IKEA's Globalization Strategies and its Foray in China


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Case Details:

Case Code : BSTR173
Case Length : 16 Pages
Period : 1995-2005
Organization : IKEA
Pub Date : 2005
Teaching Note :Not Available
Countries : China
Themes :Globalization | International Business
Industry : Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

IKEA in China

The Chinese government allowed foreign investments in the real estate industry in the mid 1990s. As the construction of commercial and residential establishments increased, it also boosted the sales of home decoration and furnishings companies. The demand for housing increased considerably over the late 1990s and early 2000s. Increased home ownership further boosted the home improvements and decoration market. People wanted better quality products. To fill this need, many foreign home decoration and furnishings companies like B&Q entered China during the 1990s. IKEA started its retailing operations in China with the opening of its first store in Shanghai in 1998 (the store was redesigned in 2003).

In 2004, the Shanghai outlet was the second largest in Asia after the one in Kuala Lumpur, Malaysia, and offered more than 7,000 products. The store was 33,000 m2 in size, and included a 170 m2 children's playground and a 500-seat restaurant. In 1999, IKEA opened its second store in China at Beijing...

The Challenges Ahead

IKEA faced many challenges in terms of culture and business practices, as well as the socio-economic and political conditions in China. According to Smedberg, the three challenges IKEA was facing were -pricing, high duty rates and bureaucracy. In China, IKEA's products continued to have the image of catering to high-end consumers, unlike the perception as a 'good value' buy elsewhere in world. The company found it difficult to price its products at a level where it could attract larger numbers as well as keeping the company in profit. China's high import taxes hit the company's profitability significantly...

Exhibits

Exhibit I: IKEA's Geographical Spread
Exhibit Ii: IKEA's Corporate Structure
Exhibit Iii: IKEA's Business Model
Exhibit Iv: IKEA - Geographical Spread of Stores (As on August 31, 2003)
Exhibit V: IKEA's Low-Price Strategy - How it Works?
Exhibit Vi: IKEA's Way of Wading through Cultures across the World

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