Ikea's Entry Into The Chinese Market

1502 Words 6 Pages
IKEA entered the Chinese market as a joint venture in order to comply with Chinese laws, establishing their first store in Shanghai in 1998. IKEA entered the Chinese market in order to expand beyond the western markets it had already saturated, and take advantage of the growing middle-class of younger Chinese consumers who were more receptive to foreign products and brands. Upon market entry, IKEA faced many similar issues to those encountered by U.S. stores, except in China many of the cultural and economic differences were magnified.
Chinese consumers have very different shopping behaviors to those of western cultures due to the large cultural distance between Sweden and China, and the many different historical values and traditions. Consumers
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Hopwood, Wang, and Cheng argue “Chinese consumers were significantly more cost-sensitive than those in other countries and that there existed a strong, established culture of frequently shopping around to find the absolute lowest prices”.
When IKEA initially entered the Chinese market their products were priced much higher than those of their local and global competitors within the market, primarily because IKEA had not taken the Chinese purchasing power into account. The monthly income of Chinese residents was much lower in comparison to that of the European consumer, with a typical Chinese consumer having to work nine times as long as a Swedish to afford the same item. Because IKEA’s prices were higher than the competition, and the Chinese purchasing power was much lower than in European and U.S. markets, IKEA China had to cut prices as low as possible to remain competitive.
IKEA China was able to cut prices much lower than their market entry level by using local sourcing of materials and setting up on-site factories. The IKEA China stores now boast the lowest prices of all of their stores across the world, however even with the vast price reductions they are still considered mid-range in contrast to their local competitors.
3.2 Brand
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IKEA China targets the growing middle class, 25-35 age group many of whom were born into the one child policy era, which encompasses approximately 30 million people. This group is known for being much more open to western ideas and products than older more traditional Chinese people, and also is more educated and has a higher average income and can therefore afford IKEA’s mid-range products.
As mentioned above, Western products are seen as aspirational in China, and so IKEA offers the opportunity for younger generations of Chinese to show their success through the innovative and non-traditional designs of IKEA’s furniture. China’s large population allows for IKEA to be more specific with the audience they target, and this segment will likely continue to grow as China’s economy continues to develop, their middle class grows, and more western products enter the

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