Stores in India: IKEA can, Tesco can't

Stores in India: IKEA can, Tesco can't

India has finally loosened its law that forces foreign companies to work with a local partner. Good news for IKEA, Starbucks or Marks & Spencer, who only sell one brand. Multi brand retailers like Tesco, Walmart or Carrefour however are excluded from the new law, so they can still only hold a maximum of 51% of their Indian partner's shares.

With its 1.2 billion people and an estimated worth of $400 billion, India is the hottest retail market in the world. The country also has very promising demographic statistics: huge numbers of poor people are climbing up the social ladder and very few people are over 65 (5.5%, compared to 13.1% in the US and 17.3% in the EU).

 

IKEA dreams of India...

“We want to open in India”, was IKEA CEO Mikael Ohlsson's comment in the Financial Times.  “There is a real need of good home furnishings at low price in India.” So far, IKEA has opened no stores in the subcontinent, but this will soon change now the obligation of a local partner has disappeared. As of today, IKEA has come one step closer to the market of their dreams.

 

Marks and Spencer already has 24 stores in India through its joint venture with Reliance Retail, part of the holding Reliance Industries, which yearly earns $45 billion through oil, textiles and retail. Despite the new law, M&S has declared to continue the collaboration, as it is good to have a local partner with insight in the market.

 

IKEA's furniture however seems to be more universal than M&S's textiles or food: most of the protests against this new law are based on the fear that small local enterprises would be threatened – especially in the food business. This is exactly the reason why analysts think the new law will not be extended to multi brand retailers like supermarkets or hypermarkets.

 

... as does Tesco

Currently Walmart and Tesco are already active in India through local partners: Walmart has had a joint venture with Bharti Industries since 2007, running 12 stores. Tesco on the other hand has joined forces with Trent, part of the Tata Group (hotels, IT and steel), and supports their Star Bazaar hypermarkets. As many IKEA stores will start opening in India's urban agglomerations soon, Tesco's impatience to finally start operating their own supermarkets and hypermarkets will only get worse.

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