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EM-EEMC190124 1..9 IKEA Inc.: the India way Neetu Yadav O n an evening in late 2017, Juvencio Maeztu, the outgoing CEO of IKEA India who was moving to IKEA global headquarters in The Netherlands was looking out from the aircraft window and throwing back in 2012 when IKEA, the Swedish home furniture retailer had applied to the Indian Government to set up its stores in India. An IKEA store was yet to make a debut in India and was expected to open its first store in Hyderabad[1] in 2018 (a bit delay from the 2017 target), Maeztu was sceptical about the success of IKEA in a country where the furniture industry was highly fragmented, and the competitors were those nearby unorganized furniture retailers who were playing on low- cost. He sighed and thought about the success in the Chinese market where IKEA wasn’t just seen as a place to shop, but an experience, he was not sure how those success lessons of Chinese market would be helpful to thrive in Indian markets that seemed different from the Chinese market. As the aircraft was getting disappeared in the clouds, managing differences in emerging markets and succeed in the fragmented industry seemed major concerns to Maeztu. About IKEA IKEA, a Swedish company was founded in 1943 by Ingvar Kamprad, is the biggest furniture company in the world that sells ready-to-assemble furniture, kitchenware and home accessories, with around 422 stores worldwide, selling affordable household items to millions of customers in more than 50 countries ranging from Germany to France, Spain, Japan, USA, UK, China, Russia, Thailand, Egypt, Qatar, etc., and it has added 19 new stores in 2018 (IKEA, 2018). These stores are spread across the globe that are managed by the group itself or run by franchisees outside the group. IKEA’s vision is to “create a better everyday life for the many people”, and it’s business idea is “to offer a wide range of well- designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” (IKEA, 2018). IKEA has set up its own stores of production, distribution and retailing in more than 50 countries where it has determined to adapt to the local needs as well as sourcing the raw material from local suppliers. Other than setting its stores, there are 11 different groups of companies owned and operated IKEA stores under franchise agreements with Inter IKEA Systems B.V. IKEA in China The Swedish retailer opened its first store in China in 1998, when the Chinese middle class had just started to grow. IKEA had a tough time drawing Chinese customers, who considered the Nordic brand, a luxury that was out of their reach. To cater to the Chinese market, IKEA had lowered prices by half over the past decade and encouraged people to try out products and make themselves at home. The company had three stores in 2006, but the plan was to build ten stores by 2012. Compared to expansion elsewhere in the world, expansion in China had been fairly slow by IKEA standards – three stores in eight years – Neetu Yadav is based at the Birla Institute of Technology and Science, Pilani, India. Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision-making. The authors may have disguised names; financial and other recognizable information to protect confidentiality. DOI 10.1108/EEMCS-05-2019-0098 VOL. 10 NO. 1 2020, pp. 1-9,© Emerald Publishing Limited, ISSN 2045-0621 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 1 http://dx.doi.org/10.1108/EEMCS-05-2019-0098 but the company viewed it as successful. The company targeted the young middle-class population that was relative to higher incomes, was better educated and was more aware of western styles. Targeting this segment helped IKEA project itself as an aspirational western brand. There was a massive change in strategy, as IKEA was targeting the mass market in other parts of the world. IKEA also adjusted its store location strategy. In Europe and the USA, where most customers used personal vehicles, IKEA stores were usually located in the suburbs. In China, however, most customers used public transportation. So the company set up its outlets on the outskirts of cities which were connected by rail and metro networks. These efforts helped IKEA to expand in different parts of the country with 26 stores in China (IKEA, 2017). Indian furniture industry The Indian furniture industry is estimated to cross $27bn by 2022 on account of expanding working population base, rising number of household units, and increasing disposable income (TechSci Research, 2019). The growing awareness of modular designs of furniture, and changing customers’ lifestyle also aided to the growth of the industry. India’s indoor furniture market grew at a compound annual growth rate (CAGR) of 10.9 per cent between 2012 and 2017 and is forecasted to grow at a 3.8 per cent CAGR between 2017 and 2022, according to Euromonitor International (Govind, 2018). The organized sector comprised of large manufacturers as Godrej & Boyce Manufacturing Co. Ltd., BP Ergo, Featherlite, Haworth, Style Spa, Yantra, Renaissance, Millennium Lifestyles, Durian, Kian, Tangent, Zuari, PSL Modular Furniture, Furniturewala and Truzo that contributed only 15 per cent of volumes and these count not yet made a dent in India’s furniture and home furnishings business as approximately 85 per cent of those goods were sold through small shops (unorganized) that offered custom-built products and free assembly and delivery. A small emerging segment of online retailers such as Pepperfry, Urban Ladder, HomeLane and others were also contributing to the growth of organized furniture sector. The organized furniture retailers used different models as Godrej Interio, India’s top furniture brand in both home and institutional sectors continued to bet on expanding its retail network largely under the franchisee route for greater market penetration and traction, it ran company-owned stores as well (Rawat, 2018). Rapid urbanization in India, young working population setting up their first house, growth of realty sector boosted demand for modular furniture in urban areas. In Tier-I cities, furniture renting services were becoming very popular. However, tier-II and III cities relied on the local furniture stores for their requirements which provided free delivery and after-sales assembly services. The India way As per Bloomberg’s data, India is likely to have the world’s largest workforce by 2027, with a billion people aged between 15 and 64 (Sharma, 2017). GDP growth has been increasing continuously every quarter with growth of 7.7 per cent in the fourth quarter of 2017-2018 (ET Bureau, 2018). These facts assure that India is a promising economy with the largest young population. IKEA has been studying the Indian markets since 2006. However, it was 2012 when the Government allowed 100 per cent FDI in single-brand retailing and filed for approval to set up the stores in India. The journey has been quite a long as it sought approvals from the Foreign Investment Promotion Board in 2012, and it planned to open its first store in Hyderabad by the end of 2017. As IKEA typically targets a younger demographic, mainly those under 35, in the markets where it operates, India seemed to be a promising bet for it to enter. But did Indian buyers demand the same as his or her European and Chinese counterparts? Unlike European consumers who are used to functioning more independently, whether it comes to using self-service at the store PAGE 2 j EMERALD EMERGING MARKETS CASE STUDIES j VOL. 10 NO. 1 2020 or assembling their furniture because labour is scarce and expensive, labour is available more easily and at much lower cost in India, and Indians are not much comfortable in Do-it-yourself (DIY) type of assembling of furniture. The other challenges that Maeztu was facing were about the sourcing of raw material, government compliances on local sourcing, expansion plans, and the competition from local as well as online retailers. The other question was how to position its products in the Indian market, where customers were highly price-sensitive. Maeztu decided adoption of product localization and channel strategy in India from the Chinese market’s success story. IKEA also listed eight key trends that it expected would affect the company shortly including e-commerce, social media, multi-channel, growing demand from the middle class, sustainability, quality and low price and women in the workforce. Maeztu realized that although IKEA was a well-known brand as people who might have travelled abroad were able to understand IKEA. However, it was required to create brand awareness, brand liking, and giving a strong reason for the customers to visit the store. Product localization was one key, where it has decided to introduce tawa pans, rice bowls, idli makers, and kadai, exclusively for Indian markets as Indians cook differently from their counterparts. Likewise, many other products from the global portfolio were decided to be sold at a lower price in India. It was also struggling with meeting the compliance of 30 per cent of the production value of sold goods should be sourced from within India, and five years of the initial investment. As per Antoni, country manager IKEA, “Over time IKEA wants to source more than 30 per cent to reach the affordability goals and to be profitable, but to set up new, big scale industrial suppliers following the IKEA IWAY conditions, our code of conduct when it comes to working conditions, social and environmental responsibility, takes time” (Forbes, 2015). To boost “Make more in India”, it had started searching for new suppliers in categories such as sofas and mattresses, which India has not previously been a source of – in addition to sustainable materials including bamboo, acacia, mango, jute, and coconut fibres. The FDI in e-commerce laws have also forbidden IKEA from selling its products online in the country, despite an e-commerce boom and a market of 213 million mobile internet users, so reaching to the vast population in one particular city with one store seemed a big challenge (Forbes, 2015). The localization was not only decided in the products but also in the menu that would be served at Hyderabad 1000-seater restaurant (attached to its stores), popular meatballs would be on the menu, but contain only chicken. The plans were to offer a mix of Swedish and local cuisines (Biryani and samosas were on the menu). “There will be something for everyone, and the focus is on healthy and sustainable food and beverages”, said Henrik Osterstrom, country food manager for India (Forbes, 2015). “One size does not fit all”, not even in different cities in India because the requirements of one city were different from others. The one store in Hyderabad, for instance, could present products differently (and also offer different products) from the one in Mumbai because average home sizes in the two cities are