Challenges Faced By IKEA In The Global Market

Evaluation the Differing Strategic Management Capabilities

Discuss about the Challenges Ikea Faced in the Global Market.

Ikea is currently facing high competition from new companies which have ventured into the furniture business. Most of the newly developed companies mimic Ikea furniture designs to create more competitive products. Ikea has developed more cooperate strategies to add value to the production of their furniture’s to keep up with the competition in the international. Ikea embraces adoption of cultural preferences as a cooperate strategy in different geographical locations to upgrade the current design of its furniture’s to satisfy customers preference. Nevertheless, Ikea uses price factor as one of the best competitive strategies to outshine its competitors in the international market. Its furniture is known worldwide to be affordable to individuals of a different class. Other than that, the company is always creating new innovations to develop unique and classy furniture as a competitive strategy to make more sales to its clients. Ikea also uses operational strategies to locate resources used to develop their furniture by identifying cultural practices embraced in different geographical regions and implementing them to their furniture designs. This three strategy has enabled Ikea to manufacture furniture that meets their customers’ preferences in different regions worldwide and stand out in the dynamic consumer market.

Ikea uses its internal capabilities, external capabilities and ceasing activities to incorporate strategies which make its furniture outstanding in the competitive furniture industry. The company focuses on market research by identifying consumer’s interest on culture embraced in the different geographical region to improve the design of its furniture. Ikea has managed to build and recombine its internal capabilities to develop more new furniture designs that stand out in the global market . (Lutz, 2015). The company relies on its R & D (Research and development) department to create new designs that make Ikea’s furniture give their customers a thrilling experience to enjoy comfort and ability to have high-quality furniture at an affordable price.  Ikea uses price factors as a leveraging capability to stand out from its competitors. It’s furniture’s are sold at a relatively cheaper price compare to what its competitors offer in the international market.  Nevertheless, the company embraces stretching its capabilities to build new products depending on cultural needs of clients from different geographical locations.

“Ikea can better stretch and leverage its resources by using its external capabilities i.e. production of modern and classy furniture at an affordable price”. (Rodrigo, 2015). The company has an alliance with reputable clients to supply them with cheap high-quality raw materials to develop their furniture at a low price. This fact reduces the production cost of developing new furniture’s and enables Ikea to get more profits out of selling the newly developed modern furniture.  

Levels of Effective Management Decision-making

IKEA can manipulate and stretch its resources to the benefit of the organization by implementing the six level of management decision-making strategies to expand its business in the international market. The levels of effective management decision-making strategies include, “co-operating level strategies, stability strategy, and competitive strategy”. (Businessays, 2016).

Cooperate level strategies involve the management team making effective decisions regarding the direction of the business. The management team identifies threats affecting the business and growth objective strategies to meet consumer’s needs. Effective cooperate strategies to be used in IKEA strategic plan focuses on direction or growth strategy. The growth objective for IKEA furniture’s is to open more branches worldwide. 

Effective growth strategies are classified into the concentration of a particular industry (furniture industry) or diversification on the same industry. This concept is practically applied in regions that embrace different social and cultural practices. For instance, IKEA branch in China should concentrate on the available furniture design that they developed by incorporating the Chinese culture in the production of modern furniture. However, in U.S.A, Europe, and Africa, the company needs to diversify in the development of unique furniture’s that suits the cultural practice of individuals in those geographical regions. “The most effective strategy to boost sales of their furniture’s involves studying the cultural practices embraced on their newly formed branch and improve on their furniture current design to meet consumers’ needs interns of taste and preference”. (Lutz, 2015).

Concentration strategy is divided into two sub-categories; horizontal and vertical growth. Vertical integration is an ideal strategy to IKEA because its products are well known to be the most competitive in the consumers market. This strategy can be used when IKEA opens new markets in different countries where there is little competition from companies producing similar products i.e. furniture. The company is expected to make most sales of its products before competitors start mimicking their furniture designs.

Horizontal growth is another strategy that can help IKEA make the significant growth of sales of its products within different geographical locations. This strategy involves the study of companies that offer similar services in a new geographical area. Ones the management team learns the culture, taste, and preference of consumers in a newly opened market, the company should work on a strategy to develop furniture of the same standards offered by competitors on their new location and use their unique raw materials to design and diversify the quality of their newly developed furniture. Individuals will purchase any unique product that suits their consumer needs. This strategy will generate more sales for IKEA furniture’s in new branches opened in different countries.

Stability strategy is used when IKEA develops more competitive furniture’s or when the company opens a new branch in a new geographical region. Stability strategy is used for a specified period of time to monitor the performance of the new product developed or monitor the performance of the business in a newly formed branch. If the business is doing well, the company can plan a secondary strategy for growth and expansion. However, if the newly designed furniture’s or a newly opened branch is not generating good sales, the company can study a SWOT analysis of factors affecting the business and improve on their threats and weaknesses. There are three elements of stability strategies that affect the productivity of a business. They are; “pause then proceed, no change and take profits while you can”. (Twarowska, 2013).

Pause then proceed stability strategy is used when a business needs a time-out to cater for special consumers need. IKEA can use this strategy when they get bulk orders needed urgently by co-operate clients. Ones they have cleared all the urgent orders, the company can proceed with its growth production strategy. If the business is doing well in an existing or a newly formed branch, IKEA can use no change strategy to continue production of its furniture’s until further notice. This strategy is applicable in regions where there is no or little competition. In areas where there is high competition from competitors, IKEA can use take profits when you can strategy. When its competitors begin to manufacture similar products, the company can then develop more new products after making the massive sales from a specific product.

The competitive strategy also affects decision making for business. IKEA has competitive furniture design that outshines most of its competitors in the global market. The competitive strategy involves a business formulating the best price for their products to outshine price offered by its competitors in the consumers market. The three main price theories that affect IKEA sales in the international marker are overall price cost, differentiation and price focus. Overall price cost is affected by the cost of production. The company can reduce the cost of production by making a good deal with the supplier of their raw materials to get a competitive price when purchasing bulk products to manufacture their furniture. This strategy will lower the total production cost. Product differentiation affects the price of furniture sold to the consumer market. Some clients love classy furniture. In this case, IKEA can create a price strategy to develop unique modern furniture design at a higher price compared to the normal design to satisfy their consumer needs. Buyers will pay more for any substance that is of high quality. Price focus depends on the location where a business is established. This can be measured using economic performance of a given country. IKEA can adapt this strategy when opening new branches all over the world. The cost of production influence price focus.

Self-awareness, openness, and sensitivity to culture, ethical business, and responsible management issues are key factors that are affecting growth and development of IKEA. The business has embraced incorporation of dynamic cultural practices in the development of its furniture in the international market.  The embrace of culture in product development enables the structures of its furniture to have a distinct class that satisfies consumer need in different regions across the world.

The production team of Ikea is always working on improving their current innovations depending on consumers want and desire. In rare occasions, clients come up with their own design and request the company to incorporate their distinct ideas to build them unique and modern furniture. IKEA’s production team has highly sophisticated machinery and professional carpenters who are in a position to develop any furniture design ordered by clients. This fact enables the company to outshine its competitor interns of delivering high-quality furniture to their clients. Ikea strategic plan is to reach everyone in different geographical locations. This dream is achievable considering price strategy they embrace to sell their furniture at a low price.

Cooperate social responsibility affects the, “suppliers, customers, investors, employees and the community that uses furniture’s manufactured by IKEA”. (Stolba, 2009). Cooperate social responsibility can be defined as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis” (Commission of the European Communities 2001). IKEA holdings have managed to improve in its CRS depending on the branches of its operational services. It’s targeted consumers at the moment are individuals of age group (22 – 50) years. Most of working class teenagers have a consistent cash flow. They are always willing to spend their money to purchase classy household goods for their homes. IKEA uses this strategy to build furniture’s that satisfy the needs of this group of individuals which intern generates profitable returns to the company. Other than that, Ikea is thriving to offer additional services such as door delivery of their furniture’s to easily accessible areas to their clients.

A competitive advantage of the production process of furniture’s of Ikea is, “furniture’s is their production process is environmentally friendly”. (Dudovskiy, 2012). Other than that, Ikea offers its employees safe workstations and also offer them good healthcare plan. The company has also managed to offer job opportunities to individuals and improved local infrastructure of different social class globally. Nevertheless, Ikea contributes to the plantation of more trees in different geographical locations annually to compensate on the trees they cut to manufacture their furniture’s.

Ikea can access its performance over specific branches by doing a gap analysis of sales generated on a monthly basis or annually. Such data are stored in the invoices billed to the finance department. Data found in the invoices should be recorded on the ERP of the company. One’s a constant flow of data is created, the presentation can be made to the management team through the ERP. The management team is expected to study which type of furniture are being sold the most as per the data recorded in sales of products in the international market. The research team is then expected to go out in the market and conduct a research on the alternative style of furniture design that their competitor companies offer to clients. Ones the company identifies its strengths and weaknesses, IKEA can incorporate the use of competitive strategy to maintain its strengths and improve on its weaknesses to outshine its competitors. The company can develop more comprehended furniture design by mimicking other competitive designs in the market and maintaining its originality taste by using its distinct high-quality raw products to manufacture more competitive products. The marketing team is then expected to conduct a research of price offered by other competitive companies and come up with the best price for their newly developed furniture to boosts sales of their furniture in the consumers market.

Conclusion and Recommendation

Successful businesses are developed by formulating and implementing the best business strategies in the market. A continuous study of SWOT analysis helps a company to plan future prosperous objectives that enable a company to survive competition from the national and international market. IKEA has more opportunity to expand its business in developing and other developed countries. An effective market research will enable IKEA to build successful strategies to cover cultural and social effects that might affect their business in new locations. We have learned from the essay above that effective strategic planning not only boost the sales and performance of IKEA business but also reduces the cost of production. Low cost of production helps the company to create a competitive price strategy for their furniture which makes their products easily affordable to individuals of the different social background.

Reference

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