Business

The attractiveness of foreign market has driven many companies to expand their presences. The so-called globalization has encouraged the increasing number of corporations that expand their services into adjacent countries or those in other continents. The plethoras of multinational companies, especially those who succeed managing their operation in foreign market, suggest that they successfully adopt suitable strategy to win the market.

Multinational corporations like Coca Cola, Unilever, and IBM that already expand into foreign market for years understand how to deal with foreign market by delivering suitable services and products that foreign customers would respond positively, which means there are some degree of customization to fit the local market characteristics.

Another way to grow a business is to take over distribution and begin to invest in its own marketing organization in the foreign market. Once this organization is in place, the range of products and services expands rapidly, often including new offers developed specifically for the local market. In this stage, the emphasis on local market development results in a marketing focus not unlike that in the domestic market (Arnold, 2004).

However, there are challenges for corporations when expanding into foreign market, especially those involve manufacturing the challenges are the supplies of raw materials to keep the costs low.
This situation emerges in the case of IKEA, a well-known Swedish furniture retailer that expand into foreign market quickly especially since 1990s. Since the company faces the increase of administrative costs and bulky internal planning system, IKEA need to develop system that favors the international growth.

Concerning the business analysis of multinational companies, this paper will discuss the way that IKEA International, a Swedish company that focus on selling home furnishing products and house wares throughout the world, in strengthening their position in home furnishing industry. Several issues that this paper will over are PEST analysis, Porters Five Forces, and critical success factors, to name a few.

Strategic Analysis of IKEA
PEST Analysis
Political
    Concerning political forces, IKEA must consider the country risks when planning to expand into new markets. According to Eun and Resnick (2004, p. 370), country risks refers to a measure of credit risk, political risk, and other economic indicators. Usually, when companies expanding into foreign countries, the decision mainly based on economical issues, but political factor may be damaging to the continuity of a business if it is not well-prepared in advances.

    In assessing the country risks, there are many approached such as one developed by A.M. Best Company, Inc. (2006) that put countries in groups based on the Economic, Political and Financial System Risk factors. The groupings called country risk tier 1 to 5 (CRT-1 to CRT-5) where countries in the Tier 1 (CRT-1) is considered to have a stable environment with the few amount of risk meanwhile those in CRT-5 have greater risks in the three factors. For instances, United States as one country where IKEA invest is in the CRT-1 in which the three factors are in very low measurement. Meanwhile, if the company wants to expand into developing countries like those in Asian, the country risk level may be in CRT-3 to CRT-5 except Singapore (CRT-1) where IKEA already exists.

Economical
The assessment of economical factors basically has been included in the country risk analysis based on A.M. Best Company, Inc. considerations. In terms of economical factors, the company had better to look at the prospect of the targeted country. Some economical factors that can be taken into account are as following
GDP in which the world GDP sometimes is much larger than domestic markets
Growth rates. Some countries experience high growth rates that become attractive markets for IKEA to expand.
Competitive advantages. Some markets have competitive advantages (available resources, encouraging business policy etc)  that provide benefits for IKEA (Abell, 1991)

The countries that IKEA exists also varies in country risk, for example, the expansion in U.S, Germany, Australia, Canada, Singapore will run smoothly in terms of country risk the challenges is to match the local market needs however, expansion into countries like Russia, United Arab Emirates, to name a few, may have additional challenge to deal with financial system in those countries that considered to have high risk figure.

Socio-Cultural
    This element also affects IKEA in the way that the company needs to address market diversity. For example, in developing products, IKEA conduct market research in order to adopt market diversity. The case of market approach failure in the early stage of entering U.S market is because the company lacks of considering local characteristics. The way IKEA visit local employee to find the demand of American customers in furnishing their home become one approach to develop products that match customers needs.
Technological
Technology in furniture industry also plays important role since the use of materials and the process to develop a product influences the quality of product. The company products come from over hundreds supplier all over the world, especially from low-cost countries. This condition suggests that IKEA need quality information technology to connect to these suppliers so that it can ensure the availability of key components of products.

Porters Five Forces
Porters Five Forces are a business analysis tool that develops to help companies assess the environmental forces that influence a company. This business analysis tool works by dividing environmental forces into five different categories (Figure 1).
The main feature of Porter Five Forces is to develop five influential factors towards companies performance. It also provides a systematic way of thinking about how competitive forces work at industry level and how they determine profitability.


Rivalry
Rivalry exhibits the intensity of competition in a particular market. IKEA strategy to provide low-price but high quality furniture implies that the company will enter intense competition from mid-to-high furniture companies as well as the low ones. In the U.S. alone, Ikea faces competitions from Target Corp. that found to recruit top designer, Thomas OBrien to design quality but low-priced furniture product. Another competitor is Kmart, which appear to cooperate with Martha Stewart to provide the furnishing line.

Threat of Substitutes
Substitute products are products of other industries that may have significant impact to the prices decision and other features of furnishing products. Ikea faces substitute product from high quality wood products. Unlike Ikea that relies on the particle board as the main material in the furnishing line, in some markets like Japan, the demand for high quality of wood is preferable.

Buyer Power
Buyer power has significant impact on the producing industry. The buyer power is perceived to be strong enough if they are in the minority in numbers and there are numerous producers or furnishing manufactures. The various products from Ikea that has advantages of high quality and low-price become one particular features in which buyer has less options since in some developed countries usually the furnishing companies are priced high.

Supplier Power
Supplier power is typically low within the specialized furnishing-manufacturing industry because furnishing companies have various amounts of different components and there are a large number of suppliers available to cater for this. The supplier power is low in case of Ikea since there are less worldwide furnishing retailers that would accept their low-cost products in global markets.

Barriers to Entry
Barriers to entry represent the complexity for a new entrant to enter the industry. Threat of new entrants in the specialized low-priced furnishing industry is relatively low as the manufacturers would need large amounts of capital to start up, build a factory and showroom, and to purchase technology to speed up the manufacturing line production, which required starting producing the specialty design and production. In one case, Ikea require as much as 60 million to establish a retail shop. This huge capital would be the barriers for start ups that do not have the strong capital back up.

Critical success factor on IKEA
Corporate Culture
The success formula of Ikea lies on their philosophy of providing affordable products that consumers want to pay and figure out a way to build it. This low-price strategy continues evolving as the company becomes multi billion company today (Greta Guest Detroit Free Press, 2006).
In other literature, it is said that this low-price strategy underlies IKEAs business model to provide customers with better, simpler and less expensive furnishings. This business model created the operations strategy the focuses on price leadership strategies where all activities must be performed at the lowest possible price. Production and distribution activities are performed based on cost-saving visions. The products are designed to be simple, recyclable and using as few corporate resources as possible.

Marketing
Another success factor is Ikeas distribution that simplifies the path from suppliers to customers as cost-effective and environmentally adapted as possible. The so-called flatpacks ensures that Ikea is no transporting air by selling and delivering furnishings in their unassembled form and letting consumer assemble the products themselves. This helps keep costs down.
In addition, what customers wait from Ikea is their regular catalogues that already become their most important marketing channel and also uses the internet as a marketing tool.

Bowmans strategy clock
Bowman strategy clock is developed to convey the competitive advantage in relation to cost advantage or differentiation advantage. In this strategy clock, there are six core strategic options as shown in the figure 2.


    In case of Ikea, the positioning of Ikea lies in the Hybrid option where the company presents the low-price strategy with some differentiation in order to stand out the furnishing markets.

Assess the extent to which the resources view and industry conduct performances
The company lives in a global industry of furniture manufacturers. Nevertheless, the organization has a business model which is considerable different than other furniture manufacturers. The company sell low cost-utilitarian furniture most of which designed to be assembled by consumers themselves. Applying this innovative business model, Ikea becomes the pioneer of a new sustainable development approach to the global furniture industry (Our Vision, 2007).

Recommendation
The key characteristics of Ikea are not manufacturing the products by themselves in fact they cooperate with sub contractors from all over the world to supply their stores. In order to keep growing in global market, there are several recommendations
Brand and design could be made the same in all markets since the brand of Ikea has already become multi billion brand
The size and accessories could be customized to match the local market since each single country has different characteristics and preferences
Moreover, the company can establish particular division that is responsible of managing distribution system in order to simplify supply chain management that ensure the smooth processes since raw materials delivered by suppliers until it reaches customers.

Porters Value Change
The Value Chain is a concept delivered to the world by Michael Porter, in his book Competitive Advantage Creating and Sustaining Superior Performance. According to the Value Chain concept, the process of assembling value within a product can be identified through every stage of activity from receiving raw material until the product is in the hands of consumer.

By identifying the value generation activities, companies can design their systems to deliver the ultimate value to their consumers. According to the value chain concept, a process can be divided into 5 important activities Inbound Logistics, Operations, Outbound Logistics, Marketing  Sales and Service. A company might have strong and weak points regarding the way they manage themselves within each of this processes (The Value Chain, 2005).

No.Components of Value ChainImprovement PlansResource AllocationCostBenefits1Inbound LogisticsImprove cost efficiencies and resolve the matter of low-price furnishing suppliesWarehouse, procurement activities, suppliers partnershipIncreased efficiencies if Ikea can match the market needs and inventory plan (reduce the use of warehouse)2OperationsRebuild company images that known as low-price retailerPR (Public Relation) departmentIncreased satisfaction while maintaining good reputation3Outbound LogisticsCaterpillar logistic department ensures that Caterpillars products are available in the places it is requiredWarehouse, shippingSales targets are achieved satisfactorily4Marketing and Salesmaintaining high quality and receiving considerable incomeSales force, promotion materialIncrease the awareness of the superiority of Ikeas products 5ServicesProvide financial services that help customers solve their limited budgetPartnership with financial companySolve the matters of payment method such as installment program etc.