ASIAN CASE RESEARCH JOURNAL, VOL.

11, ISSUE 1, 121 (2007)

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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 handling of an administrative or business situation. Please address all correspondence to Dr Li-Qun Wei, Department of Management, Hong Kong Baptist University, Kowloon Tong, KL, Hong Kong, E-mail: weiliqun@hkbu. edu.hk.

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 ofce. After a review of IKEA Chinas market development, the executives brainstormed about possible solutions for the difculties 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 ve years. More signicantly, 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. IKEAs expansion plans underscored its condence in China. However, over the past eight years, none of IKEAs retail stores in China turned a prot, 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 companys 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 IKEAs furnishing and decoration concepts and retail strategies appropriate for the Chinese market? Could IKEAs business strategies eventually enhance its competitive advantage in China?

2007 by World Scientic Publishing Co.

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COMPANYS 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 scal 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. In Asia, IKEAs development was still in its infant stage. The Asian market comprised a mere three percent of IKEAs total sales, including one store in Malaysia, one in Singapore, one in Taiwan, four stores in Beijing and Shanghai, and four in Hong Kong. These stores were expected to be more successful in the near future. In particular, the sales in Hong Kong needed to be improved. While Ikea was responsible for most of the retail stores in Asia, the four stores in Hong Kong were franchised to Jardine Pacic in 1988, and acquired by The Dairy Farm Company Ltd in 2002. As the Hong Kong stores were managed by an independent business group, IKEA could not include the Hong Kong stores into its larger strategic plan in China. In addition, the contract with the HK business group had a clause forbidding IKEA from opening additional stores in the Pearl River Delta during the franchise period. Still, the limitation to create synergy with other stores in the Greater China area did not curb any of IKEAs ambitious ongoing plans in the Chinese market. IKEAs strategic maneuvers in China exemplied its ambitions to dominate this emerging market.

IKEA IN CHINA: FACING DILEMMAS IN AN EMERGING ECONOMY

IKEAS OPERATION IN CHINA A trip to China in 1973 by a group of top managers from IKEA sparked an ambitious goal to be the biggest home furnishing retailer in the Chinese market. IKEA had already begun a trading business in China in the early 1960s. After forty years of development, IKEA now sourced around 18% of its purchases from China, the largest amount purchased from any single country by the IKEA group. In 1998, after 25 years of procurement experience in the Chinese market, IKEA opened the rst retail store in Shanghai. Although the scale of the store was much smaller than a store, it did not undermine the signicance of this event. IKEAs chief executive ofcer, Anders Moberg, visited China and announced the opening on the commencement day. A year later, another retail store was opened in the capital city Beijing. In 2003, IKEA opened its rst full-scale standard IKEA store in Shanghai. The store was 33,000 square meters and sold more than 7,000 products. It became the largest IKEA store not only in China, but also in Asia. Just as in other countries, the store was designed by IKEA. An ofce building was also established adjacent to the store. Moreover, the Smland childrens playground was 170 square meters and the free parking area could hold 800 carsa. It attracted a record 80,000 visitors on the opening day. This new Shanghai store set a critical stage for IKEAs business development in China. By 2004, IKEA had employed more than 600 employees in China. At the rms annual press conference in 2004, Ian Duffy announced, IKEAs sales in China during scal year ending August 25, 2004 increase 40% from the previous year. Milestones of IKEA in China are listed in Exhibit 1. The organizational structure of IKEA in China is illustrated in Exhibit 2.

aIKEA

to open 10 new stores in China by 2010, September 28, 2003. http:/ /www. friedlnet.com/news/03092803.

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Business Philosophy IKEA brought its distinct organizational culture and retail strategies to China, emphasizing that every company needs a unique identity that is distinct from the competitors and a brand image that customers can easily recognize. In China, IKEA successfully differentiated itself as a foreign company that provided modern furniture with elegant design. It promoted the philosophy of turning problems into opportunities and how it is not wrong to be different. This had been well recognized and appreciated by its employees, and such ideas were also being accepted by the Chinese people. Although this individualistic value is in contrast to Chinese tradition, Chinese customers seem to gradually appreciate this difference. The founders thesis, Testament of a Furniture Dealer, had also been translated into Chinese and IKEAs business concept became a living role model and a classroom example of good successful modern management. Unlike the local furniture rms, IKEA promoted a fulledged solution to decorating the home. IKEA believed that furnishing was not just about selling furniture and hence selling various necessities for the home, including cooking appliances, lighting, and bedding. IKEA was probably the only store in China that provided such a wide range of products for home decoration. More importantly, IKEA persisted with a low price strategy and a do it yourself furnishing concept. It relied on a straightforward idea keeping operational costs as low as possible throughout the supply chain. IKEA adopted at-packs in an effort to eliminate wasted space and to transport and store goods more efciently. Chinese customers would then have to assemble the products by themselves. On the contrary, furniture sold in almost all other local Chinese stores was both assembled and delivered, often free of charge.

Human Resource Management IKEA paid considerable attention to human resource management and had a strong organizational culture.

IKEA IN CHINA: FACING DILEMMAS IN AN EMERGING ECONOMY

Employees were extensively trained at the entry level. Afterwards, they had to pass a test with a range of questions assessing their knowledge of various topics ranging from purchasing to the information technology system of the rm. Product managers would be trained abroad for another two weeks. If a job vacancy arose, the position was rst opened to current IKEA employees. Furthermore, IKEA also encouraged open communication among its employees, who were welcome to freely discuss their individual career development needs and plans with their supervisor. On the whole, IKEA had a very systematic training and internal labor development system, which strengthened its competitive advantage over its local counterparts in China. Linda Xu, the director of Public Relations for IKEA China, revealed that IKEA was one of the biggest foreign rms in China with a reputation for caring about its employees. This helped IKEA attract talents interested in working in the furniture retail industry.

Procurement IKEA did not have its own manufacturing facilities, however. While focusing on the retail market and product design, IKEA relied heavily on procurement and supply chain management to support its current business model. In 2004, IKEA had 43 trading service ofces in 33 countries, with ve trading rms and 362 contracted suppliers in China. As noted earlier, around 18% of IKEAs purchasing was from China, the largest amount from any single country. IKEA also subcontracted to local manufacturers who produced lamps, pillows, blankets, bedsheets, and sofas. In China, such buyer-supplier cooperation involved not only economic terms, but also social responsibilities, which included helping its Chinese suppliers improve their working and social conditions and checking environmental issues. Purchasing managers visited suppliers regularly to monitor production, test new ideas, negotiate prices and carry out quality audits and inspections. In 2000, IKEA began to implement the I(KEA)-WAY campaign. The

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IKEA way involved visiting suppliers, checking working conditions, and rewarding the best Chinese suppliers.

CHINESE FURNITURE MARKET China was famous for traditional Chinese craftsmanship of wooden furniture for generations. The number of furniture manufacturing enterprises exceeded 50,000, with more than ve million employees. In 2004, the turnover was RMB265 billion, with export exceeding RMB 10 billionb. The market, however, was still highly fragmented, with no single rm commanding a signicant share. Although furniture had been a ourishing industry for generations in China, the furniture industry was far from mature. Most local rms still engaged in original equipment manufacturing (OEM). These rms had no design functions and sometimes even no brand names. They produced furniture for international companies or simply copy popular designs. Because the intellectual property law had not been fully developed in China and local rms usually did not have design arms, they followed this strategy to produce furniture with fashionable designs imported from overseas. They then exported this furniture back to the developed markets. This lack of distinctive design and brand image severely restricted Chinese rms business expansion and development. Even the big Chinese furniture rms only had a handful of international design ofces and overseas subsidiaries. Yet, Chinese manufacturers were still able to penetrate deeply into the local market since low prices and reliable quality helped in better served Chinese consumers needs. While most furniture rms were small in size and privately owned, several of them, such as Qumei, Oupai, Guangming and Meike, had developed rapidly in recent years. Guangming and Meike were even publicly listed on the Chinese stock exchange. These relatively more mature
bResearch

report on furniture industry and market in China, July 2005. http:/ /info. home.hc360.com/html/001/001/003/12156.htm.

IKEA IN CHINA: FACING DILEMMAS IN AN EMERGING ECONOMY

rms were mostly located in Guangdong, the wealthiest province with greater international exposure. These furniture rms were also open to modern business concepts and had ambitions to become market leaders. At the same time, a group of small rms that had recently emerged in the market had focused on, and dominated, some specic furniture areas. For example, Oupai took more than ten percent of the market share in the cabinet market, a highly fragmented sector. Oupai now has 300 retail stores in China and has aggressively expanded its business into related furniture areas.

Major Competitors in the Chinese Market Qumei Group Qumei Group was the largest wooden furniture producer in China. Founded in 1987, Qumei Group had a whollyowned subsidiary dealing with sales and distribution, and two joint ventures with European rms for designing and manufacturing furniture. In China, Qumei was widely known for high quality especially among upper middleincome consumers. In 2005, the whole group had an annual turnover of RMB450 million, with ten display stores and over 400 retail stores throughout the countryc. Its products were also exported to Japan and Europe. Clearly, there was some direct competition between IKEA and Qumei. Before IKEA opened its trial store in Beijing, 60% of the customers of the Qumei store in the embassy area were foreigners. However, after IKEAs entry, the percentage of foreign customers dropped dramatically, as did the total sales volume of the store. While Qumei considered this to be an isolated case and denied losing market share to IKEA, Qumeis manager suggested that the loss in this specic store might signal the long-term threats from the foreign brands. In terms of product quality and pricing, we are no worse than IKEA. But we have neither a mature business model nor an effective organizational
cQumeis

company website: www.Qumei.cn.

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structure, which are necessary conditions to build the brand image, attract capital, and expand the business in the long-term. In response to this, Qumei started to improve its managerial efciency by restructuring and promoting employee wellness while providing equitable rewards. These were areas that have long been ignored by Chinese rms.

B&Q and OBI Besides IKEA, the British furniture group, B&Q, and the German furniture group, OBI, had also been major international players in China. Both of them were IKEAs competitors. B&Q entered China in 1999 and now had 18 stores there. It planed to open 10 to 15 stores annually and hoped to have 80 stores throughout the country by 2008d. OBI came to China in 2000 and thus far had invested RMB1.22 billion and opened 14 stores in this market. OBI aimed to have 100 stores in China by 2010e. Both groups ranked among the largest furniture retailers worldwide. Like IKEA, they were also modern DIY style home decoration solution providers equipped with sophisticated logistic systems. Both B&Q and OBI sold furniture as well as decorating materials, while IKEA focuses extensively on selling furniture and a variety of interior decorating products. Ian Duffy commented that both B&Q and OBL were key potential competitors. They entered the Chinese market at roughly the same time as IKEA and both provided high quality products with reasonable prices. They also had advanced purchasing and distribution networks in China. IKEA was nonetheless fundamentally different from these two rms. B&Q and OBI were strictly furniture supermarket stores. They purchased ready-made products only and they were not involved in design or production. In contrast, IKEA participated in the whole production chain. With a strong design arm, IKEA selected the material used for all products
dB&Qs

eBeijing

company website: www.bnq.com.cn. Contemporary Business Report. November 11, 2003.

IKEA IN CHINA: FACING DILEMMAS IN AN EMERGING ECONOMY

but outsourced all the manufacturing. In this way, IKEA had better control over the production cost and the exibility to switch manufacturers.

STRATEGIC CHALLENGES IN CHINA Since IKEA opened its rst retail store in China in 1998, it had achieved double-digit growth in sales every year. A survey conducted in 2003 in the two big cities, Beijing and Shanghai, indicated that around 98% of people had heard of or knew IKEA well. This was comparable to the situation in Singapore, where IKEA opened its rst store 20 years ago. Besides, the turnover of IKEA in China grew by 40% in 2004. Despite the rapid increase in the number of visitors and sales volume, IKEA (China) had yet to make a prot. The gap between the number of visitors and actual buyers remained large. An annual survey conducted by IKEA indicated that even among the buyers, those purchasing small decoration products with lower prot margins made up a growing percentage of the total number of buyers (increasing from the 40% to 45% of total sales over the past few years). Continuous losses suggested that the challenges for IKEA in China were complicated and demanding.

Pricing strategy Although IKEA was famous worldwide for providing lowpriced durable products, its prices in China were higher than local products with similar quality. For example, a sofa sold at RMB3,299 in IKEA was priced around RMB1,800 to 2,500 at a regular local store, such as the OrientHome or the ThirdRing furniture in Beijng, or the Jinhaima furniture chain stores in Shanghai and Guangzhou. Despite two decades of rapid economic growth, which had boosted Chinas GDP to the seventh largest in the world in 2004, Chinas GDP per capita was still low compared with developed countries. Indeed, the average GDP per capita was just over US$1,000

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in 2003. There was a large difference between the rich and the poor in terms of disposable income, however. Notably, the average GDP per capita in big cities, such as Beijing, Shanghai and Guangzhou, had reached US$5, 000 to $6,000f. Still, the purchasing power of even these Chinese was far less than that of people in developed western countries, such as the US and Sweden. As an adjustment to the local market situation, IKEA started by selling the middle-range-price products only. As a result, the variety of IKEA products was limited relative to its European stores. More signicantly, the pricing advantage for IKEA in developed countries was mainly based on the low cost production in developing countries like China. For example, one strategy that enabled IKEA to provide low-priced goods in the western markets was aggressive control over the supply chain. It procured large amounts of raw materials in the developing countries and aggressively outsourced the production to factories in countries with cheap labor markets, such as Malaysia, India and China. The gap in the raw material and the production costs between developing countries and western countries is the main source of IKEAs low prices. Not surprisingly, the cost advantage that IKEA enjoyed in developed countries vanished in China. As a developing country, China was considered the worlds production factory. IKEAs low prices elsewhere were at, or even above, the norm in China. Prices of furniture provided by local stores were much lower because their design costs were usually nil. For example, local rms imitated the designs of famous brands, such as IKEA, and produced furniture at a much lower cost since they are able to access cheap materials and labor locally, as well as use less expensive transportation methods. The low prices of furniture at these local stores astonished the IKEA team, who believed their products to be the most price-competitive in the world. Linda Xu once invited an IKEA designer from Sweden to visit local Chinese furniture shops. This designer
fIMF:

Chinas GDP ranked the seventh in the world, but the income per person remains medium to low. http:/ /www.esunny.com.cn. May 18, 2004.

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was shocked at the low prices of high quality furniture made by some local rms and told Linda that he could not imagine how such furniture could be produced at such a low cost. In order to compete with local stores, IKEA had to keep costs down, relying on the massive production process to reduce costs. In 2002, IKEAs overall prices in China had decreased by 12%. For example, a sofa priced at RMB2,999 (US$363) in 1999 sold for RMB995 (US$121) in 2003. After lowering prices, IKEAs sales rose by 35% in 2003. Prices of IKEA products were lowered further in 2004 and 2005. The ability to decrease retail prices could be attributed to the gigantic production runs made possible by selling the same products all over the world. Ian Duffy exclaimed, To match our rivals on price, we will make our products more affordable for the IKEA customers in China. IKEA had also started to identify the optimal low price level in local consumer markets by conducting public surveys. A survey conducted in Beijing in early 2004 indicated that IKEA should aim at local families with a monthly income of RMB6,000. Among this group of people, IKEA was considered to provide low-priced products. This was, however, different from that IKEA implemented in the rest of the world, where IKEA was able to provide cheap and durable furniture to common people. A more recent survey conducted in Beijing, however, found that the majority of consumers who bought furniture and decorations were those with a monthly income below RMB3,000g and more than 70% of these people preferred local brands. By targeting individuals with a monthly income higher than RMB6,000, IKEA was limiting its potential customer pool. Since people with a monthly income between RMB5,000 and 8,000 only comprised 2.7% of the total population*. Most of these people worked in

gBu, Jingwei, A survey on the consumption of house decoration by Beijing citizen: the majority are those with monthly income below RMB3000. www.people.com.cn. January 9, 2001. *The 2003 national survey on the development of human resources in Chinese enterprises.

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foreign invested enterprises, consisting of a distinct social group versus the majority of urban workers who worked in state-owned or private rms. In this regard, IKEAs target at commom people with low prices could not be achieved in China. Linda Xu once commented: only through many personal experiences could the European managers of IKEA truly believe that many take-for-granted practices elsewhere may be impossible in China. The intense competition among the small furniture companies kept lowering the prices of furniture. Consequently, although IKEA is known as a store that sells brand-name products at low prices in other countries, its prices are not competitive in the Chinese market.

Market Positioning The Chinese home decoration industry was in its early years of development and Chinese consumers lacked knowledge of interior home decoration. In this sense, IKEA showed Chinese consumers new home decoration concepts using its various products. IKEAs DIY (do it yourself) culture attempts to evoke a sentiment deep in human hearts making a home by hand just like in a childs dream. However, the Chinese do not appreciate this notion, since on the one hand they do not enjoy it, and on the other hand, they believe it is unreasonable to accept the high priced products without assembly, with such high prices. Linda Xu commented on this issue by noting, IKEA understands this problem, but we believe that every individual has his or her own distinct characteristics and needs. On the other hand, we also understand that it is hard for all Chinese consumers to accept our concept. Thus, we now target a group of consumers from 28 to 35 years of age, who are more inclined toward western concepts. Catering to this demographic begs the question of whether IKEA China has specialized in serving this class of people rather than its prevailing strategy of targeting the majority of people in more common households. While most

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Chinese do not fully understand many of IKEAs featured business concepts, many young customers, who like the design of IKEAs furniture and decorations, turn to other local stores to buy after wandering around the IKEA store due to the high prices of IKEAs products. The disconnection between the consumer group who understands the IKEA concept and the group who can afford the product is an intriguing indicator of the complexity of the Chinese market. The contrast between China and the developed Western markets went well beyond the economic concerns. In the Chinese tradition, moving into a new house and decorating it had been made into an important social event. Most homeowners looked for the best products that they could nd or contacted local furniture rms to make a special set of furniture for the house. A majority of consumers used traditional furniture to decorate their homes, instead of following trendy fads. Chinese with high incomes bought expensive foreign brands, whereas those with a medium or low income bought from local rms. In this regard, IKEAs low price strategy seemed to create confusion among Chinese consumers. In China, foreign goods were perceived to be more expensive than local brand products. Consumers who bought foreign goods looked for the premium value implied by the higher price. In this sense, low-priced goods were not very attractive to those interested in buying foreign brands and chasing the brand image effect. On the other hand, for those seeking low prices, the actual prices of IKEA products were not low at all, compared with the majority of local brands. Therefore, given the low price image IKEA advertised but the relatively high actual prices, it is difcult for Chinese people to recognize IKEAs value and accept its prices at the same time. Nevertheless, IKEA had worked hard to advocate its furniture philosophy to Chinese consumers and kept promoting its home decoration values, including make good use of your space, simple is beautiful, and save money by doing it yourself. IKEAs quirky and irreverent approach to marketing and strong emphasis on the non-traditional had inspired unusual local creative efforts. For instance, IKEA

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China decorated the inside of elevators in 20 lower-income apartment buildings in Beijing to show residents how IKEA can revamp their small apartments into modern, pleasant places without spending much money. More sales were expected with more customers enticed into IKEA stores. On the whole, sales volume had been increasing in step with growing exposure through various media and promotional campaigns.

Business Models When IKEA entered the retail market in China, the Chinese furniture market was not fully open to foreign business. IKEA had to form a joint venture with a local rm and was registered as a joint-venture, Beijing Northern Sweden Limited Company. In doing so, IKEA retained full management control. It, however, had to give up its common practice of buying the land and building its own stores, because the Chinese government was the only owner of the land and land transactions were strictly controlled by the state. In addition, the average household in China could not readily afford a car. IKEA, used to operating stores in the suburbs, now had to rent buildings in the downtown area because that was the only place where enough customers could travel by using public transportation. Although IKEA had been a leader in shaping the business models in the furniture retailing industry, some of its styles seemed to be mist and even counterproductive in the local market. First of all, IKEA used catalogues to inspire consumers on creative home furnituring ideas go to IKEA and make your home. Its catalog was distributed in August/September of each year and prices were guaranteed for a full year. It seemed that IKEAs catalog had played a primary role in advertising success. While every effort was made to maintain the availability of items shown in the catalog, due to popularity and supply issues, some products might not be available. Another problem was the catalog products provided opportunities for competitors to imitate. Indeed, IKEAs catalog became a cookbook from which

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local competitors copied designs and then offered similar products with lower prices. Second, IKEA used a self-service strategy to keep costs low. There were no delivery and assembly services provided by IKEA stores. Customers were pro-sumers, taking care of these tasks by themselves. However, given Chinas social living environment, consumers had not readily accepted this self-serve concept as a way to save money. The majority of Chinese consumers had to bring the big packages back home by public transportation. Also, many complained about the assembling process since they were not familiar with some of the assembling tools. Given that IKEAs products were not inexpensive by Chinese standards, many consumers were discouraged from buying IKEA furniture due to the delivery and assembly troubles.

FUTURE DEVELOPMENT IKEAs development in China was in its infant stage as consumers lacked sophisticated knowledge of home decoration. Rapidly growing home decoration market in China shed light on IKEAs future developments. As living standards improved and the government opened up property markets, interior decoration and design were becoming popular pastimes. Moreover, the Chinese government had started to sell-off state housing and to create a class of homeowners. With the future development of a secondary housing market, the home improvements market was becoming an increasingly established part of Chinese retailing. Home furnishing was broadly divided into 4 areas: children, kitchen/living room, bathroom and bedroom, decorative items. In the past, IKEA had been criticized for being slow to expand compared with other foreign retailers, such as Wal-Mart, which had expanded rapidly throughout China. IKEA was seen as very cautious. Now IKEA was preparing to move forward decisively in its expansion plan. The long-term goal is more important than the short-term prot, Xu emphasized, The coastal cities and developed inland cities will be our main focus. If more stores were opened, the rm could

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reap economies of scale and nally show a prot. To this end, searching for appropriate sites and negotiating with corresponding ofcial departments became crucial. An executive of IKEA China disclosed that IKEA planned to establish ten more stores in existing markets in the near futureh. Exhibit 3 illustrated the current locations of and targeted cities for IKEA stores in China. With its experience in Beijing, Shanghai, and Guangzhou under its belt, IKEA was investigating in 14 other cities in China, including Chengdu, Dalian, Nanjing, and Qingdao and planned to establish outlets in those cities. If more stores were opened, the advantage from economies of scale could become more signicant and made IKEA protable. To this end, acting quickly in search of appropriate sites and then negotiating with corresponding ofcial departments for buying land became important. At the same time, IKEA would extend its trading business in China. As planned, another warehouse of equal or greater size would be built in Shanghai. An executive of IKEA China disclosed that the rst phase project would cover an area of 67,000 square meters with a storage capacity of 100,000 cubic metersi. This warehouse would facilitate the increased purchasing from China so as to lower prices further and thus attract more customers. Despite failing to generate prots in China in the rst several years, IKEA was optimistic since it had overcome many difculties in its early development in other countries. In the early 1950s Swedish manufacturers and retailers limited new entries through supply contracts and even forbade IKEA from selling directly to customers at trade fairs. In that battle, IKEA won and solidied its market position by acquiring furniture makers and expanding the business into other countries in Europe and North America. Its product differentiation, cost leadership strategy, and accumulated experience in the international retail market enabled the rms business to boom from the 1970s through
hIKEA

to open 10 stores in mainland China in six years, http:/ /www.xinhua.org. August 31, 2004. iSinoCast China Business Daily News 2004 IKEA Builds Logistics, Distribution Center in Shanghai. December 1:1.

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today, even during oil crises and worldwide economic recessions. These experiences provided IKEA with the courage and condence to conquer the Chinese market. In response to the question of whether or not IKEA was on its way to resolving all of its problems in China as well as dealing with the fast growing competition from a variety of competitors, Linda Xus answer was rm and resolute: There is much work to do, but we have already had a good beginning.

ACKNOWLEDGMENTS The authors would like to thank Dr Changhui Zhou, Dr Michael Young and Professor Chung-Ming Lau, for their helpful suggestions. We also appreciate the help from Miss Yang Wang, on interviewing managers and data collection.

REFERENCES
1. IKEAs company website: www.ikea.com. 2. Beamish, P. W. 1987. Joint ventures in LDCs: Partner selection and performance. Management International Review, 27(1): 2337. 3. China Daily 2003. IKEAs low-price strategy remains, August, 27. 4. Colla, E. 2003. International expansion and strategies of discount grocery retailers: The winning models. International Journal of Retailer & Distribution Management, 31(1): 5565. 5. Dixon, J. and Newman, D. 1998. Entering into the Chinese Market: The Risks and Discounted Rewards. Quorum Books, Westport. CT. 6. Miller, P. M. 2004. IKEA with Chinese characteristics. The China Business Review, 31(4): 3638. 7. Normann, R. and Ramirez, R. 1993. From value chain to value constellation: Designing interactive strategy. Harvard Business Review, July/August, 6577. 8. Torekull, B. 1998. THE IKEA STORY: Ingvar Kamprad Talks to Bertil Torekull. Arts & Licensing Int., Inc. 9. Wu, X. 2001. Love & hate IKEA. Sanlian Shenghuo Zhoukan, 13: 1621. 10. Bratlett, C. B. and Nanda, A. 1996. Ingvar Kamprad and IKEA. Harvard Business School Cases, July 22, 9-390-132.

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11. Anonymous 2004. The year of brand for Chinese furniture industry: The phenomena. http://www.qianlong.com. August 3. 12. Anonymous 2004. The year of brand for Chinese furniture industry: The strategy. http://www.qianlong.com. August 3. 13. Anonymous 2004. The year of brand for Chinese furniture industry: The focus. http://www.qianlong.com. August 3. 14. Anonymous 2004. The monthly income of more than 70% of people in China is around RMB 8002,500. http://business. sohu.com. April 25. 15. Fong, M. 2006. IKEAs low-price strategy pays off in China. The Wall Street Journal, March 3.

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Exhibit 1 IKEAs Milestones in China 1973 1977 1979 1981 1987 1990 1991 The rst visiting group of IKEA employees came to China The business association paid a visit to China. IKEA sent a representative to join them and IKEAs rst order was made. IKEA participated in a trade show in Hangzhou and placed its rst direct order. IKEA set up its rst Asian ofce in Hong Kong. IKEA set up its rst purchasing ofce in Hong Kong in charge of all purchases in China and other Asian countries. IKEA opened a trading company in Taiwan. IKEA opened a trading company in Qingdao, furthering its expansion in mainland China. IKEA opened a trading company in Shanghai, a most promising Chinese city. This company facilitated the further development of IKEA in China in terms of both procurement and retail. IKEA opened a trading company in Shekou, pushing its purchasing lines to southern China. IKEA opened a trading company in Xiamen, expanding into the southeastern area. IKEA opened a trading company in Harbin, marching into the northeastern market. IKEA opened its rst store in Shanghai. Anders Moberg, IKEAs chief executive ofcer, went to Shanghai to open the rms 137th retail store. This is the rst IKEA store in mainland China. IKEA opened its rst store in Beijing. This is IKEAs second retail store in mainland China. IKEA closed its rst store opened in Shanghai in 1998 and opened its rst standardized store close to site of the original one. This is the rst authentic IKEA store in mainland China. IKEA opened its rst store in Guangzhou. This is IKEAs third retail store in mainland China. IKEA opened its second store in Beijing.

1994 1997 1998 1998

1999 2003

2005 2006

Source: Company Records

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Exhibit 2 Organizational Structure of IKEA Stores in China

Asia-Pacific Headquarter (Singapore)
Human Resources Finance and Administration

China Head Office (Shanghai)

Logistics

Marketing

Beijing Store

Shanghai Store
Sales

Bus. Area* 1. Sofa, Chairs

Bus. Area 2. Cases, CD Shelves

Bus. Area 3. Beds

Bus. Area 5. Workplace Furniture

Bus. Area 6. Lighting

Bus. Area 8, 9. Cookware

Bus. Area 10. Textiles

Bus. Area 400 Playing Ground

Bus. Area 50 Decorations

Dining Hall

Customer Service

Logistics Administration

Human Resources

*Bus

Area: abbreviation of business area, which represents the basic unit for classifying product categories at IKEA. Source: Company Records

IKEA IN CHINA: FACING DILEMMAS IN AN EMERGING ECONOMY

21

Exhibit 3 Locations of IKEA Stores and Future Targeted Cities for IKEA Stores in China

Beijing (the capital of China, an IKEA store was opened in 1998, and another was opened in 2006)

Shanghai (location of the rst standard IKEA store)

Cities that IKEA targetted for opening stores in the coming years

Source: Company Records