IKEA: PESTLE, SWOT and Porter's Five Analysis

✓ Paper Type: Free Assignment	✓ Study Level: University / Undergraduate
✓ Wordcount: 3388 words	✓ Published: 26th Oct 2020

Reference this

Share this: Facebook Twitter Reddit LinkedIn WhatsApp

Pestle Analysis

Political

According to Rastogi and Trivedi (2016) the political factors are identified as the most important aspect for any business organisations in doing business internationally. For IKEA, the political factors are considered to be the most important aspects in order to bring sustainability in business. The political stability plays a pivotal part in order to bring better and healthy business practice. As a result of that it becomes important for IKEA to focus on the political stability of the Australian government (Van den Steen and Galor 2006). Based on figure 1, it can be stated that in Australia the political stability is a bit disturbed due to the internal pressures. As a result of that for IKEA also some business disruption can be emerged that can leave negative impact on the entire business orientation of the company. However, a strong political decorum and constitutional government can help the organisation to create effective business environment for the company in near future.

Get Help With Your Assignment

If you need assistance with writing your assignment, our professional assignment writing service is here to help!

Assignment Writing Service

Economic

As IKEA is an international company therefore, it depends on the liberal economic structure. Despite of having a great set back from the international recession, IKEA is able to develop its Australian market due to economic opportunities and steady growth of the market. A steady growth of economy in the Australian market with an average of 2.6% can deliver a good and effective exposure for IKEA to set its market effectively in the Australian market. In this context, it can be stated that the economic liberty and free trade practices in the Australian market help IKEA to refurbish its business effectively. High competition in the Australian market with healthy transformation of the customer behaviour is considered to be a healthy business environment for IKEA to do business. High pricing with quality material is one of the basic feature in the Australian market. As one of the important developed countries, continuous inflow of financial support is a common trend in Australia. Therefore, it will never be a problem for IKEA to survive.

Social

The Australian people are very friendly and fond of quality and aesthetic matters products. According to the research of Finger et al. (2018) it can be stated that most of the Australian are living a high lifestyle. Therefore, price is not a factor for them to buy products. However, the quality of the products and its uniqueness is definitely a close concern for the Australian people and is considered to be one of the major success factors for business organisations. Therefore, for IKEA also it will be a great opportunity to grab the market of Australian in an extensive manner do that it will deliver a strategic advantage for the organisation to facilitate better market capitalisation. Apart from that another important facets of the Australian society is its open cultural practices. Liberal viewpoint with respecting personal vision and taste are major attributes of Australian society. Therefore, for IKEA those factors can be a key aspects to deal with in order to get success in a proper manner.

Technological

Technology is considered to be one of the mainstay for getting rapid success in business. Howell, van Beers and Doorn (2018) advocated that the advent of globalisation made it more critical and complex for the business companies to survive without having high progress in technology. Moreover, Mian, Lamine and Fayolle (2016) opined that technology would provide a unique brand value for the business organisations in order to survive in the market strategically. Therefore, for IKEA also technology plays a pivotal role in the context of organisational success. As a matter of fact, support from the government is definitely a boost up factor for IKEA and the Australian government is always encouraging the business companies to incorporate new technologies. Nevertheless, Wu, Straub and Liang (2015) pointed out that using new technology can increase the price of the products but for developed countries like Australia it is not a big threat. Therefore, there will be great opportunity for IKEA to avail best and cutting edge technologies in the context of creating a unique brand image.

Legal

The Australian government is highly focused on its legal framework and the companies are also abide to follow the government regulations. There are some basic regulatory practices that all the business companies have to follow while doing business in Australia. For instance, the Fair Work Act is entitled to safeguard the rights of the employees (fairwork.gov.au 2019). It is important for IKEA to follow the guidelines of Fair Work Ombudsmen and implement workplace health and safety. Apart from that the business organisations have to follow the standards of Australian Competition and Consumer commission (ACCC). The Product Liability Regulation is also there that help the business organisation to follow the prescribed standards and facilitate a good and healthy business environment. Besides this, trading registration under the valid business name of the organisation and licensing are also essential for the business organisations to facilitate an effective and exclusive business environment in Australia.

Environmental

The Australian government is highly supportive in doing green business. As a matter of fact, it becomes a trend for the business organisations in Australia to opt for the green business method as a sustainable business approach in order to bring efficacy into their business practice in the competitive market. In addition to this, there is also the Environment Protection and Biodiversity Conservation Act 1999 that compels the business organisation to focus on the environmental sustainability and take adequate measure in order to prevent environmental degradation (environment.gov.au 2019). As a result of that the environmental matters are very serious in Australia due to its huge ecological diversity. In response to this, it can be stated that for IKEA it is important to get a license from the government while using woods and engaging in deforestation. There are some guidelines and government stated procedures that the business companies have to follow.

Porter's 5 force analysis

*Rivalry among existing competitors in the market (High)*	The organization, Ikea, face intense competition in the Australian due to the presence of companies like Galiform Plc, Walmart stores, Euromarket designs, Argos, Amazon and the like (Brown et al. 2016). The intense competition in the existi9ng markets have affected the sustenance elated factors of the organization while operating in the different market segments. On the other hand, the changing preferences of the customers and the technological innovations that are initiated by the organization in the market levied an intense pressure on the venture while operating in eh Australian markets (Daunfeldt et al. 2017). The offers that are positioned by the competitors on the purchase of furniture added to the competitive rivalry for the organization. However, the concerned organization holds a leading position in the market due to its superior supply chain management tactics and the providence of high quality propositions in competitive prices.
Threat of new entrants (Low)	The threat of new entrants in the market is relatively low due to the polarization of the market structure and the presence of huge conglomerates. On the other hand, it has been noted that the market structure in Australia is already saturated through the presence of high performing organizations which has created an insubstantial position for the venture in maintaining the efficiency of the operations (Baier, Rese and Schreiber 2016). The lack of new entrants in the market has also significantly reduced the threat for Ikea while operating as per the emerging needs of the customers through the latest technologies as per the knowledge of the venture. The key elements of change in the market structure is based on the efficiency of the operation in orientation with the needs of the venture while operating in the different markets.
*Bargaining power of the buyers (High)*	The organization operates in an economy which offers strong bargaining power to the buyers due to the presence of large number of companies offering the same kind of proposition. On the other hand, the competitive nature of the prices and the quality of the products that are delivered by the organizations are similar which encourages the buying power of the buyers (Helmefalk 2016). Therefore, the concerned organization encounters a risk related to the switching taste of the customers which might again affect the competitive edge of the venture.
*Bargaining power of the suppliers (Low)*	The bargaining power of the suppliers in the economy is low due to the presence of a substantial amount of suppliers. Therefore, the organization is in a convenient position in the markets while negotiating with the suppliers over the cost of raw materials due to the presence of huge amount of alternatives (Alänge, Clancy and Marmgren 2016). The lower bargaining power of the suppliers enabled the organization in reducing the cost of raw materials and thereby acquiring huge margins on the sales. On the other hand, the organization also focused on forming strategic long term relations with the suppliers with the objective of winning over the trust and confidence for making fruitful negotiations to contribute to the operation of the venture while operating as per the needs of the customers. The increased R&D operations are based on the cost cutting techniques employed by the same over the suppliers which enabled the venture in developing propositions as per the needs of the customers (Ngai and Falkheimer 2017).
*Threat of substitutes (Low)*	The organization face a minimal threat from the substitutes as the propositions that are made by the same are specifically hand crafted and unique. The uniqueness of the propositions enabled the venture in reducing the threat of substitutes significantly which enabled the venture in maintaining the efficiency of the operation while operating in the different markets.

SWOT analysis

Strength	Opportunity
Global reputation with slim furniture design. Vast range of stores with an effective distribution system. An integrated approach towards the manufacturing and supply chain. Strong revenue growth and profitability.	Expanding in the developing countries where steady economic growth can be identified. Exploring supply of raw materials in cheap price. Developing e-commerce and picked up services.
Weakness	Threat
Lack of quality and durability of the products. Imitable business model that can create a problem for IKEA to continue its uniqueness. Lack of product diversification.	High competitiveness in the market. Strong and some draconian laws of the government. Market fluctuation in Australia. Lack of green products in display.

Conclusion

Based on the above discussion, it can be concluded that there are mixed scenario for IKEA to establish its market extensively in Australia. The organisation has both the strengths and weaknesses. However, the range of opportunities can help IKEA to foster its business successfully. In this regard, making the product more attractive and using eco-friendly raw materials are considered to be the most effective and customer centric approach that IKEA should do in order to build a strong customer base. In other words, sustainability in the Australian market can be generated in course of developing a unique and sustainable approach for IKEA. Therefore, it can be concluded that the Pestle and five force analysis are helping to get a close insights into the business situation of IKEA which is supplemented with a recommendation. It will help the organisation to generate a strong brand image and market capitalisation in Australia.

Recommendations

The organization, Ikea, might follow the recommended course of action with the objective of winning over the competition that is faced by the same in Australia:

Expansion in the developing economies: The organization might take steps to expand to the developing economies like India and China with the objective of minimizing the rate of competition while increasing the scope of sales. The expansion of the organization in the developing economies will be based on the growing rate of disposable incomes and the changing buying behavior of the customers (Ledin and Machin 2019). On the other hand, the expansion would enable the organization in drawing the attention of the prospective buyers towards their product offerings while increasing the sustenance of the venture. Therefore, the expansion in the developing economies would be a proficient decision on the side of the organization for maximizing the sales volume and increasing awareness among the customer groups.

Find Out How UKEssays.com Can Help You!

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

View our services

Introducing new range of green products: The introduction of a new range of green products, which are not developed through wood extracts would enable the organization in not only stimulating its competitive edge in the existing economy but also assist the same in adhering to the stringent environmental regulations (Chokshi 2018). The growing awareness for the green products among the ethical consumers has affected the organizational capabilities of providing them with the expected value proposition. Introduction of green products in the line of offerings would enable the organization in improving the competitive position of the same in the markets.

Improving the business model: The improvements in the business model would enable the organization in restricting imitability of the same by the other organizations. The uniqueness of the business model will be based on the efficiency of the operationalization needs and the value of providing the customers with the best quality offerings. The improvements in the business model would ensue h organization in retaining the trust and loyalty of the customers over the propositions that are made by the same.

Quality management operations: The organization might take significant steps to monitor over the quality of the offerings that are being proposed by the same while operating in the different markets. The improved quality of the offerings would permit the venture in retaining the trust ad loyalty of the customers while operating in the different market segments.

References

Alänge, S., Clancy, G. and Marmgren, M., 2016. Naturalizing sustainability in product development: A comparative analysis of IKEA and SCA. Journal of Cleaner Production, 135, pp.1009-1022.
Baier, D., Rese, A. and Schreiber, S., 2016. Analyzing online reviews to measure augmented reality acceptance at the point of sale: the case of IKEA. In Mobile Computing and Wireless Networks: Concepts, Methodologies, Tools, and Applications(pp. 1714-1736). IGI Global.
Brown, B., Bleecker, J., D'adamo, M., Ferreira, P., Formo, J., Glöss, M., Holm, M., Höök, K., Johnson, E.C.B., Kaburuan, E. and Karlsson, A., 2016, November. The IKEA Catalogue: Design fiction in academic and industrial collaborations. In Proceedings of the 19th International Conference on Supporting Group Work (pp. 335-344). ACM.
Chokshi, N., 2018. Robot conquers one of the hardest human tasks: Assembling Ikea Furniture. New York Times Science.
Daunfeldt, S.O., Mihaescu, O., Nilsson, H. and Rudholm, N., 2017. What happens when IKEA comes to town?. Regional studies, 51(2), pp.313-323.
environment.gov.au 2019. [online] Department of the Environment and Energy Available at: https://www.environment.gov.au/resource/local-government-and-australian-environment-law [Accessed 9 Sep. 2019].
fairwork.gov.au 2019. Fair Work Ombudsman. [online] Fair Work Ombudsman. Available at: http://www.fairwork.gov.au/about-us/our-policies [Accessed 9 Sep. 2019].
Finger, L., Thayalakumaran, T., Longley, S. and Kaine, G., 2018. Assessing lifestyle, productive and environmental consequences of tailwater reuse in the Shepparton Irrigation Region, Australia. Agricultural Water Management, 205, pp.50-62.
Helmefalk, M., 2016. Congruency as a mediator in an IKEA retail setting: products, services and store image in relation to sensory cues. International Journal of Retail & Distribution Management, 44(9), pp.956-972.
Howell, R., van Beers, C. and Doorn, N., 2018. Value capture and value creation: The role of information technology in business models for frugal innovations in Africa. Technological Forecasting and Social Change, 131, pp.227-239.
Ledin, P. and Machin, D., 2019. Forty years of IKEA kitchens and the rise of a neoliberal control of domestic space. Visual Communication, 18(2), pp.165-187.
Mian, S., Lamine, W. and Fayolle, A., 2016. Technology Business Incubation: An overview of the state of knowledge. Technovation, 50, pp.1-12.
Ngai, S.B.C. and Falkheimer, J., 2017. How IKEA turned a crisis into an opportunity. Public Relations Review, 43(1), pp.246-248.
Rastogi, N.I.T.A.N.K. and Trivedi, M.K., 2016. PESTLE technique–a tool to identify external risks in construction projects. International Research Journal of Engineering and Technology (IRJET), 3(1), pp.384-388.
TheGlobalEconomy.com 2019. Australia Business freedom - data, chart | TheGlobalEconomy.com. [online] TheGlobalEconomy.com. Available at: https://www.theglobaleconomy.com/Australia/herit_business_freedom/ [Accessed 9 Sep. 2019].
Van den Steen, E., and Galor, A. 2016. "IKEA." Harvard Business School Case 716-458, [online] Harvard Business School. Available at: https://www.hbs.edu/faculty/Pages/item.aspx?num=50922 [Accessed 9 Sep. 2019]
Wu, S.P.J., Straub, D.W. and Liang, T.P., 2015. How information technology governance mechanisms and strategic alignment influence organizational performance: Insights from a matched survey of business and IT managers. Mis Quarterly, 39(2), pp.497-518.