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While globally 30 per cent of IKEA's range comes from China, about 65 per cent of the volume sales in the country come from local sourcing.
: IKEA is known globally for its low prices and innovatively designed furniture. Its low-price strategy created confusion among aspirational Chinese consumers while local competitors copied its designs.
This case study analyses how IKEA adapted its strategies to expand and become profitable in China.
He began by selling pens, wallets and watches by going door to door to his customers.
When he started selling his low-priced furniture, his rivals did everything to stop him. It learnt how to design its own furniture, bought raw material from suppliers in Poland, and created its own exhibitions.
Local suppliers were banned from providing raw material and furniture to IKEA, and the company was not allowed to showcase its furniture in industry exhibitions. Today, IKEA is the world's largest furniture retail chain and has more than 300 stores globally.
In 1998, IKEA started its retail operations in China. The venture served as a good platform to test the market, understand local needs, and adapt its strategies accordingly.Prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil.IKEA built a number of factories in China and increased local sourcing of materials.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.This category of customers has relatively higher incomes, is better educated and is more aware of western styles.Targeting this segment helped IKEA project itself as an aspirational western brand.It also assesses some lessons the company learnt in China that might be useful in India, where it plans to open its first store by 2014 and 25 stores in 10 to 15 years.Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad in 1943.In 2004, for instance, its China revenue jumped 40 per cent from the year before.But there was a problem - its local stores were not profitable.