The Swedish group IKEA, the world’s leading manufacturer and retailer of furniture asked for India’s government approval of their proposal to invest an estimated amount of €1.5 billion or $1.9 billion worth of business by establishing about 25 stores around the country in the next years.
IKEA’s business venture sparked a brand new hope for the policy makers of New Delhi who have been trying to win back the confidence of foreign investors in the country’s economy after some major flip flops.
The change in policy a year ago which permits foreign retailers to fully own their Indian businesses made IKEA’s investment plan possible. Through investing, IKEA will play a major role in the transformation of the country’s enormous shambolic sector on retail.
However, by doing so, the Swedish company will also be faced with major challenges. One of which includes having to meet the mandate of India’s government to source at least 30% of their inventory from various small-scale industries in the locality.
IKEA which boasts of 298 stores all over the world is popular for its cheap modern household wares and furniture believe that the moment India’s government signs the approval of its application, it can significantly affect the nation’s sector on retail by massively improving the accessibility of best-quality yet low-priced goods.
IKEA’s investment plans was unveiled by the Indian government after India’s commerce minister based in Russia, Anand Sharma, met with the company’s chief executive Mikael Ohlsson at St. Petersburg.
Foreign investments in India significantly decreased from the previous year as various economic and policy issues such as the increased in the uncertainty of regulation, the crawling growth of the economy and the delay in the proposals of liberalizing foreign-ownership capitals plagued the whole nation. The diminishing flow of capital from foreign investors caused rupee-dollar exchange rates to hit considerably low these past few weeks.
IKEA’s investment can significantly help India’s policy makers in their goal of attracting foreign investors back into the country. As a matter of factly, according to ArvindSinghal, the chairman of the famous Indian consulting company Technopak Advisors, the whole event is about India’s image and story and IKEA’s plans will definitely serve as a good endorsement.
India’s step to permit foreign business to have a full ownership of several retail stores in the locality came about after IKEA along with many other foreign investors expressed their desire to completely have the control over their firms based in India instead of tying up with local partners. IKEA’s venture when approved will certainly make it the biggest company to take benefit of the said policy change.
Retailing specialists say that it may take quite a few years before IKEA can fully establish its very first retail store in India. The business firm will be competing with other major retailers of its kind in India. One example is Lifestyle’s Home Center operated by the Landmark Group from Dubai which currently has 12 branches around India selling similar items as that of IKEA such as bedroom sets, sofas and bathroom and kitchen wares.
As there are consumers who still have a preference for custom-made furniture or small-time shops, a great deal of them seems to be taking on the concept of a one-stop-shop. As an instance, a 22-year old student Jaspreet Singh Goomer even drove almost two hours to a Home store in the eastern borders from the western part of Delhi on Saturday just to purchase some furniture for their new house. Mr. Groomer claims that he has never heard of the brand IKEA but is happy to have other furniture shops to choose from.
The spokesman of the Indian Commerce Ministry unveiled that IKEA handed over an application which presents a type of investment that is comprised of two stages – a tranche of €600 million to be followed by an infusion of €900 million.
IKEA’s application requests for authorization to take part on the export, import, marketing, distribution and even warehousing. The application also enumerated the features that come along with the standard stores of IKEA that the company plans on including in their Indian outlets such as children’s play areas and cafes. However, it was not clear as to when the Indian government will answer the company’s proposal.
However, even when IKEA’s investment plans are a proof of their confidence to India’s economy, the pressure to implement economic reforms still lies in the hands of the government.
Source: Wall Street Journal