Business Environment Analysis of IKEA: Problems and Solutions

This report provides a comprehensive analysis of IKEA's business environment, addressing challenges and opportunities within the furniture sector. It begins with an introduction to the business environment and then delves into the specific problems faced by the furniture sector, such as increasing costs and fluctuating customer demand. A PESTEL analysis examines the political, economic, social, technological, legal, and environmental factors influencing IKEA's operations. The report further explores the positive and negative impacts of business factors like inflation and demand fluctuations. A reflection section details the learning experience and insights gained during the project, including the student's future career aspirations in the furniture industry. The report concludes by summarizing the key findings and suggesting strategic recommendations for IKEA to navigate the dynamic market conditions. The student used various research sources to gather data to complete this analysis.

Business
Environment

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1 ...........................................................................................................................................4
Problems faced by Furniture Sector...........................................................................................4
TASK 2............................................................................................................................................5
PESTEL analysis of IKEA..........................................................................................................5
TASK 3............................................................................................................................................6
Positive impact on Business- .....................................................................................................6
Negative impact of Business.......................................................................................................6
TASK 4............................................................................................................................................7
REFLECTION............................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................9

INTRODUCTION
Business Environment is sum or collection of all internal and external factors such as employees,
customers needs and expectations, supply and demand, management, clients, suppliers, owners,
activities by government, innovation in technology, social trends, market trends, economic
changes, etc. This topic covers questions such as Problems faced by Furniture Sector, PESTEL
analysis of IKEA, Positive impact on Business and Negative impact of Business and reflection to
understand what I went through for completing the report.
TASK 1
Problems faced by Furniture Sector
IKEA is facing many problems such as
Increasing Costs- IKEA is dealing in manufacturing of furniture goods. The whole industry is
suffering from the problem of inflation because of the factors responsible which affect the
company and they are inside and outside of it. This factor or aspect is concerned with cost of raw
materials and it is increasing day by day. Some companies have no option but to eat the cost and
some increase the prices of their products so that they can pass it to consumers and earn from
them. This method is a risky factor as competition in this industry is high and company can loose
their share from their competitors. People who have been in this industry for long have predicted
that if companies have to survive in this market with this competition then they have to eat their
own costs. (Calabrese, Iandolo, Caputo and Sarno, 2018.)
Fluctuating Customer Demand-
Due to the factors such as increase in cost of raw materials and products and increase in wage
rate of employees . It is getting difficult for IKEA to manage their operations at the time where
the demand is fluctuating. Market of IKEA and companies who are dealing in this industry
depends hugely on the housing trends from consumer. According to a study 37 per cent of people
has rented a place in the year 2016 which makes it the highest since 1965 which was the highest
before this. Deloitte conducted a research study in 2015 which stated that demand for single
person homes will rise in around the next 15 years because of the small households and small
families people now days prefer a small or medium apartment or flat. Company has to work and
set their productivity according to the markets as this industry solely depends on it. People are

shifting more from big houses or bungalows to small apartments or flats which means that small
place requires less furniture. This is making it difficult for companies such as IKEA to survive in
the market. On the other hand people who rent instead of buying accommodate their place with
cheap and old furniture. These type of people don't purchase high end furniture. To add they
prefer goods which are less expensive and which can be easily shifted from one place to another.
To improve this and make a way out of this situation IKEA needs to change their way of
working and try out some new design, engage in experiments. IKEA must change their focus so
that they can cope up with the demands of the customers and provide more and more services to
them. (Georgescu and Popescul, 2015. )
TASK 2
PESTEL analysis of IKEA
Political Factors of IKEA-
IKEA have stores operating in more than 41 countries. Company has to keep in mind the
different factors of different countries which does not affect them. Some countries have the same
political views. It has been observed that because of stability which is maintained by political
factors countries earn the benefit from them. If they don't maintain the stability then it will
disrupt the flow of economy.
Economic Factors of IKEA-
The operations of the company is related with the worldwide economy. But some of the
companies who are operating on a large scale are still not over the effects of recession which
came in 2007. it affected the companies in many harsh ways which slowed down their flow of
business. It affected the demand of the products and with time factors such as inflation also
caused the economy in a negative way. (Kozubíková, Homolka and Kristalas, 2017.)
Social Factors of IKEA-
This tells the ethics and morale of the company. IKEA follows it because they have to maintain a
good image in the market and on the other side they donate some of their revenues for the
welfare of public with no reason behind it. But sometimes MNC face difficulty as in some
countries same sex couple is legal and in some countries it is not. That is why the IKEA removed
that content from the magazine as it is not legal in Russia.
Technological Factors-

IKEA still has not upgraded their way of showing their products. They still use catalogs and
brochures which are now kind of outdated. Environment is changing rapidly and a continuous
need of improvement is required to cope up with the technological aspects of the environment.
IKEA needs to provide their information on tablets instead of catalogs. To add IKEA must soon
come up with a website which shows their whole portfolio and what are the operations of the
country, in how many countries company serves. (Cepel and et.al., 2018.)
Legal Factors-
IKEA has to follow the rules and regulation of the countries in which they operate in. It is
necessary for every company otherwise they won't be allowed to serve in the international
markets. In some places company is already suffering from bad image because some people
think the quality they are offering is not up to the mark. There have been real incidents such as
there items has fallen and resulted in death. If company does not focus on improving it then they
will face many lawsuits. (Bah and Fang, 2015)
Environmental Factors-
This is the aspect by which company is maintaining its image in the eyes of federal Government
and in the eyes of general public. The company is working more and more to prevent the
environment and they are trying to come up with a kind of store that runs on energy which is
fully renewable. (Komljenovic, Loiselle and Kumral, 2017. )
TASK 3
Positive impact on Business-
The company which has established their market and has customers which are loyal to them such
as IKEA only those companies can enjoy the time of inflation as customers won't think to buy
their products. These companies will enjoy the high pricing as they will set the price according to
their level of profit. The cost of inflation may change the mind of people but it still maintains the
flow in the market which is helpful for the companies to flow its operations smoothly. On the
other hand when there is fluctuation in demand it may disrupt the flow of business. But at the
time of this situation company can focus on other aspects to improve or to expand and they can
try out some experiments to bring a change into the market according to the taste and preference
of the consumers. IKEA needs to change their way of working in a lot of ways so that they can
cope up with the changes that are happening in the market. (Kljucnikov and et.al., .)

Negative impact of Business
Due to the factors which are affecting the market. It is ruining the goodwill, earning and share in
the market. As competition is tough, there are many companies which are operating in this
industry. That is why it is difficult for IKEA to survive and counter the measures such as
increase in cost of raw materials due to inflation and fluctuation in demand. Increase in cost of
products will shift the consumers from buying to low end products or from those companies who
are eating their own costs and selling at low prices. Ultimately it is a loss for the company as it
will not take the company anywhere and it will not grow in any market. These all factors will
lead to shift their employees as if the company is not earning as per the expectations then they
cannot provide their employees with a decent package. IKEA is still facing the effects of
recession which came in 2007 as it has reduced the flow of money in the market. In result all of
this has led to decrease in buying of products. To add companies need to shift on providing
furniture according to small houses as customers have now switched to living in flats where big
furniture won't be useful. (Deasy and et.al., 2016)
TASK 4
REFLECTION
When I went to gather the data for the report. I faced a lot of problems. For starters I was not
able to find the appropriate or suitable data which could be according to the questions of the
project. Then I went to my mentor to seek guidance without her I am sure I would have not been
able to complete the report. She provided me with data which was related to the questions that
were asked in the report. I understood every question from her so that I can analyze it and give
the suitable answers. I have gained very rightful information while working on this project and
now I possess every bit of knowledge that is related to furniture industry. Working on this
project has made me realize that I want to make a career in this industry. After studying the up
and downs of this industry I want to begin by doing an internship so that I can understand how a
MNC work. Then my plan is to start on a small level by using both the channel that is online and
traditional approach. I have the confidence and skills which is required to start up a business in
this sector. All I need to do is understand the working of the company and gather a team full of
skills with a substantial amount of resources which is needed to build up a company. With the
idea I have to learned the managerial skills so that at the beginning stage I can manage my team
and then with time if everything goes well which I know it will then we will set up a team and

assign a manger to look out various departments. My plan is to start with offering products of
furniture which are of low end to medium end as it will require less money to start and the no of
buyers in low end sector is comparatively high than high end products. So I have thought to
maximize the sale and earn on that because earning high amount of profit at the beginning stage
is not easy and it will not attract many buyers. With time when I have made the name of my
brand in the market and I have confidence that I have established it in several markets then I will
go on to expand the company and start offering the range of high end products so that I can also
compete with companies such as IKEA. I know it will not be easy as it is a MNC and have a
huge power and resources but I also know that where there is a will there is a way. My report has
helped me to observe that the demand of the market or flow of products is not good. That is why
I have planned to start as a internship and learn for some time and when the time and the market
is right. I will join the team and gather up the resources so that I can start and make my company
count as one of the most renowned brand in the world who deals in every kind of furniture.
(Prajogo, D.I., 2016)
CONCLUSION
From the above studies it has been concluded that IKEA needs to take the changes and measures
to cope up with the rapidly changing environment. If they don't work according to the taste and
preferences of consumers then they will loose a large amount of share in the market to its
competitors. Company also needs to improve their quality as a lot of their products are breaking
and they need to improve that so that they don't face lawsuits and loose the customers.

REFERENCES
Books and Journal
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Calabrese, M., Iandolo, F., Caputo, F. and Sarno, D., 2018. From mechanical to cognitive view: The
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Cepel, M., and et.al., 2018. Business environment quality index in the SME segment. Journal of
Competitiveness. 10(2). p.21.
Deasy, S., and et.al., 2016. Controlling use of a business environment on a mobile device. U.S.
Patent 9,247,042.
Georgescu, M. and Popescul, D., 2015. Social Media–the new paradigm of collaboration and
communication for business environment. Procedia Economics and Finance. 20.
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Kljucnikov, A., and et.al., . The entreprenurial perception of SME business environment quality in
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Komljenovic, D., Loiselle, G. and Kumral, M., 2017. Organization: A new focus on mine safety
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Kozubíková, L., Homolka, L. and Kristalas, D., 2017. The effect of business environment and
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Prajogo, D.I., 2016. The strategic fit between innovation strategies and business environment in
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