IKEA’s success in China shows that it is possible to succeed and even thrive in China as an foreign company.
Many business people see entering the Chinese market as a very difficult, almost impossible task. To these people, the idea seems incredibly exotic and shrouded in mystery. The very idea of “entering China” becomes akin to starting an opium war or engaging in some political espionage worthy of Henry Kissinger.
While there is plenty of ammunition for such claims, (certainly mainstream media is not helping), the model for succeeding in China is quite simple. Successful businesses in China possess strong business acumen and take the long term view. One example of understanding these principles and succeeding in China is the Scandinavian furniture retailer, IKEA.
Refurbishing My Apartment
My own personal connection to the topic comes by way of living in Beijing and recently wanting to refurbish my apartment. Whereas in America there are plenty of decent options for furniture on a middle class salary, these options dwindle abroad. In many ways, my time spent living and working in Beijing over the past four years has effectively turned me into a Chinese consumer (with cultural caveats, of course).
This past Sunday I traveled by bus across the fourth ring road, from Wudaokou to Wangjing in order to visit one of the two IKEA stores in Beijing. Again, I was reminded by the hordes just how dominant IKEA is in Beijing. My original goal was to purchase a sofa, but the crowds inside the store were so much that it was nearly impossible to actually inspect them.
When I got back home from shopping, I couldn’t get the thought out of my head. Just why was IKEA so popular with the Chinese? Upon further online investigation I found some interesting points about the company.
What Makes IKEA Successful in China?
IKEA has taken a long view of doing business in China. They have done a spectacular job of monitoring and adapting their business in alignment with new information. One such adaption that has undoubtedly helped them is their price point reduction in 2003 which led to 35 percent raise in sales (China Business Review).
IKEA has a strong tradition of creating product catalogs which focus on the culture of target customers in a given country. This focus on adapting to cultural differences has helped them do well in many international markets where others often fail.
IKEA has also invested significantly in an online business model. This will be crucial as e-commerce becomes more and more popular.
IKEA’s proactive attitude and subsequent success shows that, yes, it is possible to run a successful operation in China. Of course, IKEA also has deep pockets and experience in international markets which has made their ride smoother than many others who looked on jealously.
I want to make a point of IKEA’s large capital reserves here. It’s important to note that doing international business is inherently more capital intensive than setting up shop in domestic markets. You need to hire lawyers and buy plane tickets if you want to be more than a simple cog in the supply chain. A lot of the time it doesn’t make sense for companies to try and make the leap until they have a strong base at home.
Some other companies that I have been particularly impressed with in terms of adapting to the Chinese business landscape are Starbucks, Apple, and Coach. They are also very useful to look at as case studies.