Postgraduate Diploma in Marketing June 2013 Examination Managing Global Dynamics (MGD) Date: 19 th of June 2013 Time: 1400Hrs 1700Hrs Duration: Three (03) Hrs Total marks for this paper is 100 marks. There are two parts in this question paper. All questions in Part One are compulsory. It includes a mini case. Part Two includes 6 Essay Type Questions. Answer 03 questions from this part. Instructions to candidates 1 State your Registration Number on the front cover of the answer book and on each and every additional paper attached to it. Your name must not appear anywhere in the answer book or answer scripts. 2. Always start answering a question on a new page. 3. You are reminded that answers should not be written in pencil or red pen except in drawing diagrams. 4. Answer the questions using: Effective arrangement and presentation Clarity of expression Logical and precise arguments Clear diagrams and examples where appropriate 5. Illegible handwriting and language errors will be penalised.
PART ONE Question 01: Case Study Answer all questions Swedish company IKEA was the world's largest furniture retailer since the early 1990s. It sold inexpensive furniture of Scandinavian design. The basic assumption behind IKEA's global strategy was 'one-design-suits-all. IKEA's sales in China have risen by more than 20% so far this fiscal year, and the Swedish furniture giant plans to speed up its expansion to capture market share and feed the Chinese middle class's appetite for Scandinavian home furnishing. The Wall Street Journal talked to IKEA's China boss, Gillian Drakeford. An IKEA employee since 1988, she has run its Chinese operations since 2003. WSJ: What's different about IKEA stores in China compared with IKEA stores in the West? Ms. Drakeford: Stores in China have to have light-rail or metro links and won't be situated as far away from cities as is the case in the West. Although car ownership is growing in China, the majority of people still need to access stores by public transport. WSJ: What are your plans for IKEA in China in the coming years? Ms. Drakeford: We are ramping up expansion. At the beginning of February, we opened our 10th Chinese store in Tianjin, a coastal city half an hour from Beijing with a population of about 13 million people. In June, we will open our 11th store in Wuxi, a provincial city of about 9 million people, which is close to Shanghai in Jiangsu province. Next year we have three stores that are already under construction. And then, according to our expansion plan, we will open three stores in China per year between now and 2016. WSJ: What drives this expansion? Ms. Drakeford: Simply because our stores struggle to handle the traffic of customers. IKEA's flagship store in Beijing, which opened in 2006, received over 6 million visitors in 2011, which makes it the largest-volume store for IKEA globally. The store in Shanghai is not far behind, with 5 million visitors in 2011. On a Saturday, we have 28,000 visitors in our store in Beijing. That equals the number of weekly visitors in an IKEA store of similar sise in Western Europe. WSJ: IKEA's stated aim is to "create a better everyday life" for as many people as possible. Is this true for China as well? Ms. Drakeford: It's probably a little easier to do in the West than in China with its 1.3 billion people. And not all Chinese people are buying home furnishings. So we focus on "the many people" in China's growing urban population. WSJ: Give us an idea of the Chinese core customer? Ms. Drakeford: Our core customers are people between 25 and 35 who have relatively higher incomes than the average and a higher education than the average. They are often Page 2 of 5
more open to a Westernised lifestyle, and in most instances, these are also the persons who buy homes. And as China's growing middle class competes for living space in the megacities, we are well-suited to serve their living needs. WSJ: How does living space differ from in the West? Ms. Drakeford: Living space is tighter on an average in China than in the West. An average family will live on between 70 and 90 square meters, mostly in a high-rise block. And often there will be multigenerational family members living together. And what you have had in this period since we arrived in China is more and more consumption. So, people have more and more stuff at home to store. This is where we are experts; we can show smart ways of living at home and being organised. WSJ: How do you reach out to customers in China? How do you tell them you are there? Ms. Drakeford: The Chinese media landscape is different from the West, so we try new ways of working. And in China social media is very important. Microblogs are used by a huge amount of the population and there is a lot more interaction. So we've begun communicating with our customers on [Chinese micro blogging site] Weibo. We post announcements and our customers post pictures and ask for tips and advice, and we can reply immediately. This covers a lot of people very quickly. This has turned out to be very powerful tool, and we expect it to grow. WSJ: What's competition like in China today? Ms. Drakeford: It's fierce and growing fiercer by the day. But while pure copycat stores only show the power of IKEA's concept, the real competition comes from local competitors who are quickly becoming more sophisticated. They are moving quickly beyond imitating to establishing themselves in their own way. WSJ: How do you tackle this competition? Ms. Drakeford: By broadening our customer base and by sticking to our tried-and-true method of cutting prices. Because when you dig into what "Chinese middle class" means in terms of income levels, the incomes are considerably lower than that of the middle class in the West. That means, even though the middle class is growing, the big challenge for us going ahead will be the affordability of our offer. Price is still one of the 10 biggest barriers in China from purchasing from IKEA. WSJ: What kind of prices do you have in China? Ms. Drakeford: IKEA has continually lowered its prices in the last 12 years. This is a 15 core part of IKEA's business model, to keep trimming prices. We have cut our prices by more than 60% since 2000. IKEA's "Lack" table cost 120 yuan when IKEA first came to the Chinese market. Now we sell it for 39 yuan. And we plan to reduce prices further. We do this partly by trimming supply-chain costs and mainly by securing supply in China. While globally 30% of IKEA's range comes from China, about 65% of the volume 20 sales in China come from Chinese sourcing. (Source: The Wall Street Journal Europe, March 21 2012 p.29.) Page 3 of 5
a. Critically evaluate standardisation vs. adaptation (8 Marks) b. Discuss the IKEA s competitive advantages and disadvantages in the Chinese market. (8 Marks) c. Find out at least (03) three different aspects of IKEA s problems and discuss critically (Marks 3 x 8) (Total 40 Marks) Page 4 of 5
PART TWO This part includes SIX Essay Type Questions Answer THREE questions Question 02 If local firms act intelligently, they can compete effectively against much larger international companies. What are the successful strategies available for smaller local firms to compete with larger international companies? Discuss the suitability of strategies in different industries. Question 03 Since exporting is a relatively risk- free market entry strategy, is there a need for a company to consider other market entry strategies? Evaluate critically. Question 04 Explain the stages and characteristics (for the initiating country) of the International Product Life Cycle (IPLC) and discuss its validity in current International marketing practices. Question 05 There are several payment methods used in international marketing. Some of these methods provide financing to buyers, whereas other methods guarantee prompt payments to sellers. Compare and contrast different payment methods in detail. Question 06 All have similar basic needs. It is reasonable to expect that certain cultural traits transcend national boundaries. Critically evaluate the above statement. Question 07 What is meant by counterfeiting. Discuss the levels of counterfeiting in detail. (Total 60 Marks) -END- (Total 100 Marks) Page 5 of 5