Report: IKEA at Russia

This report discusses the market entry strategy of IKEA in Russia, external factors to consider, impact of political machinery, and strategies for business growth in an emerging market.

Running head: REPORT IKEA AT RUSSIA
REPORT IKEA AT RUSSIA
Name of the Student
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Author Note

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Introduction
In this essay, the discussion will be laid on three questions relating to IKEA and its
business in Russia. A critical analyze will be discussed at the end of the discussion of the case
studies. IKEA is a multinational company from Sweden, though the headquarter of the
company is in Leiden, Netherlands. The company was founded in the year of 1943. The
company belongs from the retail industry, which designs as well as sales ready-to-assemble
kitchen appliances, furniture, home accessories and other useful goods and home services.
The organization has been the largest furniture retailer globally since 2008. The company is
present in about 424 locations worldwide. The founder of the company Ingvar Kamprad, and
he used his own initials while naming the company, and added the first letter of his farm
Elmtaryd (E), and the village where the childhood of Ingvar Kamprad has spent Agunnaryd
(A). The number of employees are near about 208,000 (Bezrukova et al. 2015). The company
decided to enter the market of Russia in the late 1990s, as the company was deciding to
expand globally at that time. Though Kamprad was very much keen to do the business since
the 1960’s, but faced some problems. The company had to deal with the corruption before
setting up their first ever store. If paying bribes were started by that time, then it has started as
a system. The company is popular for showing an uncompromising attitude in case of
corruption issues, and earned several awards for maintaining the ethical practices within the
organization, like it has been identified as one of the most ethical companies worldwide in
specialty retail for four consecutive years. The company was awarded the “2012 World Retail
Congress International Retailer of the Year”, as the company proved the superiority over the
competitors in terms of branding done by the company, strategizing the action plans properly
and profitability of the company or the amount of revenue earned by the company. IKEA
wanted to enter the market of Russia due to presence of many external factors (Abrahamian
2013).

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Q1. What are the various external factors which a company must take into account while
devising a market entry strategy for a new country? Discuss these factors in the Russian
context and in the actions taken by IKEA.
There are plenty of external factors which are taken into account while a company
wants to enter into a new market These factors can be categorized under PESTLE Analysis,
which includes the Political, Economic, Social, Technological, Legal and Environmental
factors. In the given case study, Ikea hugely follows the “Green Business Model”, so it has a
great opportunity to attract the customers of the new place who will prefer to buy their
products. The increase of the ethical consumer, who prefers to buy the products which are
environmentally conscious will be a huge opportunity for the IKEA company to tap the
untapped market of Russia. Another opportunity the company will have is the cost leadership
management of IKEA. Though the quality can be an issue in this case, but at the end of the
day the customer will see whether the money spent is worthy for the product or not, and
whether they are getting any additional value or not. Another factor responsible for entering
the new markets is the expansion strategy formulated by the company. The political stability
of the country where the company wants to expand is another major factor to enter into a new
market. Like in the case of IKEA, they have been trying to enter into the market of Russia
since the 1960’s. Their first attempt was halted due to the collapse of the Soviet Union in the
year of 1991 (Pohlen et al 2016). Another attempt failed due to the Constitutional crisis of
1993 and also due to some unfavourable economic conditions of the country. Economic
stability of a country is impossible if the political stability is absent from a region. The
relationship with the local as well as the international government is very much important as
well. In case of IKEA, the Mayor of Khimki helped a lot to set up their first ever store in
Russia in March 2000. Though the ‘Russian Financial Crisis ‘broke out at that time, the
company continued to construct their first-ever store. The social and cultural factors have also

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to be kept in mind before entering a new market. Homosexuality is still banned in Russia, and
for this, the company had to remove a picture of a same-sex couple from their Russian
catalogue. They changed their idea to suit the normal thinking of the society of Russia.
Providing the well-designed furniture in an affordable price is another major opportunity to
enter the untapped market of Russia, where there was a lack of this kind of products for the
middle class society of Russian people, who, before the entry of IKEA used the old model
Soviet-era furniture. IKEA helped to transform their likings from the old Soviet models to the
new Scandinavian model of furniture manufactured by IKEA (Bruno et al 2013).
Q2. What is the impact of strong and co-operative political machinery on the business
prospects of an emerging market? In this context, discuss IKEA's Russian sojourn. What
should IKEA's business strategy be in the future?
IKEA, as seen from the case study, is one of the leading entrepreneurial investment in
the country of Russia, as the company opened many other stores in Russia including the
manufacturing units as well. The company is very well known for following the anti-
corruption practices in its business operations, and, due tom this behavior of the company, the
comp any has faced problems in not only in Russia, but in other parts of the country as well
when the company wanted to expand their business. The company stood firm in following
and maintaining the ethical standards to operate their day-to-day business operations as well
as financial terms, in spite of all kind of difficulties faced by the company. The anti-
corruption attitude was properly maintained by the organization to enter and expand their
business in Russia and run their business successfully. The company has diversified
themselves by setting large shopping complexes with multiple benefits instead of relying on
the stand alone business or the single stores of the company.

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Russia is one of the large creating marketplace for the vision on the machinery. IKEA
had to strategize their business strategies according to the marketing as well as other
conditions like the political, social and economic conditions. The political and monetary
conditions in the country helps to distribute the quality of co-operation in the particular
country. Russia hold on to a promising business creation part for vision on the machinery,
with development in the aeronautics, resistance, security, sensible research and improvement
watching. The marketplace of Russia holds a huge potential in terms of machine vision
industry. IKEA also gained from these, as they started to manufacture the furniture in its first
factory set in Russia, which employed 250 odd people. Apart from this, the company
provided US$400 million to the local suppliers of the company in order to purchase
equipment. Russia has about 25% of the hardwood supply of the world and the effort of
IKEA to improve the facilities of the production, in order to make Russia one of the major
supplier for the company to run the operations of the organization worldwide (Harapiak
2013). At present, there are around 50 associations working in the Russian machinery
industry, to make the dreams of the company turn real. Globalization is one of the aim of the
organization, and in order to achieve that the organization have to focus on the production of
the amount of furniture on daily basis as well as improvement of the machineries needed to
produce the furniture, in order to cope up with the pace of the ever-improving technology (De
Marchi et al 2013).
Q3. What are the strategies that a company should use to grow its business in an emerging
market? How do you establish a strong market presence in an underserved market? Discuss
IKEA's strategy of establishing large shopping complexes instead of standalone shopping
centres.
The first and foremost strategy is to identify the market properly by the company. The
researches should be done by the company properly before entering a new market, otherwise

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the company can suffer setbacks in the very early stages of the marketing cycle. Market can
be termed as the fundamental pillar of an organization. It helps to include or combine the
macroeconomic stability, the market size and growth of the consumer, the middle class
society and the openness of the marketplace to accept the new organization. These are the
essential issues which should be treated with high priority in any emerging market strategy.
The stability of the marketplace is essential to be recognized and considered by an
organization before entering in to that market (Jonsson, Martin and Stefan 2013). The need
and demands of the customers are also needed to evaluate, so that the company can
manufacture their product accordingly which will more people so that it will help the
company to earn revenue properly and efficiently.
Like in this case, IKEA targeted the middle class people of Russia, who used the old-
fashioned Soviet-era furniture, so that they could be replaced with that of new Scandinavian
models manufactured by IKEA. If a company enjoys the macroeconomic stability, it will not
be impossible to face the success even in unstable economies. The growth of the economy
should also be noticed so that the company can strategize their plans accordingly, which will
help the company to estimate the amount of money can be earned from that particular
marketplace. The external factors related to the marketplace as well as the internal factors
like the opportunities and threats should be identified by the organization. The market size of
the untapped market should also be taken into consideration, as well as the growth capacity of
the marketplace where the company is planning to enter. The openness to trade with other
countries and the foreign direct investment should also be take onto account. The
receptiveness to the new products and services of the people of the new marketplace is
equally important. The openness to the new ideas of a new company must be measured so
that it will help the organization to measure the investment in terms of money. The
population of the country should also be taken into consideration, so that it will help the

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company to measure the amount of their production, so that it will not hamper the income
and expenditure of the company. For IKEA, they have gradually set up a manufacturing unit
and a warehouse, where all these were done after a thorough analysis of the market of Russia
(Hildeman and Mattias 2014).
Conclusion
From the above three questions, it can be understood that the run of the business of
IKEA was not at all smooth. They have to face many hurdles while entering the market of
Russia, and gradually they have solved the problems and increased their presence in the
market in number of stores as well as manufacturing units and warehouse. The business
environment in Russia actually created the problems, whether it is political or economic.
They had to face issues like electricity, fire, customs, health and safety, customs and other
related government departments. They were even asked to pay bribe, which is one of the few
things IKEA avoided from the very first day of stepping the market of Russia. There are
some ethical issues which are properly followed by the company of IKEA. They had to face
some major issues with the local government where they opened the first outlet. But over a
period of time, IKEA became the largest foreign retailer in the region of Russia. The
company gradually invested US$4 billion over a period of 10 years in Russia, thus making it
the one and only largest foreign investor in the country. IKEA opened 14 stores or outlets
along with the three manufacturing units and one distribution center. The officials of the
company came to a conclusion that the success story of IKEA was attracting other retailers
around the world to set up their operations in Russia. The popularity of the organization and
its effect on the younger generation attracted the eyeballs of many organizations. The
younger generation got a new name as IKEA Generation. The Managing Director of IKEA
said that IKEA Russia is one of the bestselling IKEA countries globally. More than 141
million people are interested in buying their products. Sticking to the ethical standards of the

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company and running the business operations ethically created a lot of critical moments
which were faced by the company, but they never loosened their grip from the core
objectives. As of 2012, 2 out of 3 top performing stores worldwide were located in Russia.
There will be challenges which is to be faced by the multinational organizations like IKEA,
who are expanding their business globally, but those should be tackled efficiently so that the
company enjoys a competitive advantage over its rivals.

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