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Ikea would like to open stores in India, double sourced goods

Ikea would like to open stores in India, double sourced goods
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First Published: Thu, Sep 23 2010. 12 14 AM IST

Entry barrier: Ohlsson says the firm’s plan to sell its products in India are hampered by restrictions on overseas investments in retail.
Entry barrier: Ohlsson says the firm’s plan to sell its products in India are hampered by restrictions on overseas investments in retail.
Updated: Thu, Sep 23 2010. 12 14 AM IST
The Swedish manufacturer of home furnishings, Ikea group, wants to double the goods it sources from India to €1 billion (Rs 6,060 crore) in the next few years. But plans to sell the company’s products in the country are hampered by restrictions on overseas investments in retail. Chief executive officer Mikael Ohlsson spoke in an interview about Ikea’s business plans and social initiatives in India. Edited excerpts:
Does Ikea plan to open stores in India? The main issue has been the 51% restriction on foreign direct investment (FDI).
First of all, we would really like to have stores in India. Our idea is to provide good design, good function, but at very, very low prices so (that) normal income people can furnish in a nice way. However, we prefer not to be in joint ventures (JV). The business side doesn’t lend itself very well to that. We are (aiming for the) very long term, and also come from the angle of creating a better everyday life for many. We see that the investments needed, we can do by ourselves. But I respect and understand the discussion in India. However, in the home furnishing field, it is somewhat different. There is a very high urbanization rate in India—that will only continue.
Entry barrier: Ohlsson says the firm’s plan to sell its products in India are hampered by restrictions on overseas investments in retail.
Economic conditions are improving dramatically in India, for all people—unfortunately, it could do more for the people who are the poorest—but it’s filtering so that more people can afford to have nice homes. And there is really room for all the traditional local home furnishing firms, and also for us because the market and the need will grow so dramatically in the coming 10-20 years. So we would like to, yes, but we have patience.
What do you not like about joint ventures?
We will need partners to learn about India—to learn about the way of setting up stores, and to learn about the market, to follow the legislation and to go through all the processes—but from an ownership side, we don’t see any major advantages to us.
There is speculation that the Indian government may promise Ikea 100% FDI if the company puts up more manufacturing facilities in India. Is there any truth to this?
I have not heard anything formulated like that—but if it is like that, it’s very positive... it’s difficult to characterize Ikea as multi-brand, single-brand, or retailer.
We are a home furnishing company with a big social commitment. We want to have stores in order to make the range accessible for people. We do produce and source in India—we will do more of that—and we have quite an extensive, though humble, social programme together with Unicef (United Nations International Children’s Emergency Fund), Save the Children, UNDP (United Nations Development Program), WWF (World Wildlife Fund) and other local Indian NGOs (non-governmental organizations). And we try to show that we can play an active role in the positive changes that are going on in (the) Indian society. And the quote you mentioned—I have not personally heard, but it sounds very promising.
You mentioned earlier that there is a greater possibility of negotiating FDI requirements right now?
The reason we took up the dialogue is that in several interviews we have heard the debate, also from the government, that it is positive to review the present situation. We have described that we have got a very positive response—in the sense of listening, asking for more information, and the process will continue. We hope that at least for some sectors that are not so controversial, like home furnishing and maybe other sectors where there are obviously growing needs, perhaps, there could be some easing of these regulations for the future.
What products do you source from India?
We source for about €500 million (Rs 3.030 crore) every year—and I hope that we can double that within the (not-too-distant) future. It’s today mainly in the textile industry. Textiles are super important for home furnishing, and we have a quite extensive textile range with unique designs—and then carpets, same reason. We buy some lighting and plastic-based products.
You know all Ikea products are designed and developed by ourselves. We are working very closely with suppliers in setting up the production so that the quality and price structure can be as strong as possible.
We see that now we can expand our purchasing here in India and build a more long-term relationship with suppliers to enable more investments for modern technology.
So it’s a big opportunity. Of course, the focus will be on the textile, carpet side—but to expand beyond that; and hopefully that will create more knowledge, more jobs, and new opportunities that we can build on for the future.
How do you get the pricing right?
We design all 10,000 objects that we do by studying people’s lives at home. Then we go to the factory floor, and try to develop this and design these products—often together with our suppliers, and to keep down cost. We hate waste. That creates a range where we have as little unnecessary things as possible.
That we price so we can reach people with normal incomes. And that is of course the idea, that people should feel that Ikea will renew their home in a simple way and without costing a fortune. We almost set the price before we start the design.
Why is there such an emphasis on India in your social initiatives programme?
Ikea’s idea for creating a better everyday life for the many—normally, of course, we do it mostly through a range, through people’s homes—and to offer nice home furnishing at super low prices, good quality and good design. But then we see of course many other fields and we are sourcing a lot in India, and we believe that we could do much more of that. Also, be (a) part of the transformation of the industries—we have a long-term approach to what we are doing. There we see very interesting opportunities.
And then of course we have our social initiatives that I have mentioned. We have decided to focus on children, children’s rights, a healthy start in life, and a quality education for all children, and for the empowerment of women. And with a number of people living in India and also with big needs—we want to be a part of contributing to that—together with the local governments, with our partners and through Ikea social initiative—and I’d say maybe 75-77% of our total focus, total investment is here in India.
What struck you most on your India trip?
It’s been many years since I was in India last...12-14 years...and it was really exciting to be back here. I see enormous dynamics and changes going on in India. Now we are focused on the changes linked to Ikea social initiative and our corporation and the projects and programme we do together with Unicef, Save the Children and UNDP in the villages—outside of big cities. So, I have not seen much of the cities yet but no doubt there is good and positive change going on in (the) Indian society.
How do you ensure that your suppliers don’t use child labour?
What we do is try to take a broad perspective and address the root cause. Many of the visits we have done are to see how that is developing—through the programmes with Unicef, Save the Children and also WWF, where we address from a minute point of view, the cotton industry as such. Use less water, pesticides, chemical fertilizers—more income for the families, for the farmers. Better health for the people in the industry, which is a very important part.
Currently, we have about 60,000 farmers in the programme that is just a few years old. And that has witnessed big, big changes in a very limited time. Besides that, we go in the whole area with our social initiatives to provide opportunity for a healthier start in life—immunization, healthcare, vitamins, better quality education— where we have examples now of panchayats and districts where the number of children going away from villages to work has dramatically been falling, with the goal that it should be absolutely zero.
Also, with empowerment of women to acknowledge children’s rights, their own rights and what governmental support there is in health and other things in order to make the children stay at home go to school. It’s a long journey, but we try to take a very broad approach—both socially and also in the cotton field. And some of the cotton will go to Ikea’s supply chain, but it is much bigger than that—so it will also go in other directions. And I hope it will spread.
malia.p@livemint.com
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First Published: Thu, Sep 23 2010. 12 14 AM IST