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India

As Ikea tests the waters in India, five companies that faced all kinds of hurdles in one of the world’s most populous markets

India has lured many a Western multinational, but not all have made a smooth entry to a market seen as having huge potential. These five companies have faced various challenges in their quest to make it in the country of 1.3 billion

PUBLISHED : Thursday, 09 August, 2018, 6:47pm
UPDATED : Thursday, 09 August, 2018, 6:47pm

After years of preparation, Ikea’s first store opened on Thursday in India. The store, in the city of Hyderabad, will introduce Indian consumers to the “do-it-yourself” philosophy of the company and will sell 7,500 products.

In preparation for its opening, Ikea staff scrutinised the interiors of 1,000 Indian homes to better understand how people there live.

Do-it-for-me, not DIY, and hold the meatballs – Ikea opening in India

The Swedish chain plans to open further stores in New Delhi, Mumbai, and Bangalore, and future expansion plans include stores in Chennai, Pune, Ahmedabad, Surat and Kolkata. Yet India has proved a difficult market to crack for Western companies due to cultural differences and bureaucratic hurdles. We take a look at five companies that faced all kinds of obstacles to success in the country.

1. General Motors

The American carmaker announced it was planning to stop selling Chevrolets in the country at the end of 2017. The news came as a surprise to business insiders, as the country is set to become the third biggest car market in the world by 2021.

GM has struggled for years to grow its car sales in India, where its share of the market fell below 1 per cent last year. The firm has failed to produce cars that are attractive to Indian consumers and competitively priced, yet ruled out the option of partnering with a local carmaker.

Despite giving up on the Indian market, General Motors has retained its assembly plant in Telegaon, close to Mumbai, which now produces vehicles sold elsewhere.

2. Apple

Sales of Apple’s iPhone have fallen behind those of handsets from competitors such as Xiaomi and Samsung in India. Because of India’s high tariffs on imported electronics, consumers in the fastest growing major smartphone market prefer cheaper alternatives to the iPhone.

To mitigate the impact of the tariffs, Apple is mainly offering older, cheaper models in the country, a strategy that doesn’t seem to be working. The company sold only 3.2 million iPhones in India 2017, for a 2 per cent share of the smartphone market, Bloomberg reported.

In recent months the company lost some of its key India executives, including its national sales and distribution chief, the head of its commercial channels and the head of telecom carrier sales, Bloomberg reported.

Nonetheless, Apple CEO Tim Cook remains positive about the Indian market, and has talked about Apple’s “putting a lot of energy” into tapping “huge opportunities” there.

3. McDonald’s

Choosing the wrong business partner can be a nightmare for companies trying to expand in foreign countries. This was the problem McDonald’s faced for years in India.

A five-year-old legal dispute with a franchisee led the global restaurant chain to recommend Indian consumers stay away from 169 of its restaurants in the country, Quartz reported.

The conflict escalated after McDonald’s India announced that it had terminated its franchise agreement with Connaught Plaza Restaurants (CPRL) on August 2017, and called for the immediate closure of the outlets controlled by its former partner. CPRL kept the outlets open.

After more than 20 years in the country, McDonald’s is still running its Indian operation at a loss, and the legal battle with CPRL caused McDonald’s India a loss of US$44 million in the financial year that ended in March, The Economic Times reported.

4. Coca-Cola

The ultimate American drink has had a long and troubled history in India. Last year, more than a million traders decided to boycott the company and other soft drink producers, accusing them of putting a strain on water resources in drought-hit Tamil Nadu state, in the southern part of the country, The Guardian reported.

In recent years, Coca-Cola has faced a raft of accusations in India. Last year, it was accused of adding artificial sweeteners suspected to cause health problems to Coke Zero. Ten years ago the firm had to prove its drinks did not contain pesticides residues.

Coca-Cola left the country in 1977 after the Indian government asked it to partner with a local company, and only returned to India in 1993.

5. Vodafone

Telecommunications firm Vodafone’s operations in India have been hindered by an unresolved US$2 billion tax dispute with the Indian government. The UK operator’s problems started in 2007 when it bought Hutchison Whampoa’s mobile network in order to enter the Indian market.

After years of accusations, India’s Supreme Court ruled in 2012 that the company was not liable for any tax on the 2007 deal. Soon afterwards, the Indian government passed a bill that allowed it to levy retroactive taxes, which renewed the row with Vodafone.

An international arbitration court will begin hearing the case next year, but the Indian government has already hinted it may not accept the court’s ruling if it finds in favour of the company.