IKEA Catalogue

4 PORTER’S FIVE FORCES
Bargaining power of suppliers
The size of suppliers who supply raw materials for furniture and home furnishings is
considerably large. The larger the size of the supplier market, the more supply
alternatives available for IKEA and the smaller chance there is for suppliers to clout
due to their weaker financial position. This provide IKEA with a higher bargaining
power to negotiate for lower prices or more favourable terms since IKEA has multiple
substitutes if a deal falls through. In addition, with its own timber supply from its
responsibly managed forests, IKEA relies less and less on suppliers and more on its
own resources. With less reliance on suppliers, IKEA has better control over
production costs and sustainability efforts. Further, IKEA has established its own code
of conduct called IWAY which regulates any forms of policy violation such as child
labour and minimum wages (Cheshnotes, 2017). IKEA suppliers must abide by this
code of conduct as well as their sub-suppliers. It is clear that in the market, IKEA has
absolute dominance.
Threat of new entry
The barriers to entry into the profitable furniture industry is relatively low. Hence, new
entrants into the market that provides similar product and service offerings will erode
IKEA’s profitability. However, for more than seven decades, IKEA has been successful
in being the top furniture retailer in the market due to its global presence and
colossal economies of scale. Economies of scale plays a crucial role in facilitating
low prices for products and new entrants would not be able to take advantage of
such scale during their initial business operations. New entrants also do not have
access to better distribution channels and capital markets with cheap loans, unlike
IKEA who has a high credit rating due to its scale of establishment, hence benefitting
from lower rates of interests. As such, the threat of new entrants is insubstantial to
IKEA as long as IKEA sustains its economies of scale.