Ikea not giving up on India yet, sets spring deadline
Nivedita Mookerji / New Delhi Jan 27, 2012, 00:20 IST
Scandinavian home products giant, Ikea, which had given the thumbs down to conditions attached in the policy allowing 100 per cent FDI in single-brand retail, says it is not giving up on its India plans. At least, not yet. Company spokesperson Josefin Thorell told Business Standard Ikea would be able to talk about plans for an India store during spring, that is by March-April.
“India is still a very interesting potential retail market for the Ikea group, but we need to understand what the guidelines will mean for us,” Thorell said. While pointing out the conditions applied to sourcing from SMEs might be difficult to comply with, she said, “We are optimistic and hope to be able to present more information shortly about our possibilities to establish retail operations in the country once the conditions are right.”
The euro 25-billion Ikea group, the largest furniture retailer in the world, operates 287 outlets across the world. It is a privately held home product company that sells ready-to-assemble furniture.
The official added India was “since long a strong and growing purchase market for Ikea”.
On whether the company was engaged in a dialogue with the government on easing the policy restrictions, Thorell replied, “The Ikea group always strives to have a dialogue with the relevant stakeholders.” There are indications the government could be flexible on some of the tough conditions.
On the possibility of Ikea exploring the partnership route in India while keeping its stake at 51 per cent, Thorell said, “100 per cent investment is a prerequisite for us”. While notifying the policy on 100 per cent FDI in single-brand retail, the government had clarified riders like 30 per cent sourcing from local SMEs (small and medium enterprises) would kick in once the foreign investment level exceeded 51 per cent.
According to the Ikea official, the company has not taken the partnership route in any country it operates in.
On whether there was a plan to have online operations in India, she said the spring was the deadline for announcing such strategies. “We hope to be able to present more information about our intentions in India during the spring”.
Ikea CEO Mikael Ohlsson was quoted in news reports earlier this week as saying the rules on mandatory sourcing from Indian SMEs were a concern for the company, and the norms could be met more easily by food retailers than single-brand firms with a global product range. Ikea had tried to enter India earlier, too, but had dropped the plans subsequently as it wanted to come on its own.
Reacting to Ikea’s concern over the sourcing conditions, Commerce and Industry Minister Anand Sharma had told reporters the company chief executive had said earlier it was sourcing 30 per cent of its global wares from India.
Ikea needs to tread cautiously or think of a different business model. The do it yourself market is not huge for a country where labor is cheap (see the business that was Home Depot India). Ikea might have a EU aura and brand presence in China that helped with its success but I doubt that is the case for India. The merchandise price will need to be very competitive, quality sturdy enough to compete with the low cost manufacturing and real furniture in India. In any case, customer wins, Indian manufacturers (hopefully) win, small-medium size furniture retailers (probably) lose.
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