IKEA is one of the largest multinational groups of organizations that mainly sell home appliances, accessories and ready to sell assemble furniture. They operate almost 351 stores around selling 12,000 products across the borders. The main vision of the company is to create better life experience for most of the people. In the year of 2008, they become the world's largest furniture retailer and its overall interior design work is often associated with eco-friendly simplicity. There are several attributes that allows IKEA to lower its price by an average of two to three percent (Gnizy and Shoham, 2014). These changes have been done during a period of global expansion due to cost control, operational details and continuous product development. The present report is based on the global expansion of IKEA brand in CHINA. It tells about the knowledge and understanding of the planning issues surrounding the entry of IKEA into CHINA. Further, this report describes about the micro and macro environment of CHINA that can affect the entry of IKEA and also tells about the plan that they can use to capture larger market share.
TASK 1 MACRO AND MICRO ENVIRONMENT OF CHINA
In order to support the expansion of the IKEA brand in CHINA, it is quite essential for them to understand the Macro and Micro environment. It is the world's biggest furniture company and they can expand their business globally. In order to enter into the China market, it is quite essential for them to adapt themselves according to the working of country.
Macro Analysis of China’s Market Environment is:
Political factor: It is one of the most important factors that should be followed by all the companies. It is related to all the laws, regulatory and government policies and it has a great impact on all the economic decision of the company (Gugler, 2011). China provides great platform to all the companies through which they can grow their business and capture their market share. The government of China is stable and they do not have too many regulations. There is a great reform in year of 1978 and economy of country has grown enormously. With the help of this improvement, country mainly motivated various development of private business, foreign trade liberalization and several profile of employment (Bird and Fang, 2009). Political factors of this country are very refined as they have changed the overall structure of the jobs and help the companies in reducing their unemployment level. There is a great opportunity for the IKEA and they can easily capture larger market share due to their favorite foreign trade policies. Moreover, the company can reap economies of scale as the labor there is cheap hence, the cost of production will also fall.
Economic policies: These are the factors which highly influence by the financial condition of the country. It also influences the business by various terms of capital investment, supply, demand, cost etc. Capital investment is always low if the demand is high. In today's globalized world most of the industries are investing and expanding their business in China due to their high economic growth (Richter, 2012). Most of the banks in the country are Bank of China and they all use different monetary policies in order to increase and decrease the interest rates. With the help of controlling their interest rates IKEA can start their business in China on a positive note. There have been rich labor resources and the economic labor price which helps IKEA in making greater contribution in their success.
Social factors: The major problem in China is unequal income distribution within the different areas of business. There is a higher distribution among east and west area zone people of China. It is quite essential for IKEA to set out that where they would like to open their store according to their target base (IKEA, 2014). Lifestyle of people in China is also different and IKEA can assign different jobs and roles to people as per their needs. According to the social issues, corruption is the most important issue in China and it may lead to damage several practices. In addition to this, the literacy rate in the country is 92.8.
Technological Factors: In today's technological advance world, it is most important for companies to adopt latest technologies so that they can easily enhance their business areas. Wood flooring industry in China is experiencing very high technological standard. IKEA can easily bring the transformation in all their business operations by adopting various latest technologies (Cameron and Green, 2004). Most of the trade barriers have been decreased by the use of advanced technologies and more opportunities have been increased in the industry.
Macro Analysis of the company:
Threat of substitute: IKEA is the largest suppliers of the furniture woods and they mainly sell various home appliances and furniture. It can see that there is not much substitutes available in China. The switching cost for IKEA is very high as they will have to capture a proper distribution channel by making contracts with the current wholesalers. In order to expand their business in the Chinese market, it is essential for IKEA to emphasize the uniqueness and exclusiveness of all products so that they can easily attract large number of customers (Arnold, 2003).
Threat of new entrants: Environment of China for investing the money is very good for all the international companies. Most of the companies are investing higher amount of money in order to expand their business in China as the growth rate of this country is very high. It is quite effective for IKEA to start their business in China as distribution channel is very good and switching cost is also very less.
Buyer's power: It can be described as a customer's ability in negotiating the prices with the company (French, 2009). It can be very difficult for IKEA to set their product prices as the buyers of China are very smart and they know very well how to spend money on which products.
Supplier's power: All the suppliers of IKEA have to face various problems such as there is availability of different substitute inputs. There are so many suppliers in the country and it helps the company in getting the raw material at very cheaper prices.
Competitive Rivalry: It is one of the most important factor which companies needs to consider very seriously as competitive rivalry in China is very high (Hodgetts, 2005). There is a huge competition in the China due to its increasing growth rate. International furniture suppliers and the dominance of local player are also very high. It is very difficult for IKEA to capture larger market share of the country as there is a huge competition and increased rivalry.
TASK 2 APPROPRIATE MARKETING OBJECTIVES FOR IKEA
In order to expand their business into global market such as China, IKEA needs to plan and set appropriate marketing objectives in order to compete with their rivals. It is essential for IKEA to first go through the proper market research so that they can easily come up with the appropriate marketing strategies for their products and services (IKEA, 2014). In order to expand their business in China, the main objective of company is to increase their sales as well as customer base. Most importantly, they need to enhance their market share so that they can easily get into the successful marketing strategies. The major challenge for company is to develop one single strategy that can be applied throughout the world. The main marketing objectives behind the support of the global expansion of IKEA brand is:
Increasing sales and products in existing market: One of the most important targets behind business expansion of IKEA is to increase their sales (Buckley, 2002). It is the most risk free way to expand which requires a bigger location, different pricing strategies etc.
Introducing a new product: IKEA can introduce their new furniture products by adopting several promotion strategies and it helps them in enhancing their marketing share (Gnizy and Shoham, 2014). They can easily attract large number of customers by providing right services to them.
IKEA is a giant furniture manufacturer and retailer company and it aims to exploit its global brand by applying the core retailing concepts and core values. These different values enable them to become the world's largest furniture retailer. IKEA needs to be sensitive to the specific customer needs and wants in each national market. One of the main objectives of this brand is to enhance their market share by adopting business and corporate strategies. In developed markets, IKEA is positioned as a low prices mass market brand. The company mainly known for its low prices and innovatively designed features (Ferrell and Hartline, 2011). It is the most important factor through which they can easily increase their market share and enhance their profit margin. The main strategy adopted by them is its low price strategy which helps them in attracting large number of customers. IKEA adopted various strategies in order to expand their business and become more profitable in China. The most supporting corporate and business strategy for IKEA is value proposition and value network through which they can supply good quality and stylish furniture at low prices so that everyone can afford it. The top most strategy for IKEA is their valued network in which product, store location, price, promotion, logistics should be well defined. They should provide stylish products which suit to the local market and reflects Chinese apartment sizes (Goodman, 2005). In addition to this, the outskirts of cities and next to rail networks are the top most suitable places for their store location. These are the most suitable places as most of the customer's uses a public transports in order to travel. There prices should be affordable so that they can easily attract large number of customers. In addition to this IKEA can globally expand their business and easily enhance their market share by adopting top most strategies for promoting their services.
For this purpose, they can go through the advertising on Chinese social media and micro blogging websites Weibo has been popular. By promoting all their furniture products and services they can easily attract most of the customers. They can select the best campaign and promoting designs which is very attractive (Sharma, 2005). For adopting the logistic strategy IKEA has built two factories in Shanghai in order to avoid high import taxes.
High prices were one of the biggest threats for China people to purchase IKEA products. Company's low price strategy seemed to create confusion among Chinese consumers. Company started targeting young middle class population as these category consumers have relatively higher income. Targeting this segment helped IKEA project itself as an aspirational western brand. They are also targeting the mass market in other parts of the world. For the purpose of attracting large number of customers and increasing huge customer base company uses its product catalogue as a major marketing tool (Wilson, 2009). Due to this tool, most of the IKEA competitors can easily copy their designs and then offered similar products on a lower price. Chinese laws are not so effective to deal such activities. They target urban youth by using Chinese social media sites and micro-blogging websites. Company also determines that upcoming economies are not ready for environment friendly practices.
The major objective of the IKEA is to attract India's urban middle-class buyers who are keen on decorating their homes and offices with stylish international brands. By adopting the strategy of globally expanding their business, they have been gone through the various changes into their strategies (Gnizy and Shoham, 2014). They have designed a foreign direct investment (FDI) policy through which there is a higher up gradation of supply chain as well as modernization of the retail sector. In addition to this, it can be clearly stated that IKEA is a strong brand understand that growing globally mainly requires having an innovation from global teams and they are ready to listen and learn from the local environment (Bird and Fang, 2009).
TASK 3 POTENTIAL BUSINESS MODEL OF IKEA
IKEA is a privately-held, international home products retailer which distributes its products through its retail outlets. One of the main targets of this company is to offer a wide range of well designed, functional home furnishing products at low prices so that as many as possible people will afford them (IKEA, 2014). Most of the time it happens that beautifully designed products offers only to whom who can afford them. At its starting stage, IKEA has taken a different path and it helps them in enhancing their market share as well as increasing their market products. There are different needs of people around the world with many different needs and tastes. It is not so easy to manufacture beautiful and durable furniture at low prices. It's all about finding simple solution. IKEA can easily increase their profit margin by providing high quality service to all their customers (Hodgetts, 2005). As per the potential business model of IKEA, it has been identified that the main business idea is based on a partnership with the customers.
IKEA follows corporate business structure which is operated by two main parts i.e. operations and franchising. Most of the IKEA's operations including the management of the majority of its stores and supply functions are the overseen by INGKA holding, a private, for-profit Dutch company. The most important part of adopting this business model is to expand their business operations globally (Cameron and Green, 2004). IKEA does not sell furniture items to the customers they just sell as furniture life style to their audience. There are several applications of the marketing tactics that will support the expansion of IKEA's business in China. The top most application for becoming this brand popular is to cooperating with the supplier from all over the world. It helps in bringing new lifestyle for all the customers of IKEA. In order to support their global expansion of business, there are various marketing tactics adopted by them such as service strategy, standardized marketing strategy etc. While expanding their business, they needs to analyze that how they manage the demand with their capacity they mainly used three marketing tactics through which they can easily expand their business i.e. overall cost leadership, developing complementary services, globalization strategy (Richter, 2012).
Overall cost leadership tactic: According to this marketing application and strategy IKEA have affordable prices and lower profit margin with them through which they can treat majority of people. In order to become an overall cost leader, they needs to minimize the cost. In order to keep their cost lower, they need to adopt several practices. The target market is young buyers who searches for stylish and fashionable house hold products and accessories at low cost. Firm mainly offers home furnishing that combines good design, functionality.In addition to this, it can be stated that low cost is the top most priority of IKEA (Clayton and Heo, 2011). They always offer some differentiated features in their products that appeal to its target customers with providing limited customer service as well as self selection by customers and low manufacturing cost.
Developing complementary service: It is one of the most demanded and capacity management strategies. This is the most appropriate marketing tactic which leads them to increase their market share. Every firm has some waiting queue while serving their services. Firm can manage their demand by using these services in order to reduce the waiting time and manage it to gain profitable advantage (Gnizy and Shoham, 2014). The main complementary marketing element of IKEA is its large and unique store, its restaurant cafe and supervised play area for children's. They can encourage their visitors to take their time and get comfortable with IKEA.
Globalization marketing tactic: It is the most appropriate application of the marketing tactics that will support the expansion in CHINA. As they have operated their stores in 41 countries by applying multi country expansion strategy (Goodman, 2005). It mainly serves different globalization factors such as customer contact, cultural adaption, customization etc. IKEA has standards setting for every country so they have standard service policy (Clayton and Heo, 2011).
The overall expansion of the business of IKEA in China has been supported by various marketing application. For this purpose, they need to remove all the cultural barriers and go for the better promotion strategy. It is the quite effective way to overcome with the different cultural barriers as well as language issues. In addition to this, the overall business model of the company depends on all these factors through which they can easily promote their services as well as enhance their market share (Sharma, 2005). Moreover, it can be stated that these are the different applications through which IKEA can serve all the business operations globally.
From the above report of global marketing, it has been analyzed that IKEA can easily expand their business in China as it is one of the fastest growing countries. They can fulfill all their marketing objectives by adopting various strategies such as low price strategies and the outskirts of cities and next to rail networks are the top most suitable places for their store location. IKEA can easily expand their business by adopting these corporate and business strategies. Moreover, it helps them in increasing their sales by targeting young age group people as they are conscious about most suitable furniture goods as decorative items for home and offices. In addition to this, IKEA follows corporate business structure and globalization marketing tactic is one of the best suitable applications of the marketing tactics that will support the expansion in CHINA.
Arnold, D., 2003. The Mirage of Global Markets. Pearson Education.
Bird, A. and Fang, T., 2009. Cross Cultural Management in the Age of Globalization. International Journal of Cross Cultural Management.
Buckley, P., 2002. International business versus international marketing. International Marketing Review,
Cameron, E., and Green, M., 2004. Making Sense of Change Management: A Complete Guide to the Models, Tools & Techniques of Organizational Change. Kogan Page Publishers.
Clayton, M. and Heo, J., 2011. Effects of promotional-based advertising on brand associations. Journal of Product & Brand Management.
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