Business Environment Analysis: IKEA Case Study

IKEA's Organizational Structures and Policies

Task 1: IKEA's PowerPoint Presentation Overview

Enclosed is a power-point presentation.

Task 1: Understanding Business Structures, Ownership, Competition Policies, and Economic Impact

An overview of the different types of organizations in different sectors

Numerous organizations, each with unique traits and objectives, operate in various industries. IKEA is a well-known operator in the private sector. It is an international business known primarily for the retail of furniture as well as home items. Among the many different kinds of organizations, IKEA is an excellent instance of a private company that has a worldwide impact. Established in 1943 in Sweden, IKEA has grown to become one of the biggest furnishing merchants globally (IKEA, 2023). The firm, which is within the private sector, is committed to offering reasonably priced and well-made products for the average customer. IKEA is a prime example of the transnational nature of contemporary private sector businesses, having created a substantial global footprint and offering an extensive variety of products.

IKEA's main goal is to provide a large selection of well-made, useful and reasonably priced home furnishings to a worldwide clientele. The organization aligns its purpose to improve the lives of its clients through fashionable and useful home solutions with its goal of making high-quality furniture accessible to a lot of people, not just a select few. The decentralized organizational structure of IKEA gives individual stores as well as regions, a certain level of autonomy. The organization's dedication to regional relevance as well as responsiveness is in line with this structure. IKEA uses a combination of equity as well as debt financing, drawing on its worldwide reach and powerful brand to draw in investors as well as get loans. The business's self-assembly, flat-pack design influences its financing as well as structural methods in addition to being cost-effective.

Explanation of the different legal structures, including their advantages and disadvantages

• Sole Proprietorship: A company that is owned and run by just one person and that person is directly in charge of every part of the company. IKEA, a sizable company worldwide, does not use this structure, even though sole proprietorships offer direct ownership control and ease of decision-making. Some disadvantages involve personal liability as well as restricted access to capital, which could hinder large-scale operations.
• Partnership: A type of corporate structure wherein two or more people oversee and run a company in line with the rules and goals outlined in a partnership deed (Aversa, 2021). As demonstrated by IKEA's collaborative approaches with suppliers, partnership benefits involve jointly making decisions and sharing resources. Nonetheless, this structure requires careful management due to shared liability as well as possible disputes.
• Limited Liability Company (LLC): A hybrid type of organization that brings together the simplicity and versatility of a partnership with the liability-limited security of a corporation. IKEA's subsidiary businesses as well as joint ventures, can benefit from the LLC structure due to its numerous benefits, including versatility in management as well as limited liability safeguards for owners. However, there may be complications in the formation procedure, and this structure might have tax ramifications.
• Corporations: A distinct legal entity with the ability to own property, face obligations, and bring or defend legal action against its owners (shareholders). IKEA's involvement in capital markets, as well as limited liability as a member of the larger IKEA Group provide the company with advantages that enable international growth. Nevertheless, there is a chance of double taxation on earnings and dividends due to intricate laws.

There are various core principles to navigate when working under various structures, and each has pros and cons of its own. Enhanced control is provided by partnerships as well as sole proprietorship, but versatility is constrained. As an illustration of how to maintain localized adaptability as well as centralized control, IKEA's worldwide structure combines corporate and subsidiary systems. Limited Liability offered by incorporation protects individual assets and minimizes financial hazards to shareholders. By issuing stocks as well as bonds, corporations like IKEA have a better link to capital, which is essential for ongoing growth and investment. Nevertheless, for smaller companies, complying with corporate laws and regulations can be a more complex obstacle to overcome, even though it is feasible for bigger companies such as IKEA.

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3. Differences between public and private ownership, including the different forms of financing

Companies owned and run by private persons or organizations are referred to as having private ownership. Usually, only a small group of people own shares in these types of companies. Conversely, companies with public ownership are those whose ownership is distributed to the general public by stocks that are traded publicly. As a private sector company under the IKEA Group, IKEA.co.uk is privately owned.

The differences are the ownership structure, adherence to regulations, and administrative control of both public and private businesses. Usually, private companies are controlled directly by a small percentage of closely held owners. Conversely, public businesses have a more distributed ownership structure, are subject to strict regulations, and must balance the interests of various shareholders when making decisions (Clark, 2021). The Similarities are Businesses, private as well as public; strive for sustainable expansion and financial success as their common operating objectives. Nonetheless, publicly traded corporations frequently face increased pressure to fulfill quarterly earnings targets due to shareholder scrutiny. While debt financing and other methods of raising capital are available to both organizations, public businesses are the only ones that can also choose equity financing by stock sales.

Utilizing IKEA as an instance, private ownership relieves the pressure of short-term expectations from markets, allowing concentration on long-term tactics. Conversely, publicly owned companies might set a higher priority on quarterly performance to meet the demands of a variety of shareholders.

The financing strategies used serve as another example of the implications for management. Usually, private ownership is supported by bank debt financing in addition to equity from owners or private equity companies. In contrast, public ownership provides opportunities for debt financing via corporate bonds or loans in addition to equity financing via the sale of stocks on the free market. Priorities for making choices might be influenced by the financing structure. Although privately held companies, such as IKEA may prioritize longer-term planning efforts without the same quarterly scrutiny as publicly-owned businesses, the latter are frequently under pressure to provide outcomes in the short term to please shareholders. Companies must comprehend these ownership complexities to manage the complex equilibrium between regulatory compliance, independence, and accessibility to various funding sources.

4. UK Competition policy and the legislative framework surrounding anti-competitive practices

• Monopoly: A monopoly in the context of economics is the state in which one company controls the supply of goods and services throughout a whole market.
• Oligopoly: A market with certain dominating big companies, which frequently results in interdependence between them, is characterized as an oligopoly.
• Competition: A competitive market is defined by several sellers as well as buyers who work together to create an atmosphere that is equitable and transparent, with no single party having a substantial amount of influence over supply or costs.

Changing the focus to regulations, the UK's Competition policy plays a key role in forming the commercial landscape. The effects are significant for IKEA, a retailer. Equal competition is ensured by the policy's strict regulation of trade restrictions. While avoiding unjust benefits that might hurt other market participants, IKEA has to comply with these laws to uphold moral and open business practices. It also covers the dangers that come with cartels as well as monopolies (Taghizadeh-Hesary, 2020). It protects against practices that might distort markets by being anti-competitive. IKEA must abide by the legal framework, which includes the Competition Act 1998 and the Enterprise Act 2002, in the cutthroat retail industry. These laws enable oversight and enforcement of equal competition by regulatory bodies such as the Competition and Market Authority (CMA). In addition to avoiding legal ramifications, IKEA supports a healthy market that encourages innovation, a wide range of goods offerings, and the well-being of customers by abiding with these laws.

How the Competition and Markets Authority operates to review business practices and impact on the consumer

Within the UK, encouraging competition as well as maintaining equitable markets is the responsibility of the CMA, a non-ministerial government agency. When it was established in 2014, the Office of Fair Trading and Competition Commission were merged into one organization. It now has broad authority to look into and control business practices to protect the interests of consumers.

Functioning as an autonomous regulatory entity, the CMA possesses the power to examine and tackle anti-competitive actions, mergers, and market distortions (Ennis, 2020). It carries out exhaustive investigations into a range of industries, involving retail, to make certain companies follow the rules of equal competition. The CMA uses its legal authority to make information requests, carry out market research, and, if required, take legal action to address problems found throughout investigations. Its objectives are to keep the market effective as well as competitive, to promote innovation, and to shield customers from unethical business practices.

By encouraging equal competition as well as discouraging actions that might jeopardize their interests, the CMA's actions directly affect customers. The CMA guarantees that customers have accessibility to a range of options, equitable pricing, and superior goods and services through its audits as well as interventions. By tackling anti-competitive behavior, the CMA helps create a level of play that enables companies, like IKEA to innovate, operate fairly, and eventually offer customers more options as well as value. An equilibrium economic climate where companies conduct themselves morally and customers profit from healthy competition is crucial to the CMA's mission.

Brief introduction to the function of government in regulating macroeconomic policy and its impacts

Macroeconomic objectives include things like price stability, low levels of unemployment, economic expansion, and a positive balance of payments (BOP). Governments use a variety of tools to accomplish these goals. Tax and expenditure adjustments made by the government are part of fiscal policy. Controlling the currency supply and interest rates are two aspects of monetary policy. With initiatives including deregulation and reforming education, supply-side measures seek to increase the economy's potential for production.

To ensure smooth function, the government lays focus on drafting competent supply-side, monetary and fiscal policies (Varadarajan, 2020). To boost economic activity throughout a downturn, it may use a fiscal policy of expansion, which involves rising spending on the public. Reducing interest rates is one method of monetary policy that can be used to promote borrowing as well as spending. These policies may affect companies such as IKEA, where increased customer spending due to financial stimulus could raise retail sales and help the business. If IKEA depends on interest income, then lower rates of interest may affect savers.

The effects of government regulation on IKEA are complex. Fiscal measures that stimulate the economy have an impact on employment and may result in more hiring. Shifts in taxes may have an impact on the business's profitability as well as investment choices. Decreasing interest rates may cut the price of borrowing money for business growth. For an international business such as IKEA, such policies could affect changes in currencies and worldwide procurement, as well as the BOP and exchange rates.

• Taxation: The pricing and profit tactics of IKEA may be impacted by changes in tax laws.
• Interest rate: Reduced rates of interest could affect savings returns yet might make borrowing for growth easier (Zeibote, 2019).
• Balance of payments: Government actions can affect the worldwide supply chains for IKEA and affect trade internationally.
• Exchange rates: Changes in currencies can be caused by policies, which can impact the price of materials that are imported.

Globalization and how it affects business, competition, and the economy

The procedure for boosting interdependence and connectivity between nations, economies, and cultures is known as globalization. It entails the cross-border movement of capital, ideas, goods, services and data to dismantle previous obstacles and build a more cohesive & interrelated global community. Globalization has a significant impact on the economy as a whole, competition among businesses and company operations. Globalization brings both advantages and disadvantages for private sector companies like IKEA that operate in the retail sector. Increased markets, a wide pool of suppliers, and the capacity to take advantage of international efficiencies are all advantageous to the business (Braga, 2023). Nonetheless, it must negotiate challenges brought on by shifting regulatory frameworks and cultural quirks, as well as increased competition from global competitors. Consequently, the economy undergoes heightened trade flows, the exchange of thoughts & technologies and an increasingly integrated financial system, all of which impact variables such as employment, inflation, and economic expansion.

In the context of globalization, moving production operations to other nations to benefit from cost advantages is known as “offshore manufacturing." This entails sourcing goods for IKEA from multiple countries throughout the world. Off shoring adds complexity to domestic rules even though it offers access to specialized abilities and enables cost savings. The business has to manage threats from geopolitics, interruptions in the supply chain and rules governing global trade. The effect on employment within the country is also taken into account since manufacturing jobs could be transferred to areas with cheaper labor costs. Due to this dynamic, IKEA must make certain that its company practices are ethical as well as environmentally friendly by coordinating its tactics with changing national and international policies.

References

Books and Journals

• Aversa, J., Hernandez, T. and Doherty, S., 2021. Incorporating big data within retail organizations: A case study approach. Journal of retailing and consumer services, 60, p.102447.
• Braga, J.P. and Ernst, E., 2023. Financing the green transition. The role of macro-economic policies in ensuring a just transition. Frontiers in Climate, 5, p.1192706.
• Clark, G.L. and Dear, M., 2021. State apparatus: Structures and language of legitimacy. Routledge.
• Ennis, S.F. and Fletcher, A., 2020. Developing international perspectives on digital competition policy. Available at SSRN 3565491.
• Taghizadeh-Hesary, F. and Yoshino, N., 2020. Sustainable solutions for green financing and investment in renewable energy projects. Energies, 13(4), p.788.
• Varadarajan, R., 2020. Customer information resources advantage, marketing strategy and business performance: A market resources based view. Industrial Marketing Management, 89, pp.89-97.
• Zeibote, Z., Volkova, T. and Todorov, K., 2019. The impact of globalization on regional development and competitiveness: cases of selected regions. Insights into regional development, 1(1), pp.33-47.

Online

• IKEA. 2023. [Online]. Available through: < https://www.ikea.com/gb/en/>