Entering Russian market has often been hard for foreign companies; Russia is well-known for being a tough country in business. Some of those companies may make it achieve a certain success, but success does not come easily. In the following report we will see how IKEA entered Russia and the hardships that were encountered on the path.
IKEA is a Swedish home furnishing retailer created in 1943 in Sweden. IKEA is famous for selling home furniture and decoration in kit. The company's philosophy is to improve people every day life by offering a vast range of home furnishing products, which are functional and stylish, at a price accessible for most people. Prices became the key of IKEA's strategy.
This way of doing things enabled IKEA to become the leader in its category with an annual turnover of 23.1 billion euro and to employ 127 000 people in 41 countries. IKEA is well known for being a leading company in internalization.
IKEA's decision to enter Russia was expected since Russians' income and expenditures were likely to grow a little bit more every year due to their gradually general economic development. Moreover, the retail sector in the country is rapidly rising. In 2010, in Russia, according to their website (www.ikea.com), IKEA had set up 12 stores, 13 malls, one distribution center and three manufacture plants.
Tags: IKEA, Russian market, foreign companies
[...] The brand has quite succeeded its implementation in the country, but this is not without efforts, time, patience and heavy investments over these last 20 years. IKEA started to have interest in Russian market in 1988 but mainly because of bureaucratic obstacles, it took more than a decade for IKEA to open its first store in Moscow, in 2000, after many failures. Failures IKEA only succeeded its implementation on Russia territory after multiple attempts. The company's first try to enter Russian giant market was in 1988. After 3 years of negotiation with the local authorities, the first shop should have opened in Leningrad. [...]
[...] They have become the voice of foreign companies implementing in Russia to denounce corruption. Electricity price The situation One of biggest problem that IKEA met when entering Russian market is energy supply. The first time IKEA had to deal with corruption it was concerning electricity supply. The story of IKEA business success in Russia explains that: before the opening of its first store, in 2000, employees of a local electricity enterprise came up to IKEA asking for bribes. The deal was that if IKEA wanted electricity for the opening of their store, they had to pay the employees. [...]
[...] Analysis This decision to freeze investment in Russia could put pressure on Russian administrative, since IKEA is one of the largest foreign investors with more than 4 billion dollars invested over those 10 past years. It is not only an issue of money for Russia but also of employment. Indeed, freezing investment also means that there will be less malls and stores to open. Since the economic boom of Russia, IKEA has largely participated to the economic growth with their foreign investment but also in term of employment. [...]
[...] In the coming years, IKEA's strategy is to stop the importations and make Russia one of the main suppliers for the brand, a hub for their production. Russia would become a production center for all the IKEAs in the world. More than this, IKEA wants to exploit all of Russia's resources. They just built a giant warehouse close to Moscow to store all the raw material that the company needs to produce their furniture. Analysis With this strategy, IKEA limits its production costs, purchasing costs and custom duty costs. [...]
[...] IKEA has to keep a long term vision. Concerning bribes and corruption, IKEA should keep its strategy of being in the front of the scene and talk about those issues in the international media. On the corporate side, it should review its internal policy to make sure that problems of corruption do not appear again. This is to say that employees should be sensitized and trained to understand those issues and report them to their managers if they ever are confront with bribes. [...]
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