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    BUSINESS MODEL AND COMPETITIVE STRATEGY

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    BUSINESS MODEL AND COMPETITIVE STRATEGY


    THE BUSINESS MODEL AND COMPETITIVE STRATEGY   OF IKEA IN INDIA Table of contents

     

    Introduction

    In order to hold a permanent and effective stature in the competitive market, a company has to be able to generate few strategies to continue its further business transactions. Concerning this agenda to secure a market value in the international market, competitive advantages are the factors that enable a specific company to be able to perform with its competitors in the business. These advantages comprise of skilled and cheap labour, improvised marketing strategies and availability of natural resources etc. The combined result of the implementation of market strategies and company policies enhances the area of business while improving the capacity to compete with the present competitors in the market.

    Background of the Company

    The IKEA was founded in 1943 to sale mainly orders sent by mails by Ingvar Kamprad. Later, it came into the business of supplying home appliances and furniture. This company is a multinational group that deals in several parts of the world (ikea.in, 2018). The company has started its business based on their thought that homes are the most important and reliable aspect of people's life. They aim to decorate homes with their unique designs of appliances and furniture. The company is not restricted within the short boundary of any country. It has expanded its branches from South Korea to India. With the positive attitude towards business and implication of effective competitive strategies, the company has been able to conduct its business smoothly. 

    Applied Strategies

    The key element to run a business successfully is to apply strategies to enhance the area of business. Talking about the effective business strategies of IKEA group, they have chosen the three strategies of Ansoff Matrix, 3 Generic Strategy of Porter and International Strategy. The strategies that are chosen as the competitive market strategies are discussed below based on market demand and the value of the product.

    1. Ansoff Matrix

    Considering the strategies of marketing IKEA follows Ansoff Matrix. The basic concept of this marketing system is to evaluate the new market and the existing market while applying market penetration, development of product and the market and diversification (Ghauri et al. 2016, p.5691). It suggests the plan to imply the market policies to generate a demand in the present market as well as in the existing market. The multinational company IKEA follows this policy to enhance the value of their product. This planning tool guides the senior managers and officials of the company to assume the future growth of the company in the market.

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    Image 1: Ansoff Growth Matrix of IKEA

    (Source: arabnews.com, 2018)
    This competitive strategy has helped the company to outdo its rivals in a very effective way. With the unique plan to expand the area of business in the present competitive market, the company has to develop its technological advancements to match the required policies to increase the market demand. Innovation or diversification is one of the key elements that have been in the area of focus for IKEA. Besides, the company also focuses on developing the new market and the new product after evaluating the demands of the consumers. This helps the company to expand their business in the international platforms.
     
    2. Porter’s 3 Generic Strategy
    Another important strategy applied by the companies to reduce competition in the market is Porter’s 3 Generic Strategy (Porter and Magretta, 2014, p.37).
    In order to defend the competition in the market, the company IKEA also follows this strategy while concentrating on the focus of their business, Differentiation of the strategies compared to the strategies of the other companies and overall cost leadership.


    Image 2: Porter’s 3 Generic Strategy
    (Source: Bremann, 2017)
    As the company produces home appliances and furniture, its central focus lies on the affordability of the products while balancing it with the customer’s need.  In a narrow market, it is important to analyse the importance of focusing on the product value. On the other hand, in a broad market where a unique competency is required, the company chooses to differentiate its strategies from the others. It has helped the company IKEA to acquire a unique place in the market. While talking about the low-cost competent market, IKEA chooses to control their overall cost leadership.

    3. International Strategy

    According to Badii et al. (2018, p.700), the business strategies are the master keys to conduct a business successfully. With respect to International Strategy, it acts as a guide for the business transactions that are going to help the company while accessing the business in an international field. The major philosophies based on this strategy are of three types; firstly resource-based that deals with the specific business of a company. The second philosophy is industry-based that develops the concepts of strategies determined by a specific company. The last one is based on the institution that argues on the supplementation of the previous two strategies based on the social differences.Concerning the market policy of IKEA, the focus of the company lies in lowering the cost of their products. The company believes that by lowering the cost, it would be easy to reach the basic needs of people to promote the value of their goods (Daunfeldt et al. 2017, p.321). The initial step of lowering the prices was adopted by the company when they realised it is cheaper to outsource compared to the implementation of labour in the country. With this, the company has applied its strategy in accordance with the supplier network and lowering the cost.

    Competitive analysis of the strategies compared to other strategies

    The above-mentioned strategies have helped IKEA to expand the area of its business. While implementing the three strategies into the field of business, the company has to go through several issues like understanding the customer demand and market penetration. According to the Ansoff Matrix, the four major factors that are to be maintained to lead the market successfully are the diversification of the product, development of the market and the product and market penetration. The combined efforts of these four factors are followed to keep the demand for the product in the market (Gabrielsson et al. 2016, p.149). The International Strategy for competitive marketing has also created some hurdles for the company as it has chosen to conduct the business through opening a wholly owned subsidiary. It has enabled the risk and problems of accommodating with the economic and socio-cultural aspects of the foreign country (Mendibil et al. 2016, p.111). The correct implementation of these competitive market strategies would have worked as an instrument of lowering the cost and reducing competition in the market. On the contrary, a tendency among the consumers to use foreign goods has helped the company to promote its goods (Rothaermel, 2015, p.64). The home appliances and furniture are designed to incur uniqueness in the market. This can help the company to attract customers in order to gain competitive advantage from the market. However, sometimes this ideology of the diversification appears as a barrier to the scope of reliability and is put to a lower level. Along with these strategies, IKEA has strategically connected the rational benefits of the products with the emotional benefits, so much so that it has been able to hit the demand of their products in the market. This strategy has worked more effectively compared to other strategies chosen by the company. [Refer to the Appendix 1].

    Challenges faced for the implication of the strategies

    There are several types of entry mode to establish a business in the international market (Madsen and Walker, 2015, p.33). These processes of marketing comprises of their own features to conduct the business.
    As the company has chosen to follow the New wholly owned subsidiary, which is known as Greenfield Venture, it has to undergo some challenges. It is the process of entering a new international market with the farm and business sector of own without the cooperation of other company. Although there is a no sharing of profits and assets, there remain some risks as well. In this process of entering the market, IKEA bears a high risk, as they have to develop a foreign presence without any support from other existing companies. The issues of economic and cultural sovereignty of the host country remain along with a risk of nationalisation (Rugman and Verbeke, 2017, p.89).
    In order to conduct a successful business in India, IKEA has invested a large amount of money to open stores in India.

    The company IKEA provides the home appliances and furniture in several countries of the world including India. Concerning the demand of Indian market, the company focuses on lowering the cost to create a high demand in the market. The main problems that the company is facing to conduct the business in India are the availability of the stores and the cost of it (Areal et al. 2016, p.119). Along with this comes the problem of productivity due to the technological issues. Besides, there are the issues of self-service, supply chain issues and negotiations of vendors.

    Recommendation

    In this modern competitive market, several companies are prompt to act according to the demands of the customers. Keeping that in mind, the company IKEA should improve its competitive strategy plans to cope up with the current market. In order to improve the status in the market, the best-applied strategy is of Porter’s Generics as it provides the correct path to develop a high market value while reducing competitiveness.  Concerning the present status of the company, they should conduct more charity and events to develop public relations to get accommodated with the culture of India. In order to attract more consumers to their shop, the company should establish stores near the city or within the city, as it would allow the people to visit the stores. Another important measure that can be applied to the competitive strategies of the mentioned company is to keep the prices of the products low so that it would be affordable for the people of the specific progressing country to buy. With the application of these few strategies along with their competitive strategies, the company would be able to conduct its business smoothly in the foreign market.

    Conclusion

    The various marketing strategies are used as tools to manage the business of a company. In order to maintain that, it is important to evaluate the programmes of the studies to enhance the scope of business in the competitive market. In this modern era of competition, it is important to gain competitive advantages and reduce competition in a market that is highly saturated with the alternatives for the customers. Talking about decorating one's home, a person desire to choose the best but is only able to choose the affordable. Therefore, the motive of choosing the cheap and best works in the consumers' minds and satisfies the demand for the goods while implementing the competitive strategies.