International Business Strategy For International Market And Increasing – A Case Study Analysis Of IKEA

Assessment of IKEA’s People and Planet Positive Plan

Describe about the International Business Strategy for International Market and Increasing.

IKEA, founded by Ingvar Kamprad designs and sells ready-to-assemble home accessories as well as furniture appliances (Alänge, Clancy and Marmgren 2016). According to the case study, the company employed 135,000 people in 2013 organizing three units: production, retail and expansion and range and supply (Rangan et al. 2015). The operations are spread in over 42 countries with 345 stores as per the figures of 2013 (Rangan et al. 2015). Majority of the sales is in Europe which is followed by Asia, Australia, North America and Russia (Doppelt 2013). IKEA’s 60% business revenue is earned by sales of furniture and the remaining 40% by other items (Rangan et al. 2015). Day by day, IKEA is expanding in the international market and increasing its product portfolio. IKEA considers sustainability as an important part of the organization. IKEA intends to create a better life for everyone (Martin 2015). The company significantly invests in reducing energy consumption. As the main business revenue is generated from wood based products, it has a wood supply chain strategy for sourcing and procurement (Ikea.com 2016).

Sustainability can be defined as a balancing act in which the demands of the present are fulfilled without compromising the future needs. IKEA takes the sustainability strategy seriously and designed the ‘People and Planet Positive Plan’ (Ikea.com 2014). According to the sustainability report of 2012, IKEA took the big step for addressing resource shortage and climate change (Ikea.com 2016). IKEA strikes a balance between consumer and earth by focusing on three areas:

Creating a more sustainable life at home- IKEA takes a lead to develop and promote products so that the customers live a more sustainable life at home. IKEA plans to achieve increase in sales that would inspire the customers to lead a sustainable life at home by August 2020 which is an appropriate plan (Ikea.com 2014). Further, the plan is appropriate in encouraging a balanced diet. These plans can help the company in transforming the business because the customers can attain an affordable and sustainable living (Stoner and Wankel 2012). Further, the plans can create low price and easy solutions that would minimize environmental impact (So and Xu 2014).

Resource and energy independence- IKEA aims to protect the vulnerable communities and secure long-term access to raw materials. The aims and plans of the company are to use the resources within the limits and become forest positive by August 2020 (Ikea.com 2016). The plans and targets set by IKEA are appropriate as they aim to sustainably source the raw materials from the forest such as wood, paper, leather, palm oil and others. IKEA aims to ensure full supply chain control and promote water stewardship. Further, IKEA aims to continuously develop its product line, make the products more sustainable and recyclable (Laasch and Conaway 2012). These plans shall help the company transform the business as the main raw materials for the company are derived from the forest. If the company intends to make the sourcing sustainable, it will transform the business and the product range shall be developed (Perrott 2015).

Assessment of IKEA Progress

Better life for people and communities- IKEA’s vision is to make a better life for the people and influence their living across the value chain. Under this concept, IKEA takes an initiative in contributing a better life for the stakeholders. IKEA contributes in a better life for the co-workers by encouraging participation. IKEA supports decent work for managing material and processes (Zara 2013). The scope is limited as the current sustainability plan does not have many targets that need to be achieved in the upcoming years. More short-term objectives can be added that in the sustainability plan that they can achieve within August 2018 (Ikea.com 2016). More initiatives would help in creating a lasting change among the families who require change the most (Fuoli 2012). 

Therefore, IKEA strives to minimize the negative impact of the global value chain through forestry protection and ethical sourcing of wood. Such initiatives would create a positive impact in the mind of consumers and the sales volume would be affected directly. It is analyzed that the targets set by IKEA are appropriate, however they ae medium term or long-term in nature. There is a need for short-term plans that can be achieved by the company within 6-12 months (Edgeman and Eskildsen 2013).

Going by the sustainability reports of the previous years, it is assessed that IKEA has made good progress while implementing the sustainability plan. The strategies are ground-breaking that embodies a range of non-mutually exclusive goals (Ikea.com 2011). IKEA aimed to escalate the growth rate, revolutionize the existing practices in the value chain and promoting an environmental friendly life to the people and wider communities. According to the contribution to FSC certification, IKEA has already added 30 million hectares of forest through the partnership projects (Dann 2015). According to the 2014 sustainability report, it was observed that IKEA installed 150,000 solar panels in the year 2013 for saving energy (Dann 2015). This strategy made the company produce more renewable energy and leading it closer to the goal set by them for the year 2020 of conserving energy (Dann 2015). The company also produced 1,810GWh in 2014, which was a noticeable increase of 27% from 2013 (Dann 2015). Further, the company committed to invest an amount of €1.5bn for renewable sources in 2015 (Dann 2015).

It was also found that the sales from products in the year 2014 were €1015 million pounds which was a huge increase from that in the year 2013 (Dann 2015). In the year 2013, the sales from the same category were reported as €641 million from the products that makes life sustainable at home (Dann 2015). As stated earlier, IKEA aimed to achieve at least 50% efficiency in energy-consuming products by August 2015 (Dann 2015). However, there were some errors in the calculation methodology due to uncertainties based on the range of 2008 (Dann 2015). Therefore, the company planned to implement a new approach in 2015 so that they could build energy-efficient home appliances (Dann 2015).

Alignment of Sustainability with Business Model

Further, IKEA aimed to fully develop energy-efficient induction hobs. It was observed that 55% of the electric hobs of the company are now induction hobs (Dann 2015). The company also targeted to offer and develop a new LED range and transform the entire lighting range to a lowest price model (Ikea.com 2011). It was found that 75% of the lighting products by the company were either LED or compatible with LED in the year 2014 (Dann 2015).

Based on the above figures, it can be assessed that the company has achieved a lot and still has a long way to go. IKEA has made impressive progress in its sustainability plans with the rapid increase in sustainable products and processes (Businesswire.com 2012). However, it is further recognized that IKEA could have fallen short by 70% in achieving its targets by 2015 and achieve a 100% target by 2020 with an annual increase in 5% efficiency (Dann 2015). IKEA could manage only a 5% progress from its own operations regarding carbon emissions and the firm needed it to reduce to 24-50% by the FY2015 (Dann 2015). The company was also found inefficient in the targets set for sustainable palm oil. The company only made 32% progress and there was a need for further segregation (Ikea.com 2015).

The business model of IKEA offers a wide range of products of home furnishing items which are durable; affordable has good functions and design. IKEA caters to the needs, tastes and preferences for people. The key concept of IKEA is to provide high quality products at the lowest possible price which would enable the people to lead a better life.

Firstly, IKEA follows a low cost strategy for meeting the target of providing low priced products. The furniture sold by the company is usually unassembled. The strategy of such model is that more unassembled furniture can be transported in comparison with the assembled one. Therefore, the transportation cost can be reduced and the customers can assemble the furniture themselves. According to the People & Planet Positive strategy, IKEA decided to have ethical sourcing. Therefore, the company aimed to use more particleboard so that they could reduce and replace the use of solid wood. The cost of furniture can be reduced while following such strategy as the products made from the particleboard cost 20% less than that of solid wood (Rangan et al. 2015). Therefore, this strategy ensures consistency with the existing business model.

Further, for maintaining the quality of products in a sustainable manner, IKEA developed IKEA Way (IWAY) for Purchasing Products, Materials and Services. IKEA also uses certified wood as accredited by Forest Stewardship Council (FSC) (Rangan et al. 2015). IWAY ensures the appropriate and minimum standard for conserving the environment and working conditions offered for the suppliers. If the suppliers wish to continue business with IKEA, they have to comply with the IWAY standards. Therefore, the sourcing of wood shall be more sustainable and illegal harvesting or cutting down of wood can be eliminated. In this manner, FSC certified wood ensures protection of forest while sourcing the wood (Rangan et al. 2015). Therefore, the sustainability of strategies for sourcing of wood is in alignment with the business model as the quality of wood is ensured.

Additionally, IKEA uses local customization strategy as it understands the needs and tastes of the consumers. IKEA has consumers belonging to different regions. For example it manufactures and designs small furniture for the people in China as they have smaller homes (Rangan et al. 2015). Therefore, IKEA’s sustainability strategies are in alignment with the business model.

Based on the progress made by the People and Planet Sustainability, four options may be suitable for meeting the organizational goals. This section evaluates the pros and cons of all the options so that the best one can be selected.

Advantages	Disadvantages
Option 1- Owning more forests
This option shall help in reducing the reliance on China’s and Russia’s expensive wood sourcing. The forest land can be managed by implementing more sustainable strategies. This option would secure access to more FSC certified wood in the future.  The wood sourcing can help in stabilizing the prices, quality and availability of wood. Therefore, more sustainable moves can be initiated (Rangan et al. 2015).	The option is conflicting as it has unpredictable return on investment. Further, there would be a long time lag before the returns would be generated after investment. Moreover, forestry planning may distract IKEA from focusing on its primary goal.  The fixed and sunk cost would pile up thereby disrupting the management process. The residual material from wood would be difficult to sell (Rangan et al. 2015).
Option 2- Driving higher procurement targets and standards
This option shall improve forest management and governance. It would also promote production efficiency. The trade would become more transparent and responsible. The brand image can be improved by using more recycled and FSC-certified wood so that there is clear progress made towards sustainability (Rangan et al. 2015).	However, the option would increase the reliance on suppliers. There is a limited supply of FSC certified wood. Therefore, it may take a lot of time to achieve standards and targets (Rangan et al. 2015).
Option 3- Using more particleboard
There are numerous advantages involved with this option as the wood can be used more efficiently. The amount of wood used globally can be reduced. There is greater yield from log and lumber in comparison with solid wood. A larger amount of particleboard can be obtained from a log of wood than the solid wood. It would also have transportation advantages as particleboard is lighter in weight. This option would fill up the truck 30% more than solid wood (Rangan et al. 2015). The option is 20% cost efficient in comparison with solid wood (Rangan et al. 2015). The products obtained from particleboard shall be more attractive for the customers as it would be offered at lower selling prices.	However, if the consumers have a greater preference for solid wood, the demand and sale figures would fall down with their willingness to pay. This option requires significant investment. There is limited demand for materials in countries like India and China. It would consume more time as a new product range has to be developed for particleboard (Rangan et al. 2015).
Option 4- Using more recycled wood
Recycled wood is cheaper than particleboard in many countries such as Germany and France. It is because there is ample supply of wood in these countries (Rangan et al. 2015).	For switching to recycled wood, there is a need for heavy investment so that the wood can be places efficiently in the manufacturing plants. Moreover, if the plants are set up, they have to be located in the urban areas so that the cost of collecting recycled wood from individuals can be reduced. Setting up a huge factory in the urban areas is not feasible. There is uncertainty of availability of used wood so that they can be recycled (Rangan et al. 2015).

Table 1: Evaluation of Sustainable Options

Source: (Rangan et al. 2015)

Based on the analysis of above options, option 1 and option 3 seem to be the most appropriate. However, if only one option has to be pursued, option 3 would be suitable in achieving wood chain sustainability for IKEA. If more particleboard is used, it can help cut own the production cost. As particleboard cost is 20% cheaper than solid wood, the cost of production can be cut down (Rangan et al. 2015). Additionally, particleboard is lighter than solid wood which provides transportation benefits and enhancing efficiency.

Conclusion

Conclusively, IKEA takes sustainability seriously. It has made tremendous progress in sustainability based on its People and Planet Positive Plan. These plans can help the company in transforming the business because the customers can attain an affordable and sustainable living. IKEA has made impressive progress in its sustainability plans with the rapid increase in sustainable products and processes. IKEA’s sustainability strategies are in alignment with the business model. IWAY ensures the appropriate and minimum standard for conserving the environment and working conditions offered for the suppliers. The company can adopt Using more particleboard for wood sustainability supply chain.

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