JYSK Case Exam
Prepare a substantiated suggestion for a new strategy for JYSK on the Chinese market with a special focus on choice of target group.
Introduction
Our case is about the successful Danish company JYSK, and their current strategic situation on the Chinese market. JYSK is the biggest Danish retail company; it operates in 35 countries and has 17.000 employers all over the globe. JYSK in average opens 3 new stores somewhere in the world.
It was founded in 1979 by Lars Larsen, who didn’t even know, that his company will show this incredibly high growth-rate in a relatively short time. Now they are trying to successfully enter the Chinese market. They had difficulties what can lead back to the cultural differences between the other western countries and China. JYSK could be very successful in Europe and America but in China they have to change their strategies.
Marketing theories and analysis:
Internal: Value Chain, Key competencies,
External: Pestel, Porter’s 5 forces, Porter Generic strategies, Competitive analysis
SWOT
Growth strategies, Entry strategies Choosing the target group in China
Other theories:
Financial state of the company Vision/Mission
Economical state of China
Cultural differences in China (Hofstede, Maslow)
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Pest Analysis in the Chinese Furniture market
The fist factor we have to take into consideration is the political factor. In China politics is a very important factor, JYSK has to accept the special political conditions in China. The politics of the Republic of China works in a framework of a semi-presidential representative democratic republic. The President is head of state and the Premier (President of the Executive Yuan) is head of government, and of a dominant party system. The government has some control over the real estate industry which possibly could take an influence on JYSK’s potential market, but it had no influence on it, the sector experienced growth in the demand. The Chinese political system is very complex and there are strict rules. China is more and more becoming connected to the global economy and, with this also to global price fluctuations. This will maintain to affect inflationary pressures within China in a wide variety of markets regardless of the government’s ability to control some prices. There are many things that differ between the regions, so it needs to be clearly researched before acting.
The economical factor
China’s economy shows growing trends in the past few years, and it could stay stable even in the financial crisis. The growing level of disposable income made the Chinese middle class, what was the main target group of JYSK, bigger and it shows a high grow tendency. The annual disposable income continued to rise, from RMB20 trillion to RMB22.1 trillion between 2009 and 2010. Per capital disposable income currently is at RMB 17,250 with 7.8% planned growth between 2010 and 2015, it is amongst the highest growth rates. The wealth is concentrated in the urban part of China, the first-tier cities. But recently the satellite towns and the cities in periphery of the first-tier cities also emerged. The unemployment rate was quite steady between 2005 and 2011, it was about 4,2%.
The Social factor
Urbanisation shows a growing tendency since 2000, China’s cities have expanded at an average rate of 10% annually. This has a very huge effect on the people, they There were a few social changes in China, mainly in regards to the participation of women in further education and white-collar and professional employment, have affected consumer behaviour is a number of ways. Women have more freedom now despite the traditionally tight, family-oriented constraints which resulted the lowering of birth rates, increased levels of disposable income and many new consumer markets and demands. Considerably, mostly part women in China remain the decision-makers when it comes to household spending. This could be relevant to our case. JYSK has to focus on younger women.
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The Technology Factor
In China, science and technology are very important because it is the way they can achieve economic and political goals, it is also a part of their national pride to a degree sometimes called as “techno-nationalism”. China has a highly developed technology, they have a need for the new and innovative ideas and products. China is one of the world’s leading technological powers.
The company’s financial analysis
According to JYSK’s annual report there are some ratios that could help us get to know the company’s current financial situation.
In Denmark JYSK’s net profit after tax was DKK 235.1 million, compared to DKK 199.6 million in the previous year. Comparing this to China their result was a loss of RMB 25.9 million after tax. This outcome was highly affected by the five new store openings, and by worse revenue than expected.
Return on investment: 15,5% This is still a very good number, but compared to the previous year it decreased by 4%
Assets ratio: 54,6% in 2011, this has increased during the years, follows a growing tendency
Interest on capital and reserves: 22,1%, this number has showed a decreasing tendency during the years, it could be better if they could stop the decreasing of the interest on capital.
They have the financial background to expand their business and China is a very profitable possibility. They just have to change the target group and the strategy they use.
The market structure on the Chinese market of furniture is monopolistic competition. There are quite many companies operating on the market, only a few big ones but there are also smaller local shops, which could compete with JSYK. Their biggest competitor is IKEA, which is very successful in Asia. Their products are differentiated; they have other styles and other qualities to show. The entry is free on the market, it is not restricted.
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Porter 5 forces
Threat of new entrants
This market can be very attractive for many companies, because Asia is the destination of many western companies. China is very profitable and very attractive so it is very likely that there will be new entrants on this market. The big competitors are already participating on the market.
The power of suppliers
They are working with Chinese suppliers, because China has very high taxes on foreign suppliers and products, so it is only worth to work with local suppliers. The local suppliers have the advantage of their homeland and maybe government support. JYSK has to deal with them and adapt to their business habits and their culture.
The power of the buyers
The price sensitivity is very high on this market, people always pay attention to sales and other discounts. These are very important, people can compare the prices and they are always very aware of the changes. The costumers also need differentiated products. (Our target group is quite wide, mainly young people, in various but more likely to be in the lower classes, newlyweds and university students. Their standards may be lower and their budgets are smaller.)
Intensity of rivalry
There is a dynamic and high-level competition on this market. But the possibilities are worth to participate in it.
The threat of substitutes is not relevant in our case, because they are selling so various types of products.
SWOT
Strengths: Stable financial background
Good reputation in the western countries
Good relationship with suppliers
Weaknesses: Low price products, it can be seen as poor quality
Many competitors, which already well-known in the area
Opportunities: New products and segment in this market (country specialties)
Possible support from the Chinese government
Threats: Powerful and well-known competitor: IKEA
Possible new regulations against foreign companies
Hofstede’s model
China has a quite high score (80) in Power Distance. That means that they accept the inequalities between people. That means a big change for JYSK, because Denmark has the exact same qualities in this part.
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China has 20 in the individualism part. It is very low score. That means that they are a very collectivist society. People are more likely to act for the interest of a group. Employee commitment to a company is also low.
China has 66 points in masculinity. That means that China is a masculine society, success oriented. The need to ensure success it is possible that many Chinese will sacrifice family and leisure priorities to work.
At 30 China has a low score on uncertainty avoidance. With a score of 118 China is a highly long term oriented society in which persistence and perseverance are normal.
