Business Model and Competitive Strategy of IKEA in India

Case Code: BSTR445 Case Length: 16 Pages Period: 2010-2013 Pub Date: 2014 Teaching Note: Available

Price: Rs.400 Organization: IKEA Industry: Furniture, Retail Countries: India: Europe Themes: Competitive Strategy, Business Model, Internationalization, International Management

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

Corporate Structure

IKEA was structured in such a way as to prevent any kind of takeover of the company and to protect the Kamprad family from taxes. Though Kamprad was the founder, he did not technically own IKEA. He wanted an ownership structure that stood for independence, long-term approach, and continuity. Therefore in 1982, Kamprad created Stichting INGKA Foundation, a non-profit organization registered in Leiden in the Netherlands. In 1984, Kamprad transferred 100% of IKEA equity as an irrevocable gift to the Foundation. IKEA was privately held by this Foundation. Its purpose was to hold shares, reinvest in the IKEA Group, and to fund charity through it...

Going Global

In 1943, after founding IKEA, Kamprad increased his product range to include pens, wallets, picture frames, table runners, watches, and jewelry and nylon stockings at reduced prices. He initially made individual sales calls to sell the merchandise. When his business grew, he advertised in local newspapers and operated via the mail-order service using the local milk van to deliver the products to his customers. In 1948, he introduced furniture into the IKEA range. The furniture was made by local manufacturers closr to his home. The furniture met with good response and Kamprad decided to expand his range ...

Manufacturing And Other Initiatives

Unlike the traditional retail stores where the customer could directly go to the needed section, IKEA encouraged its customers to go through its store in its entirety. Therefore, its stores were designed in a one-way layout in the anti-clockwise direction. Most of the IKEA stores were very large buildings decorated in blue and yellow patterns. However, the newer stores used more of glass for functional and aesthetic purposes – to give a better impression of the product and a better look to the store, and to use more of natural light to reduce energy costs. The stores required customers to first go through the display making note of the required items, then proceed to the open shelves to make smaller purchases, and then go to the self serve warehouse to collect the previously noted products...

Global Furniture Industry

The global furniture industry had changed over the years. It was not restricted to the making of chairs, tables and beds, but had expanded into the production of a wide range of furniture, furnishings, and designed interiors which spelt style and elegance. With the world economy developing at a faster rate since the beginning of the new millennium, the furniture industry had witnessed a boom with new markets opening up. While every country had a unique style in its furniture design and usage, the globalization, increasing migration, changing lifestyles, and disposable incomes all contributed to the increased demand for stylish and quality furniture and, in turn , to the growth of the furniture industry...

Furniture Industry In India

India was home to rich traditional handicrafts and artistic work of wood. Indian art and design had earned a worldwide reputation for themselves. The supreme quality, exceptional designs, and luxurious trends lent elegance to the Indian furniture segment. However, with the passage of time, the preferences of the Indian consumer had changed and the furniture industry too had changed to suit the consumer needs. The industry produced a wide range of products related to office, living room, bedroom, kitchen, garden, school furniture, and also mattresses, furnishings, upholstery, parts of furniture, etc., using a wide variety of raw materials like wood, rattan, steel, plastic, and metal and more recently silver...

Ikea's Entry Into India

Retailing accounted for 14% of India's GDP. The industry consisted mostly of small shops with organized retail stores accounting for only 4% of the industry. After liberalization in the 1990s, many foreign companies had set their sights on the Indian market. However, till 2011, FDI in multi-brand retail was forbidden by the Indian government and FDI in single-brand retail was permitted only up to 51%. In November 2011, the FDI reforms were announced but due to opposition from different political parties and activists...

Overcoming Regulatory And Political Roadblocks

In July 2012, IKEA sought a 10-year window (instead of one year) to comply with the sourcing rules. IKEA also expressed concerns that if it procured from MSMEs (firms with a total investment less than US$ 1 million), they would soon grow and become large setups. Then the company would have to find other MSMEs, which would affect its product quality and supply chain setup. There were speculations in the media that the sourcing clause might be relaxed...

Woking With Suppliers

After the company got the approval to set up its stores in India, an IKEA spokeswoman Ylva Magnusson said, "It will be another four to five years before Indians can purchase the company's iconic flat-pack furniture." IKEA's planned investment was till then the largest by a foreign retailer in India. IKEA's spokesperson, Josefin Thorell, said, "The Swedish retailer's presence in India will, in a major way, help improve availability of high quality, low-price products, increase sourcing of goods from India and increase the competitiveness of Indian enterprise through access to global designs, technologies, skill development, and global best practices."...

Challenges

IKEA lobbied hard with the Indian politicos and bureaucrats to overcome the initial hurdles and obtained permission to open its stores in the country with its global model intact. However, this was only one part of the problem; the company was expected to face more challenges after its entry. A major challenge for the company in establishing its stores was the availability of retail space and its cost. IKEA stores in India were unlikely to be smaller than 350,000 square feet. Some of its biggest stores around the world had an area of 606,000 square feet...

Looking Ahead

According to retail consultancy, Technopak Advisors, the highly fragmented Indian furniture market was expected to grow from US$10 billion in 2009 to US$15 billion by 2014. But, the working of IKEA’s core concept, the DIY model, in India remained a question. However, IKEA still felt that its prospects were bright in the country and that it was ready to tweak its model to win over the Indian consumers. It was tweaking its product range and showrooms and adding services to accommodate a new culture. In places where people lived in smaller rooms, it modeled its showrooms smaller. Ohlsson said, “Most people don't really know and can hardly imagine that we visit thousands of homes round every store in the world every year. We sit down in the kitchen and talk to them ...

Exhibits

Exhibit I: IKEA's Revenue Growth (2001–2012)
Exhibit II:IKEA's Consolidated Income Statement (2008-2012)
Exhibit III: IKEA's Corporate Structure
Exhibit IV: Top 10 Furniture Companies in India

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