Strategic Analysis (Term Paper Sample)

Strategic Analysis: IKEA (Furniture Division) UK

Executive Summary
This report analyses the IKEA UK furniture division market competitiveness, evaluating the current and future market conditions through an internal and external market analysis. Consequently, basing the analysis on the applied strategy, the report offers strategic recommendations for future market sustainability and success. Externally, a PESTLE analysis reveals favourable, economic, social, and technological factors, while demonstrating challenging legal, political and environmental conditions. Further, an industry analysis, through a porters five forces model analysis, establishes a rising, buyers bargaining power against declining suppliers bargaining power, high industry rivalry, and the threat of new entrants as key threats. However, the low level of substitution risk serves as a future sustainability opportunity.
An internal evaluation through a value chain analysis establishes that among the strength building activities include its inbound logistics, localised assembling process, online marketing, and technology based HR management and procurement systems. However, it identifies the lack of outbound logistics, minimal after sales services, and large stores located in main towns as its key weaknesses. A strategic analysis of the division illustrated that the venture applies the differentiation strategy, by differentiating its products, services, and brand perception.
Consequently, the report argues that with the establishment of outbound logistics services the venture will counter the risk of losing consumers for lack of transportation means. Moreover, by developing new small stores in the UK small towns and neighbourhoods, the venture will increase its market competitiveness in the future by targeting an increased consumer base.

Table of Contents
 TOC \o "1-3" \h \z \u  HYPERLINK \l "_Toc421868578"
1.0 Introduction  PAGEREF _Toc421868578 \h
1
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2.0 External Environment Analysis  PAGEREF _Toc421868579 \h
2
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2.1 PESTLE Analysis  PAGEREF _Toc421868580 \h
2
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2.1.1 Political Analysis  PAGEREF _Toc421868581 \h
2
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2.1.2 Economic Analysis  PAGEREF _Toc421868582 \h
3
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2.1.3 Social Analysis  PAGEREF _Toc421868583 \h
3
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2.1.4 Technology Analysis  PAGEREF _Toc421868584 \h
4
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2.1.5 Legal Analysis  PAGEREF _Toc421868585 \h
4
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2.1.6 Environmental Analysis  PAGEREF _Toc421868586 \h
4
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2.2 Porters Five Forces Analysis  PAGEREF _Toc421868587 \h
4
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2.2.1 Buyers Bargaining Power  PAGEREF _Toc421868588 \h
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2.2.2 Suppliers Bargaining Power  PAGEREF _Toc421868589 \h
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2.2.3 Competitive Rivalry  PAGEREF _Toc421868590 \h
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2.2.4 Threat of New Entrants  PAGEREF _Toc421868591 \h
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2.2.5 Threat of Substitution  PAGEREF _Toc421868592 \h
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3.0 Internal Environment Analysis  PAGEREF _Toc421868593 \h
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3.1 Primary Activities  PAGEREF _Toc421868594 \h
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3.2 Supportive Activities  PAGEREF _Toc421868595 \h
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4.0 SWOT Analysis  PAGEREF _Toc421868596 \h
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4.1 Strengths Analysis  PAGEREF _Toc421868597 \h
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4.2 Weakness Analysis  PAGEREF _Toc421868598 \h
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4.3 Opportunities Analysis  PAGEREF _Toc421868599 \h
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4.4 Threats Analysis  PAGEREF _Toc421868600 \h
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5.0 IKEA UK Furniture Division Strategy Analyses  PAGEREF _Toc421868601 \h
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6.0 Conclusion  PAGEREF _Toc421868602 \h
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7.0 Recommendations  PAGEREF _Toc421868603 \h
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7.1 Outbound Logistic Services  PAGEREF _Toc421868604 \h
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7.2 Store Sizes Reduction  PAGEREF _Toc421868605 \h
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References  PAGEREF _Toc421868606 \h
13

1.0 Introduction
The UK furniture industry is among the leading furniture raw materials importer industries in the European markets. A world furniture outlook report analysis demonstrated that the although by 2014, the UK market had not reached its pre financial crisis furniture sales levels as compared to Canada, it remained among the highest furniture importers among other western nations such as Germany, Canada, USA, and France as illustrated in the figure 1 below on the furniture industry importation levels between 2004 and 2014.


Figure 1: Furniture Import levels between 2004-2014
Source: CSIL, 2015
Although there are numerous furniture companies in the UK, one of the profound organisations in the market is the IKEA UK furniture division. The organisation has been operational in the UK market for over 26 years and had a market share of 6%. However, the organisation has a strategic plan of expanding its market share to over 12% by 2020 which is expected to total up to an annual turnover of £2 Billion (Hawkes, 2013). This report evaluates the external and internal business environments, evaluates the issues affecting the organisations, as well as offering its strategic analysis. Consequently, it develops recommendations on how the organisation can actualise its long term UK market expansion goal.
2.0 External Environment Analysis
An organisational environment encompasses all the external factors that impact on an organisational market and strategic competitiveness, but the ventures have no control over them. In this analysis, the report classifies the factors into two broad categories, namely the external national factors in the UK market, as well as factors specific to the UK furniture industry. Consequently, the report applies the PESTLE and the Porters Five forces analysis tool to evaluate both external market segments respectively.
2.1 PESTLE Analysis
2.1.1 Political Analysis
The changing VAT taxation as demonstrated in the table below, from 15% and 17.5% to 20% in 2008, 2010, and 2011 respectively, has an effect on the organisational profit margins and sales quantities (LAVAT, 2015). The venture has to adopt cost effective strategies to increase its profit margins while retaining relatively stable market prices (Centre for Retail Research, 2015)
FromToRate
 01 April 197328 July 197410%   29 July 197417 June 19798%   18 June 197931 March 199115%   01 April 199130 November 200817.5%   01 December 200831 December 200915%   01 January 201003 January 201117.5%   04 January 2011-20%Table 1: UK Historic VAT tax rates
Source: LAVAT, 2015
2.1.2 Economic Analysis
An industry economic growth trend illustrates the nature of the market purchasing power and ability to demand and consumer market supplies. In this context, since the end of the 2008 global financial crisis, as illustrated in figure 2 below, the UK market growth rate has been on the rise, although it slowed down to 0.3% in the first quarter of 2015 as compared to 0.6% in the last quarter of 2014 (BBC News, 2015). However, forecast statistics indicate future economic progress illustrating a potential for demand rise for IKEA furniture products in the market.
 INCLUDEPICTURE "http://ichef.bbci.co.uk/news/624/media/images/82614000/png/_82614598_gdpgraph.png" \* MERGEFORMAT 

Figure 2; UK Economic Growth Rates on Quarterly Basis
Source: BBC News, 2015
2.1.3 Social Analysis
The UK society has experienced increased social integration (Mason, 2010). Thus, besides the traditional furniture design in the UK market, the consumer base has developed increasing culturally diversified furniture designs, which increases the sales and market potential for IKEA in the future. However, unlike the IKEA venture that provides flat furniture’s for personal assembling, the UK consumer base is more inclined to buying readymade products, which could derail IKEA company future development and growth.
2.1.4 Technology Analysis
Technology levels in the UK market have increased with the changing global technology market trends. For instance, organisations such as IKEA have resulted in the use of online sale portals as their key marketing and selling points (UK Government Office for Science, 2015). With technology access and development expectations in the future, it is expected that the furniture industry players such as IKEA will reach out an increased number of consumers in the long run period.
2.1.5 Legal Analysis
The Britain furniture industry is regulated by a wide range of regulations under the department of Business and Innovation Skills (BIS). One of the eminent regulations is the changes on the 1988 (FFRS) safety regulations, which, although the British Furniture Confederation (BFC), the industry voice, negotiated for delayed implementation in April to around October subject to further consultations, its adoption is likely to increase furniture manufacturing and testing costs (BFC, 2015)
2.1.6 Environmental Analysis
The UK market, similar to other EU member nations, has developed an increased concern for furniture manufacturing on the environment, an issue that ...