Established in 1943 in Sweden, IKEA has been popular for its low prices and innovatively modernised furniture. Its popularity has resulted in IKEA having a global presence with 374 stores in 30 countries including India. Contrary to public perception, IKEA has existed in India since the 1980s as a part of the INGKA group. India was a popular destination for export of cheap raw materials. India served as a low-cost sourcing destination for a wide range of products displayed in IKEA’s global stores. The decision to view India as a sales destination besides being a sourcing destination can be traced back to 2007. In 2007, IKEA had physically established an office in Gurgaon with the purpose of carrying out market research and engaging in lobbying activities with important stakeholders to expand the company’s operations. It worked with the Indian Bureaucracy to ease Foreign Direct Investment (FDI) regulations to enable its entry into India. IKEA’s efforts bore fruit as in the year 2012, the Government of India enabled 100% FDI in single-brand retail with certain conditions. Finally, IKEA opened its first Indian store in Hyderabad in August 2018.
The entry of IKEA into the Indian market has been positive for both the company and the host country. The positive for India from IKEA’s entry stems from the benefits they expect Indian customers to garner via IKEA’s business strategy. IKEA’s business strategy is a classic case of internationalisation and glocalization. Internationalisation, driven by reduction of trade and economic barriers, fosters innovation in host countries. Internationalization is crucial in the expansion plans of private firms in search of new markets. Glocalization, also known as ‘global-localisation’, refers to the strategy deployed by multinational companies to adapt to the host country by adopting local values and regulations.
IKEA’s international yet glocal business strategy follows a lucid template. IKEA uses replication as a key tactic for internationalisation. A standardised concept and range is implemented in all markets regardless of cultural differences. Simultaneously, adaption to the cultural differences in these markets happens in various ways. IKEA recognizing the challenge posed by India’s diversity treats each city in India as a country. It follows this up by carrying out a survey on the Indian way of living in homes spread across that city. IKEA’s aim for India has a behavioural dimension . It is attempting to change the way India shops for furniture. Indians hitherto, have bought custom-made furniture from neighbourhood carpenters or small retailers. Owing to this behaviour, the market share of unorganized furniture retailers accounts for 90 per cent of the Indian furniture market. The miniscule share of the organized furniture market vis-à-vis their unorganized counterparts shows the untapped potential for organized furniture retailers in the country. IKEA is attempting to tap into this potential by becoming the vehicle on which the Indian customer transitions to buying from the organized furniture market. IKEA has been directly working with 48 suppliers, 45,000 direct Co-workers and 4,00,000 indirect coworkers in the supply chain in India. It has focused on accessibility and affordability to attract customers in the country. According to a country marketing manager at IKEA Group, IKEA has planned to open 25 stores by 2025. It further aims to invest US$2 billion and capture over 20 percent of organised market share in coming years. IKEA’s optimism is not without good reason. The World Bank forecasts the organised furniture market in India to grow at 20 percent per annum in the upcoming years.
IKEA’s aims of changing Indian consumer behaviour are driven by five key tactics. The first among those is IKEA’s business model. IKEA entered the Indian market as a wholly owned subsidiary, unlike the franchising model that it follows in other global markets. IKEA was very certain that it did not want to have a joint venture or go by the mode of acquisition in India owing to India’s distinct socio-cultural and economic conditions.
Second, IKEA has made low pricing a key pillar of its market penetration plan. IKEA recognizes the sensitivity of Indian customers to price due to the relatively low per capita income of the populace. Therefore, IKEA has been selling their products at lower prices compared to their pricing practices in other parts of the world without compromising on product quality. As an example, around 1,000 items in their Hyderabad store are priced below Rs 200 (2 Euro) each, which Ikea hopes will open their doors to a wide spectrum of people. The third change is the focus of IKEA on Alternatives to the do-it-yourself (DIY) assembling models. IKEA realizes that the DIY assembling model isn’t suitable for Indians who prefer ready-made products. India’s relatively inexpensive labour costs further contribute to the lack of DIY culture. Because of this, IKEA has been looking for local-level assembling solutions. It has found an able ally in the form of Urban clap, an online platform that helps connect handymen with consumers. Fourth is the Customisation of IKEA’s offerings, as per local tastes. IKEA added more folding chairs and stools that would serve Indian family needs. It is selling beds with enhanced sizes as children sleep with their parents until elementary schooling. It has the reduced size of cabinets & countertops to match the height of Indian women. Fifth is the IKEA restaurant. IKEA offers a 1000-seater restaurant in Hyderabad so that visitors visiting the store spend more time. It is one of the largest restaurants in India with a wide range of offerings for tasting buds. Offerings range from affordable Swedish specialities like Salmon and Chicken to affordable local delicacies such as Biryani, Dal Makhani, Samosa.
IKEA’s glocalised approach with its walk-in stores and famed restaurants, selling a mixture of Indian favourites respecting social and cultural setup of the host country gives it an advantage over its rivals. In order to cement this advantage IKEA has also begun focusing on accessibility. IKEA feels that enhanced accessibility will enable it to tap into demographics not tapped into hitherto by their competitors. IKEA has focused on developing Local Distribution Centres (LDC). These LDC’s in geographically vast India will enable IKEA to improve its last mile connectivity. In this regard, IKEA has made its first investment of 20 crores in its Pune distribution centre. IKEA’s well reasoned business strategy has all the hallmarks of being a B2C blockbuster. IKEA has brought to India international quality with “desi” flavor. It aims to change the way Indians shop by making quality furniture accessible to all Indian across the country. It is now up to us to do our bit & loosen our wallets!
Amit Kumar and Devvrat Singh Shekhawat are professionals who are currently pursuing public policy at Willy Brandt school of public policy, Erfurt, Germany.