Delivering the Value Case Study Analysis - Essay Example

Challenges 11 5 5. 2 Underdeveloped distribution systems in emerging markets 12 6. 0 Solutions 13 Alternative 6. 1 6. 2 7. 0 China 14 India 14 Recommended Course of Action 1 5 1. 0 Introduction In China, as living conditions continue to improve, people are becoming more and more willing to invest in home decoration. People’s increasing purchasing power has driven the furniture market to develop in leaps and bounds. From 2010 to 2013, the sales value of wholesalers and retailers above a certain scale in the industry grew at an average annual rate of 41%.

In 2013, the growth slowed down somewhat to 21%, with sales value reaching Ramble. 75 billion. China’s furniture market has vast room for expansion. Take the furniture placement market as an example. According to statistics, there were about 438. 93 million households in all provinces, autonomous regions and areas directly under the central government in the Chinese mainland. Based on the assumption that people would replace their home furniture once every 10 years, around 44 million households would replace their furniture each year.

If each household were to spend Remember on average, total value of the furniture replacement market would amount to Rhomb billion a year. However, arbitration, as China’s leading policy of stimulating domestic demand in the years to come, is bound to bolster developing he furniture market. Data from the National Bureau of Statistics of China shows the arbitration rate in China reached 53% in 2012, rising by 1% on average every year. In this arbitration process, wage and salary earners as wells peasant families who have settled in towns and cities have become major consumer groups in the furniture market.

At present, a wide range of products are available on China furniture market and they can mainly be classified into home furniture, hotel and guesthouse furniture, office furniture, and public institution furniture (Wong, B. 2014). 2. 0 Brief Description of KEA KEA is a Scandinavian company famous for furniture from living rooms to that sells more than 10,000 furnishing products from well over 300 stores in approximately 40 countries. The company has more than 600 million visitors to its stores, and its successful website attracts more than 600 million visitors every year.

It is easy to think about the present without considering the future. Consumers want more goods and services to improve their standard of living. The problem is they make choices about goods and services that have long-term importance for the environment. In our modern world, organizations need to show responsibility. This means that they use resources efficiently, do not harm the environment and consider how what they do affects the ability of future generations to meet their needs. KEA aims to be a responsible organization. It sells low-price home furnishing products around the world.

These include furniture and accessories for kitchens, bedrooms, living rooms, bathrooms and children’s rooms: KEA now has stores in approximately 40 countries around the world. It has come a long way in its 60 years of business. The KEA vision “to create a better everyday life for the many people” gives KEA endless opportunities to do good for people and the environment. The “many people” are not Just customers or potential customers. It also covers our co-workers, the people working at our suppliers’ factories, the local community and beyond. We believe what is good for society is good for ‘KEA.

We are passionate about creating a successful business where we act in a responsible way through small and large actions. It is a way of being. This is why sustainability is a cornerstone in the KEA strategic direction – it is highly prioritize and serves as a driver of further innovation and development. Economizing with resource, finding new ways of doing things and developing our knowledge and expertise are important parts of our business idea and heritage. A low price company must be a low cost company, and this includes being careful with earth’s limited resources.

KEA has unique capabilities and tremendous enthusiasm to make a positive contribution across the world – from the forests of Siberia to the cotton fields of India and all the way into people’s homes in New York, Lisbon and Shanghai. Our customers rightly expect us to not only to make our products in a responsible way, but also to help them live more sustainable 3. The Furniture Store industry in China accounts for about 34. 0% of total revenue from China’s furniture sector. The remaining sales are generated by other industries, such as furniture wholesalers, department stores and direct sales from furniture manufacturing industries.

In the five years through 2014, the furniture Store industry has been growing at an annulled rate of 22. 2% to $20. 2 billion. Industry demand is driven by growth in China’s housing market and the rapidly developing economy. In 2011, the Chinese government began the construction of 10 million units of non-commercial residential housing (I. E. Indemnification houses) to further improve the living standards of medium-and low-income families and promote the healthy development of the real estate market. Shanghai, one of the most developed regions in China, accounts for the largest proportion of industry revenue at 16. % in 2014. Gudgeon province and Sandhog province make up 15. 8% and 9. 0% of total industry revenue, respectively. The geographic concentration level of the However, the percentages of household in North East China, North West China and South West China (China’s developing regions) are larger than their respective industry revenue shares. This is because the economy is less developed in these regions, and many households are of ethnic minorities that produce and consume furniture within their own cultures (Fishbowls. Com). 3. 1 Environmental Impact 3. 1 . 1. Economic KEA strategy is flexible with the economic conditions.

As European economy is under recession and consumer behavior has changed now. People are more quality conscious than before in Europe and other parts of the world. Analyzing this global business environment, we could say that offering low priced standard products would be the best strategy in such an economic recession across the world. KEA has already adopted its strategy and it has worked to gain cost advantages to offer low priced standardized furniture products efficiently to customers in a “DO IT YOURSELF” format. 3. 1. 2. Social KEA has contributed a lot in social responsibility.

It was the vision from the leadership. It has a vision of offering low prices to actually help those people who has low income and could not afford expensive furniture. It also offers different benefits to its employees in the form of compensation and insurance. Offering low prices was the vision of Angina Kampala and he viewed it as a social service. All the activity systems of KEA are actually designed to support this cause of Angina Kampala (such as cost advantage to offer low price). 3. 1. 3. Technological KEA adopted the latest technology and capitalized technological opportunities across the globe.

It has employed technology for shorter queues, proper scheduling, tracking and trading patterns. It has optimized its supply chain with technology to meet the customer needs efficiently. 3. 1. 4. Legal No company could operate without legal obligations and obedience. KEA always respected the legal systems of different parts of world and it never engaged in bobbing or mafia activities. 3. 1. 5. Political Different global political and national trends may impact KEA in different way, however, KEA has illustrated sufficient flexibility in past to survive in a global market 3. . 6. Environmental As far as environmental issues are concerned, KEA always manufactured furniture that is environmental friendly. Its production processes, waste management and safety measures are efficiently designed to satisfy environmental concerns. 1 Some tables are made out of recycled plastic 2 Some rugs are made of material clippings that would otherwise be wasted 3 Products such as water cans are designed to be stacked journeys and therefore lowering fuel costs. Each of these ideas helps Kike’s products to be more sustainable and reduce the impact on the environment.

A key part of Kike’s success is due to its communications with materials’ suppliers and manufacturers. During manufacturing KEA specifies to its producers that waste should be avoided. Where waste does occur KEA encourages supplies to try to use it in the manufacture of other products. KEA has a code of conduct called the KEA Way of Purchasing Home Furnishing Products (AWAY). This contains minimum rules and deadlines that help manufacturers to reduce the impact of their activities on the environment. The ‘WAY code complies with international legislation. 3. 1. . SOOT ANALYSIS External Weaknesses Internal Strengths KEA is an environmentally friendly business made large numbers of furniture products at low prices Sustainability is an underpinning principle of its business philosophy. Recycle more than 85% of the packaging & other waste from its stores Products & Materials, suppliers, climate change and community involvement are the fundamental principles of Kike’s sustainability The business is experiencing problems in home arrests Opened more stores which means visitors are divided by a greater number of retail outlets.

Kike’s flagship stores are not located in city centers. Stores are located out-of-town. Consumers have to travel large distances to visit stores. Consumers collecting large packages and taking them home and paying for their own traveling expenses. Opportunities Threats KEA is traditionally famous for its diversification strategies. Trading through highly advanced e-commerce technologies is an ideal avenue for KEA New low cost manufacturing nations of China and India. Cost can be reduced and margins increased by reducing labor cost.

Cost reduced will give business the opportunity to enter potentially lucrative developing consumer societies. Struggling against the larger portfolio suppliers such as Tests in the United Kingdom and Wall-Mart in the United States. KEA is trading in relatively mature consumer markets, and has entered all plausible free markets countries. The new and emerging nations of India & China sometimes make it difficult for KEA to embed itself as a supplier to new consumers. There are often foreign ownership rules, which mean that KEA might have to take a local business partner.

The partner could take more than 50% of its business 4. 1 KEA in China For KEA the step into the Chinese market was a big step. Initially KEA implemented it’s standardize strategies in China as KEA implemented in Europe, as a result KEA faced drastic problems in China. For instance, KEA is used to be perceived as having low prices in Europe and U. S, this also is one of the competitive cornerstones of the whole concept of KEA there. But this is not the case in China; here the perception is a fairly exclusive western retailer, a store of expensive products for the higher middle class.

Because of it KEA was facing the problem of coping in China as many Chinese shoppers in KEA were drawing pictures of the furniture and scribbling down descriptions of the product but not necessarily buying them. KEA aims its target group on young low to middle income family. Then KEA started to target different groups of people in China than in other countries later in the KEA ‘life cycle’ (I. E. , life cycle based on how long KEA has been on a market). The main target group is female customers – 65% of all customers. Women, (age 30-45) according to ‘KEA, stand for change in china and they welcome change.

Men are also part of the target group but more indirectly as women are the ones in the family having home furnishing interest and making the actual decisions. Many from Kike’s target group are what in China is known as the little emperors’: the generation born into the One Child Policy. So it always try to keep cost between manufacturers and customers down, which is the basis KEA used to be successful in its target market. China Shunned Locoing International Furniture City is the biggest furniture trade center in Asia, with more than 3 million square meters of furniture showroom.

It rooms a set of sales, service, logistics, and customs clearance of integration of professional furniture base. 4. 2 KEA in India Swedish furniture giant Kike’s impending entry into the Indian market has awakened scores of international furniture companies to their potential here. Before this Indians purchased KEA product from online sites like Alabama. Com, LOX. Com etc. Those who were either dilly-dallying over investing in India, or who were lying low in the Indian market, are stepping up operations and investing in marketing or brace themselves for competition once KEA arrives.

For instance, German company Nobility, which used to market its products through Indian retailer H&R Johnson under the Johnson Kitchens brand, now wants to sell the products under its own name and establish its brand. Once KEA comes in. It might be too late for companies to start marketing their brands. KEA is intended to invest RSI 500 core in India over the next five years to set up manufacturing facilities and for training, research and development. Skirt Magna (Hindi) is an area of West Delhi, India. Part of the Punjabi Bag subzero of West Delhi, it primarily a residential colony. Skirt Magna is home to

Sais’s largest furniture market housing showrooms of multi-national home remodeling and fittings companies, the most reputed interior design brands as well as traditional carpentry furniture makers. 5. Challenges cultural environment, and political bureaucracy. It has been difficult for the company to set prices at a level that is good for both customers and the company. KEA has been hit with heavy import taxes in China, though the company aims to relocate production of many items to China to solve this problem. The country already supplies glass, timber, textiles, hardware, plastic, and almost anything else the store deeds.

KEA faces strict quotas and has difficulties importing food to its Swedish restaurant. The company now has a food-import agent that handles all related issues, including labeling ((Miller, P. M. 2004). 5. 1 Cultural Environment When designing global marketing strategies, companies must understand how culture affects consumer reactions in each of its world markets. In turn, they must also understand how their strategies affect local cultures. Sellers must understand the ways that consumers in different countries think about and use certain products before planning a marketing program.

There are often surprises. For example, the average French man uses almost twice as many cosmetics and grooming aids as his wife. The Germans and the French eat more packaged, branded spaghetti than Italians do. Some 49 percent of Shines eat on the way to work. Most American women let down their hair and take off makeup at bedtime, whereas 15 percent of Chinese women style their hair at bedtime and 11 percent put on makeup. Business norms and behaviors also vary from country to country. For example, American executives like to get right down to business and engage in fast and tough ace-to-face bargaining.

However, Japanese and other Asian business people often find this behavior offensive. 5. 2 Underdeveloped distribution systems in emerging The second challenge is underdeveloped distribution systems in emerging markets, particularly Asia. In order to maintain cost leadership in the market, internal production efficiencies must be greater than that of competitors. Under Kike’s global strategy, suppliers are usually located in low-cost nations, with close proximity to raw-materials and reliable access to distribution channels.

These suppliers produce giggly standardize products intended for the global market, which size provides the firm with the opportunity to take the advantage of economies of scale factors. Kike’s role is not only to globally integrate operations and centrally design products, but also to find and effective combination of low-cost, standardization, technology, and quality structure (Kettle, P. & Armstrong, G. 2014). An international company must take a whole channel view of the problem of distributing products to final consumers. The whole-channel view takes into account the entire global supply chain and marketing channel.

It recognizes that to complete well internationally, the company must effectively design and manage an entire global value delivery network. In India, millions of retailers operate tiny shops or sell in open markets (Kettle, P. & Armstrong, G. 2014). 6. 0 Alternative Solutions Improve customer order delivery time by making available the products at the place of demands. Thus, it is concerned with the store where the goods shall be displayed and sold, the channels of distribution and logistics management through which goods will flow from marketer to consumers.

Chain or path or route in the Hansel may be marketer to consumer or marketer to retailer to consumer, or agent to wholesaler to retailer to consumer. The organizations between the marketer and the consumers are known as intermediaries. Each one of them has an important role to play. KEA has to change their strategies in China by considering Chinese culture and Chinese consumer Behavior. 6. 1 China 1. To fix prices that is subject to market regulation 2. To fix prices within the guided range as set by the government 3.

To fix prices for new products which are subject to government-set or guided prices In present days, KEA shall launch a new strategy called “The Lowest Price in Beijing”. According to the new strategy, the price is going to be 20% cheaper than other home furnishing stores. The Chinese are famous for their reluctance to spend their money. Due to this reason, KEA shall launch the low price strategy when entering the Chinese market while other western retailer always set 2% to 30% higher price than local markets in China (Kettle, P. & Armstrong, G. 2014). 6. India It is a prerequisite for the KEA concept to realize the AKA vision: “To create a better everyday life for the many people”. As KEA aims to reach many people, KEA product range bears low prices in which KEA designs play a major role by using production capabilities from other areas in unique and unimagined ways. The product target retail price in India will be estimated through “a matrix” which consists of 3 basic product ranges. Within each price range the company would survey the competition to establish a benchmark and then set its own price point 30-50% lower than that of its rivals.

Firstly, I will suggest the Joint venture strategy because of the cultural distant, and the difficulty of entering these markets. The strategy is to collaborate with some local company as a Joint venture. Secondly, I will suggest the global retailing acquisition strategy in order to penetrate the market, this entails purchasing a company with multiple retail locations in a foreign country. This strategy can provide KEA with quick growth as well as access to existing brand suppliers, distributors, and customers (Kettle, P. & Armstrong, G. 2014). 7. Recommended Course of Action KEA customers expect a high variety for their furniture as well as short delivery times. Due to these factors, furniture companies that want to succeed in an industry tensing dramatic changes need to have efficient logistics management to have a competitive advantage. To make their logistics network more efficient, companies need to choose the right supply chain model, promote cooperation with their partner in the supply chain, and adopt new technologies for better decision making and management. 1 . Consider entering into a Joint ownership venture with Soon Furniture Company in China.

This would not provide instant access to the entire China furniture market but will also provide experience in all aspects of conducting business in a foreign market. It will also provide an instant improvement in the company’s logistics capability which will enable KEA to deliver customer product orders faster and cheaper. 2. Strengthen internal coordination and cooperation in promoting the interests of the furniture sector through Joint partnership with MIT furniture, Shunned Furniture, & Salaam [India] to improve logistics and product order manufacturing processes, management skills, and design for franchises: 4.

Focus product development efforts on total quality (particularly raw material quality, precision, finishing, fittings and design) as a key factor of success. Introduce and implement labor standards that meet buyers’ expectations. 5. Systematically facilitate the industry attempts to know its customers and to obtain direct access to them rather than to continue relying on intermediaries. 6.

Implement pre-certification or qualification criterion’s for purchasing wood raw material in particular areas [In accordance with national and regional forest legislation and other applicable laws] KEA marketing performances and cultures may have a negative impact on international marketing. Multinational companies should try to balance their global eateries and local tactics in order to build long-term customer relationships and capture customer value when dealing with customers cultivated in different cultures.

On Marketing, Soon adhere to “domestic and exportation simultaneously, direct marketing and distribution together. ” Currently, domestic sales stations have been over all second-line and above cities. For Beijing, Shanghai, Hangout, Guanos and areas around, we set up direct sales branch company, with responsibility center model “everyone is the boss”. And other regions are by way of brand licensing. These two models are complementary and reinforce each other. It will be the most prospective and competitive sales model in the field of office furniture in future.