November 25, 2012
The Foreign Investment Promotion Board (FIPB) cleared Swedish furniture maker IKEA to enter India as a single brand retailer on November 20, 2012. According to the Business Standard the company is expecting to inject up to INR 10,500 crore of foreign direct investment into India as it builds out 25 stores across India. Despite the amount of construction and future retail jobs this would create, the FIPB in what can only be described as a passive aggressive maneuver decided to prevent the sale of 18 out of 30 categories of products proposed by IKEA. The company operates its “everything” for your home under one roof in over 40 countries of the world. Thus, the model is proven and tested but is being modified for the Indian consumer. Once again, this is an example of how the Indian government continues to implement policies of protectionism that benefit small constituencies but negatively impacts all Indian consumers.
One of the main benefits of shopping at IKEA is that you can furnish an entire flat from furniture to electronics in one shopping session. Additionally, after a 3-4 hour trip spent perusing their massive store (the typical store is 100,000 sqft.), customers have the ability to eat a decent meal for a very low cost. The FIPB in its wisdom has decided to prevent the sale of food and beverages. Does the FIPB really think that by preventing the sale of IKEA’s Swedish meatballs that they are protecting small restaurant owners?
IKEA will now review its entry into the Indian market following the ruling. Although in the view of the FIPB the product categories being blocked are considered “non-core”, the agency failed to realize that the IKEA business model is based on the company entering a market with its full range of products and categories. The inability to sell food detracts from the overall customer experience and may result in the company holding back from entering the market. In addition, many other International retailers are watching IKEA’s entry into the market very closely. It’s highly likely that concessions will be made on both sides. But it’s clear that if IKEA decides not to enter the market the biggest loser will be the Indian consumer.