Business Strategy for IKEA: PESTLE, SWOT, and Porter's Analysis

This comprehensive report provides a detailed analysis of IKEA's business strategy. It begins with an introduction to business strategy and its importance, followed by an overview of IKEA as a multinational furniture retailer. The report then delves into the impact of the macro environment on IKEA, utilizing PESTLE analysis to examine political, economic, social, technological, environmental, and legal factors. It also includes an analysis of IKEA's internal capabilities using SWOT and VRIO frameworks, assessing its strengths, weaknesses, opportunities, and threats. Furthermore, the report applies Porter's Five Forces model to evaluate the competitive landscape and concludes with the formulation of a strategic plan for IKEA, offering insights into how the company can maintain its competitive advantage and achieve its business objectives. The report covers vision, mission, and objectives and is designed to provide a thorough understanding of IKEA's strategic approach.

BUSINESS
STRATEGY

Table of Contents
INTRODUCTION 3
TASK 1 3
P1 Impact of Macro Environment on IKEA 3
TASK 2 5
P2 Analysis of all the internal capabilities as well as environment of IKEA 5
TASK 3 9
P3 Porter’s five force model applied on IKEA 9
TASK 4 11
P4 Strategic Plan for IKEA 11
CONCLUSION 12
REFERENCES 12

INTRODUCTION
Business strategy refers to a number of steps as well as actions which are undertaken by an
organisation in order to increase their revenues as well as profitability. There are many other
motives for formulation of a business strategy which includes attracting customers, achieving
customers satisfaction, increasing competition in the market and achieving all its business
objectives as well as aims. Business strategy is responsible for guiding a business (Bai, C. And
et. al., 2020). They provide a roadmap to business and explain which next step is to be taken by
business. It is essential in order to maintain a sustainable growth of business. It is necessary that
business strategy is formed for a long period of time. In the following report, a business strategy
for IKEA is formed. It is a multinational business which sells all the ready to assemble goods
which are furniture, kitchen as well as home appliances. It was founded in Sweden in 1943 by
Ingvar Kampard. It is present in 433 locations around the world. There are a number of analyses
performed on IKEA in order to derive its business strategy. It includes VRIO, PESTLE, SWOT,
Porter's five forces analysis and a number of other analyses to form business strategies for IKEA.
In the end of the report a business strategy for IKEA is also prepared.
TASK 1
Vision: It refrers to short term objectives of business. Vision of Ikea is to create an everyday
better for a number of people. Their business idea is to offer a number of well-designed,
functional homes as well as furniture at the lowest possible price.
Mission: Missions are long term goals of an organisation. Their business supports the idea of
developing a sustainable environment and creating better living conditions for people around
them. They believe towards giving them a better standard of lives throughout (CHENG, T.Y. and
et. al., 2020).
Objectives: Objective refers to major aims towards which a business is working. Major aim of
business is to create a better every day for people investing in their company in any possible
manner.
P1 Impact of Macro Environment on IKEA
There are a number of factors present in the macro environment which can affect a business up
to certain extent. When taken into consideration the concept of macro environment is very large
and a lot of factors can be included in it (Balon and et. al.,2019). The best way to learn about

these factors is conducting a PESTLE analysis on business. Following is PESTLE analysis
conducted on business-
Pestle analysis
PESTLE stands for political, economic, legal, social, technological and environmental.
All these factors together have negative as well as positive impact on functioning of a business.
In order to create a strategy for IKEA so that it may earn profits and stay in the market for the
long run all these factors related to the company are needed to be analysed well. Following are
all those factors affecting IKEA:
PESTLE analysis refers to analysing all the external factors present in a business
environment which may directly order indirectly have an effect positive as well as negative on
functioning of a business. PESTLE analysis generally stands for political, legal, social,
technological, environmental and economic factors. Below mentioned is Western analysis
conducted on IKEA in order to understand all the external factors affecting business:
Political factors:
IKEA has opened its doors in more than 41 countries. This makes it important for IKEA
to abide by rules and regulations of all these countries. There are many countries which have
similar kinds of political influences. But many times, these may differ for different countries
around the world (Elias Mota and et. al., 2020). However, political stability will always benefit
the company. Without political stability economic stability for a country is not possible. So, it is
important for IKEA to look into all the political matters before venturing into a new country.
Positive impact: Good relation with government might help in proper functioning in
different nations.
Negative impact: Small changes in policies might adversely affect such as change in
political party.
Social factors:
Social factors refer to all the values, beliefs of a society a company is running its business
in. It is important for business to follow the culture. It is important that the company does not
offend any social values. This makes it essential for IKEA to make sure that the marketing
material they are using to advertise their brand does not hurt feelings of any social culture. IKEA
have faced many incidents in the past where the advertising campaigns used by companies have
been criticised in the market by different communities. Profits for the company could suffer due

to this ignorance of cultural norms. Therefore, it is required by the company to look into all the
aspects which may have a negative effect on the functioning of the company overseas.
Positive impact: It will help company to know how to behave in market and how to deal
with customers.
Negative impact: it can negatively affect company if the culture and belief is ignored by
company.
Economic factors:
There are a lot of international laws which have affected the economy worldwide leading
to a negative effect on IKEA as well. Recession in the year 2007 can be said to be one of such
examples. Due to loss of work for a number of employees the buying decisions of customers
changed a lot over a period. Before venturing into any new market company needs to focus on
GDP, foreign exchange rates, taxation, interest-rate and all other economic factors present in the
nation which might affect the working of IKEA. Companies must make flexible strategies in
order to deal with any upcoming changes in the economic factors. Economic factors are those
factors which directly influence profit earning capacity of the firm.
Positive impact: Company can take benefits from foreign exchange rates. They can also
go for long term agreements such as calls and options.
Negative impact: Changes in tax rates can negatively affect companies’ profits leading it
to losses.
Technological factors:
Technology can be seen changing over a period of time. Every day new innovation and
techniques are launched in the market (Elias Mota, B. A., and et. al., 2020). Using the latest
technologies can help the company to increase customer satisfaction, as well as support
employees with their work. IKEA took care of technological developments and they offered their
products on the internet. They also provide realistic experiences to their customers in order to
attract them. These steps taken by companies towards changing the technological environment
have been benefiting companies throughout. This also helps companies to stay competitive in the
market and deal with their competitors.
Positive impact: It might help company to improve quality of products.
Negative impact: the new technologies may cost a lot to company as they require huge
investments.

Environmental factors:
It is very important for every company to take care of the environment they are operating
into. Exploiting natural resources can lead to harm for the company and its working in future.
IKEA took care of this matter and invested in its eco-friendliness. IKEA has invested more than
$1 billion in order to provide renewable energy to nations who cannot afford it. They did it by
installing solar as well as window panels at a number of locations. They have also moved
towards using materials like cotton and would be sustainable sources. These steps taken by the
company have proved to be helpful. So, in the future the company needs to take care of its
environment in order to sustain for a longer period of time.
Positive impact: Companies may enhance their brand image through completing their
responsibility towards environment.
Negative impact: Companies can face problems if they not look over the wastes released
by them in the environment.
Legal factors:
Every company needs to be sure they do not bend any laws while operating in the market.
If any law is ignored by the company it may lead to specific legal proceedings against the
company which might affect brand image as well as profits for the firm (Leonidou and et. al.,
2017). IKEA have faced a number of legal proceedings due to harm and death of citizens from
its products. Company also needs to abide by all the labour laws, advertisement laws,
compensation laws et cetera while functioning in the market. Ignoring any of this law may lead
to lawsuits against the company due to which company might suffer heavy losses.
Positive impact: Company can increase its revenues and sales by fulfilling all the
required laws applicable on them such as employee benefit.
Negative impact: If the companies do not follow all the laws and policies they may have
to face legal proceedings against them which might lead to losses for them.
TASK 2
P2 Analysis of all the internal capabilities as well as environment of IKEA
Internal factors of a business are highly responsible for running a business smoothly. It is
necessary for organisations to keep a regular check on internal factors. Internal factors are those

which have maximum impact on a business. All the resources as well as stakeholders are
included in it. The best ways to analyse internal capabilities of business are SWOT as well as
VRIO Analysis.
SWOT Analysis
SWOT analysis stands for strengths, weaknesses, opportunities and threats (Peng, M. W
and et. al., 2017). This helps a business to know about all the internal factors which might
directly have an effect on its profitability and revenues. Following is SWOT conducted in IKEA:
Strengths
Market research: IKEA has a full idea about their customers. They know their customers in and
out. Their market research is very strong so that they can provide customers with whatever they
want. It becomes easy to make a strategy and sell their products if a company has full knowledge
of their customers and needs of their customers.
Countless designs: IKEA provides a number of designs, range and collection. This is the true
strength of the brand. Companies go beyond physical decoration and make their products easy to
transport as well as assemble. One can find finished products in the store where they provide
products that can be assembled at home.
Affordability: IKEA provides its product at very affordable prices to its consumers. This is
another strength of the company. They maintain cost-effectiveness for their clients throughout.
Weaknesses
Bad Press: IKEA has faced some bad press in its past. Employees have been complaining about
poor treatment given to them in their workplace. Also, their products have many times led to
injuries. Advertising techniques they have used were ridiculed by non-western companies as
well. Due to this bad press it has led to distrust of customers in the company (Pucheta‐Martínez
and et. al., 2019).
Low Quality: It has been noticed that due to cheap prices quality offered by companies is low. It
is very difficult to provide high quality prices at affordable prices by any company these days.
The same problem is faced by IKEA. There is a lot of criticism faced by companies on social
media as well. It provides opportunities to other competitors to do better.
Opportunities
Few countries: IKEA had Stores in around 38 countries worldwide. Diversification and market
development are great opportunities for companies. It can set up its store in a number of places in

order to expand their business. There are various other countries like Mexico, Brazil, Pakistan
etc where companies can set up their business and grow.
Online Shopping: Online shopping is in trend these days. Company has a website which sells its
products online. Especially when selling around holidays. They can sell a variety of products
online by increasing the products they’re offering on their sites.
Grocery Stores: Company can push its sales by venturing into grocery stores. It is a way of
product development. They can grow with the help of selling products including food products in
their own grocery stores.
Threats
Fast competition: Companies are facing a lot of competition in the marketplace. This competition
for company has led to a threat for it. There are a number of brands like Walmart who offer
similar inexpensive products. However, they do not provide so much variety as IKEA.
Lawsuits: Companies have faced a lot of bad press in the past. This has led to a threat for the
company. IKEA has chances to face lawsuits from customers who have faced losses and have
been injured due to the company's products. There is also a number of bad influences and
criticism faced by companies on social media. IKEA needs to take care of this factor. They need
to counter their criticisms and make sure that they have to maintain a good image in public. They
need to work towards their brand image in the market (Tardieu and et. al., 2020).
Increased income: it has been noticed that income of people in the market is increasing. When
consumers have more income to spend, they do not want to buy inexpensive products. They
believe in buying good quality products even though they are of high prices. This is the basic
nature of any consumer. IKEA products can be said to be such goods which have a high-income
effect on them. As the income of consumers increases, they will look for better options in the
market.
VRIO Analysis
With the help of VRIO analysis all the important resources in a business and its
importance in business is seen. The set of resources used for this analysis can be different for
different businesses. The value, rarity, imitability and organisation of these resources in business
is analysed through this analysis. Below mentioned is VRIO analysis performed on IKEA:
Valuable

● It has been seen that financial resources present with IKEA are highly valuable as they help
in investing in a number of external opportunities that arise for the business. It is also helpful
for companies to face external threats. (Weng, W., 2020)
● It has been seen that all the employees of IKEA are valuable resources to them. Major
employees working in the company are highly trained and experienced. They provide
productive output for the organisation. They are very loyal to the company and retention of
employees in the company is also very high.
● Other than this the distribution network set up by IKEA throughout its life in the market is
also a valuable resource for the company. It helps IKEA to reach far customers. It helps in
the increasing revenue of the company. This has also helped the company in promotional
activities directly relating to increase in companies’ sales.
● The research and development team of IKEA is still not a very valuable resource for the
company. This is because research and development require a lot of input in terms of finance.
Even so, after so much financial investment, companies are facing competitive threats which
they are unable to overcome. Which proves that the research and development team needs to
improve and cut their cost.
Rare
● It can be said that financial resources of a company are very rare. This can be said because
the company is in a strong financial position in the market which is only present with a few
other competitors in this industry.
● Employees of IKEA are also a rare resource for the company. The employees are trained as
well as skills according to the need of the company which is not present with every
competitor. They provide good compensation and a healthy working environment to their
employees in order to reduce employee turnover rate of the company.
● Distribution network formulated by the company over years of its existence is also a rare
resource for the company. It can be said because in order to obtain such distribution network
competitors of IKEA would require a lot of investment. Only a few other firms except IKEA

have a similar distribution network which can compete with the company (Duquette, C.E.
and Williams, N., 2020).
Imitable
● In order to copy the financial resources, present with IKEA its competitor will have to invest
a lot. Companies have used profits earned by them over years in order to develop this
resource. So, the competitors of a company require a similar amount of profits accumulated
over a period of time in the long run in order to create this resource.
● Any competitor of IKEA could easily imitate its human resources. They need to train their
employees as IKEA did which is not a difficult process.
● Distribution network which has been developed by IKEA over a period of time is not easy to
copy. In order to develop similar network competitors of IKEA would require a lot of
investment.
● Research and development team of IKEA could easily be copied. It is not such a strong
resource for the company so no competitor would like to copy this (Dhanuka, A. and Sharma,
V., 2020).
Organisation
● Financial resources of IKEA are organised enough in order to identify any great opportunity
present with the company and capture it. Companies have great financial advisors who
strategically invest the funds of the company in the right places improving earnings of the
company. This resource present with the company has led to sustained competitive advantage
for the company in the marketplace.
● Distribution network is also very well organised. They have been created in such a way so
that they reach a huge number of customers. They are of good value to the company and they
provide an advantage to the company as well.
● When looking at the other two resources of the company, our employees as well as research
and development of the company are not organised as well as other resources. Company

needs to focus on them in order to make them better and organised so that they can provide
competitive advantage to company as the other resources do
TASK 3
P3 Porter’s five force model applied on IKEA
PORTER’S FIVE FORCE MODEL
Porter's five forces model can be conducted on every industry in order to know the
effectiveness and attractiveness of a business in the competitive industry. It helps business
managers to formulate a strategic plan for the business. It contains five forces which can affect
competitiveness of the business. Below mentioned is this analysis performed on IKEA:
Bargaining power of suppliers
Bargaining power of suppliers for IKEA is low. This is because companies have a
number of suppliers who provide products to the company. It is very easy for a company to
switch from one supplier to another resulting in loss of business for the suppliers. Company has
made a code of conduct which is to be followed by its suppliers (Valenti, A. and Horner, S.V.,
2020). This code of conduct contains rules regarding discrimination, minimum wages, safe
working environment and child labour. The suppliers of IKEA need to abide by this code of
conduct in order to deal with IKEA also this provides IKEA an upper hand.
Bargaining power of customers
Bargaining power of customers in IKEA is very high. It has been seen in every industry
that customers incur a lot of power as there are a number of options available to them in the
market. Companies focusing on promotion, pricing strategy, digital marketing and e-commerce
in order to overcome this. However, in some cases bargaining power of buyers for IKEA is
moderate as the company is providing moderate quality goods at low prices. So, the low-income
level customers of IKEA do not have much bargaining power
Threat of substitute:
Company says no threat from its substitute because of the brand image it has created over the
period of time. The loyalty of customers towards the company is very high leading to high brand
image. The most important factor present with the company is that they provide a variety of

products under a single roof. There is no such competitor providing products like IKEA leading
to low threat from substitute for the company.
Threat from new entrants:
The threat from new entrants in this industry and taking market share of IKEA is
moderate or low. There are a number of brands which run on a small scale but this brand could
not affect the business of IKEA. This is because the company has built a large brand image and
captured a large portion of the market share. Companies have developed human resources,
innovation, financial resources, and infrastructure which is not easy to develop and requires a lot
of investment. All these factors reduce the threat companies can face from new entrants (Payne,
A. and et. al., 2020).
Competitive rivalry in market:
The level of competition companies face in this industry can be moderate or high. Company has
some competitors which also occupied a large number of market share as IKEA. IKEA is
directly competing with some supermarket stores which also provide for furnishing products.
However, IKEA's strategy of providing affordable prices of furniture in moderate quality has
helped it to gain a huge customer base. These factors help to lower the trade company faces from
its competition.
Ansoff’s Matrix
Ansoff’s matrix consists of four strategies which businesses use in order to grow their
business. All these strategies help a business to expand and grab market shares in foreign as well
as domestic market. Every company can choose one or more than one strategy from these four
strategies. These four strategies have helps IKEA from a long period so that they can effectively
expand their business beyond their geographical margins throughout their existence. Four growth
strategies are used by IKEA at its various locations:
Market penetration: Market penetration refers to strategy in which company focuses on the
similar market they are already serving with the similar products. They usually use price
penetration policies in order to gain more market share and customers as compares to their
competitors. This is an effective strategy used by companies when they do not have much capital
to investment. It is a risk-free way to expand business and its share in the market. IKEA is
aggressively use market penetration aggressively. The catalogue of IKEA plays an essential role
in it. It also further increases the market penetration of IKEA.