Ikea Porters Five Forces

IKEA Porters Five Forces
And
Value Chain Analysis
By:
ROSLIN HISHAM B ABD HAMID
GP02687
For:
(TTTU6414) MANAGEMENT INFORMATION TECHNOLOGY
NATIONAL UNIVERSITY OF MALAYSIA
IKEA, a global furniture retailer, is established on 1943 by introducing the

concept of offering wide range of functional, well designed and low cost
home furnishing products.
The IKEA concept journey continues with its global operations in 40 countries
with 330 stores and 154,000 workers with sales turnover is recorded as
USD27.5 Billion for year 2012.
Initiated its operations as a seller of home furnishing products, IKEA today
diversifies its products into fabricated housing and food.
This report will take a strategic analysis of IKEA through employing Porters
Five Forces and Value Chain Analysis Tools.
ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY
2/17
AN INTRODUCTION
Porters Five Forces model is a generic framework that
deconstructs industry structure into 5 (five) underlying
competitive forces or variables (Nemati and Barko, 2004, p.29).
These five underlying forces are:
competitive rivalry among existing firms;
bargaining power of suppliers;
bargaining power of customers;
the threat of new entrants into the industry; and
the threat of substitute products and services
3/17
a diagram
illustrating
PORTERS FIVE FORCES

MODEL
4/17
IKEA Porters Five Forces AnalysisCan Further Be

Elaborated By Each Of The Forces Such As In
The Following Manner
RIVALRY AMONG
EXISTING
COMPETITORS
Rivalry among existing firms is intense in the global
market of discount furniture and the major players in the
industry include Euromarket Designs Inc, Galiform plc, WalMart Stores Inc, Argos and others. However, currently IKEA
is the undisputed market leader in the industry of
discounted furniture in the global scale.
5/17

THREAT OF NEW
ENTRANTS
The threat of new entrants into the industry is low, and
the chances of emergence of new competition for IKEA is
insubstantial as the current market is saturated and
significant amount of financial investments and expertise
are required to become a discounted furniture retailer in a
global scale.
6/17

BARGAINING
POWER OF
BUYERS
The bargaining power of IKEA customers is strong, as the
competition is intense and the customers have a wide
choice of alternative options offered by global furniture
retailers, as well as, local furniture producers.
7/17

BARGAINING
POWER OF
SUPPLIERS
IKEA suppliers do not possess substantial bargaining
power as there are numerous factories around the
globe with the capabilities and resources to form
partnership with IKEA. At the same time, IKEA pursues the
strategy of forming strategic long-term relationships
with its suppliers.
8/17

THREATS OF
SUBSTITUTE
PRODUCTS
the threat of substitute products and services are low as
there are not too many products and services available that
can substitute the demand for furniture, home appliances
and a range of other products like are offered by IKEA.
9/17
IKEAs
IKEA
Value
Chain
VALUE CHAIN ANALYSIS
Analysis
10/17
w h a t i s
VALUE CHAIN ANALYSIS?
The concept of Value-Chain analysis is introduced
by Michael Porter (1985), who divides activities of
the firm into two categories: PRIMARY
ACTIVITIES and SUPPORT ACTIVITIES.
PRIMARY ACTIVITIES are necessary elements for
producing the products and offering services,
SUPPORT ACTIVITIES assist businesses to
become successful in the marketplace.
11/17
P O RT E R S
VALUE CHAIN ANALYSIS DIAGRAM
12/17
PRIMARY ACTIVITIES
ACTIVITY
I M P L E M E N TAT I O N B Y I K E A
Inbound Logistics
Distribution of products to the stores from 42 distribution centres.

10,000 item product line manufactured by over 1,000 suppliers.
Outbound Logistics
Preferred method for customer to transport their products themselves.
Operations
Operations in more than 40 countries, 208 companies operated stores

in 26 countries while remaining stores operated by franchisees
IKEA does not manufacture its own products
Marketing and Sales
Targeted at families with lower income, students and singles

Low prices.
Family-friendly store environment.
Services
Information provided through catalogues and displays.

Self-help service.
Support Activities
Low number of sales assistants in stores
13/17
SUPPORT ACTIVITIES
ACTIVITY
I M P L E M E N TAT I O N B Y I K E A
Firm Infrastructure
Hierarchical organisational structure.

Large scale stores in size.
Human Resource
Management
High level of commitment to HR practices

Effective staff training and development programs
Technology
Development
Research and development activities initiated in Sweden.

Extensive use of information technologies in various business
processes and research and development.
Procurement
No need for raw materials as IKEA does not produce own brand
products
Long strategic relationships with all suppliers
14/17
SUMMARY OF IKEAs
Since IKEA products are based on the low prices, we can imply that
IKEA has adopted THE LOW COST-LEADERSHIP STRATEGY as a
competitive advantage.
Starting with the Primary Activities, inbound logistics; IKEA has large
shipments and massive warehouse to product their products. Operation
runs in various countries. In procurement; IKEA purchases from
numerous sources having a strong bargaining power with suppliers.
Technological development; learning and experienced amortized over
large volume. Human resource management; providing intensive training
to emphasise cost savings means and firm infrastructure; having to
centralised cost controls.
IKEA Value Chain

Analysis
15/17
C O N C LU S I O N
IKEAs vision has contributed in improving lives for the many people
in practicing sustainable environment.
IKEA plays a vital role in ensuring its products are sustainable and
takes the leadership role to educate its suppliers to understand how
and why sustainable production is vital.
These factors are the key differentiators that has made IKEAs
different from its competitors. IKEA is one of the trustworthy
company that is responsible for their product and its impact on the
environment.
16/17
REFERENCES
http://www.ukessays.com/essays/marketing/value-chain-if-the-company-marke
tingessay.php
http://research-methodology.net/ikea-porters-five-forces-analysis/
http://www.ukessays.com/essays/marketing/pestel-swot-and-five-forces-analys
is-of-ikea-marketingessay.php
Porter, ME, 1985, Competitive Advantage: Creating and Sustaining Superior
Performance, Free Press
http://www.writework.com/essay/ikea-and-porter-s-five-forces
Profile: IKEA, 2011, Innovation Leaders, Available at:
http://fp05-527.web.dircon.net/ikea_company_profile.htmL Accessed, July 1,
2011
17/17

Ikea Porters Five Forces

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IKEA Porters Five Forces

IKEA, a global furniture retailer, is established on 1943 by introducing the

PORTERS FIVE FORCES

IKEA Porters Five Forces AnalysisCan Further Be

IKEA Porters Five Forces AnalysisCan Further Be

IKEA Porters Five Forces AnalysisCan Further Be

IKEA Porters Five Forces AnalysisCan Further Be

IKEA Porters Five Forces AnalysisCan Further Be

Distribution of products to the stores from 42 distribution centres.

Preferred method for customer to transport their products themselves.

Operations in more than 40 countries, 208 companies operated stores

Marketing and Sales

Targeted at families with lower income, students and singles

Information provided through catalogues and displays.

Hierarchical organisational structure.

High level of commitment to HR practices

Research and development activities initiated in Sweden.

IKEA Value Chain

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