IKEA Inc.

: the India way

Neetu Yadav

n an evening in late 2017, Juvencio Maeztu, the outgoing CEO of IKEA India who Neetu Yadav is based at

O was moving to IKEA global headquarters in The Netherlands was looking out from
the aircraft window and throwing back in 2012 when IKEA, the Swedish home
the Birla Institute of
Technology and Science,
Pilani, India.
furniture retailer had applied to the Indian Government to set up its stores in India. An IKEA
store was yet to make a debut in India and was expected to open its first store in
Hyderabad[1] in 2018 (a bit delay from the 2017 target), Maeztu was sceptical about the
success of IKEA in a country where the furniture industry was highly fragmented, and the
competitors were those nearby unorganized furniture retailers who were playing on low-
cost. He sighed and thought about the success in the Chinese market where IKEA wasn’t
just seen as a place to shop, but an experience, he was not sure how those success
lessons of Chinese market would be helpful to thrive in Indian markets that seemed different
from the Chinese market. As the aircraft was getting disappeared in the clouds, managing
differences in emerging markets and succeed in the fragmented industry seemed major
concerns to Maeztu.

About IKEA
IKEA, a Swedish company was founded in 1943 by Ingvar Kamprad, is the biggest furniture
company in the world that sells ready-to-assemble furniture, kitchenware and home
accessories, with around 422 stores worldwide, selling affordable household items to
millions of customers in more than 50 countries ranging from Germany to France, Spain,
Japan, USA, UK, China, Russia, Thailand, Egypt, Qatar, etc., and it has added 19 new
stores in 2018 (IKEA, 2018). These stores are spread across the globe that are managed by
the group itself or run by franchisees outside the group. IKEA’s vision is to “create a better
everyday life for the many people”, and it’s business idea is “to offer a wide range of well-
designed, functional home furnishing products at prices so low that as many people as
possible will be able to afford them” (IKEA, 2018). IKEA has set up its own stores of
production, distribution and retailing in more than 50 countries where it has determined to
adapt to the local needs as well as sourcing the raw material from local suppliers. Other
than setting its stores, there are 11 different groups of companies owned and operated
IKEA stores under franchise agreements with Inter IKEA Systems B.V.

IKEA in China
The Swedish retailer opened its first store in China in 1998, when the Chinese middle class
had just started to grow. IKEA had a tough time drawing Chinese customers, who Disclaimer. This case is written
solely for educational purposes
considered the Nordic brand, a luxury that was out of their reach. To cater to the Chinese and is not intended to represent
market, IKEA had lowered prices by half over the past decade and encouraged people to successful or unsuccessful
managerial decision-making.
try out products and make themselves at home. The company had three stores in 2006, but The authors may have
disguised names; financial and
the plan was to build ten stores by 2012. Compared to expansion elsewhere in the world, other recognizable information
expansion in China had been fairly slow by IKEA standards – three stores in eight years – to protect confidentiality.

DOI 10.1108/EEMCS-05-2019-0098 VOL. 10 NO. 1 2020, pp. 1-9, © Emerald Publishing Limited, ISSN 2045-0621 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 1
 but the company viewed it as successful. The company targeted the young middle-class
population that was relative to higher incomes, was better educated and was more aware of
western styles. Targeting this segment helped IKEA project itself as an aspirational western
brand. There was a massive change in strategy, as IKEA was targeting the mass market in
other parts of the world. IKEA also adjusted its store location strategy. In Europe and the
USA, where most customers used personal vehicles, IKEA stores were usually located in
the suburbs. In China, however, most customers used public transportation. So the
company set up its outlets on the outskirts of cities which were connected by rail and metro
networks. These efforts helped IKEA to expand in different parts of the country with 26
stores in China (IKEA, 2017).

Indian furniture industry

The Indian furniture industry is estimated to cross $27bn by 2022 on account of expanding
working population base, rising number of household units, and increasing disposable
income (TechSci Research, 2019). The growing awareness of modular designs of furniture,
and changing customers’ lifestyle also aided to the growth of the industry. India’s indoor
furniture market grew at a compound annual growth rate (CAGR) of 10.9 per cent between
2012 and 2017 and is forecasted to grow at a 3.8 per cent CAGR between 2017 and 2022,
according to Euromonitor International (Govind, 2018). The organized sector comprised of
large manufacturers as Godrej & Boyce Manufacturing Co. Ltd., BP Ergo, Featherlite,
Haworth, Style Spa, Yantra, Renaissance, Millennium Lifestyles, Durian, Kian, Tangent,
Zuari, PSL Modular Furniture, Furniturewala and Truzo that contributed only 15 per cent of
volumes and these count not yet made a dent in India’s furniture and home furnishings
business as approximately 85 per cent of those goods were sold through small shops
(unorganized) that offered custom-built products and free assembly and delivery. A small
emerging segment of online retailers such as Pepperfry, Urban Ladder, HomeLane and
others were also contributing to the growth of organized furniture sector. The organized
furniture retailers used different models as Godrej Interio, India’s top furniture brand in both
home and institutional sectors continued to bet on expanding its retail network largely under
the franchisee route for greater market penetration and traction, it ran company-owned
stores as well (Rawat, 2018).
Rapid urbanization in India, young working population setting up their first house, growth of
realty sector boosted demand for modular furniture in urban areas. In Tier-I cities, furniture
renting services were becoming very popular. However, tier-II and III cities relied on the
local furniture stores for their requirements which provided free delivery and after-sales
assembly services.

The India way

As per Bloomberg’s data, India is likely to have the world’s largest workforce by 2027, with a
billion people aged between 15 and 64 (Sharma, 2017). GDP growth has been increasing
continuously every quarter with growth of 7.7 per cent in the fourth quarter of 2017-2018 (ET
Bureau, 2018). These facts assure that India is a promising economy with the largest young
population. IKEA has been studying the Indian markets since 2006. However, it was 2012
when the Government allowed 100 per cent FDI in single-brand retailing and filed for
approval to set up the stores in India. The journey has been quite a long as it sought
approvals from the Foreign Investment Promotion Board in 2012, and it planned to open its
first store in Hyderabad by the end of 2017.
As IKEA typically targets a younger demographic, mainly those under 35, in the markets where
it operates, India seemed to be a promising bet for it to enter. But did Indian buyers demand
the same as his or her European and Chinese counterparts? Unlike European consumers who
are used to functioning more independently, whether it comes to using self-service at the store

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or assembling their furniture because labour is scarce and expensive, labour is available more
easily and at much lower cost in India, and Indians are not much comfortable in Do-it-yourself
(DIY) type of assembling of furniture.
The other challenges that Maeztu was facing were about the sourcing of raw material,
government compliances on local sourcing, expansion plans, and the competition from
local as well as online retailers. The other question was how to position its products in the
Indian market, where customers were highly price-sensitive. Maeztu decided adoption of
product localization and channel strategy in India from the Chinese market’s success story.
IKEA also listed eight key trends that it expected would affect the company shortly including
e-commerce, social media, multi-channel, growing demand from the middle class,
sustainability, quality and low price and women in the workforce.
Maeztu realized that although IKEA was a well-known brand as people who might have travelled
abroad were able to understand IKEA. However, it was required to create brand awareness,
brand liking, and giving a strong reason for the customers to visit the store. Product localization
was one key, where it has decided to introduce tawa pans, rice bowls, idli makers, and kadai,
exclusively for Indian markets as Indians cook differently from their counterparts. Likewise, many
other products from the global portfolio were decided to be sold at a lower price in India. It was
also struggling with meeting the compliance of 30 per cent of the production value of sold goods
should be sourced from within India, and five years of the initial investment. As per Antoni,
country manager IKEA, “Over time IKEA wants to source more than 30 per cent to reach the
affordability goals and to be profitable, but to set up new, big scale industrial suppliers following
the IKEA IWAY conditions, our code of conduct when it comes to working conditions, social and
environmental responsibility, takes time” (Forbes, 2015). To boost “Make more in India”, it had
started searching for new suppliers in categories such as sofas and mattresses, which India has
not previously been a source of – in addition to sustainable materials including bamboo, acacia,
mango, jute, and coconut fibres. The FDI in e-commerce laws have also forbidden IKEA from
selling its products online in the country, despite an e-commerce boom and a market of 213
million mobile internet users, so reaching to the vast population in one particular city with one
store seemed a big challenge (Forbes, 2015).
The localization was not only decided in the products but also in the menu that would be
served at Hyderabad 1000-seater restaurant (attached to its stores), popular meatballs
would be on the menu, but contain only chicken. The plans were to offer a mix of Swedish
and local cuisines (Biryani and samosas were on the menu). “There will be something for
everyone, and the focus is on healthy and sustainable food and beverages”, said Henrik
Osterstrom, country food manager for India (Forbes, 2015).
“One size does not fit all”, not even in different cities in India because the requirements of
one city were different from others. The one store in Hyderabad, for instance, could present
products differently (and also offer different products) from the one in Mumbai because
average home sizes in the two cities are vastly different. So Maeztu was also looking for
experimenting with new store formats for different locations as the large-format store at city
outskirts and small retail stores at the city centre.
The India stint has had an impact on Maeztu as a leader too: “Rather than just be a
business-driven leader, I am now more a society-driven leader” (Goyal, 2017). Seeking a
deeper engagement with the society had also been at the core of IKEA’s India strategy.
Working with local artisans, insisting on 50 per cent of women workers, exploring the usage
of waste materials like coconut waste were just a few examples. Maeztu knew that he could
have started selling earlier, but he wanted to create the right preconditions: right policy
framework, land acquisition for its large-format stores, low-cost pricing with strong local
sourcing, and having 50 per cent women workers across all levels in IKEA India. His team
assured that all these points were ticked while looking at the growth project reports, he was
not sure that with 25 stores and 20,000 employees by 2030, will IKEA do the best in India?

VOL. 10 NO. 1 2020 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 3

 Now, the time had come to pack the bags and move back to headquarters again for a
Keywords:
International business, thrilling project of global expansion of IKEA, he was recollecting all his wonderful time in
Multinationals, India and with Indian Government officials and suppliers, and employees, yet he was not
Strategy sure about the future of IKEA in highly fragmented Indian furniture space.

Note
1. A cosmopolitan city in Southern India.

References
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https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-grows-at-robust-7-7-in-q4-
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techsciresearch.com/news/2386-india-furniture-market-to-surpass-27-billion-by-2022.html (accessed
22 March 2019).

Corresponding author
Neetu Yadav can be contacted at: neetuyadav@hotmail.com

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