Case 4: IKEA in China: market entry flat packed?A rapidly growing middle class in China seeking a more comfortable home and lifestyle offers an attractive market to those companies whose success has been secured in more mature markets by helping customers to realize their dreams. IKEA of Sweden and Home Depot of the USA both saw China as their next big opportunity. The difference, however, is that IKEA is succeeding in China whereas Home Depot has failed, closing its final big box stores in 2012, with the loss of 850 jobs and taking a US$160 million hit in the process.The reason for this appears to be that Home Depot expected middle-class Chinese to behave as American middle-class consumers would. However, duo to low about costs, there is no do-it-yourself (DIY) culture in China. The Chinese prefer to pay a handyman or contractor to complete a project, whereas US homeowners would often undertake the task themselves. Home Depots products were mainly about providing the tools and materials to complete tasks that often required DIY skills.By contrast, IKEAs huge stores use room settings to show consumers how to furnish and decorate and give them experience of western culture. All the products to do this can be taken away from the store.Ikea has not been an overnight success in China. It took a decade to open 11 stores. But growth is expected to accelerate. IKEA recognizes that it must adapt to each market and visits thousands of homes close to its stores, sitting in the kitchen to listen to householders frustrations, ambitions, resources and alternative purchases. It recognizes that it must adapt its range in each of its 28 country markets. In the USA, for example, it needs to make beds bigger; in China it needs to provide firmer mattresses. Chinese apartments are smaller and so its room layouts and products reflect this.IKEA has faced a number of further challenges. Chinese consumers tend to buy lowpriced products. IKEA had to cut its prices substantially to compete with local suppliers. Its Beijing store can now attract over 25 000 visitors in a Saturday, equivalent to the number of visitors in a week at its European stores. This means that stores in China need to be larger and located nearer the population as few Chinese consumers have their own transport. Chinese consumers are less used to taking away flat-packed furniture -the key to IKEAs success – so the firm is expanding its delivery, assembly and installation services, as well as offering IKEA staff to get goods off the shelves – almost unheard of in European markets.The company has perhaps been slow to realize the need for e-commerce. Young Chinese born in the late 1980s are becoming a key segment of the market, used to buying on the Internet and having their purchases delivered to their home. IKEA s 22 stores in China can physically only reach a small percentage of the population. In 2017 IKEA started testing e-commerce using third parties to reach more consumers. Another reason to do this was that Alibaba opened Home Times, an IKEA lookalike competitive home furnishing store, in Hangzhou that was supported by Alibabas e-commerce expertise.Another problem for IKEA has been that many of the visitors are not really shoppers at all. They are likely to be taking advantage of IKEAs air-conditioning to escape the heat and smog of the city, or perhaps picnickers with their tea flasks and plastic bags of snacks strewn around the showroom, young lovers posing for selfies in apartment room sets, toddlers left to play on model furniture and people asleep on the beds and chairs around the store. Gradually IKEAs patience with them is paying off as growth accelerates.
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