Académique Documents
Professionnel Documents
Culture Documents
Group Italy
Batch36
Global Immersion Project
We chose China as our country as it has one of the biggest market in the world, with a whopping population of
1.357 billion. We as a group believe and think that Chinese market has a lot of potential and with that many
challenges that a company could face. Below is our PESTLE analysis of the country.
Political: Government Regulations and Legal Issues have always been a concern for foreign companies in
China. Chinese are known for being very strict about regulating industries in the country. Most of the existing
companies be it in any industry hesitate to take any trade actions or voice their concerns, in the fear of Chinese
governments retaliation. Even the embassies are comparatively powerless, when it comes to Chinese
Government. This is definitely a big challenge for companies for trading in Chinese markets. [1]
Economic: Economic Development directly affects a companys growth in that market. As per latest quarter
of 2016, china has a 6% growth in its GDP, driven by fast industrial output, retail sales and new loans and fixed
asset investment eased. [2] The data indicates that with time, China will surpass USAs GDP soon. The only
concern could be the high inflation rate of 1.9% of which non-food cost rose by 1.6% and food cost raised by
3.2%. [3]
Social: Chinese have a very strong closed culture and many of them cannot speak English. However, Chinese
consumers behavior are changing with time. According to Boston Consulting Group [4], there are 420 million
internet users and they often shop online. People tend to spend a lot of money on online shopping and the
brick and mortar shopping is reducing drastically in China.
Technology: Surprisingly, only 1 percent of credit card penetration has happened in China. People prefer to
pay by cash, even if online shopping is widely accepted. However, one of Chinas goal is to become a global
leader in technology, a far-fetched dream from its current position as a labor intensive manufacturer. [5]
Legal: China is moving from being the factory of the world to a growing economy. Hence their legal laws to
starting business in China is quiet relaxed. Getting a trade license and a retail space is not legally hard.
However, the cost of acquiring a retail space in Tier 1 cities like Shanghai and Beijing are extremely high, that
most companies actually run into loss. Most of the money lies in Tier 2 and 3 cities. Tier one cities as spoilt
with options for customers and hence many have their shops just as a marketing gimmick and write off the
losses as marketing expense. China has heavy import taxes as well that has hit Ikea in the past. Ikea has
resorted to produce their good locally in China to avoid import taxes.
Environmental: China has a huge population and hence there has always been environmental concerns in
China, the highest being Water and Air pollution. In the recent years, China has changed its model of
economic growth at any cost to a sustainable one. On January 2015, China revised it Environmental law
aggressively that affected many businesses. Businesses had to take permission for emission and reveal their
emission data. There was a limit placed on each company and if violated huge fines were imposed and
Directors could face criminal charges. On the other hand, the government rewarded companies who adopted
a sustainable strategy. [6]
THREATS OPPORTUNITIES
o Chinese Government Rulings o Growing Middle Class
o Brand Piracy o Expansion to Tier 2 and 3 cities
o Time zone issues
WEAKNESSES STRENGTHS
o Shaky relationship with Chinese Suppliers o Brand perception and image
o Goods Delivery system o Quick adaption to Chinese customer behavior
o Language barrier/constraints o Global exposure and experience
o Strong business model and finance
Threats: Chinese government have been scrutinizing companies that do not comply by their law. Even a
slightest of mistake, could drive the company out of China as the punishments are harsh. Chinese are known
for faking not just goods, but also services. After Apple store concept was copied in China, Ikea store concept
was also copied. From the blue and yellow color to the cafeteria concept. This is a threat to Ikeas brand image
and losing customers. The fake stores are being placed strategically far from the real Ikea, mainly in tier 2 and
3 cities. This is a future threat to the company. [7]
Opportunities: Chinas middle class sector is exploding. According to the consulting firm Mckinsey and
Company, 76% of Chinese urban population will be from the middle class by the year 2022. In 2000, it was
just 4% of the urban population. [8] Ikea being a budget product company should target the middle class
segment of customers and therefore this is a great opportunity for Ikea. Ikea as of January 2017 has 19 stores
all through China including Tier2 and Tier3. Should Ikea stop or should they open more stores?
Weaknesses: Ikea recently terminated many contracts with Chinese suppliers. In China, the OEM (original
equipment manufacturers) market has been going through a downfall. Raw material prices increased and
these manufacturers could not afford cheap labor due to the increasing cost. Eventually they had to increase
their selling price. Ikea being a Cost Leadership company could not accept this price rise and hence terminated
the contracts with them. Many Chinese OEM survived with the help of Ikea and now they were running in
loss. This gave a bad image to Ikea amongst the local suppliers. Ikea is still far away from the major population
in China. Ikea has to make sure speedy delivery of their goods to customers and expand its reach to all the
parts of the country. One of the biggest barriers to communication is the Chinese local language, which has
to be learnt in order to progress.
Strengths: Ikea being a global leader in home furnishing industry definitely has a competitive advantage in
China. They have managed to maintain the quality of the Ikea concept in China and hence no customers ever
doubt the value Ikea offers. Ikea in China is famous for allowing its customers use their products in the store.
Many Chinese customers come and spent either the whole day in Ikea, sleeping or just relaxing. In other parts
of the world, this would not have been accepted. However, Ikea allowed this because they understood
Chinese customer behavior and adapted to it.
5. Name of the persons proposed to be interviewed (Industry expert, Members of Association, Companys
management, Governments officials, Ministry of Economy etc.).
[ W. Wu, "Is China making life difficult for foreign companies?," 30 May 2016. [Online]. Available:
1 http://www.scmp.com/news/china/diplomacy-defence/article/1940397/china-making-life-difficult-foreign-
] companies. [Accessed 13 October 2016].
[ Trading Economics, "China GDP Annual Growth Rate," 15 July 2016. [Online]. Available:
2 http://www.tradingeconomics.com/china/gdp-growth-annual. [Accessed 13 October 2016].
]
[ Boston Group Consulting, "The Chinese Digital Consumer in a Multichannel World," 17 April 2014. [Online].
4 Available:
] https://www.bcgperspectives.com/content/articles/center_consumer_customer_insight_globalization_chin
ese_digital_consumer_multichannel_world/. [Accessed 13 October 2016].
[ World Economic Forum, "Explainer: China as a world leader in technology," 8 September 2015. [Online].
5 Available: https://www.weforum.org/agenda/2015/09/explainer-china-as-a-world-leader-in-technology/.
] [Accessed 13 October 2016].
[ A. Zhang, "https://www.linkedin.com/pulse/chinas-new-environmental-law-its-impacts-mncs-china-allan-
6 zhang," 23 July 2015. [Online]. Available: https://www.linkedin.com/pulse/chinas-new-environmental-law-its-
] impacts-mncs-china-allan-zhang. [Accessed 11 January 2017].
[ D. M. Reporter, "http://www.dailymail.co.uk/news/article-2021607/First-fake-Apple-stores-China-fake-Ikea-
7 shop-Kunming.html," 2nd August 2011. [Online]. Available: http://www.dailymail.co.uk/news/article-
] 2021607/First-fake-Apple-stores-China-fake-Ikea-shop-Kunming.html. [Accessed 11 January 2017].