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Europe is still a cash machine, but Ikea likes the look of India

Releasing year-end financial results for only the fourth time in its history, the family-held DIY furniture giant Ikea reported an 8% rise in profits, netting €3.2 billion ($4.3 billion) in 2012. Sales increased 9.8%.  The Swedish company grew its profits despite lifting prices for raw materials, which have increased costs for retailers worldwide, and the ongoing recession in Europe, where Ikea still generates 70% of its revenue.

But Europe’s crucial importance to Ikea may one day be a thing of the past. CEO Mikael Ohlsson is shifting his sights east, highlighting Ikea’s venture into India, a country that has long been resistant to foreign firms. (It was only last September that foreign retailers were allowed to fully own their Indian subsidiaries.) Ohlsson said that the approval process for new stores in India was moving quickly, contrary to the way things get done in Europe. He said the process of completing a store in Europe, from planning to ribbon-cutting, now takes 4 to 6 years, where it once took 2 to 4 years.

Ikea’s move into India was not without hurdles: The government initially wanted to forbid Ikea from selling nearly half of the products it hoped to market and from setting up its flagship cafés inside its stores. The grounds for these restrictions were that Indian retail laws prohibit a single-brand retail company from behaving like a marketplace, and that foreign retailers are supposed to source a third of their products from local brands.

Ikea, which is known globally for its wide array of functional, affordable store-brand home furnishings, convinced the agency overseeing foreign investments in India to change its mind. The company now plans to open 25 stores in the country, where there are no direct competitors of its kind.

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