A Pestle and Porter's Analysis of the IKEA Company in Singapore (Term Paper Sample)

Running head: IKEA BUSINESS ENVIRONMENT IN SINGAPORE1
An Analysis of IKEA business Environment in SingaporeShinia ZhilieiKaplan Institution of Management

 TOC \o "1-3" \h \z \u  HYPERLINK \l "_Toc437231513" COMPANY OVERVIEW  PAGEREF _Toc437231513 \h
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 HYPERLINK \l "_Toc437231514" PESTLE ANALYSIS OF IKEA IN SINGAPORE  PAGEREF _Toc437231514 \h
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 HYPERLINK \l "_Toc437231515" PORTERS FIVE ANALYSIS OF IKEA  PAGEREF _Toc437231515 \h
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 HYPERLINK \l "_Toc437231516" Competitive rivalry among firms  PAGEREF _Toc437231516 \h
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 HYPERLINK \l "_Toc437231517" Threat of new entrants  PAGEREF _Toc437231517 \h
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 HYPERLINK \l "_Toc437231518" Bargaining power of suppliers  PAGEREF _Toc437231518 \h
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 HYPERLINK \l "_Toc437231519" Bargaining power of buyers  PAGEREF _Toc437231519 \h
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 HYPERLINK \l "_Toc437231520" Threat of substitutes  PAGEREF _Toc437231520 \h
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 HYPERLINK \l "_Toc437231521" STRATEGIC RECCOMENDATION  PAGEREF _Toc437231521 \h
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 HYPERLINK \l "_Toc437231522" CONCLUSION  PAGEREF _Toc437231522 \h
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COMPANY OVERVIEW
Established in Sweden in 1943 by Ingvar Kapard as a mail order business, IKEA has made tremendous milestones to become the largest furniture retailer globally (Tippenberg, 1997). Today, IKEA owns 378 stores in 47 countries, has a portfolio of over 10, 000 products and 147, 000 employees. In 2014, its net income was estimated to be worth 3.329 billion Euros, its total assets worth 44.667 billion Euros and its total equity was valued at 31.608 billion Euros (Inter IKEA System B.V, 2015).
Built upon a vision ‘to create a better everyday life for the many people’, IKEA’s core business is to create cheap but chic ready-to-assemble functional home furnishing products. The company has also diversified its products base to include solar PV systems, flat pack houses, shopping centers, a virtual mobile phone network and hotels.
IKEA has established a distinct and valuable strategic position through its innovative, aesthetic functional designs and competitive pricing. Some of the key characteristics that make IKEA stand out are their flat-packed DIY designs that require consumers to assemble the furniture themselves; a unique Scandinavian shopping experience with mammoth size blue and yellow retail stores laid out like a maze; heavy application of its product catalogue as a major marketing tool; and its egalitarian, caring corporate culture that aims to make a difference in the lives of both people and planet(Johansson, 2006, p.85; ).
PESTLE ANALYSIS OF IKEA IN SINGAPORE
A PESTLE analysis is a framework used by organizations to track and monitor the external macro-environment factors that shape and influence an organizations operation (Bensousan & Fleisher, 2012). The global environment is highly competitive, complex, dynamic and extremely volatile. This section analyzes the political, economical, socio-cultural, legal and environmental factors that may influence IKEA business expansion in Singapore.
The P in the Pestle acronym stands for political. The political decision and climate can greatly affect the profitable aspects of a business. Some of the political factors that affect business include bureaucracy, corruption, tax and tariffs, freedom of the press, competition regulation and consumer protection and the governing laws (Kotler, 1997).
Singapore is continuously ranked as the world most investor-friendly country in the world (The Economist, 2014, World Bank, 2012) . Singapore’s stable and democratic political climate, budding economy, high levels of transparency, strong judicial system, flexible and relaxed immigration policies, minimal corruption and good corporate governance have solidified the countries position as a global business and financial hub. The country has an outstanding tax system and speedy business set up procedures that allow for quick entry and fast traction. IKEA Singapore can therefore anticipate a stream of profits and favorable business operation due to Singapore business friendly regulatory approach.
The E in Pestle stands for economic factors which may either cripple or boost business operations. Singapore’s has a robust and dynamic economy that is growing exponentially. The country is strategically located in the heart of East Asia making it a cross road to other Asian economies (Hawksford, 2015). The country boasts of a very strong unfaltering dollar, a highly educated and skilled labor force, attractive personal and corporate tax rates, good infrastructure and high standards of life. All this factors translate a good profitable business for IKEA. However, IKEA in Singapore may be adversely affected by the surge in labor cost and declining productivity due to labor shortages brought about by a rapidly ageing population (Kelly, 2015).
Social cultural factors include the gamut of attitude, behavior, beliefs of a particular market. These include the spending habits, family size and structure, lifestyle, population growth rate, religion, social classes and belief among a host of other suppositions (Dcosta, 2011). The Mercer Survey, (2014) ranked Singapore the 2nd place to live, work and play thanks to it world leading education system, healthcare, transport system and safe living environment. The country has been described as the place where the West meets the East due to its diverse culture. This means Singaporeans can be more adopting of IKEA’s Scandinavian designs due to their affordability and Western design.
Furniture mindsets may also play a key role in impeding the growth of IKEA in Singapore. Singaporean generally believes that furniture should last a lifetime. This contradicts IKEA designs which are not designed to be durable. In order, to change this mindset and make consumer more accepting to their not-lasting products, IKEA may have to conduct several campaigns aimed at changing Singaporeans attitudes towards furniture as fun and disposable items.
The DIY culture and shopping experiences also poses another challenge for Asian consumers. Asians are averse to DIY projects and are used to genuflection from shop assistants (Bansal, 2012). This contradicts IKEA’s self-assembly feature and little to no human assistance in IKEA stores which largely employs arrows and glow signs as navigation tools. Home assembly services and shop assistance features could, if added, solidify IKEA’s prominence in the Singapore market.
Technologically, IKEA is widely known for its risk taking creativity and innovation. Singapore is a perfect fit for IKEA due to its pacesetting technological advancements. The Global Information Technology Report of 2011 ranks Singapore the top technological savvy Asian country. The Republic increasingly strives to adopt the latest technologies in manufacturing, engineering production, 3D, automation and robotics. Some of the companies in Singapore enjoy “market leadership in sub-categories such as semi-conductor equipment, diagnostic tools, biologics, hard disk drive media and offshore oil and glass platforms.” The government also provides educational and financial incentives to boost companies R&D programs.
The Legal aspects of a company and environment dictate the rules, laws and guidelines that govern company’s operations, migration, competition and labor policies. Singapore has enacted a wide range of policies including Electronic Transaction Act, Content Regulation, and Intellectual Property rights to solidify e-commerce and guard against violation of intellectual property. The Competition Act promotes a favorable competition climate and forbids practices like price fixing, bid rigging, market sharing and any other harmful or abusive business competition practices.
It is estimated that IKEA consumes 1% of the wood used in commercial activities globally. However, the company takes bold environmental commitments to reduce their carbon footprint and green house emissions. The company owns wind farms in eight countries, pushes for sustainable farming of cotton using less water and chemicals, charges extra for plastic bags and has increased its use of certified responsibly harvested wood in their products. IKEA’s eco-friendly practices were not well received in China due to the extra charges imposed on eco-friendly items. However, Singaporeans are truly open and committed to earth friendly practices and don’t mind carrying their own eco-bags or supporting environmental friendly practices and products.
PORTERS FIVE ANALYSIS OF IKEA
The Porters five forces is analytical tool that deconstructs industry structure into five competitive forces and variables namely: competitive rivalry among existing firms, bargaining power of customers, the threat of new entrants into the industry and the threat of substitute products and services (Nemati and Barko, 2004)
Competitive rivalry among firms
There is a long of list of furniture manufactures who offer style and quality at affordable prices. IKEA faces rivalry from all corners; big chain stores, regional stores, local retailers and online B2B and C2C shopping malls. Rivalry has been further compounded by the global recession which has forced premium priced furniture manufactures to reduce their prices and product portfolio in order to expand their market share.
IKEA not only has to match prices but other value added services and packages like interior design, free delivery, free packaging and assembly, consultation and credit offered by other furniture retailers. However, IKEA’s positioning as an innovative cost leader coupled with the current recession that has hit the furniture industry the hardest, may help deflate competitive rivalry.
Threat of new entrants
The threat of new entrants into the furniture is lo...