Chennai: The world’s largest furniture retailer Inter Ikea Systems BV (popularly known as Ikea) may have shelved its plans to set up shop in India, but the Swedish company is keen to add more Indian suppliers to its rack.
Strategic move: Susanne Pulverer Bergstrand, Ikea’s trading manager for South Asia. The firm is looking for suppliers who can cut costs. Ramesh Pathania / Mint
The move—the first of its kind in several years—aims at increasing India’s paltry 3% share of Ikea’s worldwide purchases that will shrink its overarching dependence on Chinese manufacturers contributing 21% to Ikea’s supply pie.
At a four-star hotel in Chennai last month, nearly 35 makers of textile, steel and plastic products—some having flown down from Punjab and Gujarat—gathered to learn about Ikea’s supplier requirements. Over dinner, they hobnobbed with the retailer’s New Delhi-based trading manager for South Asia, Susanne Pulverer Bergstrand, and existing Ikea suppliers.
“China is our biggest sourcing market but we don’t want to be dependant on one market and we think India presents an opportunity,” Bergstrand told Mint on the sidelines of the supplier meet. “Raw materials like cotton and steel are readily available, which we could benefit from.”
As the budget furniture company runs lengthy checks and audits on new suppliers’ factories, sourcing from India is expected to inch up a little more than the 10% growth seen last year. But in five years, Bergstrand expects Ikea’s new Indian suppliers to chip in €500 million (around Rs3,500 crore) worth of products for the company, double the €250 million from existing Indian partners.
“There is some level of discomfort with Chinese policies where the economy is not free (market-driven) but largely government-controlled,” says Pinaki Ranjan Mishra, partner at accounting firm Ernst and Young. “So companies want to diversify their risk and have India also as a major source rather than just depending on China.”
Ikea, known for its low-priced, do-it-yourself assembly furniture designed in minimalist Scadinavian styles, has been anxious to enforce stronger belt-tightening measures after feeling the heat from price-cutting rivals during the economic downturn.
In 2008-09, worldwide sales touched €21.5 billion with growth being in the low single digit compared with strong double-digit growth the previous year as the housing bubble bust hit demand for home improvement and styling products.
Earlier this year, the company cancelled a $1 billion (around Rs4,700 crore) investment plan to start retailing in India after the government refused to raise the 51% foreign ownership cap on single-brand stores to full ownership. Still, the Scandinavian group opened 15 stores in 11 countries that increased its sourcing needs.