.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 IKEAs business strategy be in the future

(US$225,000) from a company that sought to lease two premises at IKEAs Mega shopping complex in Tyoply Stan, a suburb in Moscow. Yunalan was accused of stalling the signing of a lease of the two premises. Consequently, in July 2012, Yunalan was sentenced to five years in a high-security prison after being found guilty of large-scale extortion. Ingvaldsson and another accomplice managed to leave the country and Russia was seeking their extradition. IKEA stated that it welcomed the investigation by Russian authorities into the incident and would co-operate fully with them. In addition to the rising cases of corruption being detected among its ranks, IKEAs image took a further beating when reports on its alleged unethical logging practices surfaced. In early 2012, a Swedish public service television channel came out with an investigative report that proclaimed that IKEAs subsidiary, Swedwood, was cutting down several hundred acres of old growth forests every year. While civil rights groups criticized IKEAs logging practices based on the report, the company refuted the allegations and claimed that it was logging wood according to local guidelines. However, its critics contended that IKEA should show greater responsibility in sourcing wood without taking advantage of defunct environmental guidelines in countries such as Russia and China, in which it mostly logged wood. Viktor Sfve, Chairman of Swedish NGO Protect the Forest, said, This all comes down to a question of credibility and we believe that they are cheating their customers by claiming that the wood they use is sustainably sourced. The wood they are cutting down in Russia is from a high conservation area and we have the evidence to prove it. They are hiding behind flawed and criticized FSC accreditation. , Even as IKEA was grappling with different issues in Russia, it faced a boycott threat in the country in 2013 after it removed an article on a British lesbian couple from its monthly magazine in Russia, in which they spoke about their family life and how their house was filled with IKEA products. This was a bid by IKEA to comply with Russias controversial law that banned homosexual propaganda. Commenting on the article being removed from the magazine, an IKEA spokeswoman said that the decision had been taken to remain neutral. She added, We think our operations in Russia can, in the long run have a positive effect on society. IKEA suffered a huge backlash in the country. According to Ulrika Westerlund, chair of the Swedish Federation for Lesbian, Gay, Bisexual and Transgender Rights, I find it disappointing that Ikea has simply laid down flat. No one is really sure what propaganda is and if Ikea had left the article in, that could have served as a test case. IKEAs troubles rose to another level in September 2014 when Russias Investigative Committee conducted a search on its premises in Khimki in connection with a land deal. The land dispute dated back to 2007 when IKEA had constructed its store in Khimki and a group of farmers had challenged its right to use the land for setting up its store. However, after a series of arbitrations, a Moscow court decided in IKEAs favor. Despite facing several challenges in Russia, in 2015, IKEA reported that its global sales for the year ended August 2014 stood at 29 billion. According to IKEA, the growth was fueled by China and Russia as they were the companys fastest growing markets. Eight of IKEAs 10 largest stores in the world were in China whereas in Russia it had a chain of 14 complexes, which accounted for 7% of the companys turnover for the year ended August 2014. IKEAs sales in Russia were attributed to the economic slowdown in the country as consumers swarmed IKEA stores and other Western retailers in anticipation that the prices would rise sharply. According to Marija Milasevic, senior analyst at Euromonitor International, Consumers were afraid to lose their savings and of possible future high price increases. They were massively purchasing durable products. Sensing the tremendous potential offered by the Russian market, in June 2016, IKEA announced its plans to invest US$2.1 billion on upgrading its 14 stores across Russia. The announcement came at a time when the Supreme Court of Russia had given a ruling in favor of IKEA rejecting a plea by an agricultural enterprise, the Khimki Collective Agricultural Enterprise, that two 15-storey buildings belonging to IKEA be demolished. The agricultural enterprise accused IKEA of faking documents required for obtaining the land on Leningrad Highway, which led from the center of the city to the main airport at Moscow. According to IKEAs press service in Moscow, There have been no claims since 1993. Nobody has tried to 55 56 57 58 59 contest the ownership title for 18 years, but as soon as Ikea bought it out, a number of claims arose that tried to question Ikeas right. However, the retailer halted its expansion plans after a Russian court in 2016 ordered it to pay US$7.8 million to Russian businessman and former contractor of IKEA, Konstantin Ponomaryov, in a decade-long legal dispute over the supply of power to stores in the city of St. Petersburg. Commenting on the ruling, IKEA warned that it would delay the investment, stating that it wanted to work in a fair and transparent business climate, and accused the authorities of attempting to use illegal methods to extract further money from the company. Looking Ahead By 2020, IKEA aimed to achieve a revenue growth of 1.5 times to 50 billion from 34.2 billion in the fiscal year ended 20152016. Commenting on its future goals, Walter Kadnar (Kadnar), the general director of the network in Russia, said, Our goal is long-term investment. The disposable incomes of consumers [in Russia] have declined, and we are trying to attract as many buyers as we can, keeping prices down. Such a policy should also enable us to achieve the goals set by 2020. Kadnar believed that the economic slowdown in the Russian market would continue for another 13 years i.e. till 2020. He added, We do not think that investment in the price will immediately be followed by recovery in purchase volumes, but we believe that now is the right time to start such investments in order to gain an advantage in the market. Analysts believed that IKEAs plans for Russia were too ambitious since the major stumbling block for business was the host countrys corrupt systems at both the regional and national levels. In Transparency Internationals 2017 Corruption Perceptions Index, Russia was placed in the 135th position (see Exhibit VI for Corruption Perceptions Index for 2017). Analysts opined that bribery was like another taxation system in the country, which benefited the political elite including the police and the Federal Security Service (FSB). Analysts pointed out that while IKEA would have problems in the future, Russia being part of the BRIC (Brazil, Russia, India, and China) could not be ignored, considering the tremendous potential offered by the rising incomes of middle-class consumers in the emerging markets. Going forward, IKEA planned to boost its local online business. By the end of FY August 2019, the retailer planned to open 100 pick-up points to boost its online business in Russia. The company also planned to enter other international markets. In August 2018, IKEA entered the Indian market by launching its first store in Hyderabad, capital city of the southern Indian state of Telangana. The company planned to rent out its furniture offerings in Japan for customers who were not ready to purchase those items. In November 2018, IKEA announced its plans to open its first and largest store in the Philippines by 2020 with an investment of US$133 million. The retailer aimed to set up its first store in Greater Manila with 5 million households and cash in on the economic boom and rising incomes.