PESTLE analysis of IKEA

“To create a better everyday life for the many people."[1]

IKEA is a privately held, international home products company that designs and
sells ready-to-assemble furniture, appliances and home accessories. The
company is now the world's largest furniture retailer. IKEA offers a wide range of
furnishings at low prices that many people will be able to afford. This is the idea
at the heart of everything IKEA does, from product development and purchases
to how they sell the products in IKEA stores globally.

In today’s market we can buy locally or globally, high or low quality at varying
prices. But to make good products at low prices, you need to develop methods
that are both cost-effective and innovative. This has been IKEA's focus since its
beginnings in Småland, Sweden. Maximising the use of raw materials and
production adaptation to meet people's needs and preferences has meant that
IKEA can keep their costs low. They claim that “the IKEA way of doing things is to
pass these cost savings on to the customers”. [1]

For a business such as IKEA to survive in today’s extremely competitive

environment they must carry out strategic planning and management techniques
that clearly define objectives and analyse the external and internal environment in
order to formulate a strategy, implement it and make any changes to make sure
that it stays on track.
PESTLE is a management technique that enables an analysis of six external
factors that may impact the performance of the organisation. These factors are:
Political, Economic, Social, and Technological, Legal and Environmental issues
that could affect the strategic development of a business.

Political factors:

This involves the regulation of policies in the workplace, there have been certain
legislations made by the government on foreign investors (which IKEA is). For
example the minimum wage policy legislation which means that the workers
are not paid anything less than the stipulated wage to avoid cheap labor which
therefore increases the production cost of the product thus increasing the final
price of the product.

Also the U.K has always been politically stable and the political parties have
always welcomed the foreign owned companies allowing IKEA to transition from
Europe to the UK easily. Also the taxation policies are not tough on the
companies to enter the market which encourages companies to expand into the
British market. Currently there are new business policies such as simplifying
Health and safety regulations for companies which will make an impact on IKEA
and how they train their staff on health and safety.

Economical factor:

IKEA has made their products in such a way that their price is very reasonable for
the public especially during the economic recession that we have recently gone
through. This has been of an advantage especially since IKEA products are
mainly made in China reducing the cost of materials and labor.[2]
As the country's inflation rate is lowering and the national income is getting
higher, IKEA have better chances to grow and capture the market. The rate of
interest is low and so it encourages people to buy
their product. Also the currency was strong till now
but due to the recession scenario the business is
going to face the impact. Perhaps as unemployment
increases in the UK people are not going to be able to
afford luxuries or unnecessary spending.

In the fiscal year 2010, IKEA's sales grew by 7.7% to

€23.1 billion and net profit increased by 6.1% to €2.7
billion. Conforama, Habitat and other rivals did not
come close. IKEA's strong brand and low prices helped it to weather the
downturn, even though 80% of its sales are in crisis-hit Europe. In 2010 its sales
rose by 8.2% in Spain and 11.3% in Italy. The firm is doing well in Bulgaria and
Romania and planning to expand further in central and Eastern Europe. [4]

Social factor:

Throughout the years IKEA has always maintained a fair social standing.

IKEA has completely understood the life style of the people in the UK and have
developed their stores accordingly. As people have the flexible working hours
and they tend to do shopping on odd hours or late hours (after 5pm) looking to
this normally all IKEA stores are opened till midnight. Also stores have other
facilities like children playing area and restaurants which is helping the parents
who are accompanied with their children which is mainly the case on the
weekends. For the future IKEA will have to keep their eye on the customer’s
attitude to furniture, they may begin to desire designer high quality furniture to
IKEAs low budget furniture.
To grasp an economical advantage to the organization, the company needs to
recruit the correct staff and train them correctly. Customers make judgments and
deliver perceptions of the service based on the employees they interact with.
Staff should have the right skills, approach, and service knowledge to deliver the
service that customers are paying for.

Technological factor:

Technology has made it easier for IKEA to promote their product through the
internet. It gives the customer detailed information about the product, the
dimensions which make it easier for the customer to know what they are buying.

Apart from the catalogue services, this has been an integral part of IKEAs sales
pitch for years. IKEA's strength is online service it provides the online help to the
customers to devise their homes. The latest advancement in the stores is
computer operated lifts to aid in moving large bulky furniture. Earlier after placing
the order customer has to go to the warehouse for the pickup of the product but
now IKEA has centralized store and warehouse. The customer has to place order
and then has to put the code of product on the computed lifts provided and thus
can receive the product. This saves the time of the customer and also the staff.
Nowadays, most of people are computer literate; IKEA could save their cost by
printing the catalogue which in large volume annually. The customers could first
research on which item they want to consume and to know further information
about the price, function and so on. Then, IKEA’s website features hundreds of
products as a way of demonstrating the width and depth of our product range so
it is user friendly. However, IKEA do encourages its customer to visit their stores
for full selection of products and also detail information.

Environmental factor:

IKEA presents itself as a green company with a social mission. Mr Ohlsson (the
chief executive since 2009) boasts of its charitable work and its aim to use only
renewable energy.

It uses recyclable products which in this case it reduces waste and space
consumption, the packaging is less fancy and more environment friendly.

The U.K is an environmentally friendly country and encourages the companies

following the policies to protect the environment. IKEA’s mission is to provide
products at low price but not at any price to the environment. It does the foresting
for the woods used in the furniture and with WWF partnership it is working on
projects to focus on sustainable forestry, cotton manufacture and climate change.
IKEA also does third party auditing on the material used by its suppliers to check
the compliance of raw material used. The company follows low emission foot
print during the logistics as its materials are transported by rail, road or ship. Most
of the products are eco-friendly and are healthy for the customers. It utilizes the
maximum of the resources and therefore tries to use recyclable products to have
less impact on environment. It also does charity projects with UNICEF for the
educating children. In partnership with WWF it is also focusing on the countries
like U.K, USA and China on the climatic change and low emission of fuel energy
and encourages its staff by using public transport.
In 2003, there has been improved stress on several companies and managers to
recognise their duty to society, and act in a way which assistances society largely
(Lindgreen and Hingley, 2003). The foremost social matter frightening furniture
retailers has been environmental issues, an important zone for companies to
performance in a generally liable way.

Legal factor:

Countries have legal laws for foreign investors to invest in their territory and these
laws have to be abided by to invest, this makes it a bit difficult for IKEA to
penetrate into some countries despite the fact that there is good market.

U.K has legal policies for the organizations and thus IKEA follow the same for its
staff and suppliers and some extend to its customers too. The policies which are
followed by IKEA are like minimum wages, no forced or bonded labor,
discrimination acts, safety regulations, health and accidental insurances, freedom
of associations, etc. IKEA prevent child labor and works actively to prevent it.
The Companies Act 2006 is undoubtedly the most important legislation in regards
to the fundamental framework of a business such as IKEA. It identifies how a
business's accounts should be presented, what the companies requirements are.
Failure to comply with this piece of jurisdiction can have dire consequences for
IKEA.
Forecasting the possible problems IKEA could face in future:

It will be more difficult to respond to national needs and cultural sensitivity issues.
Franchisees may demand more control over operations. With all these
challenges emerging, it will be very difficult to maintain a global organizational
structure. The best approach to meet these challenges is to find the proper
balance between country level autonomy and centralized intervention.

From the very beginning IKEA’s target market has been the middle class to lower
middle class people. This strategy has been worked for a long time but IKEA
never wondered about how much further they can reach. In USA the trend was
changing; people wanted more elegant design. IKEA can develop products that
are designed for the high class people who are sensible about the design and
quality and do not care about the price.

IKEA is enjoying competitive advantages but they’re also facing a lot of problems
from the aspect of organization development that requires change to be taken.
For example, size and scale, challenging time during economic downturn,
demand for low price products, existing competitors in the same industry,
consumer purchasing power and also cost reduction. All of these problems are
very common in the business world whereby the organization have to aware all of
the aspects to achieve organization objectives.