MGMT6003 Global Business Dynamics: IKEA's Russia Case Study Report

This case study examines IKEA's expansion into Russia in the late 1990s, highlighting both its exceptional growth and significant challenges related to corruption and a weak, uncooperative government. The report identifies key issues such as bureaucratic corruption, government obstruction, and the Ruble crisis, exploring their causes and contributing factors. It proposes solutions, including analyzing external factors like political, economic, technological, social, legal, and environmental aspects for devising effective market entry strategies. The analysis emphasizes the importance of a strong and cooperative political machinery for business prospects in emerging markets and suggests future business strategies for IKEA, such as sustainability and targeted promotions. Furthermore, the report outlines strategies for growing business in emerging markets, including competitive pricing, technology adoption, product diversification, and development, concluding with the significance of ethical practices and strong customer relationships for establishing a robust market presence. This document is available on Desklib, a platform offering a variety of study resources.

Global Business Dynamics

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Contents
Introduction...........................................................................................................................................1
Essence of the case study...................................................................................................................1
Issues.................................................................................................................................................2
Causes...............................................................................................................................................2
Factors...............................................................................................................................................2
Solutions................................................................................................................................................3
External factors that requires to be considered for making entry strategy..........................................3
Ikeas actions......................................................................................................................................4
Influence of strong and co-operative political machinery.................................................................4
Future business strategy.....................................................................................................................5
Emerging market’s best strategies....................................................................................................5
Creating strong market presence in underserved market....................................................................5
Strategy of establishing large shopping complexes...........................................................................6
Conclusion.............................................................................................................................................6
References.............................................................................................................................................7

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Introduction
Essence of the case study
Ikea is known for its furniture and is known to be one of the biggest in the industry. Ikea
expanded in Russia in the late 1990s (Stenebo, 2010). They have achieved an exceptional
growth rate but at the same time Ikea dealt with one of the biggest problems for any firm that
is corruption and weak government that was not cooperative. The corruption existed in all
forms of government at every level within Russia. This case depicts the expansion of Ikea in
the cities and villages of Russia but for this they have to give lot of their wealth as a bribe.
Officials of Ikea stated that the bribery system was working as a parallel economy in the
country. Although Ikea believed in doing business with huge transparency but due to the
political environment man of their official got engaged in the corruption and are facing
charges against it. The problem become so big that Ikea had to stop their further expansion
plan twice in a year. This was done by the management in response to their falling image in
the minds of the people. It is also due to the fact that Ikea was indulged in wrong practices
which was acting as a barrier in the growth that company desired for. Ikea also faced another
kind of issue against the company where many of the government officials ha grudges against
their operations hence they stopped giving permissions to the company at many incidents
regarding their projects. It is due to this that there is an enhancement in the operational costs
and the overall project related cost. In the time when financial constraints in Russia was
higher these kinds of additional cost was a loss to the company.
Issues
 In Russia the major issue was the fact that projects become slow due to higher
corruption in the bureaucratic levels of the firm.
 The unnecessary agitation of the company by the government officials stopped its
growth rate.
 The Rubal crisis of Russia made the investments chances further slow (Bruno,
Bytchkova and Estrin. 2013).
 Higher start-up cost and tariff rates are a problem for the company.
Causes
 Too much complex bureaucratic structure making it difficult for the companies to take
permissions (Holmes, 2012).
 Corrupted officers of Ikea are willing to pay bribery hence disrupting their growth.

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Factors
 Bureaucrats understand themselves as a god in the region hence exercising to much
authority.
 Poor implementation of legislative framework (Jonsson, 2010).
 There is downfall in the Russian economy.
Solutions
External factors that requires to be considered for making entry strategy
Analysing the external factors helps the company to know the variables that is having impact
on the business operations. This analysis is also helpful for understanding the factors that
might confront their growth. The strategies are made according to this only. Some of the
factors that need to be analysed before expanding into Russia are:
 Political: The major factor that is holding back the companies to expand within the
country is their political system. A huge amount of corruption exists in the political
infrastructures that are restricting them from achieving the growth they desire for.
Company’s official had to take large amount of permissions from the people at
different levels of the government structures. For any company to enter into Russia
need to ensure that they make policies that they remain transparent in the way they are
doing business (Komissarova and Grein. 2011). This is the only thing that can save
them from fighting with this higher amount of corruption and protect their employees
getting indulged into any kind of unethical practices.
 Economic: In spite of being a developed nation, Russia is failing to touch the growth
rates of developed nation. This is making it difficult for the investors to invest in the
country. The performance of different industries is not so good. On the other hand
Rubel is continuously decreasing its value against the Dollars. Tariff rates and cost of
opening new stores continues to be high in the country. While on the positive side
government is supporting the FDI which can give new energy in the economy of the
country (Tarnovskaya, and Chernatony. 2011).
 Technological and social: Russia faces a challenge of being a gaining society and the
social orientation is changing. There are people from different an economic
background that reside in Russia and hence gives a market for every kind of products.
On the other hand Russia is a technologically society which will boost companies to

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make strategies related to more use of technology in their business operations
(Jonsson and Foss. 2011).
 Legal and environment: Legalities are strong but the problem is that it lags in terms of
the ways in which it is implemented. On the other hand Russia is strict about its
environment related policies and Ikea on several occasions are found guilty of cutting
down segment of trees in the name of old forest laws.
Ikeas actions
 For unethical behaviour of their employees, Ikea terminated them.
 Ikea’s management changed the price tag to Rubel which previously depicted dollars.
 Ikea ensured that before starting any project they will take as many permission as
possible from different government officials at different levels (Tarnovskaya, 2011).
 They made changes in their ethical practices so as to bring more transparency in their
work.
Influence of strong and co-operative political machinery
In any country the growth of company depends on the political environment in that company.
Any firm wants that the country must be in the hand of government that is strong at every
level and are co-operative for all the companies. In the emerging markets, the political
environments are generally not so strong which creates a loop holes and hence problems such
as corruption and biasness arises. Ikea faced similar situation in many cities due to which
they had to bribes to their official so as to continue with their project (Sklyarova and Kobets.
2011). Even they did not permission unnecessarily. False allegations of their advertisements
to be harmful have been placed on them. All these things delayed their process of expansion.
The situation could have been better the companies would have made a better development.
The same in the case with the co-operative government i.e. if the governments are co-
operative they are more likely to get support from the governments in their projects. In the
lack of this support often projects gets late. In the project of Leningrad highway where they
wanted to build off-ramp for people so that they easily cross the road to reach the shopping
complex was halted in between by some of the officials who had grudges against the
company (McKenzie and Dukeov. 2014). They got very late permissions due to which the
cost of their operations got very high. A cooperative government always supports the
company in their bad times and also allows the company to think innovatively in their
project. This ensures fast expansion and stable economic returns. A cooperative government

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allows a cooperative model where both government and companies works towards
infrastructure development of the company and company as well.
Future business strategy
Among the various business strategies of Ikea, the strategies that they can utilise for their
future are:
 Sustainability: Strategies related to sustainability need to be made by the company.
For instance proper allocation of resources, giving both ethical and unethical trainings
to the employees so that they do not get indulged in the unethical business and also
ensure that there is proper utilisation of the resources.
 Promotions: Company needs to look at the way they are doing their promotion. They
must choose online marketing techniques that are built around any theme. This will
reduce the cost of their operations (Granville, Hanson and Ledeneva. 2012).
Emerging market’s best strategies
There are different types of marketing strategies that Ikea can adopt while entering into
emerging markets. While devising new strategies they can learn from their experience in
Russia. Some of the strategies that they can use in the emerging markets are:
 Pricing: Prices in the emerging markets needs to be on the lower side when compared
with their home country. This is because there is a huge population of middle class
families who prefer to buy products at economical rates (Daunfeldt, Mihaescu,
Nilsson and Rudholm. 2015).
 Technology: Company must promote the use of technology in most of their
operations. This is necessary for the development of the firm in the long term. This is
because technologies allows them to reduce the cost of operations at the same time
gives them a reach to larger section in the market. Personalised marketing becomes
easier with the help of technology.
 Product diversification: The more the variety of products available with any firm the
greater is their chance to target larger section in the market. This is because
consumers will have more options to select from (Salmi and Heikkilä. 2015).
 Product development: It is crucial that before entering into any market, a company
must understand the orientation and the demands in the market. On the basis of this
research only a company must develop their products.

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Creating strong market presence in underserved market
A strong market presence can be created by the company in the undeserved market if they do
certain set of activities. These activities are:
 Creation of strong bonds with the customers allows them to know the need of the
people.
 Ethical mediums must be chosen at every step of the organisational model.
 Selecting smart promotional strategies that ensure connectivity with the issues faced
by the people (Sklyarova and Kobets. 2011).
Strategy of establishing large shopping complexes
Ikea has been smart in choosing large shopping complexes over the single stop stores. They
started building large shopping complexes to enhance their brand presence. This is a part of
the long term promotional strategy (Holmes, 2012). There is another aspect related to it that
suggests that in a shopping complex there are various other types of stores running. This will
increase the number of visitors in the Ikea store. It also acts as a way in which brands portray
themselves to be big.
Conclusion
A large number of conclusions can be drawn from the above report. Ikea is a big company
having capabilities to grow at much faster rate. This can be seen in the case of Russia but at
the same time they are facing significant kinds of challenges in development of company
within Russia. The first and the foremost problem that confronts business is corruption at
every level of the government structure. This not only delays the time taken by the companies
to complete their projects but also enhances the overall cost of the project. This also created
situations where the officials of the company remains indulged in some wrong or unethical
practices. Ikea needs to work on the ethical aspects such as overcutting of trees on the basis
of the old forest laws. A strong policy is required to be built at Ikea so that they ensure that
whatever may be the situation a company must not get indulged in any wrong practices. This
is because such incidents have impact on the minds of the people at global levels.
A company must see the external environmental factors such as political, economic, social,
technological, legal and environmental while making their strategies for entering into Russia.
Ikea’s actions such as building a stronger ethical policy and converting their price from
Dollars to Rubel have helped them in some ways. At the same time terminating employees

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who were found indulged in the unethical practices. This gave a strong message to their
stakeholders and showed their commitment towards unethical behaviour. It is also concluded
that a strong and co-operative government helps a company in their problems especially in
areas such as finance and policy making. It helps in the fast development of any firm as the
government will not act as a barrier in their different projects. Sustainability and promotions
are the two areas where this company might make strategies for their future. Low pricing,
higher use of technology, product diversification and development are certain strategies that
can give them higher level of growth in the emerging markets. In underserved markets they
need to use better promotional strategies and at the same time they must create an ethical
business model. Ikea chose bigger shopping complexes over smaller shops to create a larger
brand presence.

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References
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of new firm entry in Russia: A cross-regional analysis." Review of Economics and
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Daunfeldt, Sven-Olov, Oana Mihaescu, Helena Nilsson, and Niklas Rudholm. 2015. When
IKEA enters: Do local retailers win or lose?. HUI Research.
Granville, Christopher, Philip Hanson, and Alena V. Ledeneva. 2012. Three views on
modernisation and the rule of law in Russia. Centre for European Reform.
Holmes, Leslie. 2012. "Corruption in post-soviet Russia." Global Change, Peace &
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Jonsson, Anna, and Nicolai J. Foss. 2011. "International expansion through flexible
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Komissarova, Tatiana, and Andreas F. Grein. 2011. "The impact of market reforms and
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McKenzie, Brent, and Igor Dukeov. 2014. "Retail strategy and policy in Russia." In Retailing
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Salmi, Asta, and Katja Heikkilä. 2015. "Managing relationships with public officials—A case
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Sklyarova, Mariya, and Tetiana Kobets. 2011. "Eco-efficiency for sustainability: IKEA's
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Stenebo, Johan. 2010. The Truth about IKEA: The Secret Success of the World's Most
Popular Furniture Brand. Gibson Square.

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Tarnovskaya, Veronika V. 2011. "The brand I call home? Employee-brand appropriation at
IKEA." Branded Lives: The Production and Consumption of Meaning at Work: 128-
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Tarnovskaya, Veronika V., and Leslie de Chernatony. 2011. "Internalising a brand across
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