Strategic Management

Final Project Report

Industry: Home Furnishings & FixturesCompany : IKEA

By: Anshuk PradhanU113072 Sec-B

Table of ContentsQ1. Comparison of business model.......................................................................4

Detailed Analysis:...............................................................................................4Ikea’s Concept of cost efficiency........................................................................4Ashley Furniture:.................................................................................................5Godrej Furniture..................................................................................................6

Q. 2 Activity System Map.......................................................................................7Activity System Map for Low Cost Organization.................................................7Activity System Map Analysis:............................................................................8Activity System Map for Diversified Organization...............................................9

Q. 3 Low Cost Providers as well as the leading Organizations with Diversified Product/ Service Providers for India and for the 5 Continents..............................10

India:................................................................................................................ 10ASIA:................................................................................................................. 10North America:.................................................................................................10Europe..............................................................................................................11Latin America...................................................................................................11

Q. 4......................................................................................................................124.1.1 PESTEL Analysis..........................................................................................12

Political.............................................................................................................12Economical.......................................................................................................12Social................................................................................................................12Technological....................................................................................................13Environmental..................................................................................................13Legal................................................................................................................. 13

4.1.2 Porter’s Five Force Analysis.........................................................................14Competition within the Industry.......................................................................14Bargaining Power of Suppliers..........................................................................14Bargaining Power of Buyers..............................................................................14Threat of New Entrants.....................................................................................14Threat of Substitutes........................................................................................14

4.1.3 SWOT analysis............................................................................................15Strength............................................................................................................15Weakness.........................................................................................................15Opportunities....................................................................................................16Threats.............................................................................................................16

4.2 Competitor of IKEA........................................................................................16Introduction of Ashley Furniture....................................................................16Business Level Strategies of Ashley Furniture...............................................17Strengths:......................................................................................................17Weaknesses:..................................................................................................18

4.3 Complementors.............................................................................................18Q. 5......................................................................................................................19

5.1 Comment on the History, Evolution, Growth Rate, Profitability Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well....................................................................................19History..............................................................................................................195.2 Growth Overview:.......................................................................................20Size of the industry across the world................................................................21Regional Market Share......................................................................................22Market Outlook.................................................................................................235.3 Key success factors for any organization operating within the Industry and how is your organization performing on those criteria.....................................23

References:..........................................................................................................25

Q1. Comparison of business model A. An International Organization with a similar Business Model

For this comparison I have selected Ashley Furniture as a competitor of IKEA.

B. Domestic Organization with a similar Business Model

For this comparison I have selected Godrej Furniture as a competitor of IKEA.

C. A Government Organization within the same industry

No example of a government company could be found which operates in same industry.

Detailed Analysis:

Ikea’s Concept of cost efficiencyIKEA, as a basic concept what to keep it costs as low as possible .that iswhy it is able to provide to many people an access to affordablecontemporary design. At the same time it provides them with good tasteand recognizes value. It tells a life style Kamprads credo of creating abetter life for many is almost evangelical. Ikea’s culture includes steelycompetitiveness, relation cost-cutting. It goes deeper even it wants to hitrivals in certain segments. It helps that frugality is ingrained in thecorporate DNA as the obsession with design. No matter how impaired andappreciated finds its way into the obsession with design. The costobsession fuses with the design culture-both are inseparable, no design,no matter how empires and appreciated finds its way into the showroomsif it cannot be made affordable. Designess and in house production teamswork hard or identify the appropriate materials and least costly supplers.Ikea work hard to find the right manufacture for the right product.Simplicity helps keep costs down. Nearly all the big items are flat. Packed

which saves shipping costs and enables shoppers’ to have their own staffhome. I kea’s designers are looking for innovative use for discarded andunusual materials. This low cost philosophy may be target to globalmiddle class but not the affluent society like the japans and Americans.

Strategic Pillars in Business Model: Low Cost Strategy. Focus on Ready to Assemble Furniture Bulk purchase and minimal cost production technology. Innovative marketing strategy Big stores in suburban areas to capture the market. Limited or minimal customer support. Global presence.

Ashley Furniture:The major difference in the strategy of both the companies was the targetsegment that they were addressing. Ashley furniture was never a ready toassemble furniture seller. Rather they were more into good quality buthigher prices model, where the customer was willing to pay more price fora model but did not want to compromise on the quality of items. Ashleyfurniture also had a more detailed section and variety rather than just RTAfurniture. As a result of the state of the art designs in the in houseproduction centre. It distinguished it from IKEA.

Business Model of Ashley Furniture

Strategic Pillars in Business Model: High Customer focus Not restricted focus on low cost but overall focus on quality. Not tagged as “Scandinavian Store “moving in diverse business

areas other than Ready to assemble. Focus on customer satisfaction and provide good customer support. Big stores in sub urban cities to capture demand. Not present globally.

Godrej FurnitureGodrej Interio is India’s largest furniture brand. From manufacturing the humble Storwel cupboard 80 years back to being a vibrant, innovative brand with a diverse portfolio. They love bringing alive your dream space. They emphasize comfort and aesthetics while delivering well designed, fun and functional furniture solutions to you. True to the Godrej mission to conserve the environment, they design products, set up processes and use raw materials that are eco-friendly to do our bit to preserve natural resources. They offer our customers home and office furniture, along with solutions for laboratories,

hospitals and healthcare establishments, education and training institutes,shipyards and navy, auditoriums and stadiums. They are present across India through our 50 exclusive showrooms in 18 cities and through 800 dealer outlets.

Godrej Interio is a business unit of Godrej & Boyce Mfg. Co. Ltd. - part of the Godrej Group, one of India’s largest engineering and consumer product groups. Godrej Interio is more of a luxury brand that caters to the interior requirements of upper middle class and upper class households in the country. Unlike IKEA and Ashley Furniture it is not a giant fish in the market because the furniture market is primarily unregulated and unstructured in India. It is still dominated by traditional methods of furniture making.

Godrej saw an opportunity and launched it’s furniture section. It met good response and quickly dominated the market. They also provide dedicated interior solutions to the customers which the other twodon’t.

Strategic Pillars in Business Model: Premium brand. Not a low cost and budget brand for the customers. Latest and modular designs. Caters to young households. Provides other products that go along with furniture like kitchen

appliances and homecare appliances. Not present globally but have good presence across the country. Not at scale which is comparable to IKEA or Ashley Furniture. It does

not has large outlets and stores. Focus on niche designs and high value assortment. Provide dedicated solutions to the customers.

Q. 2 Activity System Map

Activity System Map for Low Cost Organization

One of the most important step of business strategy is to determineits core competences. Core competences are the internal capabilities of yourcompany and they may or may not be valued by the outside world.

IKEA has an original approach to deal with customers: it employs the self-servingmethod. Customers chose their products, take them out of the shelves and

assemble them at home on their own. Although this approach is quite unusual inthe furniture business the customers are willing to do that because of the lowprices, the easy to handle and storable flat packages and simple constructiblefurniture. With this limited customer service IKEA safes sales staff and customersdon‘t have to wait long to be served.

Activity system map gives a clear picture of the activities of the company. In thisclusters of activities and processes which support the core competences arelinked. Such a map makes it clear how a company’s activities are interlinked. Inthe activity diagram the core competencies are shown in dark boxes.

Figure 1: Activity Diagram- IKEA

Activity System Map Analysis:1. Limited Customer Service

a. Limited sales offering and the company covers limited warranty forthe goods sold to the customers.

b. The catalogues provided to the customers are detailed and containinformation so it reduces the sales assistance required at theshowroom.

c. Self-assembling furniture saves the cost of assembling the productsand their maintenance cost.

2. Modular Furniture Design

a. The furniture design are in house design and innovative to addressthe demands of variety of customers. It differs from providing onlythe conventional products to the customers. The focus is to optimisethe space to maximum.

b. It also increases the likelihood of retaining the customers andmaking them a loyal customer.

c. Easy transport and assembly instructions are provided to thecustomers.

d. The furniture is mostly self- assemble and comes with instructionsto assist the customers. It saves the cost for the company.

3. Low Manufacturing Costa. The furniture is mostly self- assemble and comes with instructions

to assist the customers. It saves the cost for the company.b. The company procures the furniture from the long term suppliers

which have agreement with the companyc. The company also benefits from excellent operations planning. The

inventory management system manages the inventory at optimumlevels across the year to keep the costs low. This inventory ismanaged at the site to reduce the transportation cost to the sites.

4. Self-Selection by Customersa. This is the prime driver of their business as the customers come and

select the furniture of their choice. The sites are located in suburbanlocations with large parking spaces so that the customers can bringtheir own vehicles and take the goods.

A failure of any of these activities may have an effect on the core competence,and therefore on the company’s overall success and competitive position.

Once we identify the company’s core competences and contributory activities wemay consider market research to help your company align these to the needs ofthe market. The role of market research is, therefore, to find out what is valuedand what is not.

Activity System Map for Diversified OrganizationFor a diversified organization the activity system map will be different asthe focus will not be only on cost saving but providing the completesolutions to the customers. The core competencies can be different orsame based on the nature of the company. For example we are selectingthe Activity System Map for Diversified Business

Q. 3 Low Cost Providers as well as the leadingOrganizations with Diversified Product/ ServiceProviders for India and for the 5 Continents.

India:Low Cost Provider:

Mission: We’ll seek aggressive, but controllable growth, through new product introductions, superior quality and service, and greater manufacturing capacity through innovative process improvements. We will continue to introduce sustainable business practices with materials, products and processes

Vision: It’s all about the people: Customers, Employees, Suppliers and Stakeholders. We will make it easier for our customers to partner with. There will be no such thing as a “special”. Innovative technology will allow us tremendous flexibility in producing office furnishings.

Diversified Service provider: Godrej & Boyce Mfg. Co. Ltd. (Godrej Furniture)

Mission: Enriching Quality of Life Everyday Everywhere Vision: Godrej in Every Home and Workplace.

TransportationProvided

Impulse anddedicated

buyingCatalogues and

Display ExtensiveCustomersupport

Vast Rangeof choices.

Optimum levelof plannedinventory

Extensive salesstaffing

TransportationProvided

Variety bringscustomers Year round

stock.

Wide Varietyand easy

manufacturing

Quality ataffordable

prices

Nonmodular

and Modulardesign

Wide range ofdesigns

Wide Varietyand easy

manufacturingManufacturingprocess

optimization

ASIA:Diversified: Shenzhen Coco Furniture Co.,Ltd

Low cost Providers: Amat-3:

Mission: To satisfy all those users who have chosen Amat to furnish their spaces. To look after the requests and needs of interior design professionals. To create new products with an original design, functional and ergonomic.

Vision: constantly improve our team, the organisation and the production facilities.

North America:Diversified: Ashley Furniture

Mission: Why do more people buy Ashley than any other single furniture brand? Because at Ashley Furniture Industries, we know it takes more than just the ability to make good furniture to become the #1 selling brand of home furniture in North America

Vision: To satisfy the customers’ needs without compromising on thequality of the products and make it affordable for everyone.

Low cost Providers: Target:

Mission: We save people money so they can live better. Vision: If we work together, we’ll lower the cost of living for

everyone…we’ll give the world an opportunity to see what it’s like tosave and have a better life

EuropeDiversified: Calligaris

Mission Statement: Quality at a convenient price. This is the image which Calligaris conveys worldwide. By honouring tradition, respecting ethics and working with dedication, Calligaris can truly besaid to be a people’s company.

Vision: To be Reliable Ingenious Accessible and Vital from a customer’s perspective.

Low cost Providers: Actona:

Mission: Bringing Home Value” explains how we want to run a company. All of our business relations – suppliers – retailers – must experience Actona Company as a creative partner

Vision: Actona is simply short for Act on “A”, which we normally explain as ”reacting immediately”, “show readiness” or even better “be abreast of the development

Latin AmericaDiversified: Rotta Furniture

Low cost Providers: Renar Furniture:

RENAR - The name was created in 1919 when the European immigrants Rene and Arnoldo frey united their initials and their dreams to build a new life in Brazil.

Mission: The quality of its human resources and the valorization of teamwork are the main principles which orient the development of the total quality production.

Q. 4

4.1.1 PESTEL Analysis

Political • The level of corporate tax and consumer taxation regulated by political

authorities of any country affects corporation’s after-tax income. The rate ofcorporate tax impacts profits, hence lowering after-tax income. Hence, IKEAregional profits are subject to regional tax laws. However the specificcharacteristic such as subsidiary model of the furniture retailer also plays amajor role in the actual tax rate. It is also learnt that corporate tax rateimpacts the structure of the business. IKEA business structure, a subsidiarymodel propels its subsidiaries to abide by regional tax laws.

• Tariff and trade barriers also impact businesses. Some of the major reasonsfor imposing tariffs and trade barriers such as protecting local employment,new industries, consumers, retaliation and national security, tariffs increase

the prices of imported products into the country. This benefit the localproducers who are not forced to reduce their prices, however local consumerpay higher prices. Considering the case of IKEA and its reliance on localmanufacturers for its products rather than importing products into the localmarket, tariffs and trade barriers seemingly have little influence on itsbusiness profits.

• Political stability of any country affects business operations. In the midst ofpolitical instability of a country, negatively affects business and consumerperception of the corporation.

Economical • Economic growth of individual markets has its influence on businesses. For

example, rapidly growing economies provide higher standard of living andhigher employment rate. As a result, consumers’ disposable incomeincreases and so does their purchase power, ultimately benefiting businessprofits. In particular with the emerging economies showing high potential ofeconomic growth, provides a promising future for corporation such as IKEA.

• Other factors such as cost of labour also impact business success. In regionssuch as India and China popular for their low-cost yet skilled labour, providesIKEA with a wide profit margin.

• Inflation rate is another important factor affecting business and consumerexperience. For instance, high inflation rate such as in the UK deformsconsumer behaviour, destabilising markets and generates avoidableshortages of resources. Similarly, in countries with high inflation rate, tradeunions demand higher wages, distorting the entire value chain.

• Market trends should be closely observed to make strategic decisionsbenefiting the business.

Social • Social factors such as modifications in demographic variables like income,

age, family size etc. of different countries significantly influence the strategicdecisions made by the business. As an example, ageing population is lesslikely to buy furniture whereas younger generation would demand trendyfurniture that should also add value to their purchase.

• Demand of certain products is controlled by changes in demographics. As anexample, a major shift of rural population to urban areas due to job creationindicates higher demand of less costly products for new families to getsettled.

• Cultural factors, fashion trends and consumer behaviour also regulatedemand trendier, less bulky, and easy-to-assemble furniture.

• Reduced income levels place furniture purchase at less priority.

Technological • Emergence of technology particularly popular with in the retail sector such as

RFID and online and mobile shopping, has immensely benefited corporations.RFID helps businesses to reduce their cost of operations through inventoryshrinkage, smart labelling, self-stocking, efficient checkout process etc.

• Further on easy access to retailer’s online stores provides enormous sellingopportunities for the seller. In addition, technological innovations in the retailsector like consumer mobile payment, and mobile gift cards promisesconsumer to experience easier, and reliable means of payment.

• The increasing popularity and reliance of businesses on social media as anunconventional marketing channel, benefits firms by increasing awarenessand reach amongst target market, marketability factor, increased websitetraffic, ability to develop community and relationship with customers and soforth.

Environmental • Factors such as ethical business operations demonstrating sensitivity and

accountability towards carbon-emission, forestry, community development,and supplier conduct issues are significantly important for business successand sustainability.

• Industrial giants such as IKEA are constantly scrutinised for their contributiontowards carbon emission, disposal of hazardous manufacturing waste in theenvironment, recycling, and supplier behaviour. Therefore local governmentsensure that environment can be protected, compelling businesses to meetspecific standards to reduce the adverse effect of business activities.Compliance with these regulations is one of the most essential successfactors.

Legal • Consumer protection legislations restrict the business in terms of what they

are permitted to do along with adding cost to business operations. Thismeans that products that are manufactured must comply with the consumerprotection legislations of respective country of operations. So the additionalcosts come from changing business practices, compliance with the law,damaged reputation and image within the consumer market etc. that isultimately borne by the corporation.

• Other legislative requirements such as employee protection, health andsafety at work etc. demand proximity of business objectives with the locallegislations. For instance, IKEA is lately accused to be contradicting with itsGroup values, when the Saudi version of retailer’s catalogue airbrusheswomen model out. Even though the company was complying with local lawsagainst advertising women in Saudi Arabia, nevertheless accusation ofcontradicting with its Group value is likely to alter consumer perceptiontowards the corporation.

4.1.2 Porter’s Five Force Analysis

Competition within the Industry IKEA has high competition within the industry from Ashley Furniture,

Galiform, Wal-Mart, John Lewis and Homebase. But the global brandname and trust in customers about product quality, costeffectiveness, and immensely popular design has given IKEA acompetitive edge.

Growing markets made IKEA diversify its business empire into foodand textile industry.

IKEA also went into the mobile industry by offering cheap andflexible non-contract mobile services for its customers, which is veryunique and unheard of in this industry.

Bargaining Power of Suppliers

Switching cost of suppliers in the industry is classified as Low Riskas their internal suppliers determine the standards for contractedsuppliers so that switching from one to another should not producehigh costs. Suppliers have not gotten any major bargain power asIKEA is a well-established brand in the market.

Suppliers tend to gain more by coming into a business relationshipwith such a high value retailer

the number and size of suppliers is considered a large risk as thereare thousands of suppliers available

Bargaining Power of Buyers Buyers have a high power of bargaining. Most often, competition in

retail market gives the buyer plenty of options to choose from basedon price, services and design.

Recession has forced retailers to become more competitive inpricing to attract people who are reluctant to spend more for homeimprovements

Threat of New Entrants The threat of new entrants is low since it is well established as a

global icon. Customer loyalty has helped in improving thiscompetitive advantage in retail market.

IKEA has a huge market presence over Europe, US, Asia andAustralia. It is virtually impossible for any new entrant to pose athreat to an already well connected business empire with

geographic and product diversity. But it Still faces competition fromTarget, Grate & Barrel, Wal-Mart retailer.

Threat of Substitutes The threat of substitutes is medium. Though there are a number of

substitutes in home furnishing industry, the low-to-medium incomecustomers tend to stick with IKEA due to the cost effectiveness.

IKEA has been criticized for poor customer service, stock availability,product guarantee and lesser variety.

The all-in-one-shop concept in IKEA is not available in substituteslike B&Q, DFS and Wickes.

4.1.3 SWOT analysis

Strength The key strength of IKEA is application of strategic practices such as

optimising material to reduce manufacturing cost, development ofmanufacturing plants to optimise use of recycled material.

IKEA is also considered as leading specialist in the retail furnituremanufacturing industry, with a strong brand image. The strongglobal brand targeting key consumer groups, offers uniformity inquality and product range across the globe. The right approach tostrike off balance between quality, design, functionality and cost,gives IKEA cost and competitive advantage in the highly competitivemarket.

Weakness The size and scale of its global business. This could make it hard to

control standards and quality. Some countries where IKEA productsare made do not implement the legislation to control workingconditions. This could represent a weak link in IKEA's supply chain,affecting consumer views of IKEA's products.

The need for low cost products. This needs to be balanced againstproducing good quality. IKEA believes there is no compromisebetween being able to offer good quality products and low prices.

IKEA needs to keep good communication with its consumers andother stakeholders about its environmental activities. The scale ofthe business makes this a difficult task

Opportunities There is also an increasing demand in green (eco-friendly), and low-

priced products manufactured with sensitivity towards theenvironments.

IKEA aims to reduce carbon emission, and achieve zero wastagetargets coupled with improved relationship with stakeholders,suppliers and consumers, that provides massive opportunitiesresulting in business sustainability, competitiveness and higherprofits

Threats The global recession and suppliers’ issues particularly threaten IKEA. Furthermore, social trends showing lowered entrance of first-time

buyers into the housing market also affect furniture sale. Increasing competition and lowered disposable income are factors

that motivate buyers to purchase low price furniture, even at thecost of compromising quality. Threats such as these, demands thefurnishing giant to reform its value chain, and optimise innovativetechnology in order to provide good quality at lowered prices.

Strategic development in this regard would also raise entrantbarriers into the industry, providing possibilities to maintain andincrease its market share.

4.2 Competitor of IKEAIkea faces some competition in the furniture market by companies likeAshley Furniture, Galiform, Wal-Mart, John Lewis and Homebase. Out ofthese Ashley Furniture is the biggest competitor of IKEA.

Introduction of Ashley Furniture

Ashley Furniture industries, Inc., founded by Carlyle Weinberger inChicago in 1945 just as a sales operation, is a furniture manufacturing anddistributing company, which headquartered in Arcadia, Wisconsin. Nowthe father and son team Ron and Todd Wanek own the company.

Like many other furniture companies, Ashley Furniture Industries sells itsproducts, such as home furnishing, accessories through two maindistributions: one is independent channels; another is more than 400Ashley Furniture Homestore retail furniture stores. All the stores are either

owned by the company or licensed to other businessmen in North Americacountries, such as USA, Canada, Mexico, Central America and Japan.

The mission to become the BEST Furniture Company reflects its proud pastand shows the desire about future. And with over 60 years of innovation,creation and experience in the furniture industry, the company alreadybecame the leader in the industry which focuses on the quality of itsfurniture products. At present, the company has manufacture plantsacross the United States and Pacific Rim Countries, mainly in China

Business Level Strategies of Ashley Furniture

The successful strategies can be illustrated as following levels

Low price/ low added value: providing lower price than it can befound elsewhere.

Low price: based on a high volume with low margin product to bringcost leadership as its competitive advantage.

Hybrid: Compete on price and seek to keep the margin bycontrolling the cost of products.

Differentiation without price premium: Competition is principally onperceived benefits but not on price.

Focused differentiation: Using unique qualities without substitutionto get premium.

The Strategic Business Unit chose for this research is the living roomdivision of Ashley Furniture. The business model of Ashley Furniture isdifferent from other competitors, by establishing for over 65 years, themain business model of Ashley Furniture is the company design, build anddeliver its own furniture, and the company is in control of all aspects tomake sure the good quality.The cornerstones of its business models are quality, style, selection,service. They are all the foundations for Ashley Furniture making everydecision and the guidelines and principles to help the company achievethe mission statement of being the best furniture company.

Therefore, the main business model of Ashley living room furniture used toget competitive advantage is using Hybrid, which means by the methodssuch as outsourcing a series of its products from Pacific Rim countries tocut the cost of furniture and adding value to the products by quality, style,selection and service.

Strengths:

Good price to attract customers: After the recession of economy crisis in2008, the price of goods, especially furniture, become the main

competitive advantage to attract customers to consume products oncompany. As the main reason that led to the economy crisis is thesubprime lending which is related to the housing industry; and makes adrop in the sales of houses in North America, mainly in US

Variety of products: this means that based on variety of products, Ashleyliving room furniture is able to survive during the crisis. Even one productfails in the market, there are still other products succeed in the market tomake up the loss that cost by the failure of that product. Besides, differentkinds of products make those brand loyalty customers to purchase moreand also increase the image of the brand. This helps the company achievethe mission of becoming the best furniture company in North America andeven all over the world.

Maintain the gross margin: Obviously, this technique assist the companyto maintain the gross margin by controlling the cost of furniture. By usingHybrid strategy, the division still possesses the ability to control the costof products. On the other hand, by adding more value through design,build and deliver the furniture to the customers, the products of Ashleyliving room furniture are still attractive.

Weaknesses:

More funds spent on implementing the strategy: In order to supply andoffer more furniture products to the customers, more funds will be spenton Research and Development, Design to find more solutions offered tothe customers. Besides, the division possesses its own stores which costmuch of its capital on investing in purchasing fixed assets, which maybecome a potential problem to the cash flow of the company.

Competition of the similar products in the company: The Product divisionprovides more than 100 furniture products to customers to find out themost suitable furniture for their living rooms. Therefore, this results in thecompetition among the products within the same category.

Lack of quality: The business model of Ashley living room furnituredepends on the quality of products. If the company concentrates oncontrolling the cost, such as the outsourcing price offered to thosemanufacturing companies in Pacific Rim countries, which may affect thequality of products of Ashley living room furniture. Then it will affect theparadigm of the division in the industry and then reduce customer brandloyalty.

4.3 ComplementorsComplementors are businesses that directly sell a product (or products) orservice (or services) that complement the product or service of anothercompany by adding value to mutual customers. As the business model ofIKEA is such that it manufactures its own products and sells them directlyso it is highly unlikely that it will have any direct Complementors. For ouranalysis we can say that the complementors can be from the industrieslike

Beddingo Pillow - Du Point, Sleepwell, Sleep innovations, Hudson Etc.o Blanket and Quilt – KESS Inhouse, CC Home furnishing.o Mattress Pads & Toppers – Simmons, Bergose Home Textile.

Décoro Clocks – Horward Miller, Lexington Studioo Candles & Candle Holders – CC Home Furnishings, Oddity Inc.o Artificial Plants and Flowers – Allstate, Nearly Natural.o Desk Lamps, Side Lamps Table Lamps.

Accessories o Kitchen Accessorieso Bathroom Accessorieso Cookware and Bakeware tools

Storage & Organizationso Kitchen storage. Pot Racks, Toys Rtorage.

Cleaning and housekeeping items o Floor cleaning items – Lizol, Dettol, Mr. Clean Etc. o Vacuum cleaners and Carpet Cleaners – Various companies

manufacturing them

This list is not exhaustive and products can be added based on the usageof the furniture. As the vast variety of the furniture offered by the storesthis will have many complementors.

Q. 55.1 Comment on the History, Evolution, Growth Rate,

Profitability Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well

IKEA designs and sells ready-to-assemble furniture, appliances and homeaccessories. Ready-to-assemble furniture (RTA), also known as knock-

http://en.wikipedia.org/wiki/Ready-to-assemble_furniture

down furniture (KD) or flat pack furniture, is a form of furniture thatrequires customer assembly. Ready-to-assemble furniture is typicallypackaged in a kit form with the pieces packaged in one or multiple boxes.The kit may contain a number of flat parts, fasteners, fixings, and otherparts that are needed to assemble the furniture. A furniture assemblyindustry has grown up around ready-to-assemble furniture and consumerscan engage a service provider to come to their home and assemble thefurniture they have purchase. As of January 2008, the company is theworld's largest furniture retailer.

HistoryOriginally RTA furniture was known as KD for knock-down andunfortunately the products came apart almost as easily as they were puttogether. Substantial improvements in construction methods andhardware have heightened product quality to its present consumerfriendly status of the 1980s. While RTA furniture has a long history inEurope, the early introductions into the U.S. market were poorlyconstructed compared to today's products. The original products werevinyl-wrapped particleboard television stands and bookcases which soldfor under $40. The products were purchased as short-term, disposablefurniture, but the value was still good for the price paid. The industryrealized that long-term survival would entail increasing quality, design,and function. Improvements have enabled composite board to be printedwith wood grains or coloured with coatings of paint or mela- mine. Sinceassembly is not required and the machinery is automated, RTA furniture isproduced with less labour than conventional furniture. The initialinvestment in equipment is recovered through reduced production andlabour costs. Packaging the product in boxes is the most labour intensivestep.

5.2 Growth Overview: As the world economy is developing fast in the past 10 years, the furnituremarkets have opened up more and the world furniture industry has beengrowing fast. Over 70% of the global market has been taken up by thetraditional furniture making countries. This is possible because of theirlong established production capacity, advancement in science andtechnology, solid funds and rich management experiences. Meanwhile,developing countries and regions like China, Southeast Asia, Poland andMexico, with China taking the lead, have built upon their respectivecompetitive advantages and gradually have covered almost 30% of theworld market. The furniture industry in such countries is developingstrongly and showing great potentials. The European Union furnitureindustry accounts for about half of the world's furniture production. Theproduction value of this industry in this region is around € 82 billion.Considered to be a labour-intensive industry it provides employment foraround 1 million people. Among the European countries, Germany takes

the lead as the largest furniture producing country, accounting for about27% of total EU production. This is followed by Italy (21.6%), France(13.5%) and the UK (10.4%).The Canadian Furniture Industry is the 5thlargest exporter of furniture in the world. The major furniture producingcountries in South East Asia are Philippines, Indonesia, Malaysia,Singapore, Thailand, Korea, Taiwan and India. In the context of globalfurniture trade, Asia shows healthy signs of growth with respect to itsother international competitors. Asian furniture has always been popularin developed countries like USA, Europe and Australia. Over 20 years of fast growth, China has been able to bring unlimitedbusiness opportunities and vitality to the global furniture industry. Now,China has today emerged as a furniture production centre, a circulationcentre as well as an exhibition centre in the world. The rise of China'sfurniture industry has brought about a new round of restructuring of theglobal furniture industry and trade pattern. According to a recentestimate, the Indian furniture industry is estimated at around 350 billion.Eighty-five per cent of this falls into the unorganized sector. According to astudy by the World Bank, the organized furniture industry is expected togrow by 20 per cent a year and India, Brazil and Russia will witness aboom.

Profitability:

U.S. furniture imports increased 7.7% in 2013 to a total of $19.7 billion,according to the most recent numbers from the U.S. International TradeCommission. This year’s increase follows a 9.1% gain from 2011 to 2012;a 0.3% bump between 2010 and 2011; and an 18.8% leap from 2009 to2010.

Imports from China reached $11.6 billion last year, an increase of 7.4%over the country’s 2012 figures of $10.8 billion. China comprised 59% ofthe total furniture imported into the United States in 2013, 5.2 timesgreater than the No. 2 importer Vietnam.

Imported furniture from Vietnam jumped 11.5% to $2.2 billion, whileshipments from Canada were $1.1 billion, an increase of 7.4%, andimports from Mexico grew 10.7% to $965 million. Indonesia rounded outthe top five importers to the U.S., bringing in $601 million worth ofproduct last year.

Indonesia just edged out No. 6 Malaysia, who realized an 8.7% decrease inshipments to $599 million.

U.S. furniture factory shipments were $23.2 billion in 2013, up 4.8% fromthe previous year, per Smith Leonard’s latest survey of residentialfurniture manufacturers and distributors. Data from industry analyst Jerry

http://www.furnituretoday.com/blog/89-an-insiders-viewhttp://www.usitc.gov/http://www.usitc.gov/

Epperson shows that 65% of total upholstered furniture is made in theU.S., while 36% of all case goods are made in America.

The analysts forecast the Global Furniture market to grow at a CAGR of3.53 percent over the period 2012-2016. One of the key factorscontributing to this market growth is the boom in Real Estate industry. TheGlobal Furniture market has also been witnessing the production of eco-friendly furniture. However, the shortage of timber supply could pose achallenge to the growth of this market.

The report, the Global Furniture Market 2012-2016, has been preparedbased on an in-depth market analysis with inputs from industry experts.The report covers the market in the Americas, Europe, and the APAC andMEA regions; it also covers the Global Furniture market landscape and itsgrowth prospects in the coming years. The report also includes adiscussion of the key vendors operating in this market.

5.2 Size of the Industry across the world and the countrywhere the organization is operating

Size of the industry across the worldThe worldwide bed and bath furniture industry is expected to reach almost$28 billion by 2015, according to Global Industry Analysts. Market growthwill be fuelled by recovery in the housing sector, with increasedconstruction activity leading to higher consumer demand for homedecoration products. Developing markets such as Latin America and Asia-Pacific are expected to record rising demand over the coming years forcolourful, vibrant bed furnishings.

Premium high-end beds made using materials such as hand-tuftedhorsehair, memory foam, silk, latex, flex, cashmere and lamb’s wool willbe in growing demand over coming years. The baby boomer generation inparticular will opt for premium beds, attracted by their superior comfortlevel. Manufacturers are responding to this demand by offering a widerange of luxury beds and mattresses. Luxury towels are also in greaterdemand, with consumers willing to pay extra for stylish colors and morefashionable designs.

The worldwide lamp market is expected to exceed $40 billion by 2017,reports Global Industry Analysts. Factors fuelling market growth includeurbanization, rising global population, and the phasing out of

http://www.furnituretoday.com/blog/89-an-insiders-view

incandescent bulbs across several nations sparking demand foralternatives such as CLFs and LED lamps. Demand for lamps in otherapplications including LEDs in mobile devices will also drive demand.

Companies are focusing on the benefits of new technology innovation tooffer consumers energy savings, cost reductions and moreenvironmentally friendly lighting solutions. This shift has led to a declinein demand for conventional lighting options like electronic ballasts andT12, HID fixtures, but has spurred a subsequent rise in demand forintegrated systems and solid-state technologies, including T8 and T5fixtures and lamps.

Solid-state lighting controls facilitate more-efficient energy use, therebyreducing overall energy costs. Due to the higher price of technology,companies first target high-end markets when launching newer productssuch as LEDs and CFLs, which are popular for their superior energyefficiency and power.

Regional Market Share The US carpet and rug industry is set to record strong growth over thecoming years, with demand expected to reach a yearly rate of 8%between 2010 and 2015. By that time, industry volume should reach closeto 17 billion square feet, according to research from Freedonia. Growth willbe largely fuelled by recovery in the US housing sector and widereconomy. Expansion in the battered new residential construction sectorwill also help drive demand for area rugs and tufted carpet. Increasedconstruction in the US will see consumers and businesses alike opt fornew carpet and rug products to furnish their homes and offices. Growingconsumer confidence and increased discretionary spending will seedemand from the residential sector grow, while the nonresidential sectorwill be a source of demand due to expansion in commercial and new officespace. Replacement markets will similarly reflect economic recovery.Nylon, the most used fiber in the manufacture of carpet and rug products,is likely to remain the leading choice over the coming years. However,polyester fibers are becoming more attractive due to high petroleumprices and improved fiber quality, making them more appealing thanpolypropylene fibers.

The Indian lighting fixture market generated close to $1.3 billion in 2011,according to figures from CSIL. More than 15% of India’s production oflighting fixtures is for export, reaching a total of $215 million in 2011 – ora 2% decline on 2009 figures. India has been becoming a biggermanufacturer of industrial and outdoor lighting products, though muchlighting for the consumer market is imported.

Market Outlook The global market for home furniture and decoration was negativelyimpacted by the housing crisis as homeowners cut down drastically onnon-essential spending, postponed home improvement and decoratingprojects, and delayed buying new homes. Due to recovery in the housingsector and in the wider global economy, demand for home furniture anddecoration has begun to turn around. With employment figures improvingand levels of disposable income rising, property owners are more readilyinvesting in their homes.

5.3 Key success factors for any organization operating within the Industry and how is your organization performing on those criteria

The marketing mix starts with product strategy. Product covers more thanthe physical goods the company wants to sell. It is the goods-and-servicecombination the company offers to the target market. Thus, IKEA offers awhole range of products, almost everything you need for your home. The

same category of products, for example, sofas, IKEA designs models withdifferent features. Some sofa models are even provided with differentcovers to choose from. IKEA is positioned as selling at affordable price andoffering reasonable quality. In order to cut down the costs, IKEA does notwrap its products fancily but with simple and environmental friendlymaterial. Here we see again the societal marketing concept takes intoeffect. Concerning services, IKEA encourages its customers to do-it-yourself (DIY) but it also provides technical help if needed.

Price is the amount of money charged for a product or service, or thesum of all the values that customers give up in order to gain the benefitsof having or using a product or service. As shown in Figure, in terms ofpricing, changing list price is complemented by offering discounts orallowances and altering the payment period or credit terms. Every nowand then, IKEA reduces the price of certain products because if they arepopular among customers then IKEA can make a bigger order, whichleaves the profit margin wider so suppliers can quote lower offers. Thecompany also offers various payment options and credit terms to choosefrom for the customers. Hence, IKEA handles pricing quite well that itspricing policy emphasizes customer values and integrates with the other3Ps.

Place includes company activities that make the products available totarget customers. Related activities are listed in Figure, such as channels,coverage, assortments, locations, inventory, transportation and logistics.Over the years, IKEA has established an efficient network of delivering itsproducts from the suppliers to its customers. Several logistics hubs aroundthe world are now transporting the products to different countries andterritories. IKEA‘s flat packs play an important role in transportation tokeep the costs low. Locating the shops in the suburbs of cities also helpsto cut down the costs.

Like the marketing mix, promotion is a mix of tools as well. It is alsocalled marketing communication mix, consisting of the specific blend ofadvertising, sales promotion, public relations, personal selling, and direct-marketing tools that the company uses to persuasively communicatecustomer value and build customer relationships. Ideally, the companyintegrates the above tools to communicate well with its customers. Apartfrom advertising on TV, newspaper and delivering brochures with thelatest offers to people‘s home, IKEA pays a lot of attention toenvironmental and ethical issues. IKEA‘s cooperation with NGOs such asUNICEF and World Wide Fund for Nature (WWF) contributes a lot tobuilding a favourable corporation image and good public relations. In aword, an effective marketing program blends all of the marketing mixelements into a coordinated program designed to achieve the company‘smarketing objectives by delivering value to consumers.

References: http://www.b2binternational.com/publications/differentiation/ http://blogs.forrester.com/paul_hagen/10-10-05-

the_right_customer_experience_strategy http://experiencinginformation.wordpress.com/2011/06/19/on-

communicating-strategy-for-design/ http://timkastelle.org/blog/2010/11/more-bang-for-the-innovation-buck/ http://businesstoday.intoday.in/story/how-ikea-adapted-its-strategies-to-

expand-in-china/1/196322.html http://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-

business-planning/#axzz2wKqvj0Fh http://supplierportal.ikea.com/doingbusinesswithIKEA/growing%20with

%20IKEA/business_model/Pages/default.aspx http://michaelgordononline.com/?p=129 http://www.strategicmanagementinsight.com/swot-analyses/ikea-swot-

analysis.html http://www.winnipegfreepress.com/arts-and-

life/entertainment/books/ikeas-business-model-includes-social-responsibility-allen-wrench-142175283.html

http://www.youblisher.com/p/722494-Porter/ http://www.ukessays.com/essays/marketing/business-level-strategies-of-

ashley-furniture-marketing-essay.php http://www.yelp.com/topic/alexandria-where-to-buy-furniture-stuck-in-ikea-

based-mind-set http://www.strategy-business.com/article/00111?pg=all

http://www.strategy-business.com/article/00111?pg=allhttp://www.yelp.com/topic/alexandria-where-to-buy-furniture-stuck-in-ikea-based-mind-sethttp://www.yelp.com/topic/alexandria-where-to-buy-furniture-stuck-in-ikea-based-mind-sethttp://www.ukessays.com/essays/marketing/business-level-strategies-of-ashley-furniture-marketing-essay.phphttp://www.ukessays.com/essays/marketing/business-level-strategies-of-ashley-furniture-marketing-essay.phphttp://www.youblisher.com/p/722494-Porter/http://www.winnipegfreepress.com/arts-and-life/entertainment/books/ikeas-business-model-includes-social-responsibility-allen-wrench-142175283.htmlhttp://www.winnipegfreepress.com/arts-and-life/entertainment/books/ikeas-business-model-includes-social-responsibility-allen-wrench-142175283.htmlhttp://www.winnipegfreepress.com/arts-and-life/entertainment/books/ikeas-business-model-includes-social-responsibility-allen-wrench-142175283.htmlhttp://www.strategicmanagementinsight.com/swot-analyses/ikea-swot-analysis.htmlhttp://www.strategicmanagementinsight.com/swot-analyses/ikea-swot-analysis.htmlhttp://michaelgordononline.com/?p=129http://supplierportal.ikea.com/doingbusinesswithIKEA/growing%20with%20IKEA/business_model/Pages/default.aspxhttp://supplierportal.ikea.com/doingbusinesswithIKEA/growing%20with%20IKEA/business_model/Pages/default.aspxhttp://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-business-planning/#axzz2wKqvj0Fhhttp://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-business-planning/#axzz2wKqvj0Fhhttp://businesstoday.intoday.in/story/how-ikea-adapted-its-strategies-to-expand-in-china/1/196322.htmlhttp://businesstoday.intoday.in/story/how-ikea-adapted-its-strategies-to-expand-in-china/1/196322.htmlhttp://timkastelle.org/blog/2010/11/more-bang-for-the-innovation-buck/http://experiencinginformation.wordpress.com/2011/06/19/on-communicating-strategy-for-design/http://experiencinginformation.wordpress.com/2011/06/19/on-communicating-strategy-for-design/http://blogs.forrester.com/paul_hagen/10-10-05-the_right_customer_experience_strategyhttp://blogs.forrester.com/paul_hagen/10-10-05-the_right_customer_experience_strategyhttp://www.b2binternational.com/publications/differentiation/

Q1. Comparison of business modelDetailed Analysis:Ikea’s Concept of cost efficiencyStrategic Pillars in Business Model:

Ashley Furniture:Strategic Pillars in Business Model:

Godrej FurnitureStrategic Pillars in Business Model:

Q. 2 Activity System MapActivity System Map for Low Cost OrganizationActivity System Map Analysis:Activity System Map for Diversified Organization

Q. 3 Low Cost Providers as well as the leading Organizations with Diversified Product/ Service Providers for India and for the 5 Continents.India:ASIA:North America:EuropeLatin America

Q. 44.1.1 PESTEL AnalysisPoliticalEconomicalSocialTechnologicalEnvironmentalLegal

4.1.2 Porter’s Five Force AnalysisCompetition within the IndustryBargaining Power of SuppliersBargaining Power of BuyersThreat of New EntrantsThreat of Substitutes

4.1.3 SWOT analysisStrengthWeaknessOpportunitiesThreats

4.2 Competitor of IKEAIntroduction of Ashley FurnitureBusiness Level Strategies of Ashley Furniture

4.3 ComplementorsQ. 55.1 Comment on the History, Evolution, Growth Rate, Profitability Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as wellHistory5.2 Growth Overview:Size of the industry across the worldRegional Market ShareMarket Outlook5.3 Key success factors for any organization operating within the Industry and how is your organization performing on those criteria

References: