Swedish firm IKEA, which has proposed to invest Rs. 10,500 crore to set up single brand retail stores in India, has asked the government that it must be allowed to continue sourcing from small units even after the vendors have crossed the mandatory $1 million investment limit.
It has also proposed that the calculation of the 30 per cent norm be done for cumulative periods of 10 years of operations starting with the approval of the present application.
As per the present single brand FDI policy, global retailers would have to source 30 per cent of their requirement from Indian small industries which have a total investment in plant and machinery not exceeding $1 million.
The company, which has filled the application with the Department of Industrial Policy and Promotion (DIPP) on Friday, said that if IKEA group were to comply with this norm, such units will very soon outgrow the stipulated valuation (of $1 million) and become large set-ups.
Owing to the restriction contained in the FDI policy, such small industries may lose out on vast volumes of business from the group, it said.
Moreover, it said that if the company would keep on changing its vendors, such abrupt change would also disrupt the quality of the products that would be released in the market and also the supply chain operations of IKEA group.
“The biggest impact would be on the small industries themselves, as if IKEA group stops doing business with such enterprises, several such industries using IKEA’s designs and expertise would have to close down and hundreds, if not thousands of workers will be rendered unemployed,” the company said in its application.
It said that the company cannot be expected to keep changing its local vendors as it will gravely impact the supply chain, product quality, product cost and consequently the revenues of the company.
IKEA’s proposal comes at a time when the DIPP is considering to relax the 30 sourcing norms as other brands like Apple and Rolex may not be able to meet the requirements.
“DIPP is discussing with MSME ministry for the relaxation,” an official said.
The Swedish furniture retailer further said in its application: “Also, if IKEA group were to time and again revert to less industrialised set-ups (i.e. below the stipulated valuation of $1 million), the firm would not be able to produce and provide in high volumes low-cost high quality products to the Indian customers. This will restrict the growth of IKEA in the Indian market leading so far.
”...IKEA group would continue to source products, components and materials from them and count the value of such sourcing to comply with the mandatory sourcing requirement from such small industries.”
It also said that complying with the sourcing norm is not a day one requirement, as the gestation period of a typical IKEA retail store is 3-5 years and it would be impossible for the company to meet this requirement from day one or anytime soon thereafter.
“Accordingly, IKEA proposes that adherence to the mandatory sourcing requirement be computed, certified and checked for cumulative periods of 10 years each from the date of approval of the present proposal by the FIPB and the sourcing values would include the export values of sourcing by the IKEA group companies from the small industries,” it added.
For a company like Ikea the 30% sourcing from SME's is not practical. Ikea has a very comprehensive programme for supplier development which includes careful analysis of value chain and sustainablity factors in the production systems. Many of these conditions can be met only by big factories.
@DR RK RAO: Don't worry, I don't think they will cut our forests as most of their furniture are made from particle board and not hard wood.
As a matter of Fact History repeats itself.........and very few people saw it coming at the time when East India Company Started trading with India.......rest is history........ Now after 65 Years of Independence the ruling class wants to sell us back . Is this democracy that the people can have a say only once in five years?? Then the government dictates everything. They are here for business and if any one is thinking that they are bringing money to our country then u need more understanding of Business. They will take back more than what they have invested . And the taxes they pay will be from the money they made out of the peoples wealth . Its pretty clear that who is the beneficiary in the long run . I think bilateral trade in the real sense should be exchange of trade between 2 countries. Indian manufacturers would be given an equal opportunity to sell products in Sweden of the same amount which Ikea sells here and pay the same taxes. That would be more justified.
Oh yeah, this multinational is going to invest 10,000 crores in India? People in the United States do not want IKEA in their neighborhood. As far as quality goes, Shelva said it clear, if you move the self assembled furniture it breaks, quality of this retailer's product is zero. They can give you some nice catalogs, with nice looking pictures for you to live a minimalist life with these furniture, and only if there is no pollution in India, the product will look the same in a few years after purchase. I hope they put in a call to their counterpart Uninor before they invest to be able to see if they will ever make a profit in India. They are going to loose their investment big time. Good Luck, IKEA!
I agree Jitendra, this is also how the govt encourages corruption: when you reach the 1 mil. limit, start a new one in your grand-niece's name which will supply components to you...:)
@Shelva: I have been using IKEA furniture since 1999. In fact the study room table that I am writing this response is from IKEA, the chair I'm sitting on is from IKEA, the trusty modern looking wall clock is from IKEA. Granted IKEA is not the epitome of quality but then it is not the most expensive furniture in the market either. Point is IKEA provides good value for the money, if it was so bad then they would not be so successful or exist for such a long time in a competitive market as the US, will they! Besides if they are bad quality then Indian consumers will shun them, they won't be successful as you yourself predict. So why do we need to prevent them from coming to India! What are we afraid of? It helps if one is logical in their writing otherwise it just goes to show irrational fear mongering and treating the public as too dumb to figure out what is good or bad for themselves, that is patronizing and full of hubris, won't you agree?
Shelva: Consumers will decide if the product will fail or not. Why are you so worried if the product were to fail anyway! Ikea, in the U.S., no where monopolized the market and caters to a small but growing niche market of young and urban demographic. Ikea creates great value by using a combination of innovative design, colors, ease of packaging and assembly, and low cost. Ikea's low cost offerings is a result of mass sourcing of components that are used in a variety of designs across its product portfolio. Obviously, the govt has not foreseen the possibility of small suppliers growing big as a result of Ikea's business. And for Ikea, it would not make sense to keep on shifting its suppliers. Can be a good textbook example of why such populist regulations are nonsensical and retrograde.
IKEA will take over all timber mills, and start cutting our forests, and pump the profits back to Sweden. We need water, electricity and a corruption free atmosphere and if we can't achieve this we will be doomed for ever.
IKEA is joke.i live in england and my house is full of Products from IKEA Most of them have a life time of One month.They make most of Products from Paper.The Good thing about IKEA is their finished Product is Good and cheap.
Ikea never purport to sell high quality furniture. Ikea furniture are not meant to be handed down as heirloom. What they offer is 'value for money' household items (including furniture) which most families can afford, use for some years and move on to better things. In our home we have a number of items from Ikea which we bought over the past 15 years. Most of them are of better quality than comparable items from other retailers. Additionally, these goods are cheaper than the competition. Some of them we discarded after a few years while many things are still in daily use. Much depends upon how you treat the goods. One should use but not abuse. Hence, Mr Shelva, please try to understand their business first before you denigrate an organisation unnecessarily.
Why cant we start our own IKEA? When we have the people the material and the power. Why another walmart/ikea/carrefour?
Low cost, high quality product??? I know what quality you sell in Europe. If the assembled furniture is moved, it breaks. With this quality you will never be successful in Indian Market. In Europe, people don't have a choice. Real wood furniture is luxury here. Kick them out ... they are worthless. They just kill the local market and monopolize later.
This is a perfect example of well-intended but short sighted govt policy leading to stunted growth in Indian industry. Suppose I have a factory that qualifies as a small scale industry and I start supplying to IKEA. My products are good and IKEA is buying more, pretty soon I need to hire more people and expand my factory. But then I cross the threshold of small industry label and IKEA no longer can buy from me as it has to now find another 'small industry' to meet the govt requirements. Granted this is a bit simplistic analogy, hopefully the yesterday's small scale industry would start producing items that were being sourced from large scale industry and the items that were being produced as a small scale industry would now be sourced from another company that qualifies as a small scale industry today (until it too outgrows its 'small' label). I hope govt can come up with a sourcing requirement that makes sense for the retailer and also aids local entrepreneurs. How does China do it?
The UPA government has sold itself to Foreign firms. The PM himself says no external help is needed for India's economy and on other hand is allowing 100% FDI in all sectors sooner or later. Even after 100% FDI, the foreign firms want to relax 30% sourcing norm. UPA is selling the country to foreign firms.
Americans and Europeans are trying to sell their products through by these retail stores in India.Our government should not relax the 30 source norms in the FDI policy. If IKEA gets relaxation then it will pave the way for the other foreign retail giants as well.So the Indian government should think and take decision in favour of India and its citizens.
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