A corporate strategy article by Thunderbird students Marquita Blanding, Ankush Brahmavar, Tim Clarke, Jennifer Garcia, Stephanie Sharma and Jason Teague
With approximately 500 million young adult consumers in India and an affluent growth rate of 13% equaling USD 203 billion, it would appear that Sweden-based IKEA can’t afford to delay its entrance into India any longer. A country that is accustomed to paying a higher price for the niceties that are afforded around the world, India has an educated, innovative, resource-rich base ready to ‘spend.’
In January 2012, the Indian government amended FDI restrictions to allow foreign companies to own 100% of their retail ventures in the country. This was a welcome change from the earlier ownership cap of 51%, as it paved the way for global retail chains like IKEA, Wal-Mart, and others to have full control of their Indian operations. But the market opening came with new restrictions that many retailers view as obstacles to its investment, including a requirement that foreign companies obtain at least 30% of their products from domestic small companies and cottage industries. In light of this rule, IKEA has expressed that local sourcing requirements were “concerning” and more easily met by food retailers such as Carrefour than a single-brand company like IKEA with global product ranges.