#27 IKEA fed up with Russia
Pervasive corruption and an impenetrable maze of bureaucracies have caused IKEA to freeze new investment projects in Russia. One example of IKEA’s immense frustration with Russia is it’s 130,000 square meter shopping complex in Samara. It’s opening was originally planned for late 2007, but was then delayed by authorities eight times. According to 83 year old IKEA founder Ingvar Kamprad, Russia’s ‘unpredictable characater of administrative procedures in Russia’ has cost IKEA a total of $190 million so far. It’ll be interesting to see if IKEA’s decision will have a ripple effect among other Western companies who are equally frustrated by Russia’s business environment.
November 24, 2013 @ 7:51 pm
At first, I would like to take a closer look at the story of IKEA in Russia. According to Lennart Dahlgren, who lived for 10 years in Russia and was CEO of IKEA Russia and his main topic was to build up new IKEA stores. IKEA started a new strategy – instead of building own big stores they tried to build their own shops in big shopping malls. Dahlgren too, is the author of “Despite absurdity – How I conquered Russia while it conquered me”.
IKEA failed 2 times before they opened their first store in 1998 and even at that time, the rouble collapsed.
IKEA had to deal with the local authority to build a bridge that would bring the customer to the store more easily. First they received permission for the bridge but it was soon withdrawn. Other major problems still to come.
Another point is, that in Russia many western businessmen could live a life of wealth and amusement. That is an important point because it is easy to get to know the “wrong” persons. Dahlgren said, when you pay once, you`ll pay always – and the amount is getting bigger and bigger”. Local authorities might use the western money for their own local budget.
Russias Corruption Perception Index rank is 133 out of 176 (2012). Compared to other european countries: Austria rank 25 and Sweden 4.
And still IKEA has to cope with Russian authority:
http://www.thelocal.se/20131120/ikea-drops-lesbians-due-to-russia-anti-gay-law
The website is an article about an interview of 2 lesbians in the IKEA live magazine and this article was not published in Russia because of the Russian law. IKEA wanted to be neutral but could have set a sign.
Take a look now into the year 2011 and a few headlines of “Russland-Aktuell” (http://www.aktuell.ru/russland/wirtschaft/deutsche_firmen_gehen_mehr_in_die_russischen_regionen_2218.html):
• Volkswagen and Skoda Cars production is started in GAZ
• Volkswagen Town Kaluga gets its own airport
• Opening of the first Volkswagen Bank in Russia
• MAN starts production in St. Petersburg
• DB and RZD (Russian Rail) start a logistic center
To sum up, this example of IKEA – based on reports of Lennart Dahlgren – shows that it is not easy to enter the russian market. Companies should be honest in their dealings. In my opinion, a critical factor is to find the right people as CEO and in other important positions. But, I am not sure, if companies take a closer look to the IKEA example of corruption and the so called co-operation with local authorities. Main factor is the chance of starting a good running business, according to resources, manpower and a new market.
November 6, 2014 @ 8:10 pm
In my opinion this example of IKEA shows that it is very important to deal with cultural differences, in particular when doing business abroad. In fact, I also think that some procedures in a foreign country are predictable, if all necessary cultural aspects are taken into consideration. As Russia is very special (e.g. very different to Sweden), discrepancies may be overcome regarding Hofstede’s four dimensions.
Firstly, power distance in Russia is very high (score: 93), whereas in Sweden it is quite low (score: 31). This means, that Russia is a nation where power is very distant in society and even in organisations this high scoring leaves marks. While Russians are used to get clear instructions and a more centralised structure, Swedish people want a higher level of employee participation and power is decentralised. Moreover, countries with low power distance like that employees participate in decision making because managers count on the experience of the team. But high power distance countries like Russia prefer to make decisions fast without discussions. Due to the fact that in high power distance countries hierarchy is very important, this can lead to long bureaucracy. –> With regard to IKEA’s ‘failure’ in Russia, it might be that the Swedish people were not prepared enough to deal with the hierarchy oriented Russian people.
Secondly, considering the dimension ‘Individualism’ the two countries are quite the opposite as well (score Russia: 39; score Sweden: 71). In Sweden people like to be very individual and employer/employee relationships are often only contract based. However, in Russia relationships are very crucial to get new information easily that can be used in doing business afterwards. So also when a new company wants to enter the Russian market, Russians want to know and learn more about the country or company first (and this means: include additional time). –> Again if IKEA knew the effect of power distance and had combined it with this dimension, it should be clear that they have to deal with this issue carefully and that it may take longer.
Thirdly, Russia has a very high score on uncertainty avoidance (95). This means that Russians are very anxious and do not want to take risks. Additionally, changes in business as well as in private life are not welcome. In this case, detailed planning and a lot of background information is necessary when doing business in this country. This is quite different in Sweden, a country which has a low preference for avoiding uncertainty. Swedish people are more risk taking and love innovations as well as changes. As a result of low UA people in Sweden like flexible work schedules, whereas in Russia it is essential to build a comfortable relationship first before going into negotiations. –> Here IKEA should have regarded the meaning of UA. As soon as there is something new and means changes, Russians have a very critical view on market entries and check everything in detail (this means again: time).
Finally, Russia and Sweden are both low masculinity societies. As a result, it is not as difficult to deal with this dimension as if the other country is characterised with high masculinity. It is only important to know that in Russia this is due to the high power distance.
To conclude, I think it is true that it is very difficult to do business in Russia but you can prepare through considering cultural differences. In this way, I definitely do not want to ascribe IKEA that they have been neither prepared nor familiar with the cultural differences of Russia and Sweden, but I do not think that it is good to say ‘the failure was due to unpredictable procedures’. However, it is very important to know the country when you want to do business there.
Source: http://geert-hofstede.com/russia.html, http://geert-hofstede.com/sweden.html
November 28, 2015 @ 9:47 am
Having done a little research it is interesting to see that even though IKEA had lots of difficulties with Russian bureaucracy, the company still opened 12 stores all over Russia. The last stores were opened in 2009 though.
Regarding Hofstede, major differences can be pointed out in all of the dimensions. Sweden is a country with a relatively low power distance (31), very individualistic (71), feminine (5 in masculinity) but also risk taking (29 in uncertainty avoidance).
On the contrary, Russia is highly power distant (93), little individualistic (39), more masculine than Sweden (36) and achieved an extremely high score in uncertainty avoidance (95).
The numbers in brackets each indicate the scores achieved regarding the Hofstede dimensions. Source: http://geert-hofstede.com/sweden.html
As I myself worked for IKEA for two months I would also like to write about the impression I got there and give some examples.
IKEA’s core values for employees are about holding together and solving problems together. It is expected from employees to support each other and to be at eye level with each other. This also supports the relatively low power distance of the Swedish mentality. I can only imagine how difficult it must be to explain this low power distance to Russians who achieved a very high score there. For Russians it might be very difficult to understand that everybody (even the managing board) has to wear the same yellow t-shirts and people are sitting in large open space offices.
I would also like to address the difference in uncertainty avoidance. IKEA as a Swedish company is very risk taking and constantly tries to develop innovations or new products. Within the company people are usually very free in their decisions which leaves space for creativity and new ideas. As Russia is highly uncertainty avoiding, this is also the reason for a lot of bureaucracy in the country. Russians think that the future should be controlled as far as possible. As IKEA is not used to that kind of planning, it was hard when entering the Russian market. Regarding the working atmosphere this can cause a lot of problems when Swedens and Russians should work together in order to develop new concepts.
Still I found that the company plans to invest two billion euros in the Russian market until 2020 with the opening of 15 more stores. Even though the conditions in the Russian market are highly complex, IKEA plans to expand there, mainly because there are no major competitors in Russia.
The following link explains IKEA’s plans in Russia for the next years:
http://www.handelsblatt.com/unternehmen/handel-konsumgueter/ikea-in-russland-moebelhaendler-will-trotz-krise-weiter-expandieren/11256402.html
We will see if the company has found a way to deal with Russian mentality, corruption and bureaucracy. As they have much experience in other countries, I think they will.