IKEA's Delayed Entry, Strategy, and Challenges in the Indian Market

This report provides an analysis of IKEA's globalization drivers and its delayed entry into the Indian market. It examines the key factors such as GDP growth, foreign direct investment, international trade, social media influence, and technological developments that made India an attractive market for IKEA. The report also discusses the barriers that contributed to the delayed entry, including high capital requirements, knowledge of the local market, and legal frameworks. Furthermore, it outlines IKEA's market entry strategy, including a PESTEL analysis of the Indian market, and evaluates the advantages and disadvantages of adopting a wholly-owned subsidiary route. Finally, the report highlights the bureaucratic and political challenges faced by IKEA in gaining approval to enter India, and offers recommendations for IKEA if it were to consider entering similar or different markets.

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Contents
Introduction......................................................................................................................................3
LO1 Analyse and discuss the drivers of globalization for IKEA and the reasons for its delayed
entry into the Indian market.............................................................................................................3
LO2 Discuss IKEA’s market entry strategy for the Indian market and set out the advantages and
disadvantages of adopting the wholly-owned subsidiary route for entering the market.................5
LO3 Conclusion...............................................................................................................................7
a. Outline the bureaucratic and political challenges faced by IKEA while gaining approval to
enter India, and how these were overcome?....................................................................................7
b. Set out recommendations if IKEA was to consider entering similar or different markets......8
References:......................................................................................................................................8

Introduction
IKEA is Sweden based multinational organization that basically deals with designing and selling
of ready-to-assemble furniture, kitchen appliances and home accessories. IKEA has been the
world’s largest furniture retailer since the year 2008. IKEA was founded by seventeen year old
Ingvard Kamprad in the year 1943 in Sweden with the money that he got from his father. He
actually used the money given by his father to start a local catalog selling household goods and
that was actually the beginning of IKEA. This small venture by Ingvard was a success and then
he decided to sell furniture at a low price. Due to the good work, Ingvard made a name for
himself for being trustworthy, dependable and selling good quality furniture at a low price. In the
year 1965, Ingvard opened one of the biggest stores of Sweden with people waiting and lined up
outside the door for the store to be opened. Ingvard actually was very successful and expanded
his business globally and in the year 1985 he entered the United States market in Pennsylvania.
LO1 Analyse and discuss the drivers of globalization for IKEA and the reasons for its
delayed entry into the Indian market
India is one of the developing countries and is making tremendous developments in every sector.
it would be great for IKEA to enter the Indian market. India provides IKEA a great opportunity
to flourish. India is one of the largest democracies in the world and has the second largest
population. The only problem with such a huge population is the distribution of income that
ranges from higher class to middle class to the lower middle class whose earnings are very less
and likely to be around one dollar per day (Paul and Bhakar, 2018). The furniture industry in
India consists of .05% of its GDP and this is another reason why IKEA can have a great success
ratio in the Indian market let us discuss the drivers of globalization for IKEA in the Indian
market.
 GDP: India has a rapid growth rate in GDP which provides a great opportunity for
Foreign Direct Investment (FDI). The furniture industry in India consists of .05% of the
country’s GDP. Thus India’s current GDP is one of the key drivers of globalization for
IKEA in India.

 Foreign Direct Investment: FDI is one of the major sources of economic development
for any country. The same is the case for India too. There are great opportunities for FDI
in India. The main reason behind the huge foreign investment is the availability of cheap
labor and cheap wages and changing business environment in India. Different
multinationals and private sectors want to invest in the Indian Market because of cheap
labor and cheap wages opportunities (Dunbar, 2018). With the use of their modern and
efficient technology and India’s cheap labor these multinationals can flourish and have a
great future in the Indian market. The Indian government promotes and welcomes
Foreign Direct Investment as it helps boost the economy of India. The government of
India in the year 2014 launched the campaign “ Make in India” to promote Foreign
Domestic Investment and since the launch of the “Make in India” campaign Foreign
Domestic Investment has increased in India by 48%. In the year 2015 India became the
top destination for foreign direct investments.
 International Trade: for any new organization to enter the Indian market there should
be less barriers or roadblocks to the entry of these organizations to the Indian market for a
better and more efficient trade and there should be more competition between different
multinational organizations to enter the Indian market and flourish.
 Social media influence and networking: social media in the past few years has strongly
affected the Indian market. The use of facebook, twitter, instagram, youtube etc has had a
great deal of impact on the Indian youth and the process of marketing in India (Sholeh et
al., 2018). With the use of networking tools like LinkedIn people from India can easily
connect and communicate with any person all over the world on a professional level.
Today, approximately 70% of the Indian youth uses facebook and twitter and so it is easy
for any organization to communicate with them on such platforms and these platforms
also help in marketing processes.
 Technological developments: it is important for a country to be technologically
advanced before encouraging foreign domestic investments. Before entering the Indian
market, IKEA needs to make sure that India is technologically advanced in the field of
transportation, electronics and bioengineering.
After discussing and analyzing the different drivers of globalization for IKEA in the Indian
market now let us analyze why the entry of IKEA into the Indian market was delayed. The

reason for IKEA’s delayed entry in the Indian market is because of the barriers that companies
face while entering a new market. IKEA too faced some of such barriers which became the
reason for its delay into the Indian market. Let us analyze the barriers. While talking about the
Indian furniture market the following barriers can be the reason for the delayed entry:
 High Capital requirements: large capitals are needed t set up a furniture business in
India and for this the company needs investors.
 Knowledge of the local market and experience: it takes time for any foreign company
to have good knowledge of the local market and in this case the local people favour local
businesses instead of the foreign companies. It took IKEA time to figure out the market
and understand the market thoroughly and acted as one of the reasons for its delayed
entry in the Indian market (Kurniawan and Christiananta, 2018).
 Legal framework and Licensing: proper understanding of the local laws and regulations
takes time. The furniture industry in India does not have much of a legal aspect to it for
the local business but when foreign organizations enter the Indian market they have a
proper set of laws that they have to go through along with a lot of paper works and other
legalities. Licensing also takes some time.
LO2 Discuss IKEA’s market entry strategy for the Indian market and set out the
advantages and disadvantages of adopting the wholly-owned subsidiary route for entering
the market
IKEA’s market entry strategy for the Indian market includes PESTEL analysis of the Indian
market before IKEA’s entry in the Indian market. PESTEL analysis is basically an analysis of
the external macro-environment of the country where the business is going to be operated. It is
very important for a business to go for a PESTEL analysis as a part of the marketing strategy
before entering the Indian market or any new market. PESTEL stands for Political, Economic,
Social, Technological, Legal and Environment factors important for any business to set up. So let
us have an analysis of the Indian market.
Political: India has a more or less stable political environment. The government of India
welcomes all kind of foreign investment. To encourage foreign investment, the government of
India has come up with different innovative campaigns like “Make in India”. The government is

supportive of a multinational like IKEA’s entry into the Indian market (Adjei et al., 2018). India
has a very enhanced tax structure and privatization reduces the influence of the government and
political interference in the private sector which helps increase the productivity. After the
reforms of 1991, the Indian government has loosened its grip on most of the industries which has
helped them grow.
Economy: India is a developing economy. The government of India encouraging FDI has
resulted in the development of the Indian economy. The Indian economy is witnessing huge
growth in the retail sector. Around 60% consumers are open to trying new products and services.
The furniture industry of India is a sector that brings lot of money and generates revenue for the
government.
Social: social factors like demography of the country, culture, literacy rates, values, beliefs are
important aspects of the social factors that are important to be analysed before entering a new
market. India has a huge population and so the target audience for the business has to be selected
wisely after keeping all the social factors in mind (Ridwan and Poespowidjojo, 2018).
Technological: technological advancements are the key to success for any business. It is to be
made sure that before entering the new market that the country is technologically advanced.
Technology has made our life much easier. Online shopping, online payment are all features of
technology that have made life easier and helps the growth of any industry.
Environmental: these include the weather and the climate. The change in climate is an aspect
that can influence the furniture industry.
Legal: the legal environment in which the business will operate has to be analysed. All the local
rules and regulations have to be abided by IKEA while entering the Indian market.
Advantages of adapting the wholly-owned subsidiary
The most essential advantage is the operational and strategic control that a parent organization
can practice over its subsidiaries. The level of control is probably going to be higher for the
initial couple of periods of a backup's activity. In any case, the level is probably going to be
brought down for a procured backup with a fruitful working history (Amber et al., 2018).

Disadvantages of adapting the wholly-owned subsidiary
It is an expensive undertaking. Establishing relationship between suppliers and customers is time
taking but acquisition of a local company with built-in networks will speed up the entire process.
LO3 Conclusion
a. Outline the bureaucratic and political challenges faced by IKEA while gaining
approval to enter India, and how these were overcome?
The bureaucracy of India is a complex one. The level of corruption in India is very high.
For any work to be done, a particular document is passes through different levels of a
government organization. The country is ruled by bureaucrats and every one of them has
a different mindset. It is tough to please and satisfy everyone.
The literacy level of India is increasing but India is not fully a literate country. Most of
the population that works as labor and trade unions are illiterate and are badly involved in
party politics. They do not know how important work is and go for strikes on simple
reasons for fulfillment of their demands. This affects the industry badly.
The government of India under the leadership of Honorable Prime Minister Shri
Narendra Modi has come up with the Make in India movement which encourages
production in India rather than importing of goods from different foreign countries.
Because of availability of cheap labor and low wages many new start-ups have come up
in India in the past few years. With efficient use of technology and cheap labor, these
start-ups have been performing really well in India (Depietri and McPhearson, 2018). All
these start-ups pose a political challenge to IKEA to enter India. The ruling government
of India Bhartiya Janta Party encourages FDI because it develops the country’s economy
but they are more supportive of local home grown companies and star-ups that provide
same type of goods and services that foreign companies provide that too at a very low
price. The working of the Indian government is not that fast when compared to that of

foreign countries. So it takes time for different legalities and formalities. India has a
stable political environment. The important factors that affect the political factors and
pose challenges to the entry of IKEA in India are:
Taxation policies
Privatization and
Deregulation
All the above mentioned bureaucratic and political challenges are faced by IKEA before
entering the Indian market.
b. Set out recommendations if IKEA was to consider entering similar or different
markets
It is a well known fact in the international market that IKAE has a habit of doing
mistakes first and then learning from them. So it is very necessary for IKEA before
entering a new market to do the required homework. It is useless to ponder on a mistake
after committing it. Proper analysis of the market is to be done to avoid them. It took a lot
of time for IKEA to enter the Indian market and if it doesn’t learn from its mistakes and
skips the required research and homework it will again do the same mistakes while
entering any similar market or a different market (Yang and Chang, 2018). In order to
avoid these challenges IKEA has to make sure to recruit local individuals for the Indian
market and train them efficiently to deal with all the above mentioned challenges. Hiring
individuals from the foreign market will not help IKEA in dealing with the challenges.
The local people are well aware of all the political challenges that the nation can present
and they will be the best ones to resolve them

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