INFS1602/2602 Final Exam Practice

Strategic Analysis Practice Questions

Question 1: IKEA Sydney

IKEA is a Swedish multinational conglomerate based in the Netherlands that designs and sells ready-  to-assemble furniture, kitchen appliances, decoration, home accessories, and various other goods and home services. Started in 1943 by Ingvar Kamprad, IKEA has been the world's largest furniture retailer since 2008. The first IKEA store in Sydney opened in 1992.

Q1a. Five Forces Analysis

Analyse the business environment using Porter’s Five Forces framework (see next page). Please use as much of the following information as possible in your analysis. Do NOT make your own assumptions.

•    It is relatively cheap and straightforward to start a furniture store, but IKEA's affordable prices make it difficult for new entrants to compete effectively.

•    There are many alternatives to flat-pack furniture, such as pre-assembled furniture from local furniture stores, and custom-made furniture made from recycled materials from bespoke      manufacturers.

•    The online market has increased competition, with retailers like Amazon and eBay entering the furniture space.

•    Consumers have access to many other furniture retailers in the market. As such, consumers have the option to switch to other retailers if they are dissatisfied with IKEA's products or     pricing.

•    IKEA has a well-established supply chain network that enables it to source its products from a wide range of suppliers, reducing its dependence on any one supplier.

•    IKEA has established a strong brand name, unique product offerings, and economies of scale.

•    IKEA competes with a range of local furniture retailers, such as Harvey Norman, Fantastic Furniture, and Freedom. Fantastic, in particular, offers flat-pack furniture like Ikea.

Q1b. Competitive Strategy

Based on your analysis, which of Porter’s Generic Strategies would you recommend to IKEA? Explain the rationale behind your recommendation.

Question 2: The Next Amazon

Q2a: Environmental Analysis

You are thinking of setting up an online bookstore to become the next Amazon.com in Australia. You will start off by selling only physical books and not e-books.

Evaluate the business environment using the appropriate framework/s to decide if your business idea is feasible. You MUST use the following information in your analysis of the environment (9 marks).

-    Australia’s literacy rate is 99%

-    The government projects the economy to grow at an strong rate of 7% this year

-    You find that all your software and hosting needs can be satisfied by the services provided by WordPress.org

-    Although there are many online bookstores (e.g. Dymocks online) locally, you figure that none of them have cornered the market as yet.

-    You expect the government to announce a tax rebate for expenses on books soon.

-    The sales of e-Book readers (e.g. iPad, Kindle) have hit a new high of 20,000,000 units a year.

-    You estimate that the costs of setting up your business is relatively low at around A$500,000

Q2b. Business Feasibility

Based on your analysis, briefly explain if your business idea is feasible.