Detailed PESTEL Analysis Report on IKEA: Business Environment Factors

This report presents a comprehensive PESTEL analysis of IKEA, a multinational company specializing in ready-to-assemble furniture. The analysis examines the macro-environmental factors impacting IKEA's strategy and operations. The political analysis discusses political controversies, government regulations, and political instability. The economic analysis covers global economic recession and the strength of the dollar. Social factors like changing tastes and preferences are explored. Technological advancements, including digital technology and augmented reality, are also discussed. The environmental section highlights IKEA's focus on sustainability and environmental regulations. The legal analysis focuses on employment laws and quality regulations. The report concludes by emphasizing the importance of understanding external environmental factors for effective decision-making and strategic planning, aiding IKEA in achieving its business objectives.

ARTICLE WORK

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Political analysis..........................................................................................................................1
Political controversies that have affected the brand................................................................1
Government rules and regulations...........................................................................................1
Political instability...................................................................................................................1
Economical analysis....................................................................................................................2
Global economic recession......................................................................................................2
Strength of dollars in market...................................................................................................2
Social analysis.............................................................................................................................2
Change in tastes and preference..............................................................................................2
Technological analysis.................................................................................................................3
Digital technology...................................................................................................................3
Environmental analysis................................................................................................................4
Following environmental regulations......................................................................................4
Legal analysis..............................................................................................................................4
Employment law......................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCE..................................................................................................................................6

INTRODUCTION
PESTEL analysis is the macro-environmental factor which gives an idea about the
external factors which will have a direct impact on the strategy as well as the operation of the
enterprise (Nurmi & Niemelä, 2018). This report will showcase the PESTEL analysis of Ikea.
Ikea is the Swedish based multinational company that design as well as sell ready to use
furniture. The firm has its operation present in many countries and as a result of this, the factors
like Political, economical, social and technological, etc will have a significant impact on the
company. In this report, a description will be given about the PESTEL factors which will have an
impact on Ikea.
MAIN BODY
Political analysis
Political controversies that have affected the brand
In the recent past, political controversies have caused a significant impact on the overall
operation of the brand. In the year 2012, the firm has accepted some of its furniture which was
manufactured by East Germany political prisoners. The firm had apologized for the same, but the
respective thing had caused a major impact on its global brand image. Due to this, the overall
sales of the company were also dropped.
Government rules and regulations
The operation of Ikea is also affected by the rules and regulations which are being framed
by the political government of the nation. Following the given context, it can be said that in the
past few years, India and China have taken a step in terms of lowering different political barriers
to entry for foreign brands. It is because of the given aspect only; many international brands have
taken steps for expanding their operation in the respective market. For example, Red tape is a
major matter of concern for the brand like Ikea. However, with the help of such type of smooth
policy, Ikea can expand its presence in the respective market. This will have a direct impact on
the overall sales of the company in an effectual manner (González Ortega and et.al., 2019).
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Political instability
It is also being regarded as another most important political factor which will have an
impact on the company’s operation. For example, a situation like political instability will have a
direct impact on the strategy of the company. Such type of activity will influence the firm’s
capability to make an effective decision. Due to this, the overall operation of Ikea will be
affected negatively (Pan, Chen & Zhan, 2018).
Economical analysis
Global economic recession
The operation of Ikea is majorly affected by the global economic recession which has a
direct impact on the purchasing power of the people. However, it has been examined that Ikea is
managing the prices of its products in an effectual manner and it is the reason why it is able to
deal with the pressure that is being imposed by the economic fluctuations. Further, the situation
like recession will also influence the pricing tactic of Ikea. Such situations forces firm to keep
the prices of their product low. This is because; if the respective thing is not followed then
survival of the firm in the market will become very much difficult.
Strength of dollars in market
It is also being considered as another most important economic factor that is influencing
the operation of Ikea. The strong dollar will have a direct influence on the revenue of the firm.
On the other hand, it is because of the given situation only there are many customers of Ikea in
India and China who are not able to afford the product of the company (Hagberg & Sterner,
2019).
Social analysis
Change in tastes and preference
The operation of the company is also influenced by social factors like change in the tastes
and preference of customers and purchasing capacity of the people of the country. In this regard,
it is very right to say that for the company like Ikea it is essential that it should give importance
to the tastes as well as preferences of its respective buyers. This is because, if not give then in
this situation it will become very difficult for the corporation in terms of attracting a large
number of customers towards the firm. This will influence the overall profit of the company.
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Figure 1 Social factor consider by Ikea in China
(Source: Hagberg, 2018)
The figure which is given above gives a clear indication that how the company has
changed its operation as per the tastes as well as the preference of China buyers. For example,
generally apartment size in China is very small in comparison to some western country. Thus, it
is because of the given reason only Ikea has to perform some modifications in the size of its
products. It is through the respective type of strategy only a firm can maintain its presence in the
Chinese market till the date. Similarly, people of China prefer low price products and the given
thing is also assured by Ikea. It is through this way only the firm has to fulfill the needs of its
buyers.
Technological analysis
Digital technology
The company Ikea is making use of digital technology to reach its respective buyers in a
faster manner. On the other hand, the firm is using augmented reality intending to deliver high-
quality services to its respective buyers. This technology is enabling firm in the task of
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maintaining the satisfaction level of their respective customers in an effectual way. Herein, it can
be depicted that for the corporation it is very much essential that it should maintain the
satisfaction of its respective buyers (Sroka, 2019). This is due to the reason that it is through the
given type of activity only Ikea can establish its presence in a highly competitive business
environment. Further, Ikea operates its operation from both online as well as offline stores.
Through this way, the firm is fulfilling convenience related need of its respective customers. This
is also playing an important role in the task of maintaining the satisfaction of the buyers. On the
other hand, Ikea is also using artificial intelligence in order to assess the behavior of its buyers.
Environmental analysis
Following environmental regulations
It can be said that sustainability is being regarded as one of the most crucial areas of
focus for many of the big brands. This is not due to the reason that sustainability helps in
reducing the overall cost of the firm but it plays a vital role in improving the brand image of the
company in the market. Ikea has also put the focus on the concept like sustainability. As a result
of this, Ikea has invested around 1 million dollars on renewable energy. Moreover, the company
has a plan to make all its in-store to be renewable. However, to accomplish the same Ikea is
making an investment in the solar as well as wind energy. In addition to this, it can also be
entailed that the firm is also making its efforts in terms of obtaining its materials like wood and
cotton, etc from the sustainable sources. The respective step which is being taken by the
company will tend to bring positive changes in the firm. On the other hand, it will influence
customers to make more purchases from the company (Nurmi & Niemelä, 2018). This is due to
the reason that nowadays buyers are giving preference to the eco-friendly product. Hence, by
following the concept of sustainability Ikea is building its unique image in the mind of its buyers.
Legal analysis
Employment law
For the firm, it is very much important that it should comply with all type of employment
rules and regulations. In this context, it is examined that respective laws vary from one country
to another. Thus, it is important for the Ikea that it should consider the regulations of all the
countries. If the given thing is not done then in this situation overall sales and profit of the
company will be affected. On the other hand, the respective thing will also cause a direct impact
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on the satisfaction level of the employees that are working in the firm. This is because the lack of
compliance with employment law will entail that Ikea is not considering the needs of its workers.
As a result of this, they perform things like strikes and lockouts. Generally, such type of
activities will harm the overall operation of the firm in an effectual manner. Apart from this, Ikea
has to assure that the products that it is producing should follow all the quality regulations and do
not pose any kind of impact on its respective customers (Sroka, 2019).
CONCLUSION
From the conducted PESTEL analysis, it can be summarized that it is very much essential
for the firm that it should get the idea about the external environmental factors. The information
about the same will enable Ikea in terms of taking various types of decision about the company.
Further, it is through this way only aim and objective of the company will also be accomplished.
The PESTEL analysis of Ikea will also assist the manager in terms of framing an effective
strategy to deal with the different types of situation.
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REFERENCE
González Ortega, R., Oviedo Rodríguez, M. D., Leyva Vázquez, M., Estupiñán Ricardo, J.,
Sganderla Figueiredo, J. A., & Smarandache, F. (2019). Pestel analysis based on
neutrosophic cognitive maps and neutrosophic numbers for the sinos river basin
management. Neutrosophic Sets & Systems, 26.
Hagberg, H. (2018). “A woman endures; she can do everything” The empowerment of Jordanian
and Syrian women in the IKEA and Jordan River Foundation social entrepreneurship
initiative.
Hagberg, H., & Sterner, H. (2019). A study about possible digitalization of a product
development process: A business case at IKEA of Sweden.
Nurmi, J., & Niemelä, M. S. (2018, November). PESTEL Analysis of Hacktivism Campaign
Motivations. In Nordic Conference on Secure IT Systems (pp. 323-335). Springer, Cham.
Pan, W., Chen, L., & Zhan, W. (2018). PESTEL analysis of construction productivity
enhancement strategies: A case study of three economies. Journal of Management in
Engineering, 35(1), 05018013.
Sroka, A. (2019). The IKEA Industry way of ergonomic risk assessment: Development of a
global standard for ergonomic risk assessment.
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