Turnitin Sample
02-06, 2010
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Turnitin Sample |
In China, the retail market for furniture is highly competitive. There are thousands of medium-small furniture enterprises that take the majority of the overall market. However, there is no any enterprise whose market share can exceed 1% at present. It is known that for Chinese home furnishings design, copy and imitation are the main streams in the furniture market. The lack of design ability is the main obstacle for its further development. With the development of foreign furniture sector, furniture brands are becoming increasingly important for the consumers. There are many famous furnishing brands in China such as MeiKe Xinjiang, Guangming, Heilongjiang, TianTan Beijing, Richman and Land Bond Guangdong, XiLinMen Zhejiang and so on. As a result, the furniture price was declining in the past years. In summary, on one hand, Chinese furniture industry market #p#分页标题#e#will offer great opportunities for the advantageous companies, but on the other hand, some small enterprises with weak competitiveness will be washed out in the future. In the economic globalization world, furniture manufacturing as typical labor- intensified industry is shifting to some developing countries. For example, China is one of the most suitable markets among other countries. China has many advantages in the big market size and low labor cost. According to the data, the total domestic demand increased above 26% to 226.1billionRMB from 2004 to 200Thesis is provided by UK thesis base http://www.ukthesis.org/
5. However, Chinese are famous for their reluctance to spend money. They have the highest savings rates in the world, on average 30% of their income. At the same time, the domestic consumption per capita is around US 17 dollars, only amounts 1/18 of developed countries. As a result, there is a big market with great potential in China. Marketing analyze Some foreign enterprises want to sell their products in the huge #p#分页标题#e#Chinese market while others may concentrate on exporting what they produce to outside China. As a result, it is an important strategic choice for foreign enterprises who want to do successfully business in China. Doherty (2007) proposed that market attractiveness factors affect a foreign retail enterprise’s decision to enter a market, including retail structure and regulation. Retail structure include the retail environment, site location, IT infrastructure, the potential price positioning of merchandise, and an estimation of sales potential in the short-, medium-, and long-term. Furthermore, the regulation of the retail market in the form of import duties and trade relationships has a major impact on market selection for foreign retailers. As we know, a mass-market retailer will seek markets with a large population. Generally speaking, the market for large international furniture retailers is domestic market. In China, low labor cost, large consumer market and reduction of import tariff rates offer great opportunities for foreign enterprises. In addition, Wrigley (2005) stated that transnational retailers should be aware of the local variations in cultural tastes, norms and pReferences. At the same time, compared to manufacturing firms, retailers experience high levels of consumer contact. In other words, foreign enterprises with a local furniture market focus should call #p#分页标题#e#for a high level of local adaptation. They should pay more attention to the local furniture market conditions and become more prepared for the changes in the local market. Furthermore, because of the high competition in the domestic market, foreign enterprises need to establish the necessary business network in China. At the same time, products and services of foreign enterprises should much ahead of domestic competition. As millions of Chinese people have joined the ranks of the middle class, they are willing to invest more and more money in their apartment in furnishing and decoration. Meanwhile, Chinese consumers call for well designed and high quality furniture brands. The furniture industry is very competitive between foreign brands such as Ikea, B&Q, and local brands like Homes Orient. How to choose the style of products is one of the key questions for foreign brands. The magazine <<Furniture and Decoration>> provided some information about Chinese consumers’ expectations of furniture needs in 2003. “About 80%of interviewees considered furniture design should be a functional emphasis based on people’s needs. 44%of them would prefer buying assembled furniture which can be moved easily from one place to the other. The price is not the only important factor. (It is related to the power purchase), about 52%of interviewees hope the pThesis is provided by UK thesis base http://www.ukthesis.org/
rice can be lower, 48%of them ignore the price, and they pay more attention to the furniture’s function and design style. Environmental concept influences the consumers’ behaviour too, 60%of interviewees required the furniture should be made of clear material that is no poison and no damage for healthy, only 6%of them considered this environment factor not important. Wooden furniture is the most popular in the consumer’s mind. 42%of interviewees prefer wood furniture, 38%of them like furniture made of glass, leather and fabric, other material accounted for 20%.36%of interviewees normally change their furniture every 10 or 15 years, only 5%of them want to keep their furniture for 30 years.”( Yihong Li,2007) In all, China’s #p#分页标题#e#furniture industry is at the early stage of its growth and has great potential despite the problem of instability in industrial structure. case study –IKEA:One successful example of FDI in China The IKEA saga The IKEA Philosophy Ikea was established in 1943 by Ingvar Kamprad in order to sell pens, wallets and picture frame. In 1958, Ikea was introduced as a leader of Swedish Furniture Company. They started from producing local furniture by local manufacturers and gained positive attention from customers. Later, they began to create furniture for flat packs and self-assembly in order to reduce storage space which is the prominent style of Ikea. They are also expanding the business line such as restaurant and kitchenware. Ikea, the largest furniture display in Scandinavia, opened the first store in Almhult and Sweden. Then they opened more stores in other countries such as Norway, Denmark and Germany. They do not only offer inspiring home furnishing solutions to customers while keep the prices affordable for people but also locate in less-expensive areas in different countries. Nowadays, Ikea is the major retail company that experience in 36 countries around the world. Though, there are 279 of IKEA stores in 36 countries, Ikea group owns 247 Ikea stores in 24 countries and the rest is managed by franchisees in 16 countries. Ingvar Kamprad’s (2007) will is to maintain what he called the “Ikea philosophy”. He proposed his wills in the “The Testament of a Furniture Dealer” in 1976. He wrote about the product range as their identity and the ambition to offer a wide range of well-designed, functional home furnishing products at low prices that many people will be able to afford them. At the same time, he also emphasized the “Ikea Spirit”, which is the readiness to take responsibility and help out; the art of managing on small means; cost-consciousness, humbleness, undying enthusiasm in work and the wonderful sense of community through thick and thin. In addition, he meant that the true Ikea spirit should still be found in every one of workplaces. Furthermore, the Ikea spirit must be cultivated and developed to keep pace with the times. (Ingvar Kamprad, 2007). IKEA in China IKEA is considered as retailer internationalization that expands #p#分页标题#e#into Chinese market because of supporting environments such as political, social and economic conditions as well as transaction advantage. In China, Ikea get success in marketing and branding itself. The existing five stores of Ikea are located in Shanghai, Beijing, Guangzhou, Chengdu and shenzhen. The new store is scheduled to open in Nanjing in 2008. Furthermore, giant Ikea has announced that it will speed up the expansion in China from its 2008 fiscal year. Ikea’s name in Chinese, "Yi Jia," means "comfortable home". Ikea Group is a franchisee of Inter Ikea Systems BV. Ikea’s mainland China stores belong to the Ikea Group and they are operated as joint ventures. According to Chinese regulations, all foreign retailers should have a local partner before 2005. The franchisee policy help Ikea explore an unfamiliar market rapidly without many troubles. Because Chinese partners have certain strengths such as local government support, brand reputation, land, capital, distribution, #p#分页标题#e#and access to local suppliers. As a result, Ikea’s first two stores in China were operated as joint ventures. With the change in regulations, Ikea opened its first wholly owned store in Guangzhou in 2005, setting the trend for all future stores. In this way, Ikea has complete independence on how to run the company business. Ikea entered China in 1998 when it opened its first store in Shanghai, and in early 1999, Ikea opened its first Beijing store in the city's northern Chaoyang district. In 2003, a new, redesigned Shanghai store instead of the original one. The new Puxi district outlet is now Ikea’s second-largest in Asia, at the same time, it is four times larger than the first store. On the opening day, Shanghai's new Ikea offered more than 7,000 products and received around 80,000 visitors. More then 6,500 hotdogs were sold its food centre. According to the local media, Ian Duffy, Ikea's president for Asia Pacific division, #p#分页标题#e#says that Ikea is carrying out a three-phase strategy in China, which includes a period of landing, setting up standard stores and then increasing the rate of opening of new outlets. Meanwhile, Ikea will keep an expansion speed of opening one or two stores each year. IKEA's brand management and analysis Global compete superiority of IKEA For Ikea, the one outstanding brand advantage is the rapid development of the company an important factor. The establishment of excellent brand, today's regional economic integration, global strategy to implement the product. To achieve this objective, the core of the IKEA brand in enhancing energy integration efforts in the promotion of the brand has done a lot of effort. IKEA's brand of energy is the core of the organization and product brand system operation process, the formation of other organizations do not have the presence and product strengths and market competitiveness, it is also the advantages of the brand among the most significant part of the . IKEA brand to form the core of energy from the source can be divided into four parts: management advantages, cultural superiority, product, brand style(Franklin, Len et al. 2005). Core of IKEA brand management The success of IKEA brand in China largely comes from its brand value to meet the needs of the target consumers, and consumers get the intrinsic value of the resonance and, ultimately, consumers set up loyalty. At the same time, the intrinsic value based on consumer demand for in-depth understanding and grasp, and continually adjust their brand positioning and business strategy, so IKEA can continue to improve their competitive advantage(Gredig 2001). Factors affect Ikea's performance in China Entry modes Foreign firms that entered China were rewarded with incentives in the first few years after 1979. For example, foreign firms#p#分页标题#e# were granted a wide variety of privileges in terms of size of investment, concessions in tax and market access. As a result, these privileges and policies should translate into better business performance in Chinese market. The foreign firm’s mode of entry affects the degree of competition in the host country. As I mentioned above, the Swedish furniture retail giant entered China in 1998. Because of lacking of knowledge about Chinese market, Ikea has adopted an advanced policy that is joint ventures for its globalization. At first, Ikea’s mainland China stores are operated as joint ventures. This kind of model is suitable for entering the new Chinese market. Joint- ventures as an entering model are able to reduce the local competitive and take advantage from local government. In China, it is also quite usual that a company has to build a stable, long-term relationship with business partner in order to show that one can be trusted. Ikea can understand the consumer culture and products that suits the local market. After seven years’ entering into Chinese market, Ikea has become more familiar with the characteristic of Chinese regional market and the local culture. With the change in regulations, Ikea opened its first wholly owned store in Guangzhou in 2005. From then on, Ikea has complete independence on how to run the company business. As a result, they have a higher the level of efficiency than joint ventures in the daily operations. Location advantage Since the economic reform in the late 1970s, China has implemented many special locations across the country. In order to attract the foreign investment, these designated cities offer a wide variety of conveniences and incentives for foreign firms. (46). As part of the reform programmers in 1978, #p#分页标题#e#special economic zones (SEZs) in Shenzhen, Shantou and Zhuhai were established. Meanwhile, subsequent fourteen coastal cities were open up to foreign investment in 1984. Furthermore, the State Council announced in 1997 that tariff and import taxes would be levied on imported equipment and raw materials for MNCs in the no prioritized location. As a result, more and more foreign firms established business in these zones. More than 200 multinational enterprises have invested in over 400 industrial projects in SEZs. Because of their proximity to transportation hubs and major economic countries, the economy in SEZs is also developing most rapidly in China. Meanwhile, MNCs located in the municipalities of Beijing, Shanghai, and Tianjin and those located in coastal cities had a higher level of profitability than MNCs located elsewhere in China. In a word, location advantages are important in China. The existing five stores of Ikea are located in Shanghai, Beijing, Guangzhou, Chengdu and Shenzhen. These regions are profitable locations, as well as the open coastal cities.#p#分页标题#e# In these regions, infrastructure and transportation are better and the market is more open. Cultural influence As I mentioned above, China is the world's largest social system and it is not familiar to the Western firms now operating there. China has its own unique culture which totally different with the western culture. This kind of culture affects customers’ purchasing behavior. In order to adapt the local culture environment and cater to local customers, Ikea has done a lot of market research about what Chinese consumers want. For example, in some special occasions sucThesis is provided by UK thesis base http://www.ukthesis.org/
h as traditional Spring Festival, Ikea introduced some special product series to Chinese consumer. According to the traditional animal year, 2007 is the year of Pig and the pig pictures means prosperity and fortune. Picture below is the plate set sold during the Spring Festival time in 2007. Ikea also has adapted its do-it-yourself (DIY) assembly concept to China. In other words, customers have to do much by their own such as pick up the furniture from the self-service area, take them home and build them by themselves. However, unlike some western consumers who actually enjoy assembling the furniture, Ikea’s DIY products are not appreciated in China.#p#分页标题#e# Because labor is cheap in China, Ikea’s assembly services are more welcomed in China. [pic] Figure 4 - 1 the plate set sold during the Spring Festival time in 2007 Source: http://home.sh.soufun.com In China, different kinds of the SULTAN HOGBO series are divided into categories of single, double, standard double and big double. In Sweden, people always put two single-sized beds together to form a double-sized bed. At first, Ikea stated that this kind of design ensures a good night sleep free from the disturbance by the person you share the bed with. However, this idea is not appreciated by Chinese consumer. According to Chinese traditional culture, couple sleep separately means a bad relationship between them. It is also believed to bring bad luck. In all, different understanding of culture may lead to implicit conflicts in global business. If businesses want to perform successfully, cultural sensitivity must be at the heart of doing international business. As a conclusion, Ikea has both been able to adapt itself to the local market and also keep a certain level of standardization(Ying Pan,2007). Marketing Mix - IKEA on the Chinese market Price As we know, #p#分页标题#e#price is a significant element of communication between customer and seller. A number of factors have an impact on the price, including market share, material costs, product identity and the customer's perceived value of the product. Ingvar Kamprad (1976) claimed that the first rule of Ikea is to maintain an extremely low level of prices with a meaning. He argued that Ikea should always be a substantial price difference compared to their competitors, and Ikea should have the best value-for-money offers for every function. In fact, the pricing model play an essential role to create and capture customer value. According to Ikea website, low prices are the cornerstone of the Ikea vision, business idea and concept. The basic thinking behind all Ikea products is that low prices make well-designed, functional home furnishings available to everyone. Ulf Smedberg, marketing manager of Ikea China, described Ikea’s mark as "to provide smart solutions for homes by implementing three criteria: good design, functionality, and low price." When Ikea first entered China, the products impressed customers as innovative, fashionable, and expensive. At the beginning, Ikea added a lot of import tax and transportation cost. Ikea was a middle-class brand in China. Most of Ikea’s products sold in market were imported. Ikea’s target market fell into the young, professional couples. These people have #p#分页标题#e#top- tier urban income with 5,000-8,000 RMB per month. Furthermore, they are generally better educated than the average Chinese. However, most of the consumers considered the products were too expensive for them. As a result, the company lost its worldwide image of affordable. The company decided to compromise the prices for Chinese and slashed down the prices. The Ikea’s on sale campaign was astonishing. Ikea Shanghai store has reduced the price of its products by 50% from 2000 to 2007, even as Chinese consumer incomes have increased. As a result, the total sales have remarkably increased 345% during past 8 years. For instance, a set of flower picture that was sold at 19 RMB in 2000 only cost 1 RMB in 2004. The new target market fell into Chinese consumers with a monthly income of 3,500 RMB. In fact, most of Ikea customers were 30 to 45 years old with high incomes in the past. After the reform of price strategy, the stores now attract an increasing number of young customers. Many customers are double-income and well-educated couples with children. Generally speaking, compared to the national average income about Yen1, 000 ($121), a typical Ikea customer earns about Yen3, 300 ($399) per month. The consumer on average #p#分页标题#e#buys Yen300 ($36) of products per visit. After several rounds of price reduction, the products now considered mid-range in China. In China, reducing prices seems to be the most effective way for the company to increase sales. In order to lower prices of its products without sacrificing the quality, Ikea has taken many kinds of methods. One of the most effective ways is to source locally. As we know, furniture manufacturing is a typical labor-intensified industry. China has many advantages in the big market size and low labor cost. At present, more than half of the products sold in China are manufactured locally, compared with about 23% in Ikea stores overall, with the rest made in Poland and Sweden and other countries. Furthermore, Ikea has taken other Thesis is provided by UK thesis base http://www.ukthesis.org/
ways to reduce prices immediately to its Chinese customers. For example, from September 2006, Ikea China has switched to cheaper, thinner and smaller brochures instead of the Swedish furniture retailer's traditional phone-book-size annual catalogue. The booklets will be distributed five times a year and each with a different theme. The switch from the thick catalogue to the booklets cost less to produce, and it help Ikea reach more consumers. It will expand its distribution from 40% to 80%. Meanwhile, because of the #p#分页标题#e#price competitiveness of Chinese products, the average Ikea price was decreased by 6 percent on a year-on-year basis in 2004. According to Ulf Smedberg, if the launch goes well in China, parent company Ikea International AS may consider expanding the practice to other countries. In order to attract consumer, Ikea also has cut prices in China to some of its lowest in the world, for example, the company is offering the lowest price for more than 120 kinds of goods, such as 12-cent ice- cream cones and $1 place mats. Ikea outlets pushed prices on some items as low as 70% below prices in many western countries. For example, the price of an Ikea's single-seat Ektorp armchair is $112 in China. It is 67% cheaper than the same one sold in the U.S. Based on the study, we can see that Ikea consider price as an essential part in the marketing strategy. The company offers good designed products with affordable prices. Meanwhile, the#p#分页标题#e# entry of Ikea to Chinese market gives the company transaction advantage to produce locally. Overall, Ikea’ s pricing policy is cost oriented and customer-value oriented. In my opinion, Ikea’s success in the world is based on the idea of keeping the cost down between manufacturers and customers. Place Distribution is known as the place variable in the marketing mix, it is often a much underestimated factor in marketing. Distribution includes getting the product from the manufacturer to the customer. An efficient distribution plays a key role to keep the price low. Ikea has 28 distribution centres in 16 countries supplying goods to Ikea stores around the world. The main task of these distribution centres is to ensure availability of products from supplier to customer, at the lowest possible cost and with effective route. Distribution in China is the fastest growing organization in Ikea’s distribution network. Two logistics centres in Shanghai were approved by Chinese authorities. Phase 1 was completed in Song Jiang District September 2005. This is the first full-size international-standard distribution centre in China. Furthermore, it is the largest Automated Storage Retrieval System by any foreign enterprises. According to David Hood, director of Ikea Asia-Pacific distribution services division, the $150-million facility can hold 300,000 cubic metres of products and it will be Ikea’s largest in the Asia-Pacific region. Ikea is building the second one in#p#分页标题#e# suburban Feng Xian district, close to the deep-sea Yangshan port. The distribution centre will also be the biggest foreign-owned warehousing facility in China. Generally speaking, in order to keep prices low to consumer, Ikea stores are located in less expensive areas in western countries. However, the locations of Ikea stores in China are built in downtown areas. For example, Ikea Beijing is built in the one of the most expensive districts, Zhaoyang district. Other stores in China are also located nearby the downtown areas or city centre. There are two main reasons. Firstly, Chinese people have limited private cars, would be prefer convenient transportation to the store. Secondly, from a cultural perspective, Chinese consider that shopping in big stores in city centre is a modern phenomenon. The shopping environment is very important to Chinese consumer. As a result, Ikea had built stores near public transportation lines that offer local home delivery and long-distance delivery to other cities in China. Ikea Shenzhen was opened in April 2008. Located at European City, Nanshan district, Shenzhen, the general layout is almost the same as other Ikea stores in the world. For example, the #p#分页标题#e#shop floor design of Ikea forces consumer to walk through every single display area. Total area of the new store is about 30,000 square-meters; consist of 66 different model rooms. It offers more than 7,500 practical products to the customers. At the same time, there are three complete homes in the Ikea Shenzhen European City store. Compared to common model rooms, those homes have all important elements, including living room, bedroom, dining room and bathroom, which can offer an overall home solution to customers. In addition, there are Swedish restaurants and Chinese restaurants in the store, With 660 seats, delicious food and unlimited refills of coffee. Although Ikea has succeeded in the big cities like Beijing and Shanghai and Shenzhen, it is not easy to cover the distribution network from North to South. New locations to place stores in other cities are new challenges for Ikea. Dalian and Wuhan are main second level cities in China. In all, Ikea has to established efficient and economic network of logistics and distribution in Chinese market. Promotion The promotion mix targets raising brand awareness and communicating the benefits of the products with customers. The company uses the set of tools to persuasively communicate customer value and build customer relationships. Promotion in the local market has to adapt for cultural reasons.#p#分页标题#e# Generally speaking, there are four common promotion mix tactics: Advertising, Personal Selling, Sales Promotion and Public Relations. In this section, I describe the four key elements of the promotional mix in detail. Advertising focuses on brand recognition and identity. It plays an effective role in Chinese market. Ikea always advertises on TV or on the magazines of its upcoming sales and other promotion activities. Ikea also produces brief TV spots that show living areas before and after Ikea’s magic touch. Generally speaking, Chinese consumers will either completely replace everything or do nothing about the interior design. Ikea’s ‘Small changes, a refreshing new life’ advertisements introduce a new message to Chinese consumers. The advertisement conveys that it is good to make small changes step-by-step. Ikea also operates a detailed website. The internet increases the options that allow customers to provide quick feedback. On the webpage www.ikea.com/cn/zh/, customers may look for the Ikea products and other services such as delivery service and store information. The webpage offers some information of what consumers are looking for. Every store has its own webpage where is presented its offer. Some specific customer service is offered in the website. For example, consumers can find the food in the store and transfer bus to every Ikea store within the city. The picture below shows the bus route and timetable in Shanghai store. Findings and Recommendations Findings (1)Strengths Grol and Schoch (1998) argued that Ikea’s strength today comes from their mastery of three key aspects of the value chain: unique design capabilities, unique sourcing, and tightly controlled logistics. In other words, Ikea is able to produce products that are distinctive enough to provide market recognition, secure sourcing at profitable levels in the long term. In addition, Ikea may reduce inventory costs through regional warehouses which located close to the stores. In other words, #p#分页标题#e#the company offers good designed products with affordable prices. At the same time, the customers still want to come back for more. The well-designed, functional and simple style is now appreciated by Chinese people. The fact that Ikea targets all age groups and households makes it more attractive to Chinese consumers. In addition, Ikea also maintains completely control of its design and the supply of products across the world. As a result, the company has a product portfolio that caters for Chinese consumers’ lifestyle and budget. (2)Weaknesses Although Ikea has some favorable strength, the company clearly has some weaknesses. In Sweden, America and many European countries, Ikea is a typical furnishing supermarket. The products are both good quality and low price. Even students can buy the Ikea products. However, Ikea is still considered as a luxury furniture brand in China. Ikea’s market orientation is totally changed in China. With China’s fast growing economy, although there are an increasing number of middle class consumer groups, they are just around 11% of the total population. Only a small part of Chinese people can afford to buy them. At the same time, Ikea is also very reliant on European market, with 82% of stores located in this region. In China, although spending power is increasing, it remains relatively low. In addition, although more and more products are designed for the Chinese market, Ikea still offers a very similar product base in the world. Ikea will suffer from a lack of innovation. To some extent, this is because of the lack of fresh blood in the company organization. For example, Ikea hires the same genre of people leads to inhibiting diversity and creativity to meet changes in the huge Chinese market. At present, Ikea is something new and fresh to the Chinese people. In the long run, Ikea is just too far out of the mainstream Chinese traditional culture. The company may have difficulty in meeting customer expectations of service #p#分页标题#e#as well as price in the long term. (3)Opportunities Since Ikea has expanded successfully in European countries, Ikea also has seen great expansions upon its entry into the Chinese market. In my opinion, there are still many opportunities that Ikea can take advantage of to further ensure the continued success in Chinese business market. Ikea firstly open its stores in metropolitan areas like Beijing and Shanghai. It is a wise decision for Ikea to gradually test Chinese market. At present, as millions of Chinese people have joined the ranks of the middle class, there is a growing demand of consumers who call for high- quality and well designed furniture. Especially people who living in the suburbs and metropolis also like to buy foreign products. Ikea has an enormous opportunity to establish business in both suburbs and metropolis locations. For example, Tianjin is one of the most progressive and rapidly growing cities in China. The city will offer a golden business opportunity for Ikea in China. In addition, there has been an increasingly demand for electrical products in the past years. The strong growth in the electrical market was fuelled by high demand for flat-panel TVs and the introduction of High Definition ready TVs. In the author’s opinion, the introduction of electrical products would prove complementary to Ikea's #p#分页标题#e#range of furniture. Ikea is able to use its stores to showcase room sets. At present, more and more Chinese consumer would like to improve their homes and to buy into the Ikea concept. In all, with a strong brand reputation, plentiful space for storage, it is a useful additional revenue stream for Ikea. (4)Threats At present, Ikea faces one key threat in China: domestic competitors always copy technologies and products fromThesis is provided by UK thesis base http://www.ukthesis.org/
Ikea. Unlike the optimum competition from UK-based B&Q, the largest DIY retailer in Europe and the third-largest in world, there are too many Chinese furniture companies that counterfeit Ikea products. They often introduce similar product ranges at low prices. As we know, Ikea opened its first store in China in 1998. Aika, one of its biggest local competitors, uses a brand name that is disturbingly similar to that of the Ikea. In addition, the two companies’ local brand names are almost the same. Ikea’s Chinese name is YiJia, meaning “a comfortable home”. Aika’s Chinese name is AiJia, meaning something “a love home”. It sounds almost the same as Ikea’s YiJia, but adds the “love” element. In summary, I make a table below to show Ikea’s SWOT Analysis in Chinese market. Since the economic reform in 1978, China has become one of the large economic countries which have the most development potential. Generally speaking, due to the rapid economic growth, the Chinese market offers great business opportunities to foreign investment. For example, China GDP growing at around 9.6% a year since 1979 and now it reach to the fourth #p#分页标题#e#largest economy in the world. According to the economists in the Beijing Normal University, China's marketization level has reached 73.8% in 2003, already exceeding the market economy critical level of 60%. As the third largest country in the world, China has considerably geographical variations from east to west and south to north. Along the South China Sea, the East China Sea, the Yellow Sea, and the Bo Sea, east China has approximately 14,500 km of coastline, with ports and harbours for sea transportation to many developed economies. As we know, Japan, Hong Kong, Taiwan, and South Korea have become significant global investors. These world large economies are close to East areas. In comparison, west areas are quite different geographically to the east areas, with no nearby ocean routes for handle export processing. 23 In addition there are small and poor markets in neighbouring countries. Export processing is unlikely to prosper in these areas. According to the National Economic Research Institute (2001), east China had a much higher marketization level than central and west China in 1999 and 2000. As a result, eastern provinces explain more of the investment growth. In addition, China’s FDI has been characterized by its unequal regional distribution. The vast majority of foreign investment is concentrated in coastal areas, including Guangdong, Jiangsu, Zhejiang, Fujian, Shandong provinces, and Shanghai. The trend is due to economic reforms that caused the FDI flowing into special economic zones. Table 2-7 shows the ratio of regional FDI to country’s FDI from 1985 to 2003. East regions have attracted relatively more FDI than central regions and west regions. The #p#分页标题#e#western less developed provinces received a very small amount of FDI inflows. Their share in the national accumulated FDI stocks has been declining from 7 .7 percent in 1985 to 4.0 percent in 2003. From 1983 to 2000, the eastern region accounted for average 87.8 percent of actual FDI in contrast to around 9.0 percent and 7.0 percent in central and west region. In 2003, 84.9 percent of FDI was generated in the east region, in contrast to only 11.0 percent and 4.0 percent in central and west region. On the whole, the differentiated regional development policies have created the best investment environment in coastal China. In 1989, in order to attract more FDI in central and west regions, a series of policies were introduced. Now there are many preferential treatments for foreign enterprises that invest in central and west regions. Table 2 - 8 Ratio of Regional Foreign Direct Invest to Country’s Foreign Direct Investment (percent) |region Year |1985 |1990 | | |Number of|Actually |Number of |Actually | | |Projects |Utilized | |Utilized | | | |Value |Projects |Value | |Total |41473 |670.76 |37871 |783.39 | |Foreign Direct Investments|41473 |630.21 |37871 |747.68 | |Equity Joint Venture |10223 |143.78 |7649 |155.96 | |Contractual Joint Venture |1036 |19.40 |641 |14.16 | |Wholly Foreign-owned |30164 |462.81 |29543 |572.64 | |Enterprise | | | | | |FDI Shareholding Inc. |50 |4.22 |38 |4.92 | |Joint Exploration |/ |/ |/ |/ | |Others |/ |/ |/ |/ | |Other Foreign Investment |/ |40.55 |/ |35.72 | |Sale Share |/ |13.55 |/ |4.02 | |International Lease |/ |0.36 |/ |1.80 | |Compensation Trade |/ |0.21 |/ |0.18 | |Processing and Assembly |/ |26.43 |/ |29.72 | The table 2-8 shows some information about FDI by vehicle type from 2006 to 2007. It is clearly that WFOEs and EJVs are the two most popular FDI entry modes for multinational enterprises. The number of WFOEs projects reached to 30,164 in 2006. Meanwhile, EJVs projects accounted for around 10223. On contrast, because of the high cost operation and inconvenient management, the indirect investments are not popular for foreign investment. The actually utilized value was only 30.72 in 2007. Table 2 - 9 Amount of Foreign Investment by Form (USD 100 million) |Item |2006 |2007 | | |Number of|Actually |Number of |Actually | | |Projects |Utilized | |Utilized | | | |Value |Projects |Value | |Total |41473 |670.76 |37871 |783.39 | |Foreign Direct Investments|41473 |630.21 |37871 |747.68 | |Equity Joint Venture |10223 |143.78 |7649 |155.96 | |Contractual Joint Venture |1036 |19.40 |641 |14.16 | |Wholly Foreign-owned |30164 |462.81 |29543 |572.64 | |Enterprise | | | | | |FDI Shareholding Inc. |50 |4.22 |38 |4.92 | |Joint Exploration |/ |/ |/ |/ | |Others |/ |/ |/ |/ | |Other Foreign Investment |/ |40.55 |/ |35.72 | |Sale Share |/ |13.55 |/ |4.02 | |International Lease |/ |0.36 |/ |1.80 | |Compensation Trade |/ |0.21 |/ |0.18 | |Processing and Assembly |/ |26.43 |/ |29.72 | The table 2-9 shows some information about FDI by vehicle type from 2006 to 2007. It is clearly that WFOEs and EJVs are the two most popular FDI entry modes for multinational enterprises. The number of WFOEs projects reached to 30,164 in 2006. Meanwhile, EJVs projects accounte#p#分页标题#e#Thesis is provided by UK thesis base http://www.ukthesis.org/
d for around 10223. On contrast, because of the high cost operation and inconvenient management, the indirect investments are not popular for foreign investment. The actually utilized value was only 30.72 in 2007.
5. However, Chinese are famous for their reluctance to spend money. They have the highest savings rates in the world, on average 30% of their income. At the same time, the domestic consumption per capita is around US 17 dollars, only amounts 1/18 of developed countries. As a result, there is a big market with great potential in China. Marketing analyze Some foreign enterprises want to sell their products in the huge #p#分页标题#e#Chinese market while others may concentrate on exporting what they produce to outside China. As a result, it is an important strategic choice for foreign enterprises who want to do successfully business in China. Doherty (2007) proposed that market attractiveness factors affect a foreign retail enterprise’s decision to enter a market, including retail structure and regulation. Retail structure include the retail environment, site location, IT infrastructure, the potential price positioning of merchandise, and an estimation of sales potential in the short-, medium-, and long-term. Furthermore, the regulation of the retail market in the form of import duties and trade relationships has a major impact on market selection for foreign retailers. As we know, a mass-market retailer will seek markets with a large population. Generally speaking, the market for large international furniture retailers is domestic market. In China, low labor cost, large consumer market and reduction of import tariff rates offer great opportunities for foreign enterprises. In addition, Wrigley (2005) stated that transnational retailers should be aware of the local variations in cultural tastes, norms and pReferences. At the same time, compared to manufacturing firms, retailers experience high levels of consumer contact. In other words, foreign enterprises with a local furniture market focus should call #p#分页标题#e#for a high level of local adaptation. They should pay more attention to the local furniture market conditions and become more prepared for the changes in the local market. Furthermore, because of the high competition in the domestic market, foreign enterprises need to establish the necessary business network in China. At the same time, products and services of foreign enterprises should much ahead of domestic competition. As millions of Chinese people have joined the ranks of the middle class, they are willing to invest more and more money in their apartment in furnishing and decoration. Meanwhile, Chinese consumers call for well designed and high quality furniture brands. The furniture industry is very competitive between foreign brands such as Ikea, B&Q, and local brands like Homes Orient. How to choose the style of products is one of the key questions for foreign brands. The magazine <<Furniture and Decoration>> provided some information about Chinese consumers’ expectations of furniture needs in 2003. “About 80%of interviewees considered furniture design should be a functional emphasis based on people’s needs. 44%of them would prefer buying assembled furniture which can be moved easily from one place to the other. The price is not the only important factor. (It is related to the power purchase), about 52%of interviewees hope the pThesis is provided by UK thesis base http://www.ukthesis.org/
rice can be lower, 48%of them ignore the price, and they pay more attention to the furniture’s function and design style. Environmental concept influences the consumers’ behaviour too, 60%of interviewees required the furniture should be made of clear material that is no poison and no damage for healthy, only 6%of them considered this environment factor not important. Wooden furniture is the most popular in the consumer’s mind. 42%of interviewees prefer wood furniture, 38%of them like furniture made of glass, leather and fabric, other material accounted for 20%.36%of interviewees normally change their furniture every 10 or 15 years, only 5%of them want to keep their furniture for 30 years.”( Yihong Li,2007) In all, China’s #p#分页标题#e#furniture industry is at the early stage of its growth and has great potential despite the problem of instability in industrial structure. case study –IKEA:One successful example of FDI in China The IKEA saga The IKEA Philosophy Ikea was established in 1943 by Ingvar Kamprad in order to sell pens, wallets and picture frame. In 1958, Ikea was introduced as a leader of Swedish Furniture Company. They started from producing local furniture by local manufacturers and gained positive attention from customers. Later, they began to create furniture for flat packs and self-assembly in order to reduce storage space which is the prominent style of Ikea. They are also expanding the business line such as restaurant and kitchenware. Ikea, the largest furniture display in Scandinavia, opened the first store in Almhult and Sweden. Then they opened more stores in other countries such as Norway, Denmark and Germany. They do not only offer inspiring home furnishing solutions to customers while keep the prices affordable for people but also locate in less-expensive areas in different countries. Nowadays, Ikea is the major retail company that experience in 36 countries around the world. Though, there are 279 of IKEA stores in 36 countries, Ikea group owns 247 Ikea stores in 24 countries and the rest is managed by franchisees in 16 countries. Ingvar Kamprad’s (2007) will is to maintain what he called the “Ikea philosophy”. He proposed his wills in the “The Testament of a Furniture Dealer” in 1976. He wrote about the product range as their identity and the ambition to offer a wide range of well-designed, functional home furnishing products at low prices that many people will be able to afford them. At the same time, he also emphasized the “Ikea Spirit”, which is the readiness to take responsibility and help out; the art of managing on small means; cost-consciousness, humbleness, undying enthusiasm in work and the wonderful sense of community through thick and thin. In addition, he meant that the true Ikea spirit should still be found in every one of workplaces. Furthermore, the Ikea spirit must be cultivated and developed to keep pace with the times. (Ingvar Kamprad, 2007). IKEA in China IKEA is considered as retailer internationalization that expands #p#分页标题#e#into Chinese market because of supporting environments such as political, social and economic conditions as well as transaction advantage. In China, Ikea get success in marketing and branding itself. The existing five stores of Ikea are located in Shanghai, Beijing, Guangzhou, Chengdu and shenzhen. The new store is scheduled to open in Nanjing in 2008. Furthermore, giant Ikea has announced that it will speed up the expansion in China from its 2008 fiscal year. Ikea’s name in Chinese, "Yi Jia," means "comfortable home". Ikea Group is a franchisee of Inter Ikea Systems BV. Ikea’s mainland China stores belong to the Ikea Group and they are operated as joint ventures. According to Chinese regulations, all foreign retailers should have a local partner before 2005. The franchisee policy help Ikea explore an unfamiliar market rapidly without many troubles. Because Chinese partners have certain strengths such as local government support, brand reputation, land, capital, distribution, #p#分页标题#e#and access to local suppliers. As a result, Ikea’s first two stores in China were operated as joint ventures. With the change in regulations, Ikea opened its first wholly owned store in Guangzhou in 2005, setting the trend for all future stores. In this way, Ikea has complete independence on how to run the company business. Ikea entered China in 1998 when it opened its first store in Shanghai, and in early 1999, Ikea opened its first Beijing store in the city's northern Chaoyang district. In 2003, a new, redesigned Shanghai store instead of the original one. The new Puxi district outlet is now Ikea’s second-largest in Asia, at the same time, it is four times larger than the first store. On the opening day, Shanghai's new Ikea offered more than 7,000 products and received around 80,000 visitors. More then 6,500 hotdogs were sold its food centre. According to the local media, Ian Duffy, Ikea's president for Asia Pacific division, #p#分页标题#e#says that Ikea is carrying out a three-phase strategy in China, which includes a period of landing, setting up standard stores and then increasing the rate of opening of new outlets. Meanwhile, Ikea will keep an expansion speed of opening one or two stores each year. IKEA's brand management and analysis Global compete superiority of IKEA For Ikea, the one outstanding brand advantage is the rapid development of the company an important factor. The establishment of excellent brand, today's regional economic integration, global strategy to implement the product. To achieve this objective, the core of the IKEA brand in enhancing energy integration efforts in the promotion of the brand has done a lot of effort. IKEA's brand of energy is the core of the organization and product brand system operation process, the formation of other organizations do not have the presence and product strengths and market competitiveness, it is also the advantages of the brand among the most significant part of the . IKEA brand to form the core of energy from the source can be divided into four parts: management advantages, cultural superiority, product, brand style(Franklin, Len et al. 2005). Core of IKEA brand management The success of IKEA brand in China largely comes from its brand value to meet the needs of the target consumers, and consumers get the intrinsic value of the resonance and, ultimately, consumers set up loyalty. At the same time, the intrinsic value based on consumer demand for in-depth understanding and grasp, and continually adjust their brand positioning and business strategy, so IKEA can continue to improve their competitive advantage(Gredig 2001). Factors affect Ikea's performance in China Entry modes Foreign firms that entered China were rewarded with incentives in the first few years after 1979. For example, foreign firms#p#分页标题#e# were granted a wide variety of privileges in terms of size of investment, concessions in tax and market access. As a result, these privileges and policies should translate into better business performance in Chinese market. The foreign firm’s mode of entry affects the degree of competition in the host country. As I mentioned above, the Swedish furniture retail giant entered China in 1998. Because of lacking of knowledge about Chinese market, Ikea has adopted an advanced policy that is joint ventures for its globalization. At first, Ikea’s mainland China stores are operated as joint ventures. This kind of model is suitable for entering the new Chinese market. Joint- ventures as an entering model are able to reduce the local competitive and take advantage from local government. In China, it is also quite usual that a company has to build a stable, long-term relationship with business partner in order to show that one can be trusted. Ikea can understand the consumer culture and products that suits the local market. After seven years’ entering into Chinese market, Ikea has become more familiar with the characteristic of Chinese regional market and the local culture. With the change in regulations, Ikea opened its first wholly owned store in Guangzhou in 2005. From then on, Ikea has complete independence on how to run the company business. As a result, they have a higher the level of efficiency than joint ventures in the daily operations. Location advantage Since the economic reform in the late 1970s, China has implemented many special locations across the country. In order to attract the foreign investment, these designated cities offer a wide variety of conveniences and incentives for foreign firms. (46). As part of the reform programmers in 1978, #p#分页标题#e#special economic zones (SEZs) in Shenzhen, Shantou and Zhuhai were established. Meanwhile, subsequent fourteen coastal cities were open up to foreign investment in 1984. Furthermore, the State Council announced in 1997 that tariff and import taxes would be levied on imported equipment and raw materials for MNCs in the no prioritized location. As a result, more and more foreign firms established business in these zones. More than 200 multinational enterprises have invested in over 400 industrial projects in SEZs. Because of their proximity to transportation hubs and major economic countries, the economy in SEZs is also developing most rapidly in China. Meanwhile, MNCs located in the municipalities of Beijing, Shanghai, and Tianjin and those located in coastal cities had a higher level of profitability than MNCs located elsewhere in China. In a word, location advantages are important in China. The existing five stores of Ikea are located in Shanghai, Beijing, Guangzhou, Chengdu and Shenzhen. These regions are profitable locations, as well as the open coastal cities.#p#分页标题#e# In these regions, infrastructure and transportation are better and the market is more open. Cultural influence As I mentioned above, China is the world's largest social system and it is not familiar to the Western firms now operating there. China has its own unique culture which totally different with the western culture. This kind of culture affects customers’ purchasing behavior. In order to adapt the local culture environment and cater to local customers, Ikea has done a lot of market research about what Chinese consumers want. For example, in some special occasions sucThesis is provided by UK thesis base http://www.ukthesis.org/
h as traditional Spring Festival, Ikea introduced some special product series to Chinese consumer. According to the traditional animal year, 2007 is the year of Pig and the pig pictures means prosperity and fortune. Picture below is the plate set sold during the Spring Festival time in 2007. Ikea also has adapted its do-it-yourself (DIY) assembly concept to China. In other words, customers have to do much by their own such as pick up the furniture from the self-service area, take them home and build them by themselves. However, unlike some western consumers who actually enjoy assembling the furniture, Ikea’s DIY products are not appreciated in China.#p#分页标题#e# Because labor is cheap in China, Ikea’s assembly services are more welcomed in China. [pic] Figure 4 - 1 the plate set sold during the Spring Festival time in 2007 Source: http://home.sh.soufun.com In China, different kinds of the SULTAN HOGBO series are divided into categories of single, double, standard double and big double. In Sweden, people always put two single-sized beds together to form a double-sized bed. At first, Ikea stated that this kind of design ensures a good night sleep free from the disturbance by the person you share the bed with. However, this idea is not appreciated by Chinese consumer. According to Chinese traditional culture, couple sleep separately means a bad relationship between them. It is also believed to bring bad luck. In all, different understanding of culture may lead to implicit conflicts in global business. If businesses want to perform successfully, cultural sensitivity must be at the heart of doing international business. As a conclusion, Ikea has both been able to adapt itself to the local market and also keep a certain level of standardization(Ying Pan,2007). Marketing Mix - IKEA on the Chinese market Price As we know, #p#分页标题#e#price is a significant element of communication between customer and seller. A number of factors have an impact on the price, including market share, material costs, product identity and the customer's perceived value of the product. Ingvar Kamprad (1976) claimed that the first rule of Ikea is to maintain an extremely low level of prices with a meaning. He argued that Ikea should always be a substantial price difference compared to their competitors, and Ikea should have the best value-for-money offers for every function. In fact, the pricing model play an essential role to create and capture customer value. According to Ikea website, low prices are the cornerstone of the Ikea vision, business idea and concept. The basic thinking behind all Ikea products is that low prices make well-designed, functional home furnishings available to everyone. Ulf Smedberg, marketing manager of Ikea China, described Ikea’s mark as "to provide smart solutions for homes by implementing three criteria: good design, functionality, and low price." When Ikea first entered China, the products impressed customers as innovative, fashionable, and expensive. At the beginning, Ikea added a lot of import tax and transportation cost. Ikea was a middle-class brand in China. Most of Ikea’s products sold in market were imported. Ikea’s target market fell into the young, professional couples. These people have #p#分页标题#e#top- tier urban income with 5,000-8,000 RMB per month. Furthermore, they are generally better educated than the average Chinese. However, most of the consumers considered the products were too expensive for them. As a result, the company lost its worldwide image of affordable. The company decided to compromise the prices for Chinese and slashed down the prices. The Ikea’s on sale campaign was astonishing. Ikea Shanghai store has reduced the price of its products by 50% from 2000 to 2007, even as Chinese consumer incomes have increased. As a result, the total sales have remarkably increased 345% during past 8 years. For instance, a set of flower picture that was sold at 19 RMB in 2000 only cost 1 RMB in 2004. The new target market fell into Chinese consumers with a monthly income of 3,500 RMB. In fact, most of Ikea customers were 30 to 45 years old with high incomes in the past. After the reform of price strategy, the stores now attract an increasing number of young customers. Many customers are double-income and well-educated couples with children. Generally speaking, compared to the national average income about Yen1, 000 ($121), a typical Ikea customer earns about Yen3, 300 ($399) per month. The consumer on average #p#分页标题#e#buys Yen300 ($36) of products per visit. After several rounds of price reduction, the products now considered mid-range in China. In China, reducing prices seems to be the most effective way for the company to increase sales. In order to lower prices of its products without sacrificing the quality, Ikea has taken many kinds of methods. One of the most effective ways is to source locally. As we know, furniture manufacturing is a typical labor-intensified industry. China has many advantages in the big market size and low labor cost. At present, more than half of the products sold in China are manufactured locally, compared with about 23% in Ikea stores overall, with the rest made in Poland and Sweden and other countries. Furthermore, Ikea has taken other Thesis is provided by UK thesis base http://www.ukthesis.org/
ways to reduce prices immediately to its Chinese customers. For example, from September 2006, Ikea China has switched to cheaper, thinner and smaller brochures instead of the Swedish furniture retailer's traditional phone-book-size annual catalogue. The booklets will be distributed five times a year and each with a different theme. The switch from the thick catalogue to the booklets cost less to produce, and it help Ikea reach more consumers. It will expand its distribution from 40% to 80%. Meanwhile, because of the #p#分页标题#e#price competitiveness of Chinese products, the average Ikea price was decreased by 6 percent on a year-on-year basis in 2004. According to Ulf Smedberg, if the launch goes well in China, parent company Ikea International AS may consider expanding the practice to other countries. In order to attract consumer, Ikea also has cut prices in China to some of its lowest in the world, for example, the company is offering the lowest price for more than 120 kinds of goods, such as 12-cent ice- cream cones and $1 place mats. Ikea outlets pushed prices on some items as low as 70% below prices in many western countries. For example, the price of an Ikea's single-seat Ektorp armchair is $112 in China. It is 67% cheaper than the same one sold in the U.S. Based on the study, we can see that Ikea consider price as an essential part in the marketing strategy. The company offers good designed products with affordable prices. Meanwhile, the#p#分页标题#e# entry of Ikea to Chinese market gives the company transaction advantage to produce locally. Overall, Ikea’ s pricing policy is cost oriented and customer-value oriented. In my opinion, Ikea’s success in the world is based on the idea of keeping the cost down between manufacturers and customers. Place Distribution is known as the place variable in the marketing mix, it is often a much underestimated factor in marketing. Distribution includes getting the product from the manufacturer to the customer. An efficient distribution plays a key role to keep the price low. Ikea has 28 distribution centres in 16 countries supplying goods to Ikea stores around the world. The main task of these distribution centres is to ensure availability of products from supplier to customer, at the lowest possible cost and with effective route. Distribution in China is the fastest growing organization in Ikea’s distribution network. Two logistics centres in Shanghai were approved by Chinese authorities. Phase 1 was completed in Song Jiang District September 2005. This is the first full-size international-standard distribution centre in China. Furthermore, it is the largest Automated Storage Retrieval System by any foreign enterprises. According to David Hood, director of Ikea Asia-Pacific distribution services division, the $150-million facility can hold 300,000 cubic metres of products and it will be Ikea’s largest in the Asia-Pacific region. Ikea is building the second one in#p#分页标题#e# suburban Feng Xian district, close to the deep-sea Yangshan port. The distribution centre will also be the biggest foreign-owned warehousing facility in China. Generally speaking, in order to keep prices low to consumer, Ikea stores are located in less expensive areas in western countries. However, the locations of Ikea stores in China are built in downtown areas. For example, Ikea Beijing is built in the one of the most expensive districts, Zhaoyang district. Other stores in China are also located nearby the downtown areas or city centre. There are two main reasons. Firstly, Chinese people have limited private cars, would be prefer convenient transportation to the store. Secondly, from a cultural perspective, Chinese consider that shopping in big stores in city centre is a modern phenomenon. The shopping environment is very important to Chinese consumer. As a result, Ikea had built stores near public transportation lines that offer local home delivery and long-distance delivery to other cities in China. Ikea Shenzhen was opened in April 2008. Located at European City, Nanshan district, Shenzhen, the general layout is almost the same as other Ikea stores in the world. For example, the #p#分页标题#e#shop floor design of Ikea forces consumer to walk through every single display area. Total area of the new store is about 30,000 square-meters; consist of 66 different model rooms. It offers more than 7,500 practical products to the customers. At the same time, there are three complete homes in the Ikea Shenzhen European City store. Compared to common model rooms, those homes have all important elements, including living room, bedroom, dining room and bathroom, which can offer an overall home solution to customers. In addition, there are Swedish restaurants and Chinese restaurants in the store, With 660 seats, delicious food and unlimited refills of coffee. Although Ikea has succeeded in the big cities like Beijing and Shanghai and Shenzhen, it is not easy to cover the distribution network from North to South. New locations to place stores in other cities are new challenges for Ikea. Dalian and Wuhan are main second level cities in China. In all, Ikea has to established efficient and economic network of logistics and distribution in Chinese market. Promotion The promotion mix targets raising brand awareness and communicating the benefits of the products with customers. The company uses the set of tools to persuasively communicate customer value and build customer relationships. Promotion in the local market has to adapt for cultural reasons.#p#分页标题#e# Generally speaking, there are four common promotion mix tactics: Advertising, Personal Selling, Sales Promotion and Public Relations. In this section, I describe the four key elements of the promotional mix in detail. Advertising focuses on brand recognition and identity. It plays an effective role in Chinese market. Ikea always advertises on TV or on the magazines of its upcoming sales and other promotion activities. Ikea also produces brief TV spots that show living areas before and after Ikea’s magic touch. Generally speaking, Chinese consumers will either completely replace everything or do nothing about the interior design. Ikea’s ‘Small changes, a refreshing new life’ advertisements introduce a new message to Chinese consumers. The advertisement conveys that it is good to make small changes step-by-step. Ikea also operates a detailed website. The internet increases the options that allow customers to provide quick feedback. On the webpage www.ikea.com/cn/zh/, customers may look for the Ikea products and other services such as delivery service and store information. The webpage offers some information of what consumers are looking for. Every store has its own webpage where is presented its offer. Some specific customer service is offered in the website. For example, consumers can find the food in the store and transfer bus to every Ikea store within the city. The picture below shows the bus route and timetable in Shanghai store. Findings and Recommendations Findings (1)Strengths Grol and Schoch (1998) argued that Ikea’s strength today comes from their mastery of three key aspects of the value chain: unique design capabilities, unique sourcing, and tightly controlled logistics. In other words, Ikea is able to produce products that are distinctive enough to provide market recognition, secure sourcing at profitable levels in the long term. In addition, Ikea may reduce inventory costs through regional warehouses which located close to the stores. In other words, #p#分页标题#e#the company offers good designed products with affordable prices. At the same time, the customers still want to come back for more. The well-designed, functional and simple style is now appreciated by Chinese people. The fact that Ikea targets all age groups and households makes it more attractive to Chinese consumers. In addition, Ikea also maintains completely control of its design and the supply of products across the world. As a result, the company has a product portfolio that caters for Chinese consumers’ lifestyle and budget. (2)Weaknesses Although Ikea has some favorable strength, the company clearly has some weaknesses. In Sweden, America and many European countries, Ikea is a typical furnishing supermarket. The products are both good quality and low price. Even students can buy the Ikea products. However, Ikea is still considered as a luxury furniture brand in China. Ikea’s market orientation is totally changed in China. With China’s fast growing economy, although there are an increasing number of middle class consumer groups, they are just around 11% of the total population. Only a small part of Chinese people can afford to buy them. At the same time, Ikea is also very reliant on European market, with 82% of stores located in this region. In China, although spending power is increasing, it remains relatively low. In addition, although more and more products are designed for the Chinese market, Ikea still offers a very similar product base in the world. Ikea will suffer from a lack of innovation. To some extent, this is because of the lack of fresh blood in the company organization. For example, Ikea hires the same genre of people leads to inhibiting diversity and creativity to meet changes in the huge Chinese market. At present, Ikea is something new and fresh to the Chinese people. In the long run, Ikea is just too far out of the mainstream Chinese traditional culture. The company may have difficulty in meeting customer expectations of service #p#分页标题#e#as well as price in the long term. (3)Opportunities Since Ikea has expanded successfully in European countries, Ikea also has seen great expansions upon its entry into the Chinese market. In my opinion, there are still many opportunities that Ikea can take advantage of to further ensure the continued success in Chinese business market. Ikea firstly open its stores in metropolitan areas like Beijing and Shanghai. It is a wise decision for Ikea to gradually test Chinese market. At present, as millions of Chinese people have joined the ranks of the middle class, there is a growing demand of consumers who call for high- quality and well designed furniture. Especially people who living in the suburbs and metropolis also like to buy foreign products. Ikea has an enormous opportunity to establish business in both suburbs and metropolis locations. For example, Tianjin is one of the most progressive and rapidly growing cities in China. The city will offer a golden business opportunity for Ikea in China. In addition, there has been an increasingly demand for electrical products in the past years. The strong growth in the electrical market was fuelled by high demand for flat-panel TVs and the introduction of High Definition ready TVs. In the author’s opinion, the introduction of electrical products would prove complementary to Ikea's #p#分页标题#e#range of furniture. Ikea is able to use its stores to showcase room sets. At present, more and more Chinese consumer would like to improve their homes and to buy into the Ikea concept. In all, with a strong brand reputation, plentiful space for storage, it is a useful additional revenue stream for Ikea. (4)Threats At present, Ikea faces one key threat in China: domestic competitors always copy technologies and products fromThesis is provided by UK thesis base http://www.ukthesis.org/
Ikea. Unlike the optimum competition from UK-based B&Q, the largest DIY retailer in Europe and the third-largest in world, there are too many Chinese furniture companies that counterfeit Ikea products. They often introduce similar product ranges at low prices. As we know, Ikea opened its first store in China in 1998. Aika, one of its biggest local competitors, uses a brand name that is disturbingly similar to that of the Ikea. In addition, the two companies’ local brand names are almost the same. Ikea’s Chinese name is YiJia, meaning “a comfortable home”. Aika’s Chinese name is AiJia, meaning something “a love home”. It sounds almost the same as Ikea’s YiJia, but adds the “love” element. In summary, I make a table below to show Ikea’s SWOT Analysis in Chinese market. Since the economic reform in 1978, China has become one of the large economic countries which have the most development potential. Generally speaking, due to the rapid economic growth, the Chinese market offers great business opportunities to foreign investment. For example, China GDP growing at around 9.6% a year since 1979 and now it reach to the fourth #p#分页标题#e#largest economy in the world. According to the economists in the Beijing Normal University, China's marketization level has reached 73.8% in 2003, already exceeding the market economy critical level of 60%. As the third largest country in the world, China has considerably geographical variations from east to west and south to north. Along the South China Sea, the East China Sea, the Yellow Sea, and the Bo Sea, east China has approximately 14,500 km of coastline, with ports and harbours for sea transportation to many developed economies. As we know, Japan, Hong Kong, Taiwan, and South Korea have become significant global investors. These world large economies are close to East areas. In comparison, west areas are quite different geographically to the east areas, with no nearby ocean routes for handle export processing. 23 In addition there are small and poor markets in neighbouring countries. Export processing is unlikely to prosper in these areas. According to the National Economic Research Institute (2001), east China had a much higher marketization level than central and west China in 1999 and 2000. As a result, eastern provinces explain more of the investment growth. In addition, China’s FDI has been characterized by its unequal regional distribution. The vast majority of foreign investment is concentrated in coastal areas, including Guangdong, Jiangsu, Zhejiang, Fujian, Shandong provinces, and Shanghai. The trend is due to economic reforms that caused the FDI flowing into special economic zones. Table 2-7 shows the ratio of regional FDI to country’s FDI from 1985 to 2003. East regions have attracted relatively more FDI than central regions and west regions. The #p#分页标题#e#western less developed provinces received a very small amount of FDI inflows. Their share in the national accumulated FDI stocks has been declining from 7 .7 percent in 1985 to 4.0 percent in 2003. From 1983 to 2000, the eastern region accounted for average 87.8 percent of actual FDI in contrast to around 9.0 percent and 7.0 percent in central and west region. In 2003, 84.9 percent of FDI was generated in the east region, in contrast to only 11.0 percent and 4.0 percent in central and west region. On the whole, the differentiated regional development policies have created the best investment environment in coastal China. In 1989, in order to attract more FDI in central and west regions, a series of policies were introduced. Now there are many preferential treatments for foreign enterprises that invest in central and west regions. Table 2 - 8 Ratio of Regional Foreign Direct Invest to Country’s Foreign Direct Investment (percent) |region Year |1985 |1990 | | |Number of|Actually |Number of |Actually | | |Projects |Utilized | |Utilized | | | |Value |Projects |Value | |Total |41473 |670.76 |37871 |783.39 | |Foreign Direct Investments|41473 |630.21 |37871 |747.68 | |Equity Joint Venture |10223 |143.78 |7649 |155.96 | |Contractual Joint Venture |1036 |19.40 |641 |14.16 | |Wholly Foreign-owned |30164 |462.81 |29543 |572.64 | |Enterprise | | | | | |FDI Shareholding Inc. |50 |4.22 |38 |4.92 | |Joint Exploration |/ |/ |/ |/ | |Others |/ |/ |/ |/ | |Other Foreign Investment |/ |40.55 |/ |35.72 | |Sale Share |/ |13.55 |/ |4.02 | |International Lease |/ |0.36 |/ |1.80 | |Compensation Trade |/ |0.21 |/ |0.18 | |Processing and Assembly |/ |26.43 |/ |29.72 | The table 2-8 shows some information about FDI by vehicle type from 2006 to 2007. It is clearly that WFOEs and EJVs are the two most popular FDI entry modes for multinational enterprises. The number of WFOEs projects reached to 30,164 in 2006. Meanwhile, EJVs projects accounted for around 10223. On contrast, because of the high cost operation and inconvenient management, the indirect investments are not popular for foreign investment. The actually utilized value was only 30.72 in 2007. Table 2 - 9 Amount of Foreign Investment by Form (USD 100 million) |Item |2006 |2007 | | |Number of|Actually |Number of |Actually | | |Projects |Utilized | |Utilized | | | |Value |Projects |Value | |Total |41473 |670.76 |37871 |783.39 | |Foreign Direct Investments|41473 |630.21 |37871 |747.68 | |Equity Joint Venture |10223 |143.78 |7649 |155.96 | |Contractual Joint Venture |1036 |19.40 |641 |14.16 | |Wholly Foreign-owned |30164 |462.81 |29543 |572.64 | |Enterprise | | | | | |FDI Shareholding Inc. |50 |4.22 |38 |4.92 | |Joint Exploration |/ |/ |/ |/ | |Others |/ |/ |/ |/ | |Other Foreign Investment |/ |40.55 |/ |35.72 | |Sale Share |/ |13.55 |/ |4.02 | |International Lease |/ |0.36 |/ |1.80 | |Compensation Trade |/ |0.21 |/ |0.18 | |Processing and Assembly |/ |26.43 |/ |29.72 | The table 2-9 shows some information about FDI by vehicle type from 2006 to 2007. It is clearly that WFOEs and EJVs are the two most popular FDI entry modes for multinational enterprises. The number of WFOEs projects reached to 30,164 in 2006. Meanwhile, EJVs projects accounte#p#分页标题#e#Thesis is provided by UK thesis base http://www.ukthesis.org/
d for around 10223. On contrast, because of the high cost operation and inconvenient management, the indirect investments are not popular for foreign investment. The actually utilized value was only 30.72 in 2007.