Being in India Helps Us Fine-tune Business Model

Swedish furniture retailing giant IKEA, which announced its India foray in June 2012 with around `10,500 crore of nvestment, but is yet to see its first ndia store start operations, says the country needs to do a lot on policies for operating businesses. In an interview to CR Sukumar, IKEA India’s chief executive officer (CEO) Juvencio Maeztu said India made immense progress over the last few years on policies on allowing investors set up businesses in the shortest possible time. Appreciating the efforts of the government to get the Goods and Services Tax (GST) Bill cleared for global giants to smoothly operate their businesses, Maeztu said India should look at improving policies pertaining to labour laws and labelling of products, among others. Excerpts:

How do you assess your India journey so far?

Looking backward, I can say it was very good. When I came here four years ago, we didn’t have a big policy at the national level. We didn’t have land. We had suppliers in the textile business, but not n the furniture business. We had a lot of unknown things. Four years later, we have ticked almost all the boxes. From a qualitative point of view, India today is contributing a lot to us. Being in India is helping us fine-tune the business model.

How do you see the ease of doing business in India?

I’d like to talk about two types of policies -one to establish a business and the other is to operate the business. India has made big progress in the last few years on establishing businesses. It is easier to start a business in India when it comes to foreign direct investment rules and permitting process with fast-track approval process. This doesn’t happen anywhere outside India. I see big opportunity now to start work on policies to support the operational part of businesses. A couple of examples where India can be much better. The issue regarding labelling, which is important in retailing. Compared to other countries, we have a big opportunity to simplify the labelling norms, which will help in better flow of products and avoid double labelling pertaining to MRP. Another area is labour laws. We are committed to a policy of 50% women and 50% men in our co-worker base, which means we have to create preconditions for women to join us. We have to have policies for supporting women to work in the evening or night shifts, which is not possible now. We have to have policies to have 24×7 operations.

What are the constraints for global retailers in India?

One is almost gone, which is the Goods and Services Tax (GST). This has been a massive thing. The biggest benefit of GST is sending a strong signal about creating confidence. We need to have a more simplified process when it comes to costing, moving goods within the country and labelling, everything related with the movement of goods between the states and from the ports to the consumers.

How do you see the political stability in India and the new government’s policies?

There is a genuine attitude to work together for a better future. We feel it is the right time for us from both at the Central government and the state governments since regardless of parties in power, there is a movement and healthy competition among states. It is a good time for the Indian society as we see the middle class is growing. More women are now working. We see even cab drivers with smart phones and buying online. This is the real change.

What would you advise the government s going by your experience in India for the last few years?

We have already started conversations with seven states that the states should have a retail policy since retail is becoming a new sector. The biggest challenge for me is the infrastructure around the land such as right accessibility, right highway and right nature of connectivity.

How much is IKEA sourcing from India at present? How much do you want to step it up in the near to medium term?

We are currently doing sourcing of more than 300 million Euros. This will double and double and double as we keep opening stores in India. We are on an unending journey both from the retail and sourcing side. It depends upon how fast we open stores. We will expand the sourcing possibilities, not only domestic sourcing for local stores but for also the global supply chain, mainly in textiles. In future, we will see more products in different categories.

What are the time schedules for your India plans of 25 stores involving Rs 10,500-crore investment?

We are opening our first India store in Hyderabad. Then we will be opening in Mumbai, Karnataka and Delhi NCR.These 25 stores will come up in the next 10 years. But it will not stop there. It will be a journey of 100 years and more.India is going to be a better, safer, cleaner and richer in the next 50 years.We will have stores in Hyderabad, Mumbai, Delhi NCR and Karnataka in the first phase and expand with more stores in these four cities. Then we will go to more states with stores in Chennai, Ahmedabad, Surat, Pune, Kolkata and Kerala. From there, we will go to other places.

Your India entry plans were announced in June 2012 and your first India store is yet to take off.What has caused this delay?

The reason is that we take long-term decisions. We are a production-oriented retailing company. Normally, for a retailing company you go fast in expansion, rent locations in shopping malls, and you buy and sell. For us, this is the last point. The first point is, do we have the right preconditions from the legal frame point of view. If it is yes, fantastic. If no, let’s work with the government to secure them. Then we have to secure the supply chain. In our case, we do big commitments and big investments with suppliers because of the conditions -it has to be environment-friendly and socially-responsible.All these things are putting pressure on the supply chain and you can compensate if you work with long-term partnerships with suppliers.

These partnerships take time since they have to do investments and we have to support them. Then we buy the land whereas most of the retailing companies rent or lease land. We are investing Rs 700 crore on a single store in Hyderabad. It is a big investment. We have to feel very safe that the location is right and infrastructure and accessibility is right; the title is right. All this due diligence is super important for us. We don’t come here to rent a location and shut down and go if it doesn’t work. Once we say yes to investments, it is a one-way journey and we cannot go back. We have to feel 100% confident. We are not here for the next five years but for next 100, 200 or 300 years. After spending time on legal framework and land acquisition, we are now in the process of hiring people for operations.

160 total views, 2 views today