Course Number Essay Example

  • Category:
    Business
  • Document type:
    Essay
  • Level:
    Masters
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    1281

International Finance 5

MNC — IKEA

Introduction

IKEA, being one of the biggest MNCs, has proofed to be successful in its operations. The success is due to a strengthened focus towards the achievement of objectives and development of effective competitive strategies (IKEA, 2015). IKEA has a sizeable market share and effective management structure that enhances successful corporate governance. This essay, therefore analyses IKEA as a MNC researching on its major activities, market, market share, competitors, risks facing it and how outsourcing of activities is done.

Major activities

Being a privately owned company, IKEA is one of the biggest Multinational Company based in Sweden. Founded in 1943, IKEA has grown to be one of the biggest Multinational companies retailing in furniture which include desks, beds and other different home appliances (Edvardsson & Enquist, 2011). To ensure that the company undertakes its activities effectively, the company has designed its supply chain structure to ensure that all players are incorporated and taken care of. In fact, According to Ganesan, George, Jap, Palmatier, & Weitz (2009), IKEA has one of the most effective supply chains which ensure that all stakeholders are linked together. Suppliers of raw materials to customers is well linked and coordinated. IKEA involves itself in corporate social responsibilities and engages in activities which are and environmentally friendly (Eun & Resnick, 2008).

IKEA branches

As earlier noted, IKEA has grown tremendously over the past years to be one of the Multinational companies enjoying benefits that result out of competitive advantage. The company boasts of numerous suppliers according to Edvardsson & Enquist (2011), stand at over 1800. Additionally, the company has opened over 42 stations. IKEA has functional and fully operational branches in more than 55 nations worldwide. Further, IKEA has more than 267 stores in more than 25 countries (Edvardsson & Enquist, 2011). The reason as to why more than 42 stations were opened by the company in more that 55 nations is to ensure that there is quality service delivery and that customer complaints are handled when they are reported. Additionally, the move was to ensure that customer needs are met because services have been taken close to the customers (Eun & Resnick, 2008).

Previously, IKEA dealt with the production of small items like pens, wallets, watches, picture frames among other small items. However, with time, coupled with the need to diversify and expand production, IKEA ventured into the production and supply of world class furniture, an activity which has led to its high ranking today. In fact, according to Ganesan, et al (2009), furniture was introduced into the company’s line of production in the year 1948. In a bid to out-beat competitors, IKEA introduced various platforms through which customers can access their products. Customers have an option of physically visiting the company’s stores or make orders online. IKEA market has been brought to the online platform through the use of a catalogue application that was introduced in the year 2013 (Ganesan, et. Al., 2009). In each and every store in the countries of operations, IKEA has eyed into the food industry because they have introduced a service where Swedish traditional foods are served.

Market share

IKEA has made substantial profits in the recent years, signifying growth and increased market share over the years. In the year 2015, IKEA made whooping sales of over $1.57 billion signifying a 11.3% increment compared to sales figure in the year 2014 (IKEA 2015). The position as the leader in the market was strengthened because of increment in market share by over 0.5% to 7.7% in the year 2015 (IKEA, 2015). IKEA is moving towards attaining a very great market share by the year 2020 and this growth in sales and market share signifies a right move towards achieving this objective by the year 2020 (IKEA, 2015).

Competitors

IKEA being the market giant is not free from competition. IKEA competes with other furniture stores like Ashley furniture, Wal-Mart and American Wood mark (Ganesan, George, Jap, Palmatier, & Weitz, 2009). However, to have an edge over competitors, IKEA has developed various market strategies that involve production of high quality, comfortable furniture at low costs. Wal-Mart is producing furniture similar to that of IKEA, but IKEA has always stood out because of its marketing strategies (IKEA, 2015).

Management structure and Management style

IKEA’s success is owed to the kind of management structure in place. IKEA is owned by a number of Not-for-profit making and profit making operations. The same array of Not-for profit and profit organizations are the ones that also undertake IKEA’s operations (Ganesan, et. Al., 2009). IKEA’s management structure is that its core operations are undertaken by a privately owned Dutch company known as INGKA holdings. IKEA’s management style is one where managers set objectives ad make allocation of tasks to staff. This form of management style encourages obedience and shows that decision making is down by managers, hence developing an implication that the business is well managed (Madura, 2012).

Types of risks facing IKEA and risk reduction techniques

IKEA is faced with a number of challenges ranging from publicity risk, competition risk and cultural risks. IKEA’s publicity risk arises out of the size of its stores (Edvardsson & Enquist, 2011). IKEAs stores sizes have received negative publicity regarding how the store sizes impact on the community and society at large. Cultural risk relates to the cultural variation in various nations where IKEA has its stores (Madura, 2012). IKEA serves Swedish food in every store as a form of marketing strategy (Ganesan, et. al., 2009). However, not all cultures are fond of consuming Swedish foodstuffs. IKEA also is facing competition from other furniture stores which means its market share is at stake (Madura, 2012).

In order to tackle publicity risk, IKEA has responded by reducing store size and educating the community on the fact that store size won’t affect there operations. Cultural risk has been dealt with by IKEA by introducing other food varieties served at various stores. IKEA has further tackled competition by producing high quality yet affordable furniture (Edvardsson & Enquist, 2011).

Outsourcing activities related to IKEA

IKEA has a complex yet effective supply chain which allows that the company keeps in touch with most of its stakeholders to ensure continued production (Ganesan, et. al., 2009). IKEA outsources most of its raw materials from more than 1800 suppliers situated in more than 55 nations. However, in order ensure that suppliers follow the law, IKEA has developed an outsourcing policy that ensures that each and every supplier supplies raw materials of high quality and which are environmentally friendly (Madura, 2012).

Conclusion

IKEA is one of the most successful MNCs commanding a huge market share in the production of high quality furniture. IKEA’s success is owed to the fact that the company has expanded its activities in most nations besides developing effective marketing strategies and the ability to deal with various risks. Similarly, the management structure is good enough to enhance good corporate governance.

Reference

Edvardsson, B., & Enquist, B. (2011). The service excellence and innovation model: Lessons from IKEA and other service frontiers. Total Quality Management & Business Excellence22(5), 535–551.

Eun, C. & Resnick, B. (2008). International Financial Management, (5th ed.). New York: Mc Graw Hill.

Ganesan, S., George, M., Jap, S., Palmatier, R. W., & Weitz, B. (2009). Supply chain management and retailer performance: Emerging trends, issues, and implications for research and practice. Journal of Retailing85(1), 84–94.

Hellström, D., & Nilsson, F. (2011a). Logistics‐driven packaging innovation: A case study at IKEA’, International Journal of Retail & Distribution Management39(9), 638–657.

IKEA. (2015). IKEA continues to grow in the UK. Retrieved October 2, 2016, from http://www.ikea.com/gb/en/this-is-ikea/newsroom/press-release/ikea-continues-to-grow-in-the-uk/

Madura, J. (2012). International Financial Management, (11th ed.). Boston: Thomson South

Western.