Situational Analysis Essay

Situational Analysis University of Phoenix STR/GM581 International Strategic Planning & Implementation Steven Hall Situational Analysis IKEA is a global home-furnishing retailer founded in 1943. “In 2008, IKEA had 253 stores in 24 countries plus 32 stores owned by franchisees and 20 stores expecting to open in 2009” (The Times 100, 2009, p. 1). This paper will show the organization’s mission, vision, and values. In addition, this paper will show a consideration of broad environmental forces affecting the firm, and the potential for global expansion.

Finally, this paper will show an assessment of industry structure using the Porter Five Forces Model, and a critical assessment of organizational SWOT (Strength, Weaknesses, Opportunities, Threats) factors. Mission, Vision, and Values “The IKEA vision ‘to create a better everyday life for many people’ puts this concern at the heart of the business” (The Times 100, 2009, p. 1). IKEA believes that if it keeps prices low people will want to shop at IKEA. Furthermore, IKEA believes that as a responsible company, it also has a responsibility to world it serves.

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A social and environmental responsibility is important to IKEA. IKEA also works only with suppliers who share this same philosophy. Environmental Forces “According to Ulf Smedberg, marketing manager of IKEA China, IKEA faces three main challenges in China: pricing, high duty rates, and the PRC bureaucracy” (Miller, 2010, para 5). Although China has reduced many regulations for foreign companies, its regulations are still harsh. “IKEA has been hit with heavy import taxes in China, though the company aims to relocate production of many items to China to solve this problem.

IKEA faces strict quotas and has difficulties importing food to its restaurant” (Miller, 2010, para 5). To solve this last problem, IKEA “now has a food-import agent that handles all related issues, including labeling” (Miller, 2010, para 5). Porter Five Forces Model “Porter’s five forces of competition have become a central concept to business theory” (Swathen, 2010a, para 1). Using Porter’s Five-Forces Model of Industry Competition, IKEA can be evaluated in the following way: Threat of New Entrants

With the changes in Chinese regulations regarding the requirements by foreign retailer, more and more companies will be looking at entering China. For example, the American-based Home Depot and the United Kingdom-based B&Q both are considering entry into China (Miller, 2010). Competitive Rivalry According to Ian Duffy, president of IKEA China, local shops right outside the IKEA doors were offering copies of IKEA furniture at much lower prices (Miller, 2010). IKEA’s biggest competitor in China was not a large furniture store, but the small businesses that make copies by hand. pic] Table 1 – (Porter’s Five Forces from Mind Tools Ltd, 2010, para 5) Supplier Power “Half of the products in IKEA’s Chinese stores are made in China, compared with about 23% in IKEA stores overall” (Fong, 2006, para 10). IKEA relies greatly on global suppliers. Using companies in China as suppliers has allowed IKEA to reduce greatly the price. Buyer Power IKEA’s target market is people between 20-45 years-old (Miller, 2010). “Many customers are families with children or are double-income, well-educated couples with no children” (Miller, 2010, para 2).

Furthermore, “IKEA’s customers are generally better educated, earn higher incomes, and travel more than the average Chinese” (Miller, 2010, para 2). Chinese customers in general are finicky. In China as in “IKEA shops around the world, roughly 70% of IKEA customers are women” (Miller, 2010, para 2). Threat of Substitution IKEA’s biggest threat is the copycats that not only copy the furniture but also copy the colors of its stores. “IKEA products are made in China, and some of their suppliers also supply to other furniture and home design companies.

IKEA’s online catalogue also makes products easy to view and copy” (Miller, 2010, para 5). SWOT IKEA’s strengths include: 1. A strong global brand that attracts key consumer groups, which promises the same quality and range worldwide. 2. A strong concept based on offering a wide range of well-designed, functional products at low prices. 3. A democratic design reaching an ideal balance between function, quality, design, and price. IKEA’s cost consciousness means that low prices are taken into account when each product is designed from the outset. 4.

Delivering products directly from the supplier to IKEA stores slashes handling costs, reduces road miles, and lowers the carbon footprint. (The Times 100, 2009, p. 3) IKEA’s weaknesses include: 1. The size and scale of its global business could make it hard to control standards and quality. 2. IKEA also needs to differentiate itself and its products from competitors. 3. IKEA believes there is no compromise between being able to offer good quality products and low prices. 4. IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The Times 100, 2009, p. 3) IKEA’s opportunities include: 1. A growing demand for greener products 2. A growing demand for low priced products. 3. Trends in the current financial climate may result in consumers trading down from more expensive stores demand for reduced water usage and lower carbon footprints. (The Times 100, 2009, p. 3) IKEA’s threats include: 1. Social trends such as the slowdown in first time buyers entering the housing market. 2. More competitors entering the low price household and furnishings markets. 3.

IKEA needs to reinforce its unique qualities to compete with economic factors; the recession slows down consumer spending and disposable income reduces. (The Times 100, 2009, p. 3) Conclusion IKEA’s entry into China has not been an easy road. IKEA has had to lower its prices in China more than in any other country. IKEA has a strong vision of the future, giving it a strong following, a strong customer base. Its company outlook, its standards, and its responsibilities are clear and strong. Looking at the environmental issues, Porter’s Five Forces, and SWOT can help IKEA understand what is needed to become successful in China.

References Fong, M. , (2006 March 3). China Daily. Slashing prices: IKEA hits home in China. Retrieved from http://www. chinadaily. com. cn/english/doc/2006-03/03/content_526237. htm Miller, P. M. , (2010). China Business Review. IKEA with Chinese Characteristics. Retrieved from http://www. chinabusinessreview. com/public/0407/company_profile. html Mind Tools Ltd, (2010). Porter’s Five Forces. Retrieved from http://www. mindtools. com/pages/article/newTMC_08. htm Swathen, (2010a). Porter’s Five Forces of Competition. X] » Buyer Bargaining Power (one of Porter’s Five Forces) » Threat of New Entrants (one of Porter’s Five Forces) » Supplier Power (one of Porter’s Five Forces) » Threat of Substitutes (one of Porter’s Five Forces) » Porter’s Five Forces of Competition Strategic CFO. Retrieved from http://www. wikicfo. com/Wiki/(X (1) S (g1ywrm55x4gtt145hoj2v355))/Default. aspx? Page=Porters%20Five%20Forces%20of%20Competition= The Times 100, (2009). IKEA. SWOT analysis and sustainable business planning. Retrieved from http://www. thetimes100. co. uk/case-study–swot-analysis-sustainable-business-planning–110-368-3. php


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