Brand ownership issues may not hamper IKEA entry

While the Foreign Investment Promotion Board (FIPB)

rejected Spanish fashion chain Zara’s proposal citing brand ownership issues, the same might not happen to Swedish chain IKEA, though the furniture giant has an investor company different from the brand owner. The Zara proposal was rejected by FIPB, a key wing in the finance ministry that vets foreign direct investment (FDI) proposals, on similar grounds.

According to the Department of Industrial Policy & Promotion (DIPP), the brand ownership of IKEA was not likely to be a hurdle for the Swedish company because the IKEA brand in India is owned by Inter IKEA Systems and the investor company is IKEA India BV (Netherlands), a company official clarified. Ingka Holding BV (Netherlands) is the parent for the the IKEA Group of companies.

Recently, FIPB had rejected the Zara proposal, citing breach of a rule framed by DIPP. According to this, the foreign investor must own the brand it is proposing to bring to India. Zara Holdings Netherlands sought to open Massimo Dutti brand of stores in India. The application was made by Zara Holdings Netherlands but the brand is owned by Inditex, a euro 13.8-billion (Rs 94,386 crores) Spanish retail chain.

The euro 25-billion (Rs 1,71, 006 crores) IKEA and DIPP are continuously in talks over issues related to the mandatory 30 per cent sourcing from small industries, thereby delaying the application to FIPB. The Swedish furniture company, with stores across the world, had raised many concerns related to this mandatory sourcing in its June 22, 2012 application.