beyondbrics

Coming to India

There will be haggling for every last Daim bar and the meatballs will be doused in chutney. There will be queues of people complaining that their furniture has arrived unassembled. And a whole new professional class will emerge – the DIY-wallas.

After months of discussions, on its second attempt, Ikea has received approval from India’s foreign investment board to open fully-stocked stores in the country.

Ikea has been adamant that it wants to bring its entire global concept to India, including a full range of products and in-store cafes. But when the company first put in a proposal two months ago, the foreign investment board had restricted the product range, opposing Ikea’s trademark in-store cafes in particular. With the resubmitted proposal approved on Monday, Ikea faces just one final hurdle – clearance from the cabinet.

After the Indian government liberalised retail FDI this September, allowing foreign retailers to own 100 per cent of Indian subsidiaries, Ikea has been the biggest name to act on the policy. The Swedish retailer plans to invest €1.5bn ($2bn) in India opening around 25 stores, the first of which is due five years after full government approval.

Anand Sharma, union minister of commerce, industry and textiles, labelled Monday’s news “a positive development”, adding: “The Government is committed to play a constructive role in encouraging FDI specially in areas which create jobs and provide technological advancement.”

Ikea’s interest in India is understandable if you look at the company’s most recent financial statement. For the year ended in in March 2011, Ikea recorded its highest sales growth in the emerging markets of Russia, China and Poland. Total sales were up 6.9 per cent to €24.7bn ($33bn), and net income grew 10.3 per cent from €2.69bn to €2.97bn.

The same financial report also illustrates the scale of Ikea’s planned investment in India. In the year ending in March 2011, Ikea’s global investment in new and existing stores was just €1.4bn ($1.9bn). That year seven new stores were opened, bringing Ikea’s international total to 287.

“At least investors can be convinced”, Anubhuti Sahay, an economist at Standard Chartered, told beyondbrics. “Ikea announced [the company's proposal to enter India] a long time ago and it ran into issues, so at least now we know there will be no rollback of the government’s policy.”

Whatever the broader significance of this deal, Ikea should sell in India because there is no obivous direct competitor in this market – and more importantly, many Indians have taken to foreign brands.

Related reading:
Ikea in India: No soup for you! beyondbrics
Ikea shelves Indian retail market move, FT