Why Foreign Investors Need to Look at Political Risks in India - Essay Example

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Emerging markets are the new development strategy of almost all multinational corporations at present. Several rounds of crisis in the western countries, uncertainty on the future of developed nations, and other economical and demographical issues at the developed countries had resulted in the companies looking for opportunities in the emerging economies…
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Why Foreign Investors Need to Look at Political Risks in India
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Download file to see previous pages Some of the emerging markets that have captured the attention of intellectuals around the world are China, India, Brazil, Russia, Mexico, Indonesia and Turkey. Among the above list, China and India are the markets with the greatest potential. These are the markets where companies enter for quick return on investments. “Even though emerging markets generally do not have the level of market efficiency and strict standards in accounting and securities regulation like advanced economies -- such as the United States, Europe and Japan -- they are most sought after by investors for the prospect of high returns, as they often experience faster economic growth as measured by GDP.” (Rediff Business, 2011) China’s economy is the fastest growing economy in the world at present. Similarly, India’s growth rate is expected to surpass even that of Japan. Studies by various organisations show that the emerging market economies are set to overtake all the G7 economies by 2020. Such studies do have enough reasons to substantiate their views. This essay will deal with the strategic expansion of IKEA with its Greenfield operations in India. India had recently opened up its market for 100% Foreign Direct Investment (FDI) in the retail sector. IKEA did not waste even a day after the decision, the company has started framing board room strategies for the Indian market. Company IKEA is undoubtedly the world’s largest furniture retailer. Though furniture is its flagship product, it is also one of the largest home furnishing retailers in the world. The Company which was established in 1943 is headquartered in Leiden, Netherlands. What make IKEA different from the competitors are its modern and unique furniture designs. Moreover, IKEA designs are also eco-friendly compared to the competitors. When it comes to managerial efficiency and vision, IKEA is a benchmark for any businesses. The company gives extreme focus to cost control and product development because of which they are able conquer new markets without much effort. Cost control gives them an edge over the pricing. The continuous product development helps them to keep pace with the changing trends. IKEA has been on a continuous growth path ever since its inception. The story is no different in 2012 too. “Net profit at the privately-held Swedish firm, known the world over for low-price, self-assembly, flat-packed furniture, rose 10.3 percent to 2.97 billion euros ($3.8 billion) in the year to last August.” (Reuters, 2012) Russia, China and Poland were the countries that contributed more to the overall sales of the company. This huge increase in profit is despite of the hike in raw material prices. Even at a very high raw material cost the company did not pass it on to the customers. It continued supplying products at lower prices as it used to be. The company is planning for about 3 billion euros of investments worldwide in the coming years. IKEA has constituted its product portfolio in such a way that even during a slump in demand due to economic problems, there are products that are focussed on the cost conscious customers. Because of this, IKEA is able to maintain sales and market share even during a slump in the economy. IKEA is now focussed on its strategy for the emerging markets such as China, India and Russia. Investment Unlike many other companies, IKEA wants their business units to be under their sole ownership. They are not ready for partnering with a domestic player which is why they backed out from Indian market entry years before (India permitted only 51% FDI in retail then). They enter the market with a careful study and examination of the market from ...Download file to see next pagesRead More
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