Introduction
Generally, it is accepted that for the smooth and proper functioning of any company, it is essential to consider the various external factors that affect the development and revenue of any company. In order to stay strong in the competitive ambience, it is essential for a company to integrate the myriad external and environmental factors that can inhibit or accentuate the progress. The report will look into the various factors that might affect the multinational company called IKEA. The following report aims to identify, analyze and generate strategies to combat the effects of the various factors. In addition to this, the report will also endeavor to take a closer look at the PESTEL analysis and Porter’s five forces to enlist the challenges and future prospects. The following paragraphs will also provide a comprehensive view of the environmental scan in order to provide solutions to the challenges related to environmental factors.
With a progressive vision of generating better lifestyles for consumers across the world, IKEA has enthralled consumers since its inception. IKEA has been supplying consumers throughout the world with a wide variety of products that enhance the beauty of households (Franchisor.ikea.com, 2018). The company even endeavors to innovate their existing products or curate new products to satiate the needs of the consumers. It has even established a firm hold over the UK market. Covering a wide area in the United Kingdom, IKEA endeavors to provide a wide-range of furniture products ranging from children’s room to office apartments (Ikea.com, 2018).
The PESTEL is one of the most important tools that is available to analyze the external factors that affect the functioning of any company. PESTEL stands for the factors such as Political, Economic, Social, Technological and Legal (Rastogi & Trivedi, 2016). A closer look at the various above-mentioned factors can help in identifying the challenges that underlies IKEA.
Political factors determined by the governments of various countries form a crucial part. Recent studies project the fact that the government of Russia had played a major role in the process of internalization of IKEA in Russia (Nell, Puck & Heidenreich, 2015). Every country implements different political ideologies and laws. The prevalent political atmosphere in a particular country determines the success and future of any company. In addition to this, the political atmosphere in various countries also affect the smooth functioning of IKEA. In addition to this, IKEA also has to follow the various tax imposed by the ruling government in United Kingdom. These taxes include Corporation Tax, Capital Gains Tax and VAT (Gov.uk, 2018). Needless to say, if the nature and number of taxes are increased, it can act as impediments in the smooth functioning of the company.
There are certain economic factors that affect and accentuate the revenue and growth of the above-mentioned company. Along with the political situation of any country, the economic situation also has an intrinsic effect on the functioning of any company willing to generate revenue. The economic factors in PESTEL analysis covers the comprehensive aspect of the inflation level, the employment generated by companies and the future prospects of contribution in the over-all GDP (Grünig & Kühn, 2015). Recent studies have presented the fact that the entrepreneurial environment in UK offers wider scope for companies such as IKEA to develop their market reach and revenue (Guerrero, Cunningham & Urbano, 2015).
In order to prosper and develop in any market, it is essential for any company to take into consideration the various social and cultural factors that are prevalent in a particular company. Owing to the prevalent social and cultural temperament in China, IKEA had to undergo a controversial situation where they had to apologize for their action related to the advertising strategy, where the advertisement had addressed women above 29 to be the “leftover women” of the generation (BBC News, 2018). Further, IKEA is also aware of the changing consumer preference and had decided to enlarge their business by capturing bigger stores (BBC News, 2018).
IKEA has also incorporated the technological implements in order to progress in the competitive market. The use of technology can guarantee higher revenue generation and consumer loyalty.
IKEA also has to consider the effects of production on the surrounding environment in every country. It has to produce in a manner that has little effect on environment.
IKEA also has to consider the legal framework and the laws that are imposed by various countries. It is seen that IKEA has to abide by the laws set by the country. Regular inspection and checks are conducted on IKEA by the legal framework of the country (Gov.uk, 2018).
This helps in understanding the interaction between the companies and the factors that contribute in the success of companies (Marshall, 2013). Through Porter’s five forces, the challenges faced by IKEA will be enlisted.
IKEA faces the constant threat of being substitute by other companies that manufacture furniture products. Online stores such as Debenhams UK, offers attractive discounts and Sale to attract consumers (Debenhams.com, 2018). Needless to say, the threat of substitution is high because the consumers can easily replace the former with the latter to get discounts.
Online enterprises such as Amazon tend to threaten the existence and revenue of IKEA. Competing against IKEA, Amazon strives to provide quality and wide-range furniture products to consumers all over the world. New entrants such as Baker and Stonehouse offer precious products at an attractive rate. It also includes a wide range of products ranging from dining sets to mattresses (Barkerandstonehouse.co.uk, 2018).
As mentioned earlier, IKEA faces tough competition from its rival companies. The existence of rival firms can affect the revenue generated by IKEA. Consumers tend to shift from one firm to another on a regular basis. The threat of surging rival companies can hamper the progress of IKEA in UK and worldwide.
Once the consumers are given the freedom to choose among the myriad options, the bargaining power of the buyers increases proportionately. The availability of various options for the consumers pave the way for their ability of the consumers to not only bargain but also control the price structure of the products that they demand. This threat is moderate for IKEA.
Even the bargaining power of suppliers can affect the revenue generated by IKEA. The suppliers can decide to increase the cost of the raw materials to regulate their own profits. The suppliers have a huge say in the final products of the company. Recent studies have presented the fact that the suppliers who provide materials in huge bulk and proportion to the company can regulate the price of the raw materials by regulating their bargaining power (Sheu & Gao, 2014).
After taking into consideration the above-mentioned factors, it can be mentioned that IKEA faces certain external challenges that not only affect the environment in which it functions, but also affects the over-all growth of IKEA. Problematic factors such as the existence of rivalry and intense competition threatens the future prospects of the company. In addition to this, the limited range of products also generate the intense threat of being replaced by other and new entrants. In addition to this, IKEA also faces the challenge of changing their product range according to the societal changes. Further, IKEA also has to adjust according to the political and economic factors in every country.
While the first part dealt with the enumeration of various factors that contributes in generating the threats and risks for IKEA, Part B shall deal with the various policies and strategies that can be employed to mitigate these threats and risks that affect the environment in which the above-mentioned company works. In addition to this, Part B shall also endeavor to propose solutions to the external or environmental problems identified in the first part.
Recent studies have projected the fact that the preferences of consumers regarding furniture is changing on a regular basis (Ponder, 2013). The furniture industry has to upgrade itself to face these rapid changes. Recent studies have discovered that there is a rampant change in the fashion sense of consumers throughout the world (Kulmala, Mesiranta & Tuominen, 2013). This is directly reflected on the furniture industry also. IKEA runs the risk of being outlawed by the consumers due to the changing consumer preference.
In order to stop this from happening, IKEA needs to consider, analyze and adapt itself to the changes in consumer demands. Recent studies have presented that nowadays, consumers are aware of the brand images and their own choices (Puhlmann, 2013). Hence, IKEA needs to keep track of the consumer demands on a regular basis by distributing questionnaires among the existing consumers.
In addition to this, IKEA also faces the risk of being substituted by other competitors chiefly because of the wide range of products that are offered by other companies. IKEA, on the other hand, offers limited range of products that chiefly focus on furniture items. Online websites in UK strive to provide wide-range of products combining furniture products and fashionable lamps in one website (Nest.co.uk, 2018). Such websites even promises to offer modernized products that tend to collate tradition and contemporary. This increases the risk of substitution because IKEA does not offer such varied products. In order to stop this, IKEA needs to enlarge its product-base by incorporating modern and innovative products other than furniture products.
As identified earlier, IKEA also faces the risk of intense competition from the rival firms and new entrants that can throttle the chances of IKEA’s prospects in the future. The entrants and rival firms can pose a threat in the growth and development of firms such as IKEA. New entrants in the furniture industry can also usher in various contemporary and innovative ideas to overthrow the existing companies such as IKEA. New entrants can gather enough information about the existing economic condition and the preference of consumers throughout the world. This can assist them in curating products that can meet the demands of every customer. The rival firms such as The Painted Furniture Company, UK, promises to offer innovative and customized products to every customer (Paintedfurnitureco.co.uk, 2018).
In order to stop this, IKEA needs to identify the areas where it needs to improve and include innovative ideas to throttle competition in the market all over the world. In order to delete competition, it also needs to revamp its existing resources and marketing strategies to stay alive in the competitive environment. In addition to this, marketing strategies such as market segmentation and targeting must be revamped to include the new trends must also be inculcated. This can help in identifying the exact preference and demand, which in turn can assist in deleting the threat of new entrants and rivalry.
As discussed earlier, the bargaining power of the buyers affects the smooth functioning of a company in the macro environment. Higher bargaining power of customers can inhibit the progress of a company. With the right to exercise the bargaining power, consumers can actually dictate the pricing strategy of companies such as IKEA.
To stop this, IKEA needs to adopt strategies to identify the manner in which the consumers use the products, which in turn, can help in segmenting the consumers and reducing their bargaining power (Porter & Heppelmann, 2014).
The bargaining power of the suppliers can also affect the environment in which a company operates. The suppliers can alter the over-all performance and revenue of companies. Especially, those suppliers who manufacture smart products can dictate the price (Porter & Heppelmann, 2014).
To stop this, companies such as IKEA needs to increase the number of suppliers, which can assist in reducing the diktats and monopoly of a supplier.
Conclusion
After analyzing the above-discussed points, it can be concluded that IKEA needs to adopt measures to garner a permanent place in the future. The PESTEL analysis and Porter’s five forces had presented the fact that in order to succeed, it needs to identify the problems and devise proper strategies. In addition to this, IKEA also needs to adjust according to the changing social, economic environment in which it operates. It can be said that companies such as IKEA can throttle competition by adjusting and considering myriad factors.
References
Barkerandstonehouse.co.uk. (2018). Furniture – Living, Dining & Bedroom – Barker & Stonehouse. Retrieved from https://www.barkerandstonehouse.co.uk/
BBC News. (2018). Ikea apologises for ‘sexist’ China advert. Retrieved from https://www.bbc.com/news/world-asia-china-41757971
BBC News. (2018). Ikea eyes bigger city centre stores. Retrieved from https://www.bbc.com/news/business-46289849
Debenhams.com. (2018). Debenhams UK – Fashion, Beauty, Gifts, Furniture & Electricals. Retrieved from https://www.debenhams.com/
Franchisor.ikea.com. (2018). Inter IKEA Systems B.V. – Worldwide IKEA franchisor. Retrieved from https://franchisor.ikea.com/worldwide-ikea-franchisor/
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Guerrero, M., Cunningham, J. A., & Urbano, D. (2015). Economic impact of entrepreneurial universities’ activities: An exploratory study of the United Kingdom. Research Policy, 44(3), 748-764.
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Kulmala, M., Mesiranta, N., & Tuominen, P. (2013). Organic and amplified eWOM in consumer fashion blogs. Journal of Fashion Marketing and Management: An International Journal, 17(1), 20-37.
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Nest.co.uk. (2018). Modern Furniture, Designer Lighting & Homeware at Nest.co.uk. Retrieved from https://www.nest.co.uk/
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