Ikea in Russia

...

EXTERNAL FACTORS IN THE RUSSIAN CONTEXT

In other to go into emerging markets successfully, host companies should take into account external factors such as culture, authorities, political situation, and economic environment, which make up an environmental analysis.

Culture is an unavoidableelement when companies expand into other countries, when not dealt with in the right manner misunderstanding and miscommunication come into play. A successful global company means that it integrates the universal culture from all over the world in the corporate environment (Ralston, Holt, Terpstra, & Yu, 1997). Culture reflects the shared values, understandings, assumptions, and goals from past generation, affecting the current generations and will pass to the next generation, culture influences people’s life style and judgment all the time. As a result, when customers meetbrand new products from aboard, whether they will substitute the products or not is affected deeply by the cultural concept.

Russia is located in Asia and Europe geographically with traditional and blended cultures. IKEA should put into considerationtheRussian culture when running itsbusiness there. In Russia, people are more conservative and serious, they are proud of their country and own culture. In other for IKEA to adapt to the local culture, it not only should access the knowledge, working skills, and social capabilities of the people in working for thembut also analyze their cultural background to make sure they will fit Russia’s culture in their recruitment process.

How to get the local and federal authorities is also anissuein expansion. Every country has its own rules and legislations on import, such as tariff and restriction. It aims to maintain the steady development of the domestic companies, and the quality of products sold to local people. For example, some companies lack ethical rules and export products with lower quality to the other countries. The standards set by the government about import will help to avoid these situations.

For the external countries and companies, negotiating with local and federal authorities is another external factor that needs to be taken into consideration by host companies because in the long run these authorities may render support along the line.

A rash political environment poses a great effect on the expansion of the company. Based on the theory from Delios and Henisz (2002), scholars claimed that the political situation plays an important role in deciding the entry of target market. A stable and peaceful political environment in the host country is beneficial for business expansion. Otherwise, the change of political environment will stall the expansion. For instance, the first timeIKEA tried to enter into Russia in 1991 while it was still a soviet nation, the break off of the Soviet Union made the expansion unsuccessful. Russia’s bureaucratic system is also an issue or IKEA to expand the business. In 2009, IKEA decided to stop expansion in Russia, since IKEA did not pay bribes to local safety inspectors. It was well known that IKEA would not compromise to corruption (Deresky, 2014). As the biggest furniture retailer in the world, and with the western belief, IKEA could not adapt to Russia’s bribery behavior. Fortunately, three years later, IKEA was allowed to operate in Russia’s market.

A successful expansion depends on the stable economic environment in the target market. When the target location has a prosperous and steady economy, it will consider signing trading contract. Meanwhile, the domestic residents’ income level should be able to support them to purchase abroad products with higher price. However, under the unfavorable economic environment, people are struggling to make a living, and the unemployed rate is growing greatly, the external companies will face obstacles to enter the market. When IKEA tried to expand to Russia’s market, it failed due to a tough depressing economic situation at that time.

IKEA’s RUSSIAN SOJOURN AND FUTURE BUSINESS STRATEGY

For a business to thrive in a growing community, it is very important that the political machineries in the country support it. When there is strong and supporting business machinery cooperating with a business, the business tends to grow very fast.

Political machinery can come in different forms but are often enacted in form of policies. Policies are the political machineries that the government uses to influence businesses either positively or negatively. A company with high growth potential could be stalled if it operates within a terrain of unfavorable government policies. This explains the reason why most businesses spend a lot on underground market and political study of a country before they invest in it. It is not enough for a market to be just promising, a consideration of the various political machineries that can affect a business and how those machineries interplay is also a major factor that determines the effective growth of a business. In most cases, businesses have had to tailor their values and goals around the fundamental political principles of a nation so that the policies of the country will benefit its operation.The influence of government political machinery on the growth of businesses could be seen in the case of Russia where it faced several political challenges that at some point almost led to the complete collapse of the business.

The IKEA Concept initially started with the provision of a rage of home furnishing products that are affordable but with quality. The company centered its watchwords on quality, design and value with the goal of sustainability. The concept is visible in every part of the company—design, packing, sourcing and distributing through a business model. This underscores the company’s aim of helping people to live a better life in their homes(Shatokhina, 2015).

The IKEA center in Russia is part of the IKEA Group and it operates in the MEGA Family Shopping Centre. The IKEA center in Russia owns, develops and maintains a chain of major shopping centers throughout Russia. The IKEA Group has grown significantly since its establishment in Russia. In 2013, the growth in Russia and China led to a 3.1 percent increase in IKEA’s full-year sales. IKEA first opened in Russia at the Moscow Khimki in 2000, and by 2009, a total of 12 stores have opened in different locations across the country. IKEA, which is among the largest foreign investors in Russia, has invested $4 billion into the country since it started its first store in 2000. The firm has become so strong in Russia that today’s yuppies are now called “the IKEA generation”

However, IKEA began to