India agrees to open up shop to IKEA
The Indian government has agreed to start the liberalisation of its retail sector and allow single brand stores owned by foreign companies to trade. This will enable retailers like IKEA, Adidas and Nike to set up their own stores in the country.
Until now, foreign retailers had to be a minority partner to a local company. Few international retailers thought the risk was worth the reward, especially given the lack of large scale retail experience within the country. Consequently India has stood out as the world’s most fragmented retail market with very few multi-store retailers.
The change is likely to benefit local producers too though since it will be a condition that at least 30% of goods must be sourced from small Indian businesses.
The reform has large political implications.
Firstly, it is a test of the Congress government’s strength. Last month the government had to make an embarrassing climb down over plans to allow multi-brand retailers (effectively supermarkets) to be owned by foreign companies. It found the backlash from self-interest lobbyists and small business owners was too great.
Secondly, the move could pave the way for full reform of the retail sector – including supermarkets – and ultimately other industries.
Finally, it will start to challenge the powerful business families that yield serious power within India. By opening up the country to foreign companies, the business oligarchs could start to see their grip on Indian life eroded.
IKEA, the Swedish furniture retailer, is known to have plans to enter India that were contingent on this change.
Mikael Ohlsson, the CEO of Ikea, has said before that he has a dream of selling flat-pack furniture to India’s rising middle class.
Marks and Spencer took a different view to the announcement however. The UK clothing and grocery retailer already has s joint venture partner in India and said that it is committed to continue working with them because it was important to have a partner with local knowledge. The company has a history of failure in international markets and now takes a much more conservative approach.
