Ikea with Chinese Characteristics (2004)

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Scholar Articles

The role of networks and matching in market entry to emerging retail markets

Ulf Elg, Pervez N. Ghauri, Veronika Tarnovskaya, (2008) "The role of networks and matching in market entry to emerging retail markets", International Marketing Review, Vol. 25 Issue: 6, pp.674-699, https://doi.org/10.1108/02651330810915583

IKEA in China: Facing Dilemmas in an Emerging Economy

In mid-2003, Ian Duffy, the president of IKEA China, and some executives were discussing the market strategies of IKEA China, they announced a plan to open stores in Beijing, Guangzhou, and Chengdu in the next 5 years, and 10 stores more by the end of 2010. However, IKEA struggled with some issues as they started their operations in China.

Company's Background

IKEA was a private company owned by Stitching INGKA Foundation. In 1998, the first retail store opened in Shanghai with a much smaller scale store. By 2003, the first full-scale standard store open in Shanghai and became largest IKEA store in Asia. However, IKEA's development was in infant stage with only 3% of total sales with its stores in Malaysia, Singapore, Taiwan, Beijing, and Hong Kong. But the new opening in Shanghai set a critical stage for business development in China. By 2004, IKEA had employed more than 600 employees in China.

Business Philosophy:

IKEA brought its distinct organizational culture and retail strategies to China, emphasizing a unique identity different from competitors and a recognizable image for consumers to identify. In China, IKEA successfully differentiated istelf as a foreing company providing modern furniture and a full-fledged solution to decorating homes. They relied on keeping operational costs as low as possible throughout the supply chain.

Human Resource Management:

IKEA paid huge attention to human resource management and organizational culture. Employees were extensively trained, they had a very systematic training and internal labor development system, which strengthened its competitive advantage over local counterparts in China.

Procurement:

IKEA relied heavily on procurement and supply chain management to support its current business model. In China, such buyer-supplier cooperation involved not only economic terms, but also social responsibilities, which included helping its Chinese suppliers improve their working and social conditions and checking environmental issues.

Major Competitors in the Chinese Market:

Qumei Group (largest wooden furniture producer in China)

British furniture group, B&Q,

German furniture group, OBI

Strategic Challenges in China:

Despite the rapid increase in the number of visitors and sales volume, IKEA (China) had yet to make a profit. The gap between the number of visitors and actual buyers remained large.

challenges for IKEA in China were complicated and demanding:

Pricing Strategy:

Higher prices than local products with similar quality. People preferred local brands.

Market Positioning:

Chinese did not appreciate DIY projects and high priced products.

Business Models:

IKEA entered Chinese market with Joint Venture with Beijing Northern Sweden LTD company and give up common practice of buying the land and building its own stores.

Future Development:

As living standards improved and the government opened up property markets, interior decoration and design were becoming popular pastimes. Despite failing to generate profits in China in the first several years, IKEA is optimistic since it has overcome many difficulties in its early development in other countries. IKEA is investigating in 14 other cities in China, including Chengdu, Dalian, Nanjing, and Qingdao and plan to establish outlets in those cities.

These experiences provided IKEA with the courage and confidence to conquer the Chinese market.

Wei, Liqun, and Xi Zou. "IKEA in China: Facing Dilemmas in an Emerging Economy." Asian Case Research Journal, 2007, 1-21. Accessed November 8, 2017. doi:10.1142/S0218927507000849. https://sci-hub.cc/10.1142/S0218927507000849

References

IKEA with Chinese Characteristics – China Business Review. (2017). Chinabusinessreview.com. Retrieved 8 November 2017, from https://www.chinabusinessreview.com/ikea-with-chinese-characteristics/

"BBC NEWS | Business | Ikea To Double Presence In China". 2017. News.Bbc.Co.Uk. Accessed November 8 2017. http://news.bbc.co.uk/2/hi/business/4491128.stm.

“Ikea reports growth in annual sales, boosted by China's fastest-growing market”. 2014. The Straits Times. Accessed November 14 2017. http://www.straitstimes.com/business/companies-markets/ikea-reports-growth-in-annual-sales-boosted-by-chinas-fastest-growing

杨希. 2017. " Ikea Gears Up For More Store Expansion In China - China.Org.Cn". China.Org.Cn. Accessed November 8 2017. http://www.china.org.cn/business/2017-08/18/content_41432440.htm.

IKEA in China: Store or theme park? – BBC News, Beijing. (2013). http://www.bbc.com. Retrieved 10 November 2017, from http://www.bbc.com/news/world-asia-china-24769669