MGMT6003 - Global Business Dynamics: Ikea Russia Case Study

This case study analyzes Ikea's challenges in its Russian operations, focusing on ethical standards, corruption, and the impact of the Russian political environment. The study examines a specific case of bribery and explores the difficulties Ikea faced in navigating the Russian bureaucracy and high start-up costs. The analysis delves into external factors influencing foreign business ventures, the impact of strong political machinery, and potential growth strategies for Ikea. The case highlights the importance of understanding the local business environment, including political and economic factors, and the need for robust ethical practices and legal support. The study concludes that despite significant challenges, including corruption and bureaucratic hurdles, Ikea's ethical practices and strategic approach enabled it to sustain its operations in Russia, emphasizing the need for innovation, strong legal aid, and a dedicated focus on customer-oriented marketing to overcome such hurdles. The analysis also underscores the importance of a strong government and robust policies for the development and expansion of foreign businesses.

Global Business Dynamics: Ikea Russia Case Study
Global Business Dynamics: Ikea Russia Case Study
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Global Business Dynamics: Ikea Russia Case Study
Table of Contents
Introduction..............................................................................................................................3
Summary of the Case Study....................................................................................................3
Case Questions..........................................................................................................................3
External Factors for a Foreign Business Venture.............................................................3
Impact of Strong Political Machinery on Business...........................................................4
Growth Strategies for Ikea..................................................................................................5
Conclusion.................................................................................................................................6
Reference...................................................................................................................................7

Global Business Dynamics: Ikea Russia Case Study
Introduction
Ikea too has seen certain problems in its Russia operations, mostly dealing with the issue of
conforming to the ethical standards of the company. While Ikea is known for its exceptional
tough policies on corruption, the employees in Russia have constantly failed to take note of it.
This case study deals with understanding one such case, and how Ikea can combat it and
develop a better international business strategy for itself (Evans 2015)
Summary of the Case Study
This case study focuses on Ikea combating corruption in its Russian facilities. The case opens
up by providing information about how one of the Ikea associates in Russia was caught
taking bribes and was sentenced for six years in this case. While the company had given full
support to the investigating authorities, it has come to an understanding that something is
genuinely wrong with its conduct since it is the second case of bribery in Russia
(Dashkovysky 2016). Ikea management is now forced to think if their policies are not strict
enough, or their approach towards business in Russia is not right. Ikea is constantly battling
this issue of how it can ensure that its employee follows the best ethical standards set by the
company and contribute to its growth.
However, as the case progresses, it is understood that it is not only Ikea but the Russian
bureaucracy too which is at fault. The corruption has steeped there so much so that Ikea faced
so much problem in shifting into its new facility base. Further, the high start-up cost has also
contributed towards the apparent difficulties faced by Ikea in creating profits for itself
(Brooke 2019).
Case Questions
External Factors for a Foreign Business Venture
When a company decided to enter a foreign market, it is essential to understand the market in
every possible way. Right from understanding the political situation to the general working of

Global Business Dynamics: Ikea Russia Case Study
the business, it is important to undertake complete research and only then venture. For a
company such as Ikea, Russia was an entirely new market in terms of the business
environment and business ethics (Shatokhina 2019)
It is quite clear now that Russia has a corrupt bureaucracy and hence, Ikea has to put up with
a lot of things. However, for the future, it is best advised that Ikea follows a simple code of
understanding the business environment of the country they wish to expand in. following
factors can be researched upon:
 Political situation: how supportive is the country to foreign investments in terms of
bureaucratic support
 Economic factor: if the country has flexible economic policies to accommodate
foreign investments. Also, the general economic state of the country is important to be
understood as it allows for better planning of strategic management of the company’s
expansion plan (Kanagl 2017)
 Social: if the company will get enough social support to run their business there. Are
the people really supportive of the brand? Will the brand actually sustain itself there
in the long run?
All these factors are enough for Ikea to understand if the country it is expanding it will be an
ideal place for this or not?
For example, Ikea had to face a lot of trouble in Russia simply because it did not do enough
research on the internal political environment as well as the economic environment of the
country. The labour strikes and low supply of mortar gave away a lot about the situation
there.
Further, when the company faced issues in its construction of the store, another issue cropped
up where the Ikea country head called out the local government of pressuring the company to
take help of the government-owned construction company to expedite the process. This
started another war between Ikea and the local government there. In all, this matter
aggravated so much so that Ikea had to put a stop on its expansion plans in Russia. This could
have been easily avoided had Ikea invested more in research for Russia and had not directly
entered the market.

Global Business Dynamics: Ikea Russia Case Study
Impact of Strong Political Machinery on Business
There is nothing better for foreign investment than a robust and well decided political
machinery which helps the company in all possible ways to find their ground.
It is important for the country, as well as for Ikea to establish clarity in expression when the
business expansion is in its initial phase. In the case given, it is quite clear that the Russian
government was not at all supportive to Ikea and neither was it strong (Williams 2019).
While in some instances the government extended all the support possible to the company,
there were instances when it created a lot of trouble as well. for example, when Ikea was in
the initial phase of expansion, the government had promised a lot of support with additional
help as well. however, as soon as the operations began, the government started churning out
their own benefits from the expansion, and thus, it contributed a lot to the troubles of the
company as well.
Russian government created a lot of trouble for Ikea and owing to this, there were a lot of
problems in its expansion. Ikea understood the situation well, and thus, the company decided
to go ahead with opening the store anyway and gained a lot of media attention from the world
over.
The fact they were forced to make several changes for their store and hire more local labour
for production (after giving in the demands of the government) has clearly signalled that the
Russian government can go to any extent to extort money out of companies, and this was
happening in broad day-light (ALACO 2016). They also called out the Russian authorities
during the opening to the global media, because of which they gained a lot of flak from the
international business community. From this point onwards, Ikea made progress one step at a
time, and in certain instances, it also got enough support from the government of Russia as
well. this was a welcome change as the company was finally on its road to success (Rogers
2012).
Thus, it can be concluded that a strong government and robust policy is essential for the
development and expansion of the foreign business. If the governments keep on dwindling
like this forever, it becomes a problem. In future, Ikea should focus on developing a better
understanding with the government beforehand only.

Global Business Dynamics: Ikea Russia Case Study
Growth Strategies for Ikea
After analysing the case, it is quite apparent that Ikea needs to take a better road towards the
success of its company in Russia. It is quite clear that the Russian government is not efficient
and extremely corrupt. Because of this, it is highly likely that Ikea is going to face a lot of
problems in the future, especially when it comes to expansion. Hence, innovation and a
strong legal aid are the only two way Ikea cans safeguard its interest and focus more on
developing in environments such as that of Russia.
Ikea has worked hard a lot to create an interactive environment in Russia to give better user
engagement, however, even after that, it was difficult for the company to find ease in doing
operations. Hence, it was tough for the company to survive there. While Ikea has been
successful and is growing constantly, the path wasn't easy. It cannot be expected from the
Russian government to change at this point, however Ikea has to strengthen its legal team and
its PR wing to ensure that it always has the public support when matters enter the courts of
Russia, and the company is always able to influence the decision with public support.
It is advised that Ikea should:
 Focus on service-oriented marketing
 Bring new and innovative product offerings to the customers
 Create a special wing to deal with the government
 Focus more on creating systems which focus on customer offerings
 Finding ways to deal with the government in an easy manner
These growth strategies can help Ikea a lot, provided they are backed by strong decision
making and is supported by each and every member of the company. Ikea has to ensure that
the employees in the organization are completely faithful and do not indulge in acts of
corruption or associate themselves to such people for any reason. Having said this, it is in the
best interests of Ikea to develop a proper system of managing the activities in the
organization and ensuring that the growth is strategized properly, changes are well managed
and the organization culture does not get hampered in any way.

Global Business Dynamics: Ikea Russia Case Study
Conclusion
From the above case study analysis, it can be easily concluded that the Russian government
has been the bottleneck in the growth ambitions of Ikea in Russia, owing to their corrupt
nature. Russian bureaucracy did not help the company much, rather added to its trouble. It
can be seen that Russia has not been very kind to Ikea in terms of providing to it a sustainable
business environment where it can work easily and in a sorted manner. The corrupt nature of
the Russian government has given quite a wrong example to world business community
about the country. Russian government created a lot of trouble for Ikea and owing to this,
there were a lot of problems in its expansion. Even after all these troubles, the company could
sustain itself because of its own ethical practices and robust organizational mechanism for
coping with such situations. It is quite apparent that Ikea needs to take a better road towards
the success of its company in Russia. It is quite clear that the Russian government is not
efficient and extremely corrupt. Because of this, it is highly likely that Ikea is going to face a
lot of problems in the future, especially when it comes to expansion. Hence, innovation and a
strong legal aid are the only two way Ikea cans safeguard its interest and focus more on
developing in environments such as that of Russia. The management of Ikea has taken a very
bold step by standing up to the Russian government and going ahead with their operation
nonetheless. This is not common for all business houses to do, specially companies which
have so much investment riding on in the country. There were complete chances that ikea
could have been outset from this altogether, however, with their strategy and ethical working
environment the company was able to successfully focus on achieving this feat. Hence, it is
in the best interest of any company stuck in this situation to properly understand the situation,
and patiently move ahead with the right strategies and resources, as Ikea did. Ikea has set
examples for companies to come and how they can manage this situation in a very easy going
manner. here, innovation, zeal, ethics and good employees are to be credited for the win.
Also, it is in the best interests of Ikea to develop a proper system of managing the activities in
the organization and ensuring that the growth is strategized properly, changes are well
managed and the organization culture does not get hampered in any way.

Global Business Dynamics: Ikea Russia Case Study
Reference
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Russia". Rbth.Com. https://www.rbth.com/business/2016/08/29/losing-the-good-fight-ikeas-
struggle-to-remain-honest-in-russia_625167.
Evans, Michael. 2015. "10 Key Steps To Expanding Your Business Globally". Forbes.Com.
https://www.forbes.com/sites/allbusiness/2015/03/04/10-key-steps-to-expanding-your-
business-globally/#641c80e23803.
Kanagal, Nagasimha Balakrishna. 2017. "Strategic Marketing Issues For An Emerging
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Shatokina, Sandhya. 2019. "Why Does IKEA Thrive In Russia? – Gemic". Gemic.
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russia/.
Williams, Frank. 2019. "The Effects Of Government Policies On
Businesses". Smallbusiness.Chron.Com. https://smallbusiness.chron.com/effects-
government-policies-businesses-65214.html.