“[. . .] not all companies succumb to corruption. The Swedish furniture retailer IKEA has steadfastly refused to bribe Russian officials.” 2

—ALEXANDER HILL, PRESIDENT EMERITUS OF INTERVARSITY CHRISTIAN FELLOWSHIP 3 US, IN 2017

“Ikea is clearly quite successful in Russia but in the early days when they entered the market they took the expression

‘do as the Romans do’ too literally . . . Ikea today is a much different company . . . The current management have the highest standards and follow the rules but that wasn’t the case when they arrived, when they were too focused purely on trying to capture market share.” 4

—ALEXEI SLESAR, HEAD OF CAPITAL MARKETS, CUSHMAN & WAKEFIELD, 5 IN 2016 In October 2018, Swedish furniture retailer and designer of home accessories and kitchen appliances the IKEA Group (IKEA) announced its plans to enter into partnerships with Russian companies in a bid to boost its local online business, according to Pontus Erntell, IKEA’s Russia country manager. The retailer planned to open 100 pick-up points in a bid to boost its online business in Russia in the financial year September 2018–August 2019. The company announced ambitious plans to expand its stores in the Russian market after it witnessed an increase in sales by 2% in the fiscal year 2017–18, with a 12% increase in visits to its eCommerce site. 6 IKEA entered the Russian market in the late 1990s. From its early days, the company took a firm stand against corruption, which led to its facing several setbacks when setting up stores and inaugurating them, and even while advertising for them. According to the company, “IKEA consistently combats corruption. All of our divisions operate completely transparently.

The company has adopted a strict code of conduct and its provisions are binding not only for rank-and-file employees and executives, but also for business partners. These regulations are uniform throughout the world and Russia is no exclusion.” 7 Since the company refused to pay bribes, it had to deal with bureaucratic hurdles while getting permits for setting up its stores.

The company stated that the local officials forced a delay in letting IKEA set up its stores citing alleged safety problems. In another instance, IKEA employees found that they were expected to bribe officials of the electricity department to gain access to electricity for a grand opening of its store in 2000. The company worked around the problem by renting several diesel generators large enough to power an entire shopping mall. As IKEA continued to expand throughout Russia, it earned the reputation of being one of the most outspoken critics of Russian corruption. However, several years later, the company realized that the Russian executive it had employed for managing the rental agreements had been taking kickbacks from the rental company for inflating the rental price of the service. Consequently, IKEA was rebuked in court for a breach of the rental contract. While the bureaucratic system added to its troubles in Russia, there were also times when local or federal authorities were supportive, which enabled the company to get things done faster than in any other country in the world.

Over the years, IKEA grew and experienced success with its stores in Russia. Some of its stores went on to become the top grossing stores in the world for the furniture retailer. Moreover, IKEA introduced its successful new business model in Russia, wherein its furniture stores were operated not as standalone stores but as part of large shopping and entertainment complexes. As of the financial year (FY) ended August 2017, IKEA had 14 hypermarkets in 11 cities in Russia with € 8 34.1 billion sales and 67 million visitors....... ⁹

Question 1. Critically analyze IKEA’s foray into Russia. In what ways was it successful?
2. Discuss the challenges faced by IKEA and how the company tackled these challenges and made a mark in the Russian market.
3. Since IKEA continued to face several bureaucratic challenges in Russia, the retailer planned to halt its expansion in the country. What should IKEA’s business strategy be in the future?