Global Organisational Environment Of IKEA

5438 words (22 pages) Essay

2nd May 2017 Marketing Reference this

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In this topic, we learned about the pros and cons of different types of organizations and the main influences of the external and internal environment on these organizations. This subject also analyzes the expectation of the organization’s major stakeholders. By using the stakeholder mapping – power/interest matrix, the company can identify its major stakeholders, their expectations, and conflicts between the stakeholders. This is very important for decision-making process because if the company can understand thoroughly different stakeholders’ expectations & conflicts, they can have the right strategy to deal with each stakeholder, and so gain the profit of the company.

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The concept that I found it is difficult is how to identify the correct stakeholders’ power and interest on the stakeholder mapping. When I did the example together with my classmates, we have different point of views. More or less power and interest of the stakeholder also depends on what view the companies are on. I should practice more from other big companies in the world to see how they identify the expectation of their stakeholders. I can also study from the websites http:www.stakeholdermap.com show us the important of the stakeholders to the growing of the company, and also how to analyze and map the stakeholders’ power and interest.

The article “Making Sense of Stakeholder Mapping” of Ruth Murray and Peter Simon on 2006 provides us three basic important dimensions when considering stakeholders: power, interest and attitude

Power: how much the stakeholders have the potential to influence in the organization

Interest: how much they are interest in the projects of the organization

Attitude: how they will “back” (support) or “block” (resist) to the organization’s project.

The article also states that if we only consider two out of three above dimensions, it just gives a partial and less than useful picture [1] 

Topic 2: International environment – Organization and Institutions (Mark)

Multinationals is the corporation that locates its management headquarter in one country (home country), and operates its business in other several countries (host countries).

Through this topic, we see the good and bad sides of globalization. We learned the differences between the free trade and protectionism. The benefit of free trade is no longer tariff barriers, so there will be good prices for customer because of increasing competitions. However, the bad side of free trade is that it will create a big gap between rich and poor, harming the environment, and cultural convergence. On this chapter, we also learned more about the benefit of World Trade Organization such as promotes peace, constructive handling of disputes, free trade cuts costs of living, increase choice, raise income, and simulates economic growth. This chapter also includes types and level of integration as well as the effects of integration such as static effects and dynamic effects.

The concept that I found it difficult to understand is the “Krugman’s objections”. I do not really thoroughly understand what this concept is about. This is something that I need to spend more time to read more from the book or find more information from internet.

It is obvious that the world today is becoming more global. Beside some advantages of free trade by globalization, there are still a number of criticisms that free trade brought to the world’s economic. The term “free trade” actually depends on the interest of powerful nations and corporations. For example, according to “Criticisms of Current Forms of Free Trade” article, there is the phenomena of “brain drain”. It means that some rich countries try to attract educated people from poor countries. Thus, increase bigger gap between rich and poor countries [2] 

Topic 3: Analysis of the Environment – Understanding the Managerial Environment

The topic, “Analysis of the Environment – Understanding the Managerial Environment” is about learning the external and internal environment and how they are impact to the organizations.

This session helps us to understand the different dimension of the environment such as complexity, stability, market diversity and hostility. It is very important for the company to understand the effect of the environment factors to the organization in the future so that they can have the right strategy to develop the company. We learn different types of the organization environment, and how to analyze the environment by using PESTEL framework (political, economic, social, technological, environmental, and legal). PESTEL is a useful tool for understanding the industry situation as a whole; it allows us to have in-depth analysis of the external factors impacting on the organization.

This topic is straightforward and was explained very clear in class, so I did not find any concept that difficult in this topic

Topic 4: The Macro-economic Environment – the Economy and the Role of Government

In this subject, we indentified the macro-economy and its objectives. Macro-economic Environment is the first step of a strategic analysis; it is also referred as an external analysis (PESTEL analysis). It helps us to identify what will affect the growth of our industry as a whole. Four essential measures that are used in the macro-economy are inflation, economic output, unemployment, and balance of payment. This topic also raises the impact of the government in the economic system. Government has an important role in economy. These objectives include: a low rate of inflation, a reasonable rate of economic growth, low rates of unemployment, and a balance of payments in equilibrium or surplus. The government uses the fiscal policy to stabilize the economy by controlling interest rates and the money supply.

Topic 5: The macro-economic environment. Understanding the Global Environment (Mark)

This topic helps us get more knowledge about globalization and the forces that drive globalization. Globalization is increasing global business activities and multinational companies. Globalization also means rising political and social connection between government and people. Globalization helps to improve communication and share information worldwide. Friedman (2007) supposed that globalization is a flattening process. In this book named “The world is flat”, he indicated ten forces that flatten the world as follow: collapse of Berlin wall, Netscape public offering, work flow software, open source or uploading, outsourcing, off-shoring, supply chain, in-sourcing, in-forming, and the steroids.

In other words, globalization is affected by the key drivers namely political, technological, and economic, market drivers, and cost and competition drivers as well. For example, outsourcing and off-shoring in China and India help many multinational companies such as Toyota, Sony and others probably reduce production cost because of low material and labour cost. This results in increasing competitive advantages. However, it also creates more highly completive market in the world.

In addition to globalization’s advantages, there are some plausible disadvantages in global competitive environment. Particularly, globalization makes to increase the gap between rich and poor countries and people as well. Globalization also leads to cultural convergence. Moreover, it is true to confirm that globalization makes contribution to cause environmental pollution. International expansion of multinational companies has aroused increasingly environmental issues in which they operate.

Therefore, in global competitive environment, business organizations today have to confront with some key challenges such as cross-culture management, competition, sustainability as well as global rules.

This chapter is straightforward and well explained in class. Thus, I can easy to follow and understand, and I did not find any concept that is difficult to understand.

The article “Critical Challenges of Globalization to Vietnam” [3] on CDI website (Center for Development and Integration) states that globalization challenges Vietnam in two ways:

Challenges to the country competitiveness: under “globalization”, the demand for competiveness is much higher. Competition is not only about products but also about competing social settlement

Challenges to Vietnam’s labor, migration, and women’s right: women play an important role in growing the country’s economic; however, women’s work and value are less recognized than men

Topic 6: The global environment: Emerging economic in three continents

This topic provides an overview of emerging economies mainly in Asia, America and Africa and especially BRIC countries (Brazil, Russia, India and China). In addition to this, the author would like to compare the different economic, political and other developments between countries.

Chapter 14 “Contrasting developments in the Americas” shows US economic development and its hegemony in international affairs as well. Moreover, this chapter helps me understand the reasons why the BRIC countries have possibly achieved increasingly importance in the eyes of Western economists, investors and politicians. BRIC countries in order to secure their development

Chapter 15 “Asia’s economic potential” indicates in-depth analysis the major Asian economies and their historical development. Indeed, this chapter describes major characteristics such as geographical, political, economic and cultural diversity of Asia through major countries such as China, India, and tiger countries (Hong Kong, S.Korea, Singapore and Taiwan). For example, at the present, there is no doubt that with high level of education, high saving and investment, modern technology and others, tiger countries completely compete to other countries in the world.

Chapter 16 “Africa’s struggle for reform” describes a big picture of political, economic and social developments in Africa and major barriers inhibiting Africa’s development. In particular, African countries have to face some social problems in relation to poor education, housing and sanitation, low standard of living, disease, and poor public health care. Moreover, poor governance and inability of politicians are impossible to maintain stability. Besides, heavy debts have also become an urgent problem to many countries. It is undeniable that poor productivity and strong dependence on other donation has led African nations at the mercy of world markets. Based on this analysis, the author is willing to discuss the potential solutions to Africa’s future development and prosperity.

Topic 7: The micro-economic environment – market structures and industry analysis (Mark)

This topic provide knowledge about different types of market structures and describes the link between market structure and companies’ behaviours and performance through analysis of Porter’s five forces. To start with, there are three kinds of market structures including monopoly (diamond market), oligopoly and perfect competition market. Especially, in term of oligopoly, in order to avoid price war and compete by non price methods, many companies choose to collude.

In addition to this, this topic also describes industry life cycle. In period of introduction, customers buy products regardless of price because of product’s uniqueness. It is called fragmented industry where no firm has large market share and each firm share small pieces of big market cake. As new competitors enter this industry, prices drop as a result of competition. Companies use experience curve and economic scale to reduce cost faster than competitors. By the time an industry enter maturity, this is a consolidated industry which dominated by a few larger firms struggling to differentiate their products from the competition. As an industry moves toward decline, its products’ growth of sale begins decreasing; therefore, firms will convert their facilities to alternate uses or sell them to another firm.

Moreover, Michael Porter, the author of competitive strategy, has highlighted evidently affect of the level of competition to the level of the specific business unit. Hence, it will help me obtain insight about the organization’s competitive environment such as the dominant forces in the industry including threat of entry, power of buyers and suppliers, substitutes, and competitive rivalry, and the factors influencing on these forces.

However, Porter’s five forces have a plenty of shortcoming. For instance, the model is effective in static situation. It assumes that the companies’ interest and profit always come first. Moreover, the business environment is competitive, hostile and predictable. More importantly, it ignores one of the most significant factors called human resource.

In addition to Porter’s five forces, in oligopoly market, Game theory is considered as a branch of mathematics often used by economics that analyzes situations in which players must make decisions and then receives and then receive payoffs. It is applied for members of an oligopoly because they always face to a prisoner’s dilemma which is a game in which the gains from cooperation are larger than the rewards from pursuing self-interest

TASK 2: IKEA REPORT

I. Introduction

1. History

IKEA is a home-furnishing retailer founded by Ingvar Kamprad in 1943. The Swedish company that sells and designs flat pack furniture, appliances and home accessories through its stores around the world at affordable price. Since then, IKEA has grown up rapidly and now it becomes the largest furniture retailer in the world. Its mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them (IKEA, 2010).

2. Vision

IKEA’s business idea: “To support this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”. And its vision is “to create a better every day life for the many people” (IKEA, 2010). To bring a better everyday life, IKEA are committed to provide well-designed, good quality and durable home furniture and keeps the low price for many people. Keeping low price is a cornerstone of IKEA; however, it does not mean that “low price but not at any price”. IKEA wants sustainability as a part of its business. In fact, it believes that taking about social and environmental responsibility of its customers, suppliers is a crucial for running good business. IKEA made decision for contribution to create a good world by providing products, service which are beneficial effect on people and environment.

3. Product range

There are a wide range of products which inspired and developed based on the essential customers’ needs of home furnishing. In general, IKEA’s product is a combination with three main characteristics: good design, function and low price. That means all IKEA’s designers design goods with well designed and functional home furnishing available for everybody that at low price.

4. Store

In 2010, there are 316 IKEA stores in 38 countries, and most of them in Europe, North America, Australia and Asia (Swedish Furniture, 2011). IKEA store format is a single-story, large blue buildings with yellow company name. The large numbers stores of IKEA are located suburban because of land cost and traffic access. IKEA’s stores open for long hours, normally, 24 hours per day. IKEA always encourages customer to visit its store in order to look inside, touch, try everything, even if walk away empty handed. By this way, IKEA hopes that after leaving its store, customer will have a full of fresh ideas for their own home.

II. Stakeholders mapping

Employees

IKEA does not have its own factories; they give orders to different factories in low cost countries. Hence, it is acknowledged that majority of employees still has low power and interest to the company.

Global society / Local community

Environmental issue such as friendly, reduced packaging is being promoted by the Government and is concerned by community. However, it may impacts negatively on IKEA’s social responsibility and total cost. Thus, local community has high power and low interest to IKEA.

Customers

The power of the buyers is moderately low because majority of customers are consumers. The company targets the customer who is looking for value and is willing to do a little bit of work serving them, transporting the items home and assembling the furniture for a better price. The typical IKEA customer is young low to middle income family.

Competitors

IKEA operates in a highly competitive industry, characterized by other low priced furniture producers such as Galiform of England and retailers such as Wal-Mart of the United States. Domestically, IKEA faces the threat of potential entrants; as the dominant firm, holding 25% of the market in its native Sweden for example, there is a very real possibility that others will enter the market to challenge IKEA directly. Hence, competitors have low power and high interest to IKEA.

Suppliers

IKEA does not only create competition among suppliers but also treats them as long-term business partners. As IKEA offers nearly the same products in its stores all over the world, they can order very high volumes and therefore get cheap prices. Moreover, its suppliers are usually located in low-cost nations, with close proximity to raw-materials and reliable access to distribution channels. These suppliers produce highly standardized products intended for the global market, which size provides the firm with the opportunity take the advantage of economies of scale factors.

In fact, IKEA is using its size when dealing with subcontractors in two ways. The first is to put pressure on the subcontractors to become more and more efficient. Secondly, IKEA can use its size to get good discounts from the suppliers. This is done by placing itself as a large customer to the supplier, to get some power in price negotiations.

Local government

Local government has high power and low interest to many companies. The reason is that changes of laws, regulationns and policies influence the production, total cost and sale of IKEA’s products.

Shareholders

This group can also be considered high power potentially. This is more important in recent years where shareholder activity has increased significantly in the boardroom, and management of firms has been scrutinised much more and even given ‘threats’ if certain actions favoured by the shareholders were not pursued.

Managers

Managers play an important role in controlling business activities and improving IKEA’s global competitiveness by promoting timely, decision-making for operational matters. In other words, they possess high power and interest from the company.

III. PEST analysis

The Pest analysis tool looks at political economic, social, technology changes which are likely to affect on the business (Robert, 2004). These varieties of external environment factors in 2010 which IKEA faces are:

Political changes:

Government’s regulation and policy change: Generally, there were sorts of challenges and chances, which IKEA faced in 2010. For opportunities: These host countries changed policies to encourage foreigner companies invest in the country such as reducing procedure papers, exported tariff -exempt,. By contrast, the countries also tied up protectionism and subsidies for its products in order to compete to foreigner products for instants, launching policy of rising imported tariff.

Economic factors:

Economic growth:

Although global economy recovered slowly, it helped IKEA has boosted its market share because of its low-price goods which can compete to expensive retailers in 2010. IKEA group still opened continue to expanse their stores in other countries and increasing sales in emerging economic market-Asia where leading the global economy recovery in 2010.

Inflation:

It is a true that inflation rising which let price of all commodities rose remarkably in 2010 such as raw materials which led increasing IKEA inputs’ purchasing cost. In addition to this, fuel price also rose rapidly in 2010 which impacted on IKEA’s transportation cost. All of this, affected on IKEA business performance as well as customer purchasing needs. Furthermore, increasing price implicated that IKEA has less competitive advantage in the furniture market.

Competition:

IKEA is a Sweden giant furnishing company which has strong brand, therefore, there are few competitors running in the market. However, IKEA should not underestimate its competitors. The company should launch innovative and eco-design products at low price for meet a wide range of customers’ needs.

Social factors:

Lifestyle:

Becoming a global company that means IKEA faces challenges as different culture, language barrier, and taste. Thus, before opening new stores, it should have concrete plans of research market. IKEA has expanded its stores in emerging market like China, India, and Pakistan which society is distinct compared to Western countries. Generally, Asian is savers who do not spend too much money on purchasing. They are willing to buy durable and high-quality products in conventional retailers which are expensive rather than low-price ones like IKEA, a reputation of self assembly.

Population growth rate:

This factor plays a role for IKEA’s development as well as helps IKEA make decision for opening new stores in these regions. These largest population’s countries as China and India, people have huge needs for buying low-price products of IKEA. Thus, expanding new stores in the markets bring benefits for IKEA such as increasing business sale, number of subcontractors and so on.

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Technology:

Normally, technology plays an important role for almost company’s success especially a global company. For IKEA, it used quality technology to implement better communication services and software modules that communicate to a home base, delivery service and selling online via the Internet. Technology helps company to increase production and employees’ productivity, improve its business performance, and gain competitive advantage.

IV. Market position and segmentation

Market position

There is no doubt that IKEA is a well- known furniture company in the world. In spite of world economic recession in 2010, IKEA has been growing up and has a leading market position in the future. There are some evidences demonstrating for statement above: total sale rose by 7.7 % to 1.1 billion Europe (FY 2010 report) compared to 2009. In fiscal year 2010, Ikea group opened 12 stores in 8 countries.

Figure 1: Annual Sale, Billion Euros

(Source: http://issuu.com/interbrand/docs/bgb_report_us_version?viewMode=presentation&mode=embed)

According to Branding consultancy Inter-brand’s” Best Global Brands” 2010( Top 100 brands) released on the fifteenth September 2010, the Sweden giant furniture- IKEA was ranked at 28th place the most valuable brand with brand value is 12,487 ( dollar million) and changing branding value is 4% higher than last year.

Figure 1: Best Global ranks 2010

(Source: http://www.interbrand.com)

Market segmentation:

Market segmentation IKEA uses various mixes of segmentation bases including geographic segmentation, demographic segmentation.

Geographic segmentation: IKEA stores are located around the world, however, most stores of them based in at Europe where get the highest sales ( 79%), meanwhile Asia and North America account for 6(%), 15%, respectively.

Figure 2: Ikea, sales per region

(Source: welcome_inside_2010, IKEA report 2010)

Demographic segmentation:

According to IKEA, it wants to bring a better life to many people. This means that its customers are people all over the world who are low and middle- income. In addition to this, IKEA’s customer target is focus in young people and family who are appealed by stores’ decoration as well as can take time working together IKEA to design their products.

V. SWOT

Swot is an acronym of strengths, weaknesses, opportunities and threats which is a useful tool for helping organization to analyze current situation of the organization in order to solve its problems and take advantage to reach its objectives. Strength and weakness are internal environment such as management, operation, finance; meanwhile, opportunity and threat are external environment like economy, society, environment and technology (Andrew, page 7).

Strengths:

That is any resource advantage and capability of organization which gives competitive advantages in the market. Strengths are organization capabilities such as human resource, management, financial status, service, manufacturing and so on. Strength considers as a basic quality element for evaluating company’s success.

There are some IKEA’s strengths below:

Wide range product:

IKEA is famous for its wide range of affordable and good-quality products which can meet almost customers’ needs. Furthermore, IKEA has restaurant, cafeteria, and children- playing room in the each IKEA’s store in order to help their customer feel comfortable when shopping here.

Less competition:

IKEA’s business model is quite unique, besides, IKEA’s range product is wide that means it meets multi target markets. This leads to IKEA has little direct competition.

Global brand:

IKEA Company has strong brand reputation which appeals key customers. That also means it provides the same quality and a range of products.

Advanced- technology and new materials:

IKEA continues to introduce and apply new-technology as well as materials in its furniture industry in order to reduce cost and weight of its products for customers as well as eco-friendly environment.

Low price strategy:

Because of IKEA’s business ideas is offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. That is a priority strategy of IKEA which make the company as a well-known brand.

Clear vision and strong concept:

IKEA wants “to create a better every day life for the many people” by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”

Supplier-long-term partnership:

Supplier plays an important role for IKEA Company. To maintain good-product quality as well low-cost, it creates long-term partnership with supplier. By this, IKEA can buy large volume with negotiable price over many years.

Flag-pack furniture:

Flag-pack furniture is becoming popular since it was launched by IKEA Company. The most crucial reason that makes flat-pack furniture popular is because of its saving-cost such as transportation and storage cost. In addition to this, flat-pack furniture is easy to carry for both customers and suppliers, assemble at home just following company instructions; minimize shipping damage, increasing inventory capability.

Weaknesses:

They are internal factors which make company cannot reach its success as well as its full of potential compared to others. Weaknesses can be controlled and eliminated. Each enterprise has to know its weaknesses in order to improve and manage its.

IKEA’s weaknesses including:

Lack of customer service:

Low-cost is the cornerstone of IKEA which may not attract customers who are used to go traditional furniture shopping. This lets the customers who feel that IKEA Company does not care about them. Furthermore, scale of company- a global company also makes it difficult to communicate with its customers. Lack of customer service will effect on IKEA’s brand.

Global company:

As a global company, IKEA has encountered problems to control, operate and maintain its stores’ standard as well as quality of products through the stores’ chain in various regions.

Difficult to balance between low cost and high quality:

There is a said that, “quality and price accomplish together”. The fact that, it is easy to produce good- quality product for high price, but IKEA makes different ways. If it is too focus on cost-saving, it will effect negatively on products’ safety as well as user. Cost needs to be balanced against quality.

Opportunities:

They are chances in economy which helps businesses to gain competitiveness advantage, profitability and increasing production. In addition, opportunity arises suddenly, even if, these may arise from competitors, government policy, technology, thus organization should be careful and catch the chances whenever they arises.

IKEA’s opportunities include:

Urban sprawl:

IKEA’s stores are located at outskirt of centers, because of land cost and traffic access. Nowadays, there is increasing number of people living in metropolitan areas to move far away center which places that are closed to IKEA’s stores. In addition to this, most of them are young, educated and rich. IKEA’s strategy meets new trends.

Increasing demand of low-price products:

Because of being effected by depressed global economy, citizens have trend for purchasing goods at low-price for saving their money. In order to meet rising customers’ demand as well as increasing its sales, the company may design new products, reviewing manufacturing process, materials or labour. This is a chance which IKEA should exploit.

Selling online:

Selling online is one of opportunities of IKEA. Online shopping makes a revolution to traditional shopping. For global company- IKEA, its online retailers have expanded all markets globally. Its customers in every region can shop just a click mouse and then waiting for goods delivered. This helps IKEA increasing sales, profits, and brand recognition.

Expansion into emerging market:

There are numerous countries of Asia which are potential markets for IKEA in the coming years. Meanwhile, the demand of citizens living in emerging markets focus on buying good-quality at low-price which is the IKEA’s concept.

Threats:

Threats are used to external factors in environment which effect negatively for profitability, operation enterprise as well as growing new rivalries. Actually, if company is aware of external threats, it can plan to solve the problems. Threats of IKEA derived from:

Increasing rivals:

There is growing competitors entering low-cost furniture market which impact on IKEA Company such as Wal-mart, Ashley furniture, Howden. These competitors can copy low-cost value model. Therefore, IKEA needs to improve its product qualities to compete with other rivalries.

Economic crisis:

Businesse

In this topic, we learned about the pros and cons of different types of organizations and the main influences of the external and internal environment on these organizations. This subject also analyzes the expectation of the organization’s major stakeholders. By using the stakeholder mapping – power/interest matrix, the company can identify its major stakeholders, their expectations, and conflicts between the stakeholders. This is very important for decision-making process because if the company can understand thoroughly different stakeholders’ expectations & conflicts, they can have the right strategy to deal with each stakeholder, and so gain the profit of the company.

The concept that I found it is difficult is how to identify the correct stakeholders’ power and interest on the stakeholder mapping. When I did the example together with my classmates, we have different point of views. More or less power and interest of the stakeholder also depends on what view the companies are on. I should practice more from other big companies in the world to see how they identify the expectation of their stakeholders. I can also study from the websites http:www.stakeholdermap.com show us the important of the stakeholders to the growing of the company, and also how to analyze and map the stakeholders’ power and interest.

The article “Making Sense of Stakeholder Mapping” of Ruth Murray and Peter Simon on 2006 provides us three basic important dimensions when considering stakeholders: power, interest and attitude

Power: how much the stakeholders have the potential to influence in the organization

Interest: how much they are interest in the projects of the organization

Attitude: how they will “back” (support) or “block” (resist) to the organization’s project.

The article also states that if we only consider two out of three above dimensions, it just gives a partial and less than useful picture [1] 

Topic 2: International environment – Organization and Institutions (Mark)

Multinationals is the corporation that locates its management headquarter in one country (home country), and operates its business in other several countries (host countries).

Through this topic, we see the good and bad sides of globalization. We learned the differences between the free trade and protectionism. The benefit of free trade is no longer tariff barriers, so there will be good prices for customer because of increasing competitions. However, the bad side of free trade is that it will create a big gap between rich and poor, harming the environment, and cultural convergence. On this chapter, we also learned more about the benefit of World Trade Organization such as promotes peace, constructive handling of disputes, free trade cuts costs of living, increase choice, raise income, and simulates economic growth. This chapter also includes types and level of integration as well as the effects of integration such as static effects and dynamic effects.

The concept that I found it difficult to understand is the “Krugman’s objections”. I do not really thoroughly understand what this concept is about. This is something that I need to spend more time to read more from the book or find more information from internet.

It is obvious that the world today is becoming more global. Beside some advantages of free trade by globalization, there are still a number of criticisms that free trade brought to the world’s economic. The term “free trade” actually depends on the interest of powerful nations and corporations. For example, according to “Criticisms of Current Forms of Free Trade” article, there is the phenomena of “brain drain”. It means that some rich countries try to attract educated people from poor countries. Thus, increase bigger gap between rich and poor countries [2] 

Topic 3: Analysis of the Environment – Understanding the Managerial Environment

The topic, “Analysis of the Environment – Understanding the Managerial Environment” is about learning the external and internal environment and how they are impact to the organizations.

This session helps us to understand the different dimension of the environment such as complexity, stability, market diversity and hostility. It is very important for the company to understand the effect of the environment factors to the organization in the future so that they can have the right strategy to develop the company. We learn different types of the organization environment, and how to analyze the environment by using PESTEL framework (political, economic, social, technological, environmental, and legal). PESTEL is a useful tool for understanding the industry situation as a whole; it allows us to have in-depth analysis of the external factors impacting on the organization.

This topic is straightforward and was explained very clear in class, so I did not find any concept that difficult in this topic

Topic 4: The Macro-economic Environment – the Economy and the Role of Government

In this subject, we indentified the macro-economy and its objectives. Macro-economic Environment is the first step of a strategic analysis; it is also referred as an external analysis (PESTEL analysis). It helps us to identify what will affect the growth of our industry as a whole. Four essential measures that are used in the macro-economy are inflation, economic output, unemployment, and balance of payment. This topic also raises the impact of the government in the economic system. Government has an important role in economy. These objectives include: a low rate of inflation, a reasonable rate of economic growth, low rates of unemployment, and a balance of payments in equilibrium or surplus. The government uses the fiscal policy to stabilize the economy by controlling interest rates and the money supply.

Topic 5: The macro-economic environment. Understanding the Global Environment (Mark)

This topic helps us get more knowledge about globalization and the forces that drive globalization. Globalization is increasing global business activities and multinational companies. Globalization also means rising political and social connection between government and people. Globalization helps to improve communication and share information worldwide. Friedman (2007) supposed that globalization is a flattening process. In this book named “The world is flat”, he indicated ten forces that flatten the world as follow: collapse of Berlin wall, Netscape public offering, work flow software, open source or uploading, outsourcing, off-shoring, supply chain, in-sourcing, in-forming, and the steroids.

In other words, globalization is affected by the key drivers namely political, technological, and economic, market drivers, and cost and competition drivers as well. For example, outsourcing and off-shoring in China and India help many multinational companies such as Toyota, Sony and others probably reduce production cost because of low material and labour cost. This results in increasing competitive advantages. However, it also creates more highly completive market in the world.

In addition to globalization’s advantages, there are some plausible disadvantages in global competitive environment. Particularly, globalization makes to increase the gap between rich and poor countries and people as well. Globalization also leads to cultural convergence. Moreover, it is true to confirm that globalization makes contribution to cause environmental pollution. International expansion of multinational companies has aroused increasingly environmental issues in which they operate.

Therefore, in global competitive environment, business organizations today have to confront with some key challenges such as cross-culture management, competition, sustainability as well as global rules.

This chapter is straightforward and well explained in class. Thus, I can easy to follow and understand, and I did not find any concept that is difficult to understand.

The article “Critical Challenges of Globalization to Vietnam” [3] on CDI website (Center for Development and Integration) states that globalization challenges Vietnam in two ways:

Challenges to the country competitiveness: under “globalization”, the demand for competiveness is much higher. Competition is not only about products but also about competing social settlement

Challenges to Vietnam’s labor, migration, and women’s right: women play an important role in growing the country’s economic; however, women’s work and value are less recognized than men

Topic 6: The global environment: Emerging economic in three continents

This topic provides an overview of emerging economies mainly in Asia, America and Africa and especially BRIC countries (Brazil, Russia, India and China). In addition to this, the author would like to compare the different economic, political and other developments between countries.

Chapter 14 “Contrasting developments in the Americas” shows US economic development and its hegemony in international affairs as well. Moreover, this chapter helps me understand the reasons why the BRIC countries have possibly achieved increasingly importance in the eyes of Western economists, investors and politicians. BRIC countries in order to secure their development

Chapter 15 “Asia’s economic potential” indicates in-depth analysis the major Asian economies and their historical development. Indeed, this chapter describes major characteristics such as geographical, political, economic and cultural diversity of Asia through major countries such as China, India, and tiger countries (Hong Kong, S.Korea, Singapore and Taiwan). For example, at the present, there is no doubt that with high level of education, high saving and investment, modern technology and others, tiger countries completely compete to other countries in the world.

Chapter 16 “Africa’s struggle for reform” describes a big picture of political, economic and social developments in Africa and major barriers inhibiting Africa’s development. In particular, African countries have to face some social problems in relation to poor education, housing and sanitation, low standard of living, disease, and poor public health care. Moreover, poor governance and inability of politicians are impossible to maintain stability. Besides, heavy debts have also become an urgent problem to many countries. It is undeniable that poor productivity and strong dependence on other donation has led African nations at the mercy of world markets. Based on this analysis, the author is willing to discuss the potential solutions to Africa’s future development and prosperity.

Topic 7: The micro-economic environment – market structures and industry analysis (Mark)

This topic provide knowledge about different types of market structures and describes the link between market structure and companies’ behaviours and performance through analysis of Porter’s five forces. To start with, there are three kinds of market structures including monopoly (diamond market), oligopoly and perfect competition market. Especially, in term of oligopoly, in order to avoid price war and compete by non price methods, many companies choose to collude.

In addition to this, this topic also describes industry life cycle. In period of introduction, customers buy products regardless of price because of product’s uniqueness. It is called fragmented industry where no firm has large market share and each firm share small pieces of big market cake. As new competitors enter this industry, prices drop as a result of competition. Companies use experience curve and economic scale to reduce cost faster than competitors. By the time an industry enter maturity, this is a consolidated industry which dominated by a few larger firms struggling to differentiate their products from the competition. As an industry moves toward decline, its products’ growth of sale begins decreasing; therefore, firms will convert their facilities to alternate uses or sell them to another firm.

Moreover, Michael Porter, the author of competitive strategy, has highlighted evidently affect of the level of competition to the level of the specific business unit. Hence, it will help me obtain insight about the organization’s competitive environment such as the dominant forces in the industry including threat of entry, power of buyers and suppliers, substitutes, and competitive rivalry, and the factors influencing on these forces.

However, Porter’s five forces have a plenty of shortcoming. For instance, the model is effective in static situation. It assumes that the companies’ interest and profit always come first. Moreover, the business environment is competitive, hostile and predictable. More importantly, it ignores one of the most significant factors called human resource.

In addition to Porter’s five forces, in oligopoly market, Game theory is considered as a branch of mathematics often used by economics that analyzes situations in which players must make decisions and then receives and then receive payoffs. It is applied for members of an oligopoly because they always face to a prisoner’s dilemma which is a game in which the gains from cooperation are larger than the rewards from pursuing self-interest

TASK 2: IKEA REPORT

I. Introduction

1. History

IKEA is a home-furnishing retailer founded by Ingvar Kamprad in 1943. The Swedish company that sells and designs flat pack furniture, appliances and home accessories through its stores around the world at affordable price. Since then, IKEA has grown up rapidly and now it becomes the largest furniture retailer in the world. Its mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them (IKEA, 2010).

2. Vision

IKEA’s business idea: “To support this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”. And its vision is “to create a better every day life for the many people” (IKEA, 2010). To bring a better everyday life, IKEA are committed to provide well-designed, good quality and durable home furniture and keeps the low price for many people. Keeping low price is a cornerstone of IKEA; however, it does not mean that “low price but not at any price”. IKEA wants sustainability as a part of its business. In fact, it believes that taking about social and environmental responsibility of its customers, suppliers is a crucial for running good business. IKEA made decision for contribution to create a good world by providing products, service which are beneficial effect on people and environment.

3. Product range

There are a wide range of products which inspired and developed based on the essential customers’ needs of home furnishing. In general, IKEA’s product is a combination with three main characteristics: good design, function and low price. That means all IKEA’s designers design goods with well designed and functional home furnishing available for everybody that at low price.

4. Store

In 2010, there are 316 IKEA stores in 38 countries, and most of them in Europe, North America, Australia and Asia (Swedish Furniture, 2011). IKEA store format is a single-story, large blue buildings with yellow company name. The large numbers stores of IKEA are located suburban because of land cost and traffic access. IKEA’s stores open for long hours, normally, 24 hours per day. IKEA always encourages customer to visit its store in order to look inside, touch, try everything, even if walk away empty handed. By this way, IKEA hopes that after leaving its store, customer will have a full of fresh ideas for their own home.

II. Stakeholders mapping

Employees

IKEA does not have its own factories; they give orders to different factories in low cost countries. Hence, it is acknowledged that majority of employees still has low power and interest to the company.

Global society / Local community

Environmental issue such as friendly, reduced packaging is being promoted by the Government and is concerned by community. However, it may impacts negatively on IKEA’s social responsibility and total cost. Thus, local community has high power and low interest to IKEA.

Customers

The power of the buyers is moderately low because majority of customers are consumers. The company targets the customer who is looking for value and is willing to do a little bit of work serving them, transporting the items home and assembling the furniture for a better price. The typical IKEA customer is young low to middle income family.

Competitors

IKEA operates in a highly competitive industry, characterized by other low priced furniture producers such as Galiform of England and retailers such as Wal-Mart of the United States. Domestically, IKEA faces the threat of potential entrants; as the dominant firm, holding 25% of the market in its native Sweden for example, there is a very real possibility that others will enter the market to challenge IKEA directly. Hence, competitors have low power and high interest to IKEA.

Suppliers

IKEA does not only create competition among suppliers but also treats them as long-term business partners. As IKEA offers nearly the same products in its stores all over the world, they can order very high volumes and therefore get cheap prices. Moreover, its suppliers are usually located in low-cost nations, with close proximity to raw-materials and reliable access to distribution channels. These suppliers produce highly standardized products intended for the global market, which size provides the firm with the opportunity take the advantage of economies of scale factors.

In fact, IKEA is using its size when dealing with subcontractors in two ways. The first is to put pressure on the subcontractors to become more and more efficient. Secondly, IKEA can use its size to get good discounts from the suppliers. This is done by placing itself as a large customer to the supplier, to get some power in price negotiations.

Local government

Local government has high power and low interest to many companies. The reason is that changes of laws, regulationns and policies influence the production, total cost and sale of IKEA’s products.

Shareholders

This group can also be considered high power potentially. This is more important in recent years where shareholder activity has increased significantly in the boardroom, and management of firms has been scrutinised much more and even given ‘threats’ if certain actions favoured by the shareholders were not pursued.

Managers

Managers play an important role in controlling business activities and improving IKEA’s global competitiveness by promoting timely, decision-making for operational matters. In other words, they possess high power and interest from the company.

III. PEST analysis

The Pest analysis tool looks at political economic, social, technology changes which are likely to affect on the business (Robert, 2004). These varieties of external environment factors in 2010 which IKEA faces are:

Political changes:

Government’s regulation and policy change: Generally, there were sorts of challenges and chances, which IKEA faced in 2010. For opportunities: These host countries changed policies to encourage foreigner companies invest in the country such as reducing procedure papers, exported tariff -exempt,. By contrast, the countries also tied up protectionism and subsidies for its products in order to compete to foreigner products for instants, launching policy of rising imported tariff.

Economic factors:

Economic growth:

Although global economy recovered slowly, it helped IKEA has boosted its market share because of its low-price goods which can compete to expensive retailers in 2010. IKEA group still opened continue to expanse their stores in other countries and increasing sales in emerging economic market-Asia where leading the global economy recovery in 2010.

Inflation:

It is a true that inflation rising which let price of all commodities rose remarkably in 2010 such as raw materials which led increasing IKEA inputs’ purchasing cost. In addition to this, fuel price also rose rapidly in 2010 which impacted on IKEA’s transportation cost. All of this, affected on IKEA business performance as well as customer purchasing needs. Furthermore, increasing price implicated that IKEA has less competitive advantage in the furniture market.

Competition:

IKEA is a Sweden giant furnishing company which has strong brand, therefore, there are few competitors running in the market. However, IKEA should not underestimate its competitors. The company should launch innovative and eco-design products at low price for meet a wide range of customers’ needs.

Social factors:

Lifestyle:

Becoming a global company that means IKEA faces challenges as different culture, language barrier, and taste. Thus, before opening new stores, it should have concrete plans of research market. IKEA has expanded its stores in emerging market like China, India, and Pakistan which society is distinct compared to Western countries. Generally, Asian is savers who do not spend too much money on purchasing. They are willing to buy durable and high-quality products in conventional retailers which are expensive rather than low-price ones like IKEA, a reputation of self assembly.

Population growth rate:

This factor plays a role for IKEA’s development as well as helps IKEA make decision for opening new stores in these regions. These largest population’s countries as China and India, people have huge needs for buying low-price products of IKEA. Thus, expanding new stores in the markets bring benefits for IKEA such as increasing business sale, number of subcontractors and so on.

Technology:

Normally, technology plays an important role for almost company’s success especially a global company. For IKEA, it used quality technology to implement better communication services and software modules that communicate to a home base, delivery service and selling online via the Internet. Technology helps company to increase production and employees’ productivity, improve its business performance, and gain competitive advantage.

IV. Market position and segmentation

Market position

There is no doubt that IKEA is a well- known furniture company in the world. In spite of world economic recession in 2010, IKEA has been growing up and has a leading market position in the future. There are some evidences demonstrating for statement above: total sale rose by 7.7 % to 1.1 billion Europe (FY 2010 report) compared to 2009. In fiscal year 2010, Ikea group opened 12 stores in 8 countries.

Figure 1: Annual Sale, Billion Euros

(Source: http://issuu.com/interbrand/docs/bgb_report_us_version?viewMode=presentation&mode=embed)

According to Branding consultancy Inter-brand’s” Best Global Brands” 2010( Top 100 brands) released on the fifteenth September 2010, the Sweden giant furniture- IKEA was ranked at 28th place the most valuable brand with brand value is 12,487 ( dollar million) and changing branding value is 4% higher than last year.

Figure 1: Best Global ranks 2010

(Source: http://www.interbrand.com)

Market segmentation:

Market segmentation IKEA uses various mixes of segmentation bases including geographic segmentation, demographic segmentation.

Geographic segmentation: IKEA stores are located around the world, however, most stores of them based in at Europe where get the highest sales ( 79%), meanwhile Asia and North America account for 6(%), 15%, respectively.

Figure 2: Ikea, sales per region

(Source: welcome_inside_2010, IKEA report 2010)

Demographic segmentation:

According to IKEA, it wants to bring a better life to many people. This means that its customers are people all over the world who are low and middle- income. In addition to this, IKEA’s customer target is focus in young people and family who are appealed by stores’ decoration as well as can take time working together IKEA to design their products.

V. SWOT

Swot is an acronym of strengths, weaknesses, opportunities and threats which is a useful tool for helping organization to analyze current situation of the organization in order to solve its problems and take advantage to reach its objectives. Strength and weakness are internal environment such as management, operation, finance; meanwhile, opportunity and threat are external environment like economy, society, environment and technology (Andrew, page 7).

Strengths:

That is any resource advantage and capability of organization which gives competitive advantages in the market. Strengths are organization capabilities such as human resource, management, financial status, service, manufacturing and so on. Strength considers as a basic quality element for evaluating company’s success.

There are some IKEA’s strengths below:

Wide range product:

IKEA is famous for its wide range of affordable and good-quality products which can meet almost customers’ needs. Furthermore, IKEA has restaurant, cafeteria, and children- playing room in the each IKEA’s store in order to help their customer feel comfortable when shopping here.

Less competition:

IKEA’s business model is quite unique, besides, IKEA’s range product is wide that means it meets multi target markets. This leads to IKEA has little direct competition.

Global brand:

IKEA Company has strong brand reputation which appeals key customers. That also means it provides the same quality and a range of products.

Advanced- technology and new materials:

IKEA continues to introduce and apply new-technology as well as materials in its furniture industry in order to reduce cost and weight of its products for customers as well as eco-friendly environment.

Low price strategy:

Because of IKEA’s business ideas is offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. That is a priority strategy of IKEA which make the company as a well-known brand.

Clear vision and strong concept:

IKEA wants “to create a better every day life for the many people” by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”

Supplier-long-term partnership:

Supplier plays an important role for IKEA Company. To maintain good-product quality as well low-cost, it creates long-term partnership with supplier. By this, IKEA can buy large volume with negotiable price over many years.

Flag-pack furniture:

Flag-pack furniture is becoming popular since it was launched by IKEA Company. The most crucial reason that makes flat-pack furniture popular is because of its saving-cost such as transportation and storage cost. In addition to this, flat-pack furniture is easy to carry for both customers and suppliers, assemble at home just following company instructions; minimize shipping damage, increasing inventory capability.

Weaknesses:

They are internal factors which make company cannot reach its success as well as its full of potential compared to others. Weaknesses can be controlled and eliminated. Each enterprise has to know its weaknesses in order to improve and manage its.

IKEA’s weaknesses including:

Lack of customer service:

Low-cost is the cornerstone of IKEA which may not attract customers who are used to go traditional furniture shopping. This lets the customers who feel that IKEA Company does not care about them. Furthermore, scale of company- a global company also makes it difficult to communicate with its customers. Lack of customer service will effect on IKEA’s brand.

Global company:

As a global company, IKEA has encountered problems to control, operate and maintain its stores’ standard as well as quality of products through the stores’ chain in various regions.

Difficult to balance between low cost and high quality:

There is a said that, “quality and price accomplish together”. The fact that, it is easy to produce good- quality product for high price, but IKEA makes different ways. If it is too focus on cost-saving, it will effect negatively on products’ safety as well as user. Cost needs to be balanced against quality.

Opportunities:

They are chances in economy which helps businesses to gain competitiveness advantage, profitability and increasing production. In addition, opportunity arises suddenly, even if, these may arise from competitors, government policy, technology, thus organization should be careful and catch the chances whenever they arises.

IKEA’s opportunities include:

Urban sprawl:

IKEA’s stores are located at outskirt of centers, because of land cost and traffic access. Nowadays, there is increasing number of people living in metropolitan areas to move far away center which places that are closed to IKEA’s stores. In addition to this, most of them are young, educated and rich. IKEA’s strategy meets new trends.

Increasing demand of low-price products:

Because of being effected by depressed global economy, citizens have trend for purchasing goods at low-price for saving their money. In order to meet rising customers’ demand as well as increasing its sales, the company may design new products, reviewing manufacturing process, materials or labour. This is a chance which IKEA should exploit.

Selling online:

Selling online is one of opportunities of IKEA. Online shopping makes a revolution to traditional shopping. For global company- IKEA, its online retailers have expanded all markets globally. Its customers in every region can shop just a click mouse and then waiting for goods delivered. This helps IKEA increasing sales, profits, and brand recognition.

Expansion into emerging market:

There are numerous countries of Asia which are potential markets for IKEA in the coming years. Meanwhile, the demand of citizens living in emerging markets focus on buying good-quality at low-price which is the IKEA’s concept.

Threats:

Threats are used to external factors in environment which effect negatively for profitability, operation enterprise as well as growing new rivalries. Actually, if company is aware of external threats, it can plan to solve the problems. Threats of IKEA derived from:

Increasing rivals:

There is growing competitors entering low-cost furniture market which impact on IKEA Company such as Wal-mart, Ashley furniture, Howden. These competitors can copy low-cost value model. Therefore, IKEA needs to improve its product qualities to compete with other rivalries.

Economic crisis:

Businesse

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