Please answer all questions. 

I need Pestle analysis, 5 force analysis or VRIO analysis done and it needs to be on this case study: IKEA's international marketing strategy in china.

4. Markets with Asymmetric Information II (33 points) Jane owns a small restaurant in the heart of Toronto. She wants to hire Jim to manage the restaurant. Jim has zero wealth. Both Jane and Jim are risk-neutral i.e., their expected utility equals the expected payoff). The monthly revenue from Jane's restaurant will depend on Jim's effort and the state of economy as follows: Strong Economy Weak Economy (Probability=0.7) (Probability=0.3) High effort (a = 1) 23,500 18,300 Low effort (a = 0) 15,600 10,400 Jane cannot observe Jim's effort, but she knows that his cost of exerting effort is given by C(a) = 1, 500a. Jane wants to offer Jim the following pure revenue-sharing contract: Jim receives the share s of the realized revenue (s = 0.5, for example, means Jim gets 50% of the revenue), but no fixed payment. (a) (3 points) Which level of effort (i.e., high or low) would Jim choose when s = 0? Explain. (b) (5 points) What is Jane's expected utility when s = 0? (c) (10 points) What is the minimum revenue share that Jane has to offer to Jim to ensure that Jim exerts high effort? (d) (5 points) What is Jane's expected utility at this minimum revenue share? (e) (4 points) Is it optimal for Jane to offer s = 0 or the minimum revenue share you found in part (c)? (f) (6 points) How would your answer to part (c) change if Jim was risk averse? Please provide an intuitive answer, without any calculations.IKEA's International Marketing Strategy in China \"IKEA entered the Chinese market by learning from their mistakes and continuously adapt themselves to the changing environment. Not many companies have the ability to go through trial- and errors because it is very costly when mistakes are made. "1 Daxue Consulting\ICMR it's Center for Management Research IKEA's International Marketing Strategy in China "IKEA entered the Chinese market by learning from their mistakes and continuously adapt themselves to the changing environment. Not many companies have the ability to go through trial and errors because it is very costly when mistakes are made." - Daxue Consulting', in 2016 In August 2017, Angela Zhu (Angela), country retail manager of IKEA China, said the IKEA Group planned to open three new stores in China in the financial year 2018-19, enhancing its distribution networks and e-commerce presence in the mainland. IKEA's store expansion plans followed announcements of its strong financial results in China. For the period September 1, 2016, to August 10, 2017, IKEA China's sales revenue increased by 14% on a year-on-year basis, amounting to V13.2 billion (US$1.98 billion). Despite this, IKEA continued to grapple with a number of challenges while doing business in the country. For instance, in October 2017, it was forced to pull a television ad from the airwaves in China and issue an apology after it attracted accusations of insensitivity toward single women. The episode left industry observers wondering whether the company had been able to understand the Chinese culture at all.' IKEA, globally known for its low prices and innovatively designed furniture, was successful in projecting itself as an aspirational Western brand in China. After learning from its initial failure in the country, IKEA adopted some new strategies that helped it build its business in China. Despite concerns over the country's financial crisis and sluggish economy, China maintained the fastest growth momentum as a leading purchaser of IKEA products and the Swedish furniture giant projected an ambitious plan for its business in the country by 2020. WK IKEA, however, faced criticism for its inability to tap the potential of the Chinese market through aggressive business plans unlike its competitors. Though IKEA was striving to make its products affordable to the average Chinese people through its prices cuts, some customers still preferred small commodities wholesalers, where prices were even lower than those of IKEA. Some Industry observers were of the view that the Swedish furnishing retailer would have to incorporate basic changes in its brand positioning to suit the local customers, instead of relying on price cuts alone. In June 2016, IKEA came under fire from the Chinese regulators for its clumsy handling of a product recall. Critics questioned the implementation of the company's safety standards that differed across countries. Earlier, the "no food, no seat" policy" of the company sparked a spirited debate in China's social media about the plight of older citizens who had little to do and nowhere to go. In July 2016, bowing to pressure from safety advocates, the Swedish furnishing retailer recalled more than 1.7 million chests of drawers in China. IKEA continued to be embroiled in controversies in China in 2017 with its television ad before it was pulled by the company. IKEA defended its slow market expansion strategy in China, saying that its intention was to first establish a solid customer base in the country. However, as of early 2018, analysts wondered whether the Swedish furniture retailer would be able to grow its stores in China from 24 in the Daxue Consulting is a market research and management consulting firm focusing on the Chinese market. USSI was approximately equal to 6.62 Chinese Yuan Renminbi (#) in 2017. 2fiscal year 2017 to 34 in 2020 as planned by the company. The onus was on Angela and the marketing team to make this happen by appealing to the Chinese customers and increasing IKEA's customer base in the country. ABOUT IKEA Founded in 1943 by Ingvar Kamprad (Kamprad), the IKEA Group was a Sweden-based home furnishing manufacturer and retailer owned by Stichting INGKA Foundation and controlled by the Kamprad family. Guided by the vision - to create a better everyday life for the many people, Kamprad applied his innovative idea to offer home furnishing products of good function and design at affordable prices. But, the company also looked beyond home furnishing. IKEA was a value-driven company with a passion for life at home. The furniture giant had a unique organizational structure, integrating a large number of companies as franchisees operating under the IKEA trademarks. As of August 2017, IKEA stores worldwide were owned by 1 1 franchisees, of which the IKEA Group was the biggest with 355 stores.' IKEA found franchising the best way to expand its business based on the IKEA Concept, to keep the concept together and to maintain an entrepreneurial spirit. All IKEA stores operated under franchise agreements with Inter IKEA Systems B.V.", the owner of the IKEA Concept, including the IKEA trademarks. IKEA franchisees implemented the IKEA Concept by marketing and selling the IKEA product range. From its humble beginnings as a small general retail store, IKEA had expanded its operations to become the world's largest furniture retailer with 355 stores in 29 countries and employed over 149,000 employees by the end of fiscal year 2017." IKEA pioneered in selling flat-pack design and ready-to-assemble furniture, appliances, and home accessories across the world. A typical IKEA store offered approximately 9,500 products' across the IKEA range worldwide that were Scandinavian in style. Every year, the company renewed its range of products, launching approximately 2,500 new products, designed by its in-house and contracted designers. Most of the IKEA stores included restaurants serving traditional Swedish food. However, in some countries, a few varieties of the local cuisine and beverages were served alongside the Swedish staples. Another important feature of the IKEA stores was Smaland (Swedish for Small Lands), where parents could drop off their children at a gate to the playground, and pick them up at another gate after shopping. IKEA also launched a loyalty card called IKEA Family, which was free of charge and could be used to avail of discounts on a special range of IKEA products. IKEA grew its balance sheet size from (*41.88 billion (US$49.18 billion) in 201 1 to 652.94 billion (US$62.17 billion) in 2017 (See Exhibit D). In fiscal year 2017, IKEA's total retail sales grew by 3.5% in Euro and 3.8% adjusted for currency impact compared to the previous year, amounting to E 34.1 billion (US$40.05 billion). During the period, IKEA welcomed 817 million customers to its stores and there were more than 2.1 billion visits to IKEA.com. "Together with the rental income from the shopping center business (IKEA Centers), total revenue for IKEA in fiscal year 2017 reached E36.3 billion (US$42.63 billion), up 1.7% from the previous year (See Exhibit II). In May 2017, IKEA named Jesper Brodin (Brodin), head of IKEA of Sweden, as CEO after Peter Agnefjall (Agnefjall), the then global CEO of IKEA, decided to step down. Expansion in Asia and the IKEA online offering were to be Brodin's focus area. Founded in 1982 by Ingvar Kamprad, Stichting INGKA Foundation is a Dutch Foundation. It is established to fund charity in the Netherlands and to reinvest in the IKEA Group. Inter IKEA Systems B.V. is based in the Netherlands and is owned by the Inter IKEA Group. It franchises systems, methods, and proven solutions to franchisees worldwide for the sale of IKEA products under the IKEA trademarks. USSI was approximately equal to 0.85 Euro (E) in 2017. 3GLOBAL STRATEGY AT IKEA IKEA entered the global market with its standardized products strategy. It had its own global strategy of opening stores and operating in new markets around the world. The furnishing retailer worked to find an effective combination of standardization, low cost, technology, and quality for its products in the market. However, its standardized product strategy also took into account culturally sensitive factors emerging out of divergent consumer tastes and preferences in different markets. Started with the business idea "to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them,"IKEA maintained quality at affordable prices for its customers through optimizing its entire value chain. The IKEA Concept guided the way in which the products were designed, transported, sold, and assembled. IKEA had the competitive advantage of extensive customer knowledge and its best practices to benefit from that knowledge enabled it to become one of the most beloved companies worldwide. Its spacious store environment provided a complete shopping destination for the consumers. IKEA's unique business model and strong brand positioning enabled the company to attain a strong position in the highly fragmented home furnishings market in the countries it operated in. In 2017, IKEA ranked fifth in the world with a brand value of about US$ 18.94 billion among the world's leading 20 most valuable retail brands (See Exhibit III). In February 2018, Brand Finance ranked IKEA eighth among retail's most valuable brand with a brand value of US$24 billion (See Exhibit IV). Armed with its rich international experience, IKEA embarked on a major expansion drive into the Far East, including China, with the ambition of achieving a dominant market position in these emerging markets. FORAY INTO CHINA The boom in the Chinese furniture market was driven by growth in China's housing market, the steadily developing economy, and research and development in furniture manufacture and design. According to the Ken Research Private Limited' report in 2016, China's furniture market would grow at a considerable Compound Annual Growth Rate (CAGR) rate, reaching US$86.6 billion by 2020." The furniture industry in China was known for its good quality, affordably priced furniture products, which were made leveraging on the low cost skilled workforce. After decades of development in the furniture industry, China emerged as the world's largest furniture producer as well as exporter. Simultaneously, the strong growth of the domestic furniture market was bolstered by an increase in purchasing power among the Chinese customers. The national economic growth raised the living standard of a large section of the Chinese who were willing to pay more for household decorations. China's rapid development over the years resulted in a growing middle class, especially in the urban areas. "As people's lives are changing, their home furnishing focus is shifting from basic functions to looking for better things. So to-day there is a need for inspiration as to what better looks like, "quipped Licca Li, Communication & Interior Design Manager, IKEA Retail China. Moreover, China had seen a huge rush in homeownership between 1999 and 2006 as Chinese authorities abolished state-allocated housing and subsidized rentals. Since many apartments were typically empty shells and sold semi-furnished, the market for home furnishing flourished in China. In August 2017, the retail trade revenue of furniture in China amounted to about $24.41 billion (US$3.69 billion), showing a growth trend with a little fluctuation during the last six months of the period from August 2016 to August 2017 (See Exhibit V). Ken research is a leading market research company in India.To cater to the growing demand in the Chinese furniture market, IKEA entered China in 1998, opening its first store in Shanghai, followed by one in Beijing in 1999." Unlike its stores elsewhere in the world, IKEA continued to expand its Chinese stores cautiously by IKEA standards. After a slow start, it stepped up its expansion in China. In the fiscal year 2017, IKEA was operating 24 stores in China and its stores attracted more than 90 million visitors, up 11% over the previous year. "IKEA world-wide sales increased in 26 out of 29 markets for the same period, with China remaining one of its fastest-growing markets, together with Portugal and Poland," By the end of fiscal year 2017, rental income for the shopping center business at IKEA grew by 10.8% compared to the previous year, with Centers China" witnessing the strongest growth supported by increased visitation and tenant sales. At the same time, China was one of IKEA's five largest retail markets in the world based on sales value (See Exhibit VI). IKEA'S INITIAL FAILURE Initially, it was not all smooth going for IKEA in the Chinese furnishing market. Its conservative approach to market entry meant IKEA took at least five years to understand the Chinese customers before starting its first full-scale standard IKEA store in Shanghai in 2003, replacing the original outlet. Earlier, IKEA applied its distinct organizational culture and retail business strategies in its Chinese stores, wherein the core concept of company showrooms, flat-packed products, and Do-It- Yourself (DIY) assembly concepts remained intact. In an attempt to differentiate itself in the Chinese furnishing market, IKEA offered its customers a wide range of options to suit their preferences and living requirements. While Chinese customers gradually started appreciating the experience provided by IKEA, the company soon realized that many shoppers just preferred to visit the stores rather than make any purchase. Though the number of visitors to IKEA's China stores increased and sales grew by 50% between 2004 and 2005, with a turnover of approximately US$120 million, " the business failed to make a profit, making the stores loss-making units in the entire IKEA Group. The continuous losses warned IKEA that the challenges for the company in China were complicated and demanding. While IKEA succeeded in implementing its strategy worldwide, the furnishing retailer was confronted with some peculiar problems in China. Its initial implementation of global strategies including the pricing, product, promotion, and service strategy failed to fit the Chinese market due to the low purchasing power of the average Chinese consumers and their cultural paradigms. Criticizing IKEA's furniture as "shaky" and of low quality, Fang Shan, a director with China Central Television (CCTV) International, said, "IKEA lingers between the low-end market and the middle-end market. Many [people] visit IKEA just for the purpose of observing the layout of its sample rooms and get some fresh ideas about home furnishing and decoration. However, few of us buy things there. "2 IKEA in China faced a difficulty in setting prices at a level that would satisfy both customers and the company. One of the main challenges for the company was that its prices were higher than the average in China. Known globally for its affordable and stylish furniture, it faced price issues in China because Western products were seen as aspirational in Asian markets. Despite its popularity in the US, IKEA failed to get immediate recognition as a famous brand in China. The company strategy of providing "affordable" furniture created confusion among Chinese consumers who perceived it a fairly exclusive, Western retailer. The consumers viewed IKEA as innovative and not traditional. For example, square tables instead of round tables and many of the colors used were a departure from tradition for the Chinese. IKEA had a tough time attracting Chinese customers, who felt that the Nordic brand was a luxury that was out of their reach. Moreover, Chinese customers were unwilling to spend more on furniture as they felt it to be secondary compared to the more visible status offered by Western brands such as Haagen-Dazs ice cream and Starbucks coffee or brands of cars and watches. Established In 2009, Centres China is IKEA Group's megamalls unit, with regional headquarter located in Shanghai.Like in other markets, IKEA operated in China with its eco-friendly initiatives. But, its early decision to charge for plastic bags, asking suppliers for green products, and increasing the use of renewable energy in its stores proved difficult to implement in China as the price-sensitive Chinese customers hesitated to pay extra to support the company's eco-friendly-measures. Further, a 2. majority of suppliers in China lacked the necessary technologies to provide green products as per IKEA standards. Though the Chinese customers gradually accepted the environment-friendly concept and cost-cutting efforts of IKEA, many still disliked the fact that the company did not provide a free home delivery and installation service. The company faced difficulties in implementing its self-service and DIY culture in China because of the availability of cheap labor. Customers in China preferred IKEA's assembly services more than customers in other countries. When IKEA entered China, it faced stiff competition as there were more than 100,000 domestic furniture manufacturers in China." The product catalog of IKEA failed to work as a marketing tool in China because of its imitation by the local competitors who offered similar products at lower prices. Ulf Smedberg (Smedberg), marketing manager of IKEA China, remarked, "The more popular IKEA becomes, the more competition we have. Of course healthy competition is good-it makes home furnishings more popular. But it's bad that increasingly more companies copy our products. "26 IKEA also faced a challenge from government regulations such as heavy import taxes and bureaucracy during the early stages of its operations in China as it lacked indigenous raw materials and production centers. TASTING SUCCESS IN CHINA After years of struggling, the Swedish furniture giant finally made a mark in the Chinese furniture market in 2011. The company made numerous changes in its strategies and took more than 12 years to become profitable in China. In 2011, Mikael Ohlssen, the then CEO of IKEA, acknowledged that sales in China were growing faster than at the company as a whole."In 2011, a Forbes article noted: "In the last fifteen years, home ownership has gone from practically zero to about 70 percent. However, many people have little sense of how to furnish or decorate a home. They are very eager to learn from the West. This is one of the reasons that IKEA is very popular in China. Their Western-style showrooms provide model bedrooms, dining rooms, and family rooms showing how to furnish them. "The successful strategies helped the retailer to increase its sales by 17% in 2013, making China one of the company's fastest growing markets in the world. China continued maintaining the fastest growth momentum as a leading purchaser of IKEA products for six consecutive years (2012-2017), followed by Poland, Italy, Sweden, and Lithuania (See Exhibit VII). Target Market Segmentation Though Chinese customers had greater exposure to Western trends and lifestyle through globalization, the trend was not necessarily prevalent across all demographics within China. IKEA, therefore, made a massive change in its strategy of targeting different age groups in the Chinese market. IKEA noticed that its high prices discouraged many price-sensitive consumers in China. It therefore decided to shift its target audience to urban professionals - people aged between 25 and 35 who got relatively higher salaries, were better educated, and had a better understanding of Western culture and design styles. This generation, born under China's One Child Policy" and informally known as "little emperors," were characterized as being impulsive and easily influenced. "IKEA is ready to provide state-of-the-art products for those who enjoy life. In Beijing, we define the middle class as drinking Starbucks coffee and buying IKEA furniture, " said Chang Yang, human resources manager of IKEA China. This major strategy change helped Introduced in 1979, the one-child policy was a population planning policy of China.IKEA to project itself as an aspirational Western brand and increase its customer base. Female customers formed IKEA's main target group and they comprised 65% of all customers in China." According to IKEA, women stood for change in China and were interested in home furnishing and actually made purchasing decisions. However, to attract the young low to middle income family groups in the Chinese market, IKEA tried to keep its costs between manufacturers and customers down. Brand Positioning IKEA was credited with creating and maintaining its quality and brand image in the Chinese market. According to The New York Times, Chinese consumers preferred to go out of their way and spend extra to purchase IKEA products, considering their superiority to Chinese brands. Though IKEA's global model was more or less replicated in China, there were certain nuances in its China model that made it different from the West. IKEA focused on its brand messages to create this positioning in the people's minds. According to Charles Sampson, CEO of Saatchi & Saatchi' China, "Many Chinese consumers follow an 'all or nothing' approach to interior design. If they want to redesign their living room they will either completely redo everything or do nothing. IKEA wanted to convey that change can be easy, and that it is okay to make small changes, step-by-step."34 Adapting to Culture and Market IKEA learned that doing business in an emerging market like China was a different ball game and it adapted itself to suit the Chinese culture. It strove to customize its offerings keeping in mind the Chinese culture, tradition, and customer preferences. It presented a strong brand image in China by RED adapting the name "Yi Jia" to suit the Chinese language which meant "comfortable homes, home furniture." While IKEA's Chinese stores replicated the blue and yellow Swedish flag color AtURES scheme, the company attracted Chinese customers by adding Chinese features, like the color red, which was popular in the country, in its products. The Swedish furniture retailer took advantage of the Chinese cultural appreciation for the shopping experience over their actual purchase of goods. FOR According to Ad Age', "Ikea China is an experience, not just a place to shop, and that's something exper consumers are looking for. "36 While IKEA offered basically the same products in its Chinese stores as in any of its global stores, the interior design of its stores in China was different. IKEA positioned itself in China as a company with a unique competence in the context of interior design. It redesigned the layout of the store, home solutions offered, and presentation of products in keeping with the needs of customers who preferred small (adapted to their comparatively smaller apartment) and user-friendly furniture. "In order for IKEA to lead with home furnishing, we need to stay tuned to the changes in people's life. This is our inspiration for creating new solutions, which will support our customers to realize their needs and dreams, "said Licca Li. The company focused on its basic message of assisting customers with interior design instead of selling individual products at low prices. IKEA included many models and resources in its stores to guide customers in furnishing and decorating their homes. Store layouts in China reflected the typical sizes of Chinese apartments. Room setting in the stores seemed relevant to the Chinese way of living with sizes of rooms and kitchens that were realistic by China standards. IKEA's Shanghai stores rearranged their room settings several times a year due to frequent visits to these stores by customers. The IKEA stores in MS China looked like showrooms that included model bedrooms, dining rooms, and family rooms to demonstrate how to furnish them. Saatchi & Saatchi is a global communications and advertising firm with headquarters in New York. The agency is involved in creating IKEA's prints and advertisements in China. Advertising Age (AdAge) is a US-based magazine publishing news, analysis, and data on marketing and media.Since many Chinese people lived in small apartments with balconies and the customers required functional, modular furniture solutions for their homes, IKEA added model sets and special balcony sections in its Chinese stores. It provided smart solutions for optimal use of balcony space and storage to make their lives easier. Speaking on the furniture requirement of Chinese consumers, Angela said, "For example in China we have many balconies, so we offer more balcony furniture. And in China every house has a hallway leading to the living room, so we also have more solutions for hallways. " The Chinese were inclined to spend most on their living rooms, the heart of the home where many of them entertained their guests. The company realized the importance of living rooms for the Chinese and offered more living room furniture and decorations at its stores. The emerging demand for IKEA's bedroom furnishing solutions in Shanghai helped the company to target its products from being the least popular purchases to high volume sales. But, the kitchen was usually small and considered secondary in Chinese home furnishing. ROL IKEA had to make a considerable effort to adapt its products to the local tastes and demands. For instance, its products included those that reflected the cultural and traditional essence of the Chinese like chopsticks, woks with lids and a cleaver, a special set of tea cups, and small beds. But, subsequently, the company switched to selling standard-sized beds (200cm) from its earlier China beds (190cm), which were shorter in size." According to Smedberg, "In terms of housing. the average square meters per person in China has been increasing considerably. Until recently, apartments averaged 40 m2; now Beijing and Shanghai apartments average 80 m2. This means several things: Chinese residents need more furnishings and, because consumers are buying more gadgets, they need more storage containers and facilities. It also means IKEA needs to keep its home-life study up-to-date because change happens so fast. " In contrast to IKEA stores in Europe which were located relatively far out in the suburbs, IKEA established its Chinese outlets on the outskirt of the city, connected by public transportation lines because only 20% of visitors in Shanghai had cars. It maintained taxi lanes and offered home delivery as well as assembly services for its customers at a nominal fee (home delivery short haul for *50 (US$7.56) and assembly one piece Y40 (US$6.05).42 IKEA redesigned its organizational structure and competencies in China to fit in with strategic partners within its networks. The company decentralized most of its functions including HR and stores management in China. It preferred a different investment method of operating its business with joint ventures and strategic alliances due to the country specific environment. It entered Chinese cities such as Shanghai and Beijing through joint ventures. IKEA believed that a joint venture could replace its franchise concept and help in increasing cultural sensitivity and mm operational controls through the establishment of strategic partnerships. The later expansion was through wholly-owned subsidiaries. Multichannel Retailing -pestle ? In addition to strengthening its presence in tier-1 cities , IKEA expanded into tier-2 cities in China to get a balanced portfolio. The company focused on "the many people" in the country's growing urban population. Looking into the demand of the growing middle class for living space in Chinese mega-cities, IKEA redesigned its plans to serve their living room requirements with smart solutions. In August 2016, IKEA forayed into the e-commerce business in China, its first online sales attempt in the Asia-Pacific region, as part of its multichannel retailing strategy. The e- commerce business aimed to help the company in addressing the oversaturation problem of IKEA stores located in tier-1 and tier-2 cities. IKEA believed that e-commerce would be its tool to reach more Chinese customers from smaller cities. According to Lu Zhenwang, an internet expert and There are four tier cities in China and their tier classifications are based on their Gross Domestic Product, political administration, population size, development of services, infrastructure, cosmopolitan nature, retail sales, etc.chief executive of Wanqing Consultancy in Shanghai, "There aren't any Ikea physical stores in third- and fourth-tier cities though the demand is emerging, so it's essential for Ikea to launch e- commerce services and to serve those places easily in the future. It would be convenient to set up some pickup and order points in smaller cities. "According to Angela, the e-commerce services of IKEA improved interactions with consumers and helped the company to better understand their consumption patterns. In March 2017, IKEA opened its first pickup and order outlet in Beijing. These outlets (3,000 square meters) were much smaller than the typical stores which were 30,000-40,000 square meters in size. "Chinese customers are very fond of shopping in a shopping center, with quick and easy access to get in and get out... Buying is no longer the sole purpose when visiting a shopping center. Consumption can be spontaneous, "said Angela. Pricing Strategy The key strategy for IKEA was delivering Swedish quality at prices the Chinese could afford. The fact that product prices were a major concern for Chinese customers forced IKEA to reconsider its market orientation to solve this price problem. According to Angela, "When we came to market, we realised that our prices had been too expensive. It took years for us to continuously reduce our retail prices, to really let many people afford them. "The company observed that China was not ready to implement environment-friendly practices, which involved higher prices. IKEA, therefore, skipped its emphasis on being green or creating stylish furniture in China to stick to low prices and remain in business. As an adjustment to the local market conditions, IKEA started selling only middle-range price products. During the early period of its products being duplicated by local competitors, IKEA insisted on not spending time, money, and energy on hunting for the copycats, preferring to focus instead on implementing its criteria of good design, functionality, and low prices in China. To make prices more affordable for the consumers, IKEA adjusted its pricing strategy in China at different periods. According to Tom Doctoroff (Doctoroff), an expert on Chinese consumer psychology and author of 'What Chinese Want', "The recent spike in Ikea's popularity is mostly due to a dramatic change in pricing strategy. " Since 2000, IKEA had been lowering its prices in China by more than 60% and encouraging people to try out its products and make themselves at home. In 2002, IKEA's overall prices in China decreased by 12%, as a result of which a sofa priced at #2,999 (US$453.29) in 1999 was sold for 1995 (US$150.39) in 2003." After prices were lowered by about 10%, sales in IKEA's Chinese stores increased 35% in 2003 and grew 50% in the first three months of 2004 alone. "In 2006, the home furnishing retailer launched a new strategy called "The Lowest Price in Beijing," that offered the lowest price for more than 120 kinds of goods in China. According to the strategy, the price for IKEA products was about 20% lower than those prevailing in other home furnishing stores. IKEA's luxury, fashionable design, and reliability made Chinese consumers feel that the product was worth the price they paid. Even by increasingly stocking Chinese stores with China-made products, IKEA slashed the prices of some items as low as 70% below the prices in IKEA stores outside China." In 2009, IKEA China lowered the prices of more than 500 products by 20 to 30%. According to Linda Xu, Public Relation Manager of IKEA China, "IKEA is striving to make its goods affordable to the average Chinese people and change people's perception that IKEA is white-collar privilege. " IKEA planned to reduce prices further in China, supported by mass production and by cutting supply chain costs. The firm located its first production center at Nantong, a city near the Yangtze River that had numerous resources, and near Shanghai, where IKEA had its biggest warehouse. It tied up with local suppliers for the collection of raw materials and manufactured around 80% of the goods domestically", with the result that it was able to avoid high import taxes and shipping costs. While China contributed about 30% of IKEA's global collection, about 65% of the volume sales in the country came from local sourcing. " Localization of production and distribution allowed IKEA to reduce logistic costs and lower its prices in China by an average of 50% across w they reduced coststhe stores between 2000 and 2012." Domestic production helped the company to promote and sell what it had in the store rather than promoting products that were advertised in the catalog. The company also saved on repair costs by inspecting local quality closer to manufacturing. Educating Customers In China, IKEA provided knowledge about home furnishing to its customers, many of who were brand new to home ownership. This not only helped people to understand how IKEA products worked and could add value to their life, but also attracted them to its stores. The company showed its customers how much furniture and kitchen gadgetry could be fitted into a typically small sized Chinese apartment, while still making it appear spacious. Mette Hay, co-founder of HAY', told Dezeen", "I just heard that IKEA is doing these evenings where people can come and get educated in how to decorate or design your home. " To prepare the Chinese consumer for the IKEA store experience, the furnishing retailer published catalogs and brochures, posted in-store instructions and design advice, and operated a detailed website. The IKEA catalog, distributed in the store and in some of the primary markets, was the key promotional tool for the company. However, in China, there was more of a reliance on small brochures because of their availability several times during the year. IKEA used Chinese social media and Sina Weibo to target the urban youth. IKEA Family, introduced in China in 2007, provided its members the latest offers and information about products. The company sponsored brief television shows where viewers were offered lessons in home decorating. Themes in IKEA's multi-media campaign were the same as everywhere in the world but with the Chinese twist (be different, break tradition). The company also took Chinese journalists to Sweden and Almhult where they were taught about IKEA and the roots of the company. Social Venue To expand its business in China, the Swedish furniture giant designed its shopping malls and products as social venues. Many treated IKEA not just a home furnishing depot, but as a furniture- filled theme park where they could spend hours touching and feeling the products. According to a reporter of China Network Television (CNTV), "In China, going to IKEA means far more than just going shopping for furniture. It's an experience that often lasts all day. " The overall shopping experience in China was slightly different from that in Europe or the US since the Chinese consumers not only used the shop to purchase their necessities but also for entertainment. Doctoroff observed that "Chinese people tend to take a more recreational approach to consumption. Shopping in China is far more about the experience itself than it is in the West." In addition to finding good prices, Chinese customers wanted to feel comfortable, understood, valued, and appreciated. Even more importantly, IKEA believed that shopping was an entertainment for its customers. At the beginning, Chinese consumers visited IKEA stores to socialize in a pleasant environment ' instead of shopping. IKEA opened extra furniture display rooms in its stores, welcoming customers to nap on the furniture in a bid to get shoppers to stay longer in the store. The company believed that these people would at least get to know the quality of their purchase. According to Xu, "We welcome anyone to visit our stores - today's visitor could very well be tomorrow's customer. " In 2015, a spokeswoman for IKEA China said the company encouraged Chinese customers to touch and try products. As a result, people napping comfortably and children playing with sample toys in the children's section were common sights at the stores. The IKEA cafeterias in China became a popular destination for elderly Chinese to hold matchmaking sessions over free coffee and spend time with one another. Founded in 2002, HAY is a Denmark-based furniture design firm. " Launched in 2006, Dezeen is the world's most popular and influential architecture, interior, and design magazine.CHALLENGES WE . OF ? wk Despite its long presence in China, the furniture giant faced criticism for being too conservative in developing the home products sector. IKEA opened new stores at a slower rate in China than other foreign retailers such as Wal-Mart Stores, Inc.", which expanded rapidly throughout China. Though IKEA claimed that it attracted Chinese consumers on the price front, it was still not well recognized by Chinese consumers, some industry observers remarked. According to Cai Xun, a white-collar worker from Shanghai, "I think the design and idea promoted in Ikea is good, but I can get similar products from a Chinese store or online at much cheaper prices. Why should I go to Ikea? "Some analysts questioned whether IKEA could sustain its strategy of cutting prices in China as the company plunged into China's secondary cities with lower incomes and higher demand for bargains. Analysts observed that IKEA faced some problems in its efforts to create a customer-friendly shopping environment in its Chinese stores. Managers at the IKEA location in Shanghai complained that some elderly visitors went on group blind dates and settled themselves down in the cafeteria without ordering anything. Some people often made themselves at home on the sample beds and sofas, while some even fell asleep with their shoes on, they said. Customers lamented that most IKEA stores were crowded with rude and loud people who cared little about public decency. In April 2015, a Beijing IKEA store introduced a new rule banning customers from sleeping on furniture display rooms and stretching out on sofas after pictures of people sleeping in showroom beds in a Beijing shop went viral. The ban followed complaints by the customers that they could not sample the furniture as people were sleeping on it. The Shanghai IKEA store too issued instructions to disallow non-paying visitors from trying out products after getting complaints from paying customers. "The situation has adversely affected the dining experience and security of most of our customers. It is having a negative implication for our canteen's operation. From today, the restaurant will only be for people who purchase their food first," the store said in a notice posted at the entrance of the IKEA Shanghai Restaurant. To discourage senior citizens from occupying canteen seats for extended periods, IKEA imposed a strict "no food, no seating" rule." However, despite the ban, customers continued to snooze in the display rooms much to the ire of some customers, and IKEA staff members found it difficult to implement the no-nap policy. In late June 2016, IKEA stirred up a big controversy after announcing a massive recall in North America of its dressers, which had crushed six children to death but not including China. It was accused of double standards and of discriminating against Chinese customers. Finally, IKEA extended a recall of its 1.7 million MALM chests or dressers, manufactured from 1999 to 2016, in China following pressure from regulators." When the issue resurfaced again in 2017, IKEA again excluded China saying that it would not recall the product but customers in China could ask for a full refund 66 In October 2017, IKEA apologized for a television commercial in China and pulled it from the air after it provoked a backlash in the Chinese social media with some viewers calling it 'sexist." The 30-second advertisement showed a mother scolding her daughter for not "bringing home a boyfriend" to meet her parents. Weibo users objected to the scene in the advertisement, saying it discriminated against young unmarried women in China and accused IKEA of supporting the cultural discrimination against such women in China. Some critics in China said the TV ad lacked the kind of cultural awareness for which IKEA was known and the deep research it relied on to adapt its Scandinavian products to other cultures. However, IKEA Wal-Mart is an American multinational retailing corporation that operates as a chain of hypermarkets, discount department stores, and grocery stores across the world.said. "This TV ad tried to show how IKEA can help customers easily and affordably convert a typical living room into a place of celebration. The purpose was to encourage customers to celebrate moments in everyday life." THE ROAD AHEAD Angela had the big responsibility of setting the future growth direction for IKEA China. After graduating from Eastern China Normal University, she worked in the purchasing department of Metro shopping mall in China for two years, before becoming the first Chinese staff in IKEA Retail China in 1996. She went on to become the first Chinese store manager in 2005, and Country President in 2013.70 Getting it right in emerging markets like China was a key factor in IKEA's plan of hitting US$55 billion in global sales by 2020." With the rapidly-growing Chinese economy in which more people were joining the ranks of the middle class and the increasing Chinese middle class moving into bigger apartments, IKEA's creative home furnishing ideas fascinated the younger generation and offered profound scope for the company to grow, analysts said. Michael Silverstein, a senior partner at Boston Consulting Group , in his projections, said China's burgeoning middle class would triple their spending to US$6 trillion by 2020." Forecasting the future growth possibilities of IKEA in China, Agnefjall said in 2015, "What we see is that many people in China appreciate the IKEA offer and we are making it more accessible to them through new stores. And the middle class will continue to grow, I'm pretty confident about that, so we have a positive view on China, "73 Notwithstanding China's downgraded credit rating by Moody's Investor Service and S&P Global Ratings" in 2017 over dangerous growth in debt and China's preferential conditions for domestic firms, IKEA intended to expedite its pace of expansion in China to increase the number of stores in the country to 34 by 2020." Going forward, Angela said IKEA would enhance its distribution network and was likely to work with a third party e-commerce platform to make its online services nationwide in the coming years. Analysts anticipated that as long as IKEA devised the right strategy to penetrate China's rapidly-growing e-commerce market, its future would be bright. But, amid growing controversies and risks of the country's financial turmoil, would IKEA be able to expand its customer base in China? Going forward, what are the implications for its marketing strategy? . Founded in 1963, Boston Consulting Group is an American worldwide management consulting firm on business strategy. Founded by John Moody, Moody's is an American credit rating agency. 1 S&P Global Ratings is the US-based leading provider of independent credit ratings across the globe.Exhibit I Consolidated Balance Sheet of IKEA from FY 2011 to FY 2017 (in Millions of Euros) Items 2011 2012 2013 2014 2015 2016 2017 Assets Property, plant, and 16,173 17,264 17,036 17,322 22,840 23,033 23,172 equipment Other fixed assets 2,416 2,672 2,493 2,984 2,515 1,955 2,488 Total fixed assets 18,589 19,936 19,529 20,355 25,355 24,988 25,660 Inventory 4,387 4,664 4,257 4,927 5,498 1,713 1,924 Receivables 2,077 2,270 2,193 2,548 2,500 4,115 2,327 Cash and securities 16,828 17,878 16,000 16,886 16,659 23,151 23,029 Total current assets 23,292 24,812 22,450 24,361 24,657 28,979 27,280 Total assets 41,881 44,748 41,979 44,667 50,012 53,967 52,940 Equity and Liabilities Group equity 25,411 29,072 29,202 31,608 34,907 38,907 39,943 Long-term liabilities 3,123 2,523 1,898 1,550 2,061 1,385 1,010 Other non-current liabilities 1.469 1,625 1,567 1,858 1,971 1.908 1,767 Total non-current 4,592 4,148 3,465 3,408 4,032 3,293 2, 777 liabilities Short-term liabilities 7,107 6.814 4,763 4,397 4,880 5,126 3,891 Other payables 4,771 4,714 4,549 5,254 6,204 6,641 6,329 Total current liabilities 11,878 11,528 9,312 9,651 11,084 11,767 10,220 Total equity and 41,881 44,748 41,979 44,667 50,012 53,967 52,940 liabilities Note: Financial Calendar for Fiscal Year starts from September 1 of a year to August 31 in the next year. Source: Compiled from the IKEA Group Yearly Summary (2011 to 2017)Exhibit II Total Revenue of IKEA from Fiscal Year 2008 to 2017 (in billions of Euros) 40 35.7 36.3 35 32.7 30 27.6 28.5 29.3 25 2 25 235 21.5 21.8 20 15 10 uni FY-2008 FY-2009 FY-2017 FY-2011 FY -2013 TY-2010 FY-2012 FY-2016 FY-2014 FY-2015 Adapted from www.ikea-unternehmensblog.de/static/downloads/YS]7_Final_lowres.pdf Exhibit III Brand Value of World's Leading 20 Most Valuable Retail Brands in 2017 (in million US$) Amazon 139,286 Alibaba 59,127 The Home Depot 40.327 Walmart 27,934 IKEA 18,944 Cotsco 16.257 Lowe's 13,375 eBay 12,365 ALDI 12,273 JD.com 10.768 Walgreens 10.121 CVS 9.733 7-eleven 9.144 Target 8.660 Tesco 3,041 Lidi 7.193 Carrefour 6,809 Woolworths 6.549 Kroger 6.493 Coles 5,449 0 20,000 40,000 60,000 80,000 100,000 120000 140,000 150,030 Adapted from www.statista.com/statistics/267870/brand-value-of-the-leading-20-most-valuable-retailers- worldwide/Exhibit IV Top 10 Most Valuable Retail Brands in 2018 Rank Name of Company Brand Finance Overall Ranking Amazon 1 2 Apple 2 3 Walmart 9 4 Alibaba 12 5 Home Depot 27 6 Starbucks 33 7 Nike 40 8 IKEA 46 CVS Caremark 61 10 H&M 72 Adapted from Tim Denman, "Retail's 10 Most Valuable Brands, " https://risnews.com, February 7, 2018. Exhibit V Retail Trade Revenue of Furniture in China - December 2016 to December 2017 (In billion #) 45 40 38.45 35 30 30.98 30 27.73 27.61 27.85 27.71 24.07 22.9 24.5 24.65 24.41 25 20 15 10 5 O Dec-16 Mar-17 Apr-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 May- Nov-17 Dec-17 Jan & Feb 201 Adapted from www.statista.com/statistics/226900/trade-revenue-of-furniture-in-china-by-month/ (Accessed on March 16. 2018)Exhibit VI IKEA's Five Largest Retail Markets based on Sales Value (As of August 2017) 1495 1256 1056 Germany USA France UK China Adapted from www.ikea-unternehmensblog.de/static/downloads/YS17_Final_lowres.pdf Exhibit VII Leading Five Purchasing Countries of IKEA Products (2012-2016) Country 2012 2013 2014 2015 2016 China 22% 23% 25% 25% 26% Poland 18% 18% 18% 19% 18% Italy 8% 8% 7% 8% 8% Sweden 5% 6% 5% 5% 5% Lithuania 4% 4% 4% 5% 5% Others 38% Adapted from www.statista.com/statistics/255586/leading-5-purchasing-countries-of-ikea-products/