The PESTEL analysis of IKEA

The PESTEL analysis of IKEA

The PESTEL analysis of IKEA can be conducted by focusing on the political, economic, social, technological, environmental, and Legal external factors that directly affect the company’s operations. These factors do not result within the business, but they are outcomes of the environment that the company is located. In this case, the firm has to focus on reducing or eliminating its effects. IKEA’s PESTLE therefore can be used to enhance easier penetration into the marketplace to gain a competitive advantage.

IKEA has penetrated the global market, whereby it operates in twenty-six countries with two-hundred and eighty open warehouse stores. This operation implies that the company is prone to various government attitudes while operating in the global furniture market. Besides, countries that experience political instability are likely to affect IKEA’s business, which contributes to running into losses. Political factors in some countries, such as import restrictions, bureaucracy level, lobbying laws, and corruption cases, are potential indicators that would paralyze the company’s operations.

Moreover, the economic factors of IKEA’s PESTLE entail the possible crisis as a result of customer spending ability and various macroeconomic circumstances that limits its business scorecard. The occurrence of this factor may negatively affect its operations due to inadequate preparedness. Also, currency plays a central role in IKEA’s business operations, therefore its dynamic nature is accompanied by possible adverse effects. Although the company has locally developed as a way of curbing the impact of fluctuations in currency exchange rates, it is still susceptible to this condition. IKEA’s engagement in local expansion through organic growth is a potential approach to cushioning it against the negative effects of the currency exchange rate.

Also, changes in IKEA’s main raw materials’ prices, such as timber, are an economic aspect that directly affects its operations. This firm is negatively impacted when its biggest region of the western hemisphere is unstable, mainly due to increased laws on forest conservations. Metals are projected to strike their prices as a result of reduced wood fibers, thus disrupting and paralyzing the main operations. The reduction of both metals and wood fibers form the economic part of IKEA’s Pestle.

Furthermore, as a globally operating company, IKEA is affected by the cultural practices of some communities since some people may have negative attitudes towards the products. In some countries, there are cases of religious or cultural restrictions on the use of woody equipment that act as an active business growth impediment. Rapid technological developments may be expensive for IKEA to adapt at a faster rate, which acts as an obstacle to its operations. Also, this company may be affected when it has not followed the correct legal laws relating to the conservation of forests on overall global furniture practices making it face legal punishments.

IKE’s Porters five analysis

• Competition from existing companies in IKEA porters five model

The business rivalry is intense in this industry, as a result of direct and indirect imitation of operations by other companies. Local retailers have been imitating IKEA’s operational stores whenever opened, for instance, Biva, a Denmark-based furniture chain has been favorably competing against IKEA. Also, the partnership between Martha Stewart and Kmart has resulted in a highly competitive furniture market in the US. This furniture chain is facing active rivalry from Nitro Company in Japan, which produces cheaply priced products.

IKEA porter’s five model

• New entrants’ threats in IKEA Porter’s five model

The threats of newly developing firms are essential since there are no legal barriers to limit new entrants into the furniture industry. Also, there are fewer knowledge barriers to entering this industry, factors which act as active threats to IKEA. In contrast, IKEA has less global threat since it has deeply established itself in many countries for decades.

• Buyers’ bargaining power in IKEA porter’s model.

There is high consumers’ bargaining power in this industry, similar to IKEA, since their main clients are young people who are establishing families. Also, most of these people have adequate information from various brands in the market with their effectiveness, which provides them with other options. The buyer’s bargaining power of IKEA is enhanced by the absence of dynamic costs that limits them from selecting their competitors’ brands.

• Suppliers’ bargaining power in IKEA porter’s model.

Suppliers hold vital positions in the market since they are viewed as the business backbone. IKEA has made efforts to maintain a cooperative atmosphere with its suppliers. This commitment has realized a healthy relationship, which lowers the potential threats. Continuous dedication of this company to collaborate has been achieved by the developed supplier’s code to increase its bargaining power.

• Substitute products’ threats in IKEA porter’s model

There is a low threat from IKEA’s substitute brands as a result of different factors. First, this company has developed a suitable product image that has led to high trust among consumers. Second, the IKEA company has made its product affordable through match catalog approach to cushion itself against threats from substitute brands. Also, this product will have to take long in the marketplace to develop a firm reputation.

IKEA’s Internal Analysis

• Key Resources

This firm has realized a competitive advantage through various approaches, which are tailored towards the allocation of both intangible and tangible resources. IKEA has heavily invested in key tangible assets, such as food, cotton, land, and waste, while the intangible include reputation and its trade concept. Also, the company has maintained consistent financial and human resources in terms of highly skilled personnel. IKEA is aware of the availability of some key assets on its competitors, such as finance, which makes it use some of its resources and recycle the discarded materials. For instance, the wastes are used to build wardrobes instead of burning them.

• Key Skills

IKEA has high proficiencies in some key areas compared to other related companies. It has a higher ability to gain more capital to reinforce its local and global business activities. In the global markets, it has high competency in managing diversified and sophisticated systems. Besides, IKEA has tactful approaches to penetrating new markets accompanied by human resource management powers.

Value chain evaluation

A company’s’ operations are categorized into 2; the primary and supportive activities. Primary activities refer to the basics that enhance business functioning, while those that focus on obtaining a firm market base are secondary. First, in primary activities, IKEA has established suppliers’ code that manages its designers, brands, and suppliers. Besides, this company operates in twenty-six countries with two-hundred and eighty warehouse stores. Also, it operates in forty-one countries where they have established trading offices, which distribute their products. The outbound logistics has boosted the primary activities of IKEA since it has developed many centers and stores around the globe for consumers’ easy brands’ accessibility. For instance, in 2012, the firm operated in twenty-six countries using eleven consumer distribution.

Additionally, the company has enhanced its primary activities through sales and marketing, in which brands are produced according to the customers’ needs, accompanied by low prices to increase market penetration. Besides, the company has utilized social media platforms, such as Facebook and other catalogs, to increase brand awareness. IKEA has been able to boost its primary activities through effective services where the consumers are their final destination, who, in turn, are attracted by web information and displays. Individuals who operate the stores are adequately trained and transferred when the need arises.

The supportive activities of IKEA are realized by infrastructure, human resources, technology, and procurement. The company has a firm hierarchical corporate leadership within its organization. Technology is also utilized by IKEA to monitor its competitors so that it may strategically adjust to gain a competitive advantage. Also, it has many suppliers who are under a decentralized form of procurement. This approach incorporates both the locals and suppliers in its operations.

Recommendations

First, IKEA should largely invest in the business to consumer (B2C) marketing strategy. The company should tirelessly come up with ways of luring potential customers so that they can select their products. In this marketing strategy, the company can use many campaigns to increase the awareness of their brands. For the effective realization of this strategy, IKEA will need to utilize ad likes, vouchers, banner ads, reduced edition offers, and email blast since they are suitable in attracting clients. Besides, the company will enjoy faster customer interests in a shorter period through reduced buying procedures. This type of marketing strategy is vital since customers check the company’s brand with ease, hence building the brand’s reputation after some time. In general, this approach implies that IKEA should focus more on its external environment so that it can strategically be positioned to withstand the competitive advantage.

The positional view is the theory that supports the B2C marketing strategy. In this model, a company focuses on efforts of checking advantageous points in the marketplace, which in turn takes actions to protect it. Besides, B2C is favored by economic theory, which asserts that customers and markets are rational representatives. Under this model, the concept of industrial organization economic is used, which claims that there should be much focus on potential positions.

Second, during the analysis of the marketing strategies, it was found out that IKEA is faced with ambiguity in linking action and decision making; that is, it engages in many actions with fewer decisions. There is a need for IKEA to eliminate this challenge by exploring Simon’s theory to treat their marketing strategies as patterns. It should spot its competitive advantage to develop interconnectedness of policies, purpose, and structured actions. Besides, it should establish subsequent marketing strategy through engaging in logical, unity, and internal form of consistent decisions to put the firm in its environment that would realize strong identity and mobilizing power for high marketplace achievements. IKEA should, therefore tailor its marketing strategy in a way that correlates with the set policies and goals of the firm’s environment.

In conclusion, IKEA has stuck to its vision by being flexible, which has enabled it to focus on a well-planned competitive strategy to provide business benefits, despite the competitive and external environment. The firm has a different use of assets through objective-based programs, which are structured to fulfill quality and economic aspects. IKEA can adopt the outlined recommendations since they have been formulated after a critical analysis of its current position and close checking of the competitive companies’ operations so that it may maintain its top position. It is time for IKEA to realize that the dynamic nature of global markets calls for continuous investment in meaningful strategies that will favor the generation of profits.