Ikea china marketing analysis
Ikea china case study solution
Wang, S. After China joined the WTO, foreign firms could build wholly owned stores. In recent times IKEA has recently ceased contracts with suppliers such as Joyme, where issues of falling profits due to low contract prices offered by IKEA were to blame. These cultural factors meant a drastic change in the business operations of IKEA. The furniture market in China is still developing with advanced manufacturing and application of information technology in production. To meet local laws, it formed a joint venture. IKEA also faces online competition with the multiple retailers that sell on sites such as Taobao. The partner they chose, also had strong affiliations to the Swedish Chamber of commerce in China, who could provide both partners vast amounts of information regarding the Chinese marketplace. Some store products can be made China specific such as chopstick holders, or decorated items for the Chinese New Year.
The greatest challenge is to adapt constantly. Retrieved from China. IKEA, famous for its flat-pack furniture which consumers have to assemble themselves, realised that understanding the local culture is important - Chinese people hate the do-it-yourself concept and Indians likely do so even more.
Capitalism without failure is like religion without sin. The threat of new entrants into the market can be positioned as low due to the Chinese market culture.
Ikea global expansion case study
IKEA in China has demonstrated courage, adaptation, and awareness to shift its production, work with local sources, overcome legal requirements and adapt brand proposition to suit the level of development of the market and consumer perception. In Ikea then went on to establish itself in the Chinese retail area, when it opened its first retail store in Shanghai. The threat of new entrants into the market can be positioned as low due to the Chinese market culture. Chinese consumer expectations and purchasing behaviors have marked regional variations, particularly for products reflecting cultural and personal tastes. Burkitt, The Chinese market also poses many trade barriers such as the law of the People's Republic of China on Chinese-foreign joint ventures, which requires foreign companies to enter into a joint venture if they wish to enter the market. In order to overcome these trade barriers, IKEA had to enter into a joint venture, even though they controlled the management, it did halt the expansion process as land ownership was only acceptable through the Chinese partner. Some store products can be made China specific such as chopstick holders, or decorated items for the Chinese New Year. A onesize-fits-all approach is a rare reality. It understood early on that Chinese apartments were small and customers required functional, modular solutions. It understood that in emerging markets, global brands may not replicate their success using a low-price strategy.
IKEA in China realized that digital marketing was the way to go, with that IKEA Group used digital technologies using the internet such as Chinese social media and micro-blogging for their marketing campaign to gain market attractiveness and brand recognition.
IKEA decided not to react, as it realised Chinese laws were not strong enough to deter such activities.
Challenges faced by ikea in china
Retrieved from online. IKEA did well to adapt in China, although it took numerous changes to its strategies and more than 12 years for the company to become profitable in the Asian nation. For India to kick its economy back to the growth rates necessary for meeting the aspirations of its citizens, we need to roll out the red carpet for foreign investors instead of red tape. Threat of substitutes can be ranked as high as now many manufacturers in China can effectively copy not only the products, but also the store experience. So the company set up its outlets on the outskirts of cities which are connected by rail and metro networks. From this culture has brought about a multitude of various suppliers available to foreign firms such as IKEA. An example of this can be found in Kunming, where a furniture store has essentially created a pirate version of the Ikea store layout. Many Chinese consumers also did not own a car, so locating in suburban areas with a well-established public transport system was vital. The European headquarters' excitement to enter new markets with proven best practices is something of the past, proving that the real shift in the global mindset is to recognise that local versus global can bring optimum results. These local factories resolved the problem of high import taxes in China. Chinese competitors copied IKEA's designs from its catalogue and then offered similar products at lower prices It is more important what customers think about the company rather than the other way around. In order to cater for more customers, IKEA can look to provide shuttle bus services for populated local areas. I think that they were very fortunate to have entered China in terms of a joint venture, for the fact that if they had gone on their own the negative results would have had a greater impact on their overall business.
While globally 30 per cent of IKEA's range comes from China, about 65 per cent of the volume sales in the country come from local sourcing. Having low priced western goods, did not sit well with the western values sought after by Chinese consumers.
A consistent global brand promise is a desirable asset but what makes a real difference is to be brave and ready to change the target audience and build a differentiating promise.
This venture served as a good approach to test the market, understand the local needs and adapt strategies to gain competitive advantage.
Ikea market share in china
The partner they chose, also had strong affiliations to the Swedish Chamber of commerce in China, who could provide both partners vast amounts of information regarding the Chinese marketplace. In recent times IKEA has recently ceased contracts with suppliers such as Joyme, where issues of falling profits due to low contract prices offered by IKEA were to blame. The main problem for IKEA was that its prices, considered low in Europe and the US, were higher than the average in China The company realised this and started targeting the young middle-class population. This can be seen in the lack of intellectual property protection in China, which could result in more and more fake IKEA stores appearing. Local suppliers were banned from providing raw material and furniture to IKEA, and the company was not allowed to showcase its furniture in industry exhibitions. Competitive advantages in the western markets in terms of low cost pricing, was not realised in China, as a low cost culture was the norm. Also, it will be difficult for IKEA to find the type of location size, off a highway, with great links to a major metropolis that is crucial to the success of its business model. However, I do believe they have learned from these mistakes and are very flexible with their Chinese business strategy. Since , IKEA has been working on becoming more eco-friendly. As the company opened more stores from Beijing to Shanghai, the company's revenue grew rapidly. It also assesses some lessons the company learnt in China that might be useful in India. Instead, the company is using Chinese social media and micro-blogging website Weibo to target the urban youth.
As mention as an example above, IKEA entered the Chinese market by learning from their mistakes and continuously adapt themselves to the changing environment. The furniture industry has made tremendous progress, and the country has become a world-class location for setting up furniture factories and an important export base.
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