IKEA's Distribution Strategy in India

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In this presentation, we explore the various challenges IKEA would face while setting up distribution in India and highlight the various strategies it could adopt to overcome the said challenges.

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  • Challenges:Indian FDI law mandates to source 30 per cent material locally.High cost in transportation in India:Increasing Fuel prices shoots the road transport cost very highTraditional rail road transport not reliableFew sea ports restricted to few states only
  • Challenges in India:Stores Likely to be 350,000 square feet (costly with the increasing real estate cost in Metros)No single mall in India with this spaceLarge bays required for unloading and loading of furniture, Not present in any existing facility in IndiaIKEA energy regulations:Goal to achieve 100 per cent renewable energy run storesWind turbineSolar powerIKEA Goes RenewablePermission to open stores with IKEA restaurants and café inside not granted in IndiaChallenge to change the format as rest all 300 stores have a café or a restaurant
  • Existing Furniture Retail Chains in India ( that can serve both as a competition or a partner)1- Pantaloons Retail (Brands:Hometown, Furniture Bazar, Collection-i)                       -small area                       -NO internet presence as such, not much retail through websites                       -Located in Malls and no dedicated stores                       -Do not deal in ready to assemble furniture2- Godrej Intero (India's largest furniture retail chain)                       -100 times smaller than IKEA                       -Wide Distribution network through local retail stores3-TATA Group (Brands:Lifestyle, Westside, Landmark, Croma, Titian)                       -Strong public image                       -No presence in furniture retail4- Reliance Group (Brands:Reliance Fresh) -Recently venture in the retail with plans to invest $6.67 Billion -
  • IKEA's Distribution Strategy in India

    1. 1. IKEA’s plans to enter India International DistributionNikhil GargLov LoothraEmilie PerrusselAnne-Laure Laclau
    2. 2. SUMMARYSummaryI. Presentation of the companyII. IKEA’s General distribution strategyIII. IKEA in India: 3 possible strategies  Plan A: Leverage the Global Production & Distribution Network  Plan B: Setup a Production & Distribution centre  Plan C: Identify established player for a Joint VentureIV. SuggestionV. Conclusion
    3. 3. I. Presentation of IKEAIKEA Founded in Sweden (1943); HQ in Netherlands Privately held, international home products company Specialized in affordable self-assembly furniture 338 stores in 40 countries in 2012 € 27,5 billion turnover of which  80% made in Europe  15% made in the US  Only 5 % in Asia!
    4. 4. I. Presentation of IKEAThe IKEA Vision Offer well designed, functional home furnishing products Low prices in order to ensure affordability by most peopleThe IKEA VISION guides the way IKEAproducts are designed, manufactured,transported, sold and assembled
    5. 5. II. Distribution strategyHallmarks of IKEA’s Distribution Global Network Large Volumes Flat Packages Low Costs
    6. 6. II. Distribution strategyDistribution Statistics 27 distribution centers 11 customer distribution centers in 16 countries 41 trading services offices in 30 countries 1380 suppliers in 54 countries Most supplies purchased from Europe 9500 products
    7. 7. II. Distribution strategySuccess Factors Sourcing materials close to the supply chain to reduce transport costs Building DCs closer to seaports so that it can use more of ocean transport and less of road transport Delivering products directly from the supplier to IKEA stores to cut handling cost, reduce road miles and lower the carbon footprint Warehouse attached to retail stores
    8. 8. II. Distribution strategySuccess Factors Using flat packs: reduce costs through reduced transportation expenses, lowered storage space requirements, decreased transportation damage and reductions in labor costs Transporting goods where possible by rail and sea Utilizing fuel-saving techniques that allows to be cost-effective and environmentally friendly
    9. 9. II. Distribution strategySuccess Factors Implementing JDA supply chain management tools  JDA Demand  JDA fulfillment Advantages:  Consolidated suppliers base, helps focus on low cost suppliers  Improved forecast accuracy to drive profits  Cost saving due to long term commitments achieved from near accurate forecasts  Increased overall supply chain visibility  Better coordination in sales, capacity and distribution
    10. 10. III. IKEA in India: 3 possible strategiesForay into India On 21st January 2013, India’s Foreign Investment Promotion Board (FIPB) provided its clearance to IKEA to invest in India Ikea plans to open 25 stores, investing about €1.5 billion over the next 15 to 20 years
    11. 11. III. IKEA in India: 3 possible strategiesDistribution Challenges in IndiaInfrastructureLow % of car ownership & No “DIY” cultureLow Home and Design expenditureCompetitors with very low pricesNo brand awarenessSourcing strategyLegislative and social aspectsScandinavian design too plain
    12. 12. III. IKEA in India: 3 possible strategiesIkea Design vs. Indian typical style
    13. 13. III. IKEA in India: 3 possible strategiesPlan ALeverage the Global Production & DistributionNetwork Pros  Already established: no initial setup costs  Reliable  Consistency of Quality Cons  Costly  Decreased viability in the long run  Legislative constraints
    14. 14. III. IKEA in India: 3 possible strategies Distribution Center (China) Rail / Trucks Swedwood Multimodal Production Center (Europe)EuropeanSuppliers Retail Stores/ Multimodal Warehouse (India) Indian Suppliers Personal Vehicles Personal VehiclesPlan A Customers
    15. 15. III. IKEA in India: 3 possible strategiesPlan BSetup a Production & Distribution center inIndia Pros  Easy to meet local demand  Better coverage possible  Will create jobs for locals Cons  Huge initial time and cost  Infrastructure can be a hindrance
    16. 16. III. IKEA in India: 3 possible strategies Distribution Center (India) Huge Initial Indian Rail / Trucks Cost Production Center Rail / Trucks Retail Stores/ Warehouse Rail / Trucks (India) Personal Vehicles IndianPlan B Suppliers Customers
    17. 17. III. IKEA in India: 3 possible strategiesPlan CIdentify established player for a Joint Venture Pros  Can leverage contacts/infrastructure of the partner  Valuable insights and experience into an untapped but growing market Cons  Imbalance of expertise and/or investment may create conflicts  Initial establishment of a working model may prove to be difficult
    18. 18. III. IKEA in India: 3 possible strategies Distribution Center (Indian Partner) Rail / Multimodal Production Rail / Multimodal Center (India / (Partner) Europe)EuropeanSuppliers Rail / Multimodal (Partner) Retail Stores/ Warehouse Rail / Multimodal (IKEA + Indian Partner) Personal Vehicles IndianPlan C Suppliers Customers
    19. 19. IV. ConclusionConclusion Our distribution plan suggestion Exercising patience Therefore, a well-developed strategic plan with both short-term and long-term goals is extremely important to finally be successful in a huge, diverse, and fast- growing country as India
    20. 20. REFERENCESReferences1. TREBILCOCK Bob, "IKEA: Think global, act local for warehouse distribution", Modern Materials Handling, 25 August 20112. SHARMA Amol, HANSEGARD Jens, “IKEA Says It Is Ready To Give India a Try”, The Wall Street Journal, 24 June 20123. SHARMA Malavika, “IKEA India Plans Give Scant Reassurance to Foreigners”, Bloomberg, 10 January 20134. ROY Rajesh, AHMED Rumman, “Indian Agency Clears IKEAs Proposal to Open Stores”, The Wall Street Journal, 21 January 20135. DAS Sohini, "Local players give thumbs up to IKEAs entry in India", Business Standard, 28 January 20136. http://www.youtube.com/watch?v=11AehTPD-Vg7. http://franchisor.ikea.com/about.html8. http://www.swedwood.com/about-swedwood/
    21. 21. Thank you for your attention!

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