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IKEA to invest € 1.5 b in 2 stages

Arun S.
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Giving a sorely needed boost to investor sentiment, Swedish furniture and home accessories retail giant IKEA became the first major global retailer to enter India under the new foreign direct investment (FDI) rules for single brand retail.

The Swedish giant said it will invest €1.5 billion (around Rs 10,500 crore) in India, in two stages.

The first tranche will be of €600 million (around Rs 4,200 crore), followed by €900 million (around Rs 6,300 crore) for the initial establishment of IKEA’s 25 retail stores in India through its wholly owned subsidiary, an official statement said.

The company will also hike its existing sourcing for its global operations from India substantially, to over $1 billion, from the current $600-800 million.

IKEA’s Chief Executive Officer, Mr Mikael Ohlsson, met the Commerce, Industry and Textiles Minister Mr Anand Sharma, at St. Petersburg in Russia on Friday to confirm the investment and sourcing plans in the single brand retail sector, an official statement said.

Mr Sharma said despite the problems in the global economy and the recent lowering of the credit rating outlook, investor confidence in India remains robust.

The Minister also informed that IKEA had certain reservations about sourcing norms (that companies with over 51 per cent FDI should source at least 30 per cent from small industries in India), which were discussed with the officials of the Department of Industrial Policy and Promotion. He added that “suitable answers” were provided leading to IKEA’s decision to invest.

Official sources said IKEA has filed its application for investment in India in single brand retail, adding that the company has sought Government permission to set up a wholly-owned subsidiary.

IKEA’s investment plans come just ahead of the June 25-26 stock taking meeting in Brussels between India and the European Union on the Free Trade Agreement negotiations. One of the key demands of the EU is that India should give European companies greater retail market access.

Sourcing norm remains a challenge: IKEA

IKEA has agreed to comply with the Government’s norms on local sourcing, but said the rule remains a challenge in the long term.

The norm says that companies with over 51 per cent FDI in single-brand retail should source at least 30 per cent from small industries in India.

In a statement on Friday, the company said, “We will source at least 30 per cent of the purchase value of products sold in India from our direct and indirect supply chain comprising Indian small industries.”

“In the longer term, however, the mandatory sourcing of 30 per cent of the value of goods sold in India from domestic small industries remains a challenge,” it said.

arun.s@thehindu.co.in

(This article was published on June 22, 2012)
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Comments:

Its a good news for Indian Forests. Sweden has lots of woodland area, hopefully Indian government says its mandatory for IKEA to source wood from Sweden forests. However they may impose some regulation on where furniture needs to be manufactured. In my opinion, this has potential to solve two problems at once. One, we can ensure that growing Indian middle class gets choice to buy world class furniture and two, is not going to destruct our forests and threaten Indian agriculture.

from:  chandra
Posted on: Jun 22, 2012 at 19:15 IST

It is good to know that IKEA is coming to India. The 30% sourcing clause from small and medium enterprises is not practical for single brand retailers like Ikea, LVMH etc as these factories will not be able to maintain their quality/huge quantity/delivery date. May be grocery retailers can meet these requirements. So government should show flexibility.
But I am very curious to know whether IKEA will do well in India because Indians buy hard wood furniture.

from:  George Sebastian
Posted on: Jun 23, 2012 at 15:05 IST

George, The typical Indian customer does not recognize hardwoods, any longer. plastic is the new 'black' as far as finished are concerned, and the raw material make little or no difference for the first few purchases... solid wood is now for the more mature customer who is tired of dealing with the endless replacements that 'ikea' type furniture requires. the market is huge for Ikea, as our population is made for their product (good looking, low price, quality 'whatever') they will kill anyone looking to compete with them as their pockets are deep. Durian ,Style spa, Bhutan Board, Zuari etc better watch out as they are in the same segment as Ikea! Solid wood retailers/manufacturers need to find a way of upping their ante as their product is truly not in competition with Ikea, but that is for them to understand.

from:  Kabir Bhasin
Posted on: Jun 25, 2012 at 13:02 IST
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