Starbucks and IKEA in India and China

MRKT4177 Contemporary issues in marketing.

Entering global markets can be quite rewarding as well as risky for companies looking to expand and increase their market share in the face of shrinking domestic markets especially in the food, beverages and tobacco industries to name a few. While many entrants overseas have met with phenomenal success a fair number have failed to come to terms with the vagaries of operating in a foreign culture.

For one companies are wary of over adapting their strategy to an extent where they lose their originality and identity as a global brand, and on the other forcing their brand upon the local populace without considering local tastes and cultural context. In many cases a  balanced path  of glocalization is much better suited to their success overseas.

Focusing on two well known companies Starbucks and IKEA that have gone the global route, it is beneficial  to learn from the experience they faced contemplating the Indian and Chinese market with product, location and pricing decisions. Firms can learn lessons on how they may overcome these dilemmas and challenges while seeking to enter overseas markets.

It is important to know the background and history of hot beverage drinking in India, which has historically been known as a tea drinking nation dating back to British colonization being preceded by the entry of the East India Company in the mid 18th century. The British introduced tea agriculture leading to  mass consumption after a successful advertising campaign by the tea board in the 1920’s.

After six years of researching the Indian market, Starbucks opened their first store in October, 2012 in an upscale area of downtown Mumbai. Howard Schultz commenting , “It is perhaps the most elegant, beautiful, dynamic store we have opened in our history.”

A great advantage to Starbucks was their carefully selected partnership with  the Tata Group a giant Indian conglomerate and one of the largest coffee producers in Asia. This partnership provided them with some of the most valuable and prime locations to set shop in Mumbai and Delhi with the Elphinstone Building and the Taj Mahal hotel sites getting them off to a great start. Menu featuring a blend of local and western in the shape of mouth watering murg(chicken) tikka panini and tandoori paneer(cheese) rolls.

In comparison in China Starbucks went with the Chinese need to relax in more spacious surroundings, building bigger stores 3,800 sq. ft. and upward. Menu items include chines teas and moon cakes.

A Frappuccino is priced to a growing middle class in India at $3.35 compared to products being priced 20% higher in China than other markets.

Starbucks went with a glocalization  strategy (a combination of a global and local strategy) to succeed in both India and China, adapting the product catering to local tastes at the same time maintaining its Western image globally thru offering its original service and product concepts as well.

IKEA’s entry into India has been more slow and on the cautious side, having to consider several key issues, they do not expect to have a store launched before 2018.

One key lesson they can learn from their China experience is that DIY (do it yourself) will not work in India for locals are not keen to assemble and would rather have a do-it-for-me model in place which Home Depot did not practice in China and paid the price having to close down their remaining  operations in 2012.

In China IKEA started with a higher price model which subsequently had to be lowered by 50% for the PPP (Purchasing power parity) may have been higher but income levels were quite lower for the intended target market, each potential Chinese customer earning $400 a month.

After initial experience IKEA realized that if they built bigger stores the crowd would come now eight of their 10 biggest stores in the world are in China where their outlets have 40% more traffic than other countries customers treating them as destination stores spending a a significant part of the day, exploring, relaxing and dining their time away.

IKEA also had to come to terms with its positioning strategy in China initially focusing on the 20 to 35 year old market and then repositioning to include the wealthier 35 to 45 age segment with children.

Undoubtedly when entering India IKEA would look upon their experiences entering other emerging markets including China and adapt to local customs and tastes. It already faces challenges in seeking changes to a rigid single brand retail policy for foreign firms investing in India and for the Government to allow foreign retailers to be able to sell online.

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About imranraza

Marketing Professor, Kwantlen Polytechnic University. Areas of interest, International marketing, Advertising, Consumer Behavior and Small business.
This entry was posted in Contemporary issues in marketing., International Marketing and tagged , , , , . Bookmark the permalink.

8 Responses to Starbucks and IKEA in India and China

  1. Samir says:

    thx, for posting, an interesting article!!!

    Like

  2. Christopher Coles says:

    I think it was smart of Starbucks to team up with a company like Tata Group, sometimes in Business you need to stay humble and realize that its better to team up with a company that is already established in the short term you make less but it opens more doors for you, its like knowing the bouncer at the club so you don’t have to wait in line.

    I personally like the fact that IKEA is being cautious and looking at the market before entering (First store after 2018) measure twice cut once has always been my philosophy in Business.

    I personally dislike both company’s and do not buy from either but respect the business skills the CEO’s have making both brands.

    Like

  3. Aiman Rasheed says:

    Very insightful article. I personally think many countries are also homogenizing in terms of culture. For example, in India, like the above video mentions how India didn’t use to be a coffee drinking population, however, with the influence of the internet the audience has increased without having to do a thing and its now the norm to be a coffee drinker there. So I believe a company like Starbucks will be quite successful as long as the locations selected make business sense.

    Similarly, a country’s average income and currency makes a great difference in terms of pricing. I was recently on vacation to Dubai and I payed almost 8 dollars for a coffee at Starbucks where I would pay less than half of that here in Canada.

    Reading your article helped me look back and realize that it’s actually profitable for Starbucks to have higher prices in the Middle East where tourism from the West and Europe is widely attracted and Starbucks is a trusted brand at home so people will be willing to pay the higher amount.

    Like

  4. Borna Toroghi says:

    I think that Starbucks partnering up with Tata Group helps them understand the differences between the two countries’ cultures, values, and backgrounds. Opportunities can rise for Starbucks, where more coffee shops would be established throughout India. Also, I think that the six years of researching the Indian market definitely gave Starbucks an advantage, and companies who want to enter global markets should do extensive research in order to relate to the countries, and potential clientele.
    For IKEA, it is more difficult to establish since India has a DIY attitude, therefore taking their time and being cautious may be in their advantage.

    Interesting article, thanks

    Like

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