotion into sales. (Phaal, Farrukh and Probert, 2015. )
Rare-
Financial aspects of the company are found to be rare because not so many companies
have this strong resources. On the contrary company also deals in local food and they are not

considered as rare because there are many companies dealing in the same thing. Company
considers their employees rare because they are skilled and highly trained which not every
company have. IKEA has provided them a better environment to work so that they stay for long.
This analysis also consider their patents as rare because it allows them to flow them without the
interference of competitors. After this company also considers their network of distribution rare
because to set it up it requires a huge amount of investment which not every company can afford.
Imitable-
Not every company can imitate the financial resources of IKEA. Company has sustained
them over a long period of time. Any company who tries to achieve it would take a similar
amount of time. The company also deals in local food products and anyone can start that up with
a significant amount of investment. If they invest the money in the right department then
company can take up to long in building this business. Still it is considered as imitable. The
factor of employees is imitable as any company can highly train them, provide them with better
packages, environment and benefits. Patents of the company are not imitable as it is a legal
boundation no one is allowed to do that. Apart from this it is also a costly process. Even their
distribution network is costly to set up and this analysis helps to know that this kind of set up is
not easy to imitate. (Dahlberg, Hokkanen and Newman, 2016, )
Organization-
According to this analysis IKEA is not using their patents up to their full potential. They
have not organized them in a well manner. On the other hand this analysis considers their
network of distribution organized as it helps the company to reach out with their customers and
helps to check that their products are available in their stores. This also gives them a sustained
advantage. According to this analysis company needs to focus on investing I n the right places so
that they cannot miss any opportunities and overcome any threats.
TASK 3
Porter's Five Force Analysis of IKEA-
Bargaining Power of Suppliers-

Suppliers of IKEA have low bargaining power as there are many suppliers of the
company and due to low cash flow and weak financial position the power is low. The company
has no problem in changing the supplier as the availability of supplier is high but for the supplier
it can be risky as they can loose their business. That is why company has set some protocols to
follow. They have set a code of conduct for them which they refer to as IWAY. They have given
the responsibility to their suppliers to communicate the same protocol and code of conduct to
their sub suppliers. The company conduct many audits 1000 to be approx each year and they
check regularly to make sure that there must be no violations. Rules have been formed for
discrimination, minimum wages, child labour and maintain a safe working environment. If the
suppliers don't implement this then they will be cut out. This tells that the company has upper
hand. (Moseley III, 2017)
Bargaining Power of Buyers-
In the case of IKEA power of the buyers are insignificant that is the reason that company
focus on pulling and retaining the customers. Time has changed here in 21st century customers
have more power than company. This change is all due to growth in technological factors and
increase in competition. That is why customers have more weight over company. The company
never shifts their focus from promotion and marketing. The pricing strategy of the company is
already built to influence more and more customers. For making the experience of shopping
better company is also focusing on aspects such as digital marketing and e commerce. To
conclude this factor bargaining power of customers can be stated as moderate to low. The factors
which lead to this much bargaining power of the customers are good quality products, affordable
prices and the strategies of the company.
Threat from Substitute Products-
Company gives less concern to this issue as they don't face much threat from other
companies. There are various factors that state this threat. Most effective is the brand image that
the company has in the market. It is possible because of the reason that for years company has
put in a lot of efforts so that they could gain the trust of customers and gain brand recognition in
the market. Apart from this they offer wide variety of products under one roof. There are not

many companies offering the same services. Analysing all the factors states that company faces
minimum threat from their competitors.
Threat from New Entrants-
IKEA faces low threat from new companies. The reason behind this is any new company
which will enter in the market will start on a low scale with low investment that is why they
won't have any effect from the competitors that will affect them on a big scale. The industry
involves many players but not many of them operate on a large scale. If any new company tries
to enter into the market it will take a lot of time, effort and investment to grow on the level of
IKEA. Excluding the factors such as human resources and infrastructure factors such as
innovation and strategy requires investment on a huge level and it is a time consuming process.
Apart from this new companies has to invest on factors such as promotion and marketing which
is not easy for a new company. Any company can enter in this industry but to grow on this level
they will have to face many barriers. This is the reason that the threat of this factor is moderate.
(Eaton and Kilby, 2015.)
Level of Competitive Rivalry-
Level of competition from the rival companies is high. The battle is not concerned with
the share in the market as IKEA is the sole winner there. Still IKEA has to face large no of
competitors. Apart from the companies who operate on a large scale there are also small scale
retailers or super market owners and brand stores who also compete in this industry. They are a
threat to the IKEA. Company has gained a large customer base with the help of marketing and
their cost leadership strategy. These type of factors help the company to reduce the threat from
other companies. (Chen, Eshleman and Soileau, 2016.)
TASK 4
Interpreting strategic direction
Vision The vision of IKEA is to create the life of many people better every day.

Mission The mission of IKEA organization is to design and develop all its products in
such a way that they could fulfil the daily needs of the customers.
Objectives The objective of the organization IKEA is to offer a wide range of well-
defined products of home furnishing. Moreover, the company has the clear
mission to provide these furnishing articles at the price as low as possible, so
that most of the people can afford to buy it.
Strategies
(based on
suitability,
acceptability and
feasibility)
Porters generic
Strategies
Suitability Strategy
Through online presence, the IKEA company has facilitated its various
consumers with the availability of wide range of product. Thus, this strategy
is used by IKEA in order to have higher sales.
Acceptability Strategy
as acceptability strategy concerns with expected performance outcomes.
Since, IKEA has its availability in online market, due to this the risk
associated with the market development strategy is quite low (Olson and
et.al, 2018).
Feasibility Strategy
The company IKEA has huge financial capabilities & infrastructures, so due
to this the company could easily enhance its online market developing
strategy along with the expansion in its supplier base
Porters generic
IKEA company is a multinational organization with the high reputations in
its targeted market segments. The organization IKEA's competitive
advantages could be understood through Michael porter's generic and
intensive growth model.
In order to handle the competitions of the market the organization has
adopted the combinations of cost leadership, differentiation and focus
strategies. By focusing on the strategies of intensive growth to obtain
customer base expansion as well as sale growth objectives, the company

focuses on the three generic strategy i.e. cost, differentiation and focus.
More over, the intensive growth strategy used by IKEA in order to obtain
growth targets includes market penetration, market development, product
development and diversification.
In order to achieve growth objectives, the three main streams for porter's
generic strategies are used by IKEA are
Cost leadership
this strategy proposed by Porter, which means gaining of competitive
advantage by lowering the cost of the commodity. This strategy is known as
cost leadership strategy. Thus, this strategy of cost leadership is used adopted
by IKEA in order to use in its various consumer markets.
IKEA assumes that the primary objective due to which it has adopted this
strategy is to preserve leadership position in the market. Thus, this could be
achieved through efficient value chain management.
Due to lower price of the commodities, it has became easier for the
organization IKEA to target the middle class families, as the middle class
families has the largest proportion in the country as well as they are of great
importance in pricing factor of the commodity. Therefore, in order to find
out the needs of the customer segment, cost leadership is the best strategy
used by the organization IKEA (Theoharakis, Bicakcioglu and Tanyeri,
2019).
In order to have high brand awareness, or high recognisance for the ultimate
growth in sales as well as to provide strong competitive advantage basis, the
IKEA uses the strategy of cost leadership in order to have great affordability
& easy accessibility of its products to the customers all across the globe.
For handling the competitive pressure due to its close rivalries, the
organization tends to charge the product by lowering the production cost and
by maximizing the efficiency of supply chain. Moreover, the organization
IKEA frequently provides discounts and coupons to its customers in order to
reach its sales targets.
Therefore, the strategy of cost leadership has benefited IKEA in several

factors such as expansion of customer base, enhancing of brand recognizance
etc.
Differentiation
The another commonly used generic strategy in order to build competitive
advantages is differentiation. The organization IKEA uses this strategy in
order to achieve growth in its objectives.
IKEA emphases on the unique product features in order to increase its
consumer base.
The products offered by IKEA are in such a way that the company always
stand above in the market.
Focus Strategy
This strategy encourages companies to have concentrations on resources in
order to expand the narrow market segments. The organization IKEA
adopted this strategy in order to serve its consumers with the best value at the
least cost.
For satisfying the consumers psychological expectations, the organization
IKEA frequently revise its designing and packaging to avail the customers
with the maximum value for money.
Tactics
(marketing mix)
As IKEA tends to offer wide range of products at the low cost, by focusing
on the focusing on the product and price elements of the marketing mix.
Along with the elements of marketing mix, IKEA also focused on the
remaining 7P's i.e. physical evidence, people, process, promotion and place.
By using the mono segment and adaptive type of product positioning, the
retailers of the furniture, tends to target the cost conscious customers to get
the best value for money. So the organization IKEA has adopted this strategy
in order to provide its customers with the widest range of product at the
possible low cost (Amran and et.al, 2016).
The channel through which the marketing of the product can be done by
IKEA is through print and media advertising, and more specifically through
the public relations, event and experience as well as through sales

promotions.
Implementation/
Control
(resource allocation
and control
measures)
The resource allocation and control measures explains how the resources are
allocated for the betterment of the organization and what control measures
are adopted in order to effective utilization of the resources in the
organization.
The company IKEA believed that implementation of resources in the
measured way will always encourage the organization toward success and
will ultimately help the organization in achieving its goals and mission
(Martinez-Simarro, Devece and Llopis-Albert, 2015).
Evaluation The evaluation can be done by measuring the goals achieved. For IKEA, as
the organization has set goals in the initial phase, and thus, by measuring the
goal achieved the company could take further decision for enhancing their
progress.
CONCLUSION
From the above studies it has been concluded that IKEA is one of the leaders in the furniture
segment. IKEA is known for their cost leadership strategy as they provide wide range of
products at an affordable price. Company is facing tough competition but still it has the brand
image that no one can beat. Although company has to cope up with some measures such as
improving the use of advanced technology and leaving the old methods so that new customers
can also be influenced. IKEA has to maintain the same quality in every country as there have
been some issues of the furniture tipping down and leading to death. If they don't improve it then
they will have to fight with lawsuits.

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