IKEA is a leading furniture retailer in Denmark. The name IKEA originates from the founder, Ingvar Kamprad, his residential farm in Elmtaryd, and his county, Agunnard, in smaland, south Sweden. The company has striven to obtain a culture of fair treatment, diversiy in its staff, equal opportunity and social responsibility. Additionally, it is necessary to launch some programs for certain target groups. IKEA’s humble begins in1943 on Kamprad a small farm, to open its first furniture showroom in Almhult, and later large scale Scandinavian and international expansion in Europe, North America, Asia Pacific and Ukraine, IKEA has become one the world’s most successful global retailers. Today IKEA has 389 stores in 48 countries and is visited annually by 915 million shoppers.
In 1958 a department store was opened in Sweden. While in 1963 and 1969 a department store was open in Denmark. IKEA is one of the worldwide businesses in furniture retail production, design and sales. IKEA in Demark operates three department stores in Arhus and Copenhagen and small outlet in Odense. It has employed total of 1,200 people, whom more than 45percentage are women. The company analysis addresses the size of furniture made and explorations are the driving forces of change, how different elements are used in competitive advantage and how IKEA compete. The main factors that influence the production and exploration of furniture include, market barriers, current trends, dominant features and top competitors. The porters five model is also applied evaluate the competitive organization structure. PESTEL Analysis also scans the political, economic, social, technological, environmental, and the legal trends that IKEA should understand and follow to in Denmark. The overall discussion considers that Denmark through prism of production and exploration industry will access the value chain and examine the cultural challenges that impact IKEA operation. Companies in this industry specialize in production of furniture and certify their customers.
1.1 Organization Profile
IKEA is global upstream furniture and other household equipment in Denmark and other countries worldwide. The company commenced in 1939, the company has explores and produce furniture’s and other stuffs under Europe, Asia and North America. Its major downstream subsidiary, IKEA in Denmark, focus on furniture and households retails activities. The company production and exploration are divided in three geographical sections: Europe, America and Asia. The IKEA employs 1,200 people in Denmark maintaining their office in Copenhagen. The table I describe the major countries and number of the employees.
The major customers are resident of the city and the transporter driven by the industry demand and the customer (Moon 2004). The company has designed beautiful furnished home items thus creating a small part of the population for those who can afford. For this reason IKEA in demark has taken different path. It has also responded to the home furnishing needs to people globally. In Denmark people with different taste, needs, dreams, wallets and aspiration visit the company. People that what to improve their home and have a better everyday life also buy from IKEA. It means that the company offers a wide range of home furnishing IKEA stores... Furniture makes up 60percent of total company revenue.
1.2 Foreign Direct Investment in Denmark
According to 2016 World Investment Report which was published by UNCTAD, Denmark has lost its position as one of the global largest FDI. The country economy is most attractive multinational companies in year 2016 to 2018. The absorption of FDI is a policy to opening in Denmark to the external world. Denmark has a rapid and expanding market that is not affected by financial crisis (Investment Climate Statement 2016). For this reason, potential partners and employees are eager to learn and evolve the country with the base of low cost production. However, some factors can hinder investment, such as legal uncertainty, low level in the protection of intellectual property, Denmark lack of transparency and corruption measure that enable local business.
1.3 IKEA Strategy and competitive Position
IKEA has experience a competition from other furniture and households producing companies, which include Wal-Mart, Way fair, Amazon and Tesco. The market research reveals that the industry revenue for the entire house equipment amount over $1trillion in year 2017, a 4 percent increase over five years. Since 2017 estimations for worldwide gross domestic product were 13trillion. The industry as a whole competes with the likes of Amazon to sell the furniture to people worldwide. For example Way fair is global online furniture that which operates in West Europe and USA. It has sported different websites in its products range to explore to different markets thus covers the whole world. However, the industry indicates that the sector is marginally consolidate with high entry barriers and established brands. What is missing in the profile margin typical of consolidation which is virtually to all companies, state-owned and private that the IKEA competes with sustainable resources?
2.0 SWOT Analysis
Strength-internal strategic factors
• Large number of outlets supported by a strong distribution network.
• Expertise entering new markets has helped IKEA set new revenue streams and diversify the country economic.
Weaknesses - Internal Strategic Factors
• Limited market share due to many competitors in the industry.
• IKEA rents more property than it owns; high rent costs
Opportunities - External Strategic Factors
• The new tax policy can open new opportunity for IKEA to increase its profitability.
• Economic uptick/increase in global spending is an opportunity to increase market share.
Threats - External Strategic Factors
• IKEA operates in highly competitive environments, can adversely affect profitability
Competitive advantage is driven by the cost of production and the company ability to sustain production rates. A close proximity to existing transportation and production infrastructure is a major advantage. Like its competition at Tesco or Wal-Mart, IKEA has access to thrive production and distribution network over its subsidiary IKEA Denmark. IKEA produce furniture products to high capacity and stores in different stores all over the world.
2.1 Competitive Strategy Statement
In this area the great challenge that faces IKEA is how to replace the company reserves in a way to decline the access to resource. In this case only a small fraction of furniture resources are available to the company and to their production in a mature regions is in a decline way. The company major value is handling large projects, technological edge and high financial resources. For this reason it has lead people to question, as the company has able to finance their projects. The can hire a high technical machinery or technical expertise, to build and make in-house projects management and build so many store all over Denmark and worldwide.
IKEA emphasizes a high-impact opportunities in areas which allow the company to benefit on its strong expertise in detailed play types. IKEA is well-known for its technical know-how which enables an executive unique project. It deploys an existing technology in an innovative ways, decrease cost and maximizes production. The company’s success is largely due to its ability to appraise and develop discoveries cost-effectively. IKEA is a preferred partner for many furniture and home items globally due to its major capability.
3.0 Porter’s Value Chain Framework
The porter’s chain analysis has been applied to the production of furniture, but exploration is a problem which try to solve the better modeled as value shop. In this case, the exploration activity categories are issue finding, choice, evaluating alternative resolution and implementation. The exploration predicts that the production and development, has seen it as value chain. The company competencies well design and develop in an interpretation and financial management (Porter 2016). It is clear that the company gains advantage along value chain by developing different perspectives in different explored plays. The entry of low cost in the foreign markets is a key to partnership with their customers. The company has maintained a strong partnership in Denmark 60percent interest in Copenhagen. However the company focus on lower working interest entries and a lower cost that emphasize higher value forecast. An investment has been made regarding the company stores. IKEA has also reorganized a global operation under Europe to ensure an optimal development of their furniture and all assets are operated in all their stores.
3.1 The Trends of Industry
On the most developed industry it has innovate in their product and services. The redefining the home furnishing as lifestyle instead of individual products has enable the company expands their product in furniture and non-furniture items. IKEA produce design and sale and market product basing on unified model which combine the cost, function, material and marketing. Although the company face many challenge due to the expensive modern design. However the company has expanded the design principle in various classifications of home products (Johansson and Thelander 2009). IKEA has view that the product design is addressed and resolves inefficiencies that become ingrained in manufacturing and distribution of furniture. It has also show that the furniture is bulky product that could not be shipped over a long distance.
The company has also been challenged by country risk to a possibility that the fluctuation in a business environment in other country and regional store impact the operation of the IKEA. While in some point the government has strict regulation challenge the industry and involve due to the policy involve in the environmental degradation. For the company to remain in a competitive area, it should be increased and concentrate on the identifying the operation features as the primary determinant of the company success. A recent research on these critical factors has identified multiple challenges that are importance. These challenges include; proper planning and Management, project management and implementation capability, understand the Denmark environment, the availability of resources, innovate, proper cost and the resource availability.
4.0 PESTEL Analysis
4.1 Political Factors
Denmark’s Ministry of Environment has moved away from unimplemented polices that were limiting growth to a new Product Sharing Contract regime. However, the policy addresses adverse tax aspects of the gross-split production that share a contract arrangement and have underdeveloped outside investment in the Denmark market. It has provided certainty to the people thus making the economy logic and attractive (Chang, V. and Issa 2010). Additionally, the policy changes have a streamlined permitting procedure and eliminated half of the 50 business license rules that affect the environment and resources sectors. The ministry objective is to achieve around $50bn of the investment in the environmental sector for 2018.
4.2 Economic Factors
The Denmark government has shaken its environmental subsidy program to free funds for development spending and, along with policy of planting trees when cut, hoping to encourage more investment. It has mark second act in effort to fix the country’s environmental subsidy system after they were climate change. In this case, the investors such IKEA have looked for a market-based price mechanism which would cap the upside to subsidies. Subsidies that normally eat up more than 13 percent of total expenditure have been reduced to 1 percent. Investors can now move ahead in an improved market, rather than constantly be on the lookout for oil price risk.
4.3 Social Factors
Environmental production and exploration in Denmark has a significant impact on the Danish people, especially around areas near the stores. Production of furniture leads to problems that include a large-scale deforestation and business conflicts with local and indigenous communities. Additionally, the forms of deforestation are taken by the communities in Denmark.
4.4 Technological Factors
IKEA and Denmark’s has been the industry since 1968 but still the company need to tackle some of critical problem that relate to shortage of technology relating to manufacturing of these furniture (Galliers and Leidner 2014). The technology need to ease production cost and minimize wastage of materials. The future of IKEA depends on how it tackles the technical issue that relate in the manufacturing and how the product reach to the final customers. IKEA and Denmark struggle with the issue that Europe and world manufactures of furniture’s resolve in technology boom such as high production and poor technology.
4.5 Environmental Factors
Contamination and environmental degradation, especially in open-access land areas, is the direct result of inadequate supervision. The deforestation has affected the country climate change. Deforestation due to manufactures of furniture and other assets increase chances of drought and famine in many areas worldwide. Apart from air quality and global climate concerns, industrial activities have the potential to pollute water.
4.6 Legal Factors
Denmark’s Constitution holds that furniture and other assets are manufactured from natural resources. It is clear that is matter of national interest, and thus governed by the government. The current Regulation that outlines the government’s responsibility in the management of Denmark’s and has been the source of legal scrutiny. The law has been through three recent assessments at the Constitutional Court which has issued several decrees concerning the system of implementation or management of environment thus the companies manage the resources. The state government has made promise to cut taxes and improve incentive for investment. But the legal changes have a framework that keeps the past investors who are reluctant to commit to long term capital projects. Recent reforms designed to encourage more investment into the sector have been introduced, but the full benefits and disadvantages have yet to be realized (Atsmon and Magni 2012). IKEA and Denmark will establish upstream value chain activities in Indonesia that involve. Creating a manufacturing friendly environment has been a top agenda item for the government. Denmark wants to use its natural gas reserve as a clean supply of assets to drive its growing economy.
4.7 Cultural Issues
Navigating in the Denmark environment without resorting to the types of corrupt financial persuasion that the country is known for, and that cannot afford to become mixed up in, will be challenging. There are cultural and religious issues that impact the way the company operates, such as corruption and rent-seeking in the Denmark bureaucracy and in B2B transactions (Michael and Jacobsen 2007). Corporate leaders should be openly briefed on the ethical challenges associated with dealing in the Denmark bureaucracy. Clear corporate guidance on business ethics needs to be established and continuous training provided so staff will know what is expected. A schedule that recognizes religious holidays and weekly events, such as Friday prayers, should be implemented to avoid conflicts. Finally, IKEA should decide whether it wants to retain local agents to deal with the bureaucracy on visa, permits, customs, and business licenses, or hire someone with that expertise to the permanent staff.
5.0 Conclusion
In the bottom line IKEA being global upstream furniture and other household equipment in Denmark and other countries worldwide. It has created a wide market in the three regions. However the company has explores and produce furniture’s and other stuffs under Europe, Asia and North America. Its major downstream subsidiary, IKEA in Denmark, focus on furniture and households retails. According to 2016 World Investment Report which was published by UNCTAD, Denmark has lost its position as one of the global largest FDI (Zhang 2008). The country economy is most attractive multinational companies in year 2016 to 2018. The absorption of FDI is a policy to opening in Denmark to the external world. Denmark has a rapid and expanding market that is not affected by financial crisis.
It is clear that the exploration predicts that the production and development, has seen it as value chain. The company competencies well design and develop in an interpretation and financial management. It is clear that the company gains advantage along value chain by developing different perspectives in different explored plays. The recommendation is, although, IKEA produce design and sale and market product basing on unified model. It should consider the combine cost, function, material and marketing. Although the company face many challenge due to the expensive modern design. However the company has expanded the design principle in various classifications of home products.
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Appendix
Table 1
Foreign direct investment in Denmark (Source: UNCTAD, 2015)
Foreign Direct Investment
2013
2014
2015
FDI Inward Flow (million USD)
123,911
128,500
135,610
FDI Stock (million USD)
956,793
1,085,293
1,220,903
Number of Greenfield Investments
1,249
1,054
876
FDI Inwards (in % of GFCF)
2.9
2.8
3.0
FDI Stock (in % of GDP)
10.1
10.4
11.1
Sale share of IKEA in three regions.
Retrieved from: https://www.statista.com/statistics/241808/sales-per-region-of-ikea/
https://preview.thenewsmarket.com/Previews/IKEA/DocumentAssets/493700.pdf
