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Lovisa Björcke 900313-­‐0961 Cross-­‐Cultural Management Summer Course

Assignment 4: Case Study – IKEA: entering Russia

Introduction This case study describes IKEA’s entrance on the Russian market and the many obstacles the company was faced with. As IKEA’s Russian country manager Lennart Dahlgren stated; everything that was not assumed to be a problem turned out to be a problem and everything that was assumed to be a problem was in fact not one. IKEA dealt with many problems relating to culture during the launch in Russia but dodged them all surprisingly well. I believe that the most important factor why IKEA could solve these problems was because of their smart way of adapting their concept to the Russian market and because of the company’s strong organizational culture. Below I will present the main problems I have identified and find most relevant relating to this case and continue the discussion relating to relevant concepts in the course literature, “Understanding Cross-­‐Cultural Management” by Browaeys and Price.

The main issues IKEA encountered when entering Russia • Culture clashes between Russian employees and Swedish employees were present. One of the most difficult challenges IKEA faced when opening in Russia was that they had to transfer the company’s culture and values to the country. They had to train and educate all their new employees into the “IKEA mentality”. Culture clashes between the Swedish culture and the Russian culture were present. IKEA was entering a new unknown market where they had never operated before. The culture was unknown to them and the consumers had other preferences than they were used to.

Bribes and corruption were common in Russia; Russian authorities were often reluctant to cooperate without bribes. IKEA has a zero tolerance policy against this, which made it difficult for them to collaborate with local acts.





Corporate culture IKEA’s corporate culture has its roots in Swedish values and Swedish culture. It is linked together with the company’s history, management style, HR-­‐ideas, the products they provide and the system of distribution. This strong corporate culture, which internally is called the “IKEA way”, is closely linked to their strategy. As stated both in the case and in the course literature, the strategy a company pursues is influenced and governed by its culture (Browaeys & Price, 2011, p. 195). And when a company faces problems, the corporate culture formulates how the strategic reaction will be (Browaeys & Price, 2011, p. 196). IKEA recreated their company and its culture in Russia and built it up from scratch. The employees were culturally trained according to IKEA standards and routines, all employees were all phased in to the “IKEA way” of thinking and all employees shared that same culture. Therefore, when the store in Moscow opened, everything went smooth, effective and the employees knew exactly what to do. When 1

Lovisa Björcke 900313-­‐0961 Cross-­‐Cultural Management Summer Course problems occurred, the employees applied their knowledge received in training to solve the issue. I believe that many of the problems the company faced was dealt with or overcome with help of this strong culture.

IKEA’s corporate culture is most similar to the clan culture, which focuses on flexibility and internal issues. Values that are emphasized are team spirit, participation and mutual support (Browaeys & Price, 2011, p. 221). This goes hand in hand with IKEA’s corporate culture since they focus a lot on internal values and building up a strong sense of connection with the company’s values.

Adapting IKEA to the Russian culture I believe that one of the most important obstacles IKEA faced when entering Russia was to understand the national culture. IKEA’s Swedish touch permeates the whole company, from how the stores look to what kind of food is served at stores. Russia’s culture is very different from the Swedish one. Nordic Europe and Eastern Europe show significant differences in business culture and are located in completely different clusters (Browaeys & Price, 2011, p. 40, 51, 55). These cultural differences were very important to take into account for IKEA in order to reach the Russian customers. The challenge for IKEA was to keep their organizational culture intact and try to make small adjustments to it; to make it fit the national culture and to convince the Russians to shop at their stores. IKEA managed to adapt to the Russian culture although their concept is very standardized. In this case, the national culture affects the strategy. Since consumer demands will differ from country to country this will affect different markets. It is therefore important to take into account cultural differences when doing business abroad (Browaeys & Price, 2011, p. 198). This is exactly what IKEA has done. IKEA has the same standardized set of products for most of the countries in which they operate, but they make country-­‐specific adjustments to their product line to fit the customer’s needs and demands. IKEA did this by for example emphasizing certain products and accounting for local Russian traditions of furnishing when decorating the IKEA stores. They also took into account that Russian homes are fairly small and families are larger. A reason why this was successful was perhaps that IKEA learnt about the Russian culture by experiencing it instead of making market surveys and investigations. Since the Russian market was not as predictable as expected, carefully examining it might have been a waste of resources.

What happened afterwards? Elg, Jonsson and Tarnovskaya wrote this case in 2010, and already prior to that, IKEA suffered from many problems relating to corruption and bureaucratic issues. In June 2009 IKEA announced that they would temporarily suspend all investments in Russia due to the fact that the administrative processes in the country were unpredictable (Bush, 2009). They had already then invested 4 billion dollars in Russia (Mayer, 2011).

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Lovisa Björcke 900313-­‐0961 Cross-­‐Cultural Management Summer Course Earlier IKEA had also expressed their concern for blackmail, sabotage and pressure for bribes (Bush, 2009). IKEA has a zero tolerance against bribes and thus found it hard to operate in Russia, which is among the top five in Transparency International’s Bribe Index (Nikishenkov, 2010) In 2010 two employees at IKEA in Russia were fired because they had allowed bribes to be paid (Mayer, 2011). In addition to that local suppliers were difficult to cooperate with and failed to provide products at before agreed upon prices. They also had bureaucratic issues concerning one of the IKEA group’s planned malls; local authorities did not manage to supply the necessary documents and they could therefore not open in time.

Sweden and Russia does not have the same culture, and this is why these issues occurred. It is very unlikely for Russia and European countries to share cultural values like democracy, human rights and freedom, which makes it difficult to have a friction free collaboration. The Russians have a different perception of bribery and corruption, it is tolerated and an important tool for managers to do business (Browaeys & Price, 2011, p. 56). But despite these issues, IKEA has not given up in Russia. While other companies like Wal-­‐Mart and Carrefour have chosen to discontinue their business in Russia and now has 14 operating stores in the country (Loeb, 2013). For IKEA, Russia was always a long-­‐term investment, which did not need to have a big turnover right away. This made IKEA more perseverant compared to other companies. In March 2014 IKEA stated that they would invest 2 billion euros in Russia by 2020 and that they hope to double their revenues. IKEA has also expressed that they will start online sales in Russia by 2016 (The Moscow Times, 2014).

Thus, it seems like IKEA continues to grow in Russia and slowly gaining market shares. The success story of IKEA continues and it seems that the company with its strong corporate culture can overcome even the most intimidating issues. It is interesting to see how the ability to manage cultural differences gives a substantial advantage. IKEA has Ingvar Kamprad and his persistence and firmly set vision to thank for this.

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Lovisa Björcke 900313-­‐0961 Cross-­‐Cultural Management Summer Course References Browaeys, M. J., & Price, R. (2008). Understanding cross-­‐cultural management. Pearson Education. Bush, J. (2009) An unpredictable business climate: IKEA turns sour on Russia. Der Spiegel. Retrieved 2014-­‐08-­‐18 from http://www.spiegel.de/international/business/a-­‐ 632507.html

Elg, U., Jonsson A. and Tarnovskaya, V. (2010) International Marketing 3rd edition. McGraw-­‐Hill Loeb, W. (2013) Successful global growers: What can we learn from Wal-­‐Mart, Carrefour, Tesco, and Metro. Forbes Magazine. Retrieved 2014-­‐08-­‐18 from http://www.forbes.com/sites/walterloeb/2013/03/07/walmart-­‐carrefour-­‐tesco-­‐ metro-­‐successful-­‐global-­‐growers-­‐what-­‐can-­‐we-­‐learn-­‐from-­‐them/ Mayer, H. (2011) Corruption halts IKEA in Russia. The Age. Retrieved 2014-­‐08-­‐18 from http://www.theage.com.au/world/corruption-­‐halts-­‐ikea-­‐in-­‐russia-­‐20110306-­‐ 1bji5.html

Nikishenkov, O. (2010) IKEA case exposes bribe culture in Russia. The Moscow News Retrieved 2014-­‐08.18 from http://themoscownews.com/news/20100223/55414629.html

The Moscow Times (2014) IKEA to invest $2.8Bln in Russia through 2020. Retrieved 2014-­‐08-­‐18 from http://www.themoscowtimes.com/news/article/ikea-­‐to-­‐invest-­‐ 28bln-­‐in-­‐russia-­‐through-­‐2020/495531.html

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