IKEA's Business Expansion in Denmark: A Comprehensive Report

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BUSINESS ORGANIZATION AND
ENVIRONMENT IN GLOBAL CONTEXT

Table of Contents
INTRODUCTION..............................................................................................................3
BUSINESS ENVIRONMENT OF DENMARK...............................................................9
BUSINESS SCENERIO ANAKYSIS...........................................................................12
CONCLUSION............................................................................................................... 17
REFLECTIVE SUMMARY OF THE REPORT............................................................18
REFERENCES...............................................................................................................19

INTRODUCTION
In the report of Business organization & Environment, the main aim is to analyze an
organization to expand its business operations and activities in an allocated country.
The discussion will be made on a multinational Company IKEA and the allocated
country is Denmark.
The country Denmark officially announced as the Kingdom of Denmarkis one of the
developed countries where a person can establish its business in order to attract
various customers towards it. The business start-up is also a biggest advantage to the
economic growth of Denmark. A retailing industry IKEA started its business in 1943 and
deals in selling ready to assemble furniture and the home ware products. The first store
of IKEA in Denmark was opened in 1969 with the aim of expanding its business in the
international markets which has been done by introducing rental bicycles for the
customers of Denmark. Along with this, the stores of IKEA are operating in around 52
countries along with Denmark. IKEA is known for providing the modernist designs for
large number of furniture and appliances.

IKEA COMPANY INFORMATION
Ingvar Kamprad has introduced its business IKEA 75 years ago in Sweden but now it
has number of stores in Denmark. The company deals in offering various home
appliances and kitchen products along with the home services (Marino et al., 2018).
The company IKEA was rewarded as the largest furniture retailer in the world in 2008.
The founder of IKEA is considered as one of the richest people and worth over $40
billion. As of 2019, the company is operated in around 423 locations worldwide. It is
headquartered in Delft, Netherlands. There are more than 208,000 employees
connected with the IKEA across the world.
Financial status of IKEA
In 2007, Public eye organization criticized IKEA for the tax avoidance strategy and
nominated it for the ‘Public Eye’ Award. In the fiscal year 2009, the company IKEA
earned a net profit of 2.538 billion where the goods sold of 21.846 billion. The amount of
profit is very less as the INGKA holding is owned by INKKA non-profit foundation
(Davies, 2016). This is the period where IKEA paid franchise fees of 631 million to the
IKEA system. In the year 2013, it has been shown that the IKEA subsidiary has grown
up to 25-30% since its establishment (Prajogo, 2016).
IKEA provides a wide range of services for the customer’s convenience that includes
picking and delivering, transport service, Assembly service, installation service, home
furnishing, office planning etc. the thing that makes IKEA unique is its brand image that
shows a gentle and environmental friendly furniture. As of 2011, IKEA owns 332 stores
in around 38 countries. The reason behind its success is its policies and practices
(Prajogo, 2016).
PoP: selling appliances and furniture return policy (Aboutorab et al., 2018)
PoD: wide range of products, high quality, unique design, low price, best customer
service (Edwards, 2017)

The best way to attract customers for IKEA is its unique design of products and great
customer service. Every store of IKEA includes affordable Swedish food. Also, the one-
way design of IKEA is appreciated by its customer and encourages them to look at all
the products without any confusion (Prajogo, 2016).All the stores of IKEA are well
designed and proper furnished which easily stimulates the customers to buy the
furniture (Edwards, 2017).
Organizational Structure of IKEA
The IKEA group of companies follows an ownership structure which is useful to ensure
long term approach and independence for the company. IKEA is value-driven
organization and passionate about creating life at home (Prajogo, 2016). All the
products and services at IKEA are planned with an idea of making home better place
(Edwards, 2017).
An Organizational structure of IKEA is unique. There are large number of organizations
that are working under the IKEA trademarks. All the franchisees of IKEA are free from
Inter IKEA group and owned by INGKA group.
The above figure is showing the outcome of the restructuring initiative which was
introduced in the year 2016. The IKEA supply, range & production operations were
transferred to Inter IKEA for the improvement of franchise system (Edwards, 2017).

In order to adapt the changes in the external marketplace and increase the business
flexibility, the IKEA sold subsidiaries for EUR 5.2 billion. The changes for the IKEA are
much needed due to the low margin market and the competitors like Amazon that is
creating difficulties for all other retail companies (Davies, 2016).
Therefore, the organizational structure of IKEA is said to be Hierarchical, scattered
operations of IKEA integrates around 340 stores in the 28 markets. Along with this, 22
Pick-up in 11 countries, 41 Shopping stores in 15 countries & 37 Distribution channels
in 18 countries (Edwards, 2017).
There are several negative impacts of this hierarchical structure of IKEA such as lack in
business flexibility, poor communication between senior and junior management and
slow decision making process (Davies, 2016). Hence, the restructuring in organization
turns out to be very beneficial to overcome these shortcomings up to a certain extent.
International operations over IKEA
IKEA has its first foreign expansion in the Chinese market where it started its business
operations but initially it could not succeed due to the differences in style and cultures
(Davies, 2016). But after seven years of this expansion, the company starts succeeding
over sales and therefore decided to add furniture items in the product portfolio. As a
result, IKEA promptly expand its sales by selling over 8000 home products in the
international market (Edwards, 2017).
The company started expanding its services in European Market in the year 1963.
Although, IKEA entered in the foreign market by taking the same operational formulas
and current products, it results in increasing overall sales while increasing the market
share. The foreign expansion also results in increasing vertical resource and FDI (Liu
and Alexander, 2017). It also hasthe location based advantages after expanding the
business in foreign country such as large domestic market & raw materials (Hamilton
and Webster, 2018).
IKEA is considered as the highly integrated company in the globe. It has its major focus
on reducing cost in best possible way by using economies of scale and offering

standardized products worldwide. IKEA developed firm specific advantage to compete
with other retailers and to grow globally (Hamilton and Webster, 2018). Therefore, the
study of IKEA global expansion gives clear view on the international operations. IKEA
looks to the Chinese market with Porters Diamond & uses several approaches to
become successful in the strong economic market (Hamilton and Webster, 2018).

Action plan of IKEA
Strategy
IKEA always follows the strategy of Sustainability throughout its evolution. The focused
strategy is to design it products on the basis of customer needs by keeping the price low
& provides functionality (Aithal, 2017).
Planning
IKEA provides best planning tools to plan a dream kitchen, a perfect wardrobe and a
best office designby planning the way to perfection with ease.
Facilities
IKEA provides the facility of Swedish furniture in all of its stores and its activities are
supported by high-flow facilities.
Popularity
IKEA is popular among other furniture retailerfor its Swedish furniture and appliances in
very affordable rates.
Development
IKEA started its business by selling cards and pens in 1943 and now it is considered as
one of the leading and successful furniture retailer in the retailing industry (Liu and
Alexander, 2017).
Financial analysis
As of 2008, IKEA makes sales of 21.2 billion and till then it is increasing in its sales
every year and reached at the total sales of 31.9 billion in 2015. The sales therefore
increased by 11.2% (Aithal, 2017).

BUSINESS ENVIRONMENT OF DENMARK
Denmark is a social welfare state and totally free from corruption that makes the country
a better place to do business (Aithal, 2017). Denmark is the modern market economy
and a comfortable place with people living in high standard with high level of
government transfers. It is a small open economy & advocates a trade policy and its
import and export makes approximate 50% of GDP. The businesses in Denmark can
easily get in touch with the government agencies. The country is fully dependent on the
foreign trade (Aithal, 2017).
On analyzing the company’s Pestle analysis in context with the country, the key points
will be identified for the growth and development of the country. The following factors
will be defined with reference to the FDI companies as IKEA.
 PESTLE ANALYSIS
Political factors
Denmark is political stable in its operations and not getting affected much by the political
factors. The structure and the stability of government is a top most factor that makes an
influence on the Denmark. The government in Europe has the control over the business
of fast food to remove heath issue and also making restrictions on issuing license for
the franchises (Wiese et al., 2015).
There is also a positive relationship with the Europe government in giving employment
& tax in the international markets to IKEA.

Economic factors
While working in an international market of Denmark, IKEA has to face certain
economic factors such as international rules about taxation as the country has different
rules for franchise and tax. IKEA couldn’t make effective supply of materials in the local
markets; therefore it started exporting goods in the international market (Wiese et al.,
2015).
The economies of Denmark have its major impact on the ales operation if IKEA
because the country’s economy in unstable (Dikova and Brouthers, 2016).

Social factors
As Denmark is a developing country, the people’s lifestyle over there has changing
rapidly and due to this developing economy;citizens of Denmark are stable financially
and have the ability to buy IKEA products. In the countries like Denmark, people want
change in their lives by introducing new techniques of business operations (Wiese et
al., 2015).
Technological factors
The international markets make huge changes in the technologies and introduce new
technologies rapidly due to which it becomes difficult for IKEA to bring instant changes
in its business operations (Lee, 2017). At the same time, technologies in Denmark are
affecting IKEA positively as IKEA is a FDI company, high internet penetration and high
spending in R&D leads to be very beneficial for IKEA (Lee, 2017).
Legal factors
The company IKEA has its good reputation in the international market of Denmark as it
follows all the rules and policies of working and spends 20 hours of working for young
employees as per the county’s rule (Dikova and Brouthers, 2016).Also, the corporate
sector is stable in Denmark in terms of tax implementation, therefore is brings an
advantage to the IKEA. But the challenge for IKEA is the increasing rates of incentives
over tax.
Environmental factors
The environment policies of Denmark have been disrupting the IKEA culture and bring
certain issues for it (Wiese et al., 2015). The people in Denmark have the majority over
an effective environment that also brings a tough challenge for IKEA. In terms of
overcoming these issues, IKEA operates its business in China (Dikova and Brouthers,
2016).

BUSINESS SCENERIO ANAKYSIS
In order to bring large profit margin and achieving sustainability, effective strategical
tools are used that has the focus on two main approaches. Those are
 Porter’s five force model
 Value chain analysis
PORTER’S FIVE FORCE MODEL OF IKEA
Bargaining power of suppliers
Supplier’s power will increase for IKEA only when there are few suppliers. For IKEA, the
bargaining power of supplier is low due to the effective relationship of company with its
suppliers across the world (Lee, 2017). It has around 13800 suppliers in 54 countries.
IKEA also owns ‘Swedwood Manufacturer’ that brings a biggest advantage to remove
threat of suppliers. Having own manufacturer, IKEA deals in offering products at low
cost (Banerjee and Mishra, 2017).
Bargaining power of buyers
There is a war between the prices of different retailing companies. Mostly companies
are involved in getting their materials from China. As there is large number of retailers,