INTRODUCTION (Michaela)

Good morning,
My name is Michaela Titianu , over there is Ericas, next to him Judita and next to her
Andrei.
We have a few things that we like to shear with you today. Our presentation will be PEST and
SWOT analysis on IKEA. Our aim is to make it easier for you to understand IKEAs great
success and its approach to environmental factors.
Did anyone in this room ask himself after visiting an IKEAs store how it is possible to sell a
kitchen at 30% below the market price? Analysts claim that IKEAs founder Ingvar
Kamprads great talent is not selling; his great talent is buying (Carlsson, 2015)
IKEA was established in 1943 by Ingvar Kamprad in Sweden, surprisingly he was only 17
years old. His innovative idea was to offer home furnishing products of good function and
design at prices much lower than competitors by using simple cost cutting solutions that did
not affect the quality of products. Today Ikea is an international home products retail that
sells flat pack furniture, accessories, bathrooms and kitchen items around the world, as of
august 2015, IKEA owns and operates 373 stores in 47 countries.
Ericas will continue with the definition of PEST and SWOT.
Definition of PEST and SWOT (Erikas)
There is a range of external and internal factors that influence IKEA which will
consider analysing. According to Boddy (2011) PEST analysis is a method for recognise and
intercept the political, economic, social and technological factors in the general environment
suitable to an organisation. It comes in complement with a SWOT analysis which is a manner
of investigating the organisation strength and weaknesses, proportionate to external
opportunities and threats.
Political factor (Judita)
Any decisions or changes by Government or Governing body can affect the business by
presenting an opportunities or threats.
The key areas of possible Government policy changes affecting business are those related to
product safety requirements, import and export restrictions, imposed emission targets,

taxation, National minimum wage and Government spending policy. For example, if the
government spends more on schools, this will increase the income of IKEA which supply
schools with equipment.
For example, a rise in corporation tax (on business profits) leads to reduced profit and has the
same effect as an increase in costs. Businesses can pass some of this tax on to consumers in
higher prices, but this means reduced sale numbers and customer loss.
Governments decision to introduce a Help to Buy ISA for the first time property buyers will
help to save for a deposit. People will be able to open an ISA, save up to 200 a month
towards their first home, and the government will boost it by 25%. Thats a 50 bonus for
every 200 people save, up to 3000. When obtaining a new home naturally leads to the need
for the new furniture and equipment.
If Government decides to increase National Minimum Wage this sort of decision will
represent the threat to IKEA with increased expenses and the loss of profit.
Furthermore, Governments decision to introduce Benefits Cap to 20,000 for those living
outside London and 23,000 living in London means benefit cut. This decision may directly
affect IKEA as the store sells affordable furniture and families with reduced budget may no
longer be able to afford a new equipment.
Taxation policy affects business costs. For example, a rise in corporation tax (on business
profits) has the same effect as an increase in costs. Businesses can pass some of this tax on to
consumers in higher prices, but it will also affect the bottom line. Other business taxes are
environmental taxes (e.g. landfill tax), and VAT (value added tax). VAT is actually passed
down the line to the final consumer but the administration of the VAT system is a cost for
business.
Government spending policy also affects business. For example, if the government spends
more on schools, this will increase the income of businesses that supply schools with
equipment etc.

Economic factor (Andrey)

State of UK economy at the moment

-The UK economy has been recovering at a relatively strong rate since early 2013, although
there were signs of a slight slowdown in growth in late 2014 due to problems in the Eurozone
and other geopolitical uncertainties.
- expected GDP (Gross domestic product is a broad measurement of a nations overall
economic activity). growth to average around 2.5% in 2015, supported by recent oil price
falls, before easing slightly to around 2.3% in 2016.
-London and the South East are continuing to lead the recovery, as has been the pattern for
many years, but other UK regions should also register positive real growth of around 1.72.5% in 2015.
Reference : http://www.pwc.co.uk/services/economics-policy/insights/uk-economicoutlook/ukeo-summary-mar-15.html

Inflation rates

- Low inflation in the short term may not prevent interest rate rises from late 2015
-Consumer price inflation is likely to be close to zero on average in 2015 due to lower global
energy and food prices, but could return to target by the end of 2016.
- MPC (The proportion of an aggregate raise in pay that a consumer spends on the
consumption of goods and services, as opposed to saving it)expected to keep interest rates on
hold in the short term, but then to increase them gradually from late 2015 or early 2016
onwards, returning to around 3.5-4% by 2020. Businesses and households should start to
prepare for this upward trend now.

Refrence : http://www.tradingeconomics.com/united-kingdom/inflation-cpi

Interest rates

-The Bank of England Monetary Policy Committee voted by a majority of 8-1 to maintain the
Bank Rate at 0.5 percent
-.Interest Rate in the United Kingdom averaged 7.90 percent from 1971 until 2015, reaching
an all time high of 17 percent in November of 1979 and a record low of 0.50 percent in
March of 2009. Interest Rate in the United Kingdom is reported by the Bank of England.

Reference : http://www.tradingeconomics.com/united-kingdom/interest-rate

VAT (Value-Added Tax)

VAT steady for 5 years at 20 %

Unemployment at the moment

- British jobless rate decreased to 5.4 percent in the three months to August of 2015, down
from 5.5 percent in the previous period and the lowest since March to May of 2008. The
employment rate reached the highest on record while pay growth came slightly below
expectations.
- 1.77 million unemployed people, 79,000 fewer than for March to May 2015
-31.12 million people in work, 140,000 more than for March to May 2015

Reference : http://www.tradingeconomics.com/united-kingdom/unemploymentrate

SOCIAL FACTOR (MICHAELA)

There is a range of social factors that have direct and indirect effects on IKEA revenues.
Increasing concern towards environmental issues media has the tendency to influence IKEAs
long-term growth prospects. Specifically, people are becoming increasingly concerned about
the issues of deforestation, water depletion, global warming and others. IKEA is the worlds
third largest consumer of wood and this fact may damage the brand image due to the social
change associated with concern towards environmental problems.
Another social tendency among consumers is associated with the shift to online programs and
applications to complete a wide range of personal and professional tasks. For example,
substitution of physical books to the electronic versions for increasing numbers of consumers
decreases demand for bookshelves offered by IKEA. Social factors such as modification in
demographic variables (income, age, family size and so on) of different country significantly
influence the strategic decision made by the business. As an example aging population is less
likely to buy furniture whereas younger generation would demand trendy furniture that
should also add value to the purchase.
Demand of certain products is controlled by changes in demographic. As an example a major
shift of rural population to urban area due to job creation indicates higher demand of less
costly products for new familys to get settles. IKEA will become one of the best choices.
Therefore, the revenue of the company will increase.
In the same way, fashion trends, cultural factors, consumers behaviour and taste also control
demand, less bulky, trendier, and easy-to-assemble furniture.
Lastly, reduced income levels place furniture purchases at less priority.
TECHNOLOGICAL FACTOR (ERIKAS)
Impact of Internet:
Technology has made it easier for IKEA to promote their product through the internet. It
gives the customer detailed information about the product, the dimensions which make it
easier for the customer to know what they are buying.
Apart from the catalogue services IKEA's strength is online service. IKEA.com had more
than 1.5 billion visits during FY14, up 15% from FY13. The Ikea catalogue app was opened
46 million times. It also provides the online help to the customers.

Production process
The latest advancement in the stores are computer operated lifts. Earlier after placing the
order customer has to go to the warehouse for the pickup of the product but now IKEA has
centralized store and warehouse. Customer has to place order and then has to put the code of
product on the computed lifts provided and thus can receive the product. This saves the time
of the customer and also the staff.
IKEA developed some unique features in the furniture industry like self-assembly. This
feature enabled IKEA to ship its products in flat-packs reducing the damage while
transporting. According to Roth, the IKEA flat pack allows for seven times as many units to
be transported per shipping container then if the products were assembled. Ikeas using
modern techniques to concentrate on one production process, one base raw material and a
limited product range. This type of manufacturing optimizes efficiency and production
volume.
Technological innovations related to manufacturing processes (Automated Warehouse and
packaging lines) may affect IKEA largely taking into account the scope of its operations.
Payment methods:
VISA, MasterCard, American Express, debit card and cash, Ikeas gift Cards.
SWOT ANALYSIS (JUDITA)
Strengths
Low prices
Environmental friendly company
Charitable company
Access to food and beverage services
Customer centric
Wide range of goods
40 years of experience
Weaknesses
Assembling furniture yourself may be unappealing to certain group of consumer

Story layout- a hassle for those who want a particular item only
Furniture is not build to last a lifetime
Opportunities
Able to trade globally with other countries
Increase online seals and internet presence
Educate consumers on IKEA thru advertisements
Threats
Indirect threats from its competitors
Increasing RAW material cost
CONLUSION

REFERENCES:
Anon. (2010) Tenth of furniture both in Britain is from IKEA. The Telegraph [online], 10
October. Available from:
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8047531/Tenth-of-allfurniture-bought-in-Britain-is-from-Ikea.html [Accessed 12 December 2015].
Boddy, D. (2011) Management: An Introduction, 5th ed. Harlow: Pearson Education Limited.
Carlsson, M. (2015) Strategic Sourcing and Category Management: Lessons Learned at
IKEA: Kogan Page Publishers.
Gov.uk. (2015) Budget 2015: Some of the things weve announced. Available from:
https://www.gov.uk/government/news/budget-2015-some-of-the-things-weve-announce
[Accessed 10 December 2015].
Grice, A. (2015) Budget 2015: Benefits Cap to be reduced to 20,000 for families outside
London. Available from: http://www.independent.co.uk/news/uk/politics/budget-2015benefits-cap- to-be-reduced-to-20000-for-families-outside-london-10367590.html [Accessed
11 December 2015].

Ikea Group. (2015) Yearly Summary. Available from:

http://www.ikea.com/ms/en_GB/pdf/yearly_summary/IKEA_Group_Yearly_Summary_FY15
_external.pdf [Accessed on 08 December 2015].
Jake, G. (2009) Manufacturing IKEA Style. Available from:
http://www.surfaceandpanel.com/articles/cool/manufacturing [Accessed on 08 December
2015].
Kamprad, I. (2007) The Testament of a Furniture Dealer, A Little IKEA Dictionary: Inter
IKEA Systems B.V. Available from: http://resultsbusinesscoach.com/wpcontent/uploads/2013/07/a-furniture-dealer%E2%80%99s-Testamentenglish_testament_2007.pdf [Accessed on 10 December 2015].
PwC. (2015) UK Economic Outlook March 2015: Summary report. Available from:
http://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook/ukeosummary-mar-15.html [Accessed 08 December 2015].
Skliarova, M. and Cobertz, T. (2011) Eco-efficiency for sustainability: IKEA's environmental
policy in Russia. Diva [online], 06 June 2011. Available from: http://www.divaportal.org/smash/get/diva2:420853/FULLTEXT01.pdf [Accessed 10 December 2015].
Trading Economics. (2015) United Kingdom Inflation. Available from:
http://www.tradingeconomics.com/united-kingdom/inflation-cpi [Accessed 08 December
2015].
Trading Economics. (2015) United Kingdom Interest Rate. Available from:
http://www.tradingeconomics.com/united-kingdom/interest-rate [Accessed 08 December
2015].
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http://www.tradingeconomics.com/united-kingdom/unemployment-rate [Accessed 08
December 2015].