IKEA will source from MSMEs where feasible

Signs franchisee agreement with group company Ingka Holding Overseas

Replying to queries by the Department of Industrial Policy & Promotion (DIPP), Swedish furniture major IKEA has said it would source from micro, small and medium enterprises (MSMEs) “where it is feasible”. Last month, the government had tweaked the single-brand retail policy, saying 30 per cent sourcing from the MSME sector was preferable, not “mandatory”.

The company would “source (products, components, material for exports and domestic sales, etc) 30 per cent of the value of goods purchased (excluding all taxes and duties) for its retail activities in India, from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors relevant to IKEA, where it is feasible”, it stated.

It added for the India market, Inter IKEA System, the owner of the IKEA brand, had already signed a franchisee agreement with group company Ingka Holding Overseas. This, the company said, was a departure from its standard global practice, as franchisee agreements were signed only after establishing a territory penetration plan for that country. The exception showed the company’s commitment to the India market, IKEA told the government in its reply. Now, its proposal would be taken up by the Foreign Investment Promotion Board (FIPB).

After IKEA had, in an application on June 22, mentioned setting up a ‘Swedish food market’, DIPP had sought clarity on the matter. IKEA clarified while the food market was not its primary business activity, it was linked and incidental to the company’s retail store business. Swedish food markets at its retail stores are part of IKEA’s global concept, it stated.

Swedish food markets are located close to the exits of IKEA retail stores across the world. These sell Swedish meatballs, chocolates, packages of gravy, Scandinavian biscuits and crackers, salmon, soft drinks, etc. All these products are sold under the IKEA brand.

Elaborating on its ‘flexible payment options’, IKEA said it might offer customers the option of paying for products on an interest-free, deferred payment basis. This, too, was part of the company’s business and sales policy, it stated.

On its initiative to collect and purchase old furniture, IKEA said the facility was only for customers who no longer needed their old furniture. Such old furniture is collected and/or purchased by the IKEA group. These are either donated to needy families through charitable organisations or given to third-party small businesses on an “as-is-where-is” basis, the company stated.

It added the publication activity it mentioned in its proposal referred to catalogues, brochures, guides, manuals and pamphlets.

IKEA plans to set up 25 stores in India, and increase the store count on the basis of market development. In the first stage, it plans to invest euro 600 million, and an additional euro 900 million at a later stage.