IKEA and RussiaMultiple Chapters

Pages: 30 (10166 words)   |  Style: Harvard  |  Bibliography Sources: 30

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[. . .] Taking the approach that Medvedev has started recently will not make Russia a better place to live and work, and will certainly not help it from a business standpoint. Instead, more and more companies will shy away from doing business there, until and unless Russia focuses on the true problems with corruption and actually does something to get them stopped (Heath, 2010). IKEA is only one of the companies that has struggled with corruption issues when attempting to move into the Russian market. While the company has not given up plans for expansion, there are concerns that it may have to abandon plans for specific cities because of the corrupt patterns being seen throughout the country (Heath, 2010).

Russia is still an emerging-market economy, and it needs a high level of foreign investors to keep it moving forward and allow it to expand and grow (Meyer, 2011). As such, it needs investors like IKEA to continue to come to the country, and to continue to expand in the country. Only setting up shop in one city is not going to do much for the store, and is also not going to do much for the overall Russian economy. However, IKEA is now backing off on many of its expansion plans, and other retailers and large investors are saying no to Russia, because of the level of corruption that IKEA experienced (and went public with) while trying to build a stronger presence in the country (Meyer, 2011). In 2009, IKEA placed a freeze on building any more stores in Russia, because the country was having (and still has) a serious problem with corruption that was not being addressed and curtailed even after IKEA made it a very public issue that should be dealt with (Meyer, 2011).

Withholding of Building Permits

IKEA wanted to build in Ufa and Samara, which are central Russian cities. However, Russia originally withheld permission for the two outlets to be constructed, completed, and opened (Meyer, 2011). The safety inspectors wanted bribes, and IKEA refused to pay them. Even though there have been some bribe issues with IKEA in the past, the company fired the people who were involved in it and moved on, reiterating its stance that bribes were not an acceptable way to do business. Because IKEA will not pay bribes to the safety inspectors, Russia will not allow IKEA to open stores in Ufa and Samara (Meyer, 2011). The lack of interest in avoiding bribery and corruption has been a problem in Russia for a very long time, and it does not look as though there will be changes made anytime soon. That is unfortunate for the country, and also unfortunate for IKEA and other retailers that want to move into the market (Meyer, 2011). Most of the foreign companies now doing business in Russia are energy companies, and a better mix of foreign investors is needed.

The Turnaround and an Expansion

Just when it looked as if the stores in Ufa and Samara would never get built, and when IKEA was nearly ready to give up hope, though, things began to change (Heath, 2011). In six months time, IKEA went from a freeze on anything more in the country to nearly opening its two Ufa stores and getting plans for its Samara store approved (Heath, 2011). Plans to go forward in the Moscow region have been renewed and are back on track. While all of that is good news for IKEA and for Russia, it does beg the question of what changed to make everything work out when it seemed there would be no way to do so. The Ministry of Economic Development reportedly reached out to IKEA and worked with them to the satisfaction of everyone involved, so that their economic development in Russia could continue (Heath, 2011). The corruption investigation into the St. Petersburg store seems to have disappeared as well, but that could be a temporary issue and problems could come to light again at a later date, depending on decisions made in Europe regarding prosecution issues (Heath, 2011).

While there are still concerns, IKEA's Russian expansion is moving forward once again. Whether there will be future problems with corruption or with the fallout from the St. Petersburg issues will remain to be seen, but these are not concerns that are slowing down IKEA any longer (Heath, 2011). Instead, the company is fully focused on success. However, that success could be threatened in the future if European sanctions are brought against the company for the St. Petersburg issue. Russia has made it clear that there is not going to be any investigation or prosecution on its side, but that does not clear up what may happen in Europe at a later date. Unlike the U.S., that is usually quick to move on those types of issues, Europe generally takes longer to make a determination of potential wrongdoing. IKEA could be found to have potentially committed a crime at a later date, which will require it to defend itself and its actions in St. Petersburg.

Discussion

While it is important to analyze what took place in Russia when it comes to IKEA, an analysis does not provide that much information without a discussion of why the issue occurred and how it was handled. The why is relatively easy: corruption. It is not a secret that corruption has been running rampant in the Russian government and throughout most of its industries for a number of years. Some eras have seen less corruption and others have seen more, but it is never something that has gone away completely. In the case of IKEA, it was a matter of standing their ground and making sure the country understood the value the company could bring to it -- and how IKEA was not going to play Russia's bribe game in order to get things done. Even though it seemed as though Russia was really not taking IKEA seriously, the country did eventually realize that IKEA was not going to change its ways.

Additionally, Russia realized that the revenue IKEA was generating was more valuable than whether it was providing bribes to the country and its officials. There are still problems, but they are far fewer than they were in the past -- and IKEA is finding that the current issues are not insurmountable. In order to address those issues, and in order to take a more careful look at the corruption and bribery that took place in the past and why it was handled in particular ways, one has to consider the business climate in Russia, as well as diplomacy and management from the standpoint of IKEA. Like any company, IKEA wants to succeed. Despite that, there are some things that IKEA simply will not do, even if it means becoming more successful. Because that is the case, IKEA has to not only understand the climate in which it is going to do business, but must also be aware that it must adapt to that climate to a certain extent. However, that does not mean that IKEA should comprise itself or its values.

Russia's Business Climate

The business climate in Russia is far different than in other areas of the world. This has been seen for many years, and it does not look as though anything about it will be changing anytime soon. Part of the reason for the lack of change is that Russia has never been a country that is big on making changes, and part of the reason is that the country does not seem to have a desire to become "Western" in the way many other countries have (Wood, 2011). That is not necessarily right or wrong, but it is affecting the companies that will do business with Russia. In many cases, companies that will work with a number of other countries choose to stay out of Russia, because they hear stories of corruption and other problems. They may investigate for themselves, of course, because a great deal of money could be riding on the decision they make (Wood, 2011). No matter what type of investigation they do, an honest study of Russia and its business diplomacy will show that there is actually very little diplomacy available for companies that are not completely Russian (Wood, 2011).

Most of the companies that operate within Russia are companies that are based there. Because of that, they follow the government's laws and regulations, and they also follow the unspoken and unwritten "laws" that come with bribery and related ways of getting things done (Wood, 2011). If companies want their permits to be provided, their plans to be approved, and their power to be turned on, bribery is generally a way of life. Things might get done without the bribes, but they are not going to get done as quickly or as easily, and that is a serious issue for companies that need to get up and… [END OF PREVIEW]

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