(Cover Page)

Universiti Tunku Abdul Rahman

Faculty of Accountancy and Management

(Academic Year 2018/2019)

MAY 2018 TRIMESTER

GROUP ASSIGNMENT COVER SHEET

Course Details

Course Code : MKMG26203

Course Title : Strategic Management for Corporations

Program of Study : MBA

Lecturer’s Name : Dr. Lau Teck Chai

Assignment Details

Topic : Case Study Analysis – Case 6: Business Model and

Competitive Strategy of IKEA in India

Due Date : Week 12 - Saturday, 18th August 2018

Students’ Details

1. Student name and ID : Avneet Kaur, 17UKM05141

2. Student name and ID : Eileen Ong, 17UKM04169

3. Student name and ID : Htet Htet Aung, 17UKM04376

4. Student name and ID : Kang Aik Joo, 17UKM04913

5. Student name and ID : Ng Kai Xin, 17UKM04158

6. Student name and ID : Tan Chiaw Joe, 18UKM05812

Assignment Overall Marks : _______________ Marks.

 APPENDIX 2B
(Marking Scheme)
Assessment Criteria Absent Poor Average Good Excellent Marks
0-2 3-4 5-6 7-8 9-10 Given
1 Strategic Profile & Case Failed to provide The information The information The information Meets and exceeds
Analysis Purpose adequate information provided on the provided on the provided on the “Good” criteria with
on the company’s company’s profile and company’s profile and company’s profile and rich explanation,
profile and case case purpose are case purpose are case purpose are examples and
purpose somewhat adequate adequate relevant and adequate application of content
ideas
2 Situation Analysis Majority of Content is Content shows very Content is mostly Content is accurate, Meets and exceeds
 General missing, incomplete basic understanding, accurate and shows a through and shows “Good” criteria with
environmental and/or extremely and includes several basic understanding clear understanding rich explanation,
analysis inaccurate inaccuracies of key ideas through appropriate examples and
explanation and application of content
examples ideas
3 Situation Analysis Majority of Content is Content shows very Content is mostly Content is accurate, Meets and exceeds
 Industry analysis missing, incomplete basic understanding, accurate and shows a through and shows “Good” criteria with
and/or extremely and includes several basic understanding clear understanding rich explanation,
inaccurate inaccuracies of key ideas through appropriate examples and
explanation and application of content
examples ideas
4 Situation Analysis Majority of Content is Content shows very Content is mostly Content is accurate, Meets and exceeds
 Competitors missing, incomplete basic understanding, accurate and shows a through and shows “Good” criteria with
analysis and/or extremely and includes several basic understanding clear understanding rich explanation,
inaccurate inaccuracies of key ideas through appropriate examples and
explanation and application of content
examples ideas
5 Situation Analysis Majority of Content is Content shows very Content is mostly Content is accurate, Meets and exceeds
 Internal analysis missing, incomplete basic understanding, accurate and shows a through and shows “Good” criteria with
and/or extremely and includes several basic understanding clear understanding rich explanation,
inaccurate inaccuracies of key ideas through appropriate examples and
explanation and application of content
examples ideas
6 SWOT Analysis Majority of Content is Content shows very Content is mostly Content is accurate, Meets and exceeds
missing, incomplete basic understanding, accurate and shows a through and shows “Good” criteria with
and/or extremely and includes several basic understanding clear understanding rich explanation,
inaccurate inaccuracies of key ideas through appropriate examples and
explanation and application of content
examples ideas
7 Strategy Formulation Failed to provide Part of the formulation Most of the The formulation and Meets and exceeds
 Strategic relevant and and evaluation are formulation and evaluation are “Good” criteria with
alternatives appropriate relevant and evaluation are relevant and excellent formulation
 Alternative formulation and appropriate relevant and appropriate and evaluation
evaluation evaluation. appropriate
 Alternative choice

8 Strategic Alternative Failed to provide Part of the Most of the The recommendations Meets and exceeds
Implementation relevant and recommendations are recommendations are are relevant and “Good” criteria with
 Action plan appropriate relevant and relevant and appropriate excellent
recommendations appropriate appropriate recommendations

9 Referencing Failed to adopt Part of the APA Most of the APA The APA referencing Meets and exceeds
 Accurate APA accurate and referencing and referencing and and citation is “Good” criteria
referencing appropriate APA citation is accurate citation is accurate accurate and
 Appropriate citation referencing and and appropriate. and appropriate appropriate
citation
10 Overall Presentation and Majority of the Part of the report Most of the report The report Meets and exceeds
Structure of Report presentation and presentation structure presentation structure presentation structure “Good” criteria with
 Logical structure of structure of report is shows coherent and shows coherent and is coherent and each rich explanation,
report literary not coherent and each some sentences flow most of the sentences sentence flows examples and
accuracy sentence flows sensibly flow sensibly sensibly and at application of content
 Quality of general insensibly appropriate length ideas
presentation
 Proper length

Total = 100 Marks

Convert to 30%

1.0 INTRODUCTION
Furniture industry has changed over the years. It no longer restricts itself to a production of a
chair or a table or a bed but includes manufacturing of a range of furniture and home
furnishings and designed interiors which spell class and elegance. Changing lifestyle,
disposable incomes, economy growth, increasing migration to urban areas have all
contributed to the increasing demand for furniture and in turn, the growth of the furniture
industry as whole.
Ikea began in 1943 as a retail home furnishing store and it has grown into a successful global
network with its unique retailing concept and enthralling millions of shoppers around the
world with its unique concept of stylish but inexpensive Scandinavian designed furniture.
Since 1943, Ikea has expanded its operations steadily in many countries with most of the
stores of the company concentrated in Europe, USA, Canada, Asia and Australia. The IKEA
group also has existence in Israel and Middle East.
Its success in the retail industry is due to the fact that the company has a vast experience in
the retail market, product differentiation, and cost leadership.
A firm’s environment represents all of the internal and external forces factors or conditions
that extent some degree of impact on the strategies, decisions, and actions taken by the firm.
The purpose of an external environment analysis is to identify/develop a finite list of
opportunities that could benefit Ikea and threats, that could be avoided. IKEA should be able
to respond either offensively or defensively to the factors by formulating strategies that take
advantage of external opportunities or that minimise the impact of potential threats. External
analysis can be divided in macro –environment and industry analysis.
The purpose of studying the external environment analysis is to identify the factors which
have significant impact on IKEA. In analysis the external environment, we delve into
PESTEL analysis.

2.0 PESTEL ANALYSIS OF INDIA

Political environment of India

India is one of the most powerful countries in the world. It is the largest democracy in the
world and enjoys a relatively stable political environment.
Democratic will of the people reflected in the local and national elections is mostly respected
and accepted by the political parties and people in general. This political culture of tolerance
contributes immensely to maintain a stable political climate which is in fact a very important
factor to attract foreign direct investment (FDI). However, sporadic political unrest is not
very uncommon in India. India offers IKEA a huge new market while the government is
battling heavy criticism over its management of Asia's third-largest economy where growth
has slipped to its weakest pace in nine years.
India has rebuffed a request by IKEA to relax rules on buying goods locally, raising the
prospect of a delay in the world's largest furniture maker entering the Indian retail market.

A major area of concern in India is corruption. It badly affects the country’s business and
political environment, posing a challenge to the country’s economic growth. Corruption
increases the cost of business operations and often affects foreign direct investment.
However, a growing public awareness and government initiatives are combating the
challenges of corruption.

Economic environment of India

According to the IMF 2017 economic forecast, India’s GDP is worth $2.4 trillion making it
the 7th largest economy in the world by nominal GDP. The GDP will grow by 7.0% in FY18
which is expected to increase to 7.4% by FY20 (The World Bank Group, 2018).
The current corporate tax rate in India is 30% (as of February 2018). It is worth noting that
the country witnessed frequent corporate tax rate changes over the years. For example, the tax
rate in 2010 was 33.99%, while it reached an all-time high of 38.95% in 2001 (Trading
Economics, 2018). It is important because, the level of corporate tax and consumer taxation
regulated by political authorities of any country affects corporation’s after-tax income.
IKEA's pricing strategy targets consumers with limited financial resources. Its products will
also appeal to those with higher budgets through good quality and design. IKEA may also
face stiffer competition from local small retailers who offer furniture at more affordable
prices- something which will appeal to cost conscious consumers. This may cause IKEA to
reduce its margins, affecting profitability.

Social environment of India

India has a gigantic consumer market with a total population of approximately 1.2 billion.
Such a huge market is a great opportunity for multinational companies. No wonder why so
many multinationals are operating in India! Social factors such as modifications in
demographic variables (income, age, family size etc.) of different countries significantly
influence the strategic decisions made by the business. As an example, ageing population is
 less likely to buy furniture whereas younger generation would demand trendy furniture that
should also add value to their purchase.
Accessible and affordable labour force has encouraged many multinational companies to
outsource some of their business operations to India.
India is a multi-ethnic, multi-lingual, and multi-religious country. Communal harmony is a
great strength; however, the country sometimes witnesses tensions in ethnic lines.
Standard of living is gradually improving and the country has a growing middle class with
good disposable income. Asian societies are generally more savers than spenders and in such
economic certainty, Asian consumers may be unwilling to spend on new furniture, preferring
to save for a rainy day. At the same time, the more affluent consumers who are able to spend
may be unwilling to buy products from Ikea which has a reputation of requiring self-
assembly.

Technological environment of India

. India is one of the most technologically advanced countries in the world. No wonder why
more and more tech giants including but not limited to Facebook, Microsoft, and Apple are
investing in the country! Emergence of technology particularly popular within the retail
sector such as RFID (Radio Frequency Identification), and online and mobile shopping, has
immensely benefited corporations. RFID helps businesses to reduce their cost of operations
through inventory shrinkage, smart labelling, self-stocking, efficient checkout process etc.
(Gaukler, 2010). The increasing popularity and reliance of businesses on social media in
India has benefitted many firms by increasing awareness and reach amongst target market,
marketability factor, increased website traffic, ability to develop community and relationship
with customers and so forth. The IKEA used quality technology and systems to promote the
shorter queues, proper scheduling, tracking and trading patterns, and staffing. It aims to be
more productive and establish employee preferences. The system made the IKEA in a
position to ensure the right number of staff in a right place and in a right time to match the
unique trading pattern s at each stores of IKEA.

Environmental issues of India

While India has made a lot of progress over the years, the country still faces a number of
environmental challenges e.g. air pollution, water pollution, floods, resource depletion such
as water and forest, loss of biodiversity, and diversion of consumer waste into rivers.
Industrial giants such as IKEA are constantly scrutinised for their contribution towards
carbon emission, disposal of hazardous manufacturing waste in the environment, recycling,
and supplier behaviour. There-fore local governments ensure that environment can be
protected, compelling businesses to meet specific standards to reduce the adverse effect of
business activities.

Legal environment of India

The last element to address in the PESTEL analysis of India is the legal landscape. As
mentioned above, India is a famous destination for foreign direct investment. Depending on
the scope and the business needs, foreign investors can set up a company, branch, or a limited
liability partnership in India. Indian companies are governed by the Companies Act, 2013.
There are a number of labour laws that regulate employment relations in India e.g.
Employees’ State Insurance Act 1948 (ESI Act), Industrial Disputes Act 1947 (ID Act),
Maternity Benefit Act 1961 (MBA) and the Payment of Bonus Act 1965 (PBA).

Situation Analysis
3.0 Industry Analysis : Porter’s 5 Forces
Industry is defined as a group of firms that produce products which are close
substitutes. The industry environment has a more direct effect on the firm’s strategic
competitiveness and above-average returns. However, Porter’s 5 forces contribute to the
intensity of industry’s competition and profit potential. According to Porter’s 5 Forces, there
are five subjects to considerate in the global furniture industry such as threat of new entrants,
bargaining power of suppliers, bargaining power of buyers, threat of substitute products as
well as the intensity of rivalry among competitors.
Threat of new entry is where new entrants are attracted by profitable markets, which
causes the profitability of the market to be decreased. Ikea as a threat of new entry to the
India market is high as it can threaten the market share of existing India market. Therefore,
the Indian government created a policy which stated that the sourcing of at least 30% of
goods from small and medium sized Indian suppliers is an essential step for both single and
multibrand retailers to enter the Indian market. This greatly increases Ikea’s cost of the
material as sourcing goods from multiple small and medium sized suppliers will tend to be
more expensive and inefficient as compared to buying the materials from a direct big
supplier. Furthermore, this gives rise to greater economies of scale as Ikea will have a
problem in obtaining the Minimum Efficient Scale (MES), where production costs are at a
minimum and thus most cost efficient.
Product differentiation between Ikea and the India market is such that Ikea’s
furnitures were made for self assembly in order to cut cost; whereas India’s furniture usually
are made without the need for self assembly as the cost of manpower in India is low. If
consumers are able to get a similar price from local competitors without the hassle of
assembling the furniture themselves, then it poses as a threat to Ikea in the sales department.
Hence, Ikea’s barrier to entry into the India market is high and the threats of new entry is low.
Consequently, In the Indian market, the threat of substitution is high as the local competitors
might have a greater advantage in price competition as they are able to choose their suppliers
of raw material more freely as compared to Ikea which is bounded by the government policy
as stated previously.
Due to the government policy of the necessity of Ikea to source at least 30% of their
goods from small and medium sized Indian suppliers, this will increase the supplier power in
the Indian market. There will be a possibility of those Indian suppliers selling raw materials
at a higher price as Ikea will have no choice but to source their goods from Indian suppliers
according to the government policy. However, the threat of forward integration is low as Ikea
would still be sourcing 70% of their goods from other bigger suppliers. There would be some
difficulty for suppliers in selling their products directly to consumers due to the fact that
Indian market consumers are more used to buy readily assembled furnitures than furnitures
that require self assembly.
Other than that, bargaining power of buyers in the Indian market is high as there there
is the social environment of India led to people saving money than spending them on
furnitures, not to mention that there is a low switching cost from one company to another as
the industry products are mostly standardized. HKTDC had stated that more modern designs
in the imports sector are in huge demand by consumers (ET Retail.com, 2017). However,
according to the research, there major organised players which provide affordable and
contemporary furnitures to consumers such as Durian, Godrej Interio, and Home Town
(Researchnester.com, 2017). This showed that the rivalry among the firms will be intense as
most of the competition in the Indian market have a similar concept of modern furnitures
other than Ikea’s concept of majoring in selling DIY products. Furthermore, there will be low
switching costs between companies as there is a lack of differentiation between companies
selling contemporary furnitures. If the products cannot be sold fast enough then there will be
a high storage cost for Ikea as compared to local competitions.
 Hence, it can be deduced that the Indian market furniture industry is an moderately
attractive industry with high entry barriers, moderate bargaining power of suppliers, strong
bargaining position for buyers, strong competitive threats for product substitution as well as
an intense competition among rival firms.

4.0 Competitor Analysis

The competition in the Indian market are made up of organised and unorganised
sectors of competitors. The organised market comprised of competitors that major in selling
contemporary furnitures similarly to Ikea such as Godrej Interio, Usha Lexus, Zuari and
Durian (Trendrr, 2018).
Godrej Interio is the top furniture brand in India selling affordable furnitures that is
long lasting and has good quality. The brand aims to transform home and workspace in order
to enrich life. This company is capable of selling good quality and long lasting furniture at an
affordable price, which shows that the company is able to get a huge supply of low priced
raw material from the supplier. In order to conserve the environment, they also strive to use
eco-friendly raw materials in their customizable furnitures. They believe they are the choice
of home and workspace solutions through their customizable furnitures. The company also
has make good use of the online industry by collaborating with top end E-commerce
websites.
Usha Lexus is the first runner up in the Indian market competition and they are a
multi-product company which also sells electronics other than furnitures. Their aim is to
improve constantly and strive to keep ahead of the competition. Their strategy is by focusing
on customer satisfaction through the development of high standard quality innovative
products and customer service based on consumer research. They believe that their strength
lies in the talented workforce which is constantly motivated to exceed their customers’
expectation. The company’s advantages are producing customize design furniture with
genuine solid wood and stain proof melamine polish, plus having an exclusive package for
complete homes. They also provide 12 months of free replacement warranty and 30 months
of free after sales service, which showed their confidence in their products and their way of
maintaining customer loyalty through the after sales service.
The second runner up in the Indian market is Zuari furniture, also known as Forte
Furniture Products India Private Limited is a joint venture between the Forte group and the
Adventz group company. With the combination of Forte as one of the largest European
manufacturers which produces furniture for self-assembly and the Adventz group company
which excel in lifestyle products and services, Zuari furniture is capable of producing more
than 200,000 units of MDF based panel and particle board furniture every year. Their strategy
is to handle the concept and design of the furniture until the finishing of the product with the
use high technology machines. The company also streamlines the system and processes as
well as adhering the unit to the DIN quality standards of manufacturing. The advantages of
the company are having a quality policy on their raw materials and importing those raw
materials from Belgium, France, U.K. and Germany. This allows the company to produce a
wide range of products in order to cater to the different requirements of the market.
The third runner up is the Durian furniture. The company believes that every piece of
furniture purchase creates an experience and a memory. They strive to create that memorable
experience for their customers by setting new standards constantly with imagination and
creativity. Their strategy is to stimulate different perspective and fresh ideas, which will then
lead to business innovations by challenging the way they see and do things. Durian
furniture’s advantages are giving their customers a 5 year warranty, and providing expert
technicians to install the furnitures free of charge. In order to make shopping more
convenient and increase customer’s satisfaction, they also provide easy payment options such
as EMI and cash on delivery as well as after sales service for their customers.
According to the competitor analysis of the above top four furniture companies in
India, Godrej Interio company is Ikea’s direct and mutually acknowledge competitors as both
Ikea and Godrej Interio strive to sell their products at a good quality and an affordable price
for the people. Both companies are also keen on preserving the environment by using
sustainable materials for their product manufacturing. Furthermore, both companies provide
their customers the option of customizing the furnitures according to different requirements
and designs. On the other hand, the other top furniture companies like Usha Lexus, Zuari and
Durian have a more different concept for reaching out to their customers such as using high
technology machines, easy payment options and selling multi products as well. Hence, these
three companies are not Ikea’s direct and mutually acknowledge competitors. Therefore it
can be deduced that Godrej Interio will have greater market commonality and resource
similarity with Ikea as compared to Usha Lexus, Zuari and Durian furniture companies.

5.0 Internal analysis

1. Organizational resources
IKEA has a special corporate structure and makes it not easy to be taken over. Kamprad
created a non-profit organization, Stichting INGKA Foundation, to transfer 100% of IKEA
equity to this foundation. A committee consists of 5 person chaired by the owner, Mr
Kamprad, included his wife and attorney run this foundation. The foundation only controlled
but not owned by the Kamprad family. It is owned by INGKA Holding BV, which is a
private and for-profit Dutch company that controlled the IKEA’s operations.
Meanwhile the trademark and concept of IKEA is owned by Inter IKEA Systems and 3% of
revenue from INGKA Holding will be paid to Inter IKEA Systems as the franchise fee.
Parent company of Inter IKEA Systems is Inter IKEA Holding of Luxembourg, which belong
to Interogo Foundation in Liechtenstein. Kampard family is the one who controls this
foundation. Such a rare corporate structure allowed Kamprad family to control the operations
of IKEA tightly.
The complicated corporate structure is valuable as it is non-substitutable and protects the
business to be bought over by any other party. It is very rare that such a structure is found in
any other companies. Cost needed to imitate such a structure is high due to its complication.
Valuable? Rare? Costly to Non- Competitive Performance
imitate? substitutable? consequences implications
Sustainable
Above average
Yes Yes Yes Yes competitive
returns
advantage

2. Reputational resources

Swedish brands company has pretty good reputation in general globally. Solid foundation
was built by companies such as Volvo, Electrolux, and Tetra Pak. IKEA was involved in
different charities and social initiatives especially the INGKA Foundation. This foundation
ever helped the tsunami victims in Indonesia, Sri Lanka, and India, Somali refugees, donated
to schools in Liberia, saving and restoring the forests. Such a valuable resource is not easy to
imitate in short time. It is a long journey to build up a good reputation.
Other than charity activities, IKEA is committed to environment issues as well. The woods
used to make the furniture are from the responsibly managed forests. Plastic bags provided to
the customers were replaced by the reusable bags. The IKEA stores are powered with solar
panels on the roof or by using their own wind turbines. All these acts built a good reputation
on IKEA that contribute back to the society from the earnings.
Offering well designed and functional home furnishing products is the strategic
competitiveness of IKEA. This concept is to ensure that the good quality products are
affordable to the customers as much as possible. Compared with the local furniture retail,
IKEA is having significant low price by having low margin. This is the method IKEA used to
attract more customers in India market. The strategic able to be achieved as the product
developers and designers work directly with the suppliers to ensure the low prices start on the
factory floor. The products are manufactured in flat packs to reduce the assembling cost and
shipment cost.
While working with the suppliers in India, IKEA ensures that the suppliers do not employ
young children or providing worse working environment. The workers are not allowed to
work for more than 8 hours per day and allowance is given if working on Saturday and
Sunday. IKEA will not work with those suppliers who do not fulfill the criteria. Such a strict
control with suppliers enables IKEA not facing any legal issue which will then affect the
business.
The brand of IKEA is having good reputation due to its good quality products with low price
that affordable by customers. Its involvement in charity activities builds a positive image to
the public but it is costly to imitate. The effort to monitor the suppliers to ensure that the
workers are treated properly is quite rare. Not much of companies will care about how the
suppliers work to get the material to be provided. They will only concern about the product to
be delivered on time.
Valuable? Rare? Costly to Non- Competitive Performance
imitate? substitutable? consequences implications
Sustainable
Above average
Yes Yes Yes Yes competitive
returns
advantage

3. Innovation resources

IKEA is having 70 suppliers and 1450 sub-suppliers in India, sourcing a total US$600 million
worth of goods. When the application to set up the stores was approved by the Cabinet
Committee on Economic Affairs (CCEA), IKEA discussed with Indian suppliers about the
growth and doubling the supply. To solve the labor shortage issue, innovation takes place to
automate the process and changed certain manufacturing process.
The innovation is creating value to the company as it solves the labor shortage issue but still
able to increase the supply. Automation process is not rare in manufacturing field and is not
costly to imitate if a company able to find the suitable technology to reduce the
manufacturing cost. Such an innovation could be substituted if the changes affect the quality
of products and less competitive in the market.
Valuable? Rare? Costly to Non- Competitive Performance
imitate? substitutable? consequences implications
Competitive
Yes No No Yes / No Average returns
parity

4. Human resources

As a ‘big-box’ stores concept, any IKEA stores in India will not smaller than 350,000 square
feet. Normally, IKEA will have around 700 staff to work for each store. The staffs must
understand the IKEA concepts and values so that they will be able to interact with the
customers. The staff will be trained not only the interaction with customers, but also how to
grow and to work with the co-workers. The staff will be trained in IKEA stores at Almhult
and London (Karlsson, Olanrewaju, & Ullah, 2016).
Human resource is always the valuable asset to any companies and it is uncommon in any
industry. It is not costly to imitate such a resource as long as the company able to provide
sufficient knowledge and training to the staff. Such an intangible resource is non-
substitutable as the staff is well-trained with IKEA concept and is not able to be simply
replaced.
Valuable? Rare? Costly to Non- Competitive Performance
imitate? substitutable? consequences implications
Competitive
Yes No No Yes Average returns
parity

6.0 SWOT Analysis

6.1 Strength

Ikea is the world largest Netherlands-based Swedish home furnishing company with good
reputation and it established in 1943. Ikea also involved in various charities like helping
tsunami victims, donation to school, restoring forest, etc. They create such valuable capability
which competitors unable to imitate or take a very long time to establish. Ikea is committed
to environment issues like forest management and encourage not to use plastic bags but
replace with reusable bag.

Ikea India also takes care their stakeholder within the business operation. They ensure their
suppliers do not employ young children and do not provide a bad working environment
which affect personal life and health. Ikea work with UNICEF and United Nations
Development Programs to beneficial to children and female by create programs on female
empowerment, awareness of health and education in India.
Besides, Ikea had prepared for 6 years from their first proposal to invest in India in year
2012. They are well prepared to set up the store in India and ready to comply the investment
policies and local sourcing standard in India. Suneera (2017) elaborated that Ikea had spent 6
years to establish the right investment policy framework for India as Ikea understand that the
‘copy & paste’ attitude is not applicable in India furniture market. Ikea also develop a team in
India to visit 800 Indian homes to know their preference in order to understand the Indian
market trend.

The founder of Ikea, Kamprad wants the ownership structure to be sustain and he also
concern on the long-term approach of Ikea business. Therefore, he set up a non-profit
organization, Stichting INGKA Foundation and transferred 100% of Ikea equity to the
foundation body. Kamprad intention is keep Ikea away from family quarreling or avoid
family members intend to sell Ikea. Currently, Ikea is controlled by the Kamprad family but
owned by the non-profit organization. Simultaneously, the foundation also get funds for
charity and established image of Ikea’s corporate social responsibility.

6.2 Weakness

Ikea is popular on their DIY furniture which helps to save the space to display the product
and storage space. However, there is no do-it-yourself (D.I.Y) culture in India and normally
the local Indian furniture retailers were fully assembled their products since the manpower
cost is low in India. In fact, people in India will outsource for household services like
cleaning and plumbing due to cheap labor in the country. Therefore, Ikea might need to have
a bigger space than other countries to keep the assembled furniture, as a result, the Ikea India
warehouse cost is increased.
There is no differentiation between Ikea India products and those local furniture retailers.
Unless, Ikea India selling cost in lower than other local furniture retailers, otherwise there is
no competitive advantage and Ikea unable to compete with others in India.

In 2006, Ikea announced that they will take initiative to use 100% renewable energy at their
store, either is solar panel energy or wind power. However, Ikea was doubt whether the
Indian real estate developers have knowledge or able to understand on their energy
requirements as renewable energy is not common in India country.

6.3 Opportunities

Ikea’s products are well known on modern design and eco-friendly. Ikea not only focus on
their own product and business operation but also take cares on their stakeholders, even
environment and reduce carbon footprint. Not on their products is eco-friendly, the Ikea store
is also stop using PVC on their product packaging and minimize the usage of various type of
materials which harmful to the environment. Ikea’s stores are using renewable energy like
solar panels, using natural sunlight and water saving system. This might match with the
people nowadays who are more concerning the environment. Environmental friendly
business concept and products might attract most of the customers nowadays.

Imported furniture in India is growing as there is a for stylish compact apartment from urban
middle class. Most of the imported furniture are from Germany, Italy, Korea, Japan, China
and Thailand. Ikea is well known on modern design furniture, therefore there is a competitive
advantage for Ikea to explore the India furniture market and to serve the customers from
urban middle class.

Ikea had contacted 70 suppliers and 1450 sub suppliers in India. They keep searching for new
suppliers on others categorize of product suppliers to make sure their supply chain is in order.
Ikea not only dealing business with the suppliers but also to shared Ikea’s values and
establish good relationship with the India suppliers. If Ikea able to establish a long-term
supplier relationship with their India’s supplier, their supplier relationship management could
be very effective, and the stability of product supply will increase. According to Joan &
Stanley (2016), if the organization has issues on the supply chain channels then it will bring
negative impact to business and profits. An unstable supply chain will affect the overall
organization performance. It is a long-term benefit to the organization to stay a good
relationship with suppliers.

6.4 Threat

The India government announced a policy that the sourcing of at least 30% of goods from
small and medium sized India suppliers is an essential step for both single and multi brand
retailers to enter the India market. It increased the unsustainability on Ikea India raw material
and it might be more expensive. When the cost of raw material increased, the selling price for
Ikea product have to increase to cover the overhead cost. Hence, if consumers could easily
get a similar price from local furniture retailers providers without the hassle of assembling the
furniture themselves, then it will be a threat to Ikea to enter India market. Therefore, Ikea
India shall offer services of assembly furniture for the Indian customers to fit the Indian
culture in order to compete with the local furniture provider.

The local furniture retailers might have competitive advantage on price as local furniture
retailers able to choose their suppliers of raw material more freely as compared to Ikea which
is bounded by the government policy. According to the Indian government policy, it is to
have at least 30% of their goods from small and medium sized Indian suppliers in order to
increase the supplier power in the Indian market. In this case, it might create a possibility that
supplier will increase the selling price to Ikea, but Ikea has no choice but still need to
purchase raw materials from local suppliers.

There are a few local furniture retailers, like Godrej Interio, Usha Lexus, Zuari and Durian,
they are selling contemporary furniture which similar to Ikea. Godrej Interio which is the top
furniture brand in India which recognized as Ikea India’s direct and mutually acknowledge
competitors. They are selling affordable furniture with high quality. The company also
collaborating the business with e-commerce websites in India. In addition, they also strive to
use eco-friendly raw materials in their customizable furniture to conserve the environment.
Ikea India shall use more new sustainable material for the furniture like bamboo (Daniel,
2016). These sustainable materials are good to the environment as most of their products are
made by plastics while plastics are made from petroleum.

7.0 Strategy Formulation

Based on the rationale of the external, internal environment, competitors and SWOT analysis
of IKEA India, the company should apply the following strategies in India.

7.1 Cost-leadership strategy

The reasons that IKEA should apply cost-leadership strategy are because of the following
reasons. They are:
The motto for IKEA stores in India is ‘There is something for everyone in IKEA store’.
IKEA will work on lowering its pricing for India so that its products are available to a larger
audience in India. The price range at IKEA’s stores in India will start at Rs150 for a pack of
two light-emitting diode (LED) bulbs and Rs500 for a pack of 100 tea lights. In the furniture
category, a table from its Lack series is expected to cost Rs500 to 600 and a complete Ikea
kitchen can be assembled for an average of Rs2.5 to 3 lakh (Govind, 2017). There will be
about 8,000 to 9,000 artefacts on display, and about 1,000 would be priced below Rs 200.
However, pricing will not at the heart of IKEA’s strategy.
One of IKEA’s core tenets does revolve around building furniture by hand, which is likely to
make consumers house proud while helping the brand ship and retail its products in pre-
assembled, flat-packs. This helps IKEA cut down on its inventory costs and lets furniture
keep costs low, making them the ideal choice for many customers. One of the key areas of
focus for IKEA in India has been to assist customers in IKEA ‘Do-it-yourself’ concept which
requires assembling the products at home, in order to reduce assemble cost for the company
(Deepti, 2017).

7.2 Differentiation strategy

The reasons that IKEA should apply differentiation strategy are because of the following
reasons. They are:
IKEA plans to make products from eco-friendly local materials such as jute, banana fibre,
cotton, and bamboo. IKEA has already manufactured some furniture from locally-produced
wood and will sell a special collection of furniture made from banana fibre. It has tied up
with local farmers to grow sustainable cotton and has similar plans for bamboo cultivation
(Tandon, 2018). IKEA plans to create a meaningful IKEA, rather than just being affordable
by local clients, but also for improving the local quality of life. IKEA’s global experience
has taught it to be mindful of cultural sensitivities. For instance, in India it has decided to stay
away from using leather, keeping religious sentiments in mind.
The IKEA’s popular meatballs will be on the menu, but contain only chicken. The restaurant
will offer a mix of Swedish and local cuisines, such as biryani, makhani and samosa. Fifty
percent of the food will be served in Swedish inspired, salmon and shrimp dishes and so on;
and other remainings will be Indian dishes. The motto of ‘there will be something for
everyone’ is also applied on IKEA’s restuarant and the focus is on healthy and sustainable
food and beverages.
With 37% of India’s population being vegetarian and even the non-vegetarians often avoiding
beef and pork, IKEA’s menu will reflect that. There will be chicken meatballs and vegetarian
balls. The restaurant will be IKEA’s largest floor and will cater to local tastes. As there are
so many religious sensitivities in India, the menu for beef and pork will not be entertained.
Moreover, IKEA is relying on its welcoming look and feel about its store to attract people.
Management wants IKEA to be a place where people can come with families, children and
the elderly and enjoy and experience the store because it is so easy to put things together and
because of the feeling of pride that the customer will get once he has assembled the table or
chair.
There is no specific focus group for IKEA in India, and market focuses on everyone. IKEA
sees it as important to adapt product by offering to meet the needs of local customers.

7.3 Diversification strategy

The reasons that IKEA should apply diversification strategy are because of the following
reasons. They are:
IKEA opts for multi-channel retail model in India. People in Asia’s third-largest economy
have diverse household needs, which IKEA looks to fulfill by offering more brightly
coloured furnishing options, and Indianising its in-house restaurant. The products in IKEA
will include a range of products made specially for Indians such as pressure cookers, idli
makers, roti tawas, chakla-belans, spice boxes, and steel utensils. and offers approximately
8,000 to 9,000 products. The growth in destination shopping in India and the wide variety of
products available at an Ikea store will lure shoppers. As IKEA is being a global brand, the
products could bring in significant product varieties which are not common in India.
In India, Ikea will look to sell what it thinks the local market needs, by offering such as home
furniture, home accessories, kitchen accessories, babies and children accessories, beds,
curtains, stationary, etc. Besides its signature Billy Bookcase and flat-weave rugs, IKEA will
introduce many India-specific items and solutions. The kitchen, for instance, is one area that
will see IKEA innovate, selling spice boxes, idli-makers, pressure cookers, and flat pans
IKEA is also thinking about tailoring stores to cities. India is very large country, therefore
depending on the development of cities, the average incomes and home sizes will be differed.
According to those differences in basic situation, IKEA stores even within India will present
products in styles, and offer different qualities (Tandon, 2018).
Besides offering beautiful home furnishing solutions and inspiration, we will create new jobs,
grow the manufacturing sector, expand the supplier base, focus on diversity, skill
development, transfer of knowledge and best practices, and sustainable development of the
retail industry and supply chain.

7.4 Main differentiating strategy

Among above three strategies, differentiation strategy will be the most suitable and
recommended strategy for IKEA stores in India; and the reasons are stated below.

IKEA differentiates its business from competitors in different corners. In particular, there are
five points central to Ikea’s strategy - low price, high quality, nice unique design, purpose of
function and sustainability, both in terms of environmental sustainability and durability.
Moreover, unlike IKEA stores in other countries, IKEA in India focus mainly on space and
storage requirements.

When IKEA visited to local people homes in 2013, it got a glimpse into their lives and;
understand what their needs and dreams are. People were looking for small things that make
their life easier, in terms of storage, kids’ space, etc. with vibrant colors. IKEA tries to fulfil
such kind needs to the public. Most Indians houses are too small or do not have any more
spaces to put any furnitures into the house. According to 2011 census, over 75 percent of the
country’s population lives in small houses, two rooms or less, which means people often
sleep in the living room. IKEA is also aware of that.

Therefore, when the store open, there will be mocked up version of one-room sets to fit entire
family life at the store with playing area for children, smart kitchen with waste segregation
systems, living and bedroom. IKEA will try to provide clever solutions in the smallest
possible space with greatest efforts. Another reason why storage solutions take into account
is that Indian people cannot drill holes in the walls to hang things as most of them live on rent
(Prakesh, 2017).

The third point why IKEA in India take notes for storage and space is because of family size.
Indian family size is bigger than the other countries’ ones. All family members live together.
Therefore, IKEA had produced multifunctional furnitures to save spaces and house needs to
cater to more activities. For example, there are dining sets that could be extended to
accommodate more guests or converted into a workstation depending on the need or sofas
that come with storage solutions or could double up as beds. Those products are customized
furnitures for India furniture market.

8.0 Strategic Alternative Implementation

8.1 Corporate Governance and Ethics
Ikea has somewhat simplified its complex structure in recent years through several
restructurings. In 2016, Ikea Group sold sister company Inter Ikea all of the manufacturing,
supply chain, and product range businesses associated with the flatpack furniture retailer.
That means the relationship between Inter Ikea and Ikea Group mirrors a traditional
franchisor-franchisee arrangement. This structure enables the IKEA group to have full control
of purchasing, operations, product design and franchising activities. The change was made to
enhance business focus and efficiency. This will also increase simplicity and transparency
towards our stakeholders. The twist, however, is that few companies have to deal with such a
large franchisee as Ikea Group. That retailer runs close to 90 per cent of Ikea stores around
the world. Ikea Group managers said the deal would allow them to concentrate purely on
dealing with customers, an increasingly varied assignment as shoppers purchase online as
well as at the company’s vast out-of-town warehouses.

At the same time as that deal closed, Inter Ikea also changed its structure. Previously it was a
hotchpotch of assets that included the Ikea brand but also a diverse array of investments.
Those investment activities have now ended up in Interogo Holding, a Swiss company that is
owned by the same Liechtenstein foundation as Inter Ikea, and they consist of three strands:
property assets such as hotels and student housing in countries including the UK and Poland
through a company known as Vastint; ownership of small and medium-sized Nordic
companies through Nalka; and a Luxembourg-based fund management firm. Refer to Exhibit
1 for the details of IKEA’s corporate structure. (Ingka Holding, 2018).
Ownership Structure
The IKEA Group of companies (Ingka Holding B.V. and its controlled entities) has an ownership
structure that ensures independence and a long-term approach. Stichting Ingka Foundation in the
Netherlands is our owner, and its funds can be used in only two ways: it can be reinvested in the
IKEA Group or donated for charitable purposes through the Stichting IKEA Foundation (Ingka
Holding, 2018). After the 2016 company restructure, Inter IKEA Holding SA no longer exists.
Mathias Kamprad, the founder’s (Ingvar Kamprad) youngest son, became board member of
the Inter IKEA Group and the Interogo Foundation. Mathias and his two older brothers, who
also have leadership roles at IKEA, work on the corporation's overall vision and long-term
strategy. They no longer have operative roles in the furniture giant, with Mathias, seen as the
most business-minded of the three, stepping down as chairman of the holding company for
Inter Ikea, the brand owner and franchise owner, in 2016 (“Ingvar Kamprad’s sons pledge to
protect his Ikea vision - The Local,” n.d.). 

Exhibit 1: IKEA’s Corporate Structure

Since IKEA is shifting its focus to e-commerce, it is of our opinion that that the boards’
responsibilities and roles of the corporate boards needed to change to manage risk on e-
commerce platforms. Other than that, the structure can remain as it is.

8.2 Organisational Structure and Controls

Since product differentiation strategy will be the most suitable and recommended strategy for
IKEA stores in India, IKEA’s corporate structure is responsible for ensuring adequate support
for product innovation in the firm’s global business. The strategic changes that need to be
made in IKEA’s organisational structure to support product innovation are:
1) A cross-functional new product R & D division needs to be established and adequate
resources should be allocated towards product innovation.
2) IKEA may consider to divide its organizational structure based on product type. The
organization may divide into components based on their product focus. For example,
IKEA may have a division for the below categories:
a) Livingroom & Workspace
b) Bedroom & Bathroom
c) Kitchen & Dining
d) Children’s IKEA
e) Lighting & Home Smart
f) Textiles
g) Cooking, Eating & Decoration
h) Outdoor, Storage, Organisation & IKEA Family
i) Free Range
j) IKEA Food
k) After Sales Assemblies and Home Deliveries (new concept for India market)

A product type division functions as a unit that will enable IKEA to manage the development,
manufacturing, distribution and sale of its consumer goods. For example, corporate managers
use this feature of the organizational structure to match markets needs with appropriate
products. An advantage of this structural characteristic is its facilitation of the company’s
efforts to apply product differentiation, which will be IKEA’s generic strategy for
competitive advantage. This corporate structure is beneficial, especially because the company
already has a diverse portfolio of products. Each product type division has its semi-
autonomous capabilities to develop products that directly suit the needs in consumer goods
market segments. This corporate structure is also advantageous because it enables IKEA to
differentiate its products despite the large size of its global operations.

Due to the fact that Indian population is not so used to ‘do-it-yourself’ concept, there is a very
strong service need in a service-based economy like India. Ikea has a need to add a new
division for product assembly and home delivery. More people will need to be hired to do
jobs such as assemblies and home deliveries. Ikea will have to rely heavily on after-sales
services rather than the DIY model it uses elsewhere if it is to become really successful in
India. IKEA also needs to dedicate extra space in its stores in India for such services.

8.3 Strategic Leadership

IKEA follows an autocratic leadership (Ingvar Kamprad’s leadership style, 2015). Though
this strategy has been effective till now, it acts as a barrier for innovation and demotivates
employees. To gain competitive advantage in market, IKEA should change it leadership
pattern from autocratic to democratic leadership. This will benefit IKEA through valuable
insight to given issues, high morale of employees and innovation.

To change the pattern of Autocratic leadership, it is beneficial to hire an external qualified

CEO from external managerial labour market rather than promoting an internal senior
executive in line (Hanson, D., Hitt, M.A., Ireland, R.D. & Hoskisson, R.E. 2014). Failure to
do so will lead to downfall of company as it will not have any competitive edge. One bad
succession decision at the top organization can undermine a decade of hard work (Kotter,
1995).

In view of the emergence of e-commerce, customers are preferring shopping online than
going to stores. This major shift in customer preference can be a cause of concern for IKEA.
With the pace customers are opting for online shopping options, IKEA would lose lot of
potential customer if it did not launch a “buy” option online. Need for strategic leadership is
very important here. A good leader has a good vision as mentioned earlier. Leaders by
changing the recruitment policy, could hire people with technical with other competencies
like leadership and interpersonal skills. They can also change the workforce capabilities by
providing training to employees. A strategic decision has to be taken by senior executives and
CEO to allocate funds and time for training employees to attain new skills like technical
skills, so that they are multi-skilled and flexible. Top-level managers by focusing on
recognition of employees’ contributions and treating them like valuable assets can maximize
opportunities for personal growth and development.

IKEA needs to employ more local people as managers and employees in India. By hiring
more locals, product offerings can be customized to cater to local tastes and preference. It
will also ensure religious sensitivities in India are taken into consideration in product
offerings.

8.4 Strategic Entrepreneurship

IKEA’s design manager Marcus Engman explains how a team of just 20 designers oversees
the creation of 2,000 affordable products each year at the world's largest furniture company.
IKEA’s product development process is managed by Engman's small team of in-house
designers at the company's 4,000-square-metre headquarters in Älmhult, Sweden – the town
where the brand's first store opened in 1958. "We go and work together with designers from
all over the world, but also when we do design we do it on the factory floor," said Engman.
"We work in a very different way to how everyone else is working." IKEA always start the
product development process in people’s homes. They designers always try to go on home
visits to real people, to find out what are their real needs (“‘IKEA works in a very different
way to everyone else’ says Head of Design,” n.d.).

However, the product development team is not cross-functional. If IKEA can establish a
cross-functional product development team, the new product development processes can be
completed more quickly. Products can be more easily commercialized when cross-functional
teams work effectively.

In order to facilitate a product differentiation strategy, IKEA should encourage autonomous

strategic behaviour in which product champions pursue new ideas, develop and coordinate the
commercialisation of a new good or service until it achieves success in the marketplace.

Instead of providing hefty financial rewards, IKEA should offer the employees of innovative
ideas probably the ultimate recognition, by naming the final products after them. This is to
encourage and foster product innovations among the product champions. Having your name as
a ‘stamp’ on a product surely ensures ideas are well thought out and something they are
genuinely proud to be representing.

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