IKEA In INDIA
Question 1
Small family businesses initially saturated the furniture market, which made competition high in the industry. Craftsmen gained their skills through apprenticeship, and they controlled the local market. 80% of the raw materials were acquired locally, and the residents were comfortable with the unique fusion in furniture practiced by the local businesses. Lead manufacturers occupied approximately 15% of the market, although they did not dominate the market. However, with time, there was an increase in demand for stylish homes and furniture, especially for the upper- and middle-class families. As a result, the lead manufactures got the upper hand in the demand market.
Also, the Foreign Direct Investment policy barred IKEA from penetrating the Indian market due to its stringent laws. The process of restructuring the policies to accommodate international brands since the previous policies only accommodated small retail and local shops. FDI had to restructure its policies, which also took approximately one year. The new policies were not 100% exclusive and had numerous limitations for multi-national brands, which prolonged IKEA ‘s entry to India until January 2012.
Question 2
To save on their initial entry cost, IKEA sourced their main suppliers form India. Most of their raw materials such as textiles, carpets, fibers, and plastics were sourced locally in India, which saved the company from incurring ng extra set-up costs. Also, the company was able to gain the upper hand from the local population as they created employment opportunities and integrated the team into their workforce. Having being able to source the raw materials locally, the management, therefore, able to maintain low product prices against other multi-national competitors.
Wholly owned subsidiary was beneficial to IKEA as the management gained full control of their stores, therefore, allowing room for the fast decision-making process and low cases of conflicts arising. However, on the other hand, wholly-owned subsidiaries imply that a long set-up time would be needed as the management would have to understand the internal and external business environments. Further, higher skills and expertise would be required in the new location before the operation commences.
Question 3
IKEA’s business model was described to be unique due to the firm’s ability to design and assemble furniture that fit their clientele specification and ease of use. Their furniture is mostly inspired by ‘Do It Yourself (DIY)’ set up strategy. Considering that labor and raw materials are locally available, IKEA’s price discrimination strategy also made it a success in India. Further, besides the shops offering exclusive furniture, the IKEA business model was able to complement the shops by setting up cafeterias, and kids play area within the same location, making it an ideal family space for family furniture shopping.
Question 4
IKEA was compelled to source 30% of its raw material in India’s failure to which they would be denied an operational license to the region. Further, the company was also prohibited from setting up home accessories, cafeterias, and food stalls to the stores. The complementary services were referred to as “experience of IKEA” and been implemented in several other states. In addition, Indians culture did not value the do it yourself concept of operation, which was a cost-effective signature for IKEA. Therefore, the management had to interact with India’s population and understand their culture in order to survive in the furniture market in India.