IKEA the SWOT Analysis Framework SWOT

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The company sees tremendous potential in a number of global markets and intends to pursue geographic diversification as the primary means of growth. It is aided by globalization, which has allowed it to also diversify its supply chain. The ability of IKEA to enter and exit markets around the world, both as retailer and purchaser, has been facilitated by globalization. The eradication of trade barriers in particular has allowed IKEA to leverage purchasing economies of scale by purchasing globally to service its stores.

The company has consistently viewed efficiency improvements as a means of delivery improved profitability. IKEA leverages this opportunity by using its buying power, its strength in product design and by expanding globally to improve its economies of scale in countries and regions around the world. Though IKEA is a differentiated firm, it also competes as a cost leader, marketing its products at a relatively low price as a means of attracting ongoing business. In order to make this strategy work, the company needs to be continually seeking efficiency improvements and other ways of controlling costs.

There are a number of threats in the global environment that IKEA faces. The company faces intense competition, especially in key markets. Major competitors are often well-financed and with strong brands. There are, however, no major threats to IKEA worldwide. No major furniture retailers are a credible threat. Major discount retailers like Wal-Mart or Costco, or hypermarkets like Carrefour pose regional threats, but they are not very well differentiated compared to IKEA and have weak brands with respect to furniture.

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On the surface, the global financial crisis would appear to be a threat, but from what can be gleaned about IKEA's financial performance this is not the case. The company increased both sales and profits during FY 2009 which ran from September 1st, 2008 to August 31st, 2009, the depths of the crisis. The company has been a profit machine for years, so it has no need to tap international capital markets. Not only is it privately held, but the company can finance expansion efforts with retained earnings, eliminating the need for debt. A company with IKEAs financial condition could borrow if it so desired -- a bank that could not lend to IKEA is a bank that is no longer in business. Thus, the ongoing global financial crisis poses little threat to IKEA, save for regional sales declines. Even those have largely been countered, however, with strong differentiation.

Another threat is corporate ethics. IKEA did a few years ago have problems with child labor at some of its suppliers in the developing world. Other ethical concerns lie with illegal logging to supply some of its furniture. The company's controls are questionable, since they rely on documents that may have been falsified (Wadsworth, 2007). However, these issues have not become a serious problem for the company and in 2010 it was named as one of the world's most ethical companies for the fourth year running (IKEA, 2010).

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