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Swedish owned IKEA: the introduction of another global giant within India

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IKEA

IKEA the home-furnishings company are to open 25 stores across India. The Swedish company had initially been set back by India’s foreign investment agency, the foreign investment promotion board (FIPB), and after putting forward an appeal to their proposal, the company was given access to the Indian market which they have been trying to enter for years. Currently IKEA are present in 40 countries with 338 stores. It is owned by the richest man in Sweden, Ingvar Kamprad, who started the company when he was just 17 in the year 1943. IKEA will be approximately investing Rs 10,500 crore (€1.5 billion – euros).

IKEA are also known in India for the ‘IKEA Foundation’ which has partnered up with UNICEF in India. “For more than ten years, UNICEF has partnered with the IKEA Foundation to deliver tangible results for millions of children and women in India.  By the end of 2012, funding from the IKEA Foundation will have enabled UNICEF to help over 74 million children in India create a better future for themselves and their families.”

The delay for IKEA stores to enter the Indian market has been that the Indian Foreign investment board (and The Department of Industrial Policy and Promotion in India) November 2012 had cleared the IKEA proposal to operate in India, yet however put restrictions on IKEA selling only furniture and not products it does not brand such as office supplies, food and beverages, textiles, books and a cafeteria. IKEA sells these products all around the world without any restrictions and may have found this restricted proposal unusual. They appealed to the board with a re-submission of their proposal.

India soon accepted the proposal due to changes in their Foreign Investment Law which has been amended to counter the slowing economy, Juvencio Maeztu, IKEA country manager said of the accepted proposal and new venture in India “We consider this as a very positive development.”

“After FIPB’s clearance, the proposal will have to be finally approved by the Cabinet Committee on Economic Affairs (CCEA) as the board can clear investment applications worth up to Rs 1,200 crore only.” Source: economictimes.indiatimes.com

IKEA still had concerns about going through with the proposal even though they were being given a 100% subsidiary (ownership was previously capped at 51%) as India had a 30% sourcing clause, the government however relaxed the mandatory 30 per cent sourcing clause in September to attract more foreign investment and keep the economy growing. The final proposal which went through was sent by IKEA in November 2012.

The argument on the other side of IKEA being good for the Indian economy is that it could damage the income of farmers and local businesses who do not have the means to compete with the global giant IKEA. The Swedish company are also a cause of concern as they may make workers work unfair amounts of hours, as the story goes, and with little pay, this remains to be seen, the rumours have stemmed from other stories that IKEA is an unfair company in many aspects, including their charity work (they are seen as not giving even a little amount of the massive profit they total).

IKEA2012

The Indian venture is not the only development on IKEA‘s global strategy, in August 2012, they announced the plan to open 100 hotels in Europe, which will be operated by a group of anonymous hoteliers, and the hotels will not carry the IKEA name. IKEA also have a few hotels in Scandinavia bearing the IKEA name.

IKEAFoundationSmall

IKEA have a campaign every holiday season, since 2003, which has seen IKEA selling soft toys, the funds from these sales have gone to helping children all over the world in 40 countries. “To help educate children around the world – already helping 8 million children with over 35.2 million EUROS raised.”

“These funds support UNICEF and Save the Children projects aimed at creating child-friendly schools with well-trained teachers for all children, girls and boys, including those from ethnic minorities and those with special needs.” IKEA have 338 stores in total around the world in 40 countries.

IKEA have a sustainability policy which involves taking care of people and the planet a recent example of this is “a plan to install solar panel arrays on 150 stores. They also use geo-exchange heating and cooling systems on several stores to reduce energy consumption.”Source: http://www.buildingmygreenlife.com/is-ikea-sustainable/

IKEA have made a statement on their policy and also a list of 77 improvements they have made to be more sustainable:

We have decided to help create a world where we take better care of the environment, the earth’s resources, and each other. We know that sometimes we are part of the problem. So, we are working hard to become a part of the solution. We are weighing the pros and cons, continually examining and changing things. All these steps, in lots and lots of areas, add up to something big … and noticeable. The job has already started, and it is a never-ending one.

The list of improvements can be found on this link:

http://www.ikea.com/ms/en_US/about_ikea/our_responsibility/the_never_ending_list/index.html

This decision by India to allow foreign investors in the form of multi-branding superstores is certainly a first and announcements have been made by Commerce and Industry Minister, Anand Sharma, that the Indian government will see them through their entry into India with clarity and assurance on the Indian policy of Foreign Direct Investment. Whether the country will move in a new direction with this policy and whether it works is what the government will be hoping for.

Additional Information & Links:

Walmart is a US superstore already within India although it is under investigation for corruption. Walmart entered a 50:50 joint venture with Bharti Enterprise.

Tesco’s is set to enter the Indian market too.

IKEA may see legal battles in India due to copycat companies who have used the IKEA name, of which there are three. “There is IKEA Home Decor Private Limited, which carves out a living by making and selling furniture in India. Then, there is IKEA Constructions and IKEA Furniture Private Limited.” Source: blogs.wsj.com

“Thanks to IKEA’s dedicated co-workers and customers, 100 million children will benefit from our currently funded programmes by 2015. In 2011 alone, we:

  • donated €65 million
  • supported 15 partners with 47 grants benefitting children in 33 countries
  • raised €12.4 million through our Soft Toys for Education campaign for UNICEF and Save the Children.”

http://www.ikeafoundation.org/About-Us

IKEA is the 3rd largest consumer of wood in the world.

To view IKEA’s different advertising campaigns in different countries follow this link: http://adhibition.tumblr.com/post/17950628838/ikeas-internationalization-advertising-in-different-coun

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