The first IKEA store in India is unlikely to come up during the second term of the United Progressive Alliance government, which ends in May 2014, as the euro 25-billion Swedish furniture major takes “years” to set up shop in a new country after securing the necessary approvals.
The Centre is learnt to have begun simplifying the policy for foreign direct investment (FDI) in single-brand retail, after it received IKEA’s investment proposal on June 22. Though the furniture giant wants to set up stores in India, it is opposed to the mandatory norm of sourcing at least 30 per cent of the value of products sold from small enterprises in the country.
Replying to a question on policy hurdles IKEA faced in other countries while starting operations there, a company spokesperson told Business Standard, “Every new market has its unique challenges and possibilities. We want to study and really understand each market before we enter it.” Explaining the processes involved in starting operations, the executive said, “This means it takes some years to open the first store in a new country.”
The company said after securing the government’s approval, the next step was finding land on which an IKEA store could be built. “This is important, since we always want to fully own our stores. Also, when we come to a new country, information such as assembly instructions and labelling has to be translated.”
IKEA, which has committed to investing euro 1.5 billion in India over several years, operates 336 stores, including franchisees, across more than 40 countries. The announcement of its entry into India followed a meeting between Commerce Minister Anand Sharma and IKEA chief executive and president Mikael Ohlsson in St Petersburg, Russia, last month.
Once IKEA opens its stores in India, most products sold here are likely to be made in Asian markets, including India. On the number of made-in-India products Indian IKEA stores would sell, the executive said, “We try to source as close to the sales market as possible.”
When asked what IKEA’s response would be if the Indian government refused to dilute the single-brand policy, the official said, “We are now evaluating this internally.” The company maintained it had a long-term vision for India, and the country was a very important market. “It takes time to be able to fully live up to all the requirements. We need to have a long-term strategic outlook and partnerships with key stakeholders over a period of time.”
The spokesperson said the plans “as outlined in the application are estimations, based on previous experience in other markets”, adding, “We respect the Indian government’s views and thoroughness in the approval process.”
The company’s chief executive, Ohlsson, has been travelling to India on a somewhat regular basis, the company told this newspaper. It, however, did not divulge when he would come here next.
In November 2011, the Union Cabinet had approved raising FDI in single-brand retail from 51 per cent to 100 per cent. The government had issued a notification on this in January.
In its application to the Department of Industrial Policy & Promotion on June 22, IKEA said compliance with the mandatory norm of sourcing at least 30 per cent of the value of products sold from small industries in India was impossible to meet — from the first day, or anytime soon thereafter. The company wants the mandatory sourcing requirement to be computed, certified and checked for a cumulative period of 10 years from the date of approval.
The company initially wants to invest on two to three stores, on 10 stores over the next 10 years, and on 25 in the long term.