Ikea’s strategy in India: A critical evaluation

Running Head: Strategy of IKEA in India
Ikea’s strategy in India
A critical evaluation
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Running Head: Strategy of IKEA in India
Globalization is a driving factor with a set of global trends that define international business
in a foreign territory. This always keeps into thought efficient strategy for decision making at
management level for attaining highest results. When global economy creates the business
horizon then business is influenced by several features and these are trends of FDI which
attracts foreign business in another land or territory other than the home country of the
foundation of the business (Hill et al. 2014). Moreover, FDI trends have been mentioned in
this discussion along with the cause of business motivation that has driven IKEA to select
this country for business operation. Through this work of essay, the stands of IKEA
pertaining to strategic management for business operation in the country has been discussed
and analyzed.
Strategies and international management hold adequate knowledge that can help a firm which
thinks of better strategic implementation (Freeman 2010). Without strategies, firms cannot
succeed and for a firm e.g. IKEA, international management related knowledge can be
helpful to ensure better internationalization for successful business operation in India. The
strategy is often termed as a part of overall planning which supports in accomplishing short
term and long term business goals (Freeman 2010). International management denotes
management operation for business when more than one country is considered for the
business operation. As per the opinion of Hitt, Ireland and Hoskisson (2012) international
management involves business functions beyond the border of own country and
implementation of efficiency and skills to manage a business in the foreign territories.
IKEA is a multinational firm based in Sweden known for its assembled furniture and ready to
sales proposition in several markets across the world. The company was founded in Sweden
in the year 1943.
Vision - the vision of the firm is to make everyday life better for many people.
Mission - to offer affordability in terms of a large range of better designed home furniture at
low prices for all segment of customers.
IKEA’S strategy for market entry in India ensued with understanding markets in India,
planning for products arrangement for ensuring acceptance among people across regional and
domestic spectrums (Robson 2015). IKEA opened its first store in India’s Hyderabad city
with an investment worth Rs 1000 Crore. It has 950 directs and 1500 indirect workers for its
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Running Head: Strategy of IKEA in India
store related work. Near about 7500 products are offered by IKEA in its store in Hyderabad.
Twenty percent of products of the firm in India are locally sourced.
IKEA business model
Figure - IKEA business model
(Source- http://supplierportal.ikea.com)
The business model of IKEA as shown above persists in its arrangement of keeping suppliers
and customers close to business as well as coordination among volumes and prices. In
process offers of the firm are directed towards customers and production. Offers towards
needs among customers include several variants e.g. real life conditions, real need in life at
home, real choices, real space and real wallet. On measures of production, offers are arranged
based on materials, suppliers, industries, technicalities, combinations and volume of offers
and lastly, unknown and known proposition (Freeman 2010).
Lowest prices for customers are a prerequisite which has low cost requirement for
accomplishment. In due course, sales go up in volumes and profits become achievable.
Therefore, business of IKEA is always keen to apply the model to maximize the potency of
low cost-low price strength to achieve big volume of sales with higher return with adequate
attention on actual needs’ fulfilment of customers. With increase in volume of business and
profits, suppliers of IKEA also remain benefitted.
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Running Head: Strategy of IKEA in India
The move of internationalization is backed by some motives. In India reasons of FDI are
motivated by several factors e.g. diversified resources, better conditions in markets,
availability of skilled manpower (Hill et al. 2014). The move of internationalization by IKEA
in India is driven by some perceived benefits which are huge markets, abundant resources,
and efficient labors. The nature of FDI by IKEA in India is Greenfield investments which
helped the firm to start a new venture to support new operational facilities by involving
newly recruited people (Robson 2015).
India’s emerging rate of disposable earnings and consumer class and a mere 15% organized
furniture segment seemed to be a lucrative market to the global brand. However apart from
the possible political hindrances present in the sub-continent, India’s FDI policy posed as the
crucial barrier to IKEA’S entry. The brand could get approval of 100% FDI only with a
clause of local sourcing of goods to an extent of 30% in 2012 which posed as a serious issue
and IKEA sought the time frame of the market entry compliance from 5 year to a 10 year
window (FIPB clears IKEA's FDI proposal, 2018). The brand was also disallowed initially to
operate in-store beverage and food outlets, which could have lead to the alteration of the
brand’s business model affecting its end-user experience. The brand finally convinced the
successive governments thereafter till date about its presence in the fringes of the city citing
the necessity of the in-store food outlets with an assurance of inclusion of the local retailers
and vendors. The brand had to struggle from 2012-2018 with the norms of FDI and
eventually with the recent relaxation of the norms that suggested incremental local sourcing
of a single brand for the first five years for international operations in opposition to
compulsory 30% local sourcing followed by meeting the yearly norms of sourcing thereafter,
IKEA set sail in India quite significantly (FIPB clears IKEA's FDI proposal, 2018). The
brand has also agreed to strategise its operations in compliance with the amended regulations
of retailing in a single brand with a conditional clause of maintaining twin entities in the form
of a local retailing unit having foreign investment and a sourcing unit in the subcontinent.
IKEA adopted some strategies to achieve competitive advantages and these are operational
effectiveness approach, positioning approach and resource-based approach. The firm has
focused on the main ground for building competitive advantages and that was an evaluation
of present situation related to competitors in markets, operative efficiency and rarity of
resources within the firm (Schot and Geels 2008). In perspective of the firm related to
business in India, lean production and business excellence are the approaches used by IKEA.
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