The international business strategy of IKEA in india

FOREIGN TRADE UNIVERSITY
FACULTY OF INTERNATIONAL ECONOMICS
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PRESENTATION SCRIPT
THE INTERNATIONAL BUSINESS STRATEGY OF IKEA IN INDIA
Class: KDOE307.1
Guide Teacher: PhD. Nguyen Hong Tra My
Group:

Hanoi, September 2022


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International Business

TABLE OF CONTENT
CHAPTER 1. ABOUT IKEA...............................................................................................4
1.1 Profile of IKEA.............................................................................................................4
1.2 Overview of IKEA........................................................................................................4
1.3 Past noticeable actions and its achievements..............................................................6
CHAPTER 2. ANALYSIS OF INDIA MARKET................................................................7
2.1 Reasons to enter India..................................................................................................7
2.2 Trends/Behavior of market..........................................................................................8
2.3 Challenges..................................................................................................................... 8
2.4 PESTLE analysis..........................................................................................................9
2.4.2 Economic.................................................................................................................9
2.4.3 Social....................................................................................................................... 9
2.4.4 Technology............................................................................................................. 10
2.4.5 Environmental.......................................................................................................10

2.4.6 Legal...................................................................................................................... 11
CHAPTER 3. STRATEGY OF IKEA IN INDIA..............................................................12
3.1 Pressure of Cost reduction.........................................................................................12
3.2 Pressure of local responsiveness................................................................................14
3.2.1 Differences in Customer Tastes and Preferences...................................................14
3.2.2 Differences in Infrastructure and Traditional Practices........................................15
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3.2.3 Differences in Distribution Channels....................................................................15
3.2.4 Host-Government Demands...................................................................................16
3.2.5 Rise of Regionalism...............................................................................................16
3.3 Strategy that IKEA has implemented on India........................................................17
CHAPTER 4. ACHIEVEMENTS IN INDIA....................................................................19
REFERENCE......................................................................................................................20

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CHAPTER 1. ABOUT IKEA

1.1 Profile of IKEA

It was originally a general store founded in 1943 by Ingvar Kamprad, who was 17
years old. At the time, the store handled whatever was in demand, but in 1947 it
contracted with a local furniture store to start selling furniture at a discount, which proved
to be a big hit, and from 1951 the store concentrated entirely on furniture sales.
Today, IKEA has become a global home furnishings brand, bringing affordability,
design, and comfort to people around the world. And their vision of "more comfortable
everyday life for more people" has remained the same as the time when it was
established.
By 2021, the company has expanded to a total of 445 stores and 225,000 total
employees, with revenues of €41.9 billion. And now IKEA is headquartered in Delft, the
Netherlands, and mainly sells Ready-to-assemble furniture, Homeware, and Food
products
1.2 Overview of IKEA
This company develops large suburban sales outlets called "IKEA stores" in
various countries.
The products are relatively inexpensive, and IKEA has developed its own
semiassembled furniture with modern designs that customers can take home in their cars.
IKEA is part of the retail industry, and its retail sales share (2021) is as Figure1.In order
of highest to lowest retail sales share is Products sold through stores, Products sold
online, and Services to customers. 97% of its sales are made up of furniture and other
products and restaurants and other services account for only 3% of sales.

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Figure 1: IKEA retail sales in financial year 2021

Sources: />One of the most notable items of IKEA furniture is the Billy bookcase (Figure2),
which have been sold by the tens of millions since the late 1970s. Also, according to their
website, it is sold every five seconds. They say that the bookcase's popularity is due to
how inexpensive they are, how long they have been around, and how easy they are to
customize.
Figure 2: Billy Bookcase

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Sources: />1.3 Past noticeable actions and its achievements
First thing is “Through cost control”. For example, in 1953, they created a “Flat
pack” that can pack the disassembled products as thin and small as possible so that they
can be easily loaded into the trunk of a car and taken home. In result, they could reduce
not only their logistic costs but also the number of times the furniture was damaged
during delivery.
Second thing is “Making the store into an amusement park”. In 1960, the first
IKEA restaurant opened. The idea comes from something Ingvar observes: people leave
the store at lunchtime to eat in one of the restaurants or street kitchens. He realized that
hungry customers buy less. As a result, they could succeed in taking customers into the
whole buying process and they could gradually lead customers to rather enjoy the store
than just go to the store.
Thanks to these actions, in 2020, the company generated a global revenue of $45.4
billion and according to NRF, it was the ninth global retailer in the world, making it the
most global furniture retail brand. In comparison to Ashley HomeStore, second-largest

furniture brand in the world, this company generated a global revenue of $3.3 billion in
2020 so the global revenue of IKEA is about 14 times higher than one of Ashley
HomeStore.
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CHAPTER 2. ANALYSIS OF INDIA MARKET

2.1 Reasons to enter India
The Indian furniture industry is, as of now, very fragmented. Instead of buying
from giant chains or department shops, most individuals get their furniture from local
carpenters or from furniture stands that operate outside established distribution networks.
This situation is, both an opportunity and a challenge that IKEA must evaluate when
expanding.
The Indian furniture market is accelerating at a significant pace. According to the
national investment promotion & facilitation agency in India (2022), the furniture market
is anticipated to achieve a CAGR of 11.97% during the five-year period 2018-2023. The
demand for furniture mainly comes from northern and southern India. India is the fifth
largest furniture producer at a global level and the fourth largest consumer of furniture.
The Indian furniture market was valued at $ 17.4 Bn in the Q1 2021 and is predicted to
reach $ 37.7 billion by 2026, growing at a double-digit CAGR of 13.37% during 20202026.
As of now, IKEA does approximately 30% of its commerce online. The digital
presence that they have will be a strength in a country like India which, according to
Indexmundi (2020), has an estimated 446 million internet users. The size of the online
furniture retail segment grew from $ 300 Mn in 2017 to $ 920 Mn in 2020 recording a
compound annual growth rate (CAGR) of 32%. This, in combination with the strong

physical presence presents a unique opportunity for IKEA to reach both the digital
generations and the older consumers, who prefer physical warehouses. (National
investment promotion & facilitation agency in India, 2022)
Being the second most populated country on earth, there is a very sizable market to
be reached in India. The Hyderabad store will keep with IKEA’s characteristically large
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warehouse-style stores, at "approximately 400,000 square feet," with "over 7,500
products"on offer. "We expect at least 7 million customers to visit the Hyderabad store in
a year and overall our goal is to reach 200 million customers in three years in India,"
Antoni, IKEA’s deputy country manager for India said (Forbes, 2018). According to the
Swedish media, the IKEA-concern has purchased four additional lots in the states
Telangana, Maharashtra, Karnataka and Delhi/NCR. These four states have a combined
population of 232 million citizens which is larger than the population western Europe
(~200mil) and could therefore become paramount for the success of IKEA in Asia
(Industrinyheter, 2018).
Antoni was also quoted as saying “Only 4% of India's furniture sector is currently
'organized,' so we see huge potential in the Indian market," "IKEA has already committed
Rs. 10,500 crores ($1.54 billion) to India, and this figure is set to increase as the brand
expands in the country."
2.2 Trends/Behavior of market
According to the government owned organization “Swedish wood”, there has been
an increase in the demand for wooden furniture, especially pinewood, in India. This is
something that matches well with the identity of IKEA, since most of IKEAs best sellers
and international classics are made from pinewood (Svenskt trä, 2020).

2.3 Challenges
Despite all the above-mentioned opportunities on the Indian furniture market, there
are also a few challenges related to the expansion into India.
The Indian furniture market is a Low-cost competition market where consumers
are extremely price sensitive and it’s therefore cardinal for IKEA to be able to provide
their service at the lowest price possible. IKEA is what famous economist, Michael
Porter, classifies as a low-cost defender company, meaning that they attempt to maintain a
stable base of customers and products by competing primarily on price, supported by
their focus on efficient operations (Viswanathan, Olson 1992, 45-57). This strategy, in
combination with the experience from expanding into China, which required the retailer
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to splash prices and increase local sourcing to remain competitive is extremely
meaningful in tackling the Low-cost competition.
Furthermore, as of now, IKEA is only ranked as the 7 th largest furniture supplier in
India (Easyleadz, 2020). That might not sound like a problem because of how recent the
expansion is, but in a country that is known as one of the most protectionist countries,
competing against domestic companies is a challenge. Therefore, it will be of utmost
importance for IKEA to maintain good relations with the Indian officials to ensure a fair
chance of competing.
2.4 PESTLE analysis
2.4.1 Political
-

Allowing 100% FDI in the retail sector: This creates favorable conditions for

foreign businesses like IKEA to invest directly in the Indian market without
having to contribute capital to other domestic companies.

-

Complex administrative framework: This means getting a license in India is
quite difficult, and enterprises must deal with a ton of complicated paperwork in
order for their businesses to start operating.

-

Reduction of corporate tax: A tax cut from 30% to 25% has made India a
prospective market for corporations.
2.4.2 Economic

- Increase in GDP: The annual GDP growth rate of India is 6.9%, which is supported
by increase on investment, employment and expenditure. India is one of the fastest
growing economies and IKEA India may take advantage of this trend by
broadening its product offerings and focusing on new parts of the country.
Analyzing the shifts in customer purchasing patterns and newly emerging value
propositions is a good place to start.

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2.4.3 Social

-

Large and young population: With 54% of the population are at the age below
age 25 and as young people in India tend to like simple and modern designs. This
matches with IKEA style as the company is devoted to creating products that are
cost efficiency and have minimalistic designs.

-

Cultural differences between India and Sweden. India is known for many
cultural values that cannot be shifted so IKEA must do market research and
analyze carefully before entering this market.

-

High disposable income: The number of households in India with a disposable
income of $10,000 or more has been on the increase. It is recorded from 1990 to
2015, the number has increased by twentyfold. This mean Indian can spend more
on goods and services, a sector that IKEA is currently operating in.

-

Continued urbanization: To attract the Indian market, IKEA has introduced big
stores in multiple densely populated area, and with 40% of India’s population will
be living in urban areas by 2025 up from 31% in 2010, and the fact that they will
account for more than 60% of consumption is nothing but ideal for IKEA.
2.4.4 Technology

-

Research and development (R&D): India is a low spender (only 0.66% of the
GDP) in comparison to the developed countries and emerging economic powers of
East Asia. In fact, India’s expenditure on R&D is lower than low and middle
income Countries.

-

E-commerce development: India is one of the most developed countries in Asia
in technology sector. With 446 million internet users and with young population,
this is a great opportunity for E-commerce to develop. However, others local
Indian furniture competitors had also seen this trend so IKEA must take action
before them.

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2.4.5 Environmental
IKEA has advanced to become the third most renowned leader in the world for
social responsibility and environmental sustainability since the introduction of its People
& Planet Positive program in 2012. With an ambitious and forward-thinking agenda,
IKEA's Corporate Social Responsibility (CSR) goals are focused on three major
initiatives:
-

Healthy and sustainable living

-

Climate positive initiatives

-

Social equality and fairness
2.4.6 Legal

-

Legal policies and trading regulations: With the South Asian Free Trade Area
(SAFTA), and Asia-Pacific Trade Agreement (APTA), IKEA is able to reach more
countries in the region thanks to these laws and regulations.

-

Don’t have specific legislations on privacy and data protection: Lack of
particular privacy and data protection laws poses a threat to not only IKEA but
also to any company looking to enter the Indian market. One of the most important
challenges for any firm is the protection of privacy and data. Any instances of data
leaking could have a significant effect on that business.

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CHAPTER 3. STRATEGY OF IKEA IN INDIA
3.1 Pressure of Cost reduction
It refers to reducing the cost when a firm is competing in the global market. For
serving universal needs, cost reduction becomes a pressure on firms. While serving
globally, buyers are more substantial because several firms provide the same commodity
with less price because of the low-cost location. Therefore, reducing the cost becomes
necessary in global markets so a firm's aggregate revenue won't get hurt if it provides its
product in different economies at different exchange rates.
There are 6 main ways IKEA has implemented:
IKEA's Flat Packaging Innovation: IKEA has a technique of selling individual
pieces of furniture as opposed to the entire item. This enables flat packaging of the goods,
making it simpler to carry them to retail locations. Additionally, it offers customers the
chance to select specially made items for their needs in accordance with their
convenience. IKEA is able to keep its product's cost low in this way.
Mass production: Every piece of furniture is mass-produced by IKEA. They've
repeatedly indicated their willingness to do this. They produce a wide range of designs,
whether it be for dining tables, chairs, sofas, closets, beds, showcases, or anything else.
As a result, they are given discounts on both the cost of production and the acquisition of
raw materials. This is how IKEA is able to stick to its low-price approach thanks to the
bulk production method.
Unique Construction Method: IKEA always aims at innovating new techniques
and methods to maintain their low selling price while making sure that their customers
have no complaints about the quality of the products. One particular example is the
honeycombstructure.

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Honeycomb structure

Regular structure

With the honeycomb structure, IKEA can build a table without needing much
wood to create the thickness of the table, while the regular structure requires a big piece
of wood.
Independent shopping: By promoting independent shopping, this allows
customers to shop on their own. Thus, IKEA does not need to hire a lot of store staff. This
helps them to cut costs towards wages and provide customers with lesser priced products.
Also to allow customers to shop independently, they also print all the product details on
the price tags. Hence, customers can easily read the guidelines on the price tag and
choose the furniture they want to buy without the help of employees.
Take it home policy: IKEA has a policy where the customers can carry their buys
home by themselves on the same day. Since customers can carry their own products,
IKEA does not have to spend money on delivery cost from the store to the customer.
Promote Do it yourself (DIY): The company promotes a DIY environment, where
it allows customers to install their own furniture. They provide guidebooks and assembly
charts to support customers in installing their own furniture. Thus, the company does not

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need to pay any extra charges to internal or external teams for installation, thereby,

maintaining their low price.
3.2 Pressure of local responsiveness
Pressures for local responsiveness arise from national differences in consumer
needs and wants, infrastructure, business practices, distribution channels, and from
hostgovernment demands. Responding to pressures to be locally responsive requires a
firm to differentiate its products and marketing strategy from country to country to
accommodate these factors, all of which tends to raise the firm’s cost structure.
In the case of IKEA in India, the pressure for local responsiveness is relatively low
because IKEA sells to the same basic customers worldwide: young, upwardly mobile
people who are looking for tasteful yet “disposable” furniture of a certain quality standard
for the price they are willing to pay inexpensively. More specifically when facing the
differences in the Indian market, IKEA has the following actions:
3.2.1 Differences in Customer Tastes and Preferences
The Britishers had a significant impact on how furniture was made in India. Post
18th century most of the furniture manufactured in the country was highly inspired by the
English style. This English style furniture was not only used by Britishers but was also
highly preferred by Indian royals. They had high aesthetic value with intricate carvings
and typical forms of these furniture included chairs with high and straight backs and flat
seats.
The furniture used today in India, at times, takes inspiration from the western
world and other cultures but at the same time is high on Indian values as well. Furniture
eventually also became lighter and was customized to be applicable in regular
households.
Therefore, IKEA does not need to change their designs too much to suit Indian
preferences. However, they still have a few changes to become more user-friendly.
With their signature Billy Bookcase and flat-weave rugs, IKEA will introduce many
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India-specific items and solutions like small things that make their customer’s life easier
– in terms of storage, kids’ space, etc. Their kitchen, for instance, is one area that will see
IKEA innovate, selling spice boxes, idli-makers, pressure cookers, and flat pans or tawas
(used to prepare rotis).
In their textile section, the usual IKEA bed sheets come in hues of creams, whites,
grays, and other solid colors, with some prints. In India, there will be more bright colors
and patterns. The chain will be trying to win over its newest market with more color than
usual, harder mattresses, alternatives to leather, foldaway items and service that appeals to
a “do-it-for-me” culture: customers will be able to buy their kit ready-made.
3.2.2 Differences in Infrastructure and Traditional Practices
Real estate in India is more expensive than real estate in Sweden. As IKEA is an
ultra big-box retailer, if it has to survive in India, it will have to play on the volume
metrics. Real estate costs are highly prohibitive, and they will have to create products
suited for the Indian climate and style.
IKEA stores are typically housed in an area of around 2.5 lakh sq. feet and are
traditionally located in suburbs. This kind of land tract will only be available on the city
outskirts and IKEA will have to join hands with land parcel owners if it is keen to acquire
such large land parcels for its use. Land acquisition will be a major hurdle for Swedish
furniture retailer IKEA to set up its stores in India and it may have to even depend on
public auction by the government. The option of directly acquiring land has many issues
involved and it may be a costly affair in terms of profitability for the company
Therefore, IKEA will have to invest in realty, vendors, manpower, supply chain,
product quality,etc. For them, it is going to be a long-term affair as retail is very capital
intensive. IKEA may partner with real estate companies in India to reduce its capital
investments and open up another channel of sales.

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3.2.3 Differences in Distribution Channels
There is not much difference between distribution channels in the Indian market
compared to other markets. IKEA distribution channel members include that
manufacturer, dealer, wholesaler, retailer and consumer. In order to keep the advantage of
low price on the products, IKEA must use the most direct and cost-effective way to
transport the products from supplier to customer (Figure 3).

Figure 3. IKEA distribution channel in India

Sources: by the author team
3.2.4 Host-Government Demands
Economic and political demands imposed by host-country governments may
require local responsiveness. Overall, India is a friendly market for foreign businesses.
This is the largest democracy in the world with a parliamentary form of government.
India has jumped 79 positions from 142nd (2014) to 63rd (2019) in 'World Bank's Ease of
Doing Business Ranking 2020. Apart from the basic legal requirements for a foreign
business like IKEA, India does not have many special and strict requirements for the
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furniture industry. Therefore, IKEA does not face many difficulties in terms of legal
issues, threats of protectionism, economic nationalism, and local content rules when
entering the Indian market.
3.2.5 Rise of Regionalism
Hinduism is the largest religion in India. According to the 2011 Census of India,
966.3 Million people identify as Hindu, representing 79.8% of the country's population.
India contains 94% of the global Hindu population. IKEA knows this and it has put
pressure on IKEA's local responsibility.
The world over, IKEA’s in-store restaurants are a huge draw among shoppers. The
1,000-seater facility at its Hyderabad store will be the firm’s biggest restaurant globally,
the idea being to draw more shoppers, especially families. With 37% of India’s population
being vegetarian and even the non-vegetarians often avoiding beef and pork, IKEA’s
menu will reflect that. So its meatballs will have chicken and vegetables here instead.
In any case, about 50% of the menu will be “Indian:” samosas (a deep-fried
snack), dal makhani (lentils), idli (a steamed rice cake), and biryani (a spicy rice dish).
The other half of the menu will remain Swedish, with IKEA’s signature salmon and
shrimp dishes.
In short, Pressures for local responsiveness arise from national differences in
consumer needs and wants, infrastructure, business practices, distribution channels,
hostgovernment demands and rise of regionalism. In the case of IKEA in India, the local
responsiveness is not so significant. IKEA just needed to change a few details to fit the
Indian religion as well as to be more friendly with the preferences of customers. The rest
IKEA retains the same framework and formula that made them successful in the domestic
market. It can be said that India is a suitable market for IKEA when the pressure from
local responsibility is quite low.
3.3 Strategy that IKEA has implemented on India
The concept of fusing great quality with affordable pricing is the inspiration
behind IKEA's global standardization strategy. In this way, the company hopes to create
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furniture that is both useful and reasonably priced. With high pressure for cost reduction
and demand for local responsiveness is minimal, the best approach for IKEA in India is
global standardization strategy. IKEA's global strategy places a strong focus on the
collaboration and interdependence between its parent company's headquarters, its
subsidiaries, and its shops in India.

Figure 4. Four International Strategies

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Sources: Pressbooks.lib.vt.edu
Because customization means shorter production runs and the duplication of
functions, which tends to increase costs, IKEA, which is pursuing a global
standardization strategy, tries to avoid adjusting its product offering and marketing
strategy to India's market conditions. Instead, they seek to promote a product that is
universally standardized and has Democratic Design at its core so that they can gain as
much as possible from economies of scale. IKEA uses democratic design as a strategy
when developing and assessing the products they offer. It has five characteristics: quality,
function, form, sustainability, and cheap cost. All five must be in balance for the design to
be considered democratic. Additionally, this uniform design remains unchanged globally,

including India.

CHAPTER 4. ACHIEVEMENTS IN INDIA

Recognizing the potential of home furnishings, decor, and appliances, IKEA has
opened doors to the Indian market since 2009. From 2009 to now, IKEA has made some
significant progress. To start off, IKEA has introduced a 400,000-square feet Hyderabad
facility offering its signature do-it-yourself furniture. The firm sources products worth
over €315 million annually from India. It has over 50 local suppliers and 45,000-plus
direct co-workers and approximately 400,000 co-workers in their extended supply chain.
However, during the period from 2020-2021, India suffered a major break-out of
COVID-19 which resulted in the company’s expansion plan not being executed.
Especially, in 2021 as the pandemic waves surfaced, the company had to close its
Mumbai store and also halt online operations for a certain period due to the lockdown
measures. Yet, the sales of IKEA still recorded an increase in sales and some noticeable
achievements such as starting e-commerce operations in Bengaluru during the year, and
the retailer opened its maiden big box store in the capital city of Karnataka. For the
people of India, the company has extended its support by way of donation of food,
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rations, medical equipment, etc to the needy people and to minimize the spread of
pandemic.

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Be

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/>
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IKEA ”Snapshots. The history of the IKEA brand at a glance” .[online]. Available at:
02/09/2022)
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