PEST Study

The article explains how the general environment is used in IKEA nowadays. “External environments emphasizes all the events outside a company that have the potential to influence or affect a company” (McWilliams and Williams, 2014, p.37). Based on this theory, there are two types of external environment which are general environment - economic, technological, socio-cultural and political trends, and specific environment. In this part, we will only talk about the general external environment which is also known as the PEST Study/Analysis.

Political/Legal

Political trend have the power to change the result of the company and it can impact or mitigate the risk of the company since it includes legislation, regulation, company decision and business behavior (McWilliams and Williams, 2014, p.42). For example, IKEA had offended the law because it used prison labor in East Germany and this caused a serious political controversy all around the world (John Dudovskiy, 2015). Moreover, when IKEA translates a doll’s name into Cantonese from a Swedish word, the sound is similar with an insulting word to lady in Cantonese and the Cantonese people were slightly insulted about this incident. The toy were sold out during some days and became a spoof toy in various circumstances (John Dudovskiy, 2015). After a couple of lessons, IKEA provided a good condition to their workers in all their branches and it managed to achieve a successful brand name domestically and internationally.

Economic

Economic state that the economy of a country directly impacts every organization which are doing business there and are resonating long term effects (McWilliams and Williams, 2014). In the same way, the consumer power and the economy of a country significantly influenced IKEA’s economy because it has branches in different country. One example is when IKEA was influenced by the global financial crisis in 2007 to 2009 while it was lesser influenced because of its cost leadership strategy.

Socio-cultural

“The social culture component refers to demographic characteristics, general behavior, attitude and beliefs of people in a particular society” (McWilliams and Williams, 2014, p.41). International company need to examine social culture prior to entering their target market. This is a serious factor that can affect IKEA revenue directly. For example, people are concern about the issue of “protecting the planet” while IKEA is also the third largest consumer of wood and this had a negative effect to the brand’s image (John Dudovskiy, 2015). Besides, the economy improvements affect the demand of some product. For instance, many people use electronic books and buy less of physical books. This phenomena decreases the demand for bookshelves (John Dudovskiy, 2015).

Technological component

“Technology is the knowledge, tools and techniques used to transform inputs into output and it needs to innovation to make their product more favorable” (McWilliams and Williams, 2014, p.41). In IKEA, they change their billing system. They increase the quantity of self-service checkout machines in order to reduce the queue at the counter and plan the proper schedules to track the trading patterns (Johnson, Scholes and Whittington, 2005). Furthermore, IKEA arranges their stock places and set out a map to make the customers feel more convenient. These changes make their service more efficient and effective which would lead to success.

In conclusion, IKEA uses external environment to increase its supply and try to avoid damages to the brand’s image by using these four components of the PEST Study.