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Introduction

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.

Management Control System

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

compliance with local laws and


regulations

Legal
Technological

high quality and system to promote


shorter queues
efficient store environment to keep
customer satisfied
availaility of leading-edge technology

Environmental

use right material


corrective actions
policies and campaigns supporting
environmental awareness
waste recycling

opportunitiy to distribute high quality


furnitures

low prices
availability of suppliers locally
reliable access to distributie channels.
entity expansion
currency forecasts
foreign investments

stable political condition


set a global brand

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

Statement of the Problem/s:


1. Company expects no profit until 2005.
2. No enough distribution channels.
3. Administrative obstructions.

Possible solution/s:
1. Granting credits and working capital.
2. Create manufacturing plants based in Russia.
3. Support anti-corruption policies.

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