Global Marketing

Management

Executive summary
This report presents various operations used by IKEA in expansion of business in China.
Research analyzes several external elements such as political, legal, social, economical and etc.
of China and finds that IKEA has to manage business according to rules of authority and current
economic trends. It identifies that big population of China will increase sales of company. Report
evaluates various other factors in the form of the competitors, suppliers and retail market of
China. This research determines that IKEA needs to develop joint-venture with various suppliers
in order to reduce production cost and business entity has to consider consumer needs and
policies as well as products of competitors in development of marketing plan. Report determines
different type of marketing objectives in terms of the increment in market share, development of
brand awareness, profit maximization and etc. It also describes the role of various business and
other strategies to meet market and business goals of firm. Report finds that potential business
model of IKEA assists organization in cost reduction, development of new joint venture as well
as subcontracts which are very important sections of expansion project of IKEA in China.

Table of Contents
Global Marketing Management...............................................................................................1
INTRODUCTION...........................................................................................................................1
TASK 1: MACRO AND MICRO ENVIRONMENT OF THE MARKET ENVIRONMENT IN
CHINA.............................................................................................................................................1
Micro environment of China.......................................................................................................5
TASK 2: MARKETING OBJECTIVES AND CRITICALLY ANALYSE CORPORATE AND
BUSINESS STRATEGIES..............................................................................................................7
Appropriate marketing objective of IKEA in the market of China.............................................7
Critical evaluation of supporting business strategies to support the expansion of the IKEA
brand in the China........................................................................................................................9
TASK 3: POTENTIAL BUSINESS MODEL OF IKEA AND APPROPRIATE APPLICATION
OF THE MARKETING TACTICS...............................................................................................11
Critical evaluation of the potential Business Model of IKEA and its adaptation for the
expansion of the brand in CHINA.............................................................................................11
Justification on the most appropriate application of the marketing tactics that will support the
expansion in CHINA.................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCE................................................................................................................................16

List of figures

Figure 1: PESTLE analysis..............................................................................................................2

Figure 2: SWOT analysis.................................................................................................................9
Figure 3: IKEA Business model....................................................................................................12
Figure 4: IKEA Business Cycle.....................................................................................................13

INTRODUCTION
Global marketing can be defined promotion of goods and services in overseas market.
Global Marketing Management is a systematic process for identification various factors of
business and political environment of new market and country which in an organization wants to
expand its business. For this, company has to carry out research on various elements of business
as well as economic conditions like interest of consumers, competitors and growth of nation
(Dibb and Simkin, 2013). All these factors influence marketing decisions or expansion projects
in new overseas market. This report presents market plan for IKEA. It is the worlds largest
furniture chain that operates 350 stores in 43 countries. This report determines different types of
environmental factors which affect IKEAs expansion project in China. For this, research
evaluates micro and macro environmental factors with to help of PESTLE analysis. This study
assists to manager to find out the information regarding political, economic and latest market
trends of China. Report presents range of business strategies and evaluates present business
model of IKEA.

TASK 1: MACRO AND MICRO ENVIRONMENT OF THE MARKET

ENVIRONMENT IN CHINA
Macro Environment of China
Macro Environment of China in includes various elements like government, economic
conditions and legal obligation and etc. With the help of PESTLE, organization can easily
evaluate external market (Prieto, 2009). The components of macro environment influence every
decision or expansion project of IKEA. This study assists management in order to identify
opportunities and threats for business. The factors of PESTLE analysis are mentioned below:

Figure 1: PESTLE analysis

(Source: Market Appraisal: SWOT and PESTEL Analysis, 2014)
Political: The Chinese Communist Party controls all legal and aspects of China. The
legislative authority is a group of 2,989 people. All people are member of National
Peoples Congress which is elected in every five years. The legislative authority
influences all business and trade operations. However, all governmental roles are played
by the Chinese Communist Party but there are some ethnics groups of minorities creating
problems for government (Harridge-March, 2009). It also creates negative impact on
business activities these kinds of areas. The Chinas pension system and fast ageing
population has increased government contribution in pension amount it increases public
spending of public authority of China.
China is surrounded by 14 nations but government has made efforts to maintain
peace and enhance trade relation with other nations. However, public authority of China
is facing border and other issues with neighbors. China is facing border issues with India
and Taiwan that affect trade relations. To resolve this, China and India has signed a new
treaty to reduce tension (Rnnbck and Eriksson, 2012). China and Japan have a dispute
related to mining of natural gas in East China Sea. So, these factors affect import and
2

exports of China. Due to increment in local government debt around 70%, government
reduces its expenditure 30% in 2013. The fiscal deficit has increased 1.9% in 2013 as
compared to 1.7% of 2012.
Economic factor: Economic situation of county create huge impact on various business
operations, income of people, market demand as well as needs of consumers. Chinas
agriculture sector is playing important role in GDP and growth of economy. Rice, tea,
sugar are major cash earner corps (Ranchhod, 2007). However, agriculture is main
element but shortage of water creates problems for farmers and their income. On the
other hand, manufacturing sector is managing 30% section of GDP and employs 29% of
total workforce. China is worlds largest car market.
The service sector is playing primary role in GDP around 45%. Due to
improvement in regulatory infrastructure of banking system, the informal banking has got
tremendous growth. It influences retrial market business in the form of furniture,
households and audio-visual equipment (Aksoy, Buoye and Henseler, 2013). After getting
uninterrupted growth, the growth rate of GDP is going down to 7.7% in 2013. But, China
is facing problems in reduction in domestic demand. On the other hand, the export of
China has increased by 9.4% in 2014 as compared to 7.8% in 2013.The new trade
agreement between China and Taiwan increases business. However, current account
surplus is going down to 2.3% in 2014.
In 2014, the GDP of China is 7.2%, the increment in domestic consumption and
spending become main economic diver of country. On the other hand, property market of
China reduces growth rate. The price inflation identifies in 2014 around 2.2%. In order
to boost economy, public authority of china has developed long terms plans in the forms
of building railways, roads and airports (Render, 2013). The process influences flow of
money in market. Exchange rates are another important aspect of economic aspect. Good
capital inflow makes currency of China strong against of UD dollar. The renminbi's daily
trading band against the US dollar was widened from 1% to 2% in March 2014. So,
strengthening in Chinese currency leads some negative impact on exports.

Social: China is biggest populated contrary in the world. The rapid urbanization makes
changes in the needs and requirement of consumers. In 1980, less than 20% population
3

lived in cities but in current time frame more than 51% people are living in cities. This
factor creates huge impact on government rules and economic situation of nation. It also
makes changes in lifestyle of citizen (Delaney, 2013). This thing also enhances spending
of people that influences international companies in order to start their business market of
China. China also encounters problems form ageing of people. It reduces productivity of
people. Elder people also increase government spending on health services.
In 2013, saving ratio was 38.5% percent of disposal income but this ratio will
reduced to 39.4% in 2014. It leads public spending in terms of communication, education
and other goods and service (Brassington and Pettit, 2010). The increment in per capita
and disposal income increase expenditure of people. The increment in individual
expenditure influences multinational corporations and companies to start business
operation in China. It also provides an opportunity to business organization in order to
gain good profit and market share in economic growth of people.

Technology: The high growth rate and economic development encourage local authority
of China in order to boots up the research and development of activities. In order to reach
international level of economic advancement, government has spent too much capital to
support in research and development of new technology (Marshment, 2009).

This

approach makes available high tech equipment for various industries in very less cost.
Technology is playing very important role in global marketing process because reduction
cost production and other expenses motivates external market players to set up business
in China. However, high-tech equipment and machines lower the production expenses by
increasing production quantity (Dimitriadis and Stevens, 2008). On the other hand,
technology can increase the rate of unemployment. This thing can reduce income of
citizen as well as decrease demand of goods and services.

Legal: The government of China has developed range of rule and regulation in order to
control crime and business process. The public authority also imposes some legal
restriction for safety and security of workers (Klaus, 2013). On the other hand,
unavailability of human right can increase the situation of exploitation as well as develop
negative image of China in front of international community. The tax obligations
influence business and marketing plan of companies.
4

 Environmental: High economic growth and industrialization leads pollution. The

unplanned exploitation of natural resource enhances pollution in terms of waters waste,
deposal of toxic chemicals and increment in carbon emission (Thomas and Housden,
2011). But public authority of China has made great efforts in order to reduce pollution
and safety of environment. Government has formulated trough rules and regulations for
industries and form mining process in order to reduce pollution. It creates adverse impact
on marketing and cost of production of companies.
Micro environment of China
There are several other elements that influence expansion plan of IKEA in China. It can
be determined as the micro environmental factor s. Elements of Micro environment are described
in details:

Consumers: For development and growth of nation and industry buyers are playing
crucial role in market. Hobbits, lifestyle and interest of people significantly influence the
demand of goods and services. In the context of China, elder citizens are very
conservative for their spending. Buying behavior of Chinese consumer is greatly
influenced by tradition and values (Freytag and Munksgaard, 2011). The growing number
of educated elderly influences spending of people for various things. It involves home
furnishing and tourism. This thing facilitates an opportunity to management of IKEA in
order to increase consumer base in China. On the other hand, internet generation or
young age people increases importance of online market because young age people has
changed shopping process from traditional method to online mediums (Reijonen and
Laukkanen, 2010). The various online retail stores like Alibaba have got tremendous
growth in online business market. So, IKEA needs to use this new online solution for
promotion and sales of products.

Competition: China is world most populated country. So, it is one of largest market place
in terms of numbers of consumer in all over the world. High economic growth
encourages many international and local organizations in order to expand business in
market of China (Ikea and its competition in China, 2013). It leads tough competition in
market home furniture market of China. For example: Hola, a furniture brand of Taiwan
5

is biggest rival of IKEA. Because, this company is expanding very quickly in different
part of China. On the other hand, B2C and C2C business platform like TMall, Taobaos
and etc. are also increasing competition of IKEA in China.

Supplier: The providers of different kinds of martial are significantly influence of

business and marketing practice of IKEA (Coallier, 2012). In China, company can
conduct contracts with the range of suppliers. With the help of effective utilization of
different supplier, company can fulfills the demand of consumer within effective manner.

Retail stores: The business intermediaries like multi-brand retail stores and online retail
stores are playing significant roles in order to increase market share and sales of company
(Reijonen and Laukkanen, 2010). In order to achieve this objective, management of
IKEA has formulated many contracts with international as well as domestic stores and
mediators.
Porters Five Forces Analysis: It is a very effective technique in order to analysis various
elements of external environment that affects different activities of IKEA in China. Factors of the
five force analysis are mentioned under this statement:
Barging power of consumers: China is one of the biggest markets of the world. In China,
consumers have a wide range of choice in furniture products. Different types of global
and domestic furniture producers are facilitating different type of furniture in various
price segments.
Bargaining power of supplier: IKEA is managing its operation across the globe. There
are various international supplier connected with IKEA. So, suppliers do not possess
substantial bargaining power (Reijonen and Laukkanen, 2010). But, IKEA keeps long
term relation with supplier in China and other nations.
Rivalry with other firms: IKEA is a globe leader in low cost furniture. So, IKEA has
business rivalry with the Euromarket Designs Inc, Galiform plc and Wal-Mart Stores Inc
in China and other parts of world. However, IKEA has good position in market that will
support company in expansion in China.
Threat of new entrants into the industry: IKEA is generally dealing in low cost designer
furniture. In order to reach this position, a new organization has to invest in research and
6

development as well as supply chain management (Klaus, 2013). It requires significant

amount of investment. So, management can get competitive advantage in international
market.
Threat of substitute products and services: There are very few organizations which can
provide service and furniture similar to IKEA. But, products of some domestic market
players and furniture organization in China can be become threats for IKEA.

TASK 2: MARKETING OBJECTIVES AND CRITICALLY ANALYSE

CORPORATE AND BUSINESS STRATEGIES
Appropriate marketing objective of IKEA in the market of China
Development of marketing objectives is very important part of promotional planning in
order to expand brand in new market. The most important marketing objectives developed by
management of IKEA are disclosed in statement:
To enhance brand awareness: It is the one of the most important aspects of marketing.
Every organization makes efforts in order to increase brand value firm. Brand value and
perception of consumer about the products and services significantly encourage sales of
company (Harridge-March, 2009). In order to expand business in China and generate
good returns, management has to develop a range of innovative strategies and tactics for
promotion of brand than after product like sponsoring events and social services in China.
To link up business vision with culture of China: Another and most important objective
of marketing activities in China is linking of culture chine with business practice and
vision China. In this, the management of IKEA makes efforts to consider cultural
elements like languages Mandarin, Cantonese, Hakka, Wu, Min and etc (Klaus, 2013).
The management also considers festivals like Spring Festival in development of creation
of business planning.
To enhance market share of company: Market share reflects sales and market position of
company. An effective marketing plan assists management of IKEA for development of
unique position of product and features of services. Integrated promotional approaches
will position the product the product in the mind of consumers (Aksoy, Buoye and
Henseler, 2013). This thing motivates consumers in order to purchase products and
services of IKEA. It increases the sales of company and boots up market share of IKEA.
7

 To manage stable growth: Innovative and creative marketing tactics create good images
of company and positioned the product like furniture very effectively. This manages
continues sales of IKEA (Dimitriadis and Stevens, 2008). This approach is very essential
for stable growth. The promotion of goods according to latest market trends can increase
consumer awareness regarding goods and services.
To increase sales of company: It is the most important objective of marketing in China.
On the basis of business environment of China, the management of IKEA needs to
develop promotional plan according to different external elements which can increase
sales of IKEA in China.
Profit maximization: It is an important aim of marketing activities of IKEA. In this,
company makes effort to link marketing operation with sales. This approach helps
organization to increase profit of firm as well as increase earnings of business entity.
Brand expansion: In the process marketing, management of IKEA uses various kinds of
the advertisement and promotion methods in China on the basis various external elements
like competitors and needs of consumer (Rnnbck and Eriksson, 2012). With the help of
innovative promotional techniques, IKEA can expand brand value in China.
Brand acceptance: Different kinds of innovative and marketing approaches assist firm in
order to enhance consumer acceptance in market. It plays very important role in order to
increase sales of company.
Distribution channel and networking: Market research is a significant element of
promotion process. This process assists IKEA in identification of different kinds of
distribution channel as well as development of new network of selling and distribution of
goods and services effectively (Klaus, 2013). This approach is essential part of expansion
project of IKEA.
Critical evaluation of supporting business strategies to support the expansion of the IKEA brand
in the China
The management of IKEA has developed various plans in order to support expansion of
IKEA brand in China. The supporting strategies assist company to enhance effectiveness
expansion project in China. Analysis of various supporting strategy is explained below:
SWOT analysis:

Figure 2: SWOT analysis

(Source: SWOT Analysis, 2014)
It is the most important tactic that supports expansion plans for IKEA in China.
With the help of this approach, management of IKEA can evaluate strength, weakness,
opportunities and threats of organization (Brassington and Pettit, 2010). The major
strengths are long products range, efficient distribution system and good image in rest of
the world help company in order implement expansion project effectively. Opportunities
include big market, efficient supplier assists promotional for development of promotional
plan. Weakness and threats determines impacts future competition in Chinese market,
economic stability and effect of product recall on business on brand value of IKEA. All
information gathered from above study supports management in development of
promotional and plans as well as selection of target consumers (Rnnbck and Eriksson,
2012). However, SWOT analysis avoids information regarding the latest market trend. It
is very time consuming process.
Market research: In this, management of IKEA carried out market research in order to
determine latest market trends regarding the quality and price of home furnishing
products. With the help of this system, management can evaluate demand of different
kinds of furniture products and willingness of consumer to pay for particular products
(Dibb and Simkin, 2013). In this study, company can evaluate market share of various
competitors and quality of here products. Market research measures impact of price on
9

demand of consume. Market study facilitates a range of information but it is very lengthy
and expensive process. IKEA may not develop of whole expansion project on the basis of
information gathered by the market research.
Study of buying behavior: This is very effective supportive strategy that provides
information regarding the impact of culture of China on buying behavior and selection of
goods and services (Prieto, 2009). This approach assists IKEA in formation of marketing
plan and business policies on the basis of cultural norms. It will provide positive results
form expansion project.
Business strategy: The term business strategy assists management of IKEA in order to
fulfill marketing objectives. This approach helps furniture organization to maintain
competitive advantage on the basis of target consumer, target market and present
capabilities of IKEA. For example: IKEA uses traditional Bricks and Mortar in China
along with online stores.
Corporate strategy: This model is very useful in identification of new market
opportunities as well as exploitation of these chances for benefit of organization
(Rnnbck and Eriksson, 2012). This system determines the roadmap in creation of
partnership, mergers and development of sub-business contracts according to latest
market trends. With the help to this system, IKEA can expand business and can reduce
cost of furniture.

TASK 3: POTENTIAL BUSINESS MODEL OF IKEA AND APPROPRIATE

APPLICATION OF THE MARKETING TACTICS
Critical evaluation of the potential Business Model of IKEA and its adaptation for the expansion
of the brand in CHINA
IKEA is a leading brand of home furnishing products and services. Company makes
available wide range of furniture with innovative and sleek design within low price. IKEA makes
efforts in order to facilitate best home furnishing product of every one in all over the world
within less price so any one can afford designer furniture (Thomas and Housden, 2011). The
managers of IKEA believe that any company can develop high quality furniture in consideration
of high price. But development of designer product within affordable price of low income
consumers is not easy task. On the basis of business idea of IKEA, first of all designers of IKEA
10

manage their operations with the various producers and determine various tactics for production
in fewer prices (The IKEA Business Model, 2014). In next stage, manger purchase best
suitable raw material in large quantity and start production. With the help of this process
company can reduce price of outcomes.
Reduce distance between supplier and consumer: In order meet consumer need
within les price, company manages business practice between consumer and supplier s.

Figure 3: IKEA Business model

(Source: The IKEA Business Model, 2014)
Prices and Volumes: To reduce product price, management increases production
quantity. But, sometimes high end consumer feels that increment production volume may
reduce quality of furniture. Selection of low cost raw material lower durability of
furniture.
11

Figure 4: IKEA Business Cycle

(Source: The IKEA Business Model, 2014)
Adaption the existing business model in expansion of brand in China
The top managers of IKEA can adopt its existing business model for expansion of
business in China. For this, the management of IKEA has managed its research and development
activities in Sweden and develops subcontracts with various producers in China (Freytag and
Munksgaard, 2011). It can say that management of IKEA collects several products from different
suppliers and assembled in its unit.
Company provides catalogs and demo products to consumers. With the help of catalogs,
buyer can select design of furniture what they want. After that organization manufacture the
furniture with the help of other contractors. In this, IKEA tries to keep the cost between buyer
and suppliers (Render, 2013). This system assist in order to reduce production cost in China and
company can easily attract Chinese consumer.
Exports: It is a very important section of expansion project of IKEA. China is well known
country for low cost production. So, management of IKEA makes efforts in order to increase
capacity of firm with the help of various other domestic and international companies (Thomas
and Housden, 2011). This approach will increase productivity of firm and IKEA can increase
value of exports from China.

12

Acquisitions, mergers and joint ventures: IKEA started its operation in China as Joint Venture
Company in 1998. Acquisition, merge and joint ventures are important of strategic planning of
IKEA. All these factors assist management of IKEA for development link and network between
different supplier and retail outlets of company. By adopting this system and conducting various
business contracts, IKEA maintain cost between buyers and suppliers.
Franchising and overseas subsidiary:

IKEA is generally using franchising and overseas

subsidiary concept in different expansion projects. In order to expand business in China, IKEA
uses two separate franchisees which are IKEA Hong Kong and IKEA Taiwan (Ranchhod, 2007).
By adopting this system, management of IKEA can quickly expand business in new market of
China.
Wholly owned overseas operations: It is a very important part of expansion project. In this,
business entity makes efforts in order to open wholly owned overseas stores in different nation.
IKEA has started its wholly owned retail stores in US and other countries of Europe. But in
China, government rules did not allow IKEA to start wholly owned retail store in initial stage.
Justification on the most appropriate application of the marketing tactics that will support the
expansion in CHINA
Marketing with reference of culture: In this approach, marketing manager of IKEA
needs to consider cultural factor like religion, values, festivals and language in promotion
of products and other services. Promotion on the basis social beliefs and attitudes of
people develop a good impression company in the minds of people (Marshment, 2009). If
company organizes any marketing activity for social welfare then this will increase
goodwill of IKEA. It enhances brand awareness regarding operations and activities of
IKEA.

Promotion of affordable products: Elder Chinese people are very conservative for their
spending. They carried out detail research regarding the price and quality of different
kinds of products belongs form same segment (Ranchhod, 2007). So, management of
IKEA needs to give some extra emphasize on low cost product in development of
marketing plans. It approach provides good response from Chinese consumer in terms of
sales and revenue.

13

CONCLUSION
On the basis of above study, it has been concluded that in order to get good returns from
market of China IKEA has to evaluate various factors of external environment. Report finds that
the potential business model of IKEA provides good result for reduction of production
expenditures. It figures out that marketing based on culture will increase sales of IKEA.

14

REFERENCE
Journals and Books
Aksoy, L., Buoye, A. and Henseler, J., 2013. Data-driven services marketing in a connected
world. Journal of Service Management. 24(3). pp.330 352.
Brassington, F, and Pettit, S., 2010. Principles of Marketing. Prentice Hall.
Coallier, J., 2012. Introduction to Marketing: Digital Age Edition. Booktango.
Dibb, S. and Simkin, L., 2013. Market Segmentation Success: Making It Happen!. Routledge.
Dimitriadis, S. and Stevens, E., 2008. Integrated customer relationship management for service
activities: An internal/external gap model. Managing Service Quality. 18(5). pp.496 511.
Freytag, V. P. and Munksgaard, B. K., 2011. Complementor involvement in product
development. Journal of Business & Industrial Marketing. 26(4). pp.286 298
Harridge-March, S., 2009. Direct marketing and relationships: An opinion piece. Direct
Marketing: An International Journal. 2(4). pp.192 198.
Klaus, P., 2013. The case of Amazon.com: towards a conceptual framework of online customer
service experience OCSE using the Emerging Consensus Technique ECT. Journal of
Services Marketing. 27(6).
Marshment, J., 2009. Political Marketing: Principles and Applications. Routledge.
Prieto, G. A., 2009. From conceptual to perceptual reality: trust in digital repositories. Library
Review. 58(8) pp.593 606.
Ranchhod, A. 2007. Marketing Strategies: A Contemporary Approach, 2/e. 2nd ed., Pearson
Education India.
Reijonen, H. and Laukkanen, T., 2010. Customer relationship oriented marketing practices in
SMEs. Marketing Intelligence & Planning. 28(2). pp.115 136.
Render, A., 2013. Digital Age Marketing: A Practical Workbook for Entrepreneurs and Small
Businesses. Thunderpaw Publishing.
Rnnbck, A. and Eriksson, H., 2012. A case study on quality management and digital
innovation: Relationship and learning aspects. International Journal of Quality and Service
Sciences. 4(4). pp.408 422.
Thomas, B. and Housden, M., 2011. Direct and Digital Marketing in Practice. A&C Black.
Online

15

Delaney, L., 2013. Global Marketing Strategy: Four Benefits to a Global Marketing Strategy.
[Online].
Available
through:
<http://importexport.about.com/od/DevelopingSalesAndDistribution/a/Global-MarketingStrategy.htm>. [Accessed on 28th November 2014].
Ikea
and
its
competition
in
China.
2013.
[Online]. Available
<http://marketingtochina.com/ikea-and-its-competition-in-china/>. [Accessed
November 2014].

through:
on 28th

Market Appraisal: SWOT and PESTEL Analysis. 2014. [Online].

through:<http://tanjiaguan.blogspot.in/>. [Accessed on 28th November 2014].

Available

SWOT Analysis. 2014. [Online]. Available through:<http://www.parkhurst-consulting.com/swotanalysis/>. [Accessed on 28th November 2014].
The

IKEA
Business
Model.
2014.
[Online].
Available
through:
<http://supplierportal.ikea.com/doingbusinesswithIKEA/growing%20with
%20IKEA/business_model/Pages/default.aspx>. [Accessed on 28th November 2014].

16