FOREIGN TRADE UNIVERSITY

---------***--------

RESEARCH PAPER
IKEA IN CHINESE FURNITURE MARKET

Class: TAN432(1-1920).3_LT
Group: 14

Number Full name Student ID

1 Lê Minh Anh 1615510005

54 Phạm Quang Minh 1615510076

66 Nguyễn Tuấn Ngọc 1615510083

95 Nguyễn Thùy Trang 1615510117

102 Nguyễn Thị Uyên 1615510126

Instructor: M.A Phan Kim Thoa

Hanoi, October 2019

 Table of contents

ABSTRACT............................................................................................................. 5
I. INTRODUCTION............................................................................................6
1. Topic..............................................................................................................6
2. Scope of the study and limitation.................................................................6
3. Methodology..................................................................................................7
4. Structure of the report..................................................................................7
II. BACKGROUND...............................................................................................8
1. Background of study.....................................................................................8
1.1. Chinese economic overview...................................................................8
1.2. Furniture market....................................................................................9
1.3. IKEA Brief Introduction.....................................................................10
1.4. IKEA difference....................................................................................10
2. Chinese furniture market...........................................................................11
2.1. Characteristics of Chinese furniture market......................................11
2.2. Advantages of investment....................................................................12
III. CASE STUDY: IKEA IN CHINESE FURNITURE MARKET..............14
1. Why IKEA invested in China?...................................................................14
1.1. Producing furniture for the International market.............................14
1.2. Exploit the potentiality of Chinese furniture market........................14
2. IKEA’s business strategies in China..........................................................15
2.1. Store location........................................................................................15
2.2. Pricing & brand positioning................................................................17
2.3. Company structure...............................................................................19
2.4. Market research...................................................................................21
2.5. Product development...........................................................................22
2.6. Assembling service...............................................................................23
2.7. Promotion..............................................................................................23
2.8. Ikea stores.............................................................................................24
3. SWOT..........................................................................................................25
 3.1. Strength.................................................................................................25
3.2. Weakness...............................................................................................25
3.3. Opportunity..........................................................................................26
3.4. Threat....................................................................................................27
IV. CONLUSION..............................................................................................28
REFERENCE........................................................................................................29
 ABSTRACT
The world’s most populated country – China has always been an ideal consuming
market for any MNCs. Several multinational companies have been making efforts
to succeed in this world’s largest developing country. Among thousands of
enterprises investing in China, IKEA is one of the most successful case. This paper
demonstrates the characteristics of the Chinese furniture market and how potential it
is for foreign investors. In addition, the unique points that differs IKEA from other
competitors will also be presented. The main focus of the paper is on the reason
why IKEA choose to invest in this market and their strategies to achieve success.
This paper concludes by a SWOT model and suggesting some solutions for IKEA
to further expand their market share in China.
 I. INTRODUCTION
1. Topic
The Chinese economy has developed greatly since China began to take the road of
reform and opening in the late seventies. The reforms not only transformed the
whole of the Chinese economy, they transformed China's vision of the world and
the world itself. The policy welcomed foreign investment, with multinational
companies from around the world launching operations in China through joint
ventures. It gave many foreign companies the opportunity to set up businesses and
build something out of nothing with the cheap labor, abundant natural resources and
the best potential business market.

The success of China's economic policies and the manner of their implementation
resulted in immense changes in Chinese society. All industries from food
technology, building materials to manufacturing machines and consumer devices
have experienced marculous rapid changes. Furniture industry, a basic industry in
most countries, also see this great investment opportunity. The world's largest
developing country become the vast investment market for various number of large
companies in the furniture industry from developed countries such as IKEA, DFS,
MFI, HARVEY’s and thousands of smaller independent retailers. IKEA, the largest
multinational company in the world, quickly planned to attack this bait and had an
extremely successful first step in this market.

This article analyzes the internal and external conditions that lead IKEA to this
great success in China, and of course, the ingenious strategies that IKEA has
applied extremely successfully. However, the strategies that IKEA has applied are
not without its shortcomings. In parallel with the thorough analysis of SWOT, we
propose some solutions for IKEA to expand further market in the future.

2. Scope of the study and limitation

This paper focuses on the specific case study of a multinational company - IKEA
when it enters the Chinese market. What are the reasons that they choosed to enter
this market? What strategies the company has implemented? What are their
limitations? After having a detailed look at the case study, we evaluate IKEA on the
SWOT model: strengths, weaknesses, opportunities and threats and finally, we
suggest some solutions so that IKEA could thrive further in Chinese market. Based
on this research, users (students, lecturers, business people) can have a more
comprehensive view of which challenges a large company can encounter when they
enter the world’s largest developing country. Therefore, they can get solutions for
their own business. Moreover, the research also helps people to get the latest news
and data because all of the data in the article have been selected carefully from
many reliable data sources.

3. Methodology
The unique research method is desk research: the information and data have been
gathered from secondary data sources such as literature, survey reports, journals,
newspapers, magazines and the Internet.
For many research questions and objectives, the main advantage of using secondary
data is the enormous saving in resources, in particular the time and money. If you
need your data quickly, secondary data may be the only viable alternative. In
addition, they are likely to be higher-quality data than could be obtained by
collecting your own. (Saunders 2000, 244).

4. Structure of the report

The article is organized into 5 sections. The first section introduces the reasons for
selecting the topic, scope of the research, the limitations exist and the research
methodology applied. Section 2 goes into describing the background, more
specifically, the Chinese economy and furniture market overview, as well as IKEA
brief introduction. Section 3 explains the way IKEA develops in the Chinese
market, the reasons why they decided to penetrate this market and the strategies
they used. Here, you will see that IKEA did not implement a unique strategy but a
combination of many different strategies. Section 4 presents our analysis of IKEA’s
strengths, weaknesses, opportunities and challenges based on both internal and
external business environment. We also assemble some solutions that will help
IKEA to expand the market share in section 5 and the last section is our conclusion
for all of our analysis above.
 II. BACKGROUND
1. Background of study
1.1. Chinese economic overview
In 1978, the People’s Republic of China (PRC) started economic reform that
transformed its command economy into a mixed economy. The PRC government
also adheres to the openness to the foreign investments and international trades.
China has the tremendous economic changes after almost forty years till nowadays
year 2019. The most outstanding feature of this change is the rise in overall
economic productivity, which is based on the increased productivity of agricultural
labor and resources.
The Chinese economy has developed greatly since China began to take the road of
reform and opening in the late seventies. China has the unbelievable economic
changes in the reformed more than thirty years. China, the world's largest
developing country became the vast investment market for developed countries
because of the cheap labor, abundant natural resources and the best potential
business market ten years ago.
China’s annual GDP growth has averaged more than 9 percent in the past 40 years,
GDP growth has stably averaged about 7 percent in the past few years. Foreign
trade expanded significantly. Thanks to the magically development, China hit the
second place in the world. Personal income increased.
In the past four decades, Chinese people’s living standard improved greatly with the
growth of the national economy. Almost every Chinese have benefited from a rise
in income levels and living standards. Per-capita income of urban families rose from
343.4 Yuan in 1978 to 36396.2 Yuan in 2017, nearly 100-fold increase in 40 years.
The Chinese peasants achieved as a whole a four-times increase in their income.
 Progression of Gross Domestic Product Under Economic Reform
(Unit: billion yuan)
100000
90030.95
90000

80000
68905.21
70000

60000

50000
41303.03
40000

30000
18731.89
20000
10028.01
10000 6133.99
367.87 909.89 1887.29
0
1978 1985 1990 1995 2000 2005 2010 2015 2018

Figure 1. Gross domestic products raise condition from 1978 to 2008

Source: Wikipedia
Nowadays, China’s economic trend is better and better. China has become a huge
FDI (Foreign Direct Investment) market. There is more than 13 billion population
with the positive economic development. For many multinational enterprises, it
means to get more profits to choose entering Chinese market.

1.2. Furniture market

The furniture sector is a basic industry in most of countries, representing generally
between 2% and 4% of the production value of the manufacturing sector. In this
market, the upholstered furniture and kitchen furniture are the largest industry
sector representing 14.5% and 13% respectively. Three other significant sub-sectors
are office furniture, dining furniture and bedroom furniture.
The retail market for furniture is highly competitive nowadays. It is almost
dominated by furnishing branding such as IKEA, DFS, MFI, HARVEY’s etc, there
are thousands of smaller independent retailers that make up a significant proportion
of the overall market.
In the past years, outdoor furniture market continues to grow. Figures for the
forecast period 2018 to 2023 showed that the global furniture market grew by 5.2%.
In most of western countries, people buy houses with garden more than apartments.
They need garden furniture like wooden swing, table, and chair and BBQ
equipment for family entertainment and relax use.
Furniture industry provides a potential market for developing countries. In the most
of developing countries like China, the real estate is developed very quickly. The
real estate companies construct many resident apartment buildings especially in the
big cities in the recent year. More and more ordinary people with average income
can afford the apartment for themselves. Get along with the real estate development;
the home furniture will demand more in the developing countries.

1.3. IKEA Brief Introduction

IKEA is the biggest furnishing retailer in the world. Its simple design style and good
quality products give the deep impression for many people. IKEA offers a wide
range of well-designed, functional home furnishing products at prices so low that as
many people as possible will be able to afford them. This is the single idea at the
heart of everything IKEA does, including the way IKEA develop and purchase
products and the way which IKEA sell them in IKEA stores around the world.
From 1943 when IKEA founder Ingvar Kamprad first open his company to 1991,
IKEA numbers 53,000 co-workers across a global network of over 150 stores in 29
countries on four continents. The first IKEA store opens in China in 1998. It built
its first store in Shanghai, its own local factories and raw material supplying
foundations in China. It expands its market into China because IKEA knows how
big potential market in China, it wants to share Chinese furniture market. It is an
opportunity for IKEA to deepen its internationalization, at the same time, it is also a
chance for China to get more foreign investment. In the past eight years, IKEA
really bring the home fashion and new furnishing idea to Chinese ordinary people.

1.4. IKEA difference

In order to survive in the global marketplace, a company must offer its customers
something that the competitors simply cannot offer. IKEA offers its customers a
unique and new way of doing business. Rather than what most people might think a
furniture company as being, IKEA thinks and operates in a much different way than
the competitors do and sets itself apart from the competition time and time again.
The well-established business plans and operating models that IKEA employs at all
levels of the organization serves as the reason as to the overall success of the
company.
Another way in which IKEA has determined that it would set itself apart from the
competition is in its outsourcing of final construction costs onto the consumer. “Half
a century ago, the European furniture retailer identified an opening to introduce
quality products at an affordable price. But seizing the opportunity to disrupt the
market status quo obviously meant keeping costs to an absolute minimum. How did
the company manage this? With a business model that combines the simple design
with a heavy dependence on outsourcing. Uniquely, this involves outsourcing final
assembly of the product to the customer, in addition to more routine subcontracting
of production and delivery.” (Anonymous 2005, 15)
What this ultimately means is that when a consumer purchases an item from IKEA,
they are fully aware of the fact that the item is not going to be built when they
purchase the item. Unlike a traditional furniture retailer from which a consumer might
be able to sit on a couch, purchase the couch, and have the same exact couch they sat
in delivered to their home, IKEA provides the consumer with all of the necessary parts
and tools to build the item that the consumer is purchasing.
Another important fact that separates IKEA from the competition is the fact that IKEA
utilizes a very direct and methodical approach to management. “The aim if IKEA is to
eliminate excessive levels of management with a very flat organization. It has the effect
of giving more responsibility to each “co-worker” who “learns by doing” and who is
instilled with a sense of pride and purpose. Responsibility is also assumed earlier and
most managers are in their mid-30s. Open management characterizes IKEA.” (Arnold,
565). As the furniture industry represents a very cut-throat industry in which
attempting to save costs wherever possible is of utmost importance, the fact that IKEA
seeks to cut out middle management and instead empower employees is one of the
reasons as to what makes IKEA so successful.
 2. Chinese furniture market
2.1. Characteristics of Chinese furniture market
Due to large differences in topographies, climates, cultures and business practices
throughout the vast country, China’s furniture industry is neither homogeneous nor
easy to understand and predict. Chinese consumer expectations and purchasing
behaviors have marked regional variations, particularly for products reflecting
cultural and personal tastes. China’s low labor cost, large consumer market and
sharply declining import tariff rates have attracted many foreign furniture
enterprises. Business entry into China’s market is, however, a slightly complicated
process, and foreign investors sometimes find themselves face-to-face with some
perplexing problems. With the gradual development of China furniture industry,
furniture brands are becoming increasingly important. The famous brands
nationwide are MeiKe Xinjiang, Guangming Heilongjiang, TianTan Beijing,
Richman and Land Bond Guangdong and XiLinMen Zhejiang among which,
MeiKe and Guangming are the only two listed enterprises in Shanghai and
Shenzhen stock markets in China.
In China, Domestic demand is the engine driving for the growth of Chinese
furniture industry, while export is another pillar. China is the largest population
country in the word, the ordinary people’s living standard is better and better,
Chinese people show the strong purchase power these years. Cheap labor and raw
materials make up the country competitive advantage in both marketplace and the
attracting foreign investment. Quite a number of multinational companies choose
china as their manufacturing foundation. There also are signs that the multinational
companies and the world-class retailers have moving their buying office or set their
subsection in the big cities such as Shanghai, Beijing and Guangzhou in China.
The Chinese Government has proposed accelerating the pace of urbanization and
the construction of small cities and towns, the prosperity of rural economy,
accelerating the urbanization process, so as to further boost consumer markets,
expand areas of consumption. Data from the National Bureau of Statistics shows
that the urbanization rate in China reached 59.6% in 2018, up 1.1 percentage points
over the end of 2017. This initiative of the country, will further promote China's
housing construction, and housing-related industries will be developed. According
to social needs and development needs of the State Council, proposed housing
industry, this initiative will drive standardization and Seriation of supporting tens of
thousands of products with residential and industrial. Residential development of
the industrialization of housing as a commodity into the market and provide space
for all kinds of furniture and accessory products. China is an enormous market
potential in the furniture industry.

2.2. Advantages of investment

China has become one of the biggest markets in the world. Dense population,
improved people’s living standard, low labor force and government policy are the
factors to attract more and more multinational enterprises and foreign companies to
invest in China to get much more market share and profits.

 Effect of labor force

Many Asian countries can provide low cost labor, but any cost of labor for one
product shows the productivity and wage per hour. According to the report, Chinese
furniture workers’ productivity is one fourth of that of Americans’. For instance,
Chinese wage standard is 0,64$ per hour, Chinese labor force of wooden furniture
cost only accounts for 5%, and American accounts for 25%, this makes Chinese
wooden furniture get the competition benefit in price.

 Local Chinese Market

China’s market is a very attractive target market for international investments
because of its huge potential consumers number (China’s population currently
counts 1.2 billion people). The living standards of China’s population are constantly
improving. Among the other tendencies, an increasing purchasing power of women
can be mentioned. Therefore investing in the companies with safety and health
image will help to build the trust with this consumer group.
  Simple investment requirement
Building a furniture factory require simply
1. Investment of money 3,5~4$ for per square inches, it would be 30~35$ in
American or European countries.
2. Less investment in expensive equipment, low cost for the labor force.
3. No strict rules or requirements for the constructing factories.
4. Chinese government provides cheap land rent fee.
Therefore, building a factory is 60%~65% cheaper than in America or most of the
European countries.
 Government encouragement
Chinese government heartily welcomes foreign investment in China since the
economic reformation in 1978. The Chinese government promotes investment in
commercial and entrepreneurial activities by providing attractive financial
incentives in the form of tax breaks, grants, low-cost government loans, and
subsidies. Such government-sponsored inducements can ultimately boost
profitability, and help businesses succeed quicker. Besides, the Chinese justice
system employ effective mechanisms for reducing crime and corruption to
encourage international invesments.

 Competitiveness
China has outpaced India and many other emerging countries when it comes to
nurturing the elements necessary for business growth. The development of
infrastructure has been a key driver in this area. After all, roads, highways, and
bridges are essential for employee commutes and the transportation of goods.
Advances in these areas dramatically lower transaction costs and increase profits,
letting investors earn robust returns.
 III. CASE STUDY: IKEA IN CHINESE FURNITURE MARKET
1. Why IKEA invested in China?
The rational for this giant furniture company to directly invested in China is two-
folds: 
1.1. Producing furniture for the International market
IKEA built a number of factories in China and increased local sourcing of materials.
Nowadays, globally 30 per cent of IKEA's range comes from China, and about 65
percent of the volume sales in China comes from local sourcing. These local
factories resolved the problem of high import taxes in China. The company also
started performing local quality inspections closer to manufacturing to save on
repair costs.
The cost differential between manufacturing domestically and manufacturing in
China is significant. Domestic manufacturers have higher overhead with steep
training costs and high turnover. China’s affordability makes overseas
manufacturing ideal for the common business. China-based factories produce goods
for the global economy. They have scaled their manufacturing capabilities well
beyond what was ever believed possible. Wages are significantly lower in China
and tapping into those savings is as easy as establishing a relationship with a
factory.

1.2. Exploiting the potentiality of Chinese furniture market

China makes up 3.8 percent of the total consumption of furniture in the world and
had been forecasted to become the second largest furniture consumption market in
2014 only after the United States. The total consumption volume of China will
likely reach $3.7 trillion by then, taking up 11 percent of the world's total.
When IKEA first enter China, there were not so many foreign brands here, and
IKEA was a completely new experience for the Chinese people. And IKEA
furniture also represented a whole new style for them.

2. IKEA’s business strategies in China

The Swedish furniture retail giant brings its unique style and sales model to China.
IKEA entered China in 1998. Its first store was opened in Shanghai and now
operates stores in Beijing, Shanghai, Shenzhen, Guangzhou and Chengdu. The
Swedish retailer plans to open several new stores before the end of this year and
renovate existing ones as it bets on Chinese consumer spending growth. China is
among IKEA’s top five markets, providing revenues in the country of 15.5 billion
RMB last year, up 6 per cent on 2017. 
However when first joining this world most populated market, IKEA faced several
challenges and it caused them a lot of time and effort to adapt and thrive. We would
now discuss some of the most important decisions and strategies that IKEA has
deployed over the time in order to overcome those obstacles and achieve the
position in Chinese furniture market as they do today.

2.1. Store location

IKEA retail stores mainly distributed on the east part of China and several of them
are also located in the middle part of China. And most of the stores are distributed
in the Chinese eastern coastal areas.  There are hardly any IKEA retail stores at the
west part of China. However, on the contrary, the eastern part of China was
distributed with the majority of 21 IKEA retail stores in China (IKEA China, 2017).
There are three mainly reasons behind this pattern of stores allocation.
Firstly, comparing with the Chinese traditional Han nationality (which is mainly
distributed in the eastern part of China), the national minority in western part of
China seems to be more difficult to accept foreign cultural and mix with their own
national psychology. Therefore, IKEA as a foreign home furnishing retailer which
is mainly with the Nordic style seems to be more difficult to be accept by these
Chinese national minority in the western part of China. 
Secondly would be the consideration of transportation. The CEO Ms. Zhu explained
that there are many foundries of IKEA in China and all of them located at the
eastern coastal part of China, the closer distance between the retail store and
foundries could reduce the cost of transportation. As well as some of the
productions are not made in China but were made in other countries. And these
productions would be transported through marine transportation but not through the
road transportation to China. The port and dock are also all located in the eastern
part of China, and also could help the eastern retail stores reduce the cost of
transportation. However, as for IKEA entering into the western part of China, it is
necessary for IKEA to consider the additional road transport cost from eastern
foundries or port to the western part of China. 
Last but not least, CEO Ms. Zhu explained the reason with economic development
and population distribution. There are great east-west differences in regional
economic development of China, and the western area obviously falls behind
national average level. And the population of China are mainly distributed in the
eastern part of China, and the western region of China really lack of purchasing
power.
GDP and GDP per capita could be used to measure the market size. There are 21
retail stores of IKEA in China (IKEA China, 2017), which are separately distributed
in 17 different cities of 11 provinces. And these 11 provinces respectively are:
Beijing, Shanghai, Guangdong, Sichuan, Chongqing, Zhejiang, Jiangsu, Shanxi,
Liaoning, Tianjin and Hubei. Some provinces among of these 11 not only have one
retail stores: 2 in Beijing, 3 in Shanghai, 3 in Guangdong, 3 in Jiangsu, 2 in
Zhejiang and 2 in Liaoning.
Province GDP 2016 (100 Province GDP 2016 (100
million Yuan) million Yuan)
1 Guangdong 79512.05 17 Jiangxi 18346.4
2 Jiangsu 76086.2 18 Guangxi 18245.07
3 Shandong 67008.2 19 Tianjin 17885.4
4 Zhejiang 46485 20 Chongqing 17558.8
5 Henan 40160.01 21 Heilongjiang 15386.09
6 Sichuan 32680.5 22 Jilin 14886.23
7 Hubei 32297.9 23 Yunnan 14869.95
8 Hebei 31827.9 24 Sanxi 12928.3
9 Hunan 31244.7 25 Guizhou 11734.43
10 Fujian 28519.2 26 Sinkiang 9550
11 Shanghai 27466.2 27 Gansu 7152.04
12 Beijing 24899.3 28 Hainan 4044.51
13 Anhui 24117.9 29 Ningxia 3150.06
14 Liaoning 22037.88 30 Qinghai 2572.49
15 Shanxi 12928.3 31 Tibet 1150.07
 16 Nei Mongo 18632.6
Figure 2. The GDP ranking in each province of China
Source: Chinese NBS, 2016

The yellow part of data table presented the GDP ranking of provinces which have
already distributed IKEA retail stores. Through the observation on the Table4.13,
the researcher finds that all of the IKEA retail stores distributed in the top 20 GDP
ranking provinces. And the top 2 GDP ranking provinces – Guangdong and Jiangsu
respectively have 3 IKEA retail stores, and the fourth ranking –Zhejiang has 2
stores. However, the ranking after top 20, the rest 11 provinces didn’t have any
retail store of IKEA so far. 

2.2. Pricing & brand positioning 

As the company opened more stores from Beijing to Shanghai, the company's
revenue grew rapidly. In 2004, for instance, its China revenue jumped 40 percent
from the year before. But there was a problem - its local stores were not profitable.
IKEA identified the strategic challenges and made attempts to overcome them. One
of the main problems for IKEA was that its prices, considered low in Europe and
North America, were higher than the average in China.
Ikea’s traditional business idea is offering a wide range of well-designed, good-
quality and functional home furnishing products at prices so low that as many
people as possible will be able to afford them. This is the single idea at the heart of
everything IKEA does, including the way IKEA develop and purchase products and
the way it sells products in IKEA stores around the world.
In Europe or other countries, IKEA keeps this core business idea to do its
business. Almost every ordinary people including students can afford IKEA
products. Prices of furniture made by local stores in China were lower as they had
access to cheaper labour and raw materials, and because their design costs were
usually nil. But at that time, most IKEA’s products, simple as a small chair, all
have to be imported from Sweden, which made it impossible to keep the price
low. Most of die-hard IKEA fans cannot afford it. Chinese people can buy a good
quality sofa in other furniture stores; with the same price as a small table
purchased in IKEA. Price, which had been IKEA’s biggest competitive advantage
in other market, was then an obstacle for IKEA to win more customers in China,
especially when Chinese customers are notoriously price sensitive, even a small
difference can deter them from making a purchase. Moreover, even though the
Chinese customers have accepted the environment-friendly concept and cost-
cutting effort of IKEA, many still complain that no free home delivery and
installation doesn't match IKEA's position as a furniture giant.
This forced IKEA to reconsider its market orientation in order to solve this price
problem. The effective strategy which IKEA has made is manufacturing products
and collecting raw materials locally. Nowadays, IKEA has built manufacturing
factories in China, and get some materials suppliers in China too. IKEA built a
number of factories in China and increased local sourcing of materials. While
globally 30 percent of IKEA's range comes from China, about 65 percent of the
volume sales in the country comes from local sourcing. These local factories
resolved the problem of high import taxes in China. The company also started
performing local quality inspections closer to manufacturing to save on repair
costs.
IKEA repositioned its image in China now, it cut down its price again and again.
The store’s prices are now considered as mid-range in Shanghai, Beijing and
Guanzhou. A typical IKEA’s customer earns about 3,300 Yuan ($399) per month
—the national average salary is 1,000 Yuan ($121)—and one customer buys 300
Yuan ($36) of products per visit. This means that IKEA is not only the rich
people’s brand, it also gets customer group with medium income in China. After
lowering prices nearly 10 percent, IKEA’s China sales rose 35 percent in 2003.
Sales were up 50 percent in the first three months of 2004 alone.
IKEA's global branding that promises low prices did not work in China also
because Western products are seen as aspirational in Asian markets. In this regard,
IKEA's low-price strategy seemed to create confusion among Chinese consumers.
Therefore, when first entering China, IKEA became a luxury furniture brand in
Chinese consumers’ mind.
Most of Chinese customers went to IKEA stores just wander around there. They
cannot afford it. For Chinese customers, especially young people, IKEA’s unique
and functional design style indeed attract them. “In IKEA Beijing, the atmosphere is
more theme park than store. Every weekend, thousands of looky-loos pour into the
massive showroom to use the displays. Some hop into bed, slide under the covers
and sneak a nap; others bring cameras and pose with the decor. Families while away
the afternoon in the store for no other reason than to enjoy the air conditioning.”
(LA Times)
Who buy IKEA’s products in China when IKEA entered China initially? Most of
IKEA’s Chinese customers are 20 to 35 years old, many customers are families
with children or are double-income, well-educated couples with no children.
IKEA’s customers are generally better educated, earn higher incomes, and travel
more than the average Chinese. 
The company realized this and started targeting female customers - 65% of all
customers, aged 30 - 45. Woman, according to IKEA, stand for change in China
and they welcome change. Men are also a part of the target group but more
indirectly as women are the ones in the family having home furnishing interest and
making the actual decision. Many from IKEA’s target group are What in China is
known as “The little emperors” - the generation born into the One Child Policy.
This category of customers has relatively higher incomes, is better educated and is
more aware of western styles. Targeting this segment helped IKEA project itself as
an aspirational western brand. This was a massive change in strategy, as IKEA was
targeting the mass market in other parts of the world.
Yelena Zubareva, Regional Marketing Manager, FWS/OEM SHELL said:
“Becoming an aspirational brand which is blogging with the Chinese middle-class
youth is an unexpected twist in IKEA brand proposition. IKEA demonstrated
courage to get the most relevant changes. By courage I mean all big corporations
are ready to shift production, work with local sources, overcome legal requirements
but not too many of them are ready to adapt a brand proposition that suits the level
of development the market and consumer perception require.”
While IKEA has accepted that to some extent, the main strategy has been to cut
more price.

2.3. Company structure

Ikea’s China mainland stores belong to IKEA group and operate as joined ventures.
But in IKEA Hong Kong and IKEA Taiwan are separate franchises. IKEA chose
different investment methods for China mainland due to the country specific
environment. To meet local laws, it is better to operate its business with joint
ventures in mainland.
IKEA in China belongs to IKEA Group and operates as a joint venture. This
venture served as a good approach to test the market, understand the local needs
and adapt strategies to gain competitive advantage. By finding an appropriate
partner, IKEA can further expand into other market segments in which the
competitor has established it well. In return, Ikea, on the other hand could provide
the partner with the access to reliable suppliers.
Chinese government encourages foreign companies to join with Chinese
companies, enterprise or other economic organizations in establishing joint
ventures in China in accordance with the principle of equality and mutual benefit.
Ikea entered Chinese market as a joint-venture can minimize the risk and get the
cooperative suppliers in the soonest time.
In particular, Ikea’s insensitivity to individual market needs represents another
obstacle to increasing market share. It is easier for IKEA to understand the local
customer needs and satisfy all of them better than the local competition. Local
joint venture partners could develop products with their experience. Joint venture
design is the better choice for expanding a new market with unfamiliar and totally
different culture.
Ever since entering China market, IKEA used two different kinds of entry mode
entered into China, and they are “wholly owned subsidiary” and “joint venture”.
However, currently IKEA only operates the retail stores with the mode of
“wholly owned subsidiary”, and changed all of the stores’ operation of “joint
venture” when primitively entered into Chinese cities. Therefore, nowadays the
only entry mode of IKEA is “wholly owned subsidiary”. 
The entry mode of “joint venture” was only applied by IKEA to enter into China
in two cities: Shanghai and Beijing. The first retail store of IKEA China was
operated in 1998 in Shanghai, and this is Shanghai Xuhui retail store. In the early
entry of IKEA into China, the “joint venture” was used as the entry mode of
IKEA. IKEA accounted for 60% Unit of Shanghai Xuhui IKEA retail store and
another Chinese enterprise Shanghai Shenrui accounted for 40% Unit. Another
IKEA retail store which was used in the entry mode of “joint venture” was
Beijing Siyuanqiao retail store and operated in 1999. And Beijing Siyuanqiao
IKEA retail store is the second IKEA store in China, and IKEA accounted 75%
Unit and anther Chinese enterprise is Beijing Beirui 39 enterprise which
accounted 25% Unit of the Beijing Siyunaqiao IKEA retail store. And after IKEA
firstly and secondly entered Beijing and Shanghai all of the other IKEA retail
stores in China are applied the entry mode of “wholly owned subsidiary”. And
respectively in 2006 and 2010 IKEA bought back the 25% Unit and 40% Unit
from Beijing Beirui and Shanghai Shenrui, and also became the “wholly owned
subsidiary”. Therefore, the only existing entry mode of IKEA in China is “wholly
owned subsidiary”. 
Aiming at the early entry mode “joint venture” of IKEA in China and subsequent
changing into “wholly owned subsidiary”, Ms. Zhu - CEO of IKEA China
explained this with two mainly aspects. First is because of lacking the local
market knowledge in the early entry, and a local strategy partner not only could
help IKEA to understand the market knowledge, but also could together take
operational risk of IKEA in Chinese market. Because for a foreign brand at the
new target market, it couldn’t avoid facing one sort or another problem, such as
overcoming the localization, competition with local competitors……and a
domestic strategy partner could help to improve this disadvantageous situation.
Secondly this could be explained by the Chinese local policy. China’s accession
into WTO was in 2001. However, IKEA firstly and secondly entered into
Shanghai and Beijing in 1998 and 1999. Before China’s accession into WTO the
local policy for protecting the local enterprise had a serious disadvantage for
multinational enterprise in China. Therefore, the domestic partner is very
necessary for IKEA for the first entry into Chinese market, and the earlier entry
mode “join venture” could be very reasonable in the early entry in China. 
“IKEA has already realized the fully invested in China. And as for the future
entry of IKEA in Chinese market, the “wholly owned subsidiary” would be the
only entry mode. And this is mainly viewed to its level of control and flexibility
in the business operation of IKEA retail stores in the situation of gained a ripe
market experience and market knowledge.” (Ms. Zhu – CEO of IKEA China) 

2.4. Market research

“There are many cultural differences between the East and West as we know.
China is a traditional eastern country with long history, however, IKEA is a
typical internationalized enterprise of Sweden. And of course it is necessary for
IKEA to consider the influence of cultural differences in selecting location of
target market in China.
These three decades years with the speeding up of globalization and the
expansion of Chinese policy - the reform and opening-up, China is gradually
accepting the Western cultural, and this is especially obviously in some area of
China, such as the political and cultural center – Beijing, the economic center -
Shanghai, the special economic zones - Shenzhen, and some coastal open
cities…. And IKEA retail stores firstly have already distributed in these relatively
developed cities with deeper Western cultural infiltration, and IKEA China also
has the intention to expand retail stores in other market, and this would be a
gradual process in long term. Only to be confident is not enough, we must be
patient for this”. (Ms. Zhu –CEO of IKEA China)
From the external cultural management perspective, to help Chinese customers
deeply understand the IKEA concept, the company also posts in-house
instructions and design suggestion, publishes brochures, which are distributed in
stores and through mails, and operates a completed company website.
Meanwhile, in order to better understand Chinese people’s lifestyles and their
home aspirations and frustrations, IKEA performs a large number of home visits,
surveys, and group meetings. In addition, IKEA also studies the customers’
comments on IKEA’S product ranges, prices and service levels, and it provides
useful information for the company to find out its target consumers.

2.5. Product development

IKEA designs the price tag first, and that is the principle behind all Ikea’s product
development. IKEA of Sweden, located in Älmhult in the south of Sweden,
develops the IKEA range and gives each product its name. There are about 9,500
products in the range, and the basic thinking behind all of them is the same: to
make well-designed, functional home furnishings available to as many people as
possible.
Ikea understood early on that Chinese apartments were small and customers
required functional, modular solutions. The company made slight modifications
to its furniture to meet local needs. IKEA had faced similar problems previously
when it entered the United States. The company initially tried to replicate its
existing business model and products in the US. But it had to customize its
products based on local needs. American customers, for instance, demanded
bigger beds and bigger closets. IKEA had to make a number of changes to its
marketing strategy in the US.
“IKEA as a Swedish brand was also influenced by different cultural background
in our retail store. And this is mainly reflected in preference of selecting the style
of home furnishings. The contracted Nordic style is gradually accepted by
consumers, however, some traditional western decoration style are very difficult
to be accept by customers, such as the traditional European-style and American-
style. However, the business idea of IKEA is to provide a wide range of home
furnishings, regardless of those decoration styles popular in our city or no. We
sell it all the same. But, believe me as a sale manager, I can responsibly say that
they are really not profitable in our store” 
Sales manager of Xi’an IKEA retail store
Satisfied Chinese customers “show off” psychology
Chinese tend to spend most on their living rooms, which he terms the heart of the
home where many people "show off" and entertain. Many Chinese living rooms
contain a dining table as well, so dining room purchases are also common.
Because Chinese kitchens are generally small, customers spend less on them. At
one time, bedroom furniture and decorations were the least popular purchases in
China, perhaps because the room is the most private and thus least visible place
in the home. According to this “show off” psychology, Ikea provides more living
room furniture in its China mainland stores. But IKEA has recently witnessed an
enormous increase in bedroom sales--especially in Shanghai. Next year, the
company plans to launch a global campaign that targets the complete bedroom.

2.6. Assembling service

IKEA had to adapt its DIY (do-it-yourself) concept to the Chinese realities. Since
labor is cheap there, most of the people don’t feel like assembling furniture
themselves. The DIY mode couldn't work well in China where the customers are
used to the free home delivery and installation. They tend to believe those are the
most basic services that have to be offered by retailers, and are common practices
of many domestic retailers. To Chinese customers' disappointment, IKEA charges
to provide delivery. Whereas in the West, customers look at DIY as a chance to
save money. For this reason, Swedish retailer offers fee-based assembly services
and provides local home delivery and long-distance delivery to major cities in
China. Differences in approach are reflected even in assembly services
description. See how UK version of the website highlights benefits of DIY right-
away:

Whereas English version of Chinese website mentions that only in the very end.
2.7. Promotion
IKEA also had to tweak its marketing strategy. In most markets, the company
uses its product catalogue as a major marketing tool. In China, however, the
catalogue provided opportunities for competitors to imitate the company's
products. Indeed, local competitors copied IKEA's designs and then offered
similar products at lower prices. 
As Ulf Smedberg, marketing manager of IKEA China, said:
“Some furniture stores keep IKEA catalogues in their store and tell customers that
they can reproduce the furniture at a lower price”.
IKEA decided not to react, as it realized Chinese laws were not strong enough to
deter such activities. Instead, the company is using Chinese social media and
micro-blogging website like Weibo to target the urban youth. 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. 
So instead of enforcing legislation IKEA did what every brand must do in such
environment – differentiate itself. By using local microblogging website like
Weibo (a fairly similar platform to Twitter) Swedish retailer targeted audience
that can appreciate brand values. Typically, they are individuals between 25-35
who have relatively higher than average income and are open to Western
lifestyles. IKEA’s social media team engaged in discussions, shared user’s
pictures with newly bought furniture. Additionally, IKEA used this platform for
dealing with customer’s complaints. After all, people want to see a brand that is
always “there” in case of any questions or issues. By communicating with its
audience in such manner, IKEA strengthened the brand and differentiated it from
competition.
IKEA is also known for it out of box thinking when it comes to creating interest for
IKEA and its products. IKEA starts a TV show in which viewers were offered
lessons about home decorating. IKEA have also run many different ads in China, on
TV, newspaper and prints. Themes in campaigns are the same as anywhere else in
the world but with the Chinese twist (be different, break tradition). More humble
advertising, do not stand out very much, friendly, home furnishing solutions,
educate the consumers, offer partnership for the future in new home furnishing
solution. 

2.8. Ikea stores

IKEA stores sell the IKEA product range in room settings and self-service areas
and inspire customers with ideas, hints and tips for smart new home furnishing
solutions. To keep prices low, the stores buy and transport products in bulk.
They’re also located in less expensive areas of their market area.  
In Europe and the US, where most customers use personal vehicles, IKEA stores
are usually located in the suburbs. In China, however, most customers use public
transportation. So the company set up its outlets on the outskirts of cities which
are connected by rail and metro networks. 
IKEA customers help to keep prices low by picking their furniture up at their
store’s warehouse, transporting it home and assembling it themselves.
IKEA offers the same product range in all countries – 8,000 to 10,000 products
depending on the store’s size. But the company adapts the layout of the store,
presentation of the goods, home solutions offered, and prices according to
national economic and cultural conditions. In China, the store layouts reflect the
layout of many Chinese apartments, and since many Chinese apartments have
balconies, the stores even include a balcony section.
3. SWOT
3.1. Strength
 Strong brand image:
IKEA is present worldwide. Globally, it operates 377 stores. However, its products
can also be found on the web and purchased through apps. It has maintained a
strong brand image. IKEA is best known for its affordable products. Despite
their affordability, these products are great in quality and design. They have
attractive designs which makes them popular. Apart from these things its product
range is enormous.
 Low price:
According to World Bank, the cost of labor in China has decreased by 4.7 index
points between January 2012 and July 2014. This makes it cheaper for MNCs to
manufacture goods in China, reduce the cost of operating, which makes IKEA
easier to have lower price in China market and other similar markets.
 Wide range of products: 
IKEA products are sold in stores and through online channels. IKEA calls its design
process, democratic design for it involves the customers. Some of the best things
about it are its vast product range, attractive designs, great product quality as well as
a great distribution chain. All of these things mean a great brand.

3.2. Weakness
 High transport cost from European suppliers:
In 2013 some of the suppliers in China who have been working with IKEA for more
than 10 years have decided to stop delivering products to the IKEA supply chain.
The reason for this has been pressures put by IKEA on the suppliers to further
reduce their prices. However, with increased costs in raw materials and labor, the
suppliers could not break even. Therefore, majority of suppliers come from Europe,
it means IKEA have no choice but import materials. As a result, they have to cover
some costs relevant to import such as tax, inspection… and especially transport cost
because of distance from Europe to China
 Hard to maintain quality assurance all over the world:
IKEA, which offers the same range of products in every country, certainly couldn’t
adapt them for every market. Since typical Chinese apartments are quite small,
IKEA’s furniture was a bit bulky in the beginning. This is why Swedish retailer had
to adjust product sizes so they will be in tune with reality.

3.3. Opportunity
 Boom of the furniture industry:
The healthy economy coupled with rising income and a booming estate market
provided impetus to the growth in Chinese furniture market. After the housing
reform in the Chinese mainland, demand for privately owned homes has been
constantly increasing in both urban and rural areas, leading to a consequent surge in
furniture sales.
 Opportunities to grow and create strong presence in Asia:
The Asian business market is attractive with a lot of opportunities for growth and
profitability. China is climbing to the top of the consumer economy nations. With
China’s huge population and a sustainable economic growth that seeks to empower
the Chinese people, it is no more how China can become the top consumer
economy but when it is going to happen. Several reports available from both online
and print reports indicate an increasing trend in consumer spending in China. The
consumer market is gradually moving from the desire of only Chinese goods,
towards the more heterogeneous consumer market where consumers have a variety
of taste which will include the desire for European styled furniture. Considering
these vast opportunities the market and its environment present, countries like
China and Japan are major players in the Asian consumer market. They exhibit
many of the opportunities and the challenges in the Asia market which IKEA - a
European furniture firm from Sweden is likely to experience in its business
operation in other Asian markets.
3.4. Threat
 Products can be easily copied:
The protection of intellectual property rights (IPR) is a major concern for foreign
investors and may deter foreign investment, particularly in high-tech sectors where
multinationals may feel discouraged from bringing their latest technology to China.
Inadequate IPR protection damages China’s economy, as it makes it more difficult
to effect the transition from low value-added assembly operations to high-value-
added manufacturing, and it also strongly discourages domestic innovation at a time
when the government is spending record sums trying to encourage it (Davies,
2013).
In China many of IKEA designs were copied and sold at a much lower price.
Sometimes, imitators tell their customers flat-out that they can copy any item from
the IKEA catalogue.  Some pirates have even built shops that copy IKEA stores
 Rise of competition:
In the Chinese market IKEA had to compete with a number of rivals both locally
and internationally. The local competitors include Qumei group, Markor Furniture
International, Royal Furniture and Chengdu QuanU furniture Co, whilst the
international competitors included OBI from Germany, B&Q from the UK, and
Hola from Taiwan. All of these competitors exercised a lot of pressure on IKEA’s
initial prices as they were selling at lower prices.
 Local host countries companies have home advantages:
Taxes were high when IKEA first came to China. There are tariffs on imported
goods, VAT, Corporate income tax and personal income tax for foreigners working
in China. This is the reason why host countries companies have lower price of their
product to compete with IKEA.
 IV. CONLUSION
In conclusion, Furniture Retail Giants, IKEA Group brings its unique style and sales
model to China. IKEA in China belongs to IKEA Group and operates as a joint
venture. This venture served as a good approach to test the market, understand the
local needs and adapt strategies to gain competitive advantage. Ikea had to make
adjustments to its marketing strategy as the company uses its product catalog as a
major marketing tool. 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. Also, Ikea had to adjust its store
location strategy as most consumers in China use public transportation. Rather than
the usual stores in the suburbs, Ikea sets up its stores on the outskirts of cities which
are connected by rail or metro networks.
Ikea in China has made all the necessary adjustments to certify that there were
minimal obstacles in its growth, ambitions, and brand promise. To become a well-
noticed brand among the Chinese Middle-class steps as such as to be taken to grab
the attention of the consumers. 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. With that, to grow globally requires sacrifices
and innovation from global teams and listen, respect and learn with an open mind.
As mention as an example above, IKEA entered the Chinese market by learning
from their mistakes and continuously adapt themselves to the changing
environment. Not many companies have the ability to go through trial and errors
because it is very costly when mistakes are made.
 REFERENCE

Book source:
Mark N.K.Saunders, Philip Lewis, Adrian Thornhill, 2000.Research Methods for
Business Students. Harlow: Prentice Hall Company.

Philip Kotler 2002. Priciples of Marketing.

Normann R. Ramirez R. 1993. From Value Chain to Value Constellation:

Designing Interactive Strategy. Harvard Business Review

Anonymous, 1997. Self-managed learning at IKEA. International Journal of Retail

& Distribution Management.

Arnold, Stephen J., 2002. Lessons Learned From the World’s Best Retailers.
International Journal of Retail & Distribution Management.

Retail Business, March 1995: Retail Trade

Reviews Furnishing the world. The Economist,
Nov. 19, 1994
Rashed, Howard S. Foreign entry Mode and performance: the moderating effects
of enviroment. Journal of small Business Management. 01, Jan 2005

Barthelemy, Jerome, 2006 The Experimental Roots of Revolutionary Vision. MIT

Sloan Management Review
Grol, P.C.; Schoch, C., 1998 IKEA: Culture as Competitive. Cases in International
Organizational Behavior. Malden, MA: Blackwell

Calof, J.L. 1993, "The mode choice and change decision process and its impact on
international performance", International Business Review, Vol. 2 pp.97-120.
Furniture and Decoration, 2003 (Magazine) Chinese Furniture Association annual
report, 2005

Internet source:
China through a Lens: Overview, China development gateway, November 2005,
URL:http://www.china.org.cn/english/features/China2004/107000.htm

Chinese furniture market analysis of 2006, Zhou Jimin, 10,

May 2006, URL: http://www.ocn.com.cn/2006058jiaju.htm

Why can China be a big furniture manufacturing base, Wu Chunfang, March 2004,
URL:http://www.szfdi.com/newspaper/200610/zdqs/14002.htm

Foreign furniture companies investing in China, published by AKTRIN, 2002,

URL:http://www.furniture-info.com/1117.htm

Foreign Investment, China promoting Growth. September 15,

2003, URL:http://app.ccpit.org/vhosts/english/IV.htm

Overview of FDI in China [online]. Mofcom Sort: Foreign Investment,28,Oct 2004,

URL:http://www.shandongbusiness.gov.cn/english/php/show.php?id=765

IKEA Group corporate site URL:http://www.ikea-group.ikea.com

Chinese furniture market overview, published by Hong Kong Trade Development

Council, URL:http://www.tdctrade.com/sme/chinese/chinamkt/chinafrn.htm

China's economic development in 40 years, Retrieved from:

http://www.chinadaily.com.cn/business/chinaecoachievement40years/index.html

China's resident disposable income rises 6.5% in 2018, Retrieved from:

https://www.chinadaily.com.cn/a/201901/21/WS5c4569f1a3106c65c34e5a1f.html

China’s Furniture Market, Retrieved from:

http://china-trade-research.hktdc.com/business-news/article/China-Consumer-
Market/China-s-Furniture-Market/ccm/en/1/1X000000/1X002L63.htm

IKEA’s Guide on How to Make in China, Retrieved from:

https://gfluence.com/ikeas-guide-on-how-to-make-in-china/