case study IKEA
Couching Tiger S
wedish furniture giant
IKEA was founded by en-
trepreneur Ingvar
Kamprad in 1943. He be-
Tames the
gan by selling pens, wal-
lets and watches by going door to
door to his customers. When he
Dragon
started selling his low-priced furni-
ture, his rivals did everything to
stop him. Local suppliers were
banned from providing raw mate-
rial and furniture to IKEA, and the
company was not allowed to show-
case its furniture in industry exhibi-
tions. What did IKEA do? It inno-
vated to stay in business. It learnt
how to design its own furniture,
bought raw material from suppliers
in Poland, and created its own exhi-
bitions. 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. To meet local
laws, it formed a joint venture. The
venture served as a good platform
to test the market, understand local
needs, and adapt its strategies ac-
cordingly. It understood early on
that Chinese apartments were small
and customers required functional,
modular solutions. The company
l iu j i n / a f p / g e t t y i m a g es
made slight modifications to its
furniture to meet local needs. The
store layouts reflected the typical
sizes of apartments and also in-
cluded a balcony.
IKEA had faced similar problems
previously when it entered the
United States. The company initially
Everything under the sun: Local shoppers at an IKEA furniture store in China’s Chengdu city
tried to replicate its existing business
model and products in the US. But it
had to customize its products based
Executive Summary on local needs. American customers,
for instance, demanded bigger beds
IKEA is known globally for its low prices and innovatively designed furniture. In China, and bigger closets. IKEA had to make
however, it faced peculiar problems. Its low-price strategy created confusion among a number of changes to its market-
aspirational Chinese consumers while local competitors copied its designs. This case study ing strategy in the US. The challenges
analyses how IKEA adapted its strategies to expand and become profitable in China. It also it faced in China, however, were far
assesses some lessons the company learnt in China that might be useful in India, where it bigger than the ones in the US.
As the company opened more
plans to open its first store by 2014 and 25 stores in 10 to 15 years. stores from Beijing to Shanghai, the
By Valerie Chu, Alka Girdhar and Rajal Sood company’s revenue grew rapidly. 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.
IKEA identified the strategic chal-
lenges and made attempts to over-
come them. One of the main prob-
How IKEA’s strategies
differ in Europe and China
Europe
Value Proposition
Good quality, stylish furniture at
prices so low that everybody can
afford it
Valued NETWORK
Product
Stylish, functional products and
home furnishings
Store Location
The suburbs, next to highways so
that access by car is easy
Price
Low-cost
Promotion
IKEA catalogue is the
main marketing tool
Logistics
Products are sourced and made in
developing nations like China and
Malaysia, and then shipped
to Europe
lems for IKEA was that its prices,
considered low in Europe and North
America, were higher than the aver-
age in China. 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 sourc-
ing of materials. While globally 30
per cent of IKEA’s range comes from
China, about 65 per cent of the vol-
China
Good quality, Western-styled
aspirational brand for the middle-class
population
Slight modifications to products to suit
the local market and reflect Chinese
apartment sizes
The outskirts of cities, next to rail
networks as most customers use
public transport
Affordable prices
Advertising on Chinese social media
and micro-blogging website Weibo has
been popular
Raw material and products are
sourced locally. IKEA also built two
factories in Shanghai to
avoid high import
taxes
ume sales in the country come from
local sourcing. These local factories
resolved the problem of high import
taxes in China. The company also
started performing local quality in-
spections closer to manufacturing to
 case study IKEA
save on repair costs.
Since 2000, IKEA has cut its
prices by more than 60 per cent. 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.
High prices were one of the big-
gest barriers in China for people to
purchase IKEA products. IKEA’s glo-
bal branding that promises low
prices did not work in China also
because western products are seen
as aspirational in Asian markets. In
this regard, IKEA’s low-price strategy
seemed to create confusion among
Chinese consumers.
The company realised this and
“FDI in retail in
India has been
a non-starter,
hopelessly mired
in special-interest
politics”
Prof Nirmalya Kumar,
Professor of Marketing and Director
of the Aditya Birla India Centre at
London Business School
104 Business today July 21 2013
The main problem
for IKEA was that its
prices, considered low
in Europe and the US,
were higher than the
average in China
started targeting the young middle-
class population. This category of
customers has relatively higher in-
comes, is better educated and is
more aware of western styles.
ikea’s India rollout will be slow
T he success of IKEA in China is an
interesting adaptation example
by a global retailer. Yet, it may not
be much of a predictor of IKEA’s
fortunes in India. This may have less
to do with IKEA and more to do with
the economic policies of India.
A well-designed foreign direct
investment (FDI) policy should have
resulted in a rush of much-needed
foreign investment to India,
upgrading of the supply chain,
modernisation of the retail sector, as
well as more choices for consumers
with lower prices. Instead, FDI in
retail, like in higher education, has
been a non-starter, hopelessly mired
in special-interest politics. The rules
are so onerous that a mass retailer
such as IKEA will find it hard to meet
them without penalising customers
with higher prices and lower choice.
Also, it will be difficult for IKEA to
find the type of location (size, off a
Targeting this segment helped IKEA
project itself as an aspirational west-
ern brand. This was a massive
change in strategy, as IKEA was tar-
geting the mass market in other
parts of the world.
IKEA also had to tweak its mar-
keting strategy. In most markets, the
company uses its product catalogue
as a major marketing tool. In China,
however, the catalogue provided
opportunities for competitors to
imitate the company’s products.
Indeed, local competitors copied
IKEA’s designs and then offered sim-
ilar products at lower prices. IKEA
decided not to react, as it realised
Chinese laws were not strong
enough to deter such activities.
Instead, the company is using
Chinese social media and micro-
blogging website Weibo to target the
highway, with great links to a major
metropolis) that is crucial to the
success of its business model. This
will mean the first store will take
much longer to open than Indians
expect and the rollout will be
painfully slow. Fortunately, as a
privately held company with a long-
term orientation, IKEA will persevere
where more impatient publicly held
firms may have given up.
For India to kick its economy
back to the growth rates necessary
for meeting the aspirations of its
citizens, we need to roll out the red
carpet for foreign investors instead
of red tape. Competition law and
trade policies are supposed to
ensure that a free competitive
marketplace exists, with easy entry
and exit, not protect existing
competitors from new entrants.
Capitalism without failure is like
religion without sin.
urban youth.
IKEA also adjusted its store loca-
tion strategy. In Europe and the US,
where most customers use personal
vehicles, IKEA stores are usually lo-
cated in the suburbs. In China, how-
ever, most customers use public
transportation. So the company set
up its outlets on the outskirts of cities
which are connected by rail and
metro networks.
The China expansion came at a
cost. Since 1999, IKEA has been
working on becoming more eco-
friendly. It has been charging for
plastic bags, asking suppliers for
green products, and increasing the
use of renewable energy in its stores.
All this proved difficult to implement
in China. Price-sensitive Chinese
consumers seem to be annoyed
when asked to pay extra for plastic
the main challenge is to adapt
T here is no formula for success
that fits all marketing strategies
when a global brand decides to try a
new market, except perhaps
unconditional acceptance and
responsiveness to changes. The
greatest challenge is to adapt
constantly. It’s essential for
successful marketing campaigns to
take into consideration the local
approach versus the global/regional
desire for standardisation. A one-
size-fits-all approach is a rare reality.
A consistent global brand promise is
a desirable asset but what makes a
real difference is to be brave and
ready to change the target audience
and build a differentiating promise.
IKEA made all necessary
adjustments to make sure there was
no mismatch in its growth ambitions
and brand promise. Becoming an
aspirational brand which is blogging
with the Chinese middle-class youth
Chinese competitors
copied IKEA’s designs
from its catalogue
and then offered
similar products at
lower prices
bags and they did not want to bring
their own shopping bags. Also, a
majority of suppliers in China did not
have the necessary technologies to
provide green products that met
is an unexpected twist in its brand
proposition. IKEA demonstrated
courage to get the most relevant
changes. By courage I mean all big
corporations are ready to shift
production, work with local sources,
overcome legal requirements but not
too many of them are ready to adapt
a brand proposition that suits the
level of development the market and
consumer perception require.
IKEA is a strong brand that
understands that growing globally
requires sacrifices and innovation
from global teams, and they are
ready to listen, respect and learn
from the local environment. The
European headquarters’ excitement
to enter new markets with proven
best practices is something of the
past, proving that the real shift in the
global mindset is to recognise that
local versus global can bring
optimum results.
IKEA’s standards. Helping them adopt
new technologies meant higher cost,
which would hurt business. IKEA
decided to stick with low prices to
remain in business.
As IKEA prepares to enter India,
its China experiences will come in
handy. It understood that in emerg-
ing markets, global brands may not
replicate their success using a low-
price strategy. There always will be
local manufacturers who will have
a lower cost structure.
It is more important what cus-
tomers think about the company
rather than the other way around.
IKEA wanted to be known as a low-
price provider of durable furniture,
while Chinese consumers looked at
IKEA as an aspirational brand. It is
likely that Indian consumers will
also look at IKEA in a similar way.
“It’s essential
for successful
marketing
campaigns
to take into
consideration the
local approach”
Yelena Zubareva,
Regional Marketing Manager,
FWS/OEM SHELL
July 21 2013 Business today 11
 case study IKEA

The company also learnt that
emerging economies are not ready
for environment-friendly practices,
especially if they result in higher
prices. IKEA, famous for its flat-pack
furniture which consumers have to
assemble themselves, realised that
understanding the local culture is
important – Chinese people hate the
do-it-yourself concept and Indians
likely do so even more.
IKEA may face some India-
specific challenges such as varying
laws in different states ruled by dif-
ferent political parties. This could
make its operations, especially dis-
tribution and logistics, a bit chal-
lenging. IKEA already has had to
wait a long time to get permission to
open stores in India. The delay in
policy-making at the state level
could be even longer.
who are keen on decorating their
homes with stylish international
brands. The company has learnt
that doing business in emerging
markets is a different ball game for
a multinational company. IKEA did
well to adapt in China, although it
In India, IKEA may took numerous changes to its strat-
face some egies and more than 12 years for the
company to become profitable in the
country-specific Asian nation. ~
challenges such as (This case study is from the Aditya
varying laws in Birla India Centre of London Business
School.)
different states What can we learn from IKEA’s
brand adaptation in China? Post your
comments at www.businesstoday.in/
Indian customer preferences casestudy-ikea. The best response will
and economic environment are win a copy of India Inside by
similar to the Chinese market. IKEA Nirmalya Kumar and Phanish
will likely have hopes of attracting Puranam. Previous case studies are at
India’s urban middle-class buyers www.businesstoday.in/casestudy

Best of the lot BT receives scores of responses to its case studies. Below is
the best one on 7-Eleven in the issue dated May 26, 2013

Arjun Sood [arjunsood12345@gmail.com]; Post Graduate in Rural

Management (2011-13), Institute of Rural Management Anand
The 7-Eleven case is an apt example of multinational corporations
adopting different strategies to enter and sustain in new markets. The
corporations are shedding their standardised notions and are becom-
ing flexible for local markets. It is interesting to see how 7-Eleven
followed its overall vision (the concept of convenience stores) but
positioned itself differently in Indonesia. That is the power of a brand.
International players across various sectors such as automobiles, fast
food, furniture, banking and finance, clothing and retail are vying for
Asian markets. Entry into these markets may be easy but sustaining
requires in-depth understanding and then adapting to the culture, fashion and spending habits, and
demography of the patron country. McDonald’s followed this adaptive strategy in India when it launched
McAloo tikki burger to attract customers. Since then McDonald’s has been working to add variety to
the India-specific menu (Masala grill being the latest addition).
It would have been enriching had the case study covered the following aspects: Does the company
follow this adaptive strategy in other countries also or does it stick to its original strategy? What are
the possible negatives of such a strategy? Does such a strategy hamper the efforts of an organisation
to create a uniform brand identity?

Arjun Sood wins a copy of India Inside by Nirmalya Kumar and Phanish Puranam

104 Business today July 21 2013