Seminar: IKEA in China: Try Before you Buy?

Topic Number:3

Industry Studies 1

Overview

IKEA is the most successful home furnishing businesses in the world, located in over 26 countries. Its vision “to create a better everyday life for the many people” encapsulates its desire to offer quality, relevant and affordable home furnishing solutions across the world.

One of IKEA’s core strategies is to grow by entering new markets such as China. However, in doing so they have come up against a number of hurdles where they have had to make considerable changes to their business model to adapt to local preferences.  In this seminar, we will evaluate their approach as they went into the Chinese market. We will initially understand the global business model that they traditionally adopt and thereafter, we will critically evaluate the way they needed to adapt to be successful in China.

Thirdly, we will look at their success to date and finally make recommendations as they move into other markets.

3

• Develop and determine IKEA’s global business model and strategy

• Critically evaluate the changes they needed to make when entering the Chinese market

• Evaluate and describe the success they have had to date in China

• Be able to make recommendations on how they should grow sustainably

Learning outcomes of this seminar

Agenda for this seminar

Critically evaluate the changes they needed to make when entering the Chinese market

Evaluate and describe the success they have had to date in China

Explain their plans to grow internationally in a sustainable way

Present an overview of IKEA’s global operations and strategy

Structure for the session

You will have 15 minutes to

discuss each question

We will have a de-brief at the end of each 15 minutes to hear your thoughts on each area

Feel free to ask questions but please do not have separate conversations ‘we are all in

this together’!

A Man With Simple Tastes

I could regularly travel first class, but having money in abundance doesn’t seem like a good reason to waste it. Why should I choose first class? To be offered a glass of champagne from the air hostess? If it helped me arrive at my destination more quickly, then maybe.

Ingvar Kamprad

Consider the role of a founder on the companies culture and values…

Present an overview of

IKEA’s global operations and

strategy

Vision and business idea

“To create a better everyday life for the many people”, this is the IKEA vision. Our business idea is “to offer 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”.We work hard to achieve quality at affordable prices for our customers through optimising our entire value chain, by building long-term supplier relationships, investing in highly automated production and producing large volumes. Our vision also goes beyond home furnishing. We want to create a better everyday for all people impacted by our business.

Source: IKEA, 2014

A company built on values

View video: https://www.youtube.com/watch?v=DaDD3uXpFgs#t=24

Company structure

Source: IKEA, 2014

Overview of operations

Source: IKEA, 2014

The Strategy of IKEA

View video: https://www.youtube.com/watch?v=MJ6YL3IekYs

Critically evaluate the changes they needed to make

when entering the Chinese market

Changing the way IKEA works in China

Source: IKEA, 2014

Ownership Changes

+

Source: IKEA, 2014

Adapting their approach

Source: IKEA, 2014

Chinese vs European Home

China Sweden

Source: IKEA, 2014

New product ranges added

Source: IKEA, 2014

More Aggressive with Pricing

Since 2000, IKEA has cut its prices by more than 60 per cent. For instance, the price of its "Lack" table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 yuan when IKEA first came to the Chinese market. The company plans to reduce prices further, helped by mass production and trimming supply chain costs.

High prices were one of the biggest barriers in China for people to purchase IKEA products. 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.

Evaluate and describe the success they have had to

date in China

IKEA sees success in China (finally!)

Growth in stores and revenue

Source: IKEA, 2014

Explain their plans to grow

internationally in a sustainable

way

3 Growth Areas

Quality products at low prices

People & planet positive

When people grow, IKEA grows too

Source: IKEA, 2014

Overview

Source: IKEA, 2014

Quality Products at Low Prices

View video: https://www.youtube.com/watch?v=9jGphzyW9R8

Quality Products at Low Prices

Source: IKEA, 2014

People and Planet Positive

Source: IKEA, 2014

People and Planet Positive

View video: https://www.youtube.com/watch?v=gmlpwIRmuBY#t=15

Growing People

Source: IKEA, 2014

Growing People

Source: IKEA, 2014

Growing People

Source: IKEA, 2014

End of Seminar

Note: This recording is for your personal use only and not for further distribution or wider review.

© Pearson College 2013