IKEA is a furniture manufacturing and retail brand with a leading position at the international level. The company was introduced in 1943 to become the best furniture sellers all across the globe. The focus of the company for its products was on minimalistic design, innovation, self-assembly, and self-service concept which has provided the company a competitive advantage over the years. The self-assembly and self-service concept of the company have aided the company to achieve its long term growth and success. There are several other furniture sellers in the furniture industry which makes it crucial for IKEA to analyze the micro external environment and different factors affecting the industry. For this purpose, Porter’s five forces analysis is presented
Competitive Rivalry
The global revenue collection of the furniture industry is 545.46 billion USD in 2018 which speaks volumes of its massive size. Ikea is the leading retail furniture brand in the world with a maximum market share at an international level (Ikea, 2019). In each country of its existence, there are several local manufacturers with strong roots in the market that are providing tough competition to the Ikea. Viewing from an international perspective, Walmart, Amazon, Wayfair, American Wood mark and Tesco are some of the competitors in the furniture industry for Ikea. The presence of strong local and multinational brands has intensified the competition in the market which has reduced the profit margins. Therefore, the competitive rivalry is high in the furniture industry for Ikea.
Bargaining Power of Suppliers
The bargaining power of suppliers is high because the suppliers have hundreds of options to sell their raw material to different local and international furniture manufacturers. Wood is a scarce resource and the suppliers of this material take the dominant position for bargaining with the companies. The companies understand the position and strength of suppliers and give them their due advantage to develop the proper and effective relationships with suppliers to have continuous access and supply of products to make a positive impact in the market (Ivarsson and Alvstam, 2010).
Bargaining Power of Buyers
The bargaining power of buyers is high because there are hundreds of furniture manufacturers at local and international level which are selling the products successfully. It means that the buyers have the options to buy from different companies and the switching cost of the buyers is also low which further increases the bargaining power of the buyer. A lack of radical innovation in the furniture products has contributed to this strength of the bargaining power of buyers (Kermer, 2019). Therefore, the bargaining power of buyers is low due to several players in the industry.
The Threat of New Entrants
If there is a high number of hurdles for the new entrants in an industry, it means that the threat of new entrants is low. Analyzing the furniture market from the perspective of capital, process, and skills, the market entry is easy which makes the threat of new entrant high. The capital is not massively required at a small level as there are many cottage industries in different countries of the world that are manufacturing and selling the furniture. It does not require highly skilled labor and a small capital is sufficient to make the furniture (Nag et al., 2014). The process of furniture manufacturing is hand made in many countries which takes the threat of new entrants to an even higher level as it eases up the entry of new entrants.
Threat of Substitutes
There is no substitute for furniture for human beings and furniture is a need for human beings to live. The forms, types, and designs of furniture have been changing continuously but the need for the furniture has increased. It is important to understand that the innovation in the product is not a substitute but it is the improvement in the product. The replacement of wooden furniture with artificial wood is not a substitute but a development in the same product. The artificial wooden is a subtitle for natural wood but not for the furniture. There is no likely close substitute for furniture shortly which takes the threat of substitutes to the lowest level. Analyzing the five forces of the external environment, the overall business environment of the furniture industry is favorable but the complexity of doing business is increasing.
References
Ivarsson, I. and Alvstam, C.G., (2010). Supplier upgrading in the home-furnishing value chain: an empirical study of IKEA’s sourcing in China and South East Asia. World Development, 38(11), pp.1575-1587.
Kremer, K. (2019). Operations Strategy: Literature review and case study of Ikea. ISSN 2671-132X Vol. 1 No. 1 pp. 1-876 June 2019, Zagreb, p.606.
Nag, B., Han, C. and Yao, D.Q., (2014). Mapping supply chain strategy: an industry analysis. Journal of Manufacturing Technology Management, 25(3), pp.351-370.
Statista. (2019). Ikea – Statistics and Facts. Available at: https://www.statista.com/topics/1961/ikea/