Ikea Group Development and Prospects in China

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In 1990s, the furniture market was rather fragmented and free-of-charge assembly and delivery service was the norm. Deficient in distinctive design and famous brands, local furnishing firms were operated on a small scale and only provided a limited selection. Each player’s expansion and development was not promising (Wei & Zou, 2007). Chinese people’s consumption power was also weak at that time. Although IKEA could quickly trigger the general public’s interest and many visitors stepped inside, few purchasing was made. IKEA was perceived as a luxury brand, and price was considered way beyond consumers’ affordability. Nevertheless, after nearly 20-year development, China has become a positive contributor. (IKEA Group Yearly Report, 2013)

IKEA has become more than a brand name, but also the living style pursued by many well-educated white collars, and trend followers. It embodies a certain level of Bourgeois sentiment. Fashion followers would like to pay a premium for well-designed items which can reflect their tastes. For purchasing IKEA items is not a right, but a privilege. IKEA generally targets the mass market in Europe and America，but it had to adjust the strategy in China. Although China’s GDP has been growing substantially during the past few decades, GDP per capita is still relatively low comparing with developed countries. Chinese consumers are more price-sensitive than Western ones, considering they have less income at disposal. Therefore, IKEA presents itself as an aspirational Western brand, and the middle-class with rising consumption power and expanded outlooks are mainly targeted (Chu, Girdhar & Sood, 2013).

In Western countries, IKEA is perceived as a warehouse of inexpensive furniture and home appliances, which can save money by not taking in fairly high labor costs. Western consumers are more familiar with ideas regarding environment protection, resource preservation, and Do-it-Yourself concept. Shop assistances are kept at a minimal level. Stores are located in remote areas, but people are still willing to spend a lot of time driving a long way and assembling the equipment by themselves. However, labor cost is not costly in China. The store in Guangzhou was near Guangzhou East Metro Station, several bus stations, and Guangzhou East Railway Station. Sizeable but flat-packed items can be carried back home conveniently. Unlike stores in Western countries are normally located far away from downtowns, because Western customers are much more likely to have their own cars (Johansson & Thelander, 2009).

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Source: http://bestofguangzhou.com/shopping/home/ikea/

Colorful catalogues are regularly distributed to introduce new items and inferior design solutions. A mobile phone application called IKEA Catalogue (owned by Inter IKEA Systems B.V.) has added a new function called “Place Furniture in Your Room”, which allows users to place the targeted furniture into the picture of certain rooms, in order to see whether the furniture and the surrounding match. Further technical improvement can be applied to enable users to freely picture their dream place with available items. Indulged imagination may effectively contribute to consumer surplus, and higher sales can be achieved. Since Chinese consumers are not used to self-assembly concept, straightforward illustrations with stimulating graphs should be widely distributed. Children can be considered as the main users of the assembly guidance. Parents are easily to be encouraged to use the guidance to foster a sense of self-independence and self-management to their kids, who may be the majority of purchasers of IKEA products in the future.

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Source: http://mikeshouts.com/2014-ikea-augmented-reality-catalog-app/

Given widespread of the e-commerce in China, IKEA should make efforts to expand its online presence. Although online shopping is not available currently, it should be placed on the agenda-list now. Other online services like reservation service can be offered to customers who have a several-year-long purchasing history with IKEA. Stocks availability can be checked before visiting IKEA. When interested items sold out, disappointment can be minimized by introducing relevant products.

It is well-known that all visitors are always welcome to feel and test the furniture displayed in the stores before making purchasing decisions, no matter which countries the stores are located in. Such a shopping experience is brand new and innovative in China, as local furniture retailers are afraid that displayed items may be tarnished or destroyed. While IKEA allows, even indulges Chinese visitors to feel and touch the merchandise. However, this standardized has posed a serious concern to IKEA. Chinese visitors have been severely criticized for behaving improperly such as lounging on the couch for the whole day (Fong, 2006). It seems unpractical of IKEA forbid visitors to touch its displayed items; otherwise, IKEA may be sued for discrimination and lose a huge number of customers.

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Source: http://businesstoday.intoday.in/story/how-ikea-adapted-its-strategies-to-expand-in-china/1/196322.html

Although IKEA has made significant adjustments to adapt to Chinese market, it still values its standardized business operations and follows the corporate value strictly. IKEA has constantly been outsourcing the manufacturing process to local suppliers. According to Tarnovskaya and Chernatony (2011), IKEA tends to form a “marriage contract” with its suppliers, whose conducts are expected to be aligned with a four-step staircase (startup requirements on social and working conditions; environment; merchandise; and ISO quality standard). Ikea strives to influence its business relationships contents as exchanged volumes, commitments, trust and learning depending on how each relationship can contribute to achieving IKEA’s goals. A single relationship would not be enough because IKEA’s goals can be reached only by connecting several relationships into a broader network structure, including the establishment of new relationships and the assignment of specific roles to certain counterparts within a hierarchy of relationships. IKEA stretches its interactions as far upstream as possible in the network, all the way to raw materials suppliers. (Baraldi, 2008)

Jesper Brodin, in charge of Range & Supply, highlighted that the product development center in Shanghai has been gathering local talent and most experienced IKEA developers together to cooperate to develop a new bedroom series in 2013 jointly.