CASE TEN THE BUSINESS MODEL AND COMPETITIVE STRATEGY OF IKEA IN INDIA
Syed Abdul Samad IBS Center for Management Research (ICMR►
We are very determined but very patient ar the same time. We started this journey six years ago. Things are finally moving and we are satisfied with the progress so far … I truly believe that the IKEA format is going to work. What is an IKEA store? An IKEA store has more than 9000 different articles for the entire family. We offer an experience for the whole family. Also remember, at IKEA we don’t sell products, we sell inspiration. Juvencio Maeztu, IKEA’; Country Manager for India, in 20131
After a year of lobbying and negotiating with and convincing the Indian politicos and bureaucrats, IKERs €1.5 billion investment proposal to set up its stores in India was finally accepted by the local government on 2 May 2013. However, as of July 2013, Juvencio Maeztu, IKENs country manager for India, found he still had a colossal task ahead of him. IKEA, the Netherlands-based Swedish company, was the largest furniture retailer in tfre world with a presence in 44 countries, including the USA, the UK, Russia, the EU region, Japan, China and Australia. However, it did not enter the Indian market until 2013, though the company had had a presence in the country since the 1980s as a sourcing destination for its global stores. It had even opened its regional procurement office in Gurgaon, India in 2007. In 2009, IKEA tried to enter the country to establish its stores, but its attempts were thwarted by India’s stringent Foreign Direct Investment (FDI) regulations. It again applied for permission for entry in June 2012, after India had made some changes to its FDI rules. However, IKEA had to wait another year, hitting many roadblocks on the way, before it was able to obtain the Indian Government’s approval to establish its stores. The company also had to tweak its global store model to fit the Indian FDI and sourcing outlines and Indian consumer preferences. While Maeztu was tasked with tapping the Rs 925 billion Indian furniture and furnishings market, analysts
were waiting to see what strategies the furniture giant would come up with to win the highly fragmented, price-sensitive Indian market — many Indian middle-class families preferred to have their furniture custom-made by small retailers or local carpenters. No two Indian homes had the same kind of furniture, as Indians in general showed more of an affinity for unique woodwork and designs rather than flat geometric furniture. ‘Living room in India is different from any other country — a place for socialising and every activity is around the food. In some countries it is the kitchen and in some countries living room is used for sleeping, said Maeztu.2 More important was the fact that the Indian customer did not prefer the concept of do-it-yourself (or DIY, where buyers have to assemble different pieces of the product themselves), a key part of IKEA’s globally successful business model Analysts suggested that though the company had managed to impress the Indian Government, getting into the homes of Indian consumers would be an entirely different ball game.
About IKEA IKEA was a privately held company. It designed and sold ready-to-assemble furniture, home appliances and accessories. From humble beginnings in 1943, the company went on to become the world’s largest furniture retailer by the 2000s.3 In the financial year 2001, the company earned revenue of €10.4 billion (refer to Figure 1 for IKERs revenue growth). By 2012, the company’s revenues increased to €27.6 billion with a net income of €3.202 billion (refer to Table 1 for IKE.Ns income statement). By 31 August 2012, the IKEA Group had operations in 44 countries, including 30 service• trading offices in 25 countries, 33 distribution centres and 11 customer distribution centres. By 31 August 2012, the IKEA Group had a total of 298 stores in 26 countries and employed 139000 people.4 Globally, the company had doubled its sales to €27.6 billion over the past decade and planned to double them again by 2020, and to open 20-25 stores a year from 2015.
- Rs – Indian rupees or INR. As of 2013, US$1 was approximately equal to Rs 62; €1 was approximately equal to Rs 85. This case was written by Syed Abdut Samad, under the direction of Debapratim Purkayastha, IBS Hyderabad. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.
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