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IKEA's Distribution Strategy in India
IKEA plans to enter the Indian market with three potential strategies: leveraging its global production network, establishing a local production center, or forming a joint venture with established local players. The company is investing €1.5 billion to open 25 stores over 15-20 years, addressing challenges like infrastructure, competition, and cultural differences. A strategic plan with both short-term and long-term goals is crucial for successful market entry.
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IKEA's Distribution Strategy in India
- 1. IKEA’s plans to enter India International Distribution Nikhil Garg Lov Loothra Emilie Perrussel Anne-Laure Laclau
- 2. SUMMARY Summary I. Presentation of the company II. IKEA’s General distribution strategy III. 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 Venture IV. Suggestion V. Conclusion
- 3. I. Presentation ofIKEA IKEA 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. I. Presentation ofIKEA The IKEA Vision Offer well designed, functional home furnishing products Low prices in order to ensure affordability by most people The IKEA VISION guides the way IKEA products are designed, manufactured, transported, sold and assembled
- 5. II. Distribution strategy Hallmarksof IKEA’s Distribution Global Network Large Volumes Flat Packages Low Costs
- 6. II. Distribution strategy DistributionStatistics 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. II. Distribution strategy SuccessFactors 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. II. Distribution strategy SuccessFactors 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. II. Distribution strategy SuccessFactors 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. III. IKEA inIndia: 3 possible strategies Foray 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. III. IKEA inIndia: 3 possible strategies Distribution Challenges in India Infrastructure Low % of car ownership & No “DIY” culture Low Home and Design expenditure Competitors with very low prices No brand awareness Sourcing strategy Legislative and social aspects Scandinavian design too plain
- 12. III. IKEA inIndia: 3 possible strategies Ikea Design vs. Indian typical style
- 13. III. IKEA inIndia: 3 possible strategies Plan A Leverage the Global Production & Distribution Network Pros Already established: no initial setup costs Reliable Consistency of Quality Cons Costly Decreased viability in the long run Legislative constraints
- 14. III. IKEA inIndia: 3 possible strategies Distribution Center (China) Rail / Trucks Swedwood Multimodal Production Center (Europe) European Suppliers Retail Stores/ Multimodal Warehouse (India) Indian Suppliers Personal Vehicles Personal Vehicles Plan A Customers
- 15. III. IKEA inIndia: 3 possible strategies Plan B Setup a Production & Distribution center in India 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. III. IKEA inIndia: 3 possible strategies Distribution Center (India) Huge Initial Indian Rail / Trucks Cost Production Center Rail / Trucks Retail Stores/ Warehouse Rail / Trucks (India) Personal Vehicles Indian Plan B Suppliers Customers
- 17. III. IKEA inIndia: 3 possible strategies Plan C Identify 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. III. IKEA inIndia: 3 possible strategies Distribution Center (Indian Partner) Rail / Multimodal Production Rail / Multimodal Center (India / (Partner) Europe) European Suppliers Rail / Multimodal (Partner) Retail Stores/ Warehouse Rail / Multimodal (IKEA + Indian Partner) Personal Vehicles Indian Plan C Suppliers Customers
- 19. IV. Conclusion Conclusion 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. REFERENCES References 1. TREBILCOCK Bob, "IKEA: Think global, act local for warehouse distribution", Modern Materials Handling, 25 August 2011 2. SHARMA Amol, HANSEGARD Jens, “IKEA Says It Is Ready To Give India a Try”, The Wall Street Journal, 24 June 2012 3. SHARMA Malavika, “IKEA India Plans Give Scant Reassurance to Foreigners”, Bloomberg, 10 January 2013 4. ROY Rajesh, AHMED Rumman, “Indian Agency Clears IKEA's Proposal to Open Stores”, The Wall Street Journal, 21 January 2013 5. DAS Sohini, "Local players give thumbs up to IKEA's entry in India", Business Standard, 28 January 2013 6. http://www.youtube.com/watch?v=11AehTPD-Vg 7. http://franchisor.ikea.com/about.html 8. http://www.swedwood.com/about-swedwood/
- 21. Thank you foryour attention!
Editor's Notes
- #14 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
- #16 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
- #18 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 -