Question

IKEA Finally Opens in India, Minus the Meatballs

The furniture retailer is tailoring its offerings to local tastes

In 1996, McDonald’s, the US hamburger chain, opened its first store in India, an event seemingly imbued with symbolic import. Five years earlier, the government had begun to relax its tight controls over the Indian market, from which large western brands had long been excluded.

The opening of McDonald’s in New Delhi was a metaphor for a country opening to the outside world. In deference to the Hindu taboo on eating beef, McDonald’s replaced its core product—the hamburger—with alternatives like mutton patties and veggie burgers. Yet Indian consumers were expected to embrace a global brand they had been long denied. I attended that milestone launch, and the hours after I ate an inaugural veggie burger was one of the few times I’ve ever had food poisoning in India. As it turned out, India hasn’t treated McDonald’s too kindly either. The brand has struggled to appeal to Indian tastes. The company also ended up in a bitter legal battle with one of its erstwhile Indian partners, triggering the collapse of its north Indian business, and severe brand damage. I recalled McDonald’s misadventures last week as Ikea finally opened its long-awaited first store in India, in the southern city of Hyderabad, a dozen years after it first applied for permission to enter a market that still tantalises foreign companies with its promise.

As Ikea executives and their 950-strong Indian team cheered and enthusiastic customers thronged the store, I wondered whether India would end up as a success story for the company founded in Sweden, or if it will be a cause of perpetual heartburn. Ikea has done one thing right. It refused to compromise on its determination to have 100 per cent ownership of its Indian retail business. In 2009, as the government dawdled on a promise to relax its curbs on foreign ownership in retail, Ikea abandoned plans to enter the market rather than be railroaded into a joint venture. It only re-applied to set up shop in India in late 2012, after the government agreed to permit full foreign ownership—and relaxed a requirement that foreign retailers source 30 per cent of what they sell in India from local small and medium-sized enterprises.

Like McDonald’s, Ikea has also tweaked its offerings to appeal to local sensibilities. Instead of Swedish meatballs, diners at the new store’s 1,000-seat restaurant can partake of chicken or veggie balls, dal and rice, or biriyani. Textiles on sale have brighter colours and busier patterns than in Ikeas elsewhere. But the company’s core proposition—value-for-money furniture and home accessories—seems likely to resonate with cost-conscious Indian consumers. Around 1,000 items in the Hyderabad store are priced below Rs200 ($2.86) each, which Ikea hopes will mean something for everyone. Their cheapest item is a set of four, brightly-coloured reusable plastic s

Case Questions

1. The IKEA company has waited a long time to get into India. Trace the events and challenges that have led up to this point.

Answer 1

IKEA faced challenges entering the Indian market, including long-standing regulatory barriers. After the Indian government relaxed FDI regulations, they officially entered the market, adapting their products to suit Indian preferences and offering cost-effective pricing to resonate with local consumers.

Step-by-step explanation:

The journey of IKEA entering the Indian market has spanned over a decade, marked by significant events and challenges. Initially, IKEA's commitment to maintaining 100 percent ownership of its operations in India led to a halt in its expansion when the Indian government was slow to relax foreign direct investment (FDI) regulations. The company withdrew its plans rather than form a forced joint venture and waited for a change in policy.

In 2012, after the Indian government allowed full foreign ownership and relaxed the compulsory sourcing requirements, IKEA reapplied to establish its presence in India. Another event that underscores the company's tailored approach to the Indian market is its decision to adapt its restaurant offerings, avoiding beef in deference to Hindu customs and focusing on items such as chicken or veggie balls, dal, rice, and biriyani. Furthermore, IKEA also adjusted its product lines to reflect local tastes, with textiles featuring brighter colors and busier patterns. Th product pricing strategy, with many items available under Rs200, indicates IKEA's understanding of the cost-conscious Indian consumer market.