MUMBAI - For the Swedish flat-pack furniture company IKEA, which plans to open its first store in India next year after a long battle, one of the biggest challenges it faces understands its potential customers.
The chain is betting on the country becoming a huge market and it is striving to do everything it can to ensure its success. "We are now focusing on understanding life at home or how people live in their homes through home visits and research, and these can be different from state to state," says Patrik Antoni, the deputy country manager for IKEA India. "This is needed to not only assess living situations but also understand frustrations, needs and aspirations. So a store in Delhi will offer the same experience as a store in London, but at the same time certain unique products and the way the range is presented will reflect the needs and aspirations of people in Delhi."
IKEA's plan is to open 25 stores in India by 2025, injecting a total of €1.5 billion (Dh6.17bn) into the market. Its first store, spanning over 400,000 square feet and set to employ up to 700 staff, is scheduled to open in Hyderabad by the end of next year. As IKEA ploughs ahead with its move, this is indicative of a shift in the environment for foreign investment in the country and how companies are looking to tap India's favourable demographics, particularly the expanding middle class and strong economic growth.
It was a decade ago that IKEA first applied to open stores in India and bring its affordable design-led products to the market. But it took until 2013 to get the green light from the government to set up shop in the country because of regulations aimed at protecting local shopkeepers.
India had permitted foreign investment of up to 51 per cent in single- brand stores - distinguished from "multi-brand" retail such as supermarkets, where a range of different brands are sold - since 2006. But IKEA was keen to have full ownership of its stores. Despite intense lobbying, it was not until September 2012 that the government under Manmohan Singh opened up the single-brand retail sector to 100 per cent foreign direct investment (FDI), while permitting up to 51 per cent FDI in multi-brand retail.
"India presents one of the largest untapped markets for retailers with 1.2 billion populations and a middle class bigger than the USA," says Satish Modh, the director of the VES Institute of Management Studies, based in Mumbai. The momentum gathered pace following the election of Narendra Modi's Bharatiya Janata Party (BJP) in 2014. Despite the fact that the BJP had fiercely opposed the previous government's introduction of a more pro-foreign retail policy when it was announced, once the party came to power, it made it very clear that its aim was to attract FDI.
"The general election and its outcome turned out to be a key turnaround moment as a new pro-reforms government was elected to power with unprecedented majority," says Anuj Puri, the chairman and country head of JLL India. "This helped many retailers take a positive view on rise in employment numbers, disposable incomes and, therefore, the growth of retail. A gradual softening stance of the newly elected government on foreign investment in retail excited international retailers such as IKEA, Walmart."
But India also proved to be a challenging market for Walmart. In 2013, it terminated a six-year long partnership with Bharti Enterprises, setting back its plans to launch retail stores. The US retailer still seems to be very keen on India; however, with reports recently emerging that it is looking at investing up to $1 billion in the Indian e-commerce company Flipkart.
Answer the following questions using information from the above articles and any pertinent information you can find on IKEA.
What is IKEA's mission and why is this so important to understanding their business model?
Based on what you have read in the articles, briefly discuss some of IKEA's core competencies and value-added activities and the impact this has had on their success.
Has IKEA taken a Global Standardized approach or a Multi-national Adaption Approach or a Glocal** Approach. Provide examples (from the articles) that support your answer.
Briefly discuss some of the cultural challenges IKEA has faced and the strategies they've used to overcome these challenges. Base your discussion on information found in the articles.