Analyzing Competitive Dynamics: Case Study Of IKEA India

IKEA’s Business Strategy in India

The term competitive dynamics is a study based on rivalry and competitive edge present among specific and interrelated firms. According to Schumacher (2016), “Competitive dynamics can be analysed in the domain of the action, the reaction, the attacker the responder, and the environment”. The attributes that are known to impact organisational performance and contributes to complexity shows that they impact overall firm’s objectives. The competitive dynamics model consists of motivation, awareness and capability that represents key drivers of business competitive behaviour and that can also be called as key determinants of interrelated business rivalries. Other components that can impact on firms’ rivalries are firm size, past performance, age for awareness or marker dependency (Zucchini & Kretschmer, 2011). This forms the primary objective behind preparing this report to analyse competitive dynamics and observe how international companies utilises this technique to stay ahead in global business environment. For this, competitive dynamics of IKEA in India will be evaluated by application of conceptual models to study and understand the theoretical models of competitive dynamics while applying them in real world performance of IKEA.

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The concept of IKEA’s business has always remained in offering well-designed and functional home furnishings at affordable prices so that large number of customers can afford it easily. This concept has even made the IKEA one of the most popular brand worldwide where the company holds more than 235 retail stores spread across 30 countries employing more than 1,10,000 workers (Harapiak, 2013). In the year 2007, IKEA was ranked 42nd by Business Week Magazine among top 100 global brands. In the same year, it was placed in third position at Reader’s Choice Awards for global brands impacts awards. Although IKEA shares no more than 10% of market in the country’s it operates in, still it has been able to achieve success in global markets due to public awareness regarding IKEA brand. IKEA’s global expansion strategy was also determined due to success of its products in home country including European and African regions. The company has been continuously eliminating status symbols from domestic market to make a trustworthy and worthwhile relationship between managers and employees. This strategy of IKEA has made them enter into foreign markets while making a considerable difference in employees and local workers who have helped the firm gain a more sustainable position (Tommysdotter, 2016). Similarly, IKEA have always been able to influence Indian vendors and traders also to create a prominent chain of retail business throughout the country (Kumar, 2015). Currently, in addition to previous history, IKEA has introduced online shopping facility also to make easier for the customers to make direct purchases from anywhere in India. The major operations of the company take place internally, but few of them are even purchased from external suppliers. The company also produces its own special rages from its industrial group, Swedwood (Surwaris, n.d.).

Porter’s Five Forces Analysis

Industry attractiveness is the first and primary fundamental determinant of organisations whether it works in local or global marketplace. The rules of competition can be determined after analysing five basic forces and according to Indiatsy, et al. (2014), “The apex of environmental scanning with regard to competition can only be found in Porter’s Five Forces model”. Globally, Porter’s Five Forces model can be used to make environmental scanning as well as monitoring rivalry companies to obtain a complete knowledge of rival’s potentiality. This is the reason IKEA adopts Five forces model in continuous and dynamic manner to anticipate disruptive and volatile environmental deviations (Li, 2010).

Bargaining power of suppliers

The bargaining power of suppliers can also be referred as market inputs where the influence of suppliers determines firm’s profitability and competitiveness through increase of price inputs or reducing the quality of unit’s value. Suppliers bargaining power is further depended on various input element. When input elements become portion of total cost, the input elements become significant for the product process and even influences the quality of buyers. Then it is said that the suppliers have strong bargaining power (Ritson, 2011). For IKEA in India, this force is weak since the suppliers are constantly in competition among each other’s to maintain firm and healthy relationship with a big and established brand like IKEA. This weakness in suppliers bargaining power further helps the company in optimising available resources to the fullest along with maximising profits. Moreover, IKEA is itself into manufacturing business also with Swedwood manufacturers which brings threats to its suppliers for facing direct competition with IKEA.

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Bargaining power of customers

The bargaining power of customers can be defined as market related to product outputs where the ability of customers puts pressure in firms to produce more or less according to product or service demands. Customers bargaining power even affects sensitivity to price as they influence profitability by asking for enhanced service or products in lower prices ( Jaradat, et al., 2013). For IKEA in India, this force remains strong as there are many brands available in Indian market who offers similar products like IKEA in lesser prices. Due to availability of substitutes products from international market like Japan and China, market remains very competitive among retailers (Gupta, 2017). Therefore, consumers get various choices from where they can easily make a choice from alternative brands that makes this power stronger for IKEA.

Threats of new entrants

Supplier Bargaining Power: Weak

When balance between demand and supply becomes imbalanced, new entrants gets attracted due to high returns envisaged from profitable markets. In fact, these new entrants not only bring new resources and technology, but also reduces overall profitability of every companies present in marketplace. For IKEA, this is a weak force as development seen in furniture market competitors is very rare and insubstantial due to costly investments and elevated market saturation. Therefore, there are very less to no entry barriers seen in furniture related business. However, the intensity of competition can scare the potential entrants as initial setup requirements can be made in low cost manner. Opening a retail store can prove easy for any new entrant and that too with small investment. But to become a major player like IKEA, the firm needs to make hefty investments along with establishing good relationship with suppliers and selecting suitable outlets for product displays. All these requires lot of patience and time investment that has been already made by IKEA in major countries and thus IKEA holds a reputable position for whom this force remains weak.

Threats of substitute products

Companies comprising similar product and operating in same markets compete with each other’s as their products can get substituted with each other. They bring additional force to the organisations mainly due to two reasons. Firstly, the profitability of the products gets reduced due to substitute products availability and secondly, because substitute products may cost high production cost for requirements in improved quality, making products more attractive than rivalry companies substitute products (Meyer, 2009). The furniture industries are moving towards plywood, plastic and as the organisations are becoming more concerned towards environment, many of them are giving slogans related to green environment. But, the basic fundamental that is using wooden furniture concept remains the same for human civilisation and so threats related to product material substitute remains weak for IKEA. Even, the trendy brand perception of IKEA has always helped the company gain a reputation in local as well as international market. Therefore, IKEA has been able to gain customers even when there is availability of substitute companies’ brands in market. Hence, this force also seems weak for IKEA in India.

Competitive rivalry within the industries

Most of the industries faces the force of competitive rivalries as one of the major determinants in competitive dynamism of industries. Competitive rivalry can be based upon various factors like quality, price, technology and innovation (Enz, 2010). For IKEA, this force can prove stronger due to availability of various brands in present Indian market. Moreover, the local brands who have gained prominence can influence IKEA products in Indian markets to consider their design and pattern suitable for Indian people. Along with it, Chinese and Japanese brands availability also hamper IKEA products sale as due to their competitive designs and competitive price,  hence, IKEA have reduced its products price effectively in Indian market (Bhushan, 2017).

Customer Bargaining Power: Strong

Although an organisation may consist variety of strengths and weaknesses as compared to its competitors, there are two basic kinds of competitive advantage that are possessed by every firms: differentiation or low cost. These two competitive advantages have potential to influence overall competitive dynamics of organisations and firm’s profitability. These two competitive advantages are further combined with focus strategy under which firm’s seek achieving leading position or achieving above average performance as compared to others in similar industry. In other words, differentiation and cost leadership strategies made by organisations seek competitive advantage in wider range of market segments while focussing and aiming differentiation and cost advantage in narrow segment ( Carpenter, et al., 2012).

Cost leadership

Cost leadership is the clearest in three generic strategies where the firms try their best to reduce their product or services cost. If organisations are able to sustain and achieve overall cost leadership, they become above average performer in their own industry and gains potential to command prices to their near average competitor. Cost leaders, however, cannot ignore differentiation bases (Tanwar, 2013). For IKEA, cost leadership strategy has always remained biggest aim to lead other rivalry companies’ prices. Even, when looked back upon IKEA history, it can be found that IKEA has always maintained low prices in every part of its processes. For example, they confirm products prices much before they are designed. The company uses flat-packaging system that reduces transportation price along with keeping minimum store representatives to reduce staff expenses (Harapiak, 2013).

Differentiation

The second competitive strategy is differentiation in which firm’s seeks gaining uniqueness within operating industry along with those dimensions that are valued by customers. It means, differentiation is peculiar in every industry and are based on products and services itself (Tanwar, 2013). IKEA range consists of more than 9500 home furnishing products that are designed to be good-looking as well as being functional, but at lower prices. Almost everything related to home furniture can be found in IKEA’s range like liberals and romantic styles. For most of the companies achieving low cost or good quality is easy to achieve but attaining both of them remains very tough. In India, IKEA has brought a wide range in which low cost products with good quality and high functionality that are being liked by customers and thus it can be said that company follows effective differentiation strategy while being in a competitive dynamic environment.

Focus

The third strategy i.e. focus is quite different from other two as it rests on choice made by narrow competitive range within the industry. The focuser selects groups or segments in the industry while tailoring its strategy to serve them for excluding others. Every firms focuses on time, resource and money within its industry to gain competitive dynamics as different requirements of customers may combine many segments to serve one industry (Tanwar, 2013). In IKEA, there are many segments which the company has to focus upon like offices, schools and homes where the targeted customers cover almost everybody. IKEA’s outsourcing strategy also helps the managers of the company focus at their energies and other significant resources that can perform core activities to gain potential advantage and create additional values.

Threat of New Entrants: Weak

Conclusion

Advancements in technology and innovations in services and products to some extent have saved many companies from direct competition. Companies who usually flows with market demands along with introducing new technology and innovative products are also able to charge good prices and thus are able to achieve higher profits as compared to their competitors. Since all the necessary elements required to compete global business market is present in IKEA, it has been able to succeed in Indian market also. After evaluating IKEA competitive dynamics in Indian market, it can be said that IKEA have led an example about how an international brand can succeed in foreign market by gaining competitive dynamics.

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