A MINOR PROJECT REPORT

ON

A STUDY ON BUSINESS MODEL OF IKEA

SUBMITTED IN PARTIAL FULFILLMENT OF

REQUIREMENT OF BACHELOR OF BUSINESS
ADMINISTRATION

BBA II Semester (Shift)

Batch 2021-2024

Submitted to: Ms. SURBHI AHUJA Submitted by: DISHA KASHYAP

Designation: ASSISTANT PROFESSOR Enrollment no. 01124501721

1
LIST OF TABLES

Particulars Page No

List of tables 2

List of figures 3

Acknowledgement 4

Student undertaking 5

Certificate 6

Executive Summary 7

Introduction 9

Objectives 15

Literature review 16

Industry profile 24

Research methodology 28

Analysis & interpretation 31

Limitations 56

Recommendations and Conclusion 58

Bibliography 61

References 63

2
3
S.NO Figure Title Page
NO.
1. OVERVIEW OF FURNITURE MARKET 11
2. SALE OF HOME FURNISHING 14
3. IKEA BUSINESS MODEL 32
4. Modular Design and Manufacturing 36
5. PESTEL ANALYSIS 38

6. CAGE FRAMEWORK ANALYSIS 46

Strategy Canvas of IKEA in India
7. 47

8. Four action frameworks 48

9. WALMART 50

10. AMAZON 51

11. WAYFAIR 52

12. TESCO 53

13. AMERICAN WOOD MARK 54

14. PEPPER FRY 55

ACKNOWLEDGEMENT

4
My first and foremost gratitude to my mentor, Ms. SURBHI AHUJA for her guidance,
support and encouragement during the completion of this project. The minor project
would not have been possible without her supervision, motivation and most
importantly her inspiration.

I am extremely grateful to the respectful Director, Head of Department and faculty of

JAGANNATH INTERNATIONAL SCHOOL, KALKAJI, for their motivation, support
and encouragement throughout the completion of this project.

I would also like to thank my family and my peers in helping me all along the

completion of this project, and providing me with the inspiration

5
 UNDERTAKING

I hereby certify that this is my original work and it has never been submitted
elsewhere. I further declare that the findings in this project report are independent
study done by me under the guidance of Ms. SURBHI AHUJA

DISHA KASHYAP

BBA-EVENING-1(SEM2)

6
 CERTIFICATE

This is to certify that the study conducted by DISHA KASHYAP entitled: “A study
on brand preference with respect to cars” being submitted in the partial fulfilment
of BBA 2021-2024, GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY, is
faithful record of the Bonafede research work carried out by him under my
supervision and guidance. This minor project report is his original work and has
not been submitted to this or any other university/institution for the award of any
other degree or diploma.

7
EXECUTIVE
SUMMARY

8
 EXECUTIVE SUMMARY

IKEA is known globally for its low prices and innovatively designed furniture. In India,
it ran into several problems, such as Foreign Direct Investments (FDI) and setting up
the physical stores in the large country like India. This case study analyses how
IKEA adapted its strategies to enter in India and how it can expand in the country.

IKEA has considered doing business in India for years, having first established a
presence in 2007, only to run into a raft of regulations limiting foreign investment in
the country’s retail sector. This paper aims to capture the essence of India as a
marketplace and consumer psychology analysis, the growing purchasing power and
rising influence of social media have enabled Indian consumers, making India an
aspiring emerging market for global businesses.

IKEA has been quite successful with its “one design-suits-all” global expansion
strategy in many markets. Anders Dahlvig, former CEO of IKEA, had once said,
"whether we are in China, Russia, Manhattan, or London, people buy the same
things. We don't adapt to local markets." Operating in a country with the culture base
different from the corporate culture could bring many challenges to new emerging
markets.

IKEA, with the opening of its first store in India (in Hyderabad) has paved way for a
completely new experience in furniture market for Indian consumers. The purpose is
to reflect on how IKEA fits into the Indian consumer market, where future growth is
likely to emerge.

Through this project we tried to find out various marketing strategies adopted by
IKEA which made it different from its competitors and what all were the reasons for
the success of IKEA in the furniture and furnishing market.

9
 Chapter 1

INTRODUCTION

10
IKEA INTRODUCTION
Founded by Ingvar Kamprad in 1943 as a tiny Swedish mail-order catalogue
business, today IKEA is world’s largest furniture retailer, known for its reasonably
priced functional furniture.

Ikea has over 360 stores spread out over roughly 50 countries. 2013 was a record
year for profits, with global sales coming in at almost 28 billion euros. While Europe
makes up most of the market for IKEA, the company has seen strong growth in
North American, China and Russia. The company is looking to expand further afield
into new geographic locations in the search for even more growth. IKEA wants to
approximately double sales by 2020 and one logical area to find new opportunities is
in emerging markets.

In India, while the potential for over 1 billion new customers is attractive, there is also
a whole host of serious challenges that the company must face.

IKEA Vision

“To create a better everyday life for the many people“ with the vision of IKEA and
the business idea “to offer a wide range of well-designed, functional home furnishing
products at prices so low that as many people as possible will be able to afford
them”, the company prides itself for working hard to achieve quality at affordable
prices for its customers through optimising their entire value chain, by building long-
term supplier relationships, investing in highly automated production and producing
large volumes, beyond home furnishing.

IKEA Corporate Culture

Globally IKEA’s policies and cultures are standardized. The strategic decisions are
centralized, they train their co-workers as per their policies. IKEA prefers
communication skills and organization’s ethics instead of academic qualifications.
IKEA’s standard values are - humbleness, equality and simplicity.

IKEA trained managers act as missionaries and spread the cultural values to co-
workers. There are more women than men working on the IKEA sales floors, and

11
while the share of women is slowly increasing in some management categories, the
balance is far a far fledged goal for them.

The characteristics of IKEA’s culture can be witnessed, where people often wear the
same uniform or casual dress instead of suits. Titles which shown the position are
not used in the name badge or in the way IKEA’s people call each other. They prefer
the word “co-workers” instead. Responsibilities were the key for distinguishing co-
workers; an evaluation system based on personalized yearly goals and broad
guidelines is used to evaluate employees’ performance.

IKEA people are encouraged to be independent, willing to learn, willing to listen to

others and know how to transfer and share their knowledge to others while not
feeling they are any better than anyone else. In exchange, they are offered by IKEA
a pleasant working environment; job security and a caring attitude to employees
IKEA believe in each person’s ability to develop and grow – both personally and
professionally.

Diversity and inclusion are essential for IKEA business success - meeting
customers, developing co-workers, and cooperating with their global business
partners. IKEA culture promotes togetherness and encourages an individual to add
value to the team and to trust their people and treat equally.

Overview of Furniture market in INDIA

Fig.1
According to a study by World Bank, India’s organized furniture industry is expected
to grow 20% per annum over the next few years and is projected to cross $32 billion
12
by 2019. Online home décor market in India is projected to grow at a CAGR of
50.42% in revenue and the luxury furniture market is expected to garner $27.01
billion.

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.

a. Market Attractiveness

India is a culturally diverse country, home to over 1.2 billion people. Its dynamic
economy is projected to have real annual growth of almost 5.7% (at current rates,
the country is expected to Top 5 economies in the world). Strong economic
development over the past decade has increased living standards and created a
vibrant middle class that is hungry for consumer goods (there are almost 30 million
Indians with a disposable income of over US$30,000).

The retail industry is an extremely important part of the Indian economy, responsible
for approximately 10% of GDP and employing almost 8% of the population.

- The Indian retail market is valued at $600bn (£460bn)

- Home furnishing segment of the market valued at $20bn and growing fast -
IKEA has pledged to invest over $1.5bn (£1.2bn) in India over the next 10
years

b. Institutional Voids

Solution for Indian Customers IKEA operates on a do-it-yourself model, where

users assemble their own furniture. In India, however, IKEA is customising for the
market and is building assistance for furniture assembly, by tying up with Indian
Start-up - Urban Clapp. As part of this collaboration, consumers purchasing a select
range of IKEA furniture from the store will be able to book furniture assembly
services via the UrbanClap app or website.

13
 Low Price IKEA is selling a product in India for less than it charges elsewhere.
Given India’s lower income levels, the store features hundreds of products – from
dolls to spice jars – priced at less than 100 rupees i.e. 1.2 Euro

ailoring to local tastes for example, most Indians do not use knives to eat and
primarily want spoons, so the company ditched its children’s plastic cutlery packs
and instead sells four spoons for 15 rupees, i.e. 18 cents

Plugging the Cultural Differences through product adaptation IKEA conducted visits
to about 1,000 homes in various cities to understand how people lived and what they
needed. Indian families spend a lot of time together, with relatives frequently popping
in, so the company added more folding chairs and stools that could serve as flexible
seating.

Ikea has introduced collection of home accessories such as bedsheet, bedcovers etc
in Indian patterns. The company has brought in innovation into the manufacture of
handmade carpets with a new “punja" loom (Indian weave).

Adapting to Indian ethnic group and climate Indian women are also shorter than
Europeans and Americans, so the company decided to showcase some cabinets
and countertops at lower heights.

Expectations of Competitor Retaliation

The Nearest competitor of IKEA, in India such as Pepper Fry is having a wide reach
and has an omni-channel framework to reach out to the last mile customer.

 Shifting the Gear to Digitalisation To be readily accessible to many people,

IKEA adopted a true omni-channel approach. This means the big stores and
small formats in the big cities of Mumbai, Delhi and Bengaluru and then also
having an online approach.
 Due to globalization and more and more people exchanging/ travelling across
the world, the brand awareness of IKEA is not unknown. Conversely, IKEA’s
reputation in India is perceived as average, but at the cusp of being strong
and within the margin of error of its global score. This will offer edge to IKEA
over its competitors.

14
FIG. 2

15
 Objectives of the study

 To study the business model of IKEA.

 To analyse the PESTEL and CAGE analysis of IKEA.

 To find out what marketing strategy used by IKEA to get ahead from the

competitors.

 To study industry analysis of IKEA through porter’s five force model

16
Chapter 2

LITRATURE

REVIEW

17
Literature review

Using this literature, I will see what recommendations are cited to carry this concept
into the future with an ever more globalized market. Finally, an application of this
literature will be carried out on Ikea: a global company that has changed with market
trends when necessary to stay a top player in its industry. Origination Kippenberger
identifies in his research, how the idea of analysing internal activities as a source of
competitive advantage began in the early 1980’s with McKinsey’s Business Systems
Concept (Kippenberger 1991).

Through this concept, firms could look at their own activity pool and performances
and compare these to that done of their competitor. This comparison would then act
as a source of competitive advantage. Michael Porter took influence from this
research and began to fine tune it even further. His creation of the Value Chain
concept in 1985 (Porter 1998) has been the topic of detailed research by academics
in diverse fields: strategic management (Johnson et al. 2005), marketing (Webster
1988), and customer loyalty (Parasuraman 2000) to name a few.

The concept was an aid to identify sources of competitive advantage by providing a

basis of differentiation (Porter 1998). According to Porters earlier research,
differentiation could be created by using one of both of the following strategies: lower
relative cost, or some form of differentiation offering (Porter 1998). Porter’s Value
Chain Concept The original concept started with a tool called the Value Chain which
when implemented correctly helped to break down all activities that a business took
part in, in order to identify and understand the sources of competitive advantage
(Porter 1998).

Johnson et al. (2005) states that the value chain can be used to understand how a
company creates or loses value in its activities. This needs to be identified if the
company achieves competitive advantage by providing value to their customers. By
stripping systems back to ‘strategically relevant activities’ (Porter 1998), cost savers
and creators can be identified as well as the activities that house sources of
differentiation. If these are carried out more efficiently, better or cheaper than
competitors, then competitive advantage is created (Parasuraman 2000).

18
Kippenberger reminds us that in the original concept all of a firm’s activities can be
broken down into two categories (Kippenberger 1991): primary and support.
Primary activities are concerned with the physical creation and delivering of the
product (Johnson et al. 2005); whilst support are the activities that supply primary
ones with purchased inputs, human resources and technology. It also supplies the
entire chain with firm infrastructure (Kippenberger 1991). All activities are
embedded into a ‘stream of activities’ called the value system (Porter 1998).

These ‘generic description of activities’ should be mapped out in an activity system

(Johnson et al. 2005). This disaggregation of discrete activities can isolate the value
creating areas from the lacking (Porter 1998). In this way not so, important areas
can be combined or ‘clustered’ (Johnson et al. 2005). Thus, the firm can now see
which areas of activities they should be concentrating their resources on; and which
they should de-emphasis or outsource (Johnson et al. 2005). Often the
categorization of activities relies on judgment (Kippenberger 1991).

Linking of the Value Chain This system of mapping out and categorizing activities
helps the firm to link its competencies to competitive advantage (Norman 1993).
Relating your core competencies back to your resources is a successful way to gain
competitive advantage (Lusch 2011); and participation of this is key to good strategy
in a business (Norman 1993). Optimizing co-ordination between some activities may
take place, as well as trade-offs between activities in order to achieve an overall
more successful value result (Porter 1998).

Once activities have been clustered or isolated depending on their ‘higher order
strategic themes’ (Porter 1998), the links between the different activities need to
identified and analysed in order to spot any potential competitive advantage sources
that lie here (Kippenberger 1991). And so to, the notion of relationship and
information management in the value chain arises in the different literature.
Emphasis needs to be placed on the relationships between all activities within the
firm and with external organizations (Walters 2000).

Information plays a significant role in good relations as it helps to co-ordinate all

activities in the value chain, and implement any sources of competitive advantage
found. Walter and Lancaster (2000) relate back to Browns 1997 industry
perspective of value whereby concerns raised in the value chain are to do with

19
supply chain management and logistics involvement. In the upper part of the supply
chain, inputs are created or provided by suppliers; the company then adds value to
these inputs before handing the product or service downstream, finally reaching the
end consumer (Porter 1998).

Although most of the literature see’s the participation of the supply chain and logistic
elements as a necessary involvement in the value chain in order to gain competitive
advantage; these essentials play different roles in different literatures. Supply chain
management has also been seen as the management of the differing relations along
the value chain that take place to maximize value creation (Walters 2000). Every
value creating activity is facilitated by logistics such as the management of costs that
occur within the supply chain. Focus on External Sources

So far, the value chain and its successful application has revolved around the
industrial view. However, to modernize the value chain from its 1980’s foundations a
focus on maximizing value starting from external sources has come to play. Instead
of looking at one’s own activities within a business and its supply chain and logistical
partners to spot sources of competitive advantage, businesses may start value chain
analysis by looking at their target customer (Webster 1988), Taking a customer-
centric approach to the value chain means that when analysing activities, one is
looking to see if it maximizes value for the customer.

Value opportunities are now distinguished by their ability to satisfy customer’s needs
(Walters 2000). High perceived value is a determinant of customer loyalty
(Parasuraman 2000). Research has shown that customer loyalty and retention is
more profitable than gaining of a new customer pool. Thus it is in a business’s best
interest to optimize value creation in the minds of their customer. Value should not
be solely focused on product quality, as service quality has been found to be a driver
of value perception (Parasuraman 2000). This is especially the case where the
product offering and service quality overlap hotel stay. The idea of customers’ needs
and value perceptions being paramount to the company needs to stem from every
aspect and level within that company. There needs to be an organizational believe in
order to create a customer orientated firm (Webster 1988). This should start at top
management and the CEO and then instilled into every aspect of the company. Thus
the idea of an information flow and relationship management comes to the forefront

20
again. Value creation is aided by a good fit between relationships and knowledge
within a value chain (Norman 1993).

This also contributes to good strategy within an organization where by all equally
informed members working pro-actively together helps to create value in whatever
activity they may be partaking in (Norman 1993). The value proposition (the value
the customer understands is being offered to them [Walters 2000]) should be
communicated to all stakeholders also (Lusch 2011). It needs to have an appeal to
the stakeholders so that they can see the potential value for themselves in putting
customer needs first (Lusch 2011). Through this aim, the idea of ‘corporate value’ is
introduced (Walters 2000).

Corporate Value is the notion that if a value chain is to be successful it is crucial that
the objectives of all stakeholders as well as customers are to be met. Managing the
relationships between all relevant parties through the provision of information is
pertinent again. This management is facilitated by the supply chain and logistical
functions (as discussed earlier) within the value chain. The Future - Conclusion A
number of themes keep re-emerging from the literature; all of which are noted to be
prominent drivers of a successful value chain, thus being a source of competitive
advantage.

Corporate value and the value chain should become a guide for a company’s
mission statement. Supply Chain functions facilitate the strategic direction of fulfilling
this mission statement. Logistics helps to implement this whole chain by managing
operations (Walters 2000). To succeed in value chain management a number of
factors need to be considered. Firstly, customer value criteria need to be identified.
In this way a company can ensure that when carrying out Value Chain management
they co-ordinate all activities and their suppliers so that customer satisfaction and the
attempt to meet stakeholders’ objectives is maximized.

This should be carried out continuously so that at no time should there be a more
preferable option to ensure value satisfaction (Walters 2000), (Parasuraman 2000).
Successful implementation of supply chain management and logistical functions to
aid favourable results in the value chain, can only be done so by the management of
relationships and information (Norman 1993). Many relationships take place within
the value chain such as relations between employers and employees, the firm with

21
its customers and stakeholders, and the business with its partners in the supply
chain (Kappenberg 1991).

Relevant information must be passed to each and every individual within the value
chain (Walters 2000). Through good relations, companies can spot value creators
and sources of differentiation within the vale chain (Porter 1998). Thus, successful
companies will learn how to re-invent value rather than just create it (Norman 1993).
This will provide competitive advantage in today’s globalized market where
competition is immensely high. The value chain can now also be used as a tool for
evaluating new business opportunities (Walters 2000).

Globalization has also caused a change in customers’ needs and value criteria with
the onset of increasing competitor choice in most industries. Thus, tapping into
customer’s wants and needs must be done on a continuing basis (Parasuraman
2000). This market intelligence needs to be communicated to everyone in the value
chain in order that the chain be reconfigured to ensure maximum customer
satisfaction and value at all times (Webster 1988). Value propositions should be
looked at again. This is the way in which a customer understands the value offered
to them (Walters 2000).

Firms need to mobilize their customer base so that they can create their own value
from the company’s product offering (Norman 1993). They can use their value
proposition as a tool for doing so. IKEA Example Six decades ago Ikea founder
Ingvor Kampvad began a Swedish mail order operation selling furniture (Ikea
2012). Today, it is the global leader in home furnishing expanding into new
geographic and product markets each year (Ikea 2012). By November 2011 the
company had 332 stores in 38 countries worldwide (Collins 2011); 2010 saw them
with an increase of 7. 7% in sales growth from the previous year ($23. Billion)
(Collins 2011). But how does their use of the value chain attribute to this success?
Ikea’s business model is simple: the selling of high quality, Scandinavian designed,
flat pack furniture. New product lines have been added to their product offering such
as the introduction of soft furnishing items e. g. rugs, paintings etc. Profit making
amenities are also located within all their stores such as coffee shops and
restaurants. What Ikea saves on efficient warehousing (Ikea Distribution 2011) and
low-cost components, they pass onto their customers in the form of lower prices.

22
Apart from this low-cost strategy the company are able to maximize their
organizational practices within the value chain in order to provide greater value to
their customers in comparison to fellow competitors. By re-inventing their value
proposition, they have mobilized customers to take their own value from their
offering. Customers are doing the jobs that furniture providers once did such as
assembling of the product. Ikea aims to ensure that this is as seamless a process as
possible for the customer by providing good quality, easy to fit components along
with safety warnings and instructions.

If we go along Porters definition of value (Porter 1998) -value is what consumers are
willing to pay for what a firm provides- then we can see from the Ikea example that
consumers perceive the ease of assembly and instructions provided as high value
for the low cost that they pay. Similarly, when entering the store, customers are
provided with measuring tapes, pens and paper etc. This allows the consumer to
take over the role of the salesperson partially. This is aided by the amount of
information provided about each product through their catalogue (also available upon
store entry) and on product displays.

Again, these additions communicate extra value gained in the consumer’s mind by
shopping at Ikea versus a competitor. Ikea have reinvented the idea of value for their
customers. They do not position themselves as a supplier offering finished goods to
an end-consumer. Instead they act as a mediator between two sets of producers
(Ikea 2012), whereby the end consumer is also a producer as it is he who finalizes
and assembles the offering. Suppliers are located in 50 countries around the world
(Ikea 2012). They are selectively hosen to provide low cost, good quality wood that
also complies with Ikea’s ‘Iway’ programme, whereby all wood must be obtained in a
sustainable and traceable manner (Ikea 2012). By managing good relations with
their suppliers in the value chain, good quality, low-priced raw materials can be
guaranteed, and constantly meet the Ikea standards. Ikea also heightens the value
created by their suppliers through their ‘Ikea Engineering’ programme (Ikea 2012).
Technicians are provided for suppliers to aid in technical assistance.

Between their online and in store till sales, ordering and payment of goods is done
electronically (Ikea 2012). This passing of information between activities makes it
easier for their warehouses to analyse shipping patterns and sales globally (Ikea

23
2012). Stock quantities and deliveries can also be amended with ease. The
communicating of information and managing of relations between all retail and
supplier units worldwide means that standards are kept the same and are controlled
no matter which Ikea location a customer may be in.

This means that no matter where the customer enters an Ikea outlet, that the value
provided remains constant and high. Thus, providing Ikea with the loyalty that earns
them their competitive edge in this growing industry.

24
Chapter 3

INDUSTRY

PROFILE

25
Ingka Group (Ingka Holding B.V. and its controlled entities) is one of 11 different
groups of companies that own and operate IKEA retail under franchise agreements
with Inter IKEA Systems B.V. Ingka Group has three business areas: IKEA Retail,
Ingka Investments and Ingka Centres. Ingka Group is a strategic partner in the IKEA
franchise system, operating 367 IKEA stores in 30 countries. These IKEA stores had
838 million visits during financial year 2018 and 2.35 billion visits
to www.IKEA.com. Ingka Group operates business under the IKEA vision – to create
a better everyday life for the many people by offering a wide range of well-designed,
functional home furnishing products at prices so low that as many people as possible
can afford it.

Commitments

 IKEA has ambition to become climate positive across value chain by 2030 –
by reducing more greenhouse gas (GHG) emissions than IKEA value chain
emits, net-negative by working with partners, suppliers and customers around
the world.
 Ingka Group has an approved science-based target to:
– Reduce absolute direct and indirect (scope 1 and 2) GHG emissions from
retail and other operations 80% by financial year 2030, from a 2016 base
year.
– For value chain emissions (scope 3), Ingka Group is committed to reducing
GHG emissions from customer and co-worker travel and customer deliveries
by 50% in relative terms.
– Inter IKEA Group, which is responsible for developing the IKEA range and
supply chain, is committed to reducing emissions relating to home furnishing
products and food by at least 15% in absolute terms for the same period. This
translates to a 70% reduced climate footprint on average per IKEA product,
accounting for estimated growth over the same period.
 Ingka Group committed to and will achieve its target to generate more
renewable energy than the total energy it consumes in its buildings by 2020,
as part of RE100.

26
  Ingka Group is committed to transitioning all last mile home deliveries to
electric vehicles (EVs) or other zero-emission transport by 2025 as part
of EV100, with the aim of reaching 25% by 2020.
 Ingka Group is committed to providing access to charging stations at IKEA
stores, offices and distribution centres in 30 markets by 2020.
 IKEA strives to use 100% renewable energy throughout the entire IKEA value
chain by 2030.
 IKEA is committed to phasing out all coal and oil-based fuels used on-site in
production, by 2025.
 IKEA is committed to phasing out single-use plastic from its entire range by
2020.

Unique innovations
 Flatplack sofas – a new sofa frame, SMÅTORP, launched in China in 2018
has just 13 parts – a tenth of what goes into IKEA’s regular sofas. This means
simpler, more efficient production, using less water and energy.
 Renewable heating – in 2018, an IKEA site in Novgorod, Russia opened an
energy plant with a capacity of 87.5MW, supplying all of the plant’s heat
needs. The wood-drying process is particularly heat-intensive. The dryer dries
up to 60 tonnes of wood per hour, using energy generated from biomass
instead of natural gas. Now, 85% of the energy used at the site is from
renewable sources – up from 35% – which is estimated to cut GHG emissions
by around 45,000 tonnes a year.
 From air pollution to new materials – their Better Air Now initiative, looks at
ways to turn rice straw into new materials that could be used to make IKEA
products, thus reducing the pollution associated with the burning of straw.
 Solar panels and batteries sold in store, in partnership with Solarcentury – a
new range of batteries that work with existing solar panel systems.
 Democratic Design Days – the business announced several initiatives
towards becoming people and planet positive, including a prototype plant-
based alternative to the meatball and an urban plant-growing collaboration
with designer Tom Dixon.

27
  IKEA Bootcamp – a start-up programme encouraging entrepreneurs to focus
on “creating a better everyday life for the many people” and consider the limits
of the planet.
 The MISTELN mist nozzle – launching in financial year 2020, and developed
together with start-up Altered, this new product fits onto existing taps to cut
water use by more than 90%.
 Plant-based Bistro range – In financial year 2018, IKEA launched the veggie
hot dog at IKEA Bistros. It is made from plant-based ingredients including
carrots, ginger, kale and red lentils, with a climate footprint around seven
times less than that of the classic meat hot dog. Within two months of the
launch, IKEA stores in Europe had already sold one million veggie hot dogs.
 TOFTLUND rugs – new product made from recycled PET bottles that look
and feel like sheepskin.
 JOFRID curtains – throws and cushion covers made from a mixture of
sustainably sourced cotton and linen made from flax (a much less resource-
intensive material than cotton), and coloured with dyes made from agricultural
waste, such as nut shells and orange peel.

4. IKEA in India
India is the 37th entrant amonsgt the countries IKEA is doing business with. While
IKEA operates through owning the stores in 24 countries, the rest are franchised or
owned by other business entities. However, given the complexities of setting up
business in India, as an emerging market, it was not wise to replicate the business
model of other countries to India. As the potential for over 1 billion new customers is
attractive, there is also a whole host of serious challenges that the company must
face, this market.

The macro environment consists of broad environment factors that impact to a

greater or lesser extent many organisations, industries and sectors. Likewise, It is
critical to study the macro environment for IKEA in case of its presence in a country
like India, which comes with its own share of challenges and opportunities.

Each country is a strategic business unit in IKEA as they are all a part of the
organisation but for which there is a distinct external market for goods or services
and distinct competitors that is different from another SBU.

28
 Chapter 4

Research
Methodology

29
Research in common pursuance refers to a search for knowledge in a scientific and
systematic way for pursuant information on a specified topic. Once the objective is
identified that next step is to collect the data which is relevance to the problem
identified and analyse the collected data in order to find out the hidden reasons for
the problem. There are two types of data namely

1. Primary Data

2. Secondary Data

Research Design Research design is defined as a framework of methods and

techniques chosen by a researcher to combine various components of research in a
reasonably logical manner so that the research problem is efficiently handled. It
provides insights about “how” to conduct research using a particular methodology.
Every researcher has a list of research questions which need to be assessed – this
can be done with research design.

PRIMARY DATA

Primary data is original in nature and is collected first hand. Primary data is
information that you collect specifically for the purpose of your research project. An
advantage of primary data is that it is specifically tailored to your research needs. A
disadvantage is that it is expensive to obtain.

1. Questionnaire Method

2. Personal Interview Method

SECONDARY DATA

Secondary data is when the investigator does not collect data originally for the
research enquiry but uses data already collected and available in published or
unpublished from, data. Use of secondary data in a research enquiry saves time,
finance and labour. However, some people doubt the accuracy of secondary data. If
reliable and suitable secondary data is available, there is no harm in using

30
secondary data for any research enquiry. Most research requires the collection of
primary data, and this is what students concentrate on. Unfortunately, many
dissertations do not include secondary data in their findings section although it is
perfectly acceptable to do so, providing it has been analysed. It is always a good
idea to use data collected by someone else if it exists ± it may be on a much larger
scale and could contribute to the findings considerably.

SOURCE OF DATA COLLECTION

The methodology adopted for this project consisted of first an extensive literature
review of the facts and figures influencing furniture buying behaviour and trends in
India. Secondary data have been used for the purpose of completing this project.

31
Chapter 5

Analysis

And

Interpretation

32
4.1 IKEA Business Model

IKEA was founded in 1943 on a vision of offering “a wide range of well-designed,

functional home furnishing products at 180 prices so low, that as many people as
possible will be able to afford them.”

In 1956, the stores introduced furniture through the “flat packing” method: furniture
was sold in pieces and customers assembled it at home. By reducing transportation,
assembly, and inventory costs, IKEA was able to scale aggressively, locating
wherever it had willing customers.

IKEA’s ability to leverage the work done by its customers enabled it to grow to 433
stores in 49 global markets, serving more than 957 million customers for a retail
revenue of €41.3 billion in 2019.

Fig.1

33
 1. Identify How Others Can Create Value for You for Free

In 1956 IKEA adopts flatpack, ready-to-assemble furniture that is easier and cheaper
to transport from factory to retail centres. The company sees an opportunity in
getting the customer to take over that part of the value chain.

Fig.2

34
 2. Develop a Value Proposition

Because of flat packing, IKEA can keep more furniture in stock and offer more
affordable prices than competitors. Customers find the modular pieces they want to
purchase in IKEA’s open storerooms, then transport and assemble them at home.

Fig.3

35
 3. Reap the Operational Savings from Getting Others to Do the
Work

IKEA reaps substantial operational cost savings from getting customers to perform
part of the work. Since storerooms also act as warehouses, customers select
furniture, pick up the flatpacks, then transport and assemble them all at their own
cost.

Fig.4

36
 4. Modular Design and Manufacturing

Flat packing, price differentiation, and customer assembly encourage IKEA to

embrace a very modular, simple, clean, and minimalist design for which the
company is known globally, which also simplifies manufacturing.

Fig.5

37
 5. Overall Savings from Flat packing

Flat packing doesn’t just enable cost savings from enlisting customers to do part of
the work: it leads to overall cost savings in the manufacturing, storage, and mass
transportation of furniture from factories to retail centres.

Fig.6

38
4.2. PESTEL Analysis

With PESTEL Analysis, which is a strategic analytical tool used to assess the impact
of external factors on businesses, we shall now assess the potential competitive
advantage of IKEA in India. There have six external factors that may impact the
performance and affect the strategic development of the organisation.

Fig.1

POLITICAL

I. FDI Limitations

IKEA tried to enter the country several times, but its attempts were thwarted by
India’s stringent Foreign Direct Investment (FDI) regulations. Until 2011, FDI in multi-
brand retail was forbidden by the Indian government and FDI in single-brand retail
was permitted only up to 51%. IKEA lobbied hard to persuade the Indian government
for easing the FDI rules in 2008, but the company failed as IKEA was clear that it
would only enter India when 100% FDI would be allowed.

In January 2012, India allowed 100% FDI in single-brand retail on the condition that
the retailer should mandatorily source 30% of their goods from India’s micro, small,
and medium enterprises (MSMEs).

39
 ii. Bureaucracy and Corruption

With Corruption Perception Index (CPI) of India ranking 78, IKEA had to steer
through long and bureaucratic paper work for the sanction of the business in India.

iii. High cost of real estate, challenge in availability of retail

space

Further, given the size and magnitude of IKEA stores other countries globally, in
India the entity struggled to establish its stores with the availability of retail space and
its cost.

Fig.2

Economic

40
 i. GDP and PPP

India recorded GDP (Gross Domestic Product) per capita of 2,717bn USD (ranking
7th) with an impressive PPP (Purchasing Power Parity) of 10,505 bn USD, by the
end of 2018, making it an attractive market for IKEA. The growing size of the middle
class in India implies that there will be an increasing need of IKEA’s products.

ii. Price Sensitive market

Given Company’s core proposition — "value-for-money furniture and home

accessories “to cater to the cost-conscious Indian consumers, IKEA had to cut cost
of its products. Around 1,000 items in the Hyderabad store are priced below Rs200
(2 Euro) each, which Ikea hopes will mean something for everyone. Their cheapest
item is a set of four, brightly-coloured reusable plastic spoons for just Rs15. And, for
those intimidated by self-assembly of the famous flat-pack designs, Ikea in India has
tied up with local carpenters and delivery services.

Social

I. Population

India is the 7th biggest country regarding country size and India is the 2nd most
populated country (with about 1.3 billion people) in the World with a median age of
28 years, making it an extremely lucrative market for IKEA to make presence. The
fact that the new emerging middle class are more aware of their home design which
presents an opportunity for IKEA to expand.

ii. Different culture and beliefs resulting in difference in

lifestyle

Instead of Swedish meatballs, IKEA diners at the 1,000-seat restaurant replaced it

with chicken or veggie balls, dal and rice, or biriyani.

Textiles on sale in India, have brighter colours and busier patterns than in Ikeas
elsewhere.

iii. DIY (Do-it-Yourself) not a concept for consumers

41
Indian Consumers are intimidated by self-assembly of the famous flat-pack designs.

Hence, Ikea in India has tied up with local carpenters and delivery services.

Technology

I. On-line Sales

Given the long distances in the country, IKEA has plans to offer its goods online.
Hence it has tie-ups with Amazon and its own website.

India, having the 2nd most smartphone users across the globe, IKEA stands a huge
potential to tap the Indian customers online.

Ecological

I. Electricity Disruptions

IKEA’s 2006 initiative of 100% renewable energy usage required its stores to be
supplied with either wind power or energy from solar panels. Its stores in Germany,
France, Sweden, and at forty more places used either power from their own wind
turbines or from solar panels.

Legal

I. Tariff and Tax laws

In the last year, the Indian government has reversed two decades of steady tariff-
cutting and raised import duties on a wide range of items. With IKEA’s heavy
dependence on imported goods, this is a additional potential vulnerability.

ii. Cheap Workforce and Minimum Wage for employees

42
There is No Restriction or limitation of minimum wages for employees. With the
stipulated amount of funds reserved for workforce they can employee more as there
are educated and competent workforce available in cheap.

Forecast

IKEA was very clear on its strategy to enter India with the allowance of 100% foreign
direct investment (FDI) in single-brand retail, it didn’t want to go down the joint
venture route. The emergence and rapid growth of e-commerce is all-the-more
reason for IKEA to see more of an opportunity in India. On one hand IKEA has to
compromise on price of the product on the other hand, it is will benefit by availability
of cheap labour and competent labour.

Since well-travelled Indians have known IKEA for a while now, with thriving Furniture
market in India, it is a promising business venture. India is a large and growing
market with the furniture industry worth $32 billion and projected to be double to $61
billion by 2023. Ikea has a huge potential to capitalize on this. But in the meantime,
other Indian players (such as Pepper fry and other unorganized furniture vendors)
have effectively held their ground by leveraging local knowledge and addressing the
country’s infrastructure challenges.

4.3 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 –

 extent of rivalry between competitors

 threat of entry
 threat of substitutes
 power of buyers

43
  power of suppliers

Rivalry among existing firms [HIGH]

IKEA faces stiff local competition from Pepper fry, India’s existing, largest online
furniture retailer and many local retailers like Future Group (Home Town), Landmark
(Home Centre), and Shoppers Stop (Home Stop) with Indian customer base. With
the entry of IKEA, there is hope that small and medium retail furniture market will get
a standardized structure and shape. The other already existing players may not be
as big as IKEA but, these players understand Indian customers very well simply by
the virtue of being in Indian market for long. Having developed trust factor amidst
Indian consumers, the existing furniture brands have a strong hold due to low cost of
the furniture, understanding of consumers and traditional designs and most
importantly, have the ability to deliver hassle-free ready-to use furniture at the
doorstep of the consumers.

Threat of the New Entrant [LOW]

Emergence of new entrant to compete with IKEA in not as significant as, the new
market entrants would not be able to benefit from the economies of scale to the
same extent as IKEA, at least during the initial stages of operations.

Bargaining Power of buyers [HIGH]

Bargaining power of buyers in furniture and home appliances manufacturing industry

is huge. Indian customers are price sensitive and have a stickiness towards the
vendors having long lasting trust association. The competition is intense and as
such, there is a long list of furniture retailers’ people can buy from, that too with an
advantage of hassle-free, ready-to use furniture.

Bargaining Power of Suppliers [LOW]

While Ikea has sourced cushion covers, rugs and other textiles from India since the

Threat of Substitute Products [LOW]

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

44
also has entered the Indian market after well-research and has many spaces saving
innovative furniture capabilities for Indian consumers, in much affordable prices.

Fig.3

Fixed Cost Competition

IKEA is having huge setup only Indian consumers prefer local servicing
Furniture and Lifestyle retailers or trusted carpenters.
products where as other IKEA is a global player with deep
competitors have small set-up pockets however, the competitors
already have earned the trust of the
customers

Differentiation Industry Growth Rate

The major differentiation is DIY. Indian Furniture Industry in 2020
The furniture industry in India is is 2nd highest in the globe after
offering customised ready-to-use US, USD 205bn forecast in furniture to its
customers. section (3)

Fig.4

45
5. Global Business Analysis – Why India?

Despite ‘globalisation’ being the most commonly used word in the business
environment, it is also one of the most loosely used word, perhaps they overlook the
challenges and pressures for the business being local and regional at the same time.

There are substantial differences in customer needs and in economic, regulative/

administrative, political and cultural institutions that make Indian market more or less
attractive. While PESTEL framework for environmental analysis and Porter’s FIVE
FORCE industry analysis help identify the factors affecting the business, there are
specific determinants of market attractiveness that need to be considered in
internationalization strategy.

It is important to evaluate how initial estimates of country attractiveness can be

modified by considering institutional voids and various measures of distance.

Ghemawat’s CAGE framework measures the match between INDIA and IKEA
according to four dimensions of distance. CAGE framework emphasizes the
importance of Culture, Administrative, Geographical and Economic distance.

46
5.1. CAGE Framework Analysis

Fig.5

47
Strategy Canvas of IKEA in India

Strategy Canvas of IKEA India

FIG.6

48
Four Action Framework for IKEA India

Fig.7

49
Competitors

50
 1) Walmart

Fig.1

Walmart provides a wide range of products that are of best quality. Walmart,
headquartered in San Francisco in the year 2000 is a controlled by Walmart stores,
Inc. Walmart.com caters to many products across various categories.

Furniture is one such category that is provided by Walmart. Walmart furniture is

designed across all the categories that will fit for a home. It includes bedroom
furniture, office furniture, living room furniture, kitchen furniture, Small furniture, kid’s
furniture and mattresses. The furniture provided by Walmart is fit to the requirement
for an ideal home. As Walmart is a popular retail corporation, it is indeed considered
as a top Ikea competitor.

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 2) Amazon

Fig.2

Amazon was founded by Jeff Bezos, in the year 1994. It is one of the top e-
commerce companies based in Seattle; Wash. Amazon uses the
cloud technology platform and is the largest retailer in the world which provides its
services over the internet. Amazon.com started by started by selling books, TV
shows, and films during their initial years of service.

At present, Amazon extended its services to an extensive range of products under

one roof. Amazon Home offers wide range of furniture categories for the customers.
Amazon home caters to the categories in Kitchen furniture, bedroom furniture,
outdoor furniture, dining room furniture and storage furniture.

Amazon provides various services to their customers in form of no cost EMI, easy
installation, free scheduled delivery and 100% genuine products. It also provides the
good amount of discount to the customers. As Amazon provides the wide range of
furniture products, it is considered to be one of the Ikea competitors.

52
 3) Wayfair

Fig.3

An American e-commerce company, Wayfair sells home stuff for various kinds of
home requirements online. Wayfair focuses on décor items and home furnishings
and they have more than10 million products that are spanned over 10,000 suppliers.

Wayfair is headquartered in Boston and it has their warehouses and offices spread
across United States, Germany, Canada, Ireland and the United Kingdom. Way
provides the website to the users which are managed in a user-friendly way.

Its interface takes the users to wide categories of indoor and outdoor furniture. The
interface provides the user with a search option for entering the product for a quicker
search. Wayfair provides customer service in form of selecting and placing the order,
tracking the orders, free shipping. It also provides return policy to the customers.
Due to their wide range of products and their quality of service, Wayfair is considered
to be one of the Ikea competitors.

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 4) Tesco

Fig.4

Tesco is a British company that is headquartered in England, United Kingdom. It is

considered as the largest retailer in the world. Tesco has their stores in about seven
countries and has more than 476,000 employees across.

Tesco home and furniture offer huge discount and services to the customers. Tesco
provides luxury products of high quality and a good customer service. The best
prices are offered to the customers regardless the products that are purchased. They
offer furniture like sofas, armchairs, coffee tables, side tables, display cabinets, kid’s
room, display shelves, dining table and bedroom furniture. Due to their wide reach
and products, Tesco is regarded as one of the Ikea competitors.

54
6) American Wood mark

Fig.5

Also regarded as one of the Ikea competitors, American Wood mark is a

manufacturer of kitchen and bath cabinet that is headquartered in the United States.
It has their operations in various manufacturing locations across America.

It offers around 500 cabinet styles that can be used for new construction and
remodelling of homes. American Wood mark is well known for their four
majors brands which are American Wood mark, Timberlake cabinetry, Shenandoah
cabinetry and Waypoint living spaces.

American Wood mark provides the cabinet with unique and various designs,
materials, and texture. Their cabinets are sole across the country through the
network of homebuilders. As American Wood mark offers a unique design to the
cabinets, it is certainly one of the Ikea competitors.

55
7) Pepper fry (India)

Fig.6

Pepper fry is online furniture in India that is headquartered in Bangalore. Pepper fry
was started in the year 2011 be making it a place for buyers to shop from their
homes. Pepper fry has more than 38 lakh registered users spread across more than
500 cities.

Pepper fry has many products like sofas, accent chairs, folding and plastic chairs,
stools, bean bags, cabinets, shoe racks, TV units, Bar furniture and many more. To
make the shoppers at ease, pepper fry also provides a high engaging app to the
users which are enhanced with superior augmented reality features. Due to their
product and wide reach across the country, pepper fry is considered as one of the
top Ikea competitors.

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LIMITATIONS

57
LIMITATIONS OF THE STUDY

Many constraints were involved in doing this study. Some of them are as follows:

➢ The sources from which secondary data is collected may not be accurate so
there is a scope of inaccuracy.

➢ Primary data does not help in forming any analysis or deductions unless and until
it is refined through statistical methods.

➢ The responses received may be inaccurate because of inherent bias by the

respondents.

➢ Documents may lack authenticity– parts of the document might be missing

because of age, and we might not even be to verify who actually wrote the
document, meaning we cannot check whether its biased or not.

➢ The present study relied on supervisory judgments for measures of task and
contextual performance. Although it is presumed that supervisory judgments are
good measures of performance there is always potential for ideas in perpetual
processes. Therefore, future research might address the issue by including both
supervisors and peer ratings in their studies or using more objective performance
measures if available

58
CONCLUSION

59
11. 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.

Good company culture, easily recognizable brand image and high brand quality are
responsible for the success of Ikea. In addition, the company’s creation of a value-
based business model has gone a long way in ensuring Ikea’s success. It provides
economic value to the customer due to its competitive price rates, and has then gone
ahead and created sustainable customer value-based service. In fact, Ikea not only
considers itself a furniture retailer, it also focuses on service provision to its customer
base (Edvard son and Bo, 161). This makes Ikea stand out among its competitors
and ensures its difference from other brands. This approach of providing both
products and excellent service experiences has made the business quite successful.

Ikea’s turnover however tells a different story. While the company’s turnover
continues to increase, the rate at which it does so has declined over the years. For
instance, the company’s turnover between 2006 and 2007 increased by about three
million euros, while between 2008 and 2009, it increased by less than a million. This
shows that the rate of turnover increase has gone down and that in future, the
company risks not showing any increase in turnover whatsoever. This may be
indicative of the stage in which Ikea is in its product life cycle. A graph of the
company’s product life cycle indicates that its product is currently in the maturity
stage, having just passed the growth stage. The curve of the graph predicts that the

60
next stage for Ikea’s product is the decline stage, meaning that the company’s
success may be at stake (Haskell and Holger, 549). While that may not be certain,
the company does need to change some of its strategies to ensure that its product
does not head into the decline stage. BCG also indicates that the company is in
“cash cow” but that it may soon be headed to “dog.”

In order to ensure that Ikea’s success rate continues into the future, we offer a few
suggestions. Firstly, Ikea should increase its market share in Asia where such
upcoming markets like China and India look to be quite promising. Specializing in the
Asian economy is a good idea because these countries have high profit margins as
well as high demand for products like Ikea’s. In addition, the company should
consider extending business hours in a number of its strategically located outlets.
This will ensure that the rate at which products sell increases as the period within
which they are available to the customers is more.

Ikea should also penetrate into the high-end market by creating a new brand line for
consumers belonging to that market. This can be done by earmarking some of the
company’s resources for creation and marketing of the new brand line. Moreover,
Ikea would benefit from creation of a value-adding concept for both women and
children, their strategy customers. This can be done through the joint-venture
method where the company can introduce boutiques in Ikea stores to tap into its
strategy customer. The company would also benefit immensely from e shopping
(Martenson, 14). Companies that have ventured into online marketing have benefited
immensely due to market penetration, brand awareness and increased distribution.
Ikea too could benefit from online marketing especially in the fact that its distribution
channel would be increased. Use of the internet could also benefit the company by
facilitating provision of the product user’s manual, thereby decreasing the cost, and
the amount of paper and paperwork the company would be required to do. By
employing these suggestions, Ikea would ensure that its success in its field
continues. Indeed, the company should take action so that its product life cycle does
not advance into the decline stage.

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