 "Peter Agnefjall")
A few days after Swedish furnishing major IKEA's CEO Peter Agnefjall met Prime Minister Narendra Modi, the Union government announced changes to foreign investment policies making it easier for single-brand retail companies. Both the demands of the euro 29-billion company - more time to comply with the 30 per cent local sourcing norm and permission to operate e-commerce business - have been accepted. During the UPA government, too, IKEA had managed to convince the authorities to change the 30 per cent sourcing from Indian MSMEs norm to "preferably MSMEs". Agnefjall spoke to Nivedita Mookerji in an emailed interview. Edited excerpts:
When you met Modi during your recent India visit, did you discuss the challenges for the retail policy? Did you get any assurance that some of the policy conditions that could be a hurdle for foreign investment would be eased?
Meeting the prime minister was an important step in our India expansion plan. The discussion was around some important topics such as the sustainability agenda, with investments in skill building, women and child rights, and also ways to contribute to development of the retail sector in India. The discussions also included the norm of 30 per cent local sourcing, where we seek an adjustment. We also requested him to open up e-commerce to single-brand retailers as another sales channel. We received a very optimistic and positive response from the government.
Why did you seek changes to the sourcing norms?
We asked that the five-year period for 30 per cent local sourcing should be calculated from the first IKEA store opening rather than the first investment. It takes time to develop new suppliers and sustainable production capacities, where some categories do not even exist in India at present. IKEA intends to source much more than 30 per cent from India, not only for India stores but also for the global IKEA stores, But to reach that goal within five years of its first investment, which was made in 2013, would have been a challenge as the first store has not yet opened.
Under the revised single brand retail policy there will be a case-by-case review for high-tech companies and sourcing conditions may be completely waived for them. Do you think there should be any discrimination between say IKEA and Apple in relation to the sourcing norms for single-brand retail companies?
We are happy with the changes that have been announced by the government, including the 30 per cent sourcing from the time the first store is opened.
What are your targets for rolling out stores in India?
Our short-term target is to open stores in Delhi NCR, Mumbai, Bengaluru and Hyderabad and to find more suppliers in both existing and new categories. We look for sustainable sourcing solutions for local raw materials and to find local entrepreneurs to make long-term partnerships. Together we will invest time and resources to create large-scale modern industrial set ups. Our store roll out is based on an investment of Rs 10,500 crore and our plan is to open our first store in 2017, and to proceed investing into more stores.
Is IKEA planning to invest more in India than what was proposed in the application made in 2012?
IKEA has big and exciting plans for India, both for opening stores as well as growing the supply chain. Our India suppliers will also sell to the global IKEA stores and this will create many employment opportunities in India. Today, we already have about 45,000 people employed directly through our suppliers and around 400,000 in the extended supply chain. We aim to double our sourcing from India from the beginning of 2020. Currently, we source products worth around euro 300 million from India.
What can we expect instead of meat balls at your restaurants in India?
The IKEA restaurant is an important part of the total shopping experience at our stores. In many countries, people really look forward to eating at the restaurant or the bistro. In India, we are working to develop a relevant food offer that will be Swedish at heart but Indian in expression. Expect to see some interesting variations like the chicken and veggie meatballs but also some authentic Swedish offer.
How important is India in the global pecking order now? And how is that expected to change over the coming years?
India is a very important and long-term market for IKEA. We expect India to play a big part and become one of our biggest retail markets going forward.
What is the significance of India in relation to IKEA's R&D for new products and sustainability?
Through our 30 years in sourcing, India has always been very inspiring for the company. A few years back we created the India-inspired and -produced collection called "True Blue". We also work with social entrepreneurs to create unique handmade products from local raw materials using local skills. About 1,200 women are already part of this initiative. Besides, our designers work closely with Indian suppliers to create innovative designs and products on the factory floor, utilising local skills and capabilities. Recently, we collaborated with the National Institute of Fashion Technology design school to create a unique collection for our stores.
