#146 From Meatballs to Gulab Jamun
Almost unnoticed to the global media, Swedish furniture giant IKEA opened its first store in India this month. With the 400,000 sq ft store, the global multinational is hoping to open the path to expansion in a market of 1.3 billion consumers that includes a growing and affluent middle class. More stores are planned for Mumbai, Bangalore and New Delhi over the next two years, and by 2025, IKEA plans to have around 25 stores on the subcontinent. Opening in Hyderabad wasn’t an easy endeavor for the company by any means. After having learned many lessons from its entry into another emerging market – China – the world’s largest furniture retailer has been working hard for the lat six years on making the first Indian store a reality. Traditionally focused on markets that would accept IKEA’s standardized, Scandinavian approach, the company had learned from their experience in China that certain adaptations are necessary. While the design of the store in Hyderabad is identical to IKEA stores elsewhere on the globe, the range of products differs. Given lower average incomes, the portfolio includes hundreds of new products priced at less than 100 rupees, or about $1.45. This might be a nice offset of higher prices customers will have to pay for imported items thanks to customs tariffs that range from thirty to forty percent. Many of the more affordable items are sourced locally, not only for price, but also in order to meet a government requirement requiring the company to “buy Indian”. IKEA also added items such as kitchen equipment that is typical for Indian households. In the process of getting their product portfolio right, they sent out employees to visit about 1,000 homes across India to better understand how people lived. This triggered adaptations such as offering more flexible furniture, smaller beds, and lower heights for cabinets and kitchen countertops. Other products, such as cutlery packs, were cut because Indians use knives far less often than people elsewhere. IKEA is also offering affordable installation services – very important for a market that is used to having a vast service sector and ready access to domestic help. And, of course, the restaurant adapted its menu, too. Instead of meatballs and princess cake, it’s now samosas and gulab jamun. It appears that the company that is infamous for its opaque global organizational structure has worked hard and done everything by the book to ensure success in India. It is to be expected, however, that challenges will come as IKEA expands further. Whether their entry into India will be a success or a failure, it’ll certainly make for a great case study.
October 1, 2018 @ 3:10 am
This is refreshing to see a company as big and successful as IKEA is to take its time to enter an important market like India. It is also a sign of respect to their nation to show that they want to be a part of the market for obvious reasons but not in a way that forces other cultures shopping habits on their people. This ensures success at a much higher rate because it is more in-line with what the people of India are used to. It is also safe to say that with IKEA taking six years to enter the market that the corporate team did their homework using assessments like corporate readiness, product readiness and SWAT to name a few.
I wouldn’t be surprised be if the IKEA international corporate team had hopes of entering the market much sooner but then decided to push it off longer do their findings. They probably realized that adjustments needed to be made to gain traction with Indian consumers and pass governmental regulations. They probably also did a full analysis of wins and losses from their entry into China.
I have a strong feeling that with all the changes made, IKEA should find great success. However, there are still a few things to note that weren’t mentioned above like employment benefits and product packaging. As we learned with Target’s entry into Canada and Walmart’s entry into Germany hiring from the local community can be tricky. Large retailers like IKEA need to have a strong motivational system in place because these types of job are not high paying, so it is important to embrace the cultural differences for the employees just as much as their customers. Secondly, India has a vastly growing automotive industry but the size of vehicles in India are much smaller than they are in other countries, so it is important for packaging of large items to be well thought out and possibly broken down smaller for immediate transport.
There is no doubt that IKEA has done their homework and well pave the way for more stores. They have also done the single most important thing that I have found most companies to overlook and that is slow down. Other companies went international to chase an opportunity to fight off competition or even out of desperation to continue growing. However, things like this should not be rushed because failure in something like this could lead to hefty loses or even total failure that even impacts the company in its home country.
This was a great read and great example of a company going international the right way. Thanks!
February 26, 2019 @ 6:59 am
It’s great to see IKEA branching out into the Indian market, and I’m sure they have certainly learned some valuable lessons from when they first entered China. Luckily, the company has recently been doing very well in China (though it took them just over a decade before they started showing a profit here). IKEA is very much a “do it yourself” company, with their flat packaged furniture that consumers have to assemble themselves. So at first glance, it doesn’t seem that IKEA would be very popular in a market such as China – since labor is relatively cheap here, China does not latch onto the DIY craze as some other countries do, since they can afford to just pay someone to do the labor. But, they have made adjustments to their business strategies in order to appeal to this particular market. They’ve placed their stores in more urban areas near the rail system, where most consumers spend their day (vs in the US, where stores are in more suburban areas near highways). They also market their product differently in China than they do in the US, where they are known for having very low priced, affordable furniture. In China, where materials and labor are very cheap, they present their brand as being more for the middle class. Making these kinds of tweaks to their business model allowed IKEA to be successful in a market that otherwise may have turned their noses up at the idea of another DIY-focused company. Hopefully with the knowledge they have gained from this venture, IKEA can take these lessons and be successful in India as well.
February 28, 2019 @ 6:23 pm
It’s great to see a company as large as IKEA entering the Indian market and adapting its product offerings and even their restaurant menu to fit the Indian culture. With it taking the company six years to enter the market, I hope it is safe to say that the management team did their due diligence on the product readiness, target market selection, and corporate readiness- it seems from this post that IKEA has. It’s nice to see that this giant chain took the time to visit over 1000 Indian homes to ensure that their products meet the needs of the market they are planning to target and accordingly make adaptations to their offerings. In order for a large chain store to be successful in a country where the middle class is developing quickly, it’s necessary to offer products at prices that are affordable to them otherwise why enter the market at all. For IKEA, that is clearly not the case. Adjustments were made and hopefully this will allow this chain to be successful in this market and allow them to grow their number of stores in this global market.
March 12, 2019 @ 1:49 am
It is very interesting and wise the approach that IKEA took to avoid mistakes an/or short comings in their entry to India. I am a big believer of making use of lessons learn and by them using the lessons they learned from opening their first store in China they may have saved themselves from major headaches. They may have taken 6 years to open that first store in India yet all their preparation, market research, and adaptations t their products line, price, etc. should pay off. Time will tell if all that effort will pay off.
March 14, 2019 @ 10:28 pm
It is essential for an expanding business to strategize according to local needs. When entering a new country with a different culture and income this can make or break the success of the globalization. I think it is great that IKEA spent time and resources researching the culture and needs of the Indian Market before opening shop. Adjusting their pricing, inventory, and food offerings to better the community will help ensure integration into the new market. While it is important to “buy Indian” and use local resources, IKEA must also stay differentiated from existing furniture stores and maintain their identity. With a saturated market, individuals have a variety of choices when making buying decisions. It will be a careful balance of bringing the great characteristics that have made IKEA successful with integration to the local community needs. Marketing will also play a vital role in IKEA’s future success in India. Advertisements and marketing will need to be developed to meet the new regions desires as well.
March 23, 2019 @ 5:12 pm
It is great to read how IKEA performed its due diligence before opening its first store in India, but 6 years of preparation really seems like a very long time. Of course IKEA had learned its lesson from its experience with China and clearly adaptations were necessary, but I am wondering whether IKEA exaggerated by over-adapting to the local culture and losing its core features. But where do you draw the line? Obviously it doesn’t make sense to sell knives, if people don’t use them or what is the point of selling beds that people cannot fit in their homes? But personally, I believe that samosas for lunch is taking adaptation too far. Part of the experience when shopping at IKEA is its Swedish origin. Therefore, of course we expect meat balls for lunch. Being from Austria, I would not like to eat Schnitzel there. I hope for IKEA that it will pay off financially to invest all of this time in adaptation to the Indian market. Nevertheless, personally I believe there is a limit to adaptation and core features of the company should remain recognizable. At least in Europe IKEA really emphasizes its Swedish origin in marketing campaigns, a feature which seems to have disappeared entirely with the Indian market entry. The future will tell how successful IKEA will be, but even if a success, will people even realize that they are at IKEA when eating samosas?
March 23, 2019 @ 9:03 pm
I have to admit that when I began reading this article, I was a little skeptical of Ikea opening a store in India. When I think of Ikea, I think of simple lines, neutral colors, and a minimalistic style of living. Indian culture is full of bright colors and elaborate details. Therefore, I was glad to read that Ikea incorporated kitchen equipment typical to Indian households and spruced up their restaurant menu with Indian foods. I think this is a huge selling point and such an important feature when it comes to international markets. Knowing the culture and researching what would sell not only boosts up revenues but also gains the trust of the host country.
I also found it valuable that Ikea prices their goods reasonably. I grew up in Hungary and wages are very low there; Ikea used to be considered a luxury store. Not to compare India and Hungary but Ikea definitely learned from the past and is using that to their advantage.
March 23, 2019 @ 10:54 pm
IKEA’s initial expansion in India through their store in Hyderabad is a wonderful example of the importance of product modification and localization. One area in which many companies go wrong is assuming that what worked in one country will work in another. Walmart ran into this dilemma when they were entering foreign markets. For example, Walmart tried to sell packaged meat in Germany when Germans like to buy meat from a butcher. These missteps come down to a misunderstanding of what customers in different regions truly want. I liked how IKEA organized a market research project that involved sending employing to visit 1,000 homes across India to observe how people live. This goes beyond what a survey or consumer reports can offer. What a great way to truly understand and serve your customer! In your conclusion, you mention that it is expected that challenges will come as IKEA expands further. What is the reasoning behind this?
March 25, 2019 @ 12:37 am
I find the approach that Best Buy took to take the plunge to venture and enter into the Chinese market was not well strategized or planned. Although they gave the impression that they were acquiring resources in the chosen market and putting in place some kind of supply chain, local expertise, and suppliers they were not exactly educating themselves about their target market-The Chinese. They were mimicking their US sister stores in a foreign market that had its own unique consumer behavior and needs. They decided to open 9 stores at once and in a province of China that was not the preferred site for what Chinese consider “big” brands. They limited their visibility to that one province. Best Buy (BB) treated their target market (The Chinese Consumer) as though they made impulse buys like Westerners. And BB provided no room in their policy for bargaining which is something that the Chinese consumer loves. It is no wonder that they entered in 2006 and had to exit that market and sell all their store there to “focus on challenges in their home market, the United States) between the years 2011 and 2013. I believe BB was not pre-prepared for all the challenges that they encountered in China and the compounding of all the mistakes made caught up to them.
April 12, 2019 @ 7:33 pm
Thank you for the great insight into a bright IKEA’s globalization strategy in India. It seems as if IKEA had made everything right. Economic, legal, political, and cultural issues were considered before going global. Time was taken for going out, asking people and doing profound research. It took them five years after receiving approval to invest in the country’s single-brand retail sector to kicking off its retail journey, which should lead to 25 outlets across the country by 2025. But it is a well invested time and a great example that research in the forefront pays off. IKEA is willing to adopt some products and is even open for high risk. The new store in India, located in the southern city of Hyderabad, is one of the biggest IKEA stores anywhere in the world. It is spread across 400,000 square feet and IKEA plans to invest 105 billion rupees ($1.5 billion) in India over the next several years. But it seems logical due to the fact that more than 50% of India’s population (1.3 billion) are under the age of 25. This makes it a hugely attractive market.
I want to add, that I experienced also that wherever you are in the world, IKEA always feels like coming home to your IKEA-family. Some years ago, we came to San Francisco to stay for half a year and my youngest – who was just two years old – denied eating due to the fact that everything tasted strange for him. After two days we decided to visit IKEA in Emeryville and, thank god, the meatballs tasted exactly the same as they did at home. And everything looked very familiar … IKEA is indeed a very good example of doing everything right and expanding globally in a very successful way.
References:
CNN Business (2018). IKEA’s first India store opens to customers. retrieved from https://money.cnn.com/2018/08/08/news/companies/ikea-in-india-hyderabad/index.html
April 15, 2019 @ 9:40 am
To me, the story of IKEA’s expansion to India illustrates two fundamental sources of competitive advantages of multinational corporations. First, multinational corporations can effectively transcend the distance between their home and host countries, and second, they can leverage what they learn in one country and apply that learning for success in another country.
Concerning the distance between the country of origin, Sweden, Ikea introduced a number of adaptations to:
1. Legal regulations (for example “buy Indian” policy),
2. Economic conditions (numerous low-priced items, and modular products with a cheaper basic form and possible more expensive extensions, as well as additional assembly services at a low price),
3. Social and cultural norms (e.g. less cutlery, more and brighter colors),
4. and the natural environment: packaging lower high and smaller size of many products makes it easier to use Ikea products for the people who are smaller, om average, than people in Scandinavia).
With regard to learning, Ikea learned it a hard way in other countries. Many lessons from the company’s success in China are evident in what we see in the expansion to India, yet the company has also learned from its earlier mistakes. For example, based on the experience from Saudi Arabia, Ikea’s management realized that adaptations are necessary, yet can cause tensions and clashes, and ultimately make customers even question the legitimacy of the company. Ikea in Saudi Arabia removed women from its sales catalogues, which caused an uproar in its home country, and was widely discussed in the USA. In India, it appears, the company was much more careful, and adapted only these features of products and organizational practices which bring Ikea’s offering closer to the Indian customer, without compromising of company’s core values.
The remaining question is whether the company can further expand in India, which is famous for its enormous diversity, and achieve a long-term success across many different locations, which differ significantly in terms of economic conditions as well as social norms. After all, what is a source if success in large crowded cities may not be relevant at all for customers in vast rural areas.
There is also a question of addressing a niche market, or the majority of (potential) customers. For example, by offering only local food, the company may lose an important niche market of more cosmopolitan customers who actually appreciate Ikea for being foreign or specifically Swedish, like Indians who do eat beef or pork. Is the company only for the mainstream, “typical” customer? In a broader perspective, the expansion to an important economically yet very distant market like India once again is pressing the management of Ikea to understand what are the company’s values. And the question remains open: can the company expand globally without compromising its core values?
July 22, 2020 @ 5:20 am
India has a very large consumer base so it is no surprise that Ikea would eventually look to move into that market. Having already been through the woods with their entry into China, Ikea has been able to adjust their business model to allow some necessary local adaptations, rather than just relying on the standardized business practices that worked so well for them in Europe and North America. The team took much more time to confirm their corporate and product readiness for India, taking six years to make sure they were ready for market entry.
Government regulations in India that companies must “buy Indian” encourage the use of local resources, but Ikea has been able to make that into a profitable situation by using the local sourcing for smaller, inexpensive furniture that sell better to the majority of Indians since most have limited income and space in their homes. Ikea did a much more thorough job of market research by visiting 1,000 homes to get a better understanding of what products are actually used by Indians, how to adapt furniture to fit in a typical home, and what food would make sense in their food court before seeking market entry. Also, they recognize that the large service industry in India means that most people would not build the furniture themselves, so having the installation services available is a good means of localization strategy and responsiveness.
July 12, 2021 @ 9:32 pm
It is refreshing to see that Ikea learned from the mistakes they did when entering the Chinese market. When exporting goods or even starting own shops in a country, like in this case, it is essential to analyse and adapt to the local culture. Moreover also economic, legal and political issues need to be taken into account ( e.g. What is the average income in the country? Is my product really cheap in this country? Are there legal restrictions for importing goods? Etc.)
I thinks it´s interesting that they even visited Indian home to understand the living situation better – I never heard of this kind of “market research” before, but it makes absolutely sense to me.
I´d be interested to see how the Indian population will accept Ikea and which problems might still occur.
January 30, 2022 @ 4:17 am
The fact that they actually sent employees to observe the homes of 1000 Indian families says they learned from their experience in India. This is a great approach and is what they should have done in all the countries they have expanded to. They also adapted to their culture by offering Indian food which is boosting their credibility as a company as well. I am impressed about their handling of infiltrating the Indian market with the experience of how it went in China. They definitely learned a lot from that and will probably do great in the next countries they plan to go to.