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.
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 of IKEA
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 of IKEA
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
6. II. Distribution strategy
Distribution 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. II. Distribution strategy
Success 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. II. Distribution strategy
Success 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. II. Distribution strategy
Success 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. III. IKEA in India: 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 in India: 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 in India: 3 possible
strategies
Ikea Design vs. Indian typical style
13. III. IKEA in India: 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 in India: 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 in India: 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 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
Indian
Plan B Suppliers
Customers
17. III. IKEA in India: 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 in India: 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/
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 -