IKEA in China - Facing dilemmas in an emerging

IKEA in China - Facing dilemmas in an emerging - ASIAN CASE...

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ACRJ This case was prepared by Dr Li-Qun Wei of the Hong Kong Baptist University and Dr Xi Zou of The Chinese University of Hong Kong as a basis for class discussion rather than to illustrate either effective or ineffective han- dling of an administrative or business situation. Please address all correspon- dence to Dr Li-Qun Wei, Department of Management, Hong Kong Baptist University, Kowloon Tong, KL, Hong Kong, E-mail: [email protected] edu.hk. ASIAN CASE RESEARCH JOURNAL, VOL. 11, ISSUE 1, 1 21 (2007) © 2007 by World Scientific Publishing Co. IKEA in China: Facing Dilemmas in an Emerging Economy In mid-2003, the president of IKEA China, Ian Duffy, and some executives were discussing the market strategies of IKEA China in their Beijing office. After a review of IKEA China’s market development, the executives brainstormed about possible solutions for the difficulties experienced in the Chinese market. In the end, Duffy announced a plan to open another store in Beijing, one in Guangzhou and possibly another one in a southwestern city, Chengdu, over the next five years. More significantly, the board unveiled a long-term plan to open ten more stores in mid-sized cities, such as Dalian and Qingdao, by the end of 2010. This plan would require a US$600 million investment. IKEA’s expansion plans underscored its confidence in China. However, over the past eight years, none of IKEA’s retail stores in China turned a profit, making them the only loss-making stores in the entire IKEA group. Although IKEA strived to implement its differentiation and cost leadership strategies that had brought tremendous success in the market worldwide, the company’s performance in China had not progressed much yet. Could IKEA adopt its usual strategies and repeat its market success in this distinctive developing country? Were IKEA’s furnishing and decoration concepts and retail strategies appropriate for the Chinese market? Could IKEA’s business strategies eventually enhance its competitive advantage in China?
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2 ACRJ COMPANY’S BACKGROUND Specializing in furniture and home decoration, IKEA was a private company owned by Stichting INGKA Foundation registered in Holland and controlled by its founder , Ingvar Kamprad, and his family. By August 2005, the foundation owned a grand total of 220 retail stores in 44 countries/ territories, employing 90,000 people. Among all these stores, the IKEA Group directly managed 196 stores in 24 countries and the others were owned and run by franchisees outside the IKEA Group. In fiscal year 2005, IKEA had an annual turnover of 14.8 billion euros. The IKEA catalog was printed in 52 editions with 25 languages, totaling 160 million copies in 2005. In the western countries, this global giant was the largest home furnishing retailer, dominating this conventionally fragmented industry.
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