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IKEA was the world's largest furniture retailer since the early 1990s. It sold
inexpensive furniture of Scandinavian design. It is a favorite among customers
searching for well-designed products at low prices. IKEA stores sell ready-to-assemble
furniture, appliances, and household goods.
Today the firm is the largest furniture retailer in the world, with 139,000
employees operating in 43 countries. Germany is the firms largest market, followed by
the United States and France. Its large range of products includes furniture, food, large
items such as cabinetry, and smaller items such as cabinetry, and smaller items such as
kitchenware, dcor, and small plants. IKEA also operates restaurants within their stores.
Background
IKEA was founded by Ingvar Kamprad in 1943 in Agunnaryd, Sweden, when he
was 17 years old. Kamprad started by selling goods like pencils, wallets, jewelry, picture
frames, and watches. Kamprad tried to keep costs low by purchasing goods in large
quantities and passed on a part of this benefit to his customers. In 1947, Kamprad
introduced furniture in his product line and found that there was a good demand for it.
He sourced furniture from manufacturers in local forests so that he could keep the costs
low. As the scale of business grew, Kamprad found it difficult to make individual sales
calls and so started advertising in the newspapers. In 1951, he designed a product
catalogue and distributed it to potential customers who lived near his store.
Cultural
Controls
beliefs
personnel
ideas
corporate
values
Administrative
Controls
Planning
Cybernetic
Controls
Rewards and
Compensations
Budgets
Premium
Salary
System
Organization
Structure
Governance
Controls
Policies and
Procedures
Budgets
Business
Plans
Financial and
Nonfinancial
Measurements
Group
Rewards
Discounts on
store's
merchandise
Summary
IKEA was the Russian story that almost never happened. Still, the Swedish retail
giant has transformed Russian kitchens, bathrooms and bedrooms in ways that the
profit-wary communists of a few decades ago could have never imagined. In some
ways, one might say that IKEA has finished what Richard Nixon started in the famous
Kitchen debate with Nikita Khrushchev over 50 years ago.
On 17 August 1998, IKEAs Lennart Dahlgren arrived in Russia. Dahlgren, newly
appointed as the future head of IKEAs Russian division, was sent by IKEA founder
Ingvar Kamprad to open the Russian market. The process to begin business in Russia
took the company longer than expected, cost more than anticipated, and due to corrupt
officials and bureaucracy, the retail giant came very close to abandoning their Russian
stores altogether.
The city of Moscow offered locations for the first store, but it was soon clear that
the cost of opening inside the city limits was far higher than ordinary real estate and
construction expenses. Then-mayor Yuri Luzhkov had suggested several sites, but
when the company expressed interest in another property along one of Moscows major
avenues, Kutuzovsky Prospekt, company officials claim that the city mailed flyers that
resembled IKEA letterhead to local residents. The flyers, an apparent forgery, stirred up
opposition to the site.
IKEA eventually chose to open their first store in the Khimki region, just outside
city limits. That store faced unique obstacles and the opening was delayed after police
raided the store just days before the scheduled grand opening. Officials claimed that a
highway off ramp that had been constructed to handle the projected store traffic was in
the wrong spot. The fact that officials had previously approved the ramp design, and
inspectors had approved the construction process, seemed to have been forgotten.
In June 2000, some forty-one years after the kitchen debate between Nixon
and Khrushchev, IKEA was ready to advertise the grand opening of their first Moscow
store. But, there was another hitch: government officials at first banned the ads, saying
that recent studies had discovered that consumers exhibit unstable moods when in
underground floors, and that adverts promoting a store with an underground retail level
might constitute a danger to public health. Foreign investors have long believed that
local officials protect Russian businesses against competition by using excessive
regulations and operating restrictions.
Despite the challenges, the first IKEA opened to a crowd of excited shoppers.
The line to enter the store was several hours long, traffic in the area was jammed, and
by the close of business that day, thousands of shoppers had picked the store clean.
While hard to fathom, official estimates put the opening day traffic at near 40,000
shoppers.
Even then, there were kinks to resolve. The first day almost bombed when
shoppers thought that prices were written in US dollars. At that time, the dollar was the
most trusted currency following Russias recent default and currency devaluation. There
was a big difference between $600 and 600 roubles, and so store employees quickly
added the word roubles alongside prices to put shoppers at ease. For the rest of 2000,
the average floor traffic exceeded 100,000 shoppers per week.
Bureaucratic hurdles have sprung up often, and for the most part IKEA has held
the line on refusing to pay bribes to local officials. The company did agree to a $30
million donation to a charity benefiting the elderly to gain permits for construction of a
large distribution centre outside Moscow in 2003. There was also a scandal during the
acquisition for property in St. Peterburg when a former IKEA CEO allegedly approved
an under-the-table arrangement between a large Russian subcontractor and local
officials. The CEO was fired. Although unverified, Dahlgren says that he had sought a
meeting with President Putin and IKEA founder Kamprad, but dropped the request after
being told that the price tag for such a meeting was north of $5 million.
IKEA has invested heavily since the beginning in promoting their brand. Along
with their associated property management company, MEGA stores, IKEA conducted a
promotion in December 2014 to remind Russian consumers that giving is as important
as receiving. Random shoppers were offered a gift, and then they were given the
opportunity to give a gift to another person.
The advertising and promotion investments in Russia seem to be paying off, and
today Russia is IKEAs fourth most profitable market. There are 14 IKEA stores in
Russia: three in the Moscow region, two in St. Petersburg, and more outlets in Kazan,
Yekaterinburg, Samara, Ufa, Nizhny Novgorod, Novosibirsk, Rostov-on-Don, Krasnodar
and Omsk.
Perhaps IKEA has not only transformed Russian homes, but hopefully has
affected Russian officials with insight on honesty and integrity in business transactions.
Despite all the challenges, IKEA loves Russia, and Russians love IKEA
Legal
Technological
Environmental
low prices
availability of suppliers locally
reliable access to distributie channels.
entity expansion
currency forecasts
foreign investments
Social
Economical
Political
PESTEL Framework
SWOT Analysis
Strong global
brand image
IKEAs vision
(create a
better
everyday life
for the many)
Strengths
Unique
business
model
No enough
distribution
channels
Weaknesses
The size and
scale of its
global
business
Increase
market reach
and brand
recognition
social trends
Opportunities
Threats
market forces
Increase
income
Run by
managers
trained by
Kamprad
himself
Long-term
partnerships
with its
suppliers
economic
factors
Low level of
customer
service
Less cost,
abillity to
maximize
profit
political
condition
Possible solution/s:
1. Granting credits and working capital.
2. Create manufacturing plants based in Russia.
3. Support anti-corruption policies.