IKEA in Russia - Ethical Dilemmas
| Case Code: BECG128 Case Length: 12 Pages Period: 2000-2012 Pub Date: 2013 Teaching Note: Available |
Price: Rs.400 Organization: IKEA Industry: Specialty Retail Countries: Russia Themes: Business Ethics, Corporate Governance |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Foray into Russia
Kamprad had been quite keen to do business in Russia since the 1960's, when it was still The Soviet Union. However, he was unable to do so for quite a few decades for several reasons. IKEA's first attempt to begin Russian operations was stalled due to the collapse of the Soviet Union in 1991. A later attempt failed due to the 'Russian constitutional crisis of 1993' and the country's subsequent unfavorable economic scenario. In 1998, Lennart Dahlgren (Dahlgren), a prominent IKEA employee, who was on the verge of retirement, was asked to oversee the setting up of IKEA’s operations in Russia...
Opening of the Stores
In March 2000, IKEA's first store in Russia was opened at Khimki. The inaugural day drew a large crowd of 40,000 shoppers. People waited for an hour to get into the store and all the roads leading to it were backed up with traffic for miles around. Analysts believed that by the time IKEA opened its first store there was a lot of pent up demand in Russia, especially from the middle class. It was a time of transition in the country, with the rising middle class looking to abandon the old world Soviet-era furniture in favor of the modern Scandinavian furniture showcased by IKEA.....
A Growth Story Marred by Problems
However, it was not all smooth sailing for IKEA in its expansion plans. The business environment in Russia dictated that IKEA constantly faced problems with regard to its stores from government officials in the fire, health and safety, electricity, tax, customs, and other related departments. These officials reportedly discovered problems with IKEA stores, especially during critical times such as store openings. Analysts observed that IKEA would then be provided pointers by the same authorities to overcome these serious issues by way of some monetary payment or engaging a party recommended by them to rectify the problem...
A Stop to Everything?
Fortunately for IKEA, it did not face only problems in Russia. There were instances when support from the authorities made things smoother. In 2005, IKEA opened another store called the ‘Mega Kazan’ in the Kazan region, 500 miles east of Moscow. The store was built in partnership with Ramstore hypermarket . Mega Kazan went on to become the largest regional mall in Russia. Dahlgren said that the authorities in Kazan were very co-operative, which caused the store to be opened in record time. He said, "It took less than a year between the first meeting with Kazan’s mayor and the store’s opening - a record impossible to break anywhere in the world."...
The Road Ahead
As of 2012, Russia was IKEA’s primary target for expansion. Out of its three top globally performing stores, two were located in Russia. Apart from that, the country’s extensive boreal or taiga forest belt was a source of high-quality timber. The company was also in the process of executing new business plans, such as the initiative to open a bank.....
Exhibits
Exhibit I:Russia's IKEA Stores
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