Introduction
IKEA is an international business, Netherlands-based Swedish company that has operations in countries including the United States, the United Kingdom, the EU region, Japan, China, Australia, etc. IKEA is the largest furniture retailer globally, and despite its success, it faced several hurdles entering the Indian market until 2013 (Yadav, 2020). Therefore, this case study outlines factors that impacted IKEA entering the Indian market, the challenges it faced establishing its roots in India, and the strategies employed past the roadblocks that existed in its path to exploiting the Indian market opportunity.
Indian General Environment
The general environment in India was quite different from other countries in which IKEA had registered commendable success in retailing furniture products. Hence, IKEA had to spend substantial initial costs setting up the necessary ground suitable for its operation in India. The country, although highly populated, had low-income households and a large income gap (Wong Kok, 2018). As such, IKEA had to develop a price strategy that would enable its operations under economics. IKEA also kept lobbying the Indian market because the Indian economy is one of the fastest-growing economies globally.
IKEA also faced socio-cultural constraints, which made its operations in the market hectic. The Indian community preferred readymade furniture and shop assistants. Moreover, India also has a culture different from other countries in which IKEA operates. Politically, IKEA could not enter the Indian market for its products because of stiff foreign direct investment (FDI) policies, corruption, and some regulatory/political roadblocks. Another critical challenge for IKEA company expansion in India was the inadequate prime space for setting up stores (Yadav, 2020). The available spaces were small and nonstrategic, and hence uneconomical. In addition, there were limited renewable energy sources in India, thus thwarting the sustainable strategy of IKEA in India. Therefore, the IKEA company’s successful setups in India are attributed to its global business model and competitiveness strategy.
IKEA Business Model and Competitive Advantage
The viability of IKEA in India after its acceptance largely depended on its business model and competitive strategy employed in the country. First, it is astonishing how the IKEA management team carried the company past the hurdles that hindered its operations in the Indian market before the year 2013. The IKEA decision to enter India was received with mixed reactions. A good number believed that the investment would modernize and improve the manufacturing ability of India. On the other hand, a considerable number also held critics of its negative impacts on the small-time shops in the region (Mishra et al., 2022). Hence, many called on the government to adjust some reforms to control foreign direct investment.
IKEA also took a different course to overcome regulatory and political roadblocks to its operation in the Indian market. Instead of one year, the company sought a ten-year window to comply with the sourcing laid rules. Moreover, IKEA assured to dispose of old collected furniture to small businesses and charitable organizations. The IKEA company also promised India to innovate and build many stores, generating investment and creating new employment for Indian citizens.
Upon filing its application, IKEA targeted real estate and strategically located cities. Towns like New Delhi, Mumbai, Bangalore, Hyderabad, and Chennai were spotted as where IKEA would build its stores. Moreover, IKEA tweaked its business model since consumer taste and fashion differed from the market. The company had to set favorable prices for its products to enable low-income citizens to afford them, increasing sales in the region. At first, the government prohibited the company from selling products it had never branded (Garri, 2022). Later, IKEA responded to the Department of Policy and Promotion to allow its global business model because most of its stores were on the outskirt of significant cities. In response, IKEA argued that its global model would not suppress the small food retailers whose dwellings were inside the cities.
Since the company was new in sourcing furniture, IKEA managers anticipated taking time for consumers to settle for their products. As such, in attempts to popularize its items in the market, the company produced high-quality furniture, with the latest designs sold at reasonably low prices. Hence, increasing competitiveness with the local Indian enterprises which had enjoyed the monopoly in the absence of IKEA (Kuo, 2020). The company works hand in hand with its suppliers on the ground and create high-standard furniture selling at a low cost to suit the low-income population.
Justification
To make its operation in the region thrive, IKEA has to alter its global business model and maintain competitiveness in the Indian market. These are the reasons for the recommended courses of action.
- IKEA must produce high-quality furniture and other products to stand out in the Indian market.
- Low price is recommended since most citizens are low-income earners, enabling the company’s product to be affordable across all the population, thus increasing sales.
- The company should be keen on understanding Indian tastes and preferences and develop the latest designs that promote their existence in the market. The latest techniques with aesthetic value would win the company more customers.
Conclusion
In conclusion, IKEA’s operation in India faced several hurdles the company had to deal with for its success in the market. The general Indian culture and environment demanded a tweak in the IKEA global business model for applicability in India. Compared with the other countries in which IKEA is registering real progress, the Indian general environment is different in social-cultural beliefs, economic status, and government policies on foreign businesses. Therefore, IKEA could not enter the Indian market without tweaking its global business model, citing the challenges facing its operation in the region.
References
Garri, M. (2022). Embracing the change: Adopting sustainable strategies to compete in emerging and developing markets | Emerald Insight. Emerald.com. Web.
Kuo, T. (2020). Business Model of Competitive Advantage. Journal Of Advanced Management Science, 11-16. Web.
Mishra, R., Raj, A., & Meher, K. (2022). IKEA, Furnishing the Indian Homes: The Challenges – ProQuest. Proquest.com. Web.
Wong Kok, Y. (2018). Effects of globalization on Asian international retailing: Case of IKEA. Asian Research Journal of Business Management, 5(4). Web.
Yadav, N. (2020). IKEA Inc.: the India way. Emerald Emerging Markets Case Studies, 10(1), 1-9. Web.