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Ikea In China And Japan

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Masters Residential

International Marketing

IKEA: A long march to the Far East

From its humble beginnings as a small general retail store in a village situated in the south of Sweden, IKEA has grown into the world's largest furniture retailer with 279 stores in 36 countries today. The name IKEA is formed from the founder's initials I. K. (Ingvar Kamprad) plus the first letters of Elmtaryd (E) and Agunnaryd (A), the farm and village where he grew up. Specializing in furniture and home decoration, IKEA has an annual turnover of £19.8 billion (source: IKEA,, accessed 17/06/2008). The IKEA catalogue is printed in 52 editions in 25 languages, with a global distribution in excess of 160 million copies.

IKEA's success has been nothing short of a global phenomenon. Edvardsson and Edquist (2002) have accounted for the company's rise to global success following a timeline of three development phases. In phase one, IKEA's core concepts were formed as a result of adapting to the market circumstances. The important moments during this period were publishing the first IKEA catalogue in 1951, opening the first furniture showroom in Almhult in 1953, introducing flat packages in 1956, and finding the key to low-cost production in Poland in the early 1960s. Phase two is characterized by the company's initial expansion into international markets when it reached out to its Scandinavian neighbours in the 1960s. Since the 1970s, the company began to expand farther into other European countries, Australia, and Canada. In 1985, IKEA arrived at the world's largest consumer market - the USA - which proved to be a very different market from those in Europe. Armed with its international experience in Europe and North America, IKEA took the company into the third phase of its development by embarking on a major expansion into the Far East, in particular Japan and China.

IKEA sees the Far Asia as an emerging market still in its infant stage. Its number of retail outlets in Malaysia, Singapore, Taiwan, Beijing, Shanghai, and Hong Kong are very small and comprise a mere 3% of the company's total sales. These stores are expected to be more successful in the near future. IKEA's imminent strategic expansion into this region exemplified its ambitions to dominate this emerging market.

IKEA's entry into mainland China started in 1998 when it opened its first store in Shanghai, followed by Beijing in 1999. IKEA took its time to get to know the Chinese customers. IKEA adopted a prudent approach to market entry and it was five years before it opened its first full-scale standard IKEA store in Shanghai in 2003. The store occupied 33,000 sq m and retails more than 7,000 products, its signature Smaland children's play-ground is 170 sq m and the free parking area holds 800 cars. A record of 80,000 visitors flocked to the store on the opening day. This new Shanghai store represents an important landmark for IKEA's business development in China. It is the largest of its stores not only in China, but also in Asia. In the same year, the president of IKEA China, lan Duffy, unveiled a long-term plan to open ten more stores in mid-sized cities, such as Dalian and Qingdao, by the end of 2010. This plan would require a USS600 million investment. The expansion plans underscored IKEA's confidence in China considering none of IKEA's retail stores in China has yet turned a profit, making them the only loss-making stores in the entire IKEA group (Wei, 2007). Its expansion in China nonetheless saw its sales revenue increased by 500% from 2000 to 2005. IKEA brought its distinct organizational culture and retail strategies to China. Its Chinese stores look very similar to its stores in Europe, with its blue and yellow painted logo hung up high outside the building. Customers walk through the showrooms where they can see and try the products before making a decision on which ones to take home. After making up their minds, customers make notes of the design name, aisle, and shelf numbers and then head for the warehouse on the ground floor to collect their purchases. They then find the products in flat-pack by locating the correct aisle and shelf numbers. Once goods are paid for, customers can choose to transport the shopping themselves or have it delivered by IKEA for a surcharge. The so-called IKEA retail experience is no different after being 'transplanted' into another country. The core concept of showrooms, flat-packed products, and do-it-yourself assembly remain intact. In China, IKEA successfully differentiates itself as an international brand that provides modern furniture with elegant, Western design. Unlike the local furniture brands, IKEA promotes a 'complete solution' to decorating the home. Apart from selling well-designed furniture, it also sells various necessities for the home, including cooking appliances, lighting, and bedding. IKEA was probably the only store in China that offers such a wide range of products for home decoration and a 'do-it-yourself furnishing concept. It promotes its philosophy of how it is not wrong to be different' by offering its customers a range of options to suit the customer's preferences and living requirements. Although this 'individualistic' value is in contrast to the local tradition, Chinese customers seem to gradually appreciate this difference. They start to appreciate the simplicity of the light-coloured, Scandinavian-style of furniture and even consider going to IKEA as experiencing another culture. Despite the phenomenal growth in the number of visitors and sales volume in recent years, IKEA struggles to break even from its sales revenue. There is a large gap between customers who visit the stores and those who make a purchase. Those who make purchases tend to be small decorative products with low profit margins (which make up 45% of total sales). Continuous losses suggested that the challenges for IKEA in China are complicated and demanding. To appeal to its Chinese customers, IKEA has made a considerable effort to adapt its products to the local tastes and demands. For instance, IKEA releases a series of products to celebrate the Chinese New Year, which is the most important festival for the Chinese people. In 2006, a red rooster appeared on many IKEA products, greeting the year of the Rooster. This move has won IKEA many customers. It introduced a series of products under the FANBY range that feature red pigs to welcome the 2007 year of the Pig. The colour red suggests good fortune in Chinese culture and is commonly used in decorations to bring good luck. The Swedish kitchen section also provides IKEA with an important element of differentiation from its competitor stores in the


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