Business

If IKEA comes to Pakistan…

Launch of the furniture giant will see local companies protest, threaten job losses

Ali Salman April 17, 2017

The government will most likely impose a high regulatory duty on the import of ‘semi-knocked down’ units import, thus forcing an artificial increase in the price, if IKEA comes to Pakistan. photo: reuters

KUALA LUMPUR: Two years ago, I went to buy the cheapest possible bed set for my home. Away from fancy show rooms, I found a shabby furniture workshop built probably on an illegally obtained land in Golra market, Islamabad.

After some bargaining, I placed an order for two single beds and paid an advance for the total purchase of Rs12, 000. After one week, I got my beds delivered after paying further Rs500 to the delivery van.

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Two weeks ago, in Kuala Lumpur, I went to IKEA–one of the world’s famous Swedish enterprise for home products–to purchase a similar item.

I paid 538 Malaysian Ringgits for two single wooden beds, which translates into Rs12, 638 currently. These beds were unassembled, and we brought them back home, and after some hours of assembling, the two bed sets were ready.

With the high quality of IKEA, the beds were ready almost in the same amount as the cost in the shabby furniture workshop of Golra, Islamabad. Without any doubt, the beds made in IKEA would be much cheaper than beds made in Pakistan’s posh retail showrooms. For a consumer, nothing can be more charming than a product with low price and better quality. If he can have the choice, he would always prefer IKEA to Golra market. IKEA is able to match the lowest price and high quality due to its innovation, product differentiation and economies of scale.

Obviously if IKEA opens up an outlet in Pakistan, it will force several local companies out of business. What should be the role of policy in this situation?

Policy direction

One knee jerk reaction of our government will be to discourage and disrupt the supply chain on which IKEA survives. It will most likely impose a high regulatory duty on import of the ‘semi-knocked down’ units that it will import, thus forcing an artificial increase in the price.

Next, it will also consider imposing additional excise duty on all products shipped out. Thus it will take all possible measures to give an advantage to local players.

The local producers will also join hand to stop the ‘exploitative’ strategies of a new multi-national company and will probably prevail on the government using protests and threatening job losses. On the other hand, the government will actually introduce higher taxes on some companies and can even charge ‘super tax’.

However, as a consumer, I will continue to be ripped off.

The government will enjoy more revenue through taxation and the local producers will enjoy more protection.

As of December 2016, IKEA operates 392 stores in 48 countries and is now the world’s largest furniture retailer in the world. In 2016, the company reported revenue of €35.074 billion.

As our libertarian philosopher Khalil Ahmad says, “let the wealth be created first, it won’t stink in the lockers.” Developed countries have not only allowed producers and investors to create wealth but in fact have helped create it.

Only then, consumers are able to enjoy products at competitive rates. In Pakistan, we are busy in stopping the process of wealth creation and when it is created, we are only helping this to be transferred outside.

Unrealistic expectations

Can we imagine an IKEA store opening in Pakistan any time soon?

Hypothetically speaking, if there is no or little tax on import and no unfair protection to local furniture manufacturers, Pakistani consumers are in a position to easily afford most of the 12,000 products that IKEA now produces. The government will also be better off by receiving increasing amount of income tax subsequently rather than losing money due to thousands of informally operating workshops.

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I can confidently say for myself that the two single beds I bought from IKEA for Rs12,638 (and few of my own hours) gave me far more pleasure and value compared to the two single beds I bought from a shabby little furniture workshop in Rs12,500, that paid no taxes, from Golra market.

The writer is founder of PRIME Institute; an independent think tank based in Islamabad and is now living in Kuala Lumpur, where he is CEO of Istanbul Network for Liberty and Director Research IDEAS.

Published in The Express Tribune, April 17^th, 2017.

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COMMENTS (27)

Luminairist | 6 years ago | Reply Well, IKEA produces such nice things but if I talk about furniture: most of them are Scandinavian designs. Lets say if IKEA starts making traditional , cultural (Desi) designs people wont like it because Pakistanis need Heavy, solid, Durable and huge sized furniture in wood. Ikea uses MDF, PLY wood and other Fiber wood types. In our country the individuals don't usually buy much furniture, families do this once in a while as Dowry and it must last longer. So the local customized workshops will be preferred.

Kalbushan | 7 years ago | Reply @Hasan: When you have 3 kids jumping up and down on the bed. Trust me the old fashioned furniture that weighs a ton will resist. No you have two options.....buy IKEA or train your kids.

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Ahmed | 7 years ago | Reply Pakistani's buy & invest in furniture that lasts - Not disposable furniture . IKEA products are disposable at best. Sorry , but IKEA is no comparison to our locally manufactured products.

Hasan | 7 years ago | Reply People writing crap about IKEA, a global brand, are not getting it. Old fashioned furniture that weighs a ton is a thing of the past. IKEA makes furniture that's Engineered to be "multi-functional". Floor cum reading lamps that adjust to 3 heights, sofa cum beds that rival a LZBoy & (the bed is as ultra comfy as the sofa) unlike our hard sofa beds, clocks that serve as book shelves etc. As Pakistan is still one of the cheapest countries, and there's the great divide between the rich & the poor, those of us living in 1000+ sq. Yards with too much space to waste will not appreciate IKEA yet.

Saba | 7 years ago | Reply I stopped reading at high quality furniture of IKEA. It's not high quality at all.

Fawad | 7 years ago | Reply Ikea furniture is no good, cheap chinese quality. They are mostly recalling their stuff due to design flaws and no safety. Don't buy junk and spend on domestic quality would be better furniture to purchase.

powayman | 7 years ago | Reply Most of the World doesn't equate IKEA with high quality or fancy. They are known for convenience and reasonable prices. Nice place to shop if your on a budget.

Shah | 7 years ago | Reply @Omer: Your point is taken, but looks like you want 24 karat gold ornament but want to pay price of the gold plated artificial jewelry; For that low price the chipboard also works good;

point | 7 years ago | Reply Just so that you know, there is a large group of lawyers who are working to bring IKEA to court. IKEA is using the worse form of curruption by registering itself as a foundation hence not paying taxes. And it's base is not in Sweden but in a country where it pays least tax. This is why. Secondly, it maybe clearance because in my city, IKEA has not expensive prices but compared to the Europe, it is quiet expensive when converted to Pakistani Rupees.

Raghu | 7 years ago | Reply @saleem: You said it in a few lines. I live in Dubai and mostly the upper middle class go to IKEA. Rest of the world go to local furniture market. However, I do agree that IKEA does have some creative things in store.

Raghu | 7 years ago | Reply I bought a computer table from IKEA in dubai. Soon i found out that it was chipboard and it was hollow from inside. I was surprised! Such poor standard. I stopped buying from there. But as usual women like the fancy stuff of Ikea and still go there to waste money.

Faheem | 7 years ago | Reply i guess this guy has just issues with the "golra market " i suppose nothing more then that . Btw when you are preffering a shabby so called workshop as your own cheap choise . What can they offer you better then your expectation . Unless you step into the showrooms there lol .

Fuzail Zubaid Ahmad | 7 years ago | Reply My previous employer in KSA was IKEA master franchise holder for KSA, Bahrain, and Pakistan, together with many other Arab countries. Once a major group asked me to speak to him about bringing the stores to Pakistan but he said IKEA parent just dont want to come to Pakistan. So dear people, please forget about IKEA in Pakistan as it is not going to happen.

shakil | 7 years ago | Reply While IKEA is not the best manufacturer of furniture, its a budget DIY furniture maker. They do not claim to be designer furniture but they do have cost saving and innovative ideas that people like. IKEA in Pakistan will be good for people who wish to have a standard of living without much hassle and too much custom build for kitchens, bedrooms etc.

Dr. Asad Sadick | 7 years ago | Reply I doubt very much that the local furniture industry will suffer if no super tax is levied on IKEA. I remember when I graduated as a doctor in Germany and had a modest salary, IKEA furniture was a big help being very affordable. As soon as the economics improved, we stopped patronizing IKEA. What I am trying to say is that IKEA as a brand in Europe is popular only with young couples and students. I don't think the pattern in Pakistan would be different. Local furniture would be expensive and would retain its clientele.

Akram | 7 years ago | Reply In KSA IKEA it is cheap and quality very good.

Omer | 7 years ago | Reply http://www.ikea.com/sa/en/catalog/products/70336382/ Simplest form of single bed without mattress SAR 695 (PKR 19500). IKEA is not cheap in KSA atleast. However, I like it due to its simple and elegant design.

LIAQAT ALI | 7 years ago | Reply I HAVE A COMPLETELY DIFFERRENT STORY TO TELL. I am currently living in Saudi Arabia where not only IKEA but also many similar stores operate in a low taxation atmosphere . I compared the prices of variopus furniture items here and in Pakistan and found that prices at IKEA and other stores are double or more than avergage prices in Pakistan evbven without considering additional taxes the aouther talks about and even without considering prevailing taxes or transportation costs. And these multinationals know it very well that unless they rely on local manufacturing and thus lower their prices drastically they cant survive in a tough market like Pakistan .

saleem | 7 years ago | Reply The entire article is like saying if Subway opens franchises then it will put the local restaurants out of business ! Do you really need a 'Think Tank' to write all this ? A thinking pistol can aptly do so.

Hasan | 7 years ago | Reply Since IKEA dealers in Lahore are doing very well one should say IKEA wull meet success in select affluent areas of Pakistan.

Ikea User | 7 years ago | Reply @Omer: Probably the wood is stolen from trees or comes of packing material in case of 12000 PKR Pakistani furniture. Ikea furniture is made of medium or high density fiber boards, that is termite and water proof, comes from sustainable sources. Even in expensive Singapore the bed is 7,500 PKR made of solid pine wood. Details are FJELLSE bed frame, pine, Luröy, SG$99, Article Number: 790.078.19 and Size: 150x200 cm.

HSK | 7 years ago | Reply @Omer: No, there is a single bed frame without mattress for around ~MR260 available at IKEA. Pricing of double bed frames (you didn't mention queen or kind size) are always exponentially higher than single bed frames. The one's writer must have purchased were of pine wood which is not used for double bed frames due to weakness of pine wood. Nor have i seen a double bed frame made of pine wood at IKEA. Source: I had bought the same bed frame for about ~SR275 (Saudi Riyal), single bed frame made of pine wood.

Careless Whisper | 7 years ago | Reply ill suggest to unassemble & try assembling the same again, u'll know the quality of the branded furniture :) desi furniture are far more durable

Irfan_M | 7 years ago | Reply IKEA can not work in Pakistan IKEA products are bought in a box and then self developed. Pakistani society is used to having ready to be used furniture. They will never spend hours building the furniture with instructions.

Ali | 7 years ago | Reply With the high quality of Ikea... I stopped reading there.

Omer | 7 years ago | Reply Two beds from IKEA in Rs. 12000... must be clearance sale or something. A double bed only (without mattress) cost me Rs. 45000 and that too was one of the cheapest. So IKEA is not cheap at all. Also the furniture material in IKEA is chipboard which is less durable then wood.

Ch. Allah Daad | 7 years ago | Reply IKEA will not be importing furniture nor work force from Sweden. Most of the products sold in IKEA will be manufactured in Pakistan by Pakistani carpenters. Secondly, our workers will learn better skills under IKEA trainers. Common people will get better product at better price. Only exploiters and tax thieves are afraid of Multi Nationals. If there had been no liberal policies and open trade, there had been no IPhones, Samsungs, Hondas and thousands of other products at affordable prices.

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