This story first appeared in DNA Money edition on Tuesday, January 22, 2013.
The Foreign Investment Promotion Board (FIPB) has cleared Rs 10,500 crore investment proposal of Swedish furniture major IKEA to set up shop in the country with cafeterias. The FIPB had earlier permitted it to invest Rs 4,200 crore for opening single-brand retail stores.
Commerce Minister Anand Sharma said late on Monday that IKEA's case for investment is cleared, which is a positive development. "The government is committed to playing a constructive role in enhancing FDI, especially in areas which create jobs and provide technological enhancement. Globally, IKEA has a business model which integrates in its embrace SMEs (small and medium enterprises) and domestic industry, making them the part of global value chain," he said.
IKEA Group, which manufactures and sells home and office furnishing products, proposes to invest in single-brand retail trading in India through a 100% subsidiary. With the FIPB clearing the way, the retailer would also be able to open cafeterias in their stores.
The proposal will now be placed before the Cabinet Committee on Economic Affairs (CCEA) for final approval. Any investment over Rs 1,200 crore requires approval from the CCEA which will take another 15-odd days to clear the proposal.
Calling it a sane decision, Arvind Singhal, chairman, Technopak Advisors, said there was no reason for the Indian government to take such a long time on a globally respected and ethics-driven company.
"However, I don't think we will see the first IKEA store opening anytime in the next two years if not more. While they are a very successful retailer globally, they do a careful study before entering any new market. Whatever they will do in India will be after a very careful evaluation of the ground realities viz Indian consumers' buying habits, whether they will travel long distances or not, etc," said Singhal.
IKEA typically takes over five to seven lakh square feet of retail space in most of the markets it operates in. Will it take the same approach in India given the kind of retail space in the country? "It is not necessary if they will replicate a particular approach / format in other countries of the world, feels Singhal.
"I really don't know what would be their store size in India, but whatever IKEA stands for in terms of good quality, affordable pricing, good service and good dealing with their vendors, etc. is something that will be consistent in the Indian market as well," he said.
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