International Business and Development Impacts of IKEA

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Running head: INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 1

INTERNATIONAL BUSINESS AND

DEVELOPMENT IMPACTS

(Chosen company: IKEA)

Student Name:

Student ID.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 2

EXECUTIVE SUMMARY

Global business management is a multifaceted discipline that involves implementing

strategies across various functions to thrive in international markets. The study aimed to

analyse the operations of IKEA, a global furniture ladder in its home market of Sweden and

evaluate its impact on the UK and Indian markets. The expansion of IKEA has led to significant

positive impacts such as job creation and economic growth, alongside challenges such as

supply chain disruptions and environmental concerns. In these aspects, IKEA has demonstrated

its commitment to responsible business practices while navigating a diverse market landscape

with FDI and SDGs.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 3

TABLE OF CONTENTS

1. Introduction............................................................................................................................ 5

1.1 Overview of chosen company IKEA...............................................................................5

1.1.1 History of IKEA........................................................................................................ 5

1.1.2 Growth and international presence............................................................................5

1.2 Purpose of the study......................................................................................................... 7

1.2.1 Purpose...................................................................................................................... 7

1.2.2 Objectives..................................................................................................................7

1.3 Summarisation of the structure........................................................................................7

2. Part A: Case Assessment........................................................................................................7

2.1 Section 1: Company and Market Overview.....................................................................7

2.1.1 Company Profile....................................................................................................... 7

2.1.2 Business operations in Host Markets by IKEA.........................................................9

2.1.3 Significance of Home Market of Sweden in context of its international strategy. .11

2.2 Section 2: Development Impacts....................................................................................12

2.2.1 Examine two positive impacts of operations of IKEA in UK and India.................12

2.2.2 Discuss two negative impacts of the operation of IKEA in UK and India.............13

2.2.3 Evaluating National and SDG impact on the UK and India market.......................14

3. Part B: Role of FDI in addressing the development challenges and maintaining SDGs in the

host countries............................................................................................................................14

3.1 Role of Foreign Direct Investment in managing the development challenges evaluated in

the Host countries.................................................................................................................14

3.1.1 Role of FDI in managing development challenges in India....................................15

3.1.2 Role of FDI in addressing negative impacts in the UK...........................................15

3.2 Contribution of ILEA towards Sustainable Development Goals targets in the host

countries through FDI..........................................................................................................17

4. Part C: Reflection on Learning.............................................................................................18

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 4

4.1 Learning Reflection to enhance understanding of international business impacts........18

4.2 Personal Relevance with the application of IKEA operations analysis in future careers

..............................................................................................................................................18

5. Conclusion............................................................................................................................19

5.1 Summarise the critical findings from the analysis.........................................................19

5.2 Potential future impacts of IKEA in these markets........................................................19

References................................................................................................................................ 20

Bibliography.............................................................................................................................25

Appendix.................................................................................................................................. 27

Appendix 1: Revenue growth of IKEA................................................................................27

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 5

1. INTRODUCTION

1.1 OVERVIEW OF CHOSEN COMPANY IKEA

1.1.1 HISTORY OF IKEA

Ivgar Kamprad founded IKEA in 1943 and started as a small venture selling household

goods in Sweden (IKEA, 2024f). It has grown into a global furniture leader with 422 stores in

over 50 markets. The company, led by CEO Jasper Brodin employed 208,000 employees and

operated in the retail and wholesale industry (Forbes, 2024). The Vision of the company is “To

create a better everyday life for the many people” (IKEA, 2024e) This signifies that IKEA

extends beyond furniture, aiming to improve lives globally by sourcing responsibly, fostering

sustainable living and positively impacting communities.

1.1.2 GROWTH AND INTERNATIONAL PRESENCE

In 2023, IKEA saw rapid expansion and grew to become the seventh most valuable

retail brand in the world, valued at over $21 billion (Sabanoglu, 2023) [Refer to figure 1]. With

471 locations throughout the globe, mostly in Europe, it brought in almost 860 million

consumers (Sabanoglu, 2023). IKEA is primarily a furniture design and sales company, but it

also operates eateries, homes, and apartments. Along with this, it has reached over €47 billion

showcasing consistent growth and financial strength in 2023 (Statista, 2024) [Refer to

Appendix 1]. The dedication of the brand to innovation and diversity is reflected in this growth

that also strengthens its internal presence and establishes it as a leader in the retail sector.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 6

Figure 1: Valuable retail brand

(Source: Sabanoglu, 2023)

1.2 PURPOSE OF THE STUDY

1.2.1 PURPOSE

The purpose of the study is to analyse the operations of IKEA in Sweden and evaluate

its positive and negative developments in the host markets of the UK and India.

1.2.2 OBJECTIVES

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 7

To analyse the way IKEA operations have changed as a result of growing its business

in the host countries such as the UK and India with regard to international business

management.

To build a significant approach to the sustainable development goals that IKEA adopted

and its effects on internationalisation and business development.

1.3 SUMMARISATION OF THE STRUCTURE

Part A provides the company profile, market overview, business operations in the UK

and India, and development impacts by IKEA. Moreover, Part B focuses on foreign direct

investment and the influence of technology and innovation, while Part C reflects the learning

of internal business impacts and personal relevance of analysing IKEA operations for future

career.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 8

2. PART A: CASE ASSESSMENT

2.1 SECTION 1: COMPANY AND MARKET OVERVIEW

2.1.1 COMPANY PROFILE

Key products and services of IKEA: The primary business of IKEA revolves around

designing, manufacturing, and selling furniture, complemented by various services (IKEA,

2024d). Apart from these, Germany emerged as the top-selling country of IKEA products in 2023,

comprising over 15% of the total sales of the company, followed closely by the US at 14.5%

(Statista, 2022) [Refer to Figure 2]. Accordingly, they provide delivery and transport options

that are aligned with a commitment to offer quality products at low prices, a cornerstone of their

business strategy.

Figure 2: Tops selling countries by IKEA

(Source: Statista, 2022)

Market position: IKEA holds a market position due to its affordable pricing, extensive product

selection and frequent introduction of stylish. In 2023, IKEA was the fourth most popular department

and home store in the UK market (Smith, 2023). Despite a decline in internet traffic as a result of the

relaxation of COVID restrictions, IKEA is a major player in the home furniture industry, drawing in

860 million people in 2023 and a notable online presence (IKEA, 2023). In comparison to its key

competitors

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selection and frequent introduction of stylish. In 2023, IKEA was the fourth most popular department and home store in the UK market (Smith, 2023). Despite a decline in internet traffic as a result of the relaxation of COVID restrictions, IKEA is a major player in the home furniture industry, drawing in 860 million people in 2023 and a notable online presence (IKEA, 2023). In comparison to its key competitors such as Amazon, Beter Bed, Home Depot and Walmart, the market position of IKEA remains strong (GlobalData Plc, 2021) [Refer to Figure 3]. Thus, providing quality products and services in a variety of markets helps IKEA take the lead in the successful furniture sector.

Figure 3: Perceptual map

2.1.2 BUSINESS OPERATIONS IN HOST MARKETS BY IKEA

Business operations in UK market

Entry mode: IKEA entered the UK market through its fully owned subsidiaries to run retail locations directly inside the UK in order to penetrate the market. The company retains a high level of control and flexibility in their operations by using this technique that is in line with its foreign direct investment policy.

Operation process: IKEA allows for tailoring offerings to local markets effectively, ensuring control and standardization (Ludmir, 2024). The company focuses on providing affordable, functional, and well-designed furniture and home products, along with services such as on-floor assistance, delivery, and product assembly to meet customer needs efficiently.

Different from Sweden: IKEA prioritizes the UK market due to its larger projected revenue of $23.62 billion in 2024, compared to the revenue of Sweden of $9.23 billion (Statista, 2024a; Statista, 2022a). Despite this information, the higher growth rate of Sweden and the larger furniture market size of the UK have offered greater potential for expansion and revenue generation of IKEA. Apart from these, the diverse consumer base and market demand of the UK have presented more opportunities for IKEA to capture a larger market share and increase its presence.

Significant changes for sustainability: IKEA has opened smaller “plan and order” stores in UK urban areas to improve accessibility, while also launching a furniture buyback and resell program to promote a circular economy (Gurdon, 2023). Moreover, with practical solutions such as offering low-energy LED bulbs and water-saving shower heads, IKEA has simplified sustainability for consumers, reducing water waste and carbon emissions.

Business operations in Indian market

Entry mode: IKEA entered the Indian market as a wholly-owned subsidiary, taking advantage of the government approval of its $125.80 billion FDI proposal (Economic Times, 2024). It planned to set up 10 stores initially and expand for an additional 15 locations in the next few years.

Operation process: In order to establish its presence in the Indian market, IKEA initiated operations through wholly-owned subsidiaries, leveraging the 100% FDI allowance by the Government in single-brand retail trading (Economic Times, 2024). Initially targeting cities such as Mumbai, Hyderabad and Bengaluru, IKEA has expanded further into the national capital region. This was achieved by investing approximately $0.84 billion to establish two stores in Noida and Gurugram, thus strategically making a footprint in key metropolitan areas across India (Economic Times, 2024). Hence,

Significant changes for sustainability: In the Indian market, IKEA has made significant strides in sustainability by prioritizing the use of sustainable materials for its products. It aimed to reduce greenhouse gas emissions across its value chain and transition to renewable or recycled materials by 2030 (Mahalakshmi et al., 2024). Additionally, IKEA focuses on regenerating resources while expanding its business, exemplifying its commitment to sustainability in India.

Monopolistic advantage theory

The monopolistic advantage theory describes ways multinational companies (MNCs) can compete overseas by making use of special advantages that local businesses find difficult to get. These advantages, such as technological innovation or brand recognition, enable MNCs to attain success internationally (Hunt, 2010). For instance, IKEA, utilising its superior manufacturing processes and brand reputation, expanded from Sweden to the UK and India.

IKEA capitalised on its advantages through FDI, building factories and acquiring lasting interests in firms across borders, thereby gaining control over resources and achieving monopoly power. In order to further enhance its international competitiveness, IKEA can focus on continuous innovation and localisation strategies tailored to each market specific needs.

2.1.3 SIGNIFICANCE OF HOME MARKET OF SWEDEN IN CONTEXT OF ITS INTERNATIONAL STRATEGY

In Sweden, IKEA stands as a cornerstone of the retail landscape, enjoying unparalleled brand recognition and reputation since its inception in 1943. IKEA has become synonymous with home furnishing in Sweden renowned for its Scandinavian design ethos and affordability (Statista, 2021). In 2023, the brand value of IKEA amounted to $15.9 billion, making it the most valuable brand in the Nordic region, surpassing other major companies such as Equinor and H&M (Statista, 2021). This enduring recognition underscores IKEA's status as a cultural icon and a cornerstone of Swedish retail culture.

IKEA gains valuable competitive insights into the retail landscape, consumer preferences, and industry trends operating in its home country of Sweden. IKEA leverages its strong presence in Sweden to stay ahead in innovation and market positioning with competitors such as H&M, Beter Bed, Home Depot, and Walmart (GlobalData Plc, 2021). These insights inform the decision-making processes of IKEA, allowing the company to adapt its strategies domestically and on a global scale, ensuring continued success in the highly competitive retail market.

2.2 SECTION 2: DEVELOPMENT IMPACTS

2.2.1 EXAMINE TWO POSITIVE IMPACTS OF OPERATIONS OF IKEA IN UK AND INDIA

a. Positive impact on UK:

Economic contributions: In the UK market, IKEA boosted

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Bed, Home Depot and Walmart

(GlobalData Plc, 2021). These insights inform the decision-making processes of IKEA,

allowing the company to adapt its strategies domestically and on a global scale,

ensuring continued success in the highly competitive retail market.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 13

2.2 SECTION 2: DEVELOPMENT IMPACTS

2.2.1 EXAMINE TWO POSITIVE IMPACTS OF OPERATIONS OF IKEA IN UK AND INDIA

a. Positive impact on UK

Economic contributions: In the UK market, IKEA boosted the economy through

increased sales revenue with $3.14 billion in 2023 (Statista, 2024b) [Refer to Figure

4]. That contributes to job creation and enhances consumer choice and affordability

through its wide range of products and competitive pricing.

Figure 4: Total sales of IKEA in UK market

(Source: Statista, 2024b)

Job creation: The expansion of IKEA in the UK is creating a positive impact by

generating employment opportunities. The company was contributing to job creation

and boosting local economies with plans to add 1,300 more jobs by opening new stores

in Exeter, Greenwich and Sheffield (Butler, 2017). This increase will bring their total

staff to the UK and the number of large outlets, further solidifying its presence in the

country.

b. Positive impact in India

Job creation: With 950 direct jobs in Hyderabad and an additional 1,500 indirect jobs,

the opening of India's first IKEA store marks a milestone in providing employment

opportunities in the region (Bloomberg, 2018). This initiative aligns with the goal of

IKEA contributing to India's growing economy while offering affordable furnishings

and food to the expanding middle class.

2.2.2 DISCUSS TWO NEGATIVE IMPACTS OF THE OPERATION OF IKEA IN UK AND INDIA

a. Negative impact on the UK

Economic impact: IKEA faced supply chain issues in the UK due to COVID-19 and

labour shortages, affecting approximately 10% of its stock across all 22 stores (BBC,

2021). Challenges include disruption in transportation, sourcing and availability of raw

materials. These issues impact the ability of the company to meet customer demand and

lead to delays in product availability that affect sales and customer satisfaction in the

UK market.

Impact on local business: In the UK, local businesses have faced increased competition

and pressure as customers found existing IKEA stores hard to reach and services expensive

and unreliable (IKEA, 2024a). This forced local businesses to adapt and improve their own

offerings to remain competitive.

b. Negative impact on India

Economic constraints: IKEA India had financial difficulties as its net loss increased to $0.086 billion in 2020 from $0.082 billion in 2019 (Economic Time, 2020). These losses draw attention to issues with profitability in the face of challenging operations and fierce competition. IKEA has difficulties navigating the Indian market that is characterized by complex regulations and changing customer dynamics, in light of these financial failures.

Environmental concerns: IKEA aims to address environmental concerns in India by converting paddy residue into raw materials for its products, starting with rice straw (Tandon, 2018). These initiatives align with efforts to mitigate air pollution caused by crop residue burning, a major environmental issue in India.

2.2.3 EVALUATING NATIONAL AND SDG IMPACT ON THE UK AND INDIA MARKET

IKEA in the UK market aligns with SDGs: IKEA aims to reduce its total climate footprint per product by an average of 70% and transition to using 10% renewable and recycled materials by 2030 (IKEA, 2024b). These actions align with SDGs 12 and 13, promoting responsible consumption, production, and combating climate change.

IKEA in the Indian market aligns with SDGs: The ALMAREN kitchen tap of IKEA reduces water consumption by up to 40%, helping conserve water resources (IKEA, 2024c). Additionally, IKEA introduced RYET LED bulbs that consume 85% less energy, reducing environmental impact and promoting energy efficiency (IKEA, 2024c). Thus, the sustainability approach of IKEA in the Indian market is associated with water-saving solutions and energy-saving aligned with SDGs 6 and 7.

3. PART B: ROLE OF FDI IN ADDRESSING THE DEVELOPMENT CHALLENGES AND MAINTAINING SDGS IN THE HOST COUNTRIES

3.1 ROLE OF FOREIGN DIRECT INVESTMENT IN MANAGING THE DEVELOPMENT CHALLENGES EVALUATED IN THE HOST COUNTRIES

Foreign direct investment (FDI) has emerged as one of the major approaches for the economic growth of a nation by investing in a foreign company operating in the country.

According to Kardos (2014), FDI can improve the financial aspects of a nation by investing in foreign companies that have the potential to promote sustainable development and the economic performance of the host country. From this scenario, the identified challenges as well as the negative impact of IKEA on both the UK and India can be managed with FDI by focusing on environmental concerns.

3.1.1 ROLE OF FDI IN MANAGING DEVELOPMENT CHALLENGES IN INDIA

India can face issues such as environmental concerns and cultural disruptions from the business operations of IKEA in terms of its wooden furniture business. Considering the above analysis, it has been observed that India is facing issues in terms of environmental problems such as air or water pollution, ineffective waste management, and many more (Igini, 2023).

Based on such context, the furniture manufacturing brands such as IKEA can lead to generate waste from the industrial implications and can result in increased waste generation. By analysing the overall environment, it can be demonstrated that FDI has played a supportive role for foreign companies to invest more in technologies that can minimise overall emissions and pollution due to less sustainable business practices (Sarkodie et al., 2020). Except for that, FDI can be utilised to promote effective inflows within a top multinational business and promote overall application of renewable technologies to reduce environmental concerns including excessive energy utilization (Wang et al., 2023).

Thus, FDI is essential in helping IKEA maintain overall emissions, poor waste management, along with energy utilization in India. India has a rich heritage of manufacturing wooden furniture (The Economic Times, 2019). In this scenario, the modern furniture of IKEA can decrease the demand for local

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utilised to promote effective inflows within a top multinational business and

promote overall application of renewable technologies to reduce environmental concerns including excessive energy utilisation (Wang et al., 2023). Thus, FDI is essential in helping IKEA maintain overall emissions, poor waste management, along with energy utilisation in India. India has a rich heritage of manufacturing wooden furniture (The Economic Times, 2019). In this scenario, the modern furniture of IKEA can decrease the demand for local wooden furniture and affect the national culture. From this context, FDI can promote collaboration between foreign firms and domestic businesses (Tülüce & Doğan, 2014). This approach of FDI can help the local furniture businesses of India to collaborate and produce furniture products to promote the economic aspects of the country.

3.1.2 ROLE OF FDI IN ADDRESSING NEGATIVE IMPACTS IN THE UK

Looking at the above insights, it can be stated that the business operations of IKEA can also affect the environmental aspects and create a negative impact on local businesses in the UK. As per a survey, 40% of the respondents have opined that the major environmental issue faced in the UK is waste generation in 2020 (Salas, 2023) [Refer to Figure 5]. In this scenario, the business operations of IKEA can lead to a waste generation that can affect the environmental aspects of the UK. However, FDI can support a business in the UK to maintain their waste generation by investing in technologies (Shah et al., 2023). This FDI can help IKEA to integrate its waste management practices in the UK to convert the generated waste into energy and other recyclable products.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 18

Figure 5: Environmental issues in the UK in 2020

(Source: Salas, 2023)

Apart from the waste-related challenges, the UK can face negative impacts on local businesses from the business operations of IKEA. The UK has a market size of 12. 0.4 billion for furniture in 2022 among which the local businesses have contributed the most (Globaldata, 2023). It can be analysed that the negative impacts of IKEA on the UK are due to the innovative product range of the firm. In this context, FDI can help the local businesses of the UK to engage with IKEA to provide supplies of furniture products and this can help in promoting job creation in the UK and promote economic growth of the country as well as IKEA. Therefore, FDI can positively manage the issues faced in the UK by promoting waste management and collaboration with local businesses.

3.2 CONTRIBUTION OF ILEA TOWARDS SUSTAINABLE DEVELOPMENT GOALS TARGETS

IN THE HOST COUNTRIES THROUGH FDI

Figure 6: 17 SDGs

(Sources: United Nations, 2015)

IKEA is one of the MNCs that represents sustainability as its core strategy for businesses in its home country and foreign nationalities. IKEA majorly focuses on reducing GHG emissions by using recyclable materials (IKEA, 2023a). However, the business operations of IKEA can contribute to other SDGs while operating in both India and the UK due to FDI aspects. Among the 17 SDGs (United Nations, 2015) [Refer to Figure 6], it can be analysed that FDI in India and the UK can help IKEA to promote SDG 8, SDG 9, SDG 12, and SDG 13 in the respective host countries. For example, FDI can promote collaboration among foreign businesses and local businesses and can increase the economic growth of a nation that represents SDGs 8 and 9 (Aust et al., 2019). On the other hand, SDG 12 regarding responsible consumption and SDG 13 regarding climate action can be maintained by FDI as it can promote technological development for reducing waste generation, carbon emission, and promoting sustainable consumption.

Depending on the overall scenario, it can be demonstrated that the OLI framework can incorporate FDI and business sustainability while operating in foreign countries by emphasising on ownership advantage, specific location advantage, as well as internationalisation advantages (Cruz et al., 2020). It can be analysed that FDI within both India and the UK can be useful for IKEA to represent overall sustainable strategies of the firm for achieving higher brand reputation. Furthermore, emphasising FDI can also be beneficial to promote the functionality of IKEA for effective business investments and resource distribution within the host countries such as the UK and India that can foster economic boost for the regional firms. Therefore, OLI framework and FDI-based sustainable development can improve operations of IKEA to mitigate issues in terms of resource overallocation, cost or time overrun and operational inefficiencies.

4. PART C: REFLECTION ON LEARNING

4.1 LEARNING REFLECTION TO ENHANCE UNDERSTANDING OF INTERNATIONAL BUSINESS IMPACTS

On the basis of research conducted above, I found some issues such as economic constraints, environmental concerns along with cultural disruptions which were often seen while operating business at the international level. The issues directly affect market entry decision, employee engagement, shape of business operation as well as marketing strategies of the company (Zimu, 2023). As per example, IKEA faces challenges while managing the supply chain, identifying financial losses and adapting to cultural differences in terms of expansion to market segments such as the UK and India. Additionally, I have achieved knowledge about the processes in which MNCs can handle those challenges through strategic implementation such as FDI and setting sustainable development goals. This FDI has helped while addressing development changes in terms of promoting collaboration with local businesses while investing in technology and mitigating environmental impacts.

4.2 PERSONAL RELEVANCE WITH THE APPLICATION OF IKEA OPERATIONS ANALYSIS IN FUTURE CAREERS

From the analytical perspective, I have gained valuable insights which can be applied in my future career. I have realised that global entry market strategies, SDGs and the role of FDI are impactful for internal business management. Insights for cultural impacts, addressing commercial concerns and fostering local collaboration

of promoting collaboration with local businesses while investing in technology and mitigating environmental impacts.

4.2 PERSONAL RELEVANCE WITH THE APPLICATION OF IKEA OPERATIONS ANALYSIS IN FUTURE CAREERS

From the analytical perspective, I have gained valuable insights which can be applied in my future career. I have realized that global entry market strategies, SDGs and the role of FDI are impactful for internal business management. Insights for cultural impacts, addressing commercial concerns and fostering local collaboration are valuable aspects for navigating diverse market segments. I have gained experience in supply chain disruptions while balancing economic growth and sustainability maintenance. All the factors have prepared me for developing problem-solving quality along with developing a mindset for continuous improvement and adaptation aligning with evolving market trends. Thus, this specific mindset has been helpful to manage business challenges and develop opportunities for my future career.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 21

5. CONCLUSION

5.1 SUMMARISE THE CRITICAL FINDINGS FROM THE ANALYSIS

From the analytical perspective, the report shed light on operational approach analysis of IKEA in the UK and India. The study has revealed a strong interconnection between sustainable development, business expansion and international business management. The trajectory growth of IKEA provided its commitment to ensure sustainable living. Thus, IKEA has navigated through a complex operational landscape while managing adversities in the pathway of growth. These approaches have been helpful to enhancing opportunities in business while adhering to FDI attraction and SDGs.

5.2 POTENTIAL FUTURE IMPACTS OF IKEA IN THESE MARKETS

As per the analysis, it can be seen that IKEA has a significant growth contribution in the market segment of the UK and India while establishing job creation, economic growth along with maintenance of environmental sustainability. However, challenges such as financial constraints and supply chain distributions can be seen in the operational domain. Thus, emphasis on sustainable development strategies while collaborating with local stakeholders can be helpful to ensure positive impacts of the UK and Indian market segment, ensuring economic growth and societal wellbeing.

INTERNATIONAL BUSINESS AND DEVELOPMENT IMPACTS 22

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APPENDIX

APPENDIX 1: REVENUE GROWTH OF IKEA

Figure 7: Revenue growth of IKEA

(Source: Statista, 2024)