Porter’s Five Forces model is “a generic framework that deconstructs industry structure into five underlying competitive forces or variables”. IKEA Porter’s Five Forces are represented in figure below:
Threat of direct substitute products or services for products offered by IKEA is low. This is because there are no too many products and services available that can satisfy the demand for furniture and home appliances. At the same time, it can be argued that increasing numbers of online applications and internet-based products and services represent an indirect substitution for certain type of products offered by IKEA. For example, increasing popularity of e-books decreases the demand for IKEA book shelves to a certain extent. The absence of switching costs for customers to such indirect substitutions increases their theat.
Rivalry among existing firms is intense. The majority of large supermarkets such as Wall Mart, Target, Tesco and Sainsbury’s sell some types of furniture. In addition, there are direct competitors for IKEA that includes but not limited to Argos, Ashley Furniture and Rooms to Go. Moreover, there is a great number of local small-sized furniture manufacturers that pose serious competition to IKEA along with giant online retailers such as Amazon, EBay and Alibaba. In the global furniture industry brand, the rate of industry growth is not substantial and this further intensifies competition among the existing market players.
Threat of new entrants to furniture and home appliances manufacturing industry is significant. There are no or minimum legal or regulatory barriers to enter the industry and knowledge barriers are not substantial as well. However, the new market entrants would not be able to benefit from the economies of scale to the same extent as IKEA at least during the initial stages of operations.
The access to distribution channels and capital requirements represent noteworthy barriers for new market entrants as well. It can be argued, that although the threat of new entrants into the furniture and home appliances industry in general is significant, the threat of new entrants to pursue cost leadership strategy is insubstantial due to immense role of the economies of scale.
IKEA Group Report contains a full analysis of IKEA Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis and McKinsey 7S Model on IKEA. Moreover, the report contains analyses of IKEA leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of IKEA marketing strategy and addresses issues of corporate social responsibility.
Nemati, H.R. & Barko, C.D. (2004) Organisational Data Mining: Leveraging Enterprise Data Resources for Optimal Performance, IGI, p.29