IKEA's Russian Sojourn: Market Entry, Challenges, and Strategies

This case study delves into IKEA's strategic entry into the Russian market, highlighting the ethical dilemmas and market strategies employed. Initially hesitant due to Russia's pervasive corruption, IKEA, guided by Lennart Dahlgren, adopted a zero-tolerance policy. Despite facing challenges related to economic, cultural, legal, and political factors, including bribery and governmental obstacles, IKEA established a significant presence. The case examines IKEA's adaptation of existing strategies, efforts to change the market context, and considerations for underserved markets. Ultimately, IKEA's Russian experience underscores the complexities of operating in emerging markets and the importance of adapting business models to local conditions, while also emphasizing the potential for land development and commercial complex integration. Desklib provides this and many other solved assignments for students.

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Global Business Assignment
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Table of Contents
Introduction:....................................................................................................................................1
Question 1: External Factors to be considered before making an Entry.........................................2
Question 2: Impact of Strong and Cooperative Political Machinery on Business Prospects of
Emerging Market in Discussion with Russian Sojourn. Ikea’s Business Strategy for Future........3
Question 3: Business Strategies for Growing in Emerging Market; Ways of Developing Stronger
Market Presence in Underserved Market. Ikea’s Strategy..............................................................3
Conclusion:......................................................................................................................................5
References:......................................................................................................................................7

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Introduction:
The case study provides an insight into the ethical dilemmas and development of market
strategies of Ikea in Russia. Ikea had been a powerful entrepreneurial venture headquartered in
Sweden found by Ingvar Kamprad. The company initially sold greetings card, flower seeds,
decorations for Christmas tree, ball point pens and pencils before it began to start selling
furniture. The business concept of the firm across all markets has been to put across simple
design furniture at the most affordable price. In other words, the business strategy of the
company can be termed as cheap labor combined with convenient retail pricing. However, most
supplies for the firm has been through an international network of the contract manufactures.
The company decided to make an entry into the Russian market during the 1990 as a part
of the global strategy for expansion (Kucherov et al. 2014). A noticeable IKEA employee who
had been about to retire named Lennart Dahlgren, had been asked for overseeing the operations
of the company in Russia. Lennart Dahlgren had been really apprehensive since Russia had been
surrounded by various problems. He quickly abandoned the idea after the publication of a market
report that considered Russia to be one of the top countries in terms of expansion in retail. Russia
experienced 30 percent growth in the retail sales between 1999 and 2003 and had thin retail
network for serving the growing market. Nevertheless, Dahlgren realization of a highly corrupt
Russian bureaucracy that asked for bribes to get things done was put to rest with concurrence of
Ikea’s zero tolerance policy in relation to corruption. He therefore decided not to give in to the
corrupt system and considered that companies must be honest and up front in dealings. He
further put forward that the foreign companies must realize the need for reporting corruption.

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In the year 2000, the first Ikea store was opened in Khimki, Russia. The inauguration
drew a huge crowd of close to 40,000 shoppers (Müller 2016). The business ambience of Russia
has been problematic, be it in terms of safety and health, fire, customs, tax and electricity. Ikea
did have to make compromises in regard to construction. In the year 2012, Okan Yunalan, the
intermediary to the Head of Leasing Department of Ikea’s subsidiary in Japan had been
sentenced to a prison terms of 5 years on account of large scale extortion. Despite, the success,
IKEA had to freeze its expansion in the year 2009 after it was denied permission in central cities
of Ufa and Samara.
Question 1: External Factors to be considered before making an Entry
The external factors that a company should consider while devising an entry strategy for
new country include (Cavusgil et al. 2014):
1. Economic Factors: In this regard, it can be said that Russia is considered to be one of
the fastest markets across the world and has been one of the toughest for doing business. The key
block for the business has been the corrupt system of the country both at the national and the
regional level. But Ikea still got established in the country due to its strong anti-corrupt policies.
2. Cultural and Social Factors: In Russia, the majority of the population comprised of
middle class people who had a pent up demand for furniture. This was fulfilled to certain extent
after Russia got introduced to Ikea. It was a time of transition within the country when increasing
level of middle class abandoned the Soviet era over the modernized Scandinavian set, primarily
chosen by Ikea. The company offered sturdy and simple furniture at most affordable rates that
created stir. In reality, shoppers expressed disbelief over pricing of the Ikea items.
3. Legal and Political Factors: Bribery in the country accounted for close to US$300
billion. It was believed that the bribery was like another system of taxation in Russia that

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benefitted political elite including the Federal Security Service and the police. There has been a
constant clash of Ikea with the officials of government over the continuation of corruption across
the store locations. This prompted the Russian government to come up with measures for
eradicating poverty and also brought about key changes in the political system such as formation
of free press and existence of genuine opposition.
Question 2: Impact of Strong and Cooperative Political Machinery on Business Prospects
of Emerging Market in Discussion with Russian Sojourn. Ikea’s Business Strategy for
Future.
The impact of a strong and cooperative political machinery cast a significant impact on
prospects of business in the emerging market as they have the ability to reduce the effectiveness
of the businesses in using the products in the emerging market (Donaldson and Nogee 2014).
This type of environment has been found to be quite discouraging as it prevented business
expansion. In this regard, it can be said that the strong and cooperative political machinery of
Russia did not make the expansion plans of Russia a smooth sailing one. Ikea had constantly
been found to be in problems regarding the stores from the government officials in the different
department that includes fire, electricity, customs and tax.
The business strategy of Ikea for the future should be to avoid these type of countries that
causes a damage to their ability of expansion (Gvozdikov 2014).
Question 3: Business Strategies for Growing in Emerging Market; Ways of Developing
Stronger Market Presence in Underserved Market. Ikea’s Strategy
The business strategies for companies to grow business in the emerging markets include
(Kumar, Mudambi, and Gray 2013):
1. Adaptation of the Existing Strategies: In order to attain success multinationals must
modify the business models for every nation.

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2. Bringing About Change in Context: There are certain powerful multinationals that
bring about an alternation in the context in which they seem to operate. Products offered by such
firms bring about changes in the local market.
3. By Staying Away: There are instances when this seems to be the best option for
certain firms in adapting the business model to the emerging market.
Business can however establish a stronger market presence in underserved market by
adopting the following strategies:
1. By Remembering that Underserved Market Can Imply Lot Many Things: The
underserved market can put across a strong system of revenue and so it needs to addressed
through careful consideration and planning (Tidd and. Bessant 2014).
2. Looking out for Barriers Instead of Competitors: There are various undeserved
market that does lot many actual competitors but have certain situations that the business must
consider (Amankwah‐Amoah 2014).
3. Understanding that the Business Does Not Rightly Fit Underserved Market: It is
necessary to consider whether the business is making money otherwise it would be difficult to
stay in business and deliver products (Lim, Han, and Ito 2013).
4. Consider Whether Business is Able to Make Sacrifice for Underserved Market:
This is necessary otherwise the business will have to spend loads of time as well as money for
making the business work for underserved market.
Ikea established huge shopping complex instead of standalone centers that allowed it in
gaining more money (prope1ty-magazine.eu 2012) The Company however had to undergo

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immense struggle for making profits. The key reasons had been the higher startup cost and
higher tariff of 25 percent imposed on the imported furniture. Ikea was only allowed to sell 13
percent of furniture made locally. The company undertook a strategy of not only opening
production facility but also provide the local suppliers with US$40 million for purchasing
equipment and arranging for the credit. In addition to this, the company took up a strategy of
testing the new business model in Russia. This led to the appreciation of the land value in the
surrounding areas.
Conclusion:
In conclusion, it can be said that although Russia served as one of the fastest emerging
countries of the world but it puts across various obstacles in the ways of Ikea’s operation. In the
year 2002, Ikea began its production in Russian factory with close to 250 employees. In addition
to this the company provided the local suppliers with a credit of $ 400 million for purchasing the
equipment and arranging for credit. Russia has been placed in the 143rd position in relation
Corruption Perception Index. This is because, before the opening of its first store, the officials of
the local utility department asked for a bribe for supplying electricity to the stores. In addition to
this, rectification of any problem is not possible without bribing the government officials. The
Authorities also held a grudge against Ikea in its decision of moving out of Moscow. When the
company finally made a move and opened its stores in Moscow, it was not given permission to
put up any kind of advertisement in Moscow metro.
The initiation of Ikea in Russia brought about a development in the country through
appreciation of land. This allowed Ikea to transform the stores into the commercial complexes.
The construction of the complexes had its own share of problems which the company was able to
overcome by paying over US$5 million for an off ramp construction and getting it endorsed by

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municipal authorities. Ikea also ensured the enhancement of business prospects in the country
through inviting other internationally branded stores for selling hardware, electronics and
clothes within its store sites. As per the reports of 2012, Ikea had plans for expansion in Russia
but the political observers had a different opinion who mentioned that unless crucial changes are
brought about in political system that would criticize the government, bribery and corruption can
remain omnipresent.

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References:
Amankwah‐Amoah, Joseph. "Organizational expansion to underserved markets: Insights from
African firms." Thunderbird International Business Review 56, no. 4 (2014): 317-330.
Cavusgil, S. Tamer, Gary Knight, John R. Riesenberger, Hussain G. Rammal, and Elizabeth L.
Rose. International business. Pearson Australia, 2014.
Donaldson, Robert H., and Joseph L. Nogee. The Foreign Policy of Russia: Changing Systems,
Enduring Interests, 2014. Routledge, 2014.
Gvozdikov, Artem. "Future scenarios of IKEA shopping centres Russia for 2020." (2014).
Kucherov, Dmitry G. Ikea: Recruitment and employer branding on the local labor market.
Graduate School of Management, St. Petersburg State University, 2014.
Kumar, Vikas, Ram Mudambi, and Sid Gray. "Internationalization, innovation and institutions:
The 3 I's underpinning the competitiveness of emerging market firms." Journal of International
Management 19, no. 3 (2013): 203-206.
Lim, Chaisung, Seokhee Han, and Hiroshi Ito. "Capability building through innovation for
unserved lower end mega markets." Technovation 33, no. 12 (2013): 391-404.
Müller, Urs. "Corruption in Russia: IKEA’s expansion to the East (AD)." Emerald Emerging
Markets Case Studies 6, no. 2 (2016): 1-25.
prope1ty-magazine.eu. "IKEA Shopping Malls as Expansion Opportunity for Retailers,"
www.prope1ty-magazine.eu, November 22, 2012.

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Tidd, Joe, and John R. Bessant. Managing innovation: integrating technological, market and
organizational change. John Wiley & Sons, 2018.

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