Ikea\'s expansion into India PDF

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The assignment discusses the trends and demographics in India that would favour Ikea's expansion into the country....

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What trends and demographics would favour Ikea’s expansion into India? Ikea’s expansion process in India was proven to be difficult considering that it has been decades ago since the Swedish flat-pack furniture giant first applied to venture into the Indian furniture. However, it was not until 2013 that the company managed to finally get the approval from the government to set up a shop in the country considering that there are laws and regulations put in place to restrict foreign companies from entering the Indian market which aim at protecting local shopkeepers (Bhundun, 2016). While the journey of establishing its physical retail presence in the country has been challenging, there are some significant trends and demographics changes occurring in India which would favour Ikea’s expansion into the country. These trends and demographic changes include the emerging middle class dominated by millennial-age, growth of Indian retail industry, increasing digital’s influence on larger consumers’ spending, changes in governmental policies and regulations, the promising growth of home furnishing market in the country, as well as the shift in consumers; purchasing attitudes. a) Emerging middle class dominated by millennial-age According to Das (2014a), strong economic development of India for the past decades has led to a substantial increase in the people’s living standards and created a vibrant middle class, with almost 30 million Indians were reported to possess disposable income of over US$30,000 (Jain, Singhi and Singhi, 2017). Not only that, the growing numbers of middle class in India is characterized by millennials considering that the country is the home to more than 400 million Millennials which account for one-third of the overall population of the country and 46 percent of its total workforce . Jain, Singhi and Singhi (2017) argued that the change in the demographics of the country with the emergence of this middle class Millennials will result to a change in their purchasing decision considering that younger people were reported to put more emphasis on lifestyle considerations and the need to stay up-to-date instead of the need for functional necessities in making their consumption and purchasing decisions. b) Substantial growth of Indian retail industry Sikri and Wadhwa (2012) argued that retail industry present an extremely significant part of the Indian overall economy considering that it represents more than 10 percent of the country’s Gross Domestic Product (GDP) and is the employer to almost 8 percent of the overall population as according to the statistics released by India Brand Equity Foundation

(IBEF) on March, 2018. Not only that, the statistics also further revealed that India represent the fifth-largest global destination in the retail space with the overall retail market of the country forecasted to increase by 60 percent, consequently reaching US$ 1.1 trillion by 2020. Retailing in India can be further categorized into two categories namely organized and unorganized. The unorganized retail market in India is dominated by small retailers consisting of millions of street and pushcart vendors as well as small retailer stores that have been in the Indian retailing industry for centuries (Raghavendra, 2013). Organized retailers on the other hand refer to the larger Indian and multinational companies including licensed retailers and national brands (Roy, 2011). Ikea is one of the examples of organized retailers. While it is believed that the organized retailers are only accounted for between 3 to 5 percent of the sales volume in the Indian retailing sector, the figure is expected to show a substantial growth to 20 percent by 2020 as reported by Halepete and Iyer (2008). c) Increasing digital’s influence on the larger consumers’ spending As has been reported by many reports and articles, the Internet plays an important role as an increasingly pervasive factor in India’s retailing and commerce industries. This was supported by the significant growth of the internet penetration from merely 8 percent in 2010 to almost 25 percent in 2016 (Jain & Sanghi, 2016). The figure is expected to continue to grow to 55 percent or more by 2025 when the number of Internet users reach 850 million people. The rapid growth of Internet usage among Indians will lead to a few new trends in the spending and purchasing patterns of the consumers. One of these trends is the increase in the digital’s influence on broader consumer’s spending and purchasing behaviours. According to a statistics released by Jain, Singhi, and Sanghi (2017), spending that is digitally influenced currently account for almost $45 billion to $50 billion a year, and the figure is expected to increase more than tenfold to $500 billion to $550 billion and will account for 30 to 35 percent of the overall retail sales by 2025. This growing number of spending that is digitally influenced signifies the attractive market for e-commerce in India which can be tapped by Ikea. d) Changes in governmental policies and regulations One of the most challenging aspects that hinder Ikea’s previous effort to establish its physical footprint in India is due to the restrictions imposed by the Indian government which requires foreign retailers ensure that 30 percent of their products sold in India to be locally manufacture as reported by an article published by BBC News dated June 20, 2016. This strict regulation imposed upon foreign companies however was later revised after the general

election of the country took place. According to Bhundun (2016), the general election and its outcome turned out to be a key turnaround moment following the election of Bharatiya Janata Party (BJP) led by Narendra Modi who later revised the regulation by allowing 100 percent foreign direct investment (FDI) for single-brand retailers and permitting up to 51 percent FDI in multi-brand retailers. The current policies and initiatives adopted by the Indian government enable foreign companies such as Ikea to invest in the country thus making it a preferred investment destination (Bhundun, 2016). The new policies also have significantly reduced the trade barriers for foreign companies to invest in the Indian market thus allowing companies such as Ikea to capitalize on the large untapped market in the country. e) Promising growth of Indian home furnishing market Although it was reported that the market for furniture in India is still relatively small, representing only about 0.5 percent of the country’s GDP and ranked 14 in the world as according to the statistics released by IAFP (2015), a new statistics compiled by Euromonitor signifies a positive growth of the market in the future. According to the data released by Euromonitor (2017), the home furnishing market in India was noted to grow at a compound annual growth rate of 10.9 percent between 2011 and 2016. They further forecasted that growth in the sector will be faster between 2016 and 2021 at 11.2 percent. This data was further supported by a report published by The Hong Kong Trade Development Council (HKTDC) in 2017 which forecasted Indian furniture market to grow in worth over $27 billion by 2022 therefore represents a huge opportunity that supports the expansion for furniture retailers such as Ikea. f) Shift in consumers’ purchasing attitudes Das (2014b) argued that recent studies have revealed that Indian consumers’ attitudes about a particular store have changed with it now being positively linked with the location and convenience offered by the store as well as the trustworthiness of the staff and how helpful they are. Goswarni and Mishra (2009) further revealed that Indian customers prefer larger retailers as compared to the traditional shops dominating the retail sector due to factors such as cleanliness, promotional offers and the availability of the exclusive store brands. According to Ghosh et. al. (2010), one study conducted found that younger consumers including the Millennials are more likely to visit large name brand stores. Promisingly, this trend would support Ikea’s expansion into the market considering the strong brand reputation that it has in the furnishing sector as well as the service experience that it has acquired from hundreds of its outlets across the world.

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