Ikea, the world’s biggest furniture retailer, will be one of the biggest beneficiaries of the eased foreign direct investment rules announced earlier this month, as the Swedish company’s expansion hinges on the way the mandatory local sourcing deadline is calculated.
As per the earlier FDI rules for single brand retailing, companies such as Ikea need to procure 30% of the products they plan to sell at their local stores from domestic companies and individuals, within five years of their investment. The local sourcing rules made it difficult for Ikea and it sought easing of rules and consider the five years deadline from the date of opening its store, citing its sustainable procurement policies.
Ikea announced its investment in 2013 but its first store would come up only next year, by then it would have lost three years as mandated by the rules. The company plans to have 25 stores with the first store expected to come up in Hyderabad. It would be investing R10,500 crore for its India expansion.
“The starting point for Ikea’s entry into India is the business idea; to offer a wide range of well-designed functional home furnishing products at prices so low that the many can afford them,” the company said in a statement. “It takes time to develop new suppliers and sustainable production capacities where some categories do not even exist today, in India.”
To scale up its sourcing for its Indian operations, the Swedish company, had organised four seminars in Mumbai, Bangalore, Hyderabad and Poland, to convince suppliers for the products it plans to procure. “The idea behind the Polish workshop is to attract existing Ikea suppliers in Poland to invest in manufacturing facilities in India, sharing their skills and knowledge and create world class infrastructure and employment,” it said.
Giving a respite to Ikea, the Indian government earlier this month, said in a press note that the local sourcing norm would be calculated from the opening of the first store, rather than from the date of receipt of foreign direct investment, as it would not be possible for some retail companies to adhere to this rule.
“Ikea is grateful to the Indian government for taking these significant steps in terms of policy reforms. To start counting the time to comply with the 30% local sourcing norm from store opening will support brands in building long term sustainable supply chains that are good for India, good for the businesses and will enable better prices to the Indian customers,” the company said in a statement.
Ikea said India is “a very important sourcing market” since it has been sourcing for the last 30 years.
The company plans to double its sourcing in terms of value to 600 million euros and plan to double that by 2020.