IKEA in China: Cheap for Chinese?

2008-06-02

LYDIA LIU CCS 2008 SPRING

 Business idea: IKEA offers a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible can afford them Low prices are the cornerstone of the IKEA vision, business idea and concept .
Source: IKEA groups website (http://www.ikea-group.ikea.com/?ID=5)
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IKEA stores in China

Beijing Chengdu Guangzhou Shanghai Shenzhen 2006 2006 2005 2003 2008 42,000 26,000 16,000 32,000 (1998, 8000) 34,000

Source: IKEA groups website

(http://www.ikea-group.ikea.com/?ID=96 )

2008-06-02

LYDIA LIU CCS 2008 SPRING

Problem
IKEA seems to be a big success in China, but how does the Swedish company fit with the cultural dimensions and customer appeal in China?

Ikea became a luxury brand for Chinese when IKEA entered into the Chinese market, which was far from what IKEA stands for and their slogan affordable solutions for better living. IKEAs target group is middle class not low income young people. IKEA furniture is becoming cheaper and cheaper in China, but the mass in China still dont have the purchasing power to consume IKEA products.

2008-06-02

LYDIA LIU CCS 2008 SPRING

Challenges
An important challenge for IKEA is the need to understand the different environments the company needs to operate in. Understanding different cultural, economic, and political environments becomes necessary for success.

2008-06-02

LYDIA LIU CCS 2008 SPRING

Price- Cheap for Chinese?

Chinain in2007 2007stood stoodas asthe thesecond-largest second-largesteconomy economyin inthe theworld world China afterthe theUS USmeasured measuredon ona apurchasing purchasingpower powerparity parity(PPP) (PPP)basis, basis, after althoughin inper percapita capitaterms termsthe thecountry countryis isstill stilllower lowermiddle-income middle-income although ..
Textiles 39RMB in China and 39SEK in Sweden
http://www.ikea.com/cn/zh/catalog/products/4009812 7

[1] http://www.ikea.com/cn/zh/catalog/products/30103172 [2] http://www.ikea.com/se/sv/catalog/categories/rooms/living_room/10687/

a Swedish designed chair named Stockholm sells 2495 RMB in China[1] and 2295SEK in Sweden.[2]
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2008-06-02

LYDIA LIU CCS 2008 SPRING

Income RMB of Urban Households

Figure: 2003-2007 Income RMB of Urban Households[1] Source: National Bureau of Statistic of China
[1] http://news.xinhuanet.com/newscenter/2008-02/28/content_7687416.htm

2008-06-02

LYDIA LIU CCS 2008 SPRING

Hofstedes cultural dimensions

PDI IDV MAS UAI LTO Power Distance Index Individualism Masculinity Uncertainty Avoidance Index Long-Term Orientation

Source: http://www.geert-hofstede.com/hofstede_china.shtml
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The Chinese Culture

Confucianism and Taoism. China is a culture with high power distance, there is a large difference between peoples social status, status symbols are important . Being a collectivistic culture, family is very important in China. Long-term orientation. This indicates that consumers are very concerned with the price of products, because they want to save money .
2008-06-02 LYDIA LIU CCS 2008 SPRING 9

DIY in China
IKEAs main argument for the flat packaging and DIY is that they can provide low prices for the customers. DIY did not suit its exclusive image. The middle class white color who buy IKEA products, they prefer to buy assuming service .

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LYDIA LIU CCS 2008 SPRING

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Low price remains

Being able to lower the prices during the past years has increased the purchasing power of the IKEA customers. Lowering the prices even more would create a larger market potential.
The development and expansion of the Chinese economy and raised income levels of the Chinese people will make IKEA products become affordable for potential consumers in the future.
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IKEA in China
IKEA did some changes to fit the Chinese culture but IKEA has not given up any of the core concepts or changed the style of their products to accommodate local preferences. Low price is the most important reason for IKEAs success, but its still not cheap for the Chinese. IKEA has to continue lower the price in the Chinese market while make more adaptations to meet the Chinese customers needs.
2008-06-02 LYDIA LIU CCS 2008 SPRING 12