IKEA India - Shop for Home Furniture, Decor & Outdoor

Introduction 

Following consistent negotiations, lobbying, and convincing the Indian bureaucrats and politicos, IKEA managed to obtain acceptance of its investment proposal of about €1.5 billion to set up retail outlets and warehouses in India (Deresky, 2017). The company, however, faced other colossal blockades associated with the need to design products based on local preferences, culture, and climate. Issues such as the high cost of real estate also required the identification of new strategies to address the rising operational costs of the modern market.   

Question 1 

  The delayed entry of IKEA into the Indian market took place because of several reasons. On the one hand, supporters of the entry argued that the investment would enhance the modernization of India’s manufacturing, infrastructure, and supply chain (Deresky, 2017). On the other hand, the critics opined that IKEA’s entry would force small-scale firms and individual traders out of business. Strengthening the flow of foreign direct investment also characterized the reasons for delayed entry into the Indian market. India’s GDP growth was merely 5.3% in Q1 of 2012 financial year. Furthermore, the current account deficit had a widening trade deficit; hence, the need for international capital to bridge the gap (Deresky, 2017). Economic reforms were required to be created by the Indian government before investments from foreign companies to operate effectively.  

  The eventual entry into India had to comply with infrastructure development and legislation. According to Anders Dahlvig, barriers to entry into the Indian market included issues such as the prevailing local sourcing conditions and restrictions on foreign direct investments (Deresky, 2017). Potential breakthroughs hoped for by the company failed significantly; thus, the need to postpone the projected entry until the Indian government eased the trade rules. IKEA demanded that the government should allow 100% of foreign direct investments for the entrance to succeed (Deresky, 2017). Additionally, it would be difficult to ignore the Indian furnishings and furniture market.  

Question 2 

  The market entry required a practical approach to overcome the identified hurdles driven by FDI legislation and prevailing local sourcing conditions. Firstly, IKEA lobbied with the local bureaucrats and politicos to overcome the main barriers and get consent to open stores in the country (Deresky, 2017). The entry design required that the company maintained its global business model. The second strategy involved identifying the best space to host the traditional large stores of the company, especially the kinds operating in Sweden, Germany, and France. IKEA had to rely on standalone suburban warehouses. The Indian market, mainly because of the high cost of real estate, availability of retail space is limited, and the overall efficiency of stores is compromised.  

  Thirdly, the market entry strategy involved a comprehensive understanding of the Indian market as well as the competitive forces. The company would face rivalry from major Indian players such as K. K. Birla Style Spa, Godrej’s Interior, Future Group’s Home Town, Hindware’s Evok, and Landmark’s Home Center (Deresky, 2017). The existing players in the furniture and furnishings market contended that IKEA’s entry was not a significant threat because the company will have to comply with the Indian model. The survival of the company in India required playing along the lines of volume metrics as well as creating items suited for the Indian style and climate. This was because the price of real estate was highly prohibitive. It was also crucial for the business to consider the long distances required by consumers to make purchases. Along with product delivery issues, supply chain challenges were also expected because of the distances.  

  Finally, IKEA focused on implementing its DIY (do-it-yourself) model to the Indian market to attract new consumer groups. Although experts indicated that the concept could be a global hit, issues would arise. One of them is that Indians prefer readymade products or items made by carpenters (Deresky, 2017). The second challenge associated with the DIY strategy highlighted the tendency of Indian consumers to rely on shop attendants to guide them around the warehouse. Because IKEA does not employ shop assistants to serve as guides, the Indian consumer would find the company’s operational framework as a surprise. 

  The main advantage of using wholly-owned subsidiaries relates to ensuring that IKEA has complete control of activities such as standardization, operational control, and provision of perfect market entry (Deresky, 2017). The best way to adopt the wholly-owned subsidiary approach is in a situation in which the company can limit the threats associated with losing control over its critical concepts and core competencies (Goyat & Nain, 2016). A wholly-owned subsidiary strategy also ensures that IKEA has complete control over vital business practices such as logistics and marketing across the country to meet the stated business standards. Furthermore, the approach will allow IKEA to have full control over the profits.  

  The disadvantages associated with wholly-owned subsidiaries are diverse. Firstly, the strategy is linked to high operating costs and severe monetary risks (Goyat & Nain, 2016). Using the outlined approach, IKEA would have to bear the high risks and full operating costs of establishing its retail outlets, stores, factories, and warehouses in India. Secondly, a wholly-owned subsidiary would create numerous concerns linked with political and cultural challenges in a foreign market (Goyat & Nain, 2016). A foreign-owned subsidiary denotes an enterprise that did not develop progressively from the region it operates. In this regard, negative implications of cultural and political differences would emerge by IKEA’s entry into the Indian market. 

Question 3 

IKEA’s global strategy has driven its market share in the countries in which it operates. The case study indicates that the company’s portfolio and brand are similar everywhere across the globe. The basic strategy it employs strips down to identical, low-cost, and well-designed products (Deresky, 2017) in its stores situated worldwide, IKEA the traditional conventions of and approaches to furniture retailing. The modern global approach to IKEA’s furniture design involves gearing products to local tastes instead of the archetypal Swedish range of products. As a result, the business has managed to customize its furniture and store design across India in line with the local preferences and price sensitivity among consumers.  

With low-prices and high-quality products, IKEA has maintained its position as one of the furniture and furnishing giants globally. The company highlights that it strives to keep its product portfolio the same regarding quality. The philosophy is similar across markets in Europe and other regions such as India. IKEA’s production-oriented approach to conducting global business still upholds the founder’s clear vision of dedicated and low-cost product design and retail.  

Question 4 

  Gaining approval to enter the Indian market faced many cultural and bureaucratic challenges. Firstly, the case study indicates that Indians are known for their reliance on shop assistants to direct them through the store products (Deresky, 2017). IKEA, however, does not employ shop assistants but relies on a comprehensive and straightforward display to allow customers to see all the available items. Secondly, Indians lack interest in the DIY concept often used by the business in markets such as Sweden, France, and Germany. The DIY approach would face diverse challenges in India because of the people’s preference for personal customers as well as the purchase of finished merchandise.  

  Bureaucratic concerns also affected the immediate entry into the Indian market. Firstly, IKEA had to rely on politicos and bureaucrats to ensure that it acquired the best storage space in suburban areas. The reforms targeting foreign direct investment were also affected by the regime, requiring IKEA to consider discussions with the often corrupt political system. The company had the feeling that its anti-corruption policy would become a pivotal hindrance to its Indian growth. In reports documented by the World Bank’s Ease of Doing Business and the Transparency International Corruption Perceptions Index, India was ranked in the 132nd and 95th place, respectively. These rankings highlighted that IKEA could face numerous challenges with the country’s bureaucratic design.  

Question 5 

  Some of the challenges that the company could face in the process of establishing its range of stores in the new market include a bureaucratic political system and the high prices of the retail estate. The company also faces restrictions on foreign direct investments. Also, there is the challenge of the requirement to purchase supplies from the local market. IKEA’s future success in the Indian market would need partnering with some of the best industry players via acquisitions and mergers as well as acquiring supplies from local companies with a comprehensive understanding of India’s furniture market dynamics (Deresky, 2017).   

Besides, the company faced issues of cultural differences in various countries. As noted, most of the IKEA’s stores were equipped to serve the traditional Swedish food. But as the company went global, there was a need to incorporate varieties in the local cuisine. For example, the company’s restaurant in Austria offered soft drinks with free refill policy- a policy that was strange in the country. Such issues are an indication of the challenges for a company going global.   

Conclusion 

  IKEA was destined to perform impressively in the Indian market despite the numerous entry barriers it faced. The company had been successful in several other markets in Europe using its global strategy of low-cost but high-quality products. Useful market entry into the Indian market would mean consulting with the government about the approval of 100% FDI and ease of the real estate prices. The strategic partnership would reduce costs associated with activities such as marketing and purchase of raw materials.  

The company ensured that every necessary adjustment was made to match its growth and ambition. Besides, it demonstrated courage by making relevant changes. Such courageous steps involve overcoming the legal requirements, shifting production, and working with the local sources. Not every company can make such decisions in line with corporate goals.  Finally, IKEA is a massive brand with great understanding that global growth requires innovation and sacrifices. Therefore, the company is ready to listen and learn from the local environment. The company’s entry into the market involved a proper understanding of the needs and demands of the local people. As a result, once it entered the country, the company was able to make great strides towards success.  

References  

Deresky, H. (2017).    International management: Managing across borders and cultures . Pearson Education India. 

Goyat, S., & Nain, A. (2016). Strategies of entering in foreign market.    International Journal of Management Research and Reviews ,    6 (10), 1382.