IMI – BHUBANESWAR

TERM PAPER
MARKETING MANAGEMENT -II

IKEA
SUBMITTED TO -: PROF. RAHUL GUPTA
SUBMITTED BY -: PRIYA KUMARI
21PGDM-BHU067
IKEA Overview
IKEA is the world's largest furniture shop, noted for its moderately priced practical furniture. It was founded by
Ingvar Kamprad in 1943 as a small Swedish mail-order catalogue business. Ikea has around 360 shops in over 50
countries. The year 2013 was a watershed moment for the company. With global sales of about 28 billion euros, the
company is profitable. While Europe makes up for lost time, IKEA has enjoyed great expansion in North America,
which accounts for the majority of its market. China and Russia are two of the world's most powerful nations. The
firm is trying to grow into new geographic areas.

Areas in pursuit of even greater expansion IKEA hopes to nearly treble its revenues. Emerging markets are one
reasonable region to look for new prospects by 2020. While the prospect of over 1 billion additional consumers in
India is appealing, there is also a down side. There are a slew of major obstacles that the firm must overcome.

IKEA Vision
With IKEA's mission and business strategy of "offering a wide choice of well-designed, useful home furnishing items
at costs so cheap that as many people as possible can afford them," "to create a better everyday living for the many
people, "The firm takes pleasure in working hard to provide quality at a reasonable price for its customers.
Customers by optimising their whole supply chain and establishing long-term supplier relationships. Investing in
highly automated manufacturing and generating enormous volumes, among other things beyond the realm of home
decor.

IKEA in India
India ranks 37th among the nations with which IKEA does business. While IKEA owns shops in 24 countries, the
remaining locations are franchised or operated by other businesses. However, given the difficulties of doing business
in India as a developing market, it was not a good idea to copy the business model of other nations. While the
prospect of over 1 billion new clients is appealing, the corporation must also contend with a slew of major problems
in this market. The macro environment is made up of large environmental elements that affect multiple
organisations, businesses, and sectors to varying degrees. Similarly, in the case of IKEA's presence in a nation like
India, which has its unique set of problems and potential, it is vital to research the macro environment. IKEA
considers each nation to be a strategic business unit.

Overview of Furniture market in INDIA

• In 2020, the global furniture market will generate revenue of US$205,395 million. The market is predicted to
increase at a rate of 5.1 percent each year (CAGR 2020-2023).

• In terms of worldwide revenue, the United States generates the most.

(US$261,496 million by 2020)

• When compared to the entire population, per-person revenues in 2020, a total of US$148.84 will be earned.
 According to a World Bank report, India's organised furniture sector is likely to increase at a rate of 20% per year
over the next several years, surpassing $32 billion by 2019. In India, the online home décor industry is expected to
increase at a CAGR of 50.42% in 2019.The luxury furniture market is estimated to generate $27.01 billion in sales.

India’s home furnishings market is largely served by informal mom-and-pop outfits, so called unorganised retailers.
However, gradually bigger companies are increasingly gaining share.

India’s home furnishings market is largely served by informal mom-and-pop outfits, so called unorganised retailers.
However, gradually bigger companies are increasingly gaining share.

IKEA in India
India ranks 37th among the nations through which IKEA does business. While IKEA owns locations in 24 countries,
the remaining locations are franchised or operated by other businesses. However, given the difficulties of doing
business in India as a developing market, it was not a good idea to copy the business model of other nations. While
the prospect of over 1 billion new clients is appealing, the corporation must also contend with a slew of major
problems in this market.
The macro environment is made up of large environmental elements that affect multiple organisations, businesses,
and sectors to varying degrees. Similarly, in the case of IKEA's presence in a nation like India, which has its unique set
of problems and potential, it is vital to research the macro environment.

Each country is a strategic business unit in IKEA since it is a part of the organisation but it has its own external market
for products or services and competitors that are separate from the other SBUs.

Porter’s Five Forces

Further to analysing the macro environment for IKEA in India now, it is imperative to analyse the key determinant of
profitability by scrutinizing the extent of competition and the strength of buyers and suppliers. Porter’s Five Forces
Framework will help us analyse and identify the attractiveness of the market for IKEA in terms of five competitive
Forces –

i. extent of rivalry between competitors

ii. Threat of entry

iii. Threat of substitutes

iv. Power of buyers

v. power of suppliers

Rivalry among existing firms

Pepper fry, India's ultimate ecommerce furniture store, as well as several local merchants with an Indian client base,
including such Future Group (Home Town), Landmark (Home Centre), and Shoppers Stop (Home Stop), face severe
competition in India. With IKEA's arrival, the small and medium retail furniture sector may eventually have a defined
structure and shape. Other current businesses may not be as large as IKEA, but they understand Indian clients
extremely well simply because they have been in the Indian market for a long time. Existing furniture brands have a
strong hold on Indian customers due to low furniture prices, consumer knowledge, and traditional styles, and, most
crucially, the ability to deliver hassle-free ready-to-use furniture to their doorstep.

Threat of the New Entrant

New market entrants would not be able to turn a profit from economies of scale to the same extent as IKEA, at least
during the early phases of operations.

Bargaining Power of buyers

In the furniture and home appliance manufacturing industries, purchasers have enormous bargaining power. Indian
clients are price conscious and loyal to providers with whom they have a long-standing trust relationship. Because of
the fierce rivalry, there is a big list of furniture merchants from whom consumers may choose, all of them provide
hassle-free, ready-to-use furniture.
Bargaining Power of Suppliers
While Ikea has sourced cushion covers, rugs and other textiles from India since the 1970s, the country accounted for
just 3 per cent of the company’s global supply chain in 2012. Traditionally, India has been supplying textiles, rugs and
carpets to IKEA and already had 48 suppliers in India. The company is getting carpets, pillows, mattresses and even
some of its popular Ektorp sofas from local manufacturers, which are also being exported to Ikea stores elsewhere in
Asia and the Middle East. Globally, Indian suppliers sell about $400 million of goods a year to Ikea, primarily textiles.
Now the company is looking at new categories such as mattress, sofa and other furniture. And it has already signed
up sofa and mattress suppliers who have started exporting India-made IKEA products to stores around the world. In
terms of products, IKEA is now looking at sourcing new materials from India namely Ceramics, Glassware, Wood,
Natural Fibres, Bamboo, Acacia, Eucalyptus, Metal etc. There is strong government push to fulfill the condition to
comply with local sourcing requirements, which mandate that within five years, 30 per cent of all goods sold in
IKEA‘s Indian stores be made in the country.

Threat of Substitute Products

IKEA is instead substituting furniture of latest trends in India. Through simplicity of design and innovative
technology, IKEA can follow any new style fairly well. IKEA also has entered the Indian market after well-
research and has many space saving innovative furniture capabilities for Indian consumers, in much
affordable prices.

Porter’s Diamond

We will now use Porter's Diamond Model to evaluate IKEA's total competitive advantage in India.

Producing at a low cost and high quality in India (local) is cost viable.

Good Brand Image - Leading the country's social cause for women and children.

Introducing the notion of do-it-yourself (DIY) to the Indian market

Local suppliers are involved even before they reach the country.

Support for environmentally sustainable efforts through technology

Using technology to improve the industrial process in India*

There are 1.2 billion people in the world, with a median age of 28. (young)

Population of the Middle Class is Growing Furniture that is both inexpensive and trendy is in high demand.

Availability of low-cost, skilled labour

Support from the government - a 100% totally owned corporation is permitted.

*In order to keep carpet production in India competitive on a worldwide scale, IKEA has provided technical
support to handloom employees.

IKEA Strategy in India

The proposed PoA (plan of action) for IKEA in India is based on th e following business tool assessments.
The 6 P's for IKEA in India are as follows: i. Mode of Entry - Sole Proprietorship – 100% FDI

i• Competitive Advantage on a Large Scale

ii. Location

ii • Establishing oneself in India's metropolises

iii • Rather than focusing on huge retailers. The approach of having a small number of stores has changed.

iii. Individuals

ii • Middle Class- persons with high wages from the working class, bachelors, young couples, and so on.

iii • Provide items to hostels, educational institutions, and offices, among other places.

iv • A courteous and knowledgeable personnel, as well as an advice and help department

iv. Inventive+ Imaginative+ Imaginative+ Imaginative

ii • Design and Quality

iii • A mix of traditional Indian and contemporary Scandinavian design

iv • Assembling Service Availability

Price

ii • Low Costs- People who are cost conscious and low-wage workers

Advantages

I I. Well trained and aware Labour Force. Just train them as per IKEA culture

II II. Scaling down the Competitor

III III. Gaining the trust of the consumers

IV IV. Accesibility to Ready-use-infrastructure

7. Conclusion

IKEA is currently standing as the leading brand name in furniture through their constant innovations across
the globe, which in itself is a crowd puller in a market like India, as Indian masses are easily attracted by
popular foreign brands in consumer goods and retail segment. In addition, focus on expanding their omni -
channel distribution strategy which caters to the convenience factor of the Indian market along with positive
publicity to retain customers’ loyalty. This will aid increasing IKEA‘s customer baselines and help them grab
the larger pie in the Indian market. Most of the above recommended strategies are undergoing
implementation by the entity which may bear the positive results in long run. Further, with the above
strategies discussed, the standing of IKEA in the business market would be heightened to a whole new
level.