Market Entry Strategy: IKEA's Business Analysis in the Mexican Context

This report provides a detailed analysis of IKEA's potential expansion into the Mexican market. It begins with an introduction to IKEA, its background, and current market strategies, including its business structure, segmentation, targeting, and positioning. The report employs the ANSOFF Growth Matrix, SWOT analysis, PESTEL analysis, and Porter’s Five Forces analysis to assess the business environment in Mexico. It discusses trade, the North American Free Trade Agreement, and foreign direct investment in Mexico, highlighting factors and issues affecting business considerations. The report concludes by summarizing the key aspects of the Mexican business environment relevant to IKEA's expansion plans. Desklib provides past papers and solved assignments for students.

BUSINESS ORG. IN A GLOBAL CONTEXT
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Table of Contents
Introduction......................................................................................................................................3
Introduction and Background of the organisation...........................................................................4
Current Market Strategies................................................................................................................6
Business Structure...........................................................................................................................6
Segmentation, Targeting and Positioning........................................................................................6
ANSOFF Growth Matrix.................................................................................................................7
SWOT Analysis...............................................................................................................................7
PESTEL Analysis............................................................................................................................7
Porter’s Five Analysis....................................................................................................................10
Marketing Mix...............................................................................................................................12
Analysis of the Business Environment in Mexico.........................................................................13
Trade and North American Free Trade Agreement.......................................................................14
Foreign Direct Investment in Mexico............................................................................................15
Factors affecting considerations of the business environment......................................................16
Issues affecting considerations of the business environment........................................................18
Conclusion.....................................................................................................................................20
References......................................................................................................................................21
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Introduction
The report has discussed in detail the business environment of Mexico. The report has
undertaken IKEA as the business organisation and Mexico as the business environment. The
report has been based on the scenario that IKEA is aiming to expand its business in the business
environment of Mexico. The report has professed on various aspects of business environment
and industrial climate of Mexico. The report has considered various aspects of the Mexican
business environment. These aspects include the business climate and the industrial framework,
the concept and scope of foreign direct investment in the city, the factors will enhance the appeal
of business environment etc. The report has also conversed on the issues that emerge in the
course of expansion of the business operation in Mexico. The report has performed Porter’s Five
Factor Analysis and PESTEL Analysis to perform a general analysis and identify the business
environment of Mexico.
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Introduction and Background of the organisation
IKEA was founded by Ingvar Kamprad in 1943. The organisation originally started as a small
scale business with mail orders and business selling gift cards, pencils etc. The organisation is
now world’s largest organisation functioning as designer and seller of ready to assemble
furniture, kitchen and home furniture appliances and decorative accessories. The organisation
provides with annual sales of $40 billion as per the records of 2016. The company is popular for
its affordable home décor furniture and eco-friendly business processes. The organisation is
highly regarded in its industry for paying attention towards cost cutting and environmental
sustainability within its business operations. The organisation functions in relations to producing
furniture applying the natural resources (Kesseli, 2017). The organisation has focused on supply
chain management and thus has been able to reduce the costing and expenditures to an estimate
of three percent each year. Several of the aspects such as strategic packaging, economies of
scales, transportation and modifications in the business processes have to lead the organisation to
develop and evolve as a competitive and growing business organisation. The organisation has
provided the expansion and business diversification programs through franchising in various
parts of the globe.
At IKEA the vision is to provide with developed everyday services to the consumers. The
business idea of IKEA supports the vision by offering well-designed kitchen and home furniture
and appliances. The strategy at IKEA is to provide low cost and affordable products to the
consumers so that each and every one is able to afford the products. IKEA witnessed a rise in
total revenues by 8.9% to £1.7 billion for the year 2017 (Pwc Mexico, 2015). The organisation
observed a growth in the market share of the United Kingdoms from 0.5% to 8.9%. The
organisation aims at reaching £2.4 billion of sales by the year 2020. The strategic aim of the
organisation in the United Kingdom is to achieve 13% of the United Kingdom’s home furnishing
market share.
The organisation condemns it has added up to 1700 jobs in the year which makes up a total of
10000 of the United Kingdom’s employees for the organisation. It is observed that the
organisation has spent £11.5 million on paying the employees for national living wages. The
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online business division of the organisation has specifically performed tremendously. It has
depicted a growth of 31% since the year 2015.
(Source: Molly Fallon, 2015)
According to a recent survey by Business wire in 2016, the global home furnishing market is
forecasted to grow at a Compound Annual Growth Rate of 5.36% during the financial years of
2016 to 2020. The major contributors towards this growth trend will be IKEA, Bed Bath and
Beyond, Macy’s alone in the United Kingdom.
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Current Market Strategies
Business Structure
The internal business environment of IKEA includes its internal factors that influence the
business and its operations. The internal factors of IKEA are its human resources which include
the employers and the employees, the financial resources, the raw materials and other productive
resources, the business processes and functions, business suppliers and consumers etc.
Segmentation, Targeting and Positioning
The segmentation for IKEA includes the demographic and psychographic segmentation. The
demographic segmentation entails the consumer tastes and preferences as more than 56% of the
consumer base of IKEA is younger than the age of 40 (Grant, 2016). The psychographic
segmentation includes the younger millennial having liberal cultural views and demands form
the organisation.
The targeting market of IKEA is the urban areas of the parts of globe served. The organisation is
more focused towards the young and urban areas of the consumer share. The organisation
focuses on the notation that more than 54% of the population lives in the urban areas that
comprise of more than 72% of the market share for the organisation. Focusing on the urban
market areas the organisation will be able to increase its sales, growth and consumers
preferences in Mexico.
The positioning is positioned as the world leader in home furnishing and kitchen appliances retail
chain. The organisation is positioned as a premium section of the industry that provides with
affordable and attractive designed products and furniture to the consumers (Management study
guide, 2017). Being the chain leader IKEA enjoys a competitive advantage in the industry. The
organisation is positioned as a cost leadership organisation.
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ANSOFF Growth Matrix
The ANSOFF Growth Matrix of IKEA can be determined by the organisation venturing into
business product lines and services. The organisation can expand into the services of providing
eatery and recreation components at the stores (Twarowska and Kąkol, 2013). For example, the
organisation can provide with cafes and small shop providing with eatables and food products for
the consumers to enhance their shopping experience.
SWOT Analysis
Strengths: Market leader in the home, kitchen furniture and appliances. The empirical growth
rate for the past six years and multiplied increase in sales by the online business division.
Weakness: Difficulty in controlling the standards and quality of various products and services
provided by the organisation in various parts of the globe. This is due to the organisation
functioning in various parts of the globe.
Opportunities: The green business model of the organisation provides with increased
opportunities to attract increased consumers towards the business (Baroto, et. al., 2012.). The
model focuses on the social and environmental responsibility of the organisation and thus will
attract the ethical market share in the global market.
Threats
The organisation possesses major threat from the local carpenters and local furniture business
organisation, as these competitors provide with durable services at cheaper costs than the
organisation. These competitors do not invest as much as IKEA and thus survive even at lower
rates of revenue and profit margins.
PESTEL Analysis
The PESTEL Analysis is an analytical approach which identifies the Political, Economic, Social,
Technological, Environmental and Legal impact on the business and the business environment of
the economy.
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Political
The political aspect includes the impact of political conditions and situations of Mexico on the
business environment and the economic conditions. The political aspect includes political
stability, political conditions and political influence of the country in the economy (Santander
Trade Portal, 2018). IKEA will be favoured by positive and stable political conditions and thus
will foster the expansion of business in Mexico.
Economic
Economic aspect in this analysis denotes the economic stability and the economic conditions
prevailing in Mexico. Mexico is a rapidly growing economy and a developing business
environment. The economic stability and development in Mexico will aid IKEA to expand its
business and provides with enhanced results.
Social
The social aspect of the analysis refers to the social composition and the demographics of the
consumers of the business in the market. The social aspect enables to understand and interpret
the demographics and characteristics of the consumers, their choices and their demands. Mexico
provides with diversified social components.
Technological
The technological aspect includes technological advancements and the availability of the
technological resources in the business environment. The technological aspect of Mexico is
strong and demonstrates a developing pace. IKEA will be provided with developed and enhanced
technological services and resources to foster its expansion in Mexico (Santander Trade Portal,
2018).
Environmental
The environmental aspect of this analysis indicates the various components of the environment.
Availability of resources, environmental responsibility, levels of populations, impacts of the
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growing business on the environment etc. are included in this aspect. There are various aspects
that have to be considered by IKEA in the environmental aspect of Mexico.
Legal
The legal aspect includes the regulations and legal constraints of Mexico. The government and
the law and order provides with various limits and restrictions to expand the business and
commence a new business in the geographical locations of Mexico. The law relating to business
entails various permission and abidance to various regulations (Pwc, 2018). Thus IKEA has to
abide by various legal regulations and restrictions to expand the business in Mexico.
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Porter’s Five Analysis
Porter’s five-factor analysis is an analytical approach designed to investigate and analyze the
level of competition and threat the competitors provide to a business organisation. The approach
identifies five basic forces as follows:
The threat of New Entrants
The force defines the threat new business entrants provide to the existing business in the
economy. The new entrants act as a threat to the existing business corporates and organisations.
In Mexico the foreign direct investment in high and thus there is a greater threat of new entrants
in the business environment to IKEA (Vahlne and Jonsson, 2017).
Threat of Substitutes
The threat of substitutes denotes the threat alternative business organisations or industries
provide to the existing organisation. Alternative industries and organisations develop innovative
strategies and techniques which provides with an increased threat of substitution to the business
organisations like IKEA.
Bargaining Power of Consumers
The bargaining power of the consumers also acts as a factor to enhance the business environment
of an organisation. Bargaining power of the consumers denotes the ability to negotiate the prices
and costs of the products and services (Schirone, 2012). The bargaining power of the consumers
in relation to Mexico is relatively low and thus provides with a lesser threat to the business
organisations.
Bargaining Power of Suppliers
Bargaining power of the suppliers refers to the ability of the suppliers in terms of financial
sources, raw material, human resources etc. The bargaining power of supplier directly influences
the costing and pricing of the various products and services. The availability suppliers in Mexico
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are high thus the threat is lower due to increased availability the bargaining power lowers and
competition increases internally for the suppliers.
Industry Rivalry
The industry rivalry also acts as an element to influence the business environment in an
economy. Industry rivalry identifies the levels of competition that prevails in the economy and
affects the business organisation (Schirone, 2012.). Industry rivalry in Mexico is extremely
strong and various business organisations go through severer competition. IKEA has a threat of
increased industry rivalry.
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Marketing Mix
The marketing mix of IKEA includes four Ps. These are Product, Price, Place and Promotion.
IKEA provides with a various range of designer and customised, ready to assemble home
furniture and kitchen appliances. Price includes the concept of the organisation providing these
products at low and affordable costs. The aim is to make this designer and standardised products
available to all the sections of the society. The place in marketing mix denotes the strategies
adopted by the organisation to attract increased consumer base. These include the supply chain
management, market coverage, distributors and franchising etc. (Schirone, 2012). Lastly, the
marketing mix of IKEA includes the promotion. The organisation is indulgenced aggressive
promotional strategies such as providing various discounts and vouchers on first time purchase,
additional discount and gifts on special occasions etc.
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