Michael Porter's Five Forces Analysis Of IKEA

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Introduction IKEA was founded in 1943 and has grown to become one of the internationally recognized home furnishing retailer store. According to Ahlstrom and Bruton (2009), the company was founded by Ingvar Kamprad, a Swedish national who began by selling matches and later ballpoint pens. However, in 1948, Kamrad introduced furniture to his business venture. Czinkota and Ronkainen (2006) assert that the goal of Kamrad was to provide stylish and sophisticated furniture that could easily capture the market while at the same time leading to profits. Today, IKEA mainly deals in flat-pack furniture, such as beds, desks, appliances and other home accessories, which are ready to be assembled by the consumers (Ahlstrom & Bruton, 2009). The company…show more content…
Porter’s five forces analysis recognizes that businesses have to understand and cope with the existing competition (Hill & Jones, 2009; Kortler, 2012; Magretta, 2013). The competitive forces that were identified by Porter include rivalry among existing competitors, bargaining power of the buyers, bargaining power of the suppliers, threat of new entrants and the threat of substitute products (Hill & Jones, 2009). Thus, according to Magretta (2013), apart from the SWOT analysis, the competitive analysis of the IKEA Singapore can also be considered in terms of Michael Porter’s 5 Industry Forces. According to Hill and Jones (2009), the model implies that the risk-adjusted rates of return need to be constant across the industry. With respect to the supplier power, the IKEA Singapore has been able to differentiate its products and expand its market and production output. The company has also addressed the threat of substitutes by providing high quality and cheap products (Magretta, 2013). This therefore provides the consumers with a rare opportunity to look for other substitute furniture products from other companies. Similarly, the company, by entering into new markets across the world, has managed to limit the entry of new service providers across the globe, including in Singapore. Further, with regards to rivalry, normally, industries strive to maintain a competitive edge over their key rivals in the market. Importantly, the competition among different industries involved in the production of similar or substitute products normally drives profits to zero. In the case of IKEA Singapore, the competition intensity is not high and the company is still able to make profits. This has been achieved by maintaining a competitive advantage through product differentiation, pricing and marketing strategy. Finally, in regards to the buyers’ power,

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