Internationalization has become an important part of the business world in a rapidly globalizing world. They look to foreign markets as companies seek growth. The explosive growth of technology has reinvented the global economy in recent decades, making it easier for companies to grow. Global markets have countless opportunities, but to achieve a productive international market entry, diligent market analysis on the target market is crucial (Dunning, 2014). This report is aimed at discussing the factors that directly or indirectly influence an organization’s decision-making policy. This report will focus on explanation and analysis of strategies that the selected organization Ikea adopted by in its expansion to Russia.

Overview of IKEA ANALYSIS

The report will discuss the external business factors for Ikea to get an overview of the Russian furniture market to analyse the benefits and shortcomings of the new market for the selected organization. PESTEL analysis for this purpose would be included in this report along with Michael Porter’s value chain analysis to better understand the opportunities and risks for Ikea in the new market of Russia. This report would also include some of the reasons that were behind Ikea’s expansion to Russia despite the poor economy of Russia at the time of establishing its stores in the country (Jonsson & Elg, 2006). A brief conclusion in the final parts of this report would also be provided about analysis.

Introduction to Selected Organisation of IKEA ANALYSIS

Ikea is the largest Swedish furniture retailer with more than 250 outlets across 40 countries in the world. In 1998, the organization decided to enter the Russian furniture market even though at that time the Russian economy was struggling. 20% of the total population in Russia lives below the poverty line the only edge that Ikea had at that time was that there were no notable rivals in the Russian furniture industry to pose any risks for the business. The organization decided to operate in Russia and later underwent significant business growth in the Russian furniture market (Morrison, 2006). Following is the analysis of Ikea that will help in understanding the factors that used to influence the organization in its expansion process.

PESTEL analysis for Ikea

In general, PESTEL analysis is used as a common feedback method to figure out where an entity or a company is in the sense of what happens outside of an organization, and in a way influences what occurs within an organization. The six elements are often known as politics, the economy, social environment, technology, environment, and law offer a basis for scenario analysis. They are also ideal for evaluating a plan or role, a business path, a product initiative or concept (Florin, 2015). Following is the PESTEL analysis of Ikea concerning its business in Russia.

Political Factors of IKEA ANALYSIS

Russia can often be regarded as non-logical, chaotic and unreasonable in politics, and it may be difficult for Ikea to grasp a certain country's financial, domestic and international policies. Geography, rich natural resources, and military capabilities combined with international tensions between Russia and other countries, as well as neighboring Finland and the important trading partner of it, make it essential for Ikea to become aware of the political factors faced by Russia. Besides the complexities of the political climate of Russia, corruption is a factor that must be addressed when deciding expansion in Russia by Ikea. Nonetheless, some reports suggest that the bureaucracy, corruption and illegal payments and bribes can still be seen as high rates of risk in every sector, including healthcare, social security, the judiciary, the rule of law, trade and education, at all levels of the government, the public and private sector.

Since IKEA stores are open in over 41 countries, the company has to adhere to each of the regulations implemented by particular countries. Similar ventures or political forces are possible in some countries (Zentes & Rittinger, 2009). This is not always the case, however. One thing is certain: political stability is beneficial to all the countries as well as all the business organizations. Economic stability can't be accomplished without stable political conditions. In other words, IKEA can lose its profits in one country to another, depending on which country the organization is serving.

Economy factors of IKEA ANALYSIS

Russia's economy can be described as incredibly varied and unstable, just like their government. The economy of Russia is heavily dependent upon oil prices. With the global economic crisis of 2008 and ongoing deep falls in oil prices, Russia remained in a recession in the 1990s in addition to trade wars and sanctions brought on by international tensions with Europe and the US. IKEA controlled commodity prices relatively well, allowing it to handle the challenges faced by global economic instability (IKEA, 2020). Another economic element able to affect Ikea is the value of the dollar. The strong dollar value has the power to damage businesses like Ikea. For example, Ikea consumers in Russia could not be able to pay for its pricey furniture products. Over the past few decades, Ikea has become renowned for its cheap costs for consumers in Russia because the Russian population was not able to pay high prices. They immediately think of Ikea as buyers who wanted trendy and cheap furniture wares. This economic aspect has had an impact on Ikea's business policy for many years as it decided to lift rates in Russia.

Social Factors of IKEA ANALYSIS

“Know the history of the area before you open your doors.” That is a law that any company has to obey (Song, et al., 2017). Not just to tailor the offering but also to prevent violating social standards within a particular country. For any publicity material they bring out IKEA holds this law tight. Alas, their contributions are not always well-received. IKEA has dropped a same-sex pair from their publication in a Russian catalogue. In Russia homosexuality is still viewed as shameful. Understanding this, IKEA changed their catalogue's appearance to match the general Russian mindset. Homosexuality is more commonly known abroad. For this cause, IKEA was placed in the hot seat to kill the pair from its catalogue. Despite the element that Ikea’s efforts for transformation according to social and cultural traditions, Ikea has been criticized across the world for not following social norms in particular countries.

Technology factors of IKEA ANALYSIS

The key to the sustainable success of an organization is its ability to develop and leverage an emerging technology (Florin, 2015). Russia is badly inventive when it’s competitive exports of software are omitted. At its outset, Ikea used paper catalogues for its consumers because the technology was not widespread in Russia at the starting period of Ikea’s business. With the advent of time, people in Russia became aware of the use of technology. Thus, Ikea introduced its website to also deal in Russia with uploading store locations in Russia. Technology is widely spreading for businesses like Ikea and in future Ikea should keep a pace up with technology to be productive in the market. Paper catalogues would not prove to be good ideas in the future.

Environmental Factors of IKEA ANALYSIS

Possessing an immense land area, Russia's oil, coal, rare timber reserves, minerals, and freshwater supplies are incredibly abundant. These natural resources are crucial engines for economic development in Russia and have almost limitless possibilities. For most company brands, sustainability is now a primary and a priority field. It does not help to cut prices, but it also helps to build a stronger brand identity within a particular industry. Ikea has always placed a strong focus on a sustainable environment. Ikea has already been engaged in the environment and, as the Guardian reports, aims to spend more than 1 trillion dollars in energy to help developing countries deal with the danger of climate change. By 2020, it aims to see alternative sources of electricity such as a solar system to be used in all Ikea stores in Russia as well as in other countries. It has spent a huge amount of money on wind and solar panels to be productive and also to be environment friendly (IKEA, 2020).

Legal Factors of IKEA ANALYSIS

Legal risks to big corporations are also a huge concern. That is because those regulations and rules are often complicated and only a minor issue with the regulation can be costly for an organization like Ikea. Union regulation is of great concern, but other regulations also need to tackle wisely and may raise operating costs for Ikea. The quality of the product is also a big concern in Russia because Ikea had to reduce the prices of its products in response to the low purchasing power of people in Russia. In the past, IKEA has faced some furniture flipping and destruction in some countries. Regulation varies across the countries and their markets (Castaño, et al., 2016). Although, Ikea is less likely to face any legal problems in Russia due to its weak and poor legal system. The legal system in Russia is greatly influenced by the state and the legal system of Russia is considered to be unfair. Corruption greatly contributes to the poor law system of the country. Though, Ikea is adopting the same policy in each country to be at the safer side when it comes to legal technicalities.

Porter’s Analysis of Ikea

IKEA has been determined to be an industry leader through cost efficiency and brand consistency. Porter’s five forces analysis will help to explain how certain factors influence the IKEA market. It draws on the five forces concept of Porter. Such five factors are present in all sectors and companies in an industry and influence the industry's profitability and sustainability. This framework will support companies and general executives in their market performance growth and policy creation. Following is Porter’s analysis for Ikea.

Bargaining power of consumers of IKEA ANALYSIS

The organisation considers the consumers as an essential part of marketing and its strategies. Although consumers have less and insignificant bargaining power while they deal on an individual level but a collective level, these consumers play a vital role in the profitability of the IKEA. Consequently, Ikea substantially focuses on gaining and maintaining consumers. In the modern business era, consumers from all over the world have gained bargaining powers because of increasing competition across international markets. Besides, increased competition across the globe, the technological development of businesses has also allowed more options for consumers across the world. A consumer can select any brand or product while sitting at his home with ease and comfort. Ikea's strong marketing and advertisement strategy provides an edge to the organisation over its rivals in the industry. Besides, the pricing strategy of the company is following the consumer's budget.

On the other hand, Ikea also uses digital platforms to compete for its rivals on any grounds. Generally, the bargaining power of consumers in the case of Ikea is from low to moderate. Marketing strategy, along with low prices for quality products, maintain the bargaining power of consumers from low to average levels.

Bargaining power of Suppliers of IKEA ANALYSIS

The negotiation capacity of the suppliers in the case of Ikea is deficient as well. The reason for such low bargaining power of suppliers is the poor economic status of suppliers. The size and state of these organisations do not allow them to bargain. Consequently, Ikea holds power in this sector. Ikea sets the rules for its vendors. Ikea can switch from one supplier to another.

On the other hand, if a supplier gets deprived of Ikea's inventory, it would be difficult for that specific business to sustain the challenging business environment because of its size and capacity. Consequently, the organisation has developed specific rules for suppliers and also offers particular codes of conduct for the suppliers. It can be concluded that the selected organisation Ikea possess an edge in the industry in the form of little bargaining power of suppliers that eventually helps the company to be cost-effective.

The Threat of Substitute Products

There is a small chance of IKEA substitute goods in the industry. A variety of factors are responsible for diminishing the threats of substitute products for the organisation. Brand identity is one of the factors that moderate the threats of substitute products in the market for Ikea. Over the years, IKEA has established a positive brand identity where consumers and the company have high levels of confidence. The organisation's pricing plan and customer care are affordable, and the effect of competing goods is also moderated. However, it is the broad variety of goods offered under one roof that is the most significant aspect of reducing the threats of substitute products for the company. Not one of the competitors offers so many products under a single roof or in a single outlet. The hazard from IKEA reduces, depending on these considerations, along with the success of IKEA and its goods.

New Entrants of IKEA ANALYSIS

There is a small to moderate chance that new competitors will enter the market and take market shares. New companies will join on a limited scale but would have no direct effect on IKEA's business. It will take time, commitment, and investment, as a new company joins the industry, to become a big brand and to achieve significant market share. Innovation and plan al will take time and require substantial investment, apart from technology and human capital. There are minor barriers to entry but also some significant hurdles to being an important and well-known name.

Rivalry of IKEA ANALYSIS

In the home furnishing sector, the level of competition is relatively high. The fight is not as big as that of other companies, but IKEA also has many rivals. In addition to local brands dealing directly with IKEA, retailers and model shops often offer home decoration items and challenge IKEA competitively. IKEA's prevalent and trustworthy image has helped it to gain a great customer base through its business model and other determinants such as affordable prices. These factors play a vital role in making the rivalry threat a bit higher for Ikea in the furniture industry.

Reasons why Ikea moved to Russia of IKEA ANALYSIS

The reasons for which Ikea entered into Russian markets include the competitiveness of the organization. At the time, when Ikea decided to enter the Russian market there were no business rivals in Russian markets for Ikea. Ikea established its second store in Russia in 2001, and there were more than 44000 customers in its store in just a few hours. The rationale of Ikea to enter into the Russian market was also based on developing brand identity into the market before the entrance of other rivals because the entrance of the market can increase the bargaining power of suppliers as well as of consumers according to the porter’s five forces (Morrison, 2006). Places to establish the stores were also accessible than at relatively lower prices than today which helped the organization to cut production costs. The rationale of Ikea to move to Russia for business was justified and provided encouraging results to the organization in a long-run.

Conclusion of IKEA ANALYSIS

Globalization of businesses has gained vital importance in the past few decades. An organization must analyze the market before entering into it (Onetti, et al., 2012). Political stability and legal entities are important to consider though numerous other factors should also be considered by business leaders before entering into a new market. Bold decisions of business leaders can provide an opportunity for an organization to develop a sustainable competitive advantage. As in the case of Ikea bold decisions of its CEO enabled the organization to grow in Russian markets that were considered a notorious market for any business.

References of IKEA ANALYSIS

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