Analysis of IKEA and Ingka Holding

While most IKEA stores operate under the direct purview of Ingka Holding and the Ingka Foundation, the IKEA trademark and concept is owned by an entirely separate Dutch company, Inter IKEA Systems. Every IKEA store, including those run by Ingka Holding, pays a franchise fee of 3% of the revenue to Inter IKEA Systems. The ownership of Inter IKEA Systems is exceedingly complicated and, ultimately, uncertain. Inter IKEA Systems is owned by Inter IKEA Holding, a company registered in Luxembourg. Inter IKEA Holding, in turn, belongs to an identically named company in the Netherlands Antilles that is run by a trust company based in Curaçao. The owners of this trust company are unknown (IKEA refuses to identify them) but are assumed to be members of the Kamprad family.

Because INGKA Holding is owned by the nonprofit INGKA Foundation, none of this profit is taxed. The foundation’s nonprofit status also means that the Kamprad family cannot reap these profits directly, but the Kamprads do collect a portion of IKEA sales profits through the franchising relationship between INGKA Holding and Inter IKEA Systems.

Inter IKEA Systems collected €631 million of franchise fees in 2004, but reported pre-tax profits of only €225 million in 2004. One of the major pre-tax expenses that Inter IKEA systems reported was €590 million of “other operating charges.” IKEA has refused to explain these charges, but Inter IKEA Systems appears to make large payments to I.I. Holding, another Luxembourg-registered group that, according to The Economist, “is almost certain to be controlled by the Kamprad family.” I.I. Holding made a profit of €328 million in 2004.In 2004, the Inter IKEA group of companies and I.I. Holding reported combined profits of €553m and paid €19m in taxes, or approximately 3.5 percent.

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Appendix2

Manufacturing

Although IKEA household products and furniture are designed in Sweden, they are largely manufactured in developing countries to keep down costs. With suppliers in 50 countries, roughly 2/3 of purchasing is from Europe with about 1/3 from Asia. A small amount of products are produced in North America. Comparatively little production actually takes place in Sweden, though it still remains the fourth-largest supplier country (behind China, Poland and Italy).[citation needed] China accounts for about 2.5 times as much supply as Sweden. For most of its products, the final assembly is performed by the end-user (consumer).

Product names

IKEA products are identified by single word names. Most of the names are Swedish in origin. Although there are some notable exceptions, most product names are based on a special naming system developed by IKEA in conjunction with Colin Edwards (international naming expert and furniture enthusiast).

Pholstered furniture, coffee tables, rattan furniture, bookshelves, media storage, doorknobs: Swedish place names (for example: Klippan)

Beds, wardrobes, hall furniture: Norwegian place names

Dining tables and chairs: Finnish place names

Bookcase ranges: Occupations

Bathroom articles: Scandinavian lakes, rivers and bays

Kitchens: grammatical terms, sometimes also other names

Chairs, desks: men’s names

Materials, curtains: women’s names

Garden furniture: Swedish islands

Carpets: Danish place names

Lighting: terms from music, chemistry, meteorology, measures, weights, seasons, months, days, boats, nautical terms

Bed linen, bed covers, pillows/cushions: flowers, plants, precious stones

Children’s items: mammals, birds, adjectives

Curtain accessories: mathematical and geometrical terms

Kitchen utensils: foreign words, spices, herbs, fish, mushrooms, fruits or berries, functional descriptions

Boxes, wall decoration, pictures and frames, clocks: colloquial expressions, also Swedish place names

Appendix 3

11958 Sweden – Älmhult

11963 Norway – Oslo (Nesbru)

11969 Denmark – Copenhagen (Ballerup)

11973 Switzerland – Zürich (Spreitenbach)

11974 Germany – Munich (Eching)

11975 Australia – Artamon

11975 Hong Kong – Hong Kong (Tsim Sha Tsui)

11976 Canada – Vancouver (Richmond)

977 Austria – Vienna (Vösendorf)

1978 Netherlands – Rotterdam (Sliedrecht)

11978 Singapore – Singapore

11980 Spain – Gran Canaria (Las Palmas)

11981 Iceland – Reykjavik

11981 France – Paris (Bobigny)

11983 Saudi Arabia – Jeddah

11984 Belgium – Brussels (Zaventem and Ternat)

11984 Kuwait – Kuwait City

11985 United States – Philadelphia

1987 United Kingdom – Manchester (Warrington)

1989 Italy – Milan (Cinisello Balsamo)

1990 Hungary – Budapest

1991 Poland – Platan

1991 Czech Republic – Prague (Zlicin)

1991 United Arab Emirates – Dubai

1992 Slovakia – Bratislava

1994 Taiwan – Taipei

1996 Finland – Esbo

1996 Malaysia – Kuala Lumpur

1998 China – Shanghai

2000 Russia – Moscow (Chimki)

2001 Israel – Netanya

2001 Greece – Thessaloniki

2004 Portugal – Lisbon

2005 Turkey – Istanbul

2006 Japan – Tokyo (Funabashi)

2007 Romania – Bucharest

2007 Cyprus – Nicosia

2009 Ireland – Dublin

http://franchisor.ikea.com/showContent.asp?swfId=concept9

Appendix 4

http://upload.wikimedia.org/wikipedia/commons/thumb/5/57/IKEA.JPG/300px-IKEA.JPG

http://upload.wikimedia.org/wikipedia/en/thumb/6/60/Ikea_Malaysia.jpg/300px-Ikea_Malaysia.jpg

http://upload.wikimedia.org/wikipedia/commons/thumb/0/08/903._Ikea_Israel_near_Nethanya.jpg/300px-903._Ikea_Israel_near_Nethanya.jpg

Appendix 5

IKEA was named one of the 100 Best Companies for Working Mothers in 2004 and 2005 by Working Mothers magazine. It ranked 96 in Fortune’s 100 Best Companies to Work For in 2006 and in October 2008, IKEA Canada LP was named one of “Canada’s Top 100 Employers” by Mediacorp Canada Inc., and was featured in Maclean’s newsmagazine.

However, although the company opened 14 new stores in fiscal 2003, sales growth was only 2.7%, largely as a result of the depressed economic conditions across Europe, the company’s core business region. (Global Market Information Database, 2004) Thus, it is clear that, in order to improve performance at a significant level, merely opening new stores is not enough. Instead, IKEA must assess its external and competitive environment, determine the key opportunities and threats which face it, and align its strengths and weaknesses to best counter the weak consumer market, and thus generate the strong growth it needs to remain a strong brand and presence in its chosen markets (Johnson, Scholes and Whittington, 2005)

Appendix 6

Intact forest

world3

Current forest coverworld2

Remaining forest cover world1

Appendix 7

In 1990, IKEA invited Karl-Henrik Robèrt, founder of The Natural Step, to address its board of directors. Robert’s system conditions for sustainability provided a strategic approach to improving the company’s environmental performance. This led to the development of an Environmental Action Plan, which was adopted in 1992. The plan focused on structural change, allowing IKEA to “maximize the impact of resources invested and reduce the energy necessary to address isolated issues.”The environmental measures taken include the following:

Replacing polyvinylchloride (PVC) in wallpapers, home textiles, shower curtains, lampshades, and furniture-PVC has been eliminated from packaging and is being phased out in electric cables;

minimizing the use of formaldehyde in its products, including textiles;

eliminating acid-curing lacquers

producing a model of chair (OGLA) made from 100% post-consumer plastic waste;

Introducing a series of air-inflatable furniture products into the product line. Such products reduce the use of raw materials for framing and stuffing and reduce transportation weight and volume to about 15% of that of conventional furniture

reducing the use of chromium for metal surface treatment;

limiting the use of substances such as cadmium, lead, PCB, PCP, and AZO pigments;

using wood from responsibly-managed forests that replant and maintain biological diversity;

Using only recyclable materials for flat packaging and “pure” (non-mixed) materials for packaging to assist in recycling.

Introducing rental bicycles with trailers for customers in Denmark.

More recently, IKEA has stopped providing plastic bags to customers, but offers reusable bags for sale. The IKEA restaurants also only offer reusable plates, knives, forks, spoons, etc. Toilets in some IKEA restrooms have been outfitted with dual-function flushers. IKEA has recycling bins for compact fluorescent lamps (CFLs), energy saving bulbs, and batteries. In 2001 IKEA was one of the first companies to operate its own cross-border freight trains through several countries in Europe.

In August 2008, IKEA also announced that it had created IKEA GreenTech, a €50 million venture capital fund. Located in Lund (a college town in Sweden), it will invest in 8-10 companies in the coming five years with focus on solar panels, alternative light sources, product materials, energy efficiency, and water saving and purification. The aim is to commercialize green technologies for sale in IKEA stores within 3-4 years.

APPENDIX 8

PESTLE

Political – IKEA has had the ability of achieving the success in both the domestic and international business. IKEA has been able to bring about the Scandinavian style of furniture that was combined with ‘DIY’ flat packaging which is a global cult brand today.

Economic -The strength of IKEA grew from the ownership transfer of the business to the Stitching Ingka. The Company, due to the economic changes and trends are adopting different kind of strategies that will take an appeal on their customers and aiming to own the customer loyalty, as a result the company adopts other furniture style such as dinnerware, lightings and even rugs. Yet, the economic conditions affected the company’s market performance and declared a slowdown because of lacking the strategic direction. In order to generate the high performance of the business, IKEA should be careful in examining and considering the key issues that is involved in any aspects of the business, and act accordingly.

Social – The IKEA contributed much in the society as they provide opportunities in people and the employees are entitled in different benefits such as insurance and pensions. Moreover, the company promises to provide more high quality furniture that sticks to their original concept, stylish furniture at low prices.

In September 2005 IKEA Social Initiative was formed to manage the company’s social involvements on a global level. IKEA Social Initiative is headed by Marianne Barner. The main partners to IKEA Social Initiative are UNICEF and Save the Children. On the 23rd of February 2009 at the ECOSOC event in New York, UNICEF announced that IKEA Social Initiative has become the agency’s largest corporate partner, with total commitments of more than 180 million USD.

Examples of involvements:

IKEA through IKEA Social Initiative contribute €1 to UNICEF and Save the Children from each soft toy sold during the holiday seasons, raising a total of €16.7 million so far.

IKEA Social Initiative provided soft toys to children in cyclone affected Myanmar.

Starting in June 2009, for every Sunnan solar-powered lamp sold in IKEA stores worldwide, IKEA Social Initiative will donate one Sunnan with the help of UNICEF.

Technological – IKEA uses technology to promote shorter queues, proper scheduling, tracking and trading patterns, and staffing. Here by IKEA aims to be more productive and therefore establish employee preference. The system made IKEA in a position to ensure the right number of staff in a right place and in a right time to match the unique trading patterns at each stores of IKEA. The company view in optimizing everything from the supply chain is also optimizing and managing the workforce to create an efficient store environment and keep customers happy.

Legal – The legal compliance of IKEA is strictly implemented with the relevant and applicable laws and regulations that pertain to the environment, social and working conditions. The company also scheduled the most demanding requirements to be specific in maintaining the list of laws and regulations and with the procedures.

Environmental – With regards to the environmental factors such as the air, noise, and water, inspections are implemented to ensure the company provides corrective actions within the stipulated time. The environmental inspection is part of the legal documentation and environmental authorities as the business operations are on-goings and maintains the competence.

Appendix 9

PORTER’S FIVE FORCES ANALYSIS

Power of the Buyers – There is a little power because of the exiting low-price options. Furniture and other small items have an alternative and consumers have limited alternative choices that make the IKEA unique among its competitors. In addition, the low price strategy is another way of the company to response in buyer’s needs.

Power of Supplier – IKEA has its thousands of suppliers that set standards in delivering the materials. Once in a while, for some products, the IKEA bids for the contracts with multiple companies to craft the same products. Most of the suppliers work in IKEA and compete with other suppliers, and they have a little bargaining power. Because of the low-pricing, IKEA’s profit margin also affects the prices in raw materials than by prices in labor.

Rivalry – The IKEA’s furniture competitors’ offers different styles and functionality. Conrin targets a new low cost in terms of furniture line; Cratel & Barrel offers a furniture in a box which is subject in higher prices; Ethan Allen aimed at a more upscale market; Wal-Mart is equipped in a big box furniture that is categorized under the general store must-have-items, but don’t have much of a style. IKEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries.

Substitutes – There are no specific substitutes, but IKEA at least, have to keep up with the latest trends, to avoid becoming out of style. Another advantage is that, through their cutting and leading technology, IKEA could copy any new style fairly and move each the product into its stores. In the given case it states how IKEA constantly holds surprises on the shelves and keeps replacing third of its product lines every year.

New Entrants – Another furniture companies are working on low-cost strategies and should compete with the IKEA. IKEA stores do not reach many small towns and this is an opportunity for the new competitors to move into small and midsize cities with smaller stores and less selection. Competitors would definitely have a major competitor with IKEA because as the case states IKEA even though is situated six hours away the loyal customers are willing to fill up almost half of their houses with precuts of IKEA. But not easier in city because new entrants have to establish a vast supply chain and create a unique brand name.

Has a tendency of moving towards the small and mid size cities

Weak rivalry, but currently is becoming a threat to IKEA

No specific substitutes

Little bargaining power

An international retailer of home products, IKEA is a privately held retailer chain that sells flat pack furniture, bathroom and kitchen accessories all over the world. Founded in 1943, IKEA is an acronym. The name IKEA is derived from the initials of its founder Ingvar Kamprad, the farm where Ingvar grew up (Elmtaryd) and the home country of Ingvar (Agunnaryd, in Småland, South Sweden). IKEA is however owned by a foundation which is Dutch-registered and is owned by the Kamprad family.

The parent company of the group companies is INGKA Holding B.V. It is completely owned by Stichting INGKA Foundation. The foundation is a non-profit organization and is registered in Leiden, Netherlands. Inter IKEA Systems B.V. in Delft, Netherlands owns IKEA concept and trademark for all the IKEA stores across the world. Most of the stores of the company are concentrated in Europe, USA, Canada, Asia and Australia. The IKEA group also has existence in Israel and Middle East. IKEA originally started by selling picture frames, wallets, pens, watches, table runners, jewelry, and nylon stockings etc. Furniture was first added in the year 1948 and IKEA started manufacturing its own furniture since 1955.

All the stores of the company have a typical format in which the store rests inside a huge blue building with very few windows and have a one-way layout which enables the customers to have a complete look of the store. Some of the IKEA stores have restaurants which provide Swedish food and breakfasts at low prices. Some of the stores also have playgrounds for children between the age group of 4-7 years. These play areas are known as Småland and are free of charge!

The company has launched a loyalty card called the “IKEA FAMILY” that entitles the holder of the card, some special rebates on the selected items in IKEA stores and the restaurants. Since the IKEA group is owned by a non-profit organization, the profits of the IKEA group become non-taxable and the Kampard family enjoys the profit by a franchising relationship between Inter IKEA Systems and INGKA Holding.

IKEA has made major contributions in terms of charity, especially in cases of natural disaster. The company has also taken many steps for the betterment of the environment. Some of the measures taken by the company are elimination of PVC for packaging, minimizing the use of formaldehyde, using reusable plates, spoons and forks in the IKEA store restaurants. IKEA charged $1 extra for plastic bags as against no charge for paper bags or no bags at all. The company is one of the most recognizable names in the household products sector and continues to enjoy a high position in the market.

Facts:

IKEA made a contribution of €1 to UNICEF for every single soft toy sold during the holiday season of 2006. The amount contributed was €1.75 million.

The IKEA group employs 118,000 people around the globe.

IKEA retail chain has 278 stores in 36 countries.

Appendix 10

Industry Life Cycle

The industry life cycle comprises of five stages that a organization would go through. The cycle includes

Development stage

Growth stage

Shakeout stage

Maturity stage

Decline stage

This will facilitate the organization to strategize their future plans.

IKEA’s introduction to the market of retailing furniture was in 1943.the retailer accounts for just 5-10% of the furniture industry years later in Sweden. The introduction stage becomes shorter for IKEA because of the unique concept of providing low cost “Do It Yourself” styled furniture which are flat packed. In fact at the introduction to the Arabian market, there was a immense amount of shoppers attracted to the promised store vouchers, that made two deaths and 16 were injured. Towards the growth and maturity stage it was able to look at competitors and slash the price in to half and sell IKEA products. Here by IKEA over came the burden of competitors.

There were times when IKEA had miss ups too, for example IKEA was unable to discover the tastes and preferences of the potential customer in Hispanics and the Italians. The foray to the Japanese market too had been a failure 30 years ago, which had made IKEA to return to the Japanese market with more knowledge and experiences. These can be considered as some of the challenges IKEA had to face throughout the industry life cycle.