Porter Analysis of Furniture Industry

PF5 Analysis of Furniture Industry

1. Threat of entry – barriers assessed relative to capabilities of new entrants

Pre-ikea: high. Post: Low

Supply side economies of scale

* pre-ikea firms were not producing in large volumes and did not have bulk buying power. In Germany for example they held very little inventory of their own.

* After ikea entered the market I would look completely differently at this – the supply side EoS is huge for Ikea now.

Incumbency advantages.

* Incumbents can have cost and quality advantages not available to potential rivals no matter what size. Cumulative experience led to lock up of the industry led to prices rising 41% faster than other household goods in Sweden during the period 1935 – 46.

Threat of retaliation.

* Would seem to be significant as the clout the incumbents possessed with retailers was high, and the industry coordination was significant between manufacturers and retailers.

* In Sweden, Retail cartel gradually forbade IKEA from showing goods at trade fair, selling directly to customers at the fairs, from showing prices, and finally the retail cartel forbade the manufacturers cartel from selling to IKEA.

* In German market, trade association began legal action through the court, also challenging the truthfulness of ikea’s advertising. Courts backed the trade association.

* Nonetheless Ikea opened 10 new stores in Germany in the next 5 years and gained 50% market share.

Restrictive Government Policy

* Clearly some examples of this – for example In German market, trade association first complained that the Mobelfakta requirements were below minimum requirements of west German market and began legal action through the court, also challenging the truthfulness of ikea’s advertising. Courts did back this, so some protection issues.

* In Italy, saw that permits were an issue in Ikea’s expansion south from Milan. Hints of a permit/regulation heavy environment. In days...