Six reasons why Ikea is a big deal

Its journey into India is a case study for reasons that have nothing to do with the furniture it is famous for

The journey from St Petersburg to New Delhi and then to Hyderabad has been long for the Scandinavian furnishing major Ikea. Founded in Almhulty (Sweden) and currently headquartered in Leiden (Netherlands), Ikea has taken six years from the time it announced its ^1.5 billion investment in India to setting up its first country store in Hyderabad. As the chain with more than 400 stores across 29-odd countries prepares to roll out the first outlet in India next week, its journey looks like a text book case study for at least six reasons, which have nothing to do with the furniture that it is famous for.

First, the way it took off was different. It was a destination announcement of a blockbuster FDI at that point. Then Ikea CEO and president Mikael Ohlsson met then commerce minister Anand Sharma at the St Petersburg International Economic Forum on June 22, 2012. In a few hours Ikea’s proposal to enter India had turned almost viral across the global media. There were many multinationals networking with ministers and bureaucrats in that Russian event, but Ikea took the thunder away by making a comment on the sideline of the summit that it was committed to invest ^1.5 billion in India.

That leads us to the second reason why the Ikea proposal stood out. It was the largest FDI in single-brand retail in India. So far single-brand had not made a place for itself while multi-brand retail hogged the limelight. Walmart was all that India was bothered about then and everything that the American retail giant did made news. After Ikea’s FDI commitment, things changed. The most important change was that single brand became fashionable. Literally so, because the next biggest single-brand FDI came from a fashion brand H&M. But even six years after Ikea’s announcement, it remains the single largest FDI in single brand retail.

The third reason why Ikea is remembered is how it was able to work its way to do business in India. The single brand retail FDI policy at that point had put a condition that at least 30 per cent of the sourcing of products had to be mandatorily from Indian small and medium enterprises if the foreign investment was 51 per cent or more in a venture. In this case, Ikea was putting in 100 per cent FDI and it was clear that it wouldn’t enter India if the sourcing condition wasn’t changed. Through discussion and persuasion, the FDI condition was changed under the UPA rule. It was a minor tweak and easy for people to miss. "Mandatory" was changed to "preferably" for MSME sourcing; however, one still had to source 30 per cent from India.

Subsequently, there were other changes too in the single-brand rules including revising the timeframe from when the 30 per cent sourcing would kick in. Even price-labeling rules were relaxed as Ikea and some others had wanted. And that’s the fourth point about how this chain got to do business on its own terms straddling smoothly through UPA and then NDA rule without getting caught in any controversy or political crossfire. It managed to do what an Apple or a Walmart was not able to. Nobody really mentioned ''lobbying'', a dirty word in the Indian context.

Linked to its way of doing business is a Scandinavian sort of patience. And that’s the fifth reason that Ikea can be a case study. It waited for six years, from 2012 to 2018, to open its first store in the country. When its top executives were asked earlier about when the first store would come up, they simply said there’s no hurry and there’s no deadline. They could wait for five years, 10 years, 15 years or whatever it takes. The group believes in buying land cheap as its products are inexpensive. It also ensures there’s easy access to public transport before selecting a piece of land for its stores. That explains the wait, and Ikea is not exactly calling it a long wait.

The sixth reason why Ikea is different from many other FDI proposals is the noise around its restaurant business. The speculation over whether it would sell its signature meatballs or not in India kept it in the news for long. Now we know that meatballs will be there, but of a different kind. And there’s Hyderabadi biryani too. Restaurants are an integral part of Ikea stores as families usually go for day-long outings there, as the group likes to put it. It does make good business sense though — its overall turnover from restaurants and bistros is around ^1.8 billion.