1.

Executive Summary The purpose of this report is to conduct an analysis on the macro-environment of the furniture industry and access the competitiveness of the industry. It will also state the competitive advantage of IKEA Singapore in the furniture industry, the business strategy employed as well as an analysis on the suitability of the strategy. The methods used for the macro-environment analysis were the the ESTE! framewor" while

orter#s $-forces model was used to measure competitiveness. The %&I' factors

were then used to (ustify the resources and competencies of IKEA Singapore. The results showed that the IKEA Singapore demonstrated effective competencies that addressed issues raised by the analysis. The report concludes by evaluating the suitability of the business strategy employed and the environment IKEA Singapore is operating in. It is recommended that IKEA Singapore can venture into offering interior designing services in order to enhance and offer a complete customer e)perience for its consumers.

2. Background Information of IKEA 2.1 History and Owners i! IKEA was founded by Ingvar Kamprad in Sweden when he was *+ and it is now owned by a ,utch-registered foundation controlled by the Kamprad family. The company originated from Sweden and now distributes its products through its retail stores -IKEA Singapore ./*.0. IKEA Singapore is a Strategic 1usiness 2nit -S120 of Inter IKEA Systems 1.%. and operates as a franchise store -Inter IKEA Systems 1.%. ./*.0.

2.2 Business Sco!e IKEA is a home products retailer with two stores in Singapore -Inter IKEA Systems 1.%. ./*.0. They offer a diverse range of furnitures, along with accessories for the households, such as Te)tiles and rugs, small storages, pottery, decorations and mirrors. Supplementary, every IKEA store has a restaurant serving Swedish dishes

and desserts, a Swedish food mar"et selling Swedish food products and also a 1istro offering snac"s and drin"s -IKEA Singapore ./*.0.

2." #a$or !roducts and markets ,espite offering a range of products and services, it is evident that IKEA Singapore#s primary product focuses on sales of attractive and affordable furniture -IKEA Singapore ./*.0. 3on(ointly, the prime target mar"et is the middle class consumers as they have higher purchasing power and are more aware of the "ind of design they want -4ill and 5ones ./**0.

". #acro%Environment Ana&ysis ".1 'ES(E) *ramework ".1.1 'o&itica& The furniture industry that IKEA Singapore operates in is mostly made up "ey players who are also foreign organisations. 6or e)ample, IKEA is from Sweden, while 4arvey 'orman is from Australia. 4ence, this depicts a positive support from the Singapore government of foreign investments.

The Singapore 7overnment supported their acceptance of foreign investments by maintain a low ta) rate for imported goods -Enterprise8ne ./**0. As most of the furniture in Singapore is imported, the low ta) rates has allowed organisations to have a lower overhead cost and hence, be able to survive in the industry and offer competitive prices to the consumers. ".1.2 Economic In the recent years, Singapore has been e)periencing slower economic growth -3hannel 'ews Asia ./*90. This had lead to insignificant increase in the disposable income of consumers in Singapore. 3oupled with rising costs of living -:ercer ./*.0, the amount of disposable income is shrin"ing which would result to

consumers; shift towards buying furniture made up of cheaper materials li"e plywood and plastics -6rench .//$0.

".1." Socia& <ith 7en = up and coming in Singapore#s society, consumer preferences are beginning to metamorphose. These consumers prefer innovative and creative designs that are uni>ue but functional. They tend to put emphasis on aesthetic >ualities of the products and not so much on the price -6rench .//$0.

".1.+ (ec no&ogica& ,evelopments in technology has reflected on the convenience for consumers to shop online -?inhua ./*/0. It allows them to be able to view products and gain detailed information on them without going to see the actual thing. 3ustomers are then able to ma"e purchases online, at the comfort of their home. This saves the hassle of having to travel down to the stores and consumers do not have to be mindful of the operation hours as the websites are available .@A+.

Advances in technology for stoc" ta"ing has also led to the development of a &adio 6re>uency Identification -&6I,0 system, which can increase effectiveness for companies to control and manage inventories. :oreover, it can enhance shopping e)periences for customers as retailers can more effectively search for products, "now their e)act location and amount of stoc" available -Infocomm ,evelopment Authority of Singapore .//@0.

".1., Environment ,ue to the increased awareness of the 7reen :ovement, consumers are now more mindful of the materials used for production and if the company ma"es effort to be environmentally friendly. The focus on reducing the felling of trees may cause consumers to turn towards more environmentally products instead of

wood, a material that ma"es up ma(ority of the furniture products in Singapore -Siew ./*90.

".1.- )ega& To sustain operations within the local industry, organisations are e)pected to abide by the relevant regulations implemented with respect to consumer goods. 8ne of such will be The 3onsumer rotection -3onsumer 7oods and safety

&e>uirements0 &egulation -37S&0 which was initiated in April ./** by Singapore 7overnment to protect consumers from unsafe consumer goods. The coverage of regulation applies to consumer goods such as 6urnitures, ,I= household products, te)tiles and rugs -ST& ./**0.

".2 S.O( Ana&ysis ".2.1 O!!ortunities Increase favour among consumers by utilising environmentally friendly materials rovide convenience to customers by offering interior designing services -8ne-stop service0 Increase focus on design and aesthetic >ualities of furniture 8ffer higher customisation and more uni>ue products 8ffer products through online platform

There are always arising opportunities present if organiBations are able to understand customer demands and e)pectations to establish more differentiated and sustainable solutions -,uchessi .//@0. 8ne of such would include demands for convenience provision in service chain. 8ne-stop interior designing services could be ta"en into account for consideration, since furniture is highly correlated to interior design and has increase popularity nowadays. :oreover, the current 7en = is inclined to upward mobile and tech-

savvy -eds 1enc"endorff, :oscardo C

endergast .//D0. 4ence, e)pansion to 3ontrastingly, customers are

online sales options could be contemplated too.

loo"ing for differentiation. Therefore, ;customisation; concept, possibly in favour to environmentally-friendliness can be incorporated to reinforce furniture design and aesthetics >ualities, li"ewise creating low product substitution level. 2ltimately, the above mentions can not only promote to enhance value-add but also to ma)imise their mar"et share and profits.

".2.2 ( reats Inability to "eep up with customer demands will result in lower number of customers Increase mar"et competition dilutes mar"et share Economic slowdown affects disposable income and spending habits Increases in costs of goods

In this industry, customer demands and preferences are forever changing. 4ence, retailers may face the problem of inability to satisfy customer demands which will lead to a loss of customers. Additionally, an increase in competitors will further dilute the mar"et share of the retailers due the high number of competitors present in the mar"et. The combined effect of slow economic growth and increases in cost of goods may adversely affect the profits and sustainability of the retailers in the industry.

".2." Overview The "ey factors that affect the macro-environment of the industry are Economic, Social and Environment. The consumers# purchasing power and e)pectations are strongly influenced by these factors which also result in a shift in consumers; buying behaviours. 4ence, this has created opportunities for the industry to leverage on. In order to "eep up with customer demands, the industry is starting

to become environmentally friendly while increasing >uality and design of furniture.

+. Industry /om!etitive Ana&ysis +.1 'orter0s ,%*orces #ode& +.1.1 ( reat of entry 1arriers of entry into the industry are relatively low as it is easy for one to open a retail shop with small initial investments. 4owever, the intensity of competition may scare off potential entrants. :oreover, the aspiration to becoming a prominent player in the industry re>uires a large capital in order to compete with high levels of economies of scale. Thence, to match the competitors, the new entrant is re>uired to ta"e time in establishing e)tensive relationships with sta"eholders -e.g. Suppliers, customers0. The massive investment in effort and commitment re>uired may deter new entrants from attempting to enter the industry.

+.1.2 ( reat of su1stitutes The basic functional demand of furniture has remained the same throughout the years. 'o matter what, customers will still buy furniture with >uality and price being the main considerations. The only changes are the style and preference of the consumers with more focus on environmentally friendly practices of the company. Therefore, it is safe to say that there are no substitutes for the furniture industry in Singapore.

+.1." Bargaining !ower of 1uyers 1uyers of furniture have many alternatives because of the larger number of retailers in Singapore. 3orrespondingly, they are able to ma"e choice between the vast materials used and location of production. This has lead to smaller retailers

often engaging in price wars, allowing consumers to have a high bargaining power.

+.1.+ Bargaining !ower of su!!&iers There are many suppliers around the world in which retailers can get their raw materials and finished products from. The raw materials used to produce furniture are also not difficult to obtain. 4ence, retailers can easily change suppliers, leaving them with low bargaining power.

+.1., Extent of riva&ry 1etween com!etitors The ma(or players within the furniture industry are IKEA, 3ourts and 4arvey 'orman. Those that are of smaller scale are %.hive and 'ovena 6urnishings. 8ther than these, there are also a lot of small retailers operating at neighborhood shop houses. Therefore, the e)tent of rivalry between the competitors is rather high as many companies often engage in price wars while attempting to offer >uality products.

+.1.- Overview 2tilising the orter#s $-forces model, it compares the attractiveness of the

furniture industry and the competitive behaviour observed within the industry - hadtare ./**0. It can be seen that the slow economy growth rate affects the bargaining power of both the buyers and suppliers. 1uyers of IKEA Singapore will have a higher bargaining power as alternatives are readily available and more considerations will be ta"en into account in times of financial difficulties. <ith regard to IKEA Singapore, the supplier has a high bargaining power because IKEA Singapore is a franchise of IKEA. All products are supplied by IKEA and they have to utmost authority in determining sale prices.

IKEA Singapore has successfully established itself as a "ey player in Singapore and the scale of the business is effective in "eeping new entrants at bay. As there is an increasing trend towards having a green environment, many companies within the industry are trying to become environmentally friendly, including IKEA Singapore.

<ith regards to substitutes, the industry and IKEA Singapore does not face any threat at all. 6urniture is re>uired in all households and the industry is still highly competitive by offering consumers with a huge variety of furniture of different designs and materials.

,. Sustaina1&e /om!etitive Advantage ,.1 2esources and com!etencies of SB3 !ow cost but good >uality ,esign balances functionality, design and price !ong term positive relationship with suppliers 2ni>ue design of flat-pac" furniture 8ne-stop location for furniture and house furnishings Easy transportation of furniture 3ustomisation services Strong global brand image !eading retailer in home furniture and furnishings

,.2 4ustification using 52I6 ,.2.1 5a&ue 1y customers 7from customer0s !ers!ective8 3ustomers feel that the furniture sold at IKEA is practical, functional and is priced much lower as compared to its competitors. 3ustomers who go shops at IKEA Singapore are convinced that IKEA effectively combined low cost with good

>uality. 3onsumers also feel that they are able to customiBe their own furniture without burning a hole in their poc"ets. 1y offering flat-pac"ed furniture, customers are e)pected and allowed to carry their furniture home cum assembling it themselves, which conse>uently enable IKEA to "eep their prices low. 3onsumers find this a value-adding activity where they can be actively involved in selecting the materials and components of their furniture as well as the hands-on e)perience of putting them together. They do not mind the ,I= process which contributes to the long-term provision of affordable prices by IKEA.

,.2.2 2are 7from com!etitor0s !ers!ective8 The furniture variety in Singapore is almost always ready-made. The furniture is assembled before hand by carpenters before they are delivered to the customer#s homes. 8ffering flat-pac"ed and easy ,I= designs proves to be a rare competence of IKEA.

The other retailers in Singapore mainly focus on the sale of furniture. 4owever, IKEA Singapore provides a whole variety of household products li"e Te)tiles and rugs, small storages, pottery, decorations and mirrors -IKEA Singapore ./*.0. They have created a central for consumers to pic" up almost everything they need for the house in a single location, which is something that other retailers do not uphold.

,.2." Inimita1i&ity 7ro1ustness8 of com!etence IKEA Singapore provides customiBation services where consumers are able to select the material, colour, dimensions and even door "nobs for a wardrobe -IKEA Singapore ./*.0. 8ther competitors are able to offer customiBation as well, but at a premium price. :any retailers hence find it difficult to be able to match the price of customiBation for IKEA.

6rom a competitor#s point of view, it is very difficult to be able to produce high >uality products but sell them at low prices. IKEA Singapore entered the mar"et with this believe and has "ept up to their promise over the years. <ith a strong bac"ing from its Swedish origins, IKEA Singapore has established a strong brand name in the minds of consumers. <hen it comes to furniture, people often thin" of IKEA. 8ther retailers within the industry may be popular but none is as influential as IKEA.

IKEA Singapore has managed to establish a smooth supply chain which can help save costs and hassles. <ith a positive relationship with its suppliers, IKEA Singapore can ensure that they will have constant delivery of stoc" that are of good >uality.

The culture instilled within IKEA where the focus is on delivering >uality at a low cost is difficult to be cultivated within the other competitors as they do not have much economies of scale as compared to IKEA.

,.2.+ 6on%su1stituta1i&ity IKEA#s furniture is vulnerable to substitution from competitors who offer similar products. 4owever, IKEA is a pioneer is the flat-pac" furniture business and there are no alternatives to that in the mar"et at the moment.

-. 9eneric (y!e of Business Strategy -.1 ( e Strategy /&ock The current business strategy of IKEA Singapore focuses on the hybrid-strategy Bone of the EStrategy 3loc"E. 8ne distinctive feature is that it allows possibilities between low-price and differentiation strategies. It involves lower prices and higher benefits for differentiation strategies and low-price strategies respectively -5acobsen .//F0.

-.1.1 :ifferentiation strategy In terms of differentiation, IKEA Singapore is successful in ma"ing "nown to consumers that they are different. They show this by offering customiBation services at low prices which other companies are unable to match. The design of flat-pac" furniture is also one area in which IKEA utiliBes to differentiate themselves from others.

-.1.2 )ow%cost strategy IKEA Singapore stated that to uphold their vision, they offer a wide range of home furnishing products that are well-designed and functional yet a prices so low that it is affordable to many. They have employed low-cost strategies by utiliBing their economies of scale and e)perience in design to bring down their costs of production. They also tried to minimise on operating costs by as"ing customers to transport their own furniture home and set it up themselves. IKEA can save costs on hiring professionals and they pass on these savings to the consumers.

;.

Eva&uation ;.1 Suita1i&ity of Strategy The success of IKEA Singapore has proven that the utiliBation of a hybrid of strategies is wise and is suitable to the environment that it operates in. 3ustomers have accepted the idea of transporting and assembling the products themselves but paying a low price for it. The hybrid strategy has effectively addressed the main factors affecting the performance of the firm such as changing customer preferences and slow economic growth. 1y engaging in environment friendly wor" practices, customers can better identify themselves with the firm and support them.

Through differentiation, IKEA Singapore has managed to win over customers through their uni>ue design and value for money. In times of slow economies,

they could still maintain their sales by offering products that are differentiated from that of its competitors. They have also upped themselves a notch by moving on to provide online sales services and customiBation at affordable prices. Therefore, employing a hybrid of strategies is definitely suitable for IKEA Singapore and its surrounding environment.

<. /onc&usion IKEA Singapore is definitely the leading retailer in the home furnishing industry in Singapore. The report highlights the "ey factors that affect the firm#s performance

and the suitability of the hybrid strategy utiliBed to improve performance. The fact that IKEA managed to uphold its promise of providing functional and affordable furniture at low prices proved that the strategy employed wor"s. 4owever, in order for IKEA to increase its mar"et share in Singapore, they can move towards offering a comprehensive, one-stop location for purchasing home furnishings by adding interiordesign services. In this way, IKEA Singapore can leverage on its differentiation and low-cost strategies to provide their customers with enhanced value and e)perience.

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