Bookcases and biryani collide as Ikea tackles India

Ikea staff ride in auto rickshaws painted in Ikea colours at a promotional event for the new Ikea furniture store in Hyderabad. (AFP)
Updated 09 August 2018
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Bookcases and biryani collide as Ikea tackles India

  • First of 25 IKEA stores planned for India
  • More than 1000 products priced under 200 rupees

HYDERABAD: Curious customers lay on beds and nestled into armchairs Thursday as Ikea opened its first Indian outlet, hoping to wow a burgeoning middle class with offerings tweaked to local tastes, including its famous meatballs.
Opened with a military band, the store in the southern city of Hyderabad is the first of 25 outlets the Swedish furniture giant hopes to open by 2025 across the country of 1.25 billion people.
Analysts said, however, that the firm’s concept of affordable, self-assembly furniture may have trouble translating to a market where do-it-yourself homemaking is an alien idea and spending levels are low.
Around 200 people queued up in the underground car park before the opening, and were greeted inside by hundreds of blue-and-yellow clad employees on the stairs waving Swedish and Indian flags.
“I’ve come all the way from Bangalore (575 kilometers, 360 miles away). I am excited to see what’s there,” garment factory employee Krishna Mohan Dixit, 39, who began lining up 90 minutes before the opening, told AFP.
“We are looking forward to it. Actually it’s my wife who got me here. Her sister sends a lot of Ikea stuff from Dubai. So here we are,” said IT manager Nasrullah Khan, 34, another early bird.
Patrik Antoni, deputy retail manager for Ikea India, told AFP that he had tears in his eyes when the first customers arrived. “It is overwhelming, a dream come true,” he said.
The changes compared with Ikea elsewhere start with the restaurant — “Smaklig Maltid — Enjoy your Meal in Swedish” is written on the wall — with space for 1,000 people, the firm’s biggest.
For religious reasons, the meatballs are not beef or pork but chicken or vegetarian instead, while Indians’ beloved biryani dish was on offer for 99 rupees ($1.44).
On Thursday, the eatery was crowded, with people happy to queue up with their trays.
Bhaskar Reddy, 35, who runs a stockbroking company in Hyderabad and who lived in Sweden for about two years, opted to compare the food first.
“I quite like the meatballs. It’s chicken and not beef but nice they have tweaked the food for our sensibilities,” Bhaskar told AFP.
Alongside standard Ikea furniture like Billy bookshelves and Klippan “loveseats,” the chain has “locally relevant products” like masala boxes, Indian frying pans called tawas, rice cake makers and mattresses with a coconut-fiber center.
There are also more than 1,000 products under 200 rupees to satisfy consumers whom John Achillea, store manager, said have “big aspirations for their homes and small wallets.” A six-piece bowl set with cutlery for kids costs 131 rupees, for example.
The interior has a noticeable local feel too, with Indian-design bedspreads and framed photos of the Taj Mahal and other Indian monuments — alongside Klimt’s painting “The Kiss” recalling faraway Europe.
“We decided not to copy and paste,” Juvencio Maeztu, Ikea’s finance chief, told AFP. “We met and interacted with 1,000 Indian families to understand what were their dreams, their frustrations and what they want.”
On Thursday, by midday the outlet was filled with people with more pouring in all the time, mostly just checking things out but with a few making their first purchases.
It was the living room section that attracted most attention with curious customers testing the softness of the sofas and stretching out on the king-sized beds.
To overcome Indians’ aversion to assembling their furniture, with people used to small, family-owned firms providing a bespoke service, Ikea teamed up with UrbanClap, an online platform connecting handymen with consumers.
After Hyderabad, Ikea plans to open outlets in the financial capital Mumbai next year, followed by Bangalore and New Delhi as it seeks to grab a share of India’s estimated $40-billion home goods market.
But Satish Meena from Forrester Research said the firm will also have to adapt its offerings to the “extremely diverse” Indian market.
“No two states or cities have the same furniture demand and behavior, lifestyle and culture vary from one region to another. Hence, Ikea will have to address space, pricing and design issues and pick products accordingly,” Meena said.
Locals in Hyderabad not at Ikea were skeptical.
“I will wait and watch,” Mohammad Noor, a businessman, told AFP. “I have never been to an Ikea store before. But I believe there it’s all compressed wood. Indian wood is much better.”
And Siddharth, who is in charge of a Hyderabad furniture shop and goes by one name, said Ikea might attract hard-up students but in general people would stick with “quality.”
“It will be a flop, I tell you,” he told AFP. “The regular furniture consumer will stick with the more solid wood available in the Indian market ... I don’t think it will give us much competition.”


Russian oil industry now self-reliant enough to weather US ‘bill from hell’

Updated 18 August 2018
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Russian oil industry now self-reliant enough to weather US ‘bill from hell’

  • Western sanctions imposed in 2014 over Russia’s annexation of Crimea have already made it extremely hard for many state oil firms such as Rosneft to borrow abroad
  • Russian gas exporting monopoly Gazprom has maintained its output since 2014 and actually increased exports to Europe to an all-time high in 2017

MOSCOW: Stiff new US sanctions against Russia would only have a limited impact on its oil industry because it has drastically reduced its reliance on Western funding and foreign partnerships and is lessening its dependence on imported technology.
Western sanctions imposed in 2014 over Russia’s annexation of Crimea have already made it extremely hard for many state oil firms such as Rosneft to borrow abroad or use Western technology to develop shale, offshore and Arctic deposits.
While those measures have slowed down a number of challenging oil projects, they have done little to halt the Russian industry’s growth with production near a record high of 11.2 million barrels per day in July — and set to climb further.
Since 2014, the Russian oil industry has effectively halted borrowing from Western institutions, instead relying on its own cash flow and lending from state-owned banks while developing technology to replace services once supplied by Western firms.
Analysts say this is partly why Russian oil stocks have been relatively unscathed since US senators introduced legislation to impose new sanctions on Russia over its interference in US elections and its activities in Syria and Ukraine.
The measures introduced on Aug. 2, dubbed by the senators as the “bill from hell,” include potential curbs on the operations of state-owned Russian banks, restrictions on holding Russian sovereign debt as well as measures against Western involvement in Russian oil and gas projects.
While the rouble has fallen more than 10 percent and Russian banking stocks have slumped 20 percent since the legislation was introduced, shares in Russian oil firms have climbed 2 percent, leaving them 27 percent higher so far in 2018.
“The main driver of the Russian oil industry’s profitability is the oil price denominated in roubles and it is currently posting new records as the rouble is getting weaker. Hence the sanction noise often even has a positive impact on Russian oil stocks,” said Dmitry Marinchenko at Fitch Ratings.

 

The prospects for the latest US sanctions bill are not immediately clear. It would have to pass both the Senate and House of Representatives and then be signed into law by President Donald Trump.
To be sure, Washington could really hurt the Russian oil industry if it introduced Iran-like measures forbidding oil purchases from the country. But given Russia produces more than 11 percent of global crude, such a measure would lead to a major spike in oil prices and hit the US itself hard as it is the world’s largest oil consumer.
Russian gas exporting monopoly Gazprom, for example, has maintained its output since 2014 and actually increased exports to Europe to an all-time high in 2017, securing a 34 percent share of EU markets amid rising demand.
But of all Russian oil and gas companies, it is the only one to have borrowed significant sums from the West — about $5 billion in 2017 and $3 billion in 2018 so far — using Eurobonds and syndicated loans.
What’s more, those amounts are only equivalent to a small proportion of Gazprom’s annual capital spending of $22 billion. The rest of the Russian oil industry invests a similar amount each year as well, mostly without Western funding.
That represents a major departure from the years prior to the sanctions when the lion’s share of Russian oil industry’s borrowing came from Western banks or export-backed facilities with trading houses and major oil companies.
In 2013, for example, a year before the first Western sanctions, Rosneft alone borrowed more than $35 billion from Western institutions to buy smaller rival TNK-BP and to fund its capital spending.
There has been a similar shift in joint ventures between Russian and Western companies.
A decade ago, dozens of projects were planned but the number has shrunk to just a few ventures, which are important but not critical to help Russia maintain its output growth.
US oil giant Exxon Mobil and Italy’s Eni, for example, have dropped plans to help Russia develop offshore fields and US company ConocoPhillips sold out from Russia’s biggest private oil firm Lukoil.
The key remaining ventures involving Western companies are three projects between BP and Rosneft in East and West Siberia and a gas venture between Rosneft and Exxon Mobil on Sakhalin island.
Also on the gas front, Royal Dutch Shell and France’s Total have been considering new liquefied natural gas projects with Gazprom and Novatek, as well as a new pipeline to Europe under the Baltic Sea.
But to put the projects in perspective, the combined cost of all of them is about $50 billion — less than a 10th of the Russian oil industry’s investment program for the next decade.
And if Western institutions are wary of lending to Russia, other countries such as China have been prepared to step in. Novatek and Total, for example, launched the $27 billion Yamal LNG plant this year with Beijing’s financial support.
WEAKEST LINK
The weakest link in the Russian oil industry in the face of sanctions has traditionally been high-end Western technology such as complex drilling, hydraulic fracturing or IT, said Denis Borisov, director of EY’s oil and gas center in Moscow.
Russia’s drilling and oil servicing market is worth about $20 billion a year and the share of the market held by Western service companies has remained fairly steady over the last few years and at about a fifth.
“But the process of replacing foreign equipment with local production has gathered pace,” said Borisov.
Rosneft, which produces 40 percent of Russian oil, has recently tested its own simulated hydraulic fracturing technology — the extraction technique that spurred the boom in US shale oil production.
The technology first came to Russia mainly via major Western oil services firms such as Schlumberger and Halliburton .
Companies such as Schlumberger are still doing a lot of complex drilling work in the Caspian Sea and West Siberia for Lukoil, as well as working on the world’s longest extended reach well for Exxon and Rosneft off the Sakhalin island.
But Fitch’s Marinchenko said the reliance of Russian oil firms on Western technology has declined since 2014 thanks to imports from China and local production of drilling equipment.
Since 2014, Rosneft’s own drilling subsidiary has doubled its market share to 25 percent, meaning the company has become almost self sufficient.
“It is clear that new wide-scale sanctions on technology will not become the start of an end for the Russian oil industry, especially if Europe doesn’t join them,” said Marinchenko. “But it will complicate the development of hard to extract or depleted deposits.”

FACTOID

Ratings agencies, consultants see limited impact from bill / Russian oil firms have reduced borrowing from West / Spending funded by own cash flow, state banks and China / Technology seen as weakest link as dependence significant