IKEA's International Marketing Strategy in China
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Case Code: MKTG373 Case Length: 18 Pages Period: 2000 - 2018 Pub Date: 2018 Teaching Note: Available |
Price: Rs.400 Organization: IKEA Industry: Furniture Countries: China Themes: International Marketing, International Marketing Mix, Positioning, International Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Global Strategy at IKEA
IKEA entered the global market with its standardized products strategy. It had its own global strategy of opening stores and operating in new markets around the world. The furnishing retailer worked to find an effective combination of standardization, low cost, technology, and quality for its products in the market. However, its standardized product strategy also took into account culturally sensitive factors emerging out of divergent consumer tastes and preferences in different markets...
Foray into China
The boom in the Chinese furniture market was driven by growth in China’s housing market, the steadily developing economy, and research and development in furniture manufacture and design. According to the Ken Research Private Limited report in 2016, China’s furniture market would grow at a considerable Compound Annual Growth Rate (CAGR) rate, reaching US$86.6 billion by 2020. The furniture industry in China was known for its good quality, affordably priced furniture products, which were made leveraging on the low cost skilled workforce. After decades of development in the furniture industry, China emerged as the world’s largest furniture producer as well as exporter. Simultaneously, the strong growth of the domestic furniture market was bolstered by an increase in purchasing power among the Chinese customers...
IKEA's Initial Failure
Initially, it was not all smooth going for IKEA in the Chinese furnishing market. Its conservative approach to market entry meant IKEA took at least five years to understand the Chinese customers before starting its first full-scale standard IKEA store in Shanghai in 2003, replacing the original outlet. Earlier, IKEA applied its distinct organizational culture and retail business strategies in its Chinese stores, wherein the core concept of company showrooms, flat-packed products, and Do-It-Yourself (DIY) assembly concepts remained intact. In an attempt to differentiate itself in the Chinese furnishing market, IKEA offered its customers a wide range of options to suit their preferences and living requirements...
Tasting Success in China
After years of struggling, the Swedish furniture giant finally made a mark in the Chinese furniture market in 2011. The company made numerous changes in its strategies and took more than 12 years to become profitable in China. In 2011, Mikael Ohlssen, the then CEO of IKEA, acknowledged that sales in China were growing faster than at the company as a whole. In 2011, a Forbes article noted: “In the last fifteen years, home ownership has gone from practically zero to about 70 percent. However, many people have little sense of how to furnish or decorate a home. They are very eager to learn from the West. This is one of the reasons that IKEA is very popular in China. Their Western-style showrooms provide model bedrooms, dining rooms, and family rooms showing how to furnish them.” ..
Challenges
Despite its long presence in China, the furniture giant faced criticism for being too conservative in developing the home products sector. IKEA opened new stores at a slower rate in China than other foreign retailers such as Wal-Mart Stores, Inc. , which expanded rapidly throughout China. Though IKEA claimed that it attracted Chinese consumers on the price front, it was still not well recognized by Chinese consumers, some industry observers remarked. According to Cai Xun, a white-collar worker from Shanghai, “I think the design and idea promoted in Ikea is good, but I can get similar products from a Chinese store or online at much cheaper prices. Why should I go to Ikea?” Some analysts questioned whether IKEA could sustain its strategy of cutting prices in China as the company plunged into China’s secondary cities with lower incomes and higher demand for bargains...
The Road Ahead
Angela had the big responsibility of setting the future growth direction for IKEA China. After graduating from Eastern China Normal University, she worked in the purchasing department of Metro shopping mall in China for two years, before becoming the first Chinese staff in IKEA Retail China in 1996. She went on to become the first Chinese store manager in 2005, and Country President in 2013...
Exhibits
Exhibit I: Consolidated Balance Sheet of IKEA from FY 2011 to FY 2017 (in Millions of Euros)
Exhibit II: Total Revenue of IKEA from Fiscal Year 2008 to 2017 (in billions of Euros)
Exhibit III: Brand Value of World’s Leading 20 Most Valuable Retail Brands in 2017 (in million US$)
Exhibit IV: Top 10 Most Valuable Retail Brands in 2018
Exhibit V: Retail Trade Revenue of Furniture in China - December 2016 to December 2017 (In billion ¥)
Exhibit VI:IKEA’s Five Largest Retail Markets based on Sales Value (As of August 2017)
Exhibit VII: Leading Five Purchasing Countries of IKEA Products (2012-2016)
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