Home Depot Failure and IKEA Success in China

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Table of Contents

Introduction
Main body
Conclusion
Works Cited

Introduction

The Home Depot and IKEA are world-known companies retailing household products and appliances. Both of the companies have gained a good reputation for selling a wide range of high-quality home improvement goods. They share some similar characteristics through their strategies of expansion to the world differ. The Home Depot and IKEA attempted to gain popularity in China, but the results were different. The expansion of The Home Depot to China failed. The company had to close its main stores there. IKEA has established an impressive network of stores in China. It is important to analyze the causes, which have led to such results. It can help to understand the specifics of entering the Asian market and prompt the appropriate conclusions. The distinct features of the companies, their strategies, and peculiar issues associated with their expansion to China need to be investigated.

The Home Depot is an American trading network and one of the largest distributive networks selling home appliances and tools on the planet. The company has 355 thousand employees. The network consists of nearly 2 thousand stores in the USA and several other countries. It made 83 billion dollars in sales in 2014. The Home Depot is known for big-box retail outlets and orange aprons worn by the employees.

IKEA is a Dutch company with a Swedish origin. It controls a multinational network of stores selling ready-to-assemble furniture and home appliances. The company has 127 thousand employees. The network consists of 325 stores in 41 countries. It made 28 billion Euros in sales in 2012. IKEA stores are known for their unique design, using national Swedish colors and Scandinavian names of products. Every store has a marketplace, a showroom, a restaurant, and a play area for kids.

Main body

The Home Depot started the process of its expansion to China in 2006. The company bought The Home Way, a Chinese retailer of household production. Twelve stores were opened in six cities. After several years, the Home Depot closed seven big-box retailer outlets in China and since then has not taken any attempts to reopen them. The company focused on several specialty stores. The roots of the company’s failure in establishing a network of big stores in China can be found in the specifics of its business environment. The internal environment of The Home Depot reflects the strategies that work in such Western countries as the USA and Canada. The company’s production methods are not flexible enough to adjust its stores to the unique and specific Chinese market, which differs a lot from the American one. In China, people mostly leave in flats. The products offered by The Home Depot are more likely to find a market in the countries where the biggest part of the population lives in houses. Some people regard a “do-it-yourself” character of products to be the main reason for the low popularity of The Home Depot in China (Burkitt par. 3). Personally, I disagree with this notion, as IKEA, well known for its “do-it-yourself” concept, managed to establish a successful network in China and is highly appreciated by Chinese consumers. In my opinion, the main mistake of The Home Depot lies in its deficient input in the investigation of the external environment of business in China. In 1998, when IKEA started its expansion to the Chinese market, nominal GDP in China was nearly 10000 billion RMB Yuan. In 2006, when The Home Depot entered the market, nominal GDP was already nearly 20000 billion RMB Yuan. The growth of GDP resulted in a higher consumer ability of the Chinese population. Because of this, the market has been invaded by hundreds of foreign companies, creating very high rates of business competition. Numerous companies, appreciated and popular in many countries, did not manage to find a key to success in China and experienced failure. The Home Depot repeated this mistake, as it underestimated the complexity of China’s retail. However, the company is trying to correct the mistakes made in the past and is investing in its development team in China. I believe, it can help The Home Depot to gain popularity among Chinese consumers in the future.

IKEA started the process of its expansion to China in 1998. It appears to be the first key to its success. The company entered the market when the level of competitiveness was not as high as it became in several years. This fact helped IKEA to establish a good reputation and gain popularity before the appearance of numerous competitors in the market. Nowadays, IKEA retains 18 stores in China and has plans to broaden its network. Both The Home Depot and IKEA rely on the “do-it-yourself” concept. Self-made products are appreciated more than the same ones bought ready for use. However, this effect cannot be reached if a person fails to complete the task successfully (Ariely, Mochon, and Norton 2). Unlike The Home Depot, IKEA managed to adjust the “do-it-yourself” concept to the needs of Chinese consumers and fit the market. Chinese population finds the “do-it-for-me” concept much more appealing, as people usually live in condominiums and do not have enough space for storing various tools. IKEA has put much effort into providing installation services for those who do not want to spend time doing it on their own.

Besides, IKEA puts an emphasis on the possibility of experiencing the Western culture with the help of its display rooms, restaurants, etc. That is the main feature that attracts Chinese people. IKEA gives a chance to see how a real Western-style living room looks like and repeat the design at your own home (Bhasin par. 8). Another point that defines the attraction of IKEA stores is the entertainment they provide. When people go to the Home Depot, they can simply buy the needed appliances. When people go to IKEA, they can leave the kids in the play area, take a walk through the showrooms, and try some new food. Therefore, a visit to IKEA is not a dull shopping process. It is an interesting and entertaining experience for the whole family.

Conclusion

The key points of IKEA’s success in China can be analyzed through the appliance of Peter Drucker’s concept of “theory of the business”. It has three parts: assumptions about the environment of the organization, assumptions about the specific mission of the organization, and assumptions about the core competencies (Drucker 26). IKEA studied Chinese society and its structure, the specifics of its market and customers. The company’s mission in China can be defined as popularizing Western Culture. The core competence of the company can be defined as the ability to present products in a uniquely entertaining way. Therefore, the success of the company in China was predetermined by the accurate and full statement of its theory of the business.

The strategy of adapting the service model to the distinct needs of the population was used by IKEA for establishing stable popularity in China. The Home Depot failure can be explained by its inflexible strategies and wrong understanding of the core features of the Chinese market.

Works Cited

Ariely, Dan, Daniel Mochon, and Michael Norton. “The IKEA Effect: When Labor Leads to Love.” Journal of Consumer Psychology 22.3 (2012): 453-460. Print.

Bhasin, Kim. Why IKEA Took China By Storm, While Home Depot Failed Miserably. 2012. Web.

Burkitt, Laurie. Home Depot Learns Chinese Prefer ‘Do-It-for-Me’. 2012. Web.

Drucker, Peter Ferdinand. Classic Drucker: Essential Wisdom of Peter Drucker from the Pages of Harvard Business Review. Cambridge: Harvard Business Press, 2006. Print.

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Home Depot Failure and IKEA Success in China

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