Business Environment Analysis of IKEA: A Detailed Report

This report provides a comprehensive analysis of IKEA's business environment, examining both internal and external factors that influence its operations. It begins with an introduction to IKEA and its organizational structure, followed by a literature review that explores the impact of economic and non-economic environments on organizational behavior. The economic environment section covers elements such as market dynamics, taxes, inflation, and manufacturing, while the non-economic environment delves into demographics, natural resources, and cultural influences. The report then presents a detailed discussion and analysis, including SWOT and PESTLE analyses to assess IKEA's strengths, weaknesses, opportunities, threats, political, economic, social, technological, legal, and environmental factors. The conclusion summarizes the key findings and insights gained from the analysis.

B13075
BUSINESS
ENVIRONMENT

EXECUTIVE SUMMARY/ABSTRACT
This project covers the Business environment study of chosen company IKEA; it also covers
internal and external factor analyses of same company. Report starts with identifying
economic and non-economic environment of IKEA which impacts organisational behaviour
of the company. Economic environment consists of various elements like economic system,
policies and conditions which classified into factors like market, taxes, inflation, distribution and
manufacturing of goods in economic system; laws, regulations, EU laws, prices and consumer rights
in economic policies; remaining factors Brexit, companies stability, virus and tourist covers in
economic conditions. PESTLE analyses and SWOT analyses will reflect the external and internal study
done on IKEA.

Table of Contents
1. INTRODUCTION.............................................................................................................................4
1.1 COMPANY BACKGROUND............................................................................................................4
2. LITERATURE REVIEW..........................................................................................................................5
2.1 IMPACT OF ECONOMIC ENVIRONMENT ON ORGANISATIONAL BEHAVIOUR..............................5
2.1.1 ECONOMIC SYSTEM..............................................................................................................5
2.1.2 ECONOMIC POLICIES.............................................................................................................6
2.1.3 ECONOMIC CONDITIONS......................................................................................................7
2.2 NON-ECONOMIC ENVIRONMENT AND IMPACT ON BEHAVIOUR................................................8
2.2.1 DEMOGRAPHICS...................................................................................................................8
2.2.2 NATURAL...............................................................................................................................8
2.2.3 CULTURAL.............................................................................................................................9
3. DISCUSSION AND ANALYSIS...............................................................................................................9
3.1 SWOT ANALYSIS...........................................................................................................................9
3.2 PESTLE ANALYSIS.......................................................................................................................11
4. CONCLUSION...................................................................................................................................12
5. REFERENCES....................................................................................................................................13

1. INTRODUCTION
Business environment are the factors like internal and external which impacts business
through its surroundings. It includes the impact of external and internal factors on business
decisions and operations. Some of these factors discussed in this project are employees,
customers, stakeholders, government, supply, demand, laws and other factors impacting
business decisions.
In this business environment report of IKEA; company’s organizational structure and its
impact on employees have been discussed. This assignment aims to facilitate the analyses of
various business environments like SWOT analysis and PEST analyses and their affect on
business decisions and operations of IKEA is discussed.
1.1 COMPANY BACKGROUND
IKEA is a UK company and a UK furniture retail brand. The company is a popular brand and is
very well known about its quality products and services. The company provides quality of
furniture and furnishings including office furniture, home furniture with unique and
innovative designs to provide attractive products to customers. The company is
headquartered in Delft, Netherlands. IKEA Dose not only deals in furniture, but also expands
its business to homes and apartments and also owns the Mega Store ( Tarnovskaya and de
Chernatony, 2011).
The organizational structure of the company is divided into two main heads, which have
shops and factories and franchise operations. The structure of the organization is complex
and not easily understood. The objective of the company is to increase the company's
profitability by providing quality products to customers and achieve maximum customer
satisfaction as well as a ranking position in the corporate world. The company's
organizational functions include the various functions described below, including the
company's objectives and structure explaining their relationship with information
technology, communications, purchasing, distribution, product development, and sales. The
organizational structure consists of franchising and proprietary stores that include these
functions of the organization (Daunfeldt, and et.al., 2015).
Interrelationship refers to dependencies and dependencies on other functions.
Interrelationship provides dependent organizational functions and operations to achieve the
organizational goals and objectives of the company. These tasks have interdependence for
better achievement of the goals and objectives of the organization. The functions of
organizations have connections between each other and also provide a chain of
responsibility and a chain of command. As mentioned above IKEA is a retail company for
retail and unique designer furniture. The organization has various functions of HR, Finance,
Marketing, Sales and IT. These various tasks have to be managed in a way to achieve

maximum results and maximum benefits. Here are some advantages of interrelationships of
organizational functions.
2. LITERATURE REVIEW
2.1 IMPACT OF ECONOMIC ENVIRONMENT ON ORGANISATIONAL
BEHAVIOUR
2.1.1 ECONOMIC SYSTEM
Some of the components of economic system which can affect organisational
behaviour are discussed below:
Market: These external factors have trends, demand, supply and people. Market
analysis is important for every organisation before making any strategies. Positive
behaviour of market is the key of success.
Taxes: Every business needs to pay cooperative tax to statuary regulations with
certain proportions from their incomes. Higher tax structure discourage any business
because last proportion of their income gone as a tax. But it benefits loss making
companies by reducing loss proportion with certain percentages (Svenungsson,
2012).
Foreign currency: IKEA can gain on transactions when at the time of importing and
exporting pounds value become stronger than dollar value; while it can face losses
on its export import if the same value weak against dollar.
Inflation: Inflation is favourable for any business organizations; because in inflation
period demand of product rises, more workers demanded and economic rate of
country improves. Thus it impacts positively to organisational behaviour of any
company (Bachmann, 2016).
Distribution: It is also referred as logistic system or transportation facility. Country
with good road system and favourable transport facility impacts positively to
organisational behaviour. On the other hand; more restrictions on transportation
through heavy excise duty impacts organisational behaviour in a negative way.
Manufacturing of goods: Company produces large quantity of goods impacts
organisation behaviour to recruit large employees, good ethical values and large
structure of operations. While firms which manufacture less goods impact
organisational behaviour to adopt line management structure and recruit fewer
employees.

Trading: It is the activity of buying and selling of goods and services as the part of
business process. Economic system which consist favourable trade policies and
regulations impacts organisational behaviour positively to grow and achieve its
targets easily without many efforts. While, unfavourable trade policies make it
difficult to fulfil organisational objectives and goals (Dunlavey, 2013).
2.1.2 ECONOMIC POLICIES
Government controls business environment of every organisations to attain goals
such as stability and applicable health and safety obligations. This government
economic policy impacts organisational behaviour of company. Some of the
economic policies are discussed below:
Laws: This plays major role as component of economic policy. Laws of government
affect organisations structure. Company operating where government has strict laws
and regulations; firm has less exposure to resources and limited opportunities of
worker. This affects productivity of organisation and has negative impact on
organisational behaviour. While, government with minimum law conditions provide
opportunity of growth to business and have positive impact on organisational
behaviour (Jonsson, and et.al., 2013).
Regulations: These are the rules obliged by government to control business
activities. County with more regulations have negative impact on organisational
behaviour of company due to rigid structure of governance. On the other hand; less
regulations support organisation to explore more resources and talents for the
progress of economy.
GDPR: Full form Gross Domestic Product Rate; country with more GDPR rate
provides more opportunity to foreign companies to invest in domestic firm and
positively impacts organisational behaviour of firm. While less GDPR countries fails
to attract foreign trade and negatively impacts organisational behaviour of company.
EU Laws: Also known as European Union laws; if these laws open with entrance of
more international companies to enter into domestic country than it will increase
competition and impact organisational behaviour of company in negative way. While
restrictions on the entrance of outside company, will have positive impact on
organisational behaviour of the firm (Kaplan, and et. Al., 2001).
Monitor the prices: More regulation on high prices by legal authority impacts
organisation behaviour of the company to avoid monopoly in the market. On the
other hand; more control of price in the hand of private sectors impacts
organisational behaviour of the firm to develop monopoly in the market and charge
high price from the customers.

Consumer rights: No value to consumer rights give opportunity to cheat firms to
make organisational behaviour which don’t provides quality products and charging
right price (Schiffer and Weder, 2001).
2.1.3 ECONOMIC CONDITIONS
Some of the economic conditions which impact organisational behaviour are
discussed below:
Stability of companies: In stable conditions of company where no growth is
sustainable; the impact on organisational behaviour is positive. On the other hand;
when growth of the company is not stable; means declining and booming in
economy of the company; organisational behaviour impact in a negative manner.
Brexit: It is also known as British Exit; in this situation all counties lays under
European Union have to follow same rules and regulations and foreign currency
which is Pounds. Company operating their business in Britain will be impacted
through change in currency and trade policy. Relations between Britain and other
European countries will also impact organisational behaviour.
Virus: Attack of virus which can affect countries economy and company through
stoppage of work due to lockdown can have major impact on organisational
behaviour of any company (Hellman, and et.al., 1999).
Diseases and impact on tourism: If particular country exposed to particular disease
frequently could impact organisational behaviour through irregularity of employees
at office and less productivity on operational activities. Usually tourists avoid
travelling to that place which is infected by any disease; which impact economy due
to decrease in income from tourists.
International students: Country where international students come for their studies;
get opportunity for new talents all over the world and attracts foreign FDIs towards
domestic country, this impact organisational behaviour in positive way.
Education: This factor has major impact on organisational behaviour, because good
education leads to quality productivity through skilled worker and qualified
employees. Education level shows the how efficiently and technically particular
country can handle operations and resources. All developed countries followed by
international students for their further studies.
Manufacturing and production: Country where manufacturing and production are
the major activities and usually exports than imports; open the door for new
enterprises to use resources for betterment of the economy. Hence more production

induces to positive impact on organisational behaviour of the company (Demirgüç-
Kunt, Love and Maksimovic, 2004).
Trading: Every country has export and import products for fulfilling self needs. These
import-export transactions raise the requirement of making Balance of Payment and
Balance of Trade account to identify deficit and surplus balance. Countries, where
BOP and BOT show surplus balance have positive impact on organisational behaviour
of the company.
2.2 NON-ECONOMIC ENVIRONMENT AND IMPACT ON BEHAVIOUR
2.2.1 DEMOGRAPHICS
Demographics are the non-economic environment factor which impact behaviour of
organisations in various ways discussed below:
Gender: More female ratio impacts organisational behaviour to produce goods and
services which satisfies the need of female population.
Age: It affects the choice of the company and niche market to be targeted for
particular type of product manufacturing. Young population’s forces firm to produce
adult centric and old age population influence to offer choices to satisfy need of
more than 40 years of age citizens (Klapper, Laeven and Rajan, 2004).
Ethnics, religion and beliefs: Religion plays a major role in deciding what to produce
and what ethics should be followed by firm to remain reputed in society. Belief
system of employees and society forces big organisations to make its culture and
structure of business (Batra, Kaufmann and Stone, 2003).
Income and Population: Economy having more income per capita attracts more
industries to open its new ventures by providing quality product. But under
developing countries where there are abundant resources in surplus attracts
manufacturing company; to get opportunity for converting resources into money
making product with cheap labours (Rainey, 2010).
2.2.2 NATURAL
Natural resources also impact organisational behaviour; as country where natural
conditions are good like there is enough food resources, natural resources (water,
trees, oil), weather and climate, topographical factors (mountain range, agriculture,
production of food, fruits, rivers and other useful resources attracts more companies
to exploit these resources (Craig and Campbell, 2012).

2.2.3 CULTURAL
Delivery of service and products, approach to customers, religious beliefs, values,
norms, politics internally, norms, dress code and attire, body appearance, body
language, dietary requirements, race, skills and expertise are all cultural factors
which impact behaviour of organisations. For instance; if all these resources are
available at the location where company is operating its business than it will impact
positive and lack of these resources will have negative impact on the behaviour of
the company (Botha, Kourie and Snyman, 2014).
3. DISCUSSION AND ANALYSIS
3.1 SWOT ANALYSIS
Strengths
Strength refers to the factors that can provide a positive aspect to the company that
gives the company different perspectives and ways to improve its functions. Strength of
the company that increase the ability to compete more effectively than competitors
and gain competitive advantage. Some of the strength of IKEA is motioned below:
 It uses heavy innovation in its products (Oblinger and Verville, 1998).
 The company has a brand image by which it has better knowledge among
customers.
 It works on integrated supply chain.
 Various products are offered by the company.
Weaknesses
Weaknesses are those aspects of the company that are lacking and have room to
improve so that efficiency and effectiveness can be achieved. Some weaknesses of the
IKEA Company are (Aterido, Hallward-Driemeier and Pagés, 2009):
 The quality of the company has been seen less and less which breaks the chain
of customers.
 Products produced by the company are standard products indulged with high
prices
Opportunities

The opportunities of the company are those aspects which include profit with it and
which can be obtained by the company with proper analysis (Dunning, 1999). IKEA
opportunities are:
 It is expanding its business line.
 It is introducing trade to new markets in developed countries.
 It is covering the grocery market.
Threats
Threats are aspects that can be included in the internal and external factors of a
business (Steger, 2003). It affects the business and its operations. The dangers of IKEA
are:
 Entry of new entrants having same capacity and product line.
 Recession period.

3.2 PESTLE ANALYSIS
POLITICAL
Political factors are those which involve political implications on the functions of the
organization. It is the policy of the government that affects organizational functions by
providing laws or acts (Aswathappa, 2009). The negative effect of political factors is that
they interfere with business activities that provide barriers to practicing business
functions independently.
ECONOMIC
The positive impact of the economic impact IKEA has on business functions is that they
show frequent economic changes and changes in demand and supply that help to
identify tasks and tasks according to needs while these factors have a negative impact .
The organization is that it provides inflation and deflation that influence the
organization's activity (De Jonge, 2011).
SOCIAL
The social factor has a positive effect on the functions of business in that society and
culture of religion accepts change and innovation which improves the functions of the
organization (Tapscott, 1999). The negative effect of the social factors of the
organization is that it brings restrictions to the company to operate and operate
according to the religion and culture of different societies so as to get the benefit of
sales and attract customers.
TECHNOLOGICAL
The positive effect of a technical factor is that it provides the company or organization
to move on with new technology and compete more effectively with competitors while
the negative effect of technical factors is that it provides continuous change in
technology what bothers affects organizational work and operations and the overall
business of the organization (Shenkar and Luo, 2008).
ENVIRONMENT
The positive impact of environmental factors on IKEA is that it helps in formulating risk-
taking actions to meet the environmental degradation and also provides the company
to work according to environmental factors (Litka and Blodgett, 1988). The negative
impact of environmental factor on organizational factors is that it takes a long process
to counteract the impact of environmental factors that provide delays in achieving
organizational objectives.

LEGAL
The positive impact of legal factors on the organization's actions is that it provides
prevention from excessive corruption and improper inflows and outflows of cash and
merchandise trade. But the negative impact of legal factors on commercial operations is
that it increases the cost of production to IKEA and also changes the laws without any
basis (Ellis and Johnson, 1994).
4. CONCLUSION
On the basis of above business environmental report it can be concluded that;
Economic conditions are the surrounding of environment where company is operating
its business. For instance it involves hygienic and safety conditions, government roles in
support companies and favourable environment. Country supporting more consumers
rights and takes immediate action to provide justice to customer’s impacts
organisational behaviour by installing more ethical codes of doing business and provide
quality products with marginal price. Economic system affects organisational behaviour
and its structure through influencing its decisions externally.
Non responsive market could be problem for survival of any business. Market as a
component of economic system consists demand and supply; more demand supply
impacts organisational behaviour in a positive way. All organisations operating outside
country or engage in regular export and import activities impacts by this factor; because
it could be favourable and against profit of business. PESTLE analysis is the cornerstone
of environmental scanning. Like Porter's Five Forces, a paste analysis looks at the
surrounding environment outside the organization. However, unlike the five forces,
which focus on the industry that surrounds a company, a paste analysis looks at large-
scale (macro) environments outside the industry. Like Five Forces, PEST O corresponds
to opportunities and SWOT has Threats.