problems faced by ikea in china.. case study

Case based Assignment on IKEA in China: - Problems faced and strategies Submitted to, by,

Submitted

Mr. ee!a" Sharma $erma %&'()

#aresh E'*+ ++*+'*(

Introduction:

In This case, I've Studied the internationally known home furnishing retailer, which is (IKEA) The largest furniture retailer in the world The !ur"ose of the case study is to analy#e the "ro$lems faced $y IKEA in %hina and its strategies used $y IKEA, Analy#e the com"any financially, S&T analy#ing and discuss maor issue that the com"any faced About:

IKEA Is a "rivately*held, international home "roducts retailer that sells flat "ack furniture, accessories, and $athroom and kitchen items in their retail stores around the world The com"any, which "ioneered flat*"ack design furniture at afforda$le "rices, is now the world's largest furniture retailer IKEA was founded in +-. $y +/*year*old Ingvar Kam"rad in Sweden 0e $egan $y selling "ens, wallets and watches $y going door to door to his customers &hen he started selling his low "riced furniture, his rivals did everything to sto" him 1ocal su""liers were $anned from "roviding raw material and furniture to IKEA, and the com"any was not allowed to showcase its furniture in industry e2hi$itions &hat did IKEA do3 It innovated to stay in $usiness It learnt how to design its own furniture, $ought raw material from su""liers in !oland, and created its own e2hi$itions Today, IKEA is the world's largest furniture retail chain and has more than .44 stores glo$ally The %om"any that was originated in Sm5land, Sweden, distri$utes its "roducts through its retail outlets As f August 644, the chain has .44 stores in ./ countries, most of them in Euro"e, 7orth America, Asia and Australia Problems faced by IKEA in China and strategies

In +8, IKEA started its retail o"erations in %hina It is more im"ortant what customers think a$out the com"any rather than the other way around IKEA faces three main challenges in %hina9 "ricing, high duty rates, and the !:% $ureaucracy So following

are the ada"tive strategies made $y IKEA in china + a/ and legal issues 9  IKEA has $een hit with heavy im"ort ta2es in %hina, though the com"any aims to relocate "roduction of many items to %hina to solve this "ro$lem  The country already su""lies glass, tim$er, te2tiles, hardware, "lastic, and almost anything else the store needs IKEA faces strict ;uotas and has difficulties im"orting food to its Swedish restaurant The com"any now has a foodim"ort agent that handles all related issues, including la$eling IKEAnited States it faced similar "ro$lems The com"any initially tried to re"licate its e2isting $usiness model and "roducts in the >S ?ut it had to customi#e its "roducts $ased on local needs American customers, for instance, demanded $igger $eds and $igger closets IKEA had to make a num$er of changes to its marketing strategy in the >S The challenges it faced in %hina, however, were far $igger than the ones in the >S ?ut now,In terms of housing, the average s;uare meters "er "erson in %hina has $een increasing considera$ly >ntil recently, a"artments averaged -4 m 6@ now ?eiing and Shanghai a"artments< average 84 m 6 This means several things9 %hinese residents need more

furnishings and, $ecause consumers are $uying more gadgets, they need more storage containers and facilities It also means IKEA needs to kee" its homelife study u"to date $ecause change ha""ens so fast . Slashing costs to !ro1ide affordable !rices:  ne of the main "ro$lems for IKEA was that its "rices, considered low in Euro"e and 7orth America, were higher than the average in %hina !rices of furniture made $y local stores were lower as they had access to chea"er la$or and raw materials, and $ecause their design costs were usually nil IKEA $uilt a num$er of factories in %hina and increased local sourcing of materials &hile glo$ally .4 "er cent of IKEA's range comes from %hina, a$out B "er cent of the volume sales in the country come from local sourcing  These local factories resolved the "ro$lem of high im"ort ta2es in %hina The com"any also started "erforming local ;uality ins"ections closer to manufacturing to save on re"air costs &hen IKEA first entered %hina, the store was considered too e2"ensive for its target consumersCyoung, "rofessional cou"lesCand the com"any lowered its "rices  The storeS, where most customers use "ersonal vehicles, IKEA stores are usually located in the su$ur$s In %hina, however, most customers use "u$lic trans"ortation So the com"any set u" its outlets on the outskirts of cities which are connected $y rail and metro networks / Com!any changed flat !ac" style to 3ready to use4 : -IKEA, famous for its flat"ack furniture which consumers have to assem$le themselves, reali#ed that understanding the local culture is im"ortant  %hinese "eo"le hate the doit yourself conce"t %om"any came to know that %hinese "eo"le don