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University of Economics Ho Chi Minh City

Essay details

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Table of Contents

  • Introduction
  • Company’s managing strategy evaluation
  • Recommendations for action
  • Conclusion

Introduction

Studying international business environment plays an important role in the success of an organization’s global management. This subject not only helps learners equip basic knowledge about global business practices and business trend’s changes but also provides useful methods to research about general factors of the aimed area such as political, economics, religions,… Through this report, which is written based on theories learned from this subject, people can gain experiences of how IKEA overcomes cultural barriers by using intelligent cross-culture management approach and the way IKEA manages its marketing entry strategy in China successfully.II. IKEA’s Case presentation IKEA is a multinational company founded in Sweden in 1943 and has around 412 stores all over the world. IKEA mainly manufactures and supplies ready-to-assemble furniture, kitchen appliances and home accessories. Since 2008, IKEA has become the world’s largest furniture retailer compared with competitors in the same field.

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Beside, IKEA is also famous for its modernized designs and eco-friendly products.In 1998, IKEA entered the China market, one of the most potential business market in the world, and opened the first retail store in Shanghai. After placing the first store in Shanghai, IKEA intended to expand in the Chinese market by launching one retail store annually in economic centers of China. By 2016, IKEA has 25 stores in China in total. Most IKEA retail stores are distributed in large-populated and huge economic promising cities such as Beijing, Shanghai, Guangdong,… and others are located at other cities across China. IKEA’s ambition is to exploit the vast consumption market and seek for foreign investment. With its opportune and suitable adjustment in way of management, IKEA has won an outstanding success in China.However, before gaining success in China, IKEA has faced several problems due to the inappropriate standardised strategy and unhealthy competitive environment. IKEA is well-known for its low-price strategy, but when coming to the Chinese market, its price becomes unaffordable for most of the local people. Due to the cultural differences, IKEA needs to change its product customization in order to persuade local people needs. Moreover, the possibility of being duplicated the copyright by other local rivalries is high because in China, copycat is sill a thorny issue.

This report will clarify difficulties when entering the new market and adjustments in strategic management and solutions for these difficulties of IKEA that helps IKEA develop and gain profits in China market.IKEA has released its own problems in management process and has attempted to overcome challenges thanks to apply knowledges and skills related to international business management into practical situation. Through careful market research about environmental factors of the local market and adaptive market strategies, IKEA now has become one of companies that has the biggest market share in furniture manufacturing in China.III. IKEA’s Case analysis1. Problems and solutions discussionIKEA’s entry in China market has met 3 main problems:Economic issueOne of the main problems that IKEA facing when entering the China market is its uneffective low-price strategy, which leads to the unprofitable of local retail stores though its China’s revenue increased the year before. IKEA has applied its strategic price model in Western countries into China which creates confusion among local people. IKEA keeps the business idea of offering home furnitures at a low price so that people are able to buy. However, due to economic environment in China including living conditions and purchasing behavioural conception, its price was considered as too high in China while it is on the contrary compared with Western countries. In China, people tend to buy products at local stores because the price is low and furniture style suits with local taste.

With the same price, they can buy good-quality product at some other local stores rather coming to IKEA’s store. After a few year entry, IKEA has been positioned as high-end brand in the China market.Therefore, to beat the challenge, IKEA has made some changes in their strategic management. IKEA has built some manufacturing factories in China and assembled source of materials locally. It can produce a mass number of products which will reduce the cost of production, the import tax as well as transportation cost in China. Simultaneously, it also lowers repair cost thanks to quality inspection centers near manufacturer. IKEA altered its marketing strategy by re-targeting the market segmentation. The company’s target consumer is upper middle income class so that more people can afford the price. Also, its ideal consumer is female genre who have the tendency of buying and collecting things in their own house because the company believes that these are ones who mainly make decision in family matters especially in home decoration and furniture. It also aims at young generation aged 25-35, who are easy to be influenced and open to new trend particularly in accepting foreign company product style. Besides, this group is also the main strance of the national economy and is the highly consuming group.

IKEA repositioned its image by cutting prices many times until the price is affordable for the local consumer.Culture DifferencesChina’s culture has a great disparity with Western countries culture which mostly affect purchasing behavior of China people. IKEA knows that cultural issues can lead unexpected consequences, therefore, it has made some actions to self-protect.

In Sweden, the DIY strategy is highly appreciated due to its money- saving feature and enjoyable process of DIY, however, in China, thanks to the inexpensive labour cost and inconvenience of assembling selfly, Chinese consumers prefer assembling services. IKEA uses location strategy, building retail stores near to the city-center, so that every Chinese, from middle man possessing car to normal people can come to stores easily by using the public transportation system. It applíe home-delivery service in long-short distance with a small fee through public system which would be cheaper and more convenient for the customer.Moreover, in order to make Chinese consumer better reach IKEA’s product, it also delivers catalogue publicly through email, hand-delivery in the store and online website. Besides, the company runs advertising campaigns through TV product placement, the social media (Weibo, Wechat,…) and show sponsorship. This method can increase the customer’s reach and expand brand’s name locally. In addition, though these advertising channels, IKEA can attract customer not only form the age ranged from 25-35, but also other younger and older groups owe to the strong impact of advertising method and message wanting to transmit to the audience.Many Chinese have the habit of going to the store and leaving without buying anything, therefore, the total visitor of IKEA store in China is usually higher than other IKEA stores around the world. In this case, IKEA has expanded the store’s area with larger capacities and wider aisles so as to be able to contain the larger number of visitors and give them a sense of enjoyment which could raise customer’s loyalty to the brand. Likewise, as a result of the over-population in city-center of China, the house average size is much smaller than that of Western countries, therefore, to meat the local’s demand, IKEA has come up with the idea of producing and distributing products with more storage containers and facilities but smaller design.Country specific factorsIn Asia countries, especially in China, legal implication is laser-focused and a noticeable matter to foreign companies who want to step into China market. To meet the local laws, IKEA has made a joint venture with a local partner and opened the first retail store together by renting land from government. Joint venture with the local partner is considered as a perfect step-stone for IKEA to expand into the China furniture market. It helps IKEA bypass some restricted law for new comer, reduce the local competitive and political risk and save time to find cooperative suppliers. Moreover, local joint venture partner can satisfy the customers with its traditional design styled products while support IKEA better understand local taste and need.Another important problem of doing business in China is the poverty right. In fact, most of the local companies in China copy the business’s ideas of other foreigners companies and manufacture the same products with a lower price, though, China’s government still have not done anything to stop this illegal action.

Therefore, IKEA has to face with the threat of being duplicated due to the freely open catalogue. To solve this problem, IKEA has launch a new strategy which helps the local consumer decorate their house rather than only sell the products. This strategy not only helps the customers increase their interest on the IKEA’s brand but also prevents other local firms from copying the product’s idea due to IKEA’s characteristics feature and professional skill which is not published.

Company’s managing strategy evaluation

The strategies that IKEA has applied into Chinese market play an important role in IKEA success. These not only helps IKEA break market-new-entry barriers but also develop IKEA business practices in China. Moreover, these are long-term strategies and could partly prevent market changes in China market in the future.IKEA has changed its principal strategy, which is the low-price but high quality product, in order to develop its business and attract the local customer’s awareness. IKEA keeps cutting cost in a long time and re-target the market segmentation so that its price will affordable for local people compared to their economic condition. The success of this strategy is based on 3 main reasons: high demand of local customers, good brand reputation, high quality products and wisely location choosing method.Moreover, the company adjusts its marketing strategy in location and advertising management so as to adapt to the local market cultural features. Also, these adjustments in marketing strategy, ie. home delivery, assembling service, unique self-decorating strategy,… which wholly differs from the local furniture companies, could appeal to the Chinese consumers and build a good reputation in their eyes.

Recommendations for action

Word-of-mouth strategy IKEA can use the word-of-mouth strategy, a flow of communicating among users of a product and service to raise local consumer’s attention and maintain good relationship with them. Basically understood, business uses this strategy to affect customer’s mind and expand quickly the product’s information through user without spending too much on marketing budget. The word-of-mouth strategy is a prominently clever and natural way of advertising because it does not make the commercial purpose too obvious and the branding process becomes ostentatious. In addition, this advertising is based on the experience of the people and there is no genuine evidence proving that it is triggered by someone.Company’s idea delivery IKEA could do business with famous communication companies such as Alibaba, Taobao, Iqiyi,… and add up its product’s online payment on these online website so as to reach delivering their core value to local people more easily. IKEA could seek for opportunity to cater for local customers by placing products in public canteen, designing special commodities such as chopstick holders and other items. Providing bus transportation system in large-populated cities would help attract more Chinese as well.IV. Implications for multinational companies for China’s entry If a multinational enterprise wants to succeed in a Chinese market or in another countries, there are some necessary aspects that needed to be considered. Firstly, China has a long-lasting history culture and Chinese people possess traditional and quite controversial mind.

Although China welcomes international trade with multinational companies, China is indeed an economic powerhouse with high market share in the world market. Chinese does not accept the novels and still prefer the traditional style. So, in order to succeed in the Chinese market, multinationals need to consider the cultural differences between China and home country, figure out important differences and make appropriate changes in the strategy. Then, the business would clarify a smart and careful market penetration strategy including grasping the domestic tastes, understanding the local living style and using business advantages to place a position in the customer’s heart, the stepping stone for the future development. Secondly, the foreigner companies should take local economic aspect into account. Purchasing power in each country is different, therefore, the companies need to carefully research local customer’s economic conditions and provide a suitable price strategy after that. Considering GDP index and GDP per capital would be a good method for adjusting the product’s price. In addition, appling the same product’s standard in every market while reducing price in China market but still gaining profits by local location in manufacturer and distribution would score point in Chinese customer’s eyes and better prospect market strategy application.Thirdly, legal aspect is also a significant factor contributing to a new entry success in China.

The enterprise needs to make sure to comply to China’s law especially in safety requirements if that enterprise want to continuing doing business here. Fourthly, building an advisable cross-cultural management in managing managers and employees’ s behaviors and working styles is prominent. The multinationals should provide training courses for the labour forces about cultural differences and ways of conduct in order to help these labours better aware of the importance of culture and cleverly sole cultural situation. Besides, the companies need to specially provide managers with mutual strategy, clear objectives to adapt Chinese cultural comprising of particular responsibilities and employee’s role.Finally, multinational company should anticipate possible influences and potential market changes in China environment and establish backup plans for any situation.

Conclusion

In conclusion, this essay generalizes problems and difficulties IKEA has suffered when first entering China funiturering market and approaches carried out by the company to resolve these problems. IKEA gets trouble in three main aspects: economy, legal and cultural, however, IKEA soon discovered its own problems and made fitting modifications in management process to fit with local market. Besides, this essay also suggest some other solutions for IKEA to better progress in Chinese market and some noteworthy implication for other firms wanting penetrate this promising market.

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