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CESIM Global Challenge Mobile Phone Industry

Analysis Report

By
NEFLA: Stay Close…!

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Table of Contents
1. Introduction...........................................................................................................................................5
2. Market Analysis.....................................................................................................................................5
2.1 Competitors......................................................................................................................................5
2.2 Geography and Technology............................................................................................................5
2.3 Buyers preferences and Market Segmentation..............................................................................6
2.4 Sub-strategic Groups in Mobile Phone Industry...........................................................................6
2.5 Market Shares..................................................................................................................................7
2.6. Porter Five Forces Analysis...........................................................................................................8
2.7 Power of Complement Providers..................................................................................................10
2.8 Industry Lifecycle Analysis...........................................................................................................11
2.9 PESTEL Framework.....................................................................................................................14
3. Competitive Advantage.......................................................................................................................15
4. Outsourcing Manufacturing...............................................................................................................20
4.1 Definition and Scope......................................................................................................................20
4.2 Global Trend of Outsourcing........................................................................................................21
4.3 Trends of Manufacturing Outsourcing........................................................................................23
4.4 Outsourcing in Cesim....................................................................................................................24
Future Recommendations for NEFLA...................................................................................................25
Conclusion................................................................................................................................................26
APPENDICES.........................................................................................................................................29

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1. Introduction
The United States Dept. of Justice, 10 years back decreed to major mobile phone manufacturers
to change and appoint new top management for improving mobile handsets industry. NEFLA
also hired new managers to compete with other reorganized organizations (Ego-phone, Orange
and Smart phone). Research and development (R&D), production, marketing and promotion
were the core operations of mobile phone manufacturing companies. At beginning sales revenue
was more than one billion dollars which was good starting point for NEFLA to compete.
This paper will give insight of performance analysis of NEFLA and its comparison with other
competitors. Focusing on market and industry analysis, competitive advantages and capacity
utilization, out sourcing and future recommendations for better performance.

2. Market Analysis
Market analysis was done by using following approaches.

2.1 Competitors
‘Competitive rivals are organizations with similar services and products aiming at same customer
groups’ (Johnson et al., 2014a). By considering this criteria there were 4 mobile companies in
cesim simulation competing each other and focusing same customer groups.
Named as:
 NEFLA
 Ego Phone
 Orange
 Smart Tech

2.2 Geography and Technology


Geographically mobile phone industry targeted three markets including:
 USA
 Asia
 Europe
Globally each market has variation in demand. Different technologies were ideal at different
times in different regions. Increasing trend in both total demand by regions and Tech

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demonstrates that markets are not static and still in growing phase (see Fig. 1). Though demand
for Tech 1 and Tech 2 is declining but at the same time it is uplifting for Tech 3 and Tech 4. It
means that customers will be more inclined towards higher technologies in future.

Figure 1: Total Global Demand by Region and Tech (Source: D. Jones)


2.3 Buyers preferences and Market Segmentation
Analysis of customers demand facilitates to determine potential of product characteristics,
willingness of customers to pay for any differentiation and company’s competitive position.
(Grant, 2015)
Customer’s buying preferences were different because of that mobile companies opted
‘Segmentation Strategy’. In Europe, people are more inclined towards technological
advancement that’s why Tech 4 was launched in year 2 by Smart Tech but it was wrong timing
because industry was at embryonic stage. While in Asia customers are more price sensitive.
Therefore, companies (i.e. Orange) selling at low prices were ideal in Asia.

2.4 Sub-strategic Groups in Mobile Phone Industry


Strategic groups are positioning of companies by making themselves significantly different from
other companies by improving R&D and investing more in advertisements and using better
pricing approach. (Hill, Schilling, and Jones, 2014) Figure 2 depicts that Ego Phone spend more
on R&D and promotion due to that it had highest ROS of 23.68% (see Fig. 1 in Appendix for
details). One reason of spending more money on R&D by Ego Phone was, as they bought
licenses for new features and technology whereas NEFLA did more In-house R&D. Because of
that NEFLA spend less on new technologies and features than Orange and Ego-Phone but
compete them at same level and had 22.66% ROS in year 10.

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Figure 2: Strategic Grouping on basis of Investments on R&D and Promotion (Source: Adapted
from Johnson et al., 2014)
2.5 Market Shares
 Market share is defied by percentage of sales by each company. (The Economic Times, 2017) In
year 10, the highest market share was gained by Orange (38%), followed by Ego Phone (25%),
Smart Phone gain20% whereas NEFLA had the least of only 17%.

Figure 3: Average Market Share (%) in all region by 4 companies (Source: Author)

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Reasons: In year FY1, NEFLA had share of 32% of market globally. But later on due to
focusing more on Europe and Asia and leaving niche market of USA, market share went down
gradually. Aggressive pricing (extreme low pricing) and marketing by Ego Phone and Orange lift
them up and NEFLA start drowning and had loss of $65,133K in FY3 and market share was
reduced to 21%. In FY4, NEFLA changed its strategies of pricing and went towards stability and
had more profit than Orange in FY10.
2.6. Porter Five Forces Analysis
Porters five forces analysis help to describe stable industry structure which is attractive for new
entrants and make potential profit over the period of time. (Hill, Schilling, and Jones, 2014)
Figure 4 illustrate NEFLA’s competitive forces analysis. Five forces are as follows:

2.6.1 Risk of New Entrants


Mobile industry is quite attractive but now there are high entry barriers for new entrants. It is
very difficult for new company to jump into the industry because it is in mature phase and there
is high rivalry among existing companies in terms of price and technology features.
Apart from high entry barriers Smart Tech is struggling to sustain and facing higher exit barriers
because of huge investments in assets.
Because of industry maturity, it would be expensive for new companies to meet same level of
production due to higher unit costs. Whereas with the progression of time existing companies
have economies of scale and learning curves which results in lower costs. Figure 5 represents the
difference between unit costs of Tech 2 of NEFLA (including averages of both in-house and
outsourced production) during year 1-10 which reduced significantly due to gain of learning and
experience curve. Threat of entry is possible from Outsourcing supplier as they also achieved
these curves over the period of time.
2.6.2 Power of Buyers
Power of buyers is more in mobile phone industry because they have several options for buying
at different price range with variety of latest technologies. Which reduced their switching costs
and enhanced power.

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Figure 4: NEFLA Competitive Forces Analysis (Source: Adapted from Hill, Schilling, and
Jones, 2014)

Figure 5: Effect of Learning Curve on Economies of Scale in terms of Tech 2 in NEFLA


(source: Adapted from Hill, Schilling, and Jones, 2014)

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2.6.3 Power of Suppliers
Bargaining power of suppliers would be higher if there is no substitute and material is essential
for companies. Suppliers can also threat to enter companies customers. (Hill, Schilling, and
Jones, 2014) Not enough information regarding suppliers in cesim.
2.6.4 Threats of Substitutes
No substitutes industry is competing right now but maybe there would be any industry (e.g.
landline phone) in future.
2.6.5 Competitive Rivalry
Rivalry states the competitive tussle between companies to achieve maximum market share.
(Hill, Schilling, and Jones, 2014) Competitive rivals of NEFLA includes Orange and Ego Phone
2.7 Power of Complement Providers
Some companies provide complementors, which add value to existing product and sometimes
necessary for the product utility. (Hill, Schilling, and Jones, 2014) In cesim, power of
complement providers is more, as network coverage is vital thing for functionality of mobile
phones. Providers of features also have power as well. They can rise selling prices of features to
force companies to buy it if there is no alternative provider. Fig. 6 show the network coverage
over the period of time. Scope of Tech 3 and Tec 4 is more in future.

Figure 6: Network Coverage Forecast (Source: Cesim)

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2.8 Industry Lifecycle Analysis
Industry lifecycle comprise on five stages (Hill, Schilling, and Jones, 2014):

 Embryonic stage: Industry just launched to develop


 Growth stage: When demand of industry increase
 Shakeout stage: As soon as industry cannot meet high growth it enters shakeout phase
 Maturity stage: Market saturated fully, demand of replacement is minimal and growth
rate is least
 Declining stage: Negative growth due to social changes, technological swap,
demographic and transnational competition

Mobile phone industry in cesim, is now in its maturity stage (Fig. 7) dominated by 3 big
companies (Orange, Ego Phone & NEFLA) and Smart Tech. Mostly, large companies determine
the nature of competition as they can easily influence six competitive forces. (Hill, Schilling, and
Jones, 2014)

Mobile Industry

Figure 7: Mobile Phone Industry Life Cycle Analysis (Source: Google Image)

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Industry Size

Global sales revenue (Fig. 8) and profit (Fig. 9) tells about industry size in $. Trend is increasing
over the period of time, there is sharp increase after year 4. While there minimal increase after
FY7-FY10 which shows the industry is in mature stage. Growth rate was minimal only 1-3% in
USA and Asia in year 10, whereas it was 8-12% in Europe because of more demand of advanced
technology.

Global Sales Revenue


14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10

NEFLA EGO-Phone
Orange Smart Tech
Global Total Logarithmic (Global Total)

Figure 8: Global Sales Revenue by companies in FY1-FY10 (Source: D. Jones)

Global Profit
2,000,000

1,500,000

1,000,000

500,000

0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10
-500,000

-1,000,000

-1,500,000

NEFLA EGO-Phone Orange


Smart Tech Global Total

Figure 9: Global Profit by companies during FY1-FY10 (Source: D. Jones)

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Capacity and Demand

Figure 10 and 11, give insights of relationship of global capacity and demand. One reason of
more global capacity than demand could be, the large number of production factories (63 in USA
and 42 in Asia) and increased capacity of outsourcing. So, companies should take wise decisions
regarding building more factories in future.

Global capacity and Demand


70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10

Global Capacity Global Demand

Figure 10: Global Capacity and Demand (Source: D. Jones)

18 USA ASIA
17
18 16
15
16 14 14
14
Number of Factories

12
10 8
8
6
3
4
2
0
NEFLA EGO-PHONE ORANGE SMART TECH

Companies

Figure 11: Production Plants by companies in USA and Asia (Source: Author)

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Limitations:

 General model, not appropriate for all industries


 Overlooked innovation and change, major influencers on nature of competition
 Emphasize more on industry structure not on individual company structure and
performance

2.9 PESTEL Framework


Agenda Factors Impacts/Actions
Political  Political tension b/w USA and  NEFLA tried to produce
China till year 8, reason for and outsource with in
increased tariffs up to $25/unit Asia to meet demand
 Civil War more oil prices  High tariff costs,
 Tariff free zone (year 9) decreased production
 Butter time for
companies to make
profit
Economy  Europe fixed tax rate of 31%  Less sale of mobile
(year 1) phones in Europe
 Tariff was more b/w USA to  Export Europe from
Europe Asia to reduce tariff
 Currency change rates RMB, costs
USD & Euro
Social &  Labor strikes increased unit cost  To avoid unit cost,
Demographics (year 9) outsourced more
 European customers: Advance  Offered more features of
Tech Tech 4 & Tech 3 in
 Asia: Low price Europe
 Decrease price in Asia
Technological  Europe keen Innovation (year 6)  Match pace with modern
 Better network coverage (year technological demands
10)
Environmenta  WWF and Govt. of Nepal  Extra feature cost for
l charged extra fees (year 6) production plants
 Scandinavian leaders criticized on  Sale decreased in Europe
enhanced pollution (year 8)
Legal  European common tax agreement  Effected sales and
profits of all companies

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3. Competitive Advantage
Competitive advantage is having more profitability than average profit of rival in the industry.
Maintaining this above average profit for a long time, is sustained competitive advantage. (Hill,
Schilling, and Jones, 2014)

3.1 Sources

 Distinctive Competencies: Company's particular strengths that allows to differentiate its


services and products offered by other existing or maybe also have lower production cost
advantage
 Resources: Assets of the companies, which can be tangible e.g. factories, offices and
machineries or assets can be intangible i.e. brand name and patent.
 Capabilities: These are resources-coordination skills utilized to maximize the company's
profitability and productivity.

3.2 Value Chain


All functional activities including product development, material management, production, IT
systems, HR and marketing has a significant role in lower down of per unit production costs and
this chain of activities became a 'value chain' for the particular company. Effective strategic
management of these activities leads towards the strong competitive advantages. Figure 12,
shows the value chain process in mobile companies.

Companies like Orange and Ego Phone took high competitive advantage due to aligning their
primary activities. They spent more on promotion and in-house production which towards the
major market share holdings. Figure 13, represents the spending on marketing. NEFLA and
Smart Tech spend even below the average, this thing provide leverage to Ego phone of having
more profit in FY10.

One reason of sustained profit of NEFLA was due to the less administrative and variable
production costs. Fig. 14 demonstrates clearly that variable production costs, deprecation and
administration costs of Orange were higher which lead to decrease in profit than NEFLA.

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Tariffs Promotion

Production Network

Outsourcing

R&D, New Features

Legal, Financial

Figure 12: Value Chain of Mobile Companies in Cesim (Source: Smstudy.com, 2015)

Cumulative Marketing Spend


1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10

NEFLA EGO-Phone Orange


Smart Tech Global Average

Figure 13: Cumulative spend on marketing (Source: D. Jones)

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Figure 14: Costs Average over the period of time (Source: Author)

3.3 Cost Leadership Strategy


Orange and Ego Phone opted cost leadership strategies; selling phones on cheap price on the
large scale. Which leads further to the increased demand of Orange globally (Fig. 15) and
Orange and Ego Phone gain large market shares in Asia as well due to price sensitivity of Asian

Cost Leadership Differentiation


(Orange, Ego Phone) (NEFLA)
Stuck in the
Middle

Cost Focus Differentiation Focus

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Figure 15: Global demand by company (Source D. Jones)

3.4 Innovation

Differentiation through innovation is also an important way of gaining competitive advantage.


Fig. 16 show the technology innovation differential of all companies in term of cost. Figure 17
show that Orange, NEFLA and Ego Phone spent a more or less similar amount on R&D but
advantage of Orange and Ego in terms of Market shares was only the gain on economies of scale
along with learning and experience curve with time. Fig 18 depicts well about this phenomena of
decrease unit cost in case of Tech1.

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Figure 16: Innovation Differentiation (Source: Author)

Cumulative R&D Spend


3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0
R0 R1 R2 R3 R4 R5 R6 R7 R8 R9 R10

NEFLA EGO-Phone Orange


Smart Tech Global Average

Figure 17: R&D spend (Source: D. Jones)

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Figure 18: Price vs cost (Source D. Jones)

4. Outsourcing Manufacturing
4.1 Definition and Scope
Strategic outsourcing is, company's decision to allow independent specialist companies to
perform their one or more value chain functions or activities. (Hill, Schilling, and Jones, 2014)
Outsourcing is becoming a vital component of global operational strategies that influence
effectiveness of supply chain. It helps organizations to control the flow of finished goods to
meet demands in both domestic and international markets. (Gunasekaran et al., 2015)

Benefits: Advantages of outsourcing are as follows:

 Reduce assets costs such as buildings and offices


 Allow to buy expert services in need
 Significant cost reduction in terms of overheads such as administrative, production and
payroll costs
 Share workload and allow organization to focus more on core corporate activities along
with effective utilization of internal employees
 Reduce monetary obligations related to providing health insurance, hosing, pension and
travel compensations to employees

Shortcomings: Limitations of outsourcing are mention below.

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 Outsourcing is not feasible when task is core activity and critical to company's strategy
 Holdup: if company become over dependent on outsourced activity, supplier can
increase prices to take advantage
 Limited in-house innovation and lack of learning opportunities (e.g. learning and
experience skills)
 Risk of information loss especially if related to new innovation in technology

Backsourcing: Back sourcing is taking back of outsourced activities again in-house. When
companies especially telecommunication companies start declining due to lack of innovation and
over reliance on outsourced companies. It's better to backsource all activities and utility of own
internal productive capabilities and pervious successful integration experiences to control
activities accordingly. (Law, 2017)

4.2 Global Trend of Outsourcing


In competitive markets, customer's demands are highly volatile. It is tough for small and medium
size enterprises to meet the demands completely so such companies prefer to outsource. But it is
crucial decision, taking into account the factors of when, what and to whom. (Kumari et al.,
2015)

Companies can outsource many activities including IT (e.g. servers, software or call centers),
HRM (e.g. recruitment services or preparation of job description, salaries, promotion, policies
etc) and project management service (e.g. hire specialist) for a specific project. Logistic services
has been widely outsourced by companies to increase flexibility and reduce costs. . (Zhu et al.,
2017)

It is estimated that, in 2017 outsourcing will be an approx. $565.0 billion (b) global industry.
(Plunkett Research, Ltd., 2017) In 2012, revenue generated from outsourced industry rose from
$45.6b in year 2000 to $99.1b.There was drop of almost 20% in 2013 but recovered again in
2014 and revenue reached to $104.6b. In 2015 and 2016 revenue declined to $88.9b to $76.9b
respectively. (See Figure 19) The largest share came from the Middle East, Europe and Africa
followed by America.

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Figure 19: Global Market size of Outsourced services 2000-2016 (Source: Statista, 2017)
According to survey conducted by Deloitte in 2016, the most preferable outsourcing activities
will be finance, HR and IT support (see Fig. 20 ). (Deloitte United States, 2016)

Figure 20: Most preferred outsourcing services in 2017 (Deloitte United States, 2016)

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4.3 Trends of Manufacturing Outsourcing
Manufacturing is becoming a national strategy around the globe to combat economic growth but
some countries faced high costs due to which they outsourced to countries with lower labor
wages. (Kazmer, 2014) Outsourcing trends in different industries in year 2008 to 2011 is shown
in Figure. 21 Manufacturing was the second highest in value after financial outsourcing in year
2011.

Figure 21: Comparison of total value in global outsourcing market by industry from 2008-2011
(Source: Statista, 2011)

Electronics

The most recent growth areas in manufacturing has been contract electronics manufacturing.
High tech machines manufactured thousands of miles far and then shipped to central locations
for assemblage. Outsourcing firms supplies variety of goods including computer components,
smart phones, tablets, laptops etc. One of the famous manufacturers of electronics is China’s
Hon Hai Precision Industry Co., Ltd. Demand of wireless devices increased this growth
worldwide. Taiwanese computer manufacturer Quanta Computer, Inc., is builder of laptops, they
collect assemble parts in Taiwan at low cost. Electronics contract manufacturing was estimated
at $412 billion for 2016. (Plunkett Research Ltd., 2017)

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Wages

Increase in Chinese labor wages is changing global manufacturing focus towards Vietnam
because of cheap labor. In China, wages have been increasing by 10% to 18% annually.
According to ECA International forecast, in 2017 wage growth will be slow to 7% including
inflation rate of 2.3%. (Plunkett Research Ltd., 2017)

Other Facts

 USA firms are thinking about domestic outsourcing to compete globally. But this will be
a challenge due to being first mover and vagueness. (Pearce, 2014)
 For managing the conflict among suppliers in case of China can be sort out by formal
control and Chinese guanxi. (Lee et al., 2017)
 Supplier selection is more important for performance improvement in outsourcing than
supplier collaboration in the make or buy decision. (Dabhilkar et al., 2009)

4.4 Outsourcing in Cesim


NEFLA spend $607,254K on outsourcing, whereas Orange spent the least of $90,661K only.

Figure 22: Contract manufacturing by team (Source: Cesim)


Outsourcing capacity was increased from 1000 unit in both USA and Asia to 2961 units in USA
and 2889 units in Asia in year 1 and year 10 respectively. Prices per outsourced units also varied
during past 10 years due to influence of different factors such as economic, political and labor
strikes in Asia electronic industry in year 9. Outsourcing would be increased in future as the
demand is also growing in future.

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Future Recommendations for NEFLA
Options Recommendation Justification

1) Acquisition of Smart Tech Yes Have enough finance


2) Diversification (Mobile Yes Multiple sources of income
accessories, spare parts)
3) Launch Tech 5 Yes First mover advantage
4) Build more plants in Asia Yes To compete with Orange and Ego
Phone
5) Spend more on Promotion Yes To attract more customers

6) Do in-house production, less Yes To achieve learning & experience


outsource curve
7) Correct estimation of demand Yes Accurate estimation of demand will
lead to appropriate production
8) Acceptable pricing Yes Reasonable pricing especially in
Asia

Strengths Weaknessess
- Highest cash equivalents $8,45m -Losing market share in Asia
-Fair market share in USA (27%) & -Less capacity utilization, more
Europe (37%) outsourcing
- Tech 2 & Tech 3(10 features), Tech 4
(8 features)
SWOT

Opportunities Threats
-Acquisition of Smart Tech -Flat demand- mature industry
-Build new plants in Asia -Risk of entry of outsourcing suppliers
-Launch Tech 5

Figure: SWOT Analysis of NEFLA

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Figure 23: Cash equivalents of NEFLA (Source: Cesim)

Conclusion
Orange opted better strategies according pricing and took good decision of producing phones in-
house which gave the company competitive advantage among all other companies. Performance
of NEFLA was also satisfactory and had second highest profit after Ego Phone.

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REFERENCES
Dabhilkar, M., Bengtsson, L., von Haartman, R. and Åhlström, P. (2009). Supplier selection or
collaboration? Determining factors of performance improvement when outsourcing
manufacturing. Journal of Purchasing and Supply Management, 15(3), pp.143-153.
Deloitte United States. (2016). Global outsourcing survey 2016 | Deloitte US | Service Delivery
Transformation. [online] Available at:
https://www2.deloitte.com/us/en/pages/operations/articles/global-outsourcing-survey.html
[Accessed 15 Aug. 2017].
Grant, R. (2015). Contemporary Strategy Analysis: Text and Cases Edition, 9th Edition. John
Wiley & Sons.
Gunasekaran, A., Irani, Z., Choy, K., Filippi, L. and Papadopoulos, T. (2015). Performance
measures and metrics in outsourcing decisions: A review for research and
applications. International Journal of Production Economics, 161, pp.153-166.
Hill, C., Schilling, M. and Jones, G. (2014). Strategic Management; Theory & Cases: An
integrated approach. 11th ed. Cengage Learning.
Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regner, P. (2014). Exploring
Strategy. 10th ed. Pearson.
Kazmer, D. (2014). Manufacturing outsourcing, onshoring, and global equilibrium. Business
Horizons, 57(4), pp.463-472.
Kumari, S., Singh, A., Mishra, N. and Garza-Reyes, J. (2015). A multi-agent architecture for
outsourcing SMEs manufacturing supply chain. Robotics and Computer-Integrated
Manufacturing, 36, pp.36-44.
Law, F. (2017). Breaking the outsourcing path: Backsourcing process and outsourcing lock-
in. European Management Journal.
Lee, G., Shin, G., Haney, M., Kang, M., Li, S. and Ko, C. (2017). The impact of formal control
and guanxi on task conflict in outsourcing relationships in China. Industrial Marketing
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Pearce, J. (2014). Why domestic outsourcing is leading America's reemergence in global
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Plunkett Research, Ltd. (2017). Outsourcing & Offshoring Industry Market Research - Plunkett
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https://www.smstudy.com/article/what-is-value-chain-analysis [Accessed 13 Aug. 2017].

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Statista. (2017). Global outsourcing market size 2016 | Statistic. [online] Available at:
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APPENDICES

Figure 1: Mean Expenses spent on Promotion and R&D by mobile companies (Source: Author)

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IKEA UK STAKEHOLDER ANALYSIS
REPORT

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Stakeholder Analysis of IKEA UK
IKEA Background

IKEA is a multichannel home furnishing retail industry working globally and offer variety of
products and services. IKEA was established in 1943 by Ingvar Kamprad in Sweden. IKEA
vision is 'creating everyday life better for several people'. Worldwide IKEA has 389 stores
visited by 915 million people last year. IKEA reached UK in 1987. IKEA has 19 stores in UK.
(IKEA.com, 2017)

Stakeholders Analysis

Stakeholder can be an individual or groups having interest or claim in company. (Hill, Schilling,
and Jones, 2014) Stakeholders are normally split into two groups.

Internal stakeholders: Shareholders and employees (e.g. managers, board directors etc.)

External stakeholders: Customers, financers, contractors, unions, local communities,


competitors, governments and general public.

Both internal and external stakeholders of IKEA UK are listed in table. (See Table 1 in
appendix).

Stakeholder Matrix
Stakeholder matrix facilitate to understand the level of influence and interest of stakeholders on
the organization. There are 4 boxes in matrix named as:

 Key player (More Influence, More Interest)


 Keep informed (Less Influence, More Interest)
 Keep satisfied (More Influence, Less Interest)
 Least Important (Less Influence, Less Interest)

Stakeholder matrix of IKEA is depicted in Figure 1. In case of IKEA's expansion in India, power
and interest of local communities maybe uplift due to resistance and conflict. That's why both
were rated high in Table 1.

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Figure 1: IKEA Stakeholder Matrix (Source: Adapted from Mendelow, 1991)

Table 1: Power and Interest Rating of Stakeholders of IKEA(Rating: 1-Least and 5- Most)
Stakeholder Power Interest
A Shareholders 5 5
B Employees 4 5
C Customers 4 3
D Competitors 1 5
E Suppliers 2 5
F Financers 4 3
G Unions 2 5
H Government 3 2
I General Public 2 3
J Local Communities 3 4

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Critical Evaluation

Agency Theory: Agency theory identifies the issues arise between management, shareholders
and other stakeholders (i.e. employees). (Hill, Schilling, and Jones, 2014) In case of IKEA,
managers are doing well for both shareholders and employees. In FY17, IKEA will pay €840
million to its owner Stichting Ingka Foundation. Despite of, paying dividend IKEA also invested
€3.2 billion in distribution and shopping centers, stores, renewable energy and ways to provide
better service to customers. For employees, IKEA has a lot of encouragement and support plans
e.g. Tack (workers given added contribution to pension funds). (IKEA.com, 2017)

Competitors: Potential emerging competitors of IKEA are DFS and Furniture Valley. Details of
other competitors along with their financial performance are given in Table 2. IKEA had highest
profit margin in comparison with its competitors but paid less dividends than Argos, because
IKEA is planning to expand in India and China (almost double the store numbers by 2020).
IKEA is also spending a lot on eco-friendly projects. According to Ben Dear, co-founder of
Osmosis, the greener (manage resource consumption efficiently) the company will be, the
greater the value will be for the share holders. (Flood, 2017) For CSR facts of IKEA in 2016, see
table 2 in appendix.

Table 2: Key Financial Indicators of IKEA and Competitors (Source: Fame.bvdinfo.com,


2017)
Name Gross Profit Turnove ROSF SF Dividend ROCE CS SLR %
Margin Margin r % th. GBP s %
% % th. GBP th. GBP
IKEA 35.66 8.17 1,711,64 76 183,960 -70,000 23.21 85 26.24
1
John 33.96 2.96 9,748,80 14 2,063,700 0 6.78 92 0.94
Lewis 0
DFS 17.76 8.53 756,000 26 250,600 -27,300 12.23 55 0.91
Argos 25.29 -4.6 3,930,10 -20 913, 551 -348,324 -17.47 77 7.52
4
B&Q 38.85 -1.86 3,704,00 -1.5 4,493,200 0 -1.39 89 9.64
0
Furnitur 48 1.81 213,912 24 16,246 -1,000 18.52 99 23.78
e Valley

31
Figure 2: IKEA UK Key Financial Findings (Source: Endole.co.uk, 2017)
Real World Stakeholder Grid: This grid divided power into three types (voting, economic and
political) and then compare it with influencers, economic stake and equity stake. IKEA's
stakeholders positions would be different here accordingly to the situation.

Formal or Voting Economic Power Political Power


Power
Stock-brokers Dissident
Equity Stake

Executives stockholders
Marginal interests

Suppliers Local governments


Economic

Debt possessors Overseas government


Stake

Customers Buyer group


Unions Unions

Government EPA/HSE Government


Influencers

Outside directors Trade associations

Figure 3: Real World Stakeholder Grid (Source: Wit, 2017)

APPENDICES
32
Table 1: Stakeholders of IKEA UK (Source: (Fame.bvdinfo.com, 2017;
IKEA.com, 2017)

INTERNAL EXTERNAL
Shareholders Stichting INGKA Foundation Customers U.K. residents
INGKA Holding B. V.  Families and young
SKANDIA AG couples

Directors - Peter Agnefjäll, CEO & President Competitors -DFS


-Tjerk-Jan Eelkema -Furniture Village
-Mr Aaron Edward Musca -B&Q
-Ms Gillian Drakeford -Argos
-Ms Jenny Petersson -John Lewis
-Ms Jeanette Soderberg
Secretaries  Shoosmiths Secretaries Government -British Government
Limited -Swedish Government
 Sisec Limited
Legal Charge  Ikea Capital Bv Environmental -Forest Stewardship Council
 Ingka Holding (Europe) Organizations (FSC)
B.v. -Better Cotton Initiative (BCI)
 Warrington And Runcorn -Clean Cargo Working Group
Development Corporation (CCWG)
 Svenska Handelsbanken -Rainforest Alliance
-Green Power Market
Development
-The Network for Transport
and Environment (NTM)
-WWF
-Refrigerants Naturally
-UTZ Certified
-Global Compact
Managers Gillian Drakeford Trade Unions -European Retailers Round
Table (ERRT)

Labor Unions -International Labour


Organization (ILO)

Financers  Hsbc Bank PLC

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 T.i. Group PLC
Social -Business for Social
Organizations Responsibility (BSR)
-Save Children
-UNICEF
-Building and Wood Workers'
International (BWI)

Suppliers Information not found


General -British public
Public/Local -Community nearby
Community warehouses & stores

Figure 1: IKEA Business and Ownership Structure  (Gin, 2011)

Table 2: Efforts of IKEA in Corporate Social Responsibility

34
Environment  Operate 327 wind turbines
 730,000 solar panels on own buildings
 165 MW wind farm project in Cameron
Texas
 2 wind farm projects in Poland
 Total production: exceeds consumption
of 500,000 standard European
households
 Own 74,700 hectares of forest in
Romania and the Baltics States
 Skapro Chairs are made of 100%
recycled plastic

Social  Foundation is working with UNICEF to


educate the children
 To providing better health facilities and
shelter.
 IKEA also contributes to help refugees
 IKEA helped almost 100,000 farmers to
produce cotton by using less pesticide
and water

Table 3: Abbreviations
ROSF Return on Shareholders Funds
SF Shareholder Funds
ROCE Return on Capital Employed
CS Credit Score
SLR Shareholder Liquidity Ratio

REFERENCES

35
Endole.co.uk. (2017). Ikea Limited - Company Information - Endole. [online] Available at:
https://www.endole.co.uk/company/01986283/ikea-limited [Accessed 2 Aug. 2017].
Fame.bvdinfo.com. (2017). Fame - Report. [online] Available at:
https://fame.bvdinfo.com/version-2017713/Report.serv?
_CID=166&contextD87ZE53V4UDAXFX&SeqNr=0 [Accessed 2 Aug. 2017].
Flood, C. (2017). Swedish pension scheme and Ikea back environmental funds. Financial Times.
[online] Available at: https://www.ft.com/content/2a730470-0fd7-11e7-a88c-50ba212dce4d
[Accessed 3 Aug. 2017].
Gin, J. (2011). IKEA’s Way to Eternal Life: A Deconstruction of the Furniture Giant’s
International Tax Practices. [online] The National Law Review. Available at:
https://www.natlawreview.com/article/ikea-s-way-to-eternal-life-deconstruction-furniture-giant-
s-international-tax-practices [Accessed 13 Aug. 2017].
Hill, C., Schilling, M. and Jones, G. (2014). Strategic Management; Theory & Cases: An
integrated approach. 11th ed. Cengage Learning.
IKEA. (2017). IKEA.com - International homepage. [online] Available at: http://www.ikea.com/
[Accessed 2 Aug. 2017].
IKEA Highlights 2016. (2016). IKEA facts and figures - IKEA. [online] Available at:
https://highlights.ikea.com/2016/ikea-facts-and-figures [Accessed 3 Aug. 2017].
Mendelow, A. (1991) ‘Stakeholder Mapping’. Proceedings of the 2nd International Conference
on Information Systems. Cambridge, MA.

 Wit,
B. (2017). Strategy: An International Perspective. 6th ed. Croatia: Cengage Learning
EMEA, pp.157-8.

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