On investment Strategy of multinational corporations entering into Market of China---taking IKEA as case study

1 Introduction
1.1 Research area and background 　
Advancement in science and technology

1. Foreign Direct Investment is not only the existence of a positive direct pulling effect on Employment in China, but also through out of domestic investment and improve productivity level of domestic employment have a negative indirect inhibitory effect. For every 1 percentage point increase in FDI would be a direct result of employment growth 0.052 percent, 0.044 percentage points and indirectly reduce the employment opportunities, thus boosting the actual employment growth 0.008 percentage points, click here to calculate the proportion of 1994-2002, caused by the growth in FDI the actual number of people employed rose by 407.18 people. Betting on a break in the peg may be premature. Inflation remains modest in comparison to Saudi Arabia's neighbours, most of which have inflation in the vicinity of 10 per cent. Additionally, the components driving the jump in inflation - food and rents - are unlikely to be significantly affected by a shift in exchange rate regime, the former driven by global agricultural demand and the latter by the influx of foreign workers into the country. Finally, Saudi Arabia will not want to jeopardise its FDI inflows (Like China, Saudi Arabia's peg to a weak dollar makes it a cheap investment destination versus other emerging markets whose currencies have already appreciated). As a result, we expect any break with the peg would likely be measured and managed, with a relatively insignificant impact on the dollar(Adam 2007). Work out how much the US buys from China, cut the growth of US's imports from China in half and see what is the hit to China's GDP. According to China's economic statistics, if Chinese exports were to weaken, there is no way domestic demand could make up the difference. Consumption in China is on a weakening trend as a proportion of GDP. Exports and investment are the real drivers of the economy. China seems capable of withstanding the impact of even a quite dramatic slowdown, in both exports to the US and in the foreign direct investment (FDI) that it receives from the US. China's vulnerability to such shocks is probably overstated by official statistics that may exaggerate investment but underreport the fast-growing consumer sector. A US downturn that impacted China would also elicit a fiscal and monetary policy response, which could offset between half and two-thirds of the growth loss from weakening exports and inward FDI(David 2007).#p#分页标题#e#
2. Foreign domestic capital crowding-out effect reflects the country in attracting FDI during the existence of an important issue, namely, the number of one-sided emphasis attract investment and neglect the industrial distribution relevance of the complementarity between foreign investment and domestic industrial structure and. Of foreign investment in the industrial sector in China are distributed mainly in the idle capacity, highly competitive consumer goods industry, while in China the urgent need for the development of heavy industry and high-tech industrial sectors have attracted less foreign investment, which is source of foreign investment to Hong Kong and Taiwan's small and medium enterprise based on. Government to encourage foreign investment, given the policy of unequal treatment of domestic and foreign investors, thereby increasing the crowding-out effect. Foreign funds in China in the future policy should focus on the industry level guidance, on the domestic competition in the industry to fully abolish preferential treatment for foreign investment, focus on the introduction of complementary and associated with the domestic industrial structure and strong foreign investment. From a data set of 6,288 U.S. multinationals investing in various China's regions in the period 1993-2001, it is found that U.S. multinationals prefer to invest in those regions that have better protection of intellectual property rights, a lower degree of government intervention in business operations, a lower level of government corruption, and better contract enforcement. The results are robust to alternative measures of economic institutions, and to the inclusion of control variables such as regional agglomeration economies, regional average wage costs, regional infrastructure adequacy and other traditional determinants of foreign direct investment location choice(Lu 2007).
3. Enhance productivity arising from the employment pressure is an inevitable process of economic development phenomenon, especially in China, a populous developing country is far more dramatic. China's employment problem is the low quality of the labor force by the modern sector of the economy caused by the structural contradictions between, in 2007the fifth national census showed that 16 to-59-year-old working-age population, by the proportion of junior secondary and below education Up to 78.9% shows that the performance of the labor population is still low quality of the overall pattern. The fundamental way to solve this problem is to improve the quality of domestic workers, by increasing investment in education to provide professional skills training and the popularization of scientific and technological knowledge contributed to a large number of redundant channels such as the non-skilled labor and skilled labor force to changes in professional and technical personnel to increase the effective labor force elements of the supply to meet the needs of the modern sector of the economy. Laborers help also increase the overall quality to attract international investors to enter, especially those that require a higher quality of labor investment by multinationals in developed countries to further expand employment and to achieve technological progress and social employment of the twin objectives of ensuring economic level the track of sustainable development, steady progress.#p#分页标题#e#
2.3 Market entry
2.4.1 Market size and Geographical distribution
Since the economic reform in 1978, China has become one of the large economic countries which have the most development potential. Generally speaking, due to the rapid economic growth, the Chinese market offers great business opportunities to foreign investment. For example, China GDP growing at around 9.6% a year since 1979 and now it reach to the fourth largest economy in the world. According to the economists in the Beijing Normal University, China's marketization level has reached 73.8% in 2003, already exceeding the market economy critical level of 60%.
As the third largest country in the world, China has considerably geographical variations from east to west and south to north. Along the South China Sea, the East China Sea, the Yellow Sea, and the Bo Sea, east China has approximately 14,500 km of coastline, with ports and harbours for sea transportation to many developed economies. As we know, Japan, Hong Kong, Taiwan, and South Korea have become significant global investors. These world large economies are close to East areas. In comparison, west areas are quite different geographically to the east areas, with no nearby ocean routes for handle export processing. 23 In addition there are small and poor markets in neighbouring countries. Export processing is unlikely to prosper in these areas. According to the National Economic Research Institute (2001), east China had a much higher marketization level than central and west China in 1999 and 2000. As a result, eastern provinces explain more of the investment growth.
In addition, China’s FDI has been characterized by its unequal regional distribution. The vast majority of foreign investment is concentrated in coastal areas, including Guangdong, Jiangsu, Zhejiang, Fujian, Shandong provinces, and Shanghai. The trend is due to economic reforms that caused the FDI flowing into special economic zones.
Table 2-7 shows the ratio of regional FDI to country’s FDI from 1985 to 2003. East regions have attracted relatively more FDI than central regions and west regions. The western less developed provinces received a very small amount of FDI inflows. Their share in the national accumulated FDI stocks has been declining from 7.7 percent in 1985 to 4.0 percent in 2003. From 1983 to 2000, the eastern region accounted for average 87.8 percent of actual FDI in contrast to around 9.0 percent and 7.0 percent inessay examplehttp://www.ukthesis.org/dissertation_writing/ central and west region. In 2003, 84.9 percent of FDI was generated in the east region, in contrast to only 11.0 percent and 4.0 percent in central and west region. On the whole, the differentiated regional development policies have created the best investment environment in coastal China. In 1989, in order to attract more FDI in central and west regions, a series of policies were introduced. Now there are many preferential treatments for foreign enterprises that invest in central and west regions.#p#分页标题#e#
Table 2 - 8 Ratio of Regional Foreign Direct Invest to
Country’s Foreign Direct Investment (percent)
region Year 1985 1990 1995 2000 2003
East Region 87.3 89.7 83.0 85.4 84.9
Central Region 5.0 3.5 9.1 8.9 11.0
West Region 7.7 6.8 7.9 5.7 4.0
Source: Various versions of China Statistical Yearbook, China Population Statistics Yearbook, China Statistical Yearbook on Science and Technology.
Note: The East Region includes the provinces of Beijing, Fujian, Guangdong, Hebei, Jiangsu, Liaoning, Shanghai, Shandong, Tianjin and Zhejiang; The Central Region includes the provinces of Anhui, Heilongjiang, Henan, Hubei, Hunan, Jiangxi, Jilin and Shanxi; The West Region includes the provinces of Chongqing, Hainan, Inner Mongolia, Guangxi, Gansu, Guizhou, Ningxia, Qinghai, Shaanxi, Sichuan, Tibet, Xinjiang and Yunnan.
According to Cheng (2006), it is imperative for a firm to choose the proper FDI mode in order to effectively expand into international markets and reduce existing entry barriers. FDI mode choice strategy can also be used to help the firm formulate an effective international operating strategy. Furthermore, the proper FDI mode can help the firm to establish itself successfully in a foreign market, enhancing its international competitiveness(Chen, H. 2006). Calof (1993) believes that foreign market entry mode is defined as institutional arrangements that allow firms to use their product or service in a country exchange. Daphne and Shige(2002) point out that the choice of organizational structure (including entry-mode) can not be viewed only as a level of control, but as a consequence of organizational responses to isomorphic pressures arising from both a firm’s external environments and its internal organizational practices and routines.
Basically, the direct investment includes Sino-foreign joint ventures, Cooperative Joint Venture and exclusively foreign-owned enterprises and other new types of foreign investment in China. At the same time, there are other means of investment, for example, compensation trade, processing and assembling. The foreign firm’s mode of entry affects the degree of competition and extent of risk in the host country. As a result, in order to effectively enter and develop to the Chinese markets, it is important for a firm to choose the proper FDI entry mode. Overall, FDI entry mode model consists of three forms, namely, Sino-foreign joint ventures（EJV），Cooperative Joint Venture (CJV) and Wholly Foreign-Owned Enterprise (WFOEs) .EJV is the first form of China's absorption of foreign direct investment. Nowadays, EJV is still an important entry mode for foreign investments. CJV is a joint venture between a Chinese and a foreign company. On the one hand, the foreign enterprises usually supply most of the capital and technology. WFOEs is totally invested by foreign party in China by foreign companies, other economic organizations and individuals. Generally speaking, exclusively foreign-owned enterprises always adopt international advanced technology and facilities. Most of their products should be export-oriented. At present, it is becoming increasingly popular among all the FDI entry models. WFOEs may protect intellectual property from being stolen by joint venture partners. However, it is difficult for exclusively foreign-owned enterprises to establish good relationships with local government banks and other organizations. #p#分页标题#e#
Table 2 - 9 Amount of Foreign Investment by Form
(USD 100 million)
Item 2006 2007
Number of
Projects Actually
Utilized
Value Number of

Projects Actually
Utilized
Value
Total 41473 670.76 37871 783.39
Foreign Direct Investments 41473 630.21 37871 747.68
Equity Joint Venture 10223 143.78 7649 155.96
Contractual Joint Venture 1036 19.40 641 14.16
Wholly Foreign-owned
Enterprise 30164 462.81 29543 572.64
FDI Shareholding Inc. 50 4.22 38 4.92
Joint Exploration / / / /
Others / / / /
Other Foreign Investment / 40.55 / 35.72
Sale Share / 13.55 / 4.02
International Lease / 0.36 / 1.80
Compensation Trade / 0.21 / 0.18
Processing and Assembly / 26.43 / 29.72
Sources: Calculated from China Statistical Yearbook
(http://www.stats.gov.cn/tjsj/ndsj/2007/indexeh.htm)

The table 2-9 shows some information about FDI by vehicle type from 2006 to 2007. It is clearly that WFOEs and EJVs are the two most popular FDI entry modes for multinational enterprises. The number of WFOEs projects reached to 30,164 in 2006. Meanwhile, EJVs projects accounted for around 10223. On contrast, because of the high cost operation and inconvenient management, the indirect investments are not popular for foreign investment. The actually utilized value was only 30.72 in 2007.
2.3.3 Identification of the distribution network
At the beginning of China’s international trade, professional distribution options were scarce. For example, most of the distribution companies were parts of some governmental supply system，others were private enterprises. As a result, foreign firms had no choice but to use state distribution network. Since the economic reform, China has been engaged in a process of economic liberalization and opening up to foreign trade and FDI, the central government has made great effort to liberalize the system. Many foreign firms have managed to establish national distribution networks in post-WTO China. According to Powers (2001), one of the best examples of the change that has occurred in the distribution of goods in China is the development of the hypermarket/big-box retail format since 1996. Wal-Mart Stores, Inc. of the United States, Metro AG of Germany, Carrefour SA of France, and China's own Shanghai Hualian Supermarket Co. and Lianhua Supermarket Co. Ltd have altered the traditional distribution practices and selected the hypermarket/big-box retail format.
However, it is not easy to cover the 9.6 million square kilometer market in a short time. There are many distinctive worlds in one China. As it is known to all that, China is the biggest developing country in the world with a total population of around 1.3 billion. According to the data from National Bureau of Statistics of China,essay examplehttp://www.ukthesis.org/dissertation_writing/#p#分页标题#e# 11.9% of the total population is middle class, which is rapidly increasing to 290 million to 2011. People are very different in their income level, education, and culture in the local social and political atmosphere in which they live, that market segmentation and targeting is crucial. In order to establish business successfully, we must know the cultural background, living environment, consumption level and characteristics of Chinese residents. In all, China has a strong foundation to develop into a developed economy. Furthermore, this improvement will occur at an ever-increasing step.
2.4.2 Foreign Market Entry Models
According to Cheng (2006), it is imperative for a firm to choose the proper FDI mode in order to effectively expand into international markets and reduce existing entry barriers. FDI mode choice strategy can also be used to help the firm formulate an effective international operating strategy. Furthermore, the proper FDI mode can help the firm to establish itself successfully in a foreign market, enhancing its international competitiveness. Calof (1993) believes that foreign market entry mode is defined as institutional arrangements that allow firms to use their product or service in a country exchange. Daphne and Shige(2002) point out that the choice of organizational structure (including entry-mode) can not be viewed only as a level of control, but as a consequence of organizational responses to isomorphic pressures arising from both a firm’s external environments and its internal organizational practices and routines.
Basically, the direct investment includes Sino-foreign joint ventures, Cooperative Joint Venture and exclusively foreign-owned enterprises and other new types of foreign investment in China. At the same time, there are other means of investment, for example, compensation trade, processing and assembling. The foreign firm’s mode of entry affects the degree of competition and extent of risk in the host country. As a result, in order to effectively enter and develop to the Chinese markets, it is important for a firm to choose the proper FDI entry mode.
(1) Sino-foreign joint ventures（EJV）
In China, Sino-foreign joint ventures are formed with joint capitals by foreign companies and other economic organization with Chinese companies and other partners. They are also known as share-holding corporations. This kind of joint ventures is the first form of China's absorption of foreign direct investment. Nowadays, EJV is still an important entry mode for foreign investments.
(2) Cooperative Joint Venture (CJV)
A Sino-Foreign Cooperative Joint Venture (CJV) is a joint venture between a Chinese and a foreign company, it is also called contractual cooperation businesses. On the one hand, the foreign enterprises usually supply most of the capital and technology. On the other hand, Chinese enterprises supply land, useful facilities and a small amount of capital.
In China, EJVs and CJVs are similar in many respects. Both of them can benefit foreign investors. The main advantage for the foreign investor when entering into JVs is the reduced risk.We should know that the lack of a Chinese partner often puts a serious strain on the development of the international business. For example, a good relationship with local government and bank sectors is of great importance in China. Basically, Chinese enterprises usually have certain strengths such as local government support, brand reputation, land, capital, distribution, and access to local suppliers. Furthermore, if the Chinese partner is a SOE enterprise, the government will assist in supply of raw materials and the allocation. Hence, JVs may help to reduce the costs of the processing and improve the chances of success.#p#分页标题#e#
There are also some disadvantages of JVs entry models. On the one hand, Thesis is provided by UK thesis basehttp://www.ukthesis.org/the foreign enterprise should consult its Chinese partner when handling management issues, which may cause conflicts of interest. On the other hand, foreign investors must transfer technology and managerial skills to the domestic enterprises; it means that the Chinese partner will have full access to it.
(3) Wholly Foreign-Owned Enterprise (WFOEs)
A Wholly Foreign-Owned Enterprise is totally invested by foreign party in China by foreign companies, other economic organizations and individuals. Because there is no participation of any Chinese investors, the foreign enterprise completely control over the business. Since China's WTO entry, foreign investors have been choosing to establish more WFOEs. Generally speaking, exclusively foreign-owned enterprises always adopt international advanced technology and facilities. Most of their products should be export-oriented. At present, it is becoming increasingly popular among all the FDI entry models.
There are many advantages about this type of entry mode. On the one hand, foreign enterprises have complete independence on how to run the company business. As a result, they have a higher level of efficiency than joint ventures in the daily operations.
On the other hand, WFOEs may protect intellectual property from being stolen by joint venture partners. However, it is difficult for exclusively foreign-owned enterprises to establish good relationships with local government banks and other organizations.
(4). New types of foreign investment
In order to expand the huge domestic market, China is exploring actively many new types of utilizing foreign investment. There are many new types of foreign entry modes such as acquisition entry, Joint development, Investment Company, Compensation Trade and so on. For example, Joint development is a widely adopted entry mode of economic cooperation in the international natural resources industry. Because the features of Joint development are high risk, high investment and high reward, compared with the other three means mentioned above, joint cooperation accounts for a small percent.
Table 2 – 10 Amount of Foreign Investment by Form
(USD 100 million)
Item 2006 2007
Number of
Projects Actually
Utilized
Value Number of

Projects Actually
Utilized
Value
Total 41473 670.76 37871 783.39
Foreign Direct Investments 41473 630.21 37871 747.68
Equity Joint Venture 10223 143.78 7649 155.96
Contractual Joint Venture 1036 19.40 641 14.16#p#分页标题#e#
Wholly Foreign-owned
Enterprise 30164 462.81 29543 572.64
FDI Shareholding Inc. 50 4.22 38 4.92
Joint Exploration / / / /
Others / / / /
Other Foreign Investment / 40.55 / 35.72
Sale Share / 13.55 / 4.02
International Lease / 0.36 / 1.80
Compensation Trade / 0.21 / 0.18
Processing and Assembly / 26.43 / 29.72
Sources: Calculated from China Statistical Yearbook
(http://www.stats.gov.cn/tjsj/ndsj/2007/indexeh.htm)
The table 2-8 shows some information about FDI by vehicle type from 2006 to 2007. It is clearly that WFOEs and EJVs are the two most popular FDI entry modes for multinational enterprises. The number of WFOEs projects reached to 30,164 in 2006. Meanwhile, EJVs projects accounted for around 10223. On contrast, because of the high cost operation and inconvenient management, the indirect investments are not popular for foreign investment. The actually utilized value was only 30.72 in 2007.
2.4.3 Identification of the distribution network
At the beginning of China’s international trade, professional distribution options were scarce. For example, most of the distribution companies were parts of some governmental supply system，others were private enterprises. As a result, foreign firms had no choice but to use state distribution network. Since the economic reform, China has been engaged in a process of economic liberalization and opening up to foreign trade and FDI, the central government has made great effort to liberalize the system. Many foreign firms have managed to establish national distribution networks in post-WTO China. According to Powers (2001), one of the best examples of the change that has occurred in the distribution of goods in China is the development of the hypermarket/big-box retail format since 1996. Wal-Mart Stores, Inc. of the United States, Metro AG of Germany, Carrefour SA of France, and China's own Shanghai Hualian Supermarket Co. and Lianhua Supermarket Co. Ltd have altered the traditional distribution practices and selected the hypermarket/big-box retail format.
However, it is not easy to cover the 9.6 million square kilometer market in a short time. There are many distinctive worlds in one China. As it is known to all that, China is the biggest developing country in the world with a total population of around 1.3 billion. According to the data from National Bureau of Statistics of China, 11.9% of the total population is middle class, which is rapidly increasing to 290 million to 2011. People are very different in their income level, education, and culture in the local social and political atmosphere in which they live, that market segmentation and targeting is crucial. In order to establish business successfully, we must know the cultural background, living environment, consumption level and characteristics of Chinese residents. In all, China has a strong foundation to develop into a developed economy. Furthermore, this improvement will occur at an ever-increasing step.#p#分页标题#e#
3 Key issues for foreign enterprises entering Chinese market
3.1 Investment climate
3.1.1 Political aspects
Generally speaking, China’s political conditions are very stable. Since the economic reform, China has been much open to the international society. For example, China has developed series of laws and regulations in attraction of foreign investment to the domestic market. Foreign enterprises now are able to establish WOFEs rather than operate through joint ventures. In 2006, the central government announced that China would more actively seek to target investment in higher value-added sectors rather than basic manufacturing. These sectors include high technology research and development, advanced manufacturing, energy efficiency, modern agriculture and services sectors. However, foreign investors continue to face many challenges, such as a lack of transparency, weak intellectual property protection, underdeveloped laws and regulations, corruption and an unreliable legal system. On the one hand, onerous requirements have limited foreign investment in some newly opened service sectors, including education, culture, arts, film, and television broadcasting. Furthermore, China's legal system is complex, contradictory, and lacks consistent enforcement. Although central government policy has become more and more favourable for foreign enterprises, the environment also lacked an effective competition policy. The situation tends to be worse in internal regions. On the other hand, the Chinese logistics industry is historically prone to local protectionism, unfair competition. For example, State-owned enterprises are protected in markets where they operate. They are benefit from local governments in terms of secure access to land, assets, finance and markets. In all,Thesis is provided by UK thesis basehttp://www.ukthesis.org/ it is difficult for many foreign companies to enter a new market because of local protectionism.
3.1.2 Economic aspects
According to the report from the Word Bank, China became the fourth largest global economy with a total GDP of US$ 2,229 billion. Meanwhile, according data from National Bureau of Statistics of China, the average annual Growth Rate is at 9.7% from 1979 to 2001, 10.2% from 1991 to 2006, and 10.1% from 2001 to 2006. As I mentioned before, in the year of 2006, exports volume reached to US$968.94 billion while imports volume increased to US$791.46 billion, resulting in a trade surplus of US$177.48 billion.
Focusing on market size, the growth of domestic market size has a positive and significant effect on FDI. During the past 30 years, Chinese people’s income levels and living standards have improved greatly. As a result, the rapid economic growth has led to the rapid emergence of an urban middle class of consumers. They are demanding higher quality, variety and innovation from the retailers. Average earning of Employed Persons in Urban Units rose from 8255.8 Yuan in 1995 to 24262.3 Yuan in 2006, nearly double increase in 11 years. At the same time, Chinese people achieved as a whole a four times increase in their income in the rural regions. In 2006, the average income grew to 3587 Yuan. Table below shows the growth of Chinese gross domestic product from 1978 to 2006. In a word, China’s economic trend is better and better. Especially since China’s WTO entry in 2001, the business potential in China has been further boosted. At present, China is one of the most suitable markets for foreign investment. If the investments are carefully planned, the risks can be greatly removed.#p#分页标题#e#
In summary, China’s attitude towards foreign companies has changed from indifference to demanding after economic reform. On the one hand, China tries best to attract FDI, and on the other hand, the government also strictly control over FDI such as industry constraints and export requirements. Despite these problems, for many multinational enterprises, China remained an attractive market in which to invest.
Figure 3 - 1 Growth of Gross Domestic Product
(Unit: 100 million yuan)

Sources: Calculated from China Statistical Yearbook
3.2 Concept of Culture and Chinese Culture
3.2.1 Culture study
The potential of the Chinese market is fully observed, however, one of the key questions for investors in China is how to reduce conflicts from social and cultural dimensions. Since the purpose of the thesis is to study how multinational corporations enter and develop in Chinese market, it is essential to have knowledge about Chinese culture. The study of culture will provide the grounds for further studying marketing strategies. However, the definition of culture is in fact too complex to define in simple terms. In this paper, culture has been defined by different authors as follows:
"Most social scientists today view culture as consisting primarily of the symbolic, ideational, and intangible aspects of human societies. The essence of a culture is not its artifacts, tools, or other tangible cultural elements but how the members of the group interpret, use, and perceive them. It is the values, symbols, interpretations, and perspectives that distinguish one people from another in modernized societies; it is not material objects and other tangible aspects of human societies. People within a culture usually interpret the meaning of symbols, artifacts, and behaviors in the same or in similar ways." (Banks and McGee, 1989).
"By culture we mean all those historically created designs for living, explicit and implicit, rational, irrational, and nonrational, which exist at any given time as potential guides for the behaviour of men." (Kluckhohn and Kelly, 1945)
"Culture is the shared knowledge and schemes created by a set of people for perceiving, interpreting, expressing, and responding to the social realities around them" (Lederach, 1995) (30)
More recently, according to Fan (2000), culture can be described as the collection of values, beliefs, behaviours, customs, and attitudes that distinguish a society. A society’s culture provides its members with solutions to problems of external adaptation and internal integration. He also proposes that culture can be studied at different levels such as international, national culture, regional culture, business culture and organizational culture. However, a national culture is best embodied in the values its people hold. At the same time, he examines the core values of Chinese values are unique and consistent. This cultural value system is uniquely Chinese that distinguish itself not only from Western cultures, but also from other Eastern cultures. Because of limit space, the traditional culture’s influences shown in Ikea Shanghai’s marketing performance are studied in detail.#p#分页标题#e#
3.2.2 Chinese business culture
In fact, Cultural awareness plays an essential role to multinational corporations. For example, business culture can affect the structures of successfully opening a business in foreign countries. All companies want to establish globally should have the cultural sensitivity. For example, Chinese business culture is well known for its unique traditions. Loyalty and harmony to partners are key values in Chinese society. Because of the traditional sense of value, some stable, long-term international relationships are established with foreign companies. Paying attention to cultural differences also can give foreign companies that culture a better chance of acceptance. Furthermore, more and more overseas companies build business in China. Those who have cultural sensitivity are at an advantage compared to those who don't. Foreign companies with strong cultural sensitivity are also able to create a good first impression for the colleagues and clients. In that case, foreign enterprises can build strong business relationship with domestic business.
Generally speaking, Chinese business culture does not act as an obstacle to enter the Chinese market. In the collectivist society, we can find that group decision-making is epitomized by the government. In other words, collectivistic cultures have a great emphasize on groups. For example, Chinese people share the same identity and look after each other in exchange for loyalty and harmony. 33 In this case, Chinese consumers always choose certain products because they have previously been satisfied by them. Furthermore, Chinese consumers consider it waste the time and effort to choose other brands.
The key for understanding Chinese social behavioural patterns is Confucianism. Liu Shu xian (2000) has stated some meanings of some key Confucian values in modern society such as the Knowledge for Oneself and Benevolence, Righteousness, Ritual Propriety, Wisdom and Honesty.(33) Thus, this Confucian approach should be considered as the cornerstone of all business issues and thinking. In China, prestige and status are important factors for people negotiation. Chinese are also very conscious of age and social status. Everyone has a particular place in the family unit and business organization. At the same time, saving face is very crucial in Chinese society. People could try to do everything to save face. In another word, they do not criticize publicly or put people on-the-spot. Because personal relationship deeply embeds into every Chinese’s ethic, FDI from Hong Kong, Taiwan, Japan and Singapore may utilize the cultural ties to solve the institutional barriers.

As a summary, it is useful to be introduced or recommended by consumer who already has a good impression with the products. In order to establish business successfully on the Chinese market, the theories explained about cultural differences, Chinese traditional culture and customer behavior are all aspects that multinational corporations should be taken into account. Hence, in order to test these theories, it is feasible to analyze our case study by examining the marketing tools (the 4Ps). The following part presents the characteristics of Chinese furniture industry. #p#分页标题#e#
3.3 Chinese Furniture Market
3.3.1 Characteristics of Chinese furniture industry
The furniture sector is a basic industry among other industries. Due to the economic reform from 1978, China's furniture industry has been experiencing dramatic changes during the past 30 years. Because authorities did away with state-allocated housing and subsidized rentals, China has seen a huge surge in homeownership.
As the whole industry develops, the international competitiveness of China furniture industry has made a remarkable progress. Actually, China is becoming an important export base and a world-class location for the export and production of solid wood furniture. Table 3-1 provides some information about China furniture import and export volume in 2005. China’s furniture export value increased by 32.98% to US$ 13.767 billion from 2004 to 2005. The export of wooden furniture, metal furniture, plastic furniture and other furniture parts were increased remarkably. Driven by the market, the furniture industry continued to keep a high growth rate in 2006. In the first quarter of 2006, the export value of China furniture manufacturing industry increased to USD 4.042 billion. Because of the huge differences in topographies, China’s furniture industry is different in each region. The China Furniture Market Report (2006) states that after the reform and opening-up policy, the furniture industry started developing towards Guangdong, Zhejiang, Northeast, North China, and current four industry regions gradually came into being. They are respectively, South China furniture industry region cantered by Guangdong and Fujian; East China furniture industry region cantered by Zhejiang, Jiangsu and Shanghai; North China furniture industry region cantered by Beijing, Tianjin, Hebei and Shandong; and Northeast furniture industry region cantered by Shenyang and Dalian.
Table 3 - 1 China Furniture Import and Export (2005)
Item Import Export
Total Import Volume Total Import Volume
(US million) Growth in Volume over 2004(%) Growth in Value over 2004(%) Total Export Volume Total Export Volume
(US million) Growth in Volume over 2004(%) Growth in Value over 2004
(%)
Wood Furniture
(10,000 pieces) 72,92 68,745 4.92 18.07 14936.99 4657.832 16.49 26.53
Metal Furniture
(ton) 4946.68 25.542 49.57 43.2 1554227 1973.525 25.57 42.74
Plastic Furniture
(ton) 3448.09 23.18 -3 1.89 153235.8 239.285 20.17 34.88
Others (ton) 71600.08 531.174 2.01 -11.08 931072 6103.065 17.32 33.95
Mattress
(10,000 pieces) 2.06 1.88 5.1 29.83 317.95 83.507 51.48 34.39
Furniture parts
(tons) 18907.39 33.891 -3.44 18.7 517590.9 709.792 29.54 43.8
Total 684.414 -5.74 13767.01 32.98
Source: calculated from China Furniture Market Report, 2006-2007
(http://www.okokok.com.cn/Abroad/Class105/Class117/200701/114526.html)
In China, the retail market for furniture is highly competitive. There are thousands of medium-small furniture enterprises that take the majority of the overall market. However, there is no any enterprise whose market share can exceed 1% at present. It is known that for Chinese home furnishings design, copy and imitation are the main streams in the furniture market. The lack of design ability is the main obstacle for its further development. With the development of foreign furniture sector, furniture brands are becoming increasingly important for the consumers. There are many famous furnishing brands in China such as MeiKe Xinjiang, Guangming, Heilongjiang, TianTan Beijing, Richman and Land Bond Guangdong, XiLinMen Zhejiang and so on. As a result, the furniture price was declining in the past years. In summary, on one hand, Chinese furniture industry market will offer great opportunities for the advantageous companies, but on the other hand, some small enterprises with weak competitiveness will be washed out in the future.#p#分页标题#e#
In the economic globalization world, furniture manufacturing as typical labor-intensified industry is shifting to some developing countries. For example, China is one of the most suitable markets among other countries. China has many advantages in the big market size and low labor cost. According to the data, the total domestic demand increased above 26% to 226.1billionRMB from 2004 to 2005. However, Chinese are famous for their reluctance to spend money. They have the highest savings rates in the world, on average 30% of their income. At the same time, the domestic consumption per capita is around US 17 dollars, only amounts 1/18 of developed countries. As a result, there is a big market with great potential in China.
3.3.2 Marketing analyze
Some foreign enterprises want to sell their products in the huge Chinese market while others may concentrate on exporting what they produce to outside China. As a result, it is an important strategic choice for foreign enterprises who want to do successfully business in China. Doherty (2007) proposed that market attractiveness factors affect a foreign retail enterprise’s decision to enter a market, including retail structure and regulation. Retail structure include the retail environment, site location, IT infrastructure, the potential price positioning of merchandise, and an estimation of sales potential in the short-, medium-, and long-term. Furthermore, the regulation of the retail market in the form of import duties and trade relationships has a major impact on market selection for foreign retailers.
As we know, a mass-market retailer will seek markets with a large population. Generally speaking, the market for large international furniture retailers is domestic market. In China, low labor cost, large consumer market and reduction of import tariff rates offer great opportunities for foreign enterprises. In addition, Wrigley (2005) stated that transnational retailers should be aware of the local variations in cultural tastes, norms and preferences. At the same time, compared to manufacturing firms, retailers experience high levels of consumer contact.
In other words, foreign enterprises with a local furniture market focus should call for a high level of local adaptation. They should pay more attention to the local furniture market conditions and become more prepared for the changes in the local market. Furthermore, because of the high competition in the domestic market, foreign enterprises need to establish the necessary business network in China. At the same time, products and services of foreign enterprises should much ahead of domestic competition.
As millions of Chinese people have joined the ranks of the middle class, they are willing to invest more and more money in their apartment in furnishing and decoration. Meanwhile, Chinese consumers call for well designed and high quality furniture brands. The furniture industry is very competitive between foreign brands such as Ikea, B&Q, and local brands like Homes Orient. How to choose the style of products is one of the key questions for foreign brands. #p#分页标题#e#
The magazine <<Furniture and Decoration>> provided some information about Chinese consumers’ expectations of furniture needs in 2003.
“About 80%of interviewees considered furniture design should be a functional emphasis based on people’s needs. 44%of them would prefer buying assembled furniture which can be moved easily from one place to the other. The price is not the only important factor. (It is related to the power purchase), about 52%of interviewees hope the price can be lower, 48%of them ignore the price, and they pay more attention to the furniture’s function and design style. Environmental concept influences the consumers’ behaviour too, 60%of interviewees required the furniture should be made of clear material that is no poison and no damage for healthy, only 6%of them considered this environment factor not important. Wooden furniture is the most popular in the consumer’s mind. 42%of interviewees prefer wood furniture, 38%of them like furniture made of glass, leather and fabric, other material accounted for 20%.36%of interviewees normally change their furniture every 10 or 15 years, only 5%of them want to keep their furniture for 30 years.”( Yihong Li,2007)
In all, China’s furniture industry is at the early stage of its growth and has great potential despite the problem of instability in industrial structure.
4 case study -IKEA ：One successful example of FDI in China　
4.1 The IKEA saga
4.1.1 The IKEA Philosophy
Ikea was established in 1943 by Ingvar Kamprad in order to sell pens, wallets and picture frame. In 1958, Ikea was introduced as a leader of Swedish Furniture Company. They started from producing local furniture by local manufacturers and gained positive attention from customers. Later, they began to create furniture for flat packs and self-assembly in order to reduce storage space which is the prominent style of Ikea. They are also expanding the business line such as restaurant and kitchenware. Ikea, the largest furniture display in Scandinavia, opened the first store in Almhult and Sweden. Then they opened more stores in other countries such as Norway, Denmark and Germany. They do not only offer inspiring home furnishing solutions to customers while keep the prices affordable for people but also locate in less-expensive areas in different countries. Nowadays, Ikea is the major retail company that experience in 36 countries around the world. Though, there are 279 of IKEA stores in 36 countries, Ikea group owns 247 Ikea stores in 24 countries and the rest is managed by franchisees in 16 countries. Ingvar Kamprad’s (2007) will is to maintain what he called the “Ikea philosophy”. He proposed his wills in the “The Testament of a Furniture Dealer” in 1976. He wrote about the product range as their identity and the ambition to offer a wide range of well-designed, functional home furnishing products at low prices that many people will be able to afford them. At the same time, he also emphasized the “Ikea Spirit”, which is the readiness to take responsibility and help out; the art of managing on small means; cost-consciousness, humbleness, undying enthusiasm in work and the wonderful sense of community through thick and thin. In addition, he meant that the true Ikea spirit should still be found in every one of workplaces. Furthermore, the Ikea spirit must be cultivated and developed to keep pace with the times. (Ingvar Kamprad, 2007). #p#分页标题#e#
4.1.2 IKEA in China
IKEA is considered as retailer internationalization that expands into Chinese market because of supporting environments such as political, social and economic conditions as well as transaction advantage. In China, Ikea get success in marketing and branding itself. The existing five stores of Ikea are located in Shanghai, Beijing, Guangzhou, Chengdu and shenzhen. The new store is scheduled to open in Nanjing in 2008. Furthermore, giant Ikea has announced that it will speed up the expansion in China from its 2008 fiscal year.
Ikea’s name in Chinese, "Yi Jia," means "comfortable home". Ikea Group is a franchisee of Inter Ikea Systems BV. Ikea’s mainland China stores belong to the Ikea Group and they are operated as joint ventures. According to Chinese regulations, all foreign retailers should have a local partner before 2005. The franchisee policy help Ikea explore an unfamiliar market rapidly without many troubles. Because Chinese partners have certain strengths such as local government support, brand reputation, land, capital, distribution, and access to local suppliers. As a result, Ikea’s first two stores in China were operated as joint ventures. With the change in regulations, Ikea opened its first wholly owned store in Guangzhou in 2005, setting the trend for all future stores. In this way, Ikea has complete independence on how to run the company business.
Ikea entered China in 1998 when it opened its first store in Shanghai, and in early 1999, Ikea opened its first Beijing store in the city's northern Chaoyang district. In 2003, a new, redesigned Shanghai store instead of the original one. The new Puxi district outlet is now Ikea’s second-largest in Asia, at the same time, it is four times larger than the first store. On the opening day, Shanghai's new Ikea offered more than 7,000 products and received around 80,000 visitors. More then 6,500 hotdogs were sold its food centre.
According to the local media, Ian Duffy, Ikea's president for Asia Pacific division, says that Ikea is carrying out a three-phase strategy in China, which includes a period of landing, setting up standard stores and then increasing the rate of opening of new outlets. Meanwhile, Ikea will keep an expansion speed of opening one or two stores each year.
4.2 IKEA's brand management and analysis　
4.2.1 Global compete superiority of IKEA
For Ikea, the one outstanding brand advantage is the rapid development of the company an important factor. The establishment of excellent brand, today's regional economic integration, global strategy to implement the product. To achieve this objective, the core of the IKEA brand in enhancing energy integration efforts in the promotion of the brand has done a lot of effort. IKEA's brand of energy is the core of the organization and product brand system operation process, the formation of other organizations do not have the presence and product strengths and market competitiveness, it is also the advantages of the brand among the most significant part of the . IKEA brand to form the core of energy from the source can be divided into four parts: management advantages, cultural superiority, product, brand style(Franklin, Len et al. 2005).#p#分页标题#e#
4.2.2 Core of IKEA brand management
The success of IKEA brand in China largely comes from its brand value to meet the needs of the target consumers, and consumers get the intrinsic value of the resonance and, ultimately, consumers set up loyalty. At the same time, the intrinsic value based on consumer demand for in-depth understanding and grasp, and continually adjust their brand positioning and business strategy, so IKEA can continue to improve their competitive advantage(Gredig 2001).
4.3 Factors affect Ikea's performance in China
4.3.1 Entry modes
Foreign firms that entered China were rewarded with incentives in the first few years after 1979. For example, foreign firms were granted a wide variety of privileges in terms of size of investment, concessions in tax and market access. As a result, these privileges and policies should translate into better business performance in Chinese market. The foreign firm’s mode of entry affects the degree of competition in the host country.
As I mentioned above, the Swedish furniture retail giant entered China in 1998. Because of lacking of knowledge about Chinese market, Ikea has adopted an advanced policy that is joint ventures for its globalization. At first, Ikea’s mainland China stores are operated as joint ventures. This kind of model is suitable for entering the new Chinese market. Joint-ventures as an entering model are able to reduce the local competitive and take advantage from local government. In China, it is also quite usual that a company has to build a stable, long-term relationship with business partner in order to show that one can be trusted. Ikea can understand the consumer culture and products that suits the local market.
After seven years’ entering into Chinese market, Ikea has become more familiar with the characteristic of Chinese regional market and the local culture. With the change in regulations, Ikea opened its first wholly owned store in Guangzhou in 2005. From then on, Ikea has complete independence on how to run the company business. As a result, they have a higher the level of efficiency than joint ventures in the daily operations.
4.3.2 Location advantage
Since the economic reform in the late 1970s, China has implemented many special locations across the country. In order to attract the foreign investment, these designated cities offer a wide variety of conveniences and incentives for foreign firms. (46). As part of the reform programmers in 1978, special economic zones (SEZs) iThesis is provided by UK thesis basehttp://www.ukthesis.org/n Shenzhen, Shantou and Zhuhai were established. Meanwhile, subsequent fourteen coastal cities were open up to foreign investment in 1984. Furthermore, the State Council announced in 1997 that tariff and import taxes would be levied on imported equipment and raw materials for MNCs in the no prioritized location. As a result, more and more foreign firms established business in these zones.#p#分页标题#e#
More than 200 multinational enterprises have invested in over 400 industrial projects in SEZs. Because of their proximity to transportation hubs and major economic countries, the economy in SEZs is also developing most rapidly in China. Meanwhile, MNCs located in the municipalities of Beijing, Shanghai, and Tianjin and those located in coastal cities had a higher level of profitability than MNCs located elsewhere in China. In a word, location advantages are important in China. The existing five stores of Ikea are located in Shanghai, Beijing, Guangzhou, Chengdu and Shenzhen. These regions are profitable locations, as well as the open coastal cities. In these regions, infrastructure and transportation are better and the market is more open.
4.3.3 Cultural influence
As I mentioned above, China is the world's largest social system and it is not familiar to the Western firms now operating there. China has its own unique culture which totally different with the western culture. This kind of culture affects customers’ purchasing behavior. In order to adapt the local culture environment and cater to local customers, Ikea has done a lot of market research about what Chinese consumers want. For example, in some special occasions such as traditional Spring Festival, Ikea introduced some special product series to Chinese consumer. According to the traditional animal year, 2007 is the year of Pig and the pig pictures means prosperity and fortune. Picture below is the plate set sold during the Spring Festival time in 2007.
Ikea also has adapted its do-it-yourself (DIY) assembly concept to China. In other words, customers have to do much by their own such as pick up the furniture from the self-service area, take them home and build them by themselves. However, unlike some western consumers who actually enjoy assembling the furniture, Ikea’s DIY products are not appreciated in China. Because labor is cheap in China, Ikea’s assembly services are more welcomed in China.

Figure 4 - 1 the plate set sold during the Spring Festival time in 2007
Source: http://home.sh.soufun.com

In China, different kinds of the SULTAN HOGBO series are divided into categories of single, double, standard double and big double. In Sweden, people always put two single-sized beds together to form a double-sized bed. At first, Ikea stated that this kind of design ensures a good night sleep free from the disturbance by the person you share the bed with. However, this idea is not appreciated by Chinese consumer. According to Chinese traditional culture, couple sleep separately means a bad relationship between them. It is also believed to bring bad luck. In all, different understanding of culture may lead to implicit conflicts in global business. If businesses want to perform successfully, cultural sensitivity must be at the heart of doing international business. As a conclusion, Ikea has both been able to adapt itself to the local market and also keep a certain level of standardization(Ying Pan,2007).#p#分页标题#e#
4.4 Marketing Mix - IKEA on the Chinese market
4.4.1 Price
As we know, price is a significant element of communication between customer and seller. A number of factors have an impact on the price, including market share, material costs, product identity and the customer's perceived value of the product. Ingvar Kamprad (1976) claimed that the first rule of Ikea is to maintain an extremely low level of prices with a meaning. He argued that Ikea should always be a substantial price difference compared to their competitors, and Ikea should have the best value-for-money offers for every function. In fact, the pricing model play an essential role to create and capture customer value.
According to Ikea website, low prices are the cornerstone of the Ikea vision, business idea and concept. The basic thinking behind all Ikea products is that low prices make well-designed, functional home furnishings available to everyone. Ulf Smedberg, marketing manager of Ikea China, described Ikea’s mark as "to provide smart solutions for homes by implementing three criteria: good design, functionality, and low price."
When Ikea first entered China, the products impressed customers as innovative, fashionable, and expensive. At the beginning, Ikea added a lot of import tax and transportation cost. Ikea was a middle-class brand in China. Most of Ikea’s products sold in market were imported. Ikea’s target market fell into the young, professional couples. These people have top-tier urban income with 5,000-8,000 RMB per month. Furthermore, they are generally better educated than the average Chinese. However, most of the consumers considered the products were too expensive for them. As a result, the company lost its worldwide image of affordable. The company decided to compromise the prices for Chinese and slashed down the prices. The Ikea’s on sale campaign was astonishing. Ikea Shanghai store has reduced the price of its products by 50% from 2000 to 2007, even as Chinese consumer incomes have increased. As a result, the total sales have remarkably increased 345% during past 8 years. For instance, a set of flower picture that was sold at 19 RMB in 2000 only cost 1 RMB in 2004. The new target market fell into Chinese consumers with a monthly income of 3,500 RMB. In fact, most of Ikea customers were 30 to 45 years old with high incomes in the past. After the reform of price strategy, the stores now attract an increasing number of young customers. Many customers are double-income and well-educated couples with children. Generally speaking, compared to the national average income about Yen1, 000 ($121), a typical Ikea customer earns about Yen3, 300 ($399) per month. The consumer on average buys Yen300 ($36) of products per visit. After several rounds of price reduction, the products now considered mid-range in China.
In China, reducing prices seems to be the most effective way for the company to increase sales. In order to lower prices of its products without sacrificing the quality, Ikea has taken many kinds of methods. One of the most effective ways is to source locally. As we know, furniture manufacturing is a typical labor-intensified industry. China has many advantages in the big market size and low labor cost. At present, more than half of the products sold in China are manufactured locally, compared with about 23% in Ikea stores overall, with the rest made in Poland and Sweden and other countries. Furthermore, Ikea has taken other ways to reduce prices immediately to its Chinese customers. For example, from September 2006, Ikea China has switched to cheaper, thinner and smaller brochures instead of the Swedish furniture retailer's traditional phone-book-size annual catalogue. The booklets will be distributed five times a year and each with a different theme. The switch from the thick catalogue to the booklets cost less to produce, and it help Ikea reach more consumers. It will expand its distribution from 40% to 80%. Meanwhile, because of the price competitiveness of Chinese products, the average Ikea price was decreased by 6 percent on a year-on-year basis in 2004.#p#分页标题#e#
According to Ulf Smedberg, if the launch goes well in China, parent company Ikea International AS may consider expanding the practice to other countries. In order to attract consumer, Ikea also has cut prices in China to some of its lowest in the world, for example, the company is offering the lowest price for more than 120 kinds of goods, such as 12-cent ice-cream cones and $1 place mats. Ikea outlets pushed prices on some items as low as 70% below prices in many western countries. For example, the price of an Ikea's single-seat Ektorp armchair is $112 in China. It is 67% cheaper than the same one sold in the U.S.
Based on the study, we can see that Ikea consider price as an essential part in the marketing strategy. The company offers good designed products with affordable prices. Meanwhile, the entry of Ikea to Chinese market gives the company transaction advantage to produce locally. Overall, Ikea’s pricing policy is cost oriented and customer-value oriented. In my opinion, Ikea’s success in the world is based on the idea of keeping the cost down between manufacturers and customers.
4.4.2 Place
Distribution is known as the place variable in the marketing mix, it is often a much underestimated factor in marketing. Distribution includes getting the product from the manufacturer to the customer. An efficient distribution plays a key role to keep the price low. Ikea has 28 distribution centres in 16 countries supplying goods to Ikea stores around the world. The main task of these distribution centres is to ensure availability of products from supplier to customer, at the lowest possible cost and with effective route. Distribution in China is the fastest growing organization in Ikea’s distribution network. Two logistics centres in Shanghai were approved by Chinese authorities. Phase 1 was completed in Song Jiang District September 2005. This is the first full-size international-standard distribution centre in China. Furthermore, it is the largest Automated Storage Retrieval System by any foreign enterprises. According to David Hood, director of Ikea Asia-Pacific distribution services division, the $150-million facility can hold 300,000 cubic metres of products and it will be Ikea’s largest in the Asia-Pacific region. Ikea is building the second one in suburban Feng Xian district, close to the deep-sea Yangshan port. The distribution centre will also be the biggest foreign-owned warehousing facility in China. Generally speaking, in order to keep prices low to consumer, Ikea stores are located in less expensive areas in western countries. However, the locations of Ikea stores in China are built in downtown areas. For example, Ikea Beijing is built in the one of the most expensive districts, Zhaoyang district. Other stores in China are also located nearby the downtown areas or city centre. There are two main reasons. Firstly, Chinese people have limited private cars, would be prefer convenient transportation to the store. Secondly, from a cultural perspective, Chinese consider that shopping in big stores in city centre is a modern phenomenon. The shopping environment is very important to Chinese consumer. As a result, Ikea had built stores near public transportation lines that offer local home delivery and long-distance delivery to other cities in China.#p#分页标题#e#
Ikea Shenzhen was opened in April 2008. Located at European City, Nanshan district, Shenzhen, the general layout is almost the same as other Ikea stores in the world. For example, the shop floor design of Ikea forces consumer to walk through every single display area. Total area of the new store is about 30,000 square-meters; consist of 66 different model rooms. It offers more than 7,500 practical products to the customers. At the same time, there are three complete homes in the Ikea Shenzhen European City store. Compared to common model rooms, those homes have all important elements, including living room, bedroom, dining room and bathroom, which can offer an overall home solution to customers. In addition, there are Swedish restaurants and Chinese restaurants in the store, With 660 seats, delicious food and unlimited refills of coffee.
Although Ikea has succeeded in the big cities like Beijing and Shanghai and Shenzhen, it is not easy to cover the distribution network from North to South. New locations to place stores in other cities are new challenges for Ikea. Dalian and Wuhan are main second level cities in China. In all, Ikea has to established efficient and economic network of logistics and distribution in Chinese market.
4.4.3 Promotion
The promotion mix targets raising brand awareness and communicating the benefits of the products with customers. The company uses the set of tools to persuasively communicate customer value and build customer relationships. Promotion in the local market has to adapt for cultural reasons. Generally speaking, there are four common promotion mix tactics: Advertising, Personal Selling, Sales Promotion and Public Relations. In this section, I describe the four key elements of the promotional mix in detail.
Advertising focuses on brand recognition and identity. It plays an effective role in Chinese market. Ikea always advertises on TV or on the magazines of its upcoming sales and other promotion activities. Ikea also produces brief TV spots that show living areas before and after Ikea’s magic touch. Generally speaking, Chinese consumers will either completely replace everything or do nothing about the interior design. Ikea’s ‘Small changes, a refreshing new life’ advertisements introduce a new message to Chinese consumers. The advertisement conveys that it is good to make small changes step-by-step.
Ikea also operates a detailed website. The internet increases the options that allow customers to provide quick feedback. On the webpage www.ikea.com/cn/zh/, customers may look for the Ikea products and other services such as delivery service and store information. The webpage offers some information of what consumers are looking for. Every store has its own webpage where is presented its offer. Some specific customer service is offered in the website. For example, consumers can find the food in the store and transfer bus to every Ikea store within the city. The picture below shows the bus route and timetable in Shanghai store.#p#分页标题#e#
4.5 Findings and Recommendations
4.4.1 Findings
(1)Strengths
Grol and Schoch (1998) argued that Ikea’s strength today comes from their mastery of three key aspects of the value chain: unique design capabilities, unique sourcing, and tightly controlled logistics. In other words, Ikea is able to produce products that are distinctive enough to provide market recognition, secure sourcing at profitable levels in the long term. In addition, Ikea may reduce inventory costs through regional warehouses which located close to the stores.
In other words, the company offers good designed products with affordable prices. At the same time, the customers still want to come back for more. The well-designed, functional and simple style is now appreciated by Chinese people. The fact that Ikea targets all age groups and households makes it more attractive to Chinese consumers. In addition, Ikea also maintains completely control of its design and the supply of products across the world. As a result, the company has a product portfolio that caters for Chinese consumers’ lifestyle and budget.

(2)Weaknesses
Although Ikea has some favorable strength, the company clearly has some weaknesses. In Sweden, America and many European countries, Ikea is a typical furnishing supermarket. The products are both good quality and low price. Even students can buy the Ikea products. However, Ikea is still considered as a luxury furniture brand in China. Ikea’s market orientation is totally changed in China. With China’s fast growing economy, although there are an increasing number of middle class consumer groups, they are just around 11% of the total population. Only a small part of Chinese people can afford to buy them. At the same time, Ikea is also very reliant on European market, with 82% of stores located in this region. In China, although spending power is increasing, it remains relatively low.
In addition, although more and more products are designed for the Chinese market, Ikea still offers a very similar product base in the world. Ikea will suffer from a lack of innovation. To some extent, this is because of the lack of fresh blood in the company organization. For example, Ikea hires the same genre of people leads to inhibiting diversity and creativity to meet changes in the huge Chinese market. At present, Ikea is something new and fresh to the Chinese people. In the long run, Ikea is just too far out of the mainstream Chinese traditional culture. The company may have difficulty in meeting customer expectations of service as well as price in the long term.
(3)Opportunities
Since Ikea has expanded successfully in European countries, Ikea also has seen great expansions upon its entry into the Chinese market. In my opinion, there are still many opportunities that Ikea can take advantage of to further ensure the continued success in Chinese business market.
Ikea firstly open its stores in metropolitan areas like Beijing and Shanghai. It is a wise decision for Ikea to gradually test Chinese market. At present, as millions of Chinese people have joined the ranks of the middle class, there is a growing demand of consumers who call for high-quality and well designed furniture. Especially people who living in the suburbs and metropolis also like to buy foreign products. Ikea has an enormous opportunity to establish business in both suburbs and metropolis locations. For example, Tianjin is one of the most progressive and rapidly growing cities in China. The city will offer a golden business opportunity for Ikea in China.#p#分页标题#e#
In addition, there has been an increasingly demand for electrical products in the past years. The strong growth in the electrical market was fuelled by high demand for flat-panel TVs and the introduction of High Definition ready TVs. In the author’s opinion, the introduction of electrical products would prove complementary to Ikea's range of furniture. Ikea is able to use its stores to showcase room sets. At present, more and more Chinese consumer would like to improve their homes and to buy into the Ikea concept. In all, with a strong brand reputation, plentiful space for storage, it is a useful additional revenue stream for Ikea.
(4)Threats
At present, Ikea faces one key threat in China: domestic competitors always copy technologies and products from Ikea. Unlike the optimum competition from UK-based B&Q, the largest DIY retailer in Europe and the third-largest in world, there are too many Chinese furniture companies that counterfeit Ikea products. Thesis is provided by UK thesis basehttp://www.ukthesis.org/They often introduce similar product ranges at low prices.
As we know, Ikea opened its first store in China in 1998. Aika, one of its biggest local competitors, uses a brand name that is disturbingly similar to that of the Ikea. In addition, the two companies’ local brand names are almost the same. Ikea’s Chinese name is YiJia, meaning “a comfortable home”. Aika’s Chinese name is AiJia, meaning something “a love home”. It sounds almost the same as Ikea’s YiJia, but adds the “love” element. In summary, I make a table below to show Ikea’s SWOT analysis in Chinese market.
Table 4 - 1 Ikea’s SWOT analysis in Chinese market

Strengths
Well-designed products with affordable prices
Wide range of products and lifestyles
Good on-line presence
Showrooms

Weaknesses
Hard to meet customer expectations of service and price
Few locations
Far out of the mainstream Chinese culture

Opportunities
More stores
Sell electrical products in stores

Threats
Loss of intellectual property rights
Copy and imitation

4.4.2 Recommendations
Through 4Ps analysis and SWOT analysis, we have gain a much better insight of the marketing strategy of Ikea in the Chinese markets. Although Ikea has many competitive advantages in Chinese consumers, the company needs to solve some problems. As I mentioned before, Ikea target customers were those high-end customers such as white-collar, entrepreneur and foreigner in Chinese market. The prices are far more expensive than Chinese local furniture. Only a small part of Chinese families can afford to buy Ikea products. Since the research finds that prices reduction is be the most effective way for the company to increase sales in the Chinese market. It is crucial for the Ikea continues to offer it consumer much less money.#p#分页标题#e#
In addition, Chinese traditional culture has a great influence the huge rest of potential consumers. For example, family orientation and long-term orientation are typical elements of Chinese culture. Ikea is just too far out of the mainstream Chinese traditional culture in the long-term. In author’s opinion, it is benefit for Ikea to introduce much more localized products suitable for the Chinese consumer. In order to promote diversity and creativity of the products, Ikea should enlarge its selection base of hiring people. On one hand, Ikea should also put an emphasis on the hiring of people from a mix of backgrounds and personalities in order to cater to the local consumer. On the other hand, Ikea should display some classic designs in the stores so as to stimulate customer's purchasing desire.

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