BOMBAY, India — Swedish retailer Ikea plans to invest $1.9 billion to set up shop in India despite its lingering concerns about the country’s supply chain regulations, the company said Friday.
India’s commerce ministry said Ikea had applied for permission to initially open 25 stores through a wholly owned subsidiary.
“We are eager to set up our first store in the country, subject to approval of the Government of India,” Ikea said in a statement.
Ikea has long looked at India’s fast-growing retail market, but concerns about India’s stringent regulation of foreign retailers had kept it away.
In January, India changed its investment rules for foreign retailers, allowing single brand companies like Ikea to open wholly owned subsidiaries, rather than just own 51 percent of joint ventures. The government failed to push through a more contentious measure that would allow supermarkets like Wal-Mart to open stores there.
Ikea has expressed reservations about the requirement, under the new regulations, that foreign companies source at least 30 percent of their products from small Indian industries and artisans, a move the government intended to stimulate local production.
The commerce ministry said Ikea had discussed those concerns with Indian officials and found “suitable answers,” leading to the decision to invest. It offered no further details.
Ikea said it already has 70 suppliers and 1,450 sub-suppliers in India, which include many small industries.
“We will source at least 30 percent of the purchase value of products sold in India from our direct and indirect supply chain comprising Indian small industries,” Ikea said. “In the longer term however, the mandatory sourcing of 30 percent of the value of goods sold in India from domestic small industries remains a challenge.”
Ikea urged the government to be flexible about its definition of small industries going forward, in order to keep prices for Indian consumers low.
“For the Ikea Group to secure low prices and truly benefit the Indian economy and society, small industries need to be allowed to grow and develop,” the company said. “It is therefore important that the definition of small industries in the future is reviewed and provides flexibility.”
Ikea also said it planned to increase sourcing from India for its global stores.
Business, Pages 23 on 06/23/2012