In 1998, IKEA started its retail operations in China. To meet local laws, it formed a joint venture. The venture served as a good platform to test the market, understand local needs, and adapt its strategies accordingly. It understood early on that Chinese apartments were small and customers required functional, modular solutions. The company made slight modifications to its furniture to meet local needs.
IKEA had faced similar problems previously when it entered the United States. The company initially tried to replicate its existing business model and products in the US. But it had to customize its products based on local needs. American customers, for instance, demanded bigger beds and bigger closets. IKEA had to make a number of changes to its marketing strategy in the US. The challenges it faced in China, however, were far bigger than the ones in the US. Specifically, our approach explains how IKEA's traditional competency base is adapting to match the institutional demands of the Chinese context. The focus of our theory-based analysis is on the development of the Competency Adaptation Framework for IKEA's successful expansion in the Chinese market. In conclusion, the outcomes of IKEA's learning are outlined and discussed in terms of IKEA's concrete plans and actions in the Chinese context.
IKEA identified the strategic challenges and made attempts to overcome them. One of the main problems for IKEA was that its prices, considered low in Europe and North America, were higher than the average in China. Prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil.
Since 2000, IKEA has cut its prices by more than 60 per cent. For instance, the price of its "Lack" table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 yuan when IKEA first came to the Chinese market. The company plans to reduce prices further, helped by mass production and trimming supply chain costs. An institutional competency-based view of a firm's strategy posits that the firm's managerial, organizational and technological resources should operate coherently under the conditions of institutional constraints to create complementary, firm-specific competencies that can produce a sustained competitive advantage. This perspective proposes that changes in cultural and political environments place specific demands upon the extant set of firm competencies to be renewed in order to maintain a competitive advantage amidst the changes.
In 1998, IKEA started its retail operations in China. To meet local laws, it formed a joint venture. The venture served as a good platform to test the market, understand local needs, and adapt its strategies accordingly. It understood early on that Chinese apartments were small and customers required functional, modular solutions. The company made slight modifications to its furniture to meet local needs.
IKEA had faced similar problems previously when it entered the United States. The company initially tried to replicate its existing business model and products in the US. But it had to customize its products based on local needs. American customers, for instance, demanded bigger beds and bigger closets. IKEA had to make a number of changes to its marketing strategy in the US. The challenges it faced in China, however, were far bigger than the ones in the US. Specifically, our approach explains how IKEA's traditional competency base is adapting to match the institutional demands of the Chinese context. The focus of our theory-based analysis is on the development of the Competency Adaptation Framework for IKEA's successful expansion in the Chinese market. In conclusion, the outcomes of IKEA's learning are outlined and discussed in terms of IKEA's concrete plans and actions in the Chinese context.
IKEA identified the strategic challenges and made attempts to overcome them. One of the main problems for IKEA was that its prices, considered low in Europe and North America, were higher than the average in China. Prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil.
Since 2000, IKEA has cut its prices by more than 60 per cent. For instance, the price of its "Lack" table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 yuan when IKEA first came to the Chinese market. The company plans to reduce prices further, helped by mass production and trimming supply chain costs. An institutional competency-based view of a firm's strategy posits that the firm's managerial, organizational and technological resources should operate coherently under the conditions of institutional constraints to create complementary, firm-specific competencies that can produce a sustained competitive advantage. This perspective proposes that changes in cultural and political environments place specific demands upon the extant set of firm competencies to be renewed in order to maintain a competitive advantage amidst the changes.
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