IKEA Reach PESTEL analysis of the company Political factors The increase in activities that are related to globalization and protectionism tend to present some enormous opportunity, and challenge to the company. The major challenge presented to the company is that of competing against a number of unknown factors and to come up with the best quality viable products from all over the world. The company can gain entry to the new markets via joint ventures or partnerships so that it explores the emerging markets better (Riggs, 2007). However, at the same time, the business needs to be aware of the policies of the many countries that it has operations in since the tariffs that may be imposed may affect the operations of the company.
On the other hand, the company may stand to lower its operational costs when the government decides to reduce the taxes imposed or start providing subsidies in a campaign to help the companies to continue their operations during hard economic times (Bateman & Snell, 2012). Economic factors The dynamic prices of commodities and raw materials over the whole world have resulted in the rise of the IKEA purchasing costs.
The phenomenon will have an effect on the profit margins of the company and it may lead to passing over consumers cost by increasing the prices of most of the commodities in the supermarket. The increase in prices always lead to decreased competitiveness in the market and IKEA needs to withstand the situation before it affects intermediate operations. The crisis that might appear may affect the company in a negative way as it may lead to a decline of the consumers purchasing power thus increasing the need for the company to be cautious.
The targeted consumers may be reluctant to any change that they will perceive to be serviceable sets; there is a likelihood that the consumers also like to spend less in the purchase of luxuries, a practice that affects the profit margins of the IKEA Company (Riggs, 2007). Social factors As the company expands its operations to tap lesser markets of China and India, some issues that relate to the social factors may arise and in one way or the other affect the operations of the company.
Most of the people in Asia have the habit of saving than spending hence they may not be willing to spend their money in buying new furniture. At the same time, the customers who have the highest potential of purchasing the furniture may decide not to buy the company’s product because of its reputation of requiring self-assembly. Technological factors The use of technology based on radio frequency identification device can be applied and used for considerable remuneration to the supply chain of IKEA.
If the company adopts this type of technology, it may result in fewer inventories for the supermarket companies and lead to lower costs for the firms that in turn will translate into cheaper prices (Riggs, 2007). VRIO framework The VRIO analysis refers to an analytical technique that considers the resources being used by the company to do its evaluation and at the same time that of their competitors. Valuable? Rare? Inimitable? Organized? Competitive impact Market segment Partly Supplier relationship Competitive advantage Product label popularity Competitive advantage Cultural experience Competitive advantage Buyer loyalty Sustained Competitive Advantage Environmental compliments Sustained Competitive Advantage IKEA VRIO framework Evaluation of Current Strategy IKEA Company is a cost leader in the field of home furnishing market.
For this company to on to its position, it must make the international production be as efficient as possible. Most of the company suppliers are usually located in low-cost countries, they can easily acquire access to the raw materials that are needed for the company’s production and they are capable of reaching the distribution channel of the company (Perreault & McCarthy, 2006). IKEA is a big company and it is in a position of buying thousands of furniture pieces at once thus acquiring economies of scale.
It does not only provide furniture at low costs, but they also assure that they are of high quality to their consumers. Another strategy of the company is that of being a precursor of innovation. The companys brand is also very strong and dominant in the market; it stands for low prices while giving their clients the best furniture quality in the market. There is also a mixture of low-cost and high-cost furniture that the company provides thus making it easy for each individual to get their share in from the company (Riggs, 2007). Vertical Integration at IKEA The majorities of the large companies are involved in varied types of businesses and tend to sell their products in various countries all over the world.
As far as IKEA is concerned, it has employed the use of vertical integration to the global furniture industry. The managers have employed the use of corporate level strategy in vertical integration to identify the most appropriate company that the company is supposed to compete with its operations so that it maximizes on making its long-run profitability.
Vertical integration is classified into two groups, the forward vertical integration and the backward vertical integration. The company uses the backward vertical integration type in carrying out its expansion process in order to raise the rates of profits that it makes from the sale of its products (Perreault & McCarthy, 2006). IKEA gets some benefits from using the vertical integration approach and they include, the model tends to facilitate investments in specialized assets. A specialized asset refers to that type of asset that has been designed to perform some specific tasks and its value is significantly is reduced in its next best use.
In IKEA, the specialized assets are the employees who tend to acquire lots of experience through the company pieces of training. The company has heavily invested in specialized assets because it allows the company to lower its cost structure and to differentiate their products from those of their competitors. The model also allows for the enhancement of the company’s products quality. Through its entry in a different stage of the value added chain, the company has enhanced the quality of its products in its central venture and strengthens its product differentiation advantage (Bateman & Snell, 2012). Vertical integration has also helped the company in improving its scheduling.
Strategic advantage has been acquired in cases where vertical integration has made it easier, quicker and even more effective to plan, coordinate and transfer of the company’s products like the finished goods from manufacturing point to the consumers. The selling point may be either a retail shop or a distribution shop. The use of vertical integration increases the bargaining power of the company.
The company uses vertical integration because it allows it to acquire the power to bargain with suppliers, an act that will lead to an increase in the amount of profit that the company makes from its sales. By consolidating the furniture industry via vertical integration, the company has become a much bigger purchase of the products sold by the suppliers. The company uses this as an influence to bargain down the prices that it pays for acquiring its inputs thus lowering its cost structure (Perreault & McCarthy, 2006). Is the companys current business- and corporate-level strategies well? The current business strategies that the company has employed seem to be working perfectly for the business as the profits of the company are improving by the day and applying the level strategies is minimizing the cost of production.
The strategies also seem to be expanding the operations of the company with minimal impact on its operations while improving the relations with the customers and the suppliers too. These strategies are without a doubt working for the betterment of the company and it is improving the rate at which the company is reaping profit from the market.
The efforts that the company has applied to stay at the top of the market through various strategies also seem to be working with the competitors trying and working very hard to keep with the pace of the company without any success (Bateman & Snell, 2012). References Bateman, T. S., & Snell, S. (2012). M: Management. New York, NY: McGraw-Hill Companies. Perreault, W. D., & McCarthy, E. J. (2006). Applications in basic marketing: Clippings from the popular business press.
Princeton, NJ: Recording for the Blind & Dyslexic. Riggs, T. (2007). Encyclopedia of major marketing campaigns. Detroit, MI: Gale.