Case Study 6

Subject: IKEA Says It Is Ready to Give India a Try

The entry mode IKEA chose for the Indian market would be considered New-Wholly Owned Subsidiary. This is important for the furniture giant because IKEA is known for their specific Swedish design. IKEA is making the goods for sale in one country, and produces a highly efficient cost leadership strategy while protecting intellectual property. “India's move last fall to allow foreign firms to own 100% of some Indian retail ventures, up from a previous 51%, came after lobbying by IKEA and others who wanted to have full operational control of their businesses in India (Sharma, 2012),” as opposed to joint venture projects.

IKEA will also establish distribution channels through establishing relationships with the Indian market. “The application [for investment] seeks permission to engage in import, export, distribution, marketing, and warehousing, and spells out features of standard IKEA stores that would be present in Indian outlets, such cafés and children's play areas (Sharma, 2012).“

A key economic risk faced by IKEA in India would be, “increased regulatory uncertainty, slowing economic growth and stalled proposals to liberalize foreign-ownership caps (Sharma, 2012).” There is evidence of this due to pressure is on the Indian government to, “Carry-out economic reform. Gross-domestic-product growth was just 5.3% in the most recent quarter, the lowest level in nine years. A widening trade gap has left the country with a current-account deficit of about 4% of GDP, pressuring it to attract international capital (Sharma, 2012).”National economy

The political risks faced by IKEA in India would be the ability to acquire expertise and knowledge which is relevant to the host country. India requires a mandate for, “30% of its products [to come] from small-scale local industries, IKEA would have to help those vendors modernize their infrastructure and manufacturing capabilities to ensure they can offer world-class...