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Ikea puts off India plan over local sourcing clause
27
Jan '12
Ikea, the Swedish retailer of homeware items, including home textiles, has put aside its plan to open its outlets in India.

According to the notification issued by the Government of India earlier this month, allowing 100 percent foreign direct investment (FDI) in single-brand retail segment, companies investing more than 51 percent are required to source at least 30 percent of their goods from domestic small and medium enterprises (SMEs).

However, Ikea's opting out of entering Indian market over the 30 percent local sourcing clause has come as a surprise to many.

Companies like Ikea are already sourcing about 30 percent of their requirements from India and hence, the clause should not be a hurdle to such foreign brands wanting to set up their shops in India, an expert said.

Mikael Ohlsson, Ikea CEO, said the Government of India's decision to permit full ownership of operations to single-brand foreign retailers in India is “a very positive change”, but it would be easier for food retailers to meet the domestic sourcing clause rather than single-brand retailers who have established, international range of products.

Ikea spokesperson said the company has found that the clause related to local sourcing from SMEs would be difficult for it to meet.

Several foreign retail brands, including Wal-Mart, Tesco and Carrefour, have been sourcing items like rugs and textiles from Indian firms for many years. These brands also intend to open outlets in India, considered to be the third largest retail market in Asia.

Fibre2fashion News Desk - India

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