PESTLE Analysis of IKEA | The World’s Largest Furniture Manufacturing Group
PESTLE Analysis of IKEA
The IKEA of Ingvar Kamprad Elmtaryd Agunnaryd is a multinational Swedish furniture global producer. It started the business in 1943 under the energetic supervision of Ingvar Kamprad. In 2008, this group became the world’s largest and more famous furniture manufacturing group. Read the PESTLE Analysis of IKEA Group.
According to Forbes (in a study), IKEA operates international business in more than 50 countries. The company was operating more than 422 retail points worldwide in 2020. According to public reports, it has 208,000 workers to maintain business operations worldwide. This group offers the best working environment and high-quality furniture products in order to expand the business in developed and developing countries.
Some of the main products of IKEA include kitchen materials, home appliances, accessories, ready-made furniture, and more. As per the report by Statista.com, the per annum income of this group was around 41.3 billion Euros in 2019. However, the net profit of this group was 1.82 Billion Euros after excluding all the expenses and taxes. IKEA’s financial performance and growth remained marvelous except for 2020 when the pandemic hit economies.
Today, we are going to see the PESTLE Analysis of IKEA. The main purpose of this discussion is to find the impact of macro-environmental factors on the performance of this group. It would concentrate on external as well as uncontrollable factors, and we will also study the internal factors.
Political Factors | PESTLE Analysis of IKEA
Prison Labor Camps in the 70s and 80s:
There are several rumors about Ingvar Kamprad and his relations with the Nazi Germans. There are various reports that he has sympathies with the Nazis. Also, the Ikea company admitted this fact in 2012 with other details of employing the prison labor camps. These camps were made in East Germany in the 70s and 80s. IKEA faces a bad history charge due to this affiliation back in history.
The current management has made certain decisions to overcome this issue. They issued an official apology on behalf of the founding fathers. However, it seems that this bad impression will remain with the company whatever they do. The biggest factor to understand is that IKEA is not stubborn because management realized the mistake and issued an official apology.
Chinese and Indian Asian Markets:
We have observed that Chinese and Indian governments are showing leniency towards international business brands. This is why international brands and business groups are also focusing on the large economies in Asia. They are ready to invest in developed and developing countries, especially India and China.
IKEA established its business in India in 2018 and opened several stores. They started to manufacture the furniture in this country to boost local production. This group has been present in China since 1998. However, the company wants to expand its market share with the help of business development in more countries.
Political Conflict of China and Taiwan:
Taiwan and China have strong economic ties with each other. No doubt, China claims Taiwan as its part, but there is a business conflict. IKEA faced criticism from the Chinese government and people when it printed Taiwan as an independent country. This was a strong backfire for IKEA, but it still operates in both countries.
Political Stability:
A stable political environment is always in favor of business groups. Indeed, it plays a valuable role in the corporate sector. It provides an effective supply chain and networking system in any country. A political system with a strong legal system is necessary for the business groups.
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Economical Factors | PESTLE Analysis of IKEA
Global Economy:
As everyone knows that IKEA has a strong global presence in more than 50 countries, it is important to see how it works with these countries’ different sets of regulations. International economic conditions are important for profitability and growth, and IKEA deals with these things even in economic recessions. Inflation rates, interest rates, and economic recessions are some deciding powers when it comes to business. The purchasing power of buyers is another important factor. IKEA wants to operate in countries where people have high purchasing power. On the other hand, it also operates in countries where people have low purchasing power. They do this by reducing the profit margins.
Covid-19 and Economic World after Pandemic:
Covid-19 pandemic is a recent example of economic recession. However, it is not a true form of economic recession because it was a golden opportunity for some business groups. For example, Amazon, eBay, and other online platforms earned record-high sales during this period. No doubt, the pandemic affected the buying power of customers worldwide, but there are several successful strategies to deal with this issue.
Exchange Rate:
The US dollar is an influential factor in the exchange market. The exchange rate of a dollar or Euro and other foreign currencies decide the fate of an economy. IKEA has a Swedish base, and it deals with the international market in US dollar as well as Euro. This is why it focuses on the exchange rate of both currencies with the other currencies. This doesn’t mean that IKEA feels no difference in the business performance due to the exchange rate. It tries to handle the ups and downs in the exchange rate with the help of strong financial policies.
Competitive Edge of Affordable Prices:
The best thing about IKEA is its affordability. It always maintains the prices of furniture products. The management tries to bring the prices as low as possible. This is necessary to stay in competition in the markets. IKEA has strong competitors such as ADAS and Walmart. It has to deal with these competitors by using quality and low prices.
Social Factors | PESTLE Analysis of IKEA
Cultural Issues:
Many of us know that Russia doesn’t mind homosexuality. It is legal in Russian states. Majority of Europeans don’t consider it right. Recently, IKEA used an image of a lesbian couple for product publicity. It received huge criticism in Europe and America. People consider it a bad impression, especially in the Middle East, Asia and Americas. Later, IKEA removed this image from the marketing campaign, but this received criticism from countries where homosexuality is legal. On the other hand, IKEA used an image of females for product marketing in Saudi Arabia. This caused a huge backfire for the company. This happens by the use of female images for marketing or any other purpose is considered bad in Saudi Arabia. IKEA removed this image too, but western media was not happy with this step.
Trends:
IKEA must follow the recent product and service trends relevant to any country. This is a wise decision in order to stay in society. As a matter of fact, all countries have different social and custom traditions. Marketing campaigns must be according to society’s norms. IKEA must understand cultural and social values before planning marketing strategies and campaigns.
Lack of Knowledge about Customs:
Let’s check the latest controversial marketing strategies of IKEA. The Russian lesbian couple and Saudi female image in advertisement sparked a fire in media. This shows that a company has less knowledge about the country’s social systems where it works. On the other hand, it may also conclude that the company doesn’t follow the local traditions and trends. IKEA must be careful about the local trends and norms to avoid controversies.
Bad Reviews:
If users check the IKEA reviews on Google, they might find several complaints. The majority of the users gave 1 star to the IKEA rating, and this is the lowest level of rating. The company must improve customer service and customer relations in order to avoid mistakes. This is also necessary to develop strong bonds with the customers.
Horrible Delivery System:
As a matter of fact, the delivery system to transport furniture is very bad. Moreover, IKEA received several complaints about the missing items with its products to different customers. It becomes difficult for users to assemble the furniture without these missing parts, such as screws and bolts.
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Technological Factors | PESTLE Analysis of IKEA
Integration of Social Media:
As we know, this company has hundreds of stores in various regions across the world. They want to deliver a lifetime experience to everyone. IKEA is doing this successfully with the help of effective manufacturing and business management. Nowadays, social media makes businesses, manufacturers, and stores more prominent. It is easy for everyone to discuss social media’s product features and drawbacks. IKEA effectively uses social media to promote its products and services. However, access to digital accounts of IKEA is very limited.
Ecommerce:
The covid-19 pandemic has made the online business and retail market more powerful. IKEA has an ecommerce store in order to follow this trend. This company has millions of followers worldwide. It would be a great step to ensure that all the customers have access to an ecommerce platform to buy the furniture products. The only thing IKEA has to take care of is the delivery system. It needs to improve the delivery system in order to make more loyal customers.
Customer Satisfaction:
Satisfied or happy customers are the backbone of a company’s status. IKEA has a low profile in this matter. It is due to the poor delivery system. They have to focus on supply chain management. The company needs to improve its connection with the customers in the world. This will bring a 5-star rating for the company.
Legal Issues | PESTLE Analysis of IKEA
Labor Laws:
IKEA has a bad record in this matter. Several workers of this company filed cases (lawsuits) against the management for poor working conditions. This is a famous brand and it is the best among furniture manufacturers. But their labor laws are poor. This is where IKEA should put more emphasis and consider installing a comfortable workforce management system. The management must learn from the previous mistakes in order to maintain its recognition.
Inferior Quality:
Due to increasing competition with other retailers, IKEA has dropped its prices significantly. This resulted in poor quality of products. Broadly speaking, IKEA is dropping the product quality too. Several customers complained about breaking the furniture within a few days. This situation is unacceptable to the users and dangerous for the company. The company should not ignore these reports. The management must engage with the customers with some quality products.
Environmental Issues | PESTLE Analysis of IKEA
Renewable Energy Initiative:
Eco-friendly services and products have become a trend in the world. Everyone wants to use eco-friendly materials. This may be a reason why most manufacturers and companies are starting renewable energy initiatives. IKEA is also spending 1 billion USD in the environmental sector, and it is targeting developing countries where infrastructure requires improvement. The brand also focuses on sustainable raw materials such as organic cotton and wood.
Conclusion | PESTLE Analysis of IKEA
IKEA is a multinational Swedish furniture global producer. In 2008, this group became the world’s largest and more famous furniture manufacturing group. However, after a detailed discussion on the PESTLE Analysis of Ikea, it is evident that there are some legal issues in the company’s profile. The brand must focus on quality production and manufacturing. On the other hand, it must also improve the supply chain, delivery system, and customer care services.
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