IKEA opened its first store in Russia in 2000 and now has 11 stores, each anchoring a large shopping mall. IKEA's inexpensive and attractive furniture appealed to Russia's emerging middle class-- and the company also pursued developing Russian suppliers.
But in June 2009 IKEA announced that it was stopping further investment in Russia, apparently due to continuing concerns about corruption. Last year the company fired two of its own executives for allowing a contractor to pay bribes.
Despite the potential opportunity in Russia, other major companies are choosing to limit investment in Russia due to ethical issues. (See this Bloomberg article, March 2011.)
If you'd like to learn more, this article from ForeignPolicy.com offers an excellent summary of IKEA's situation in Russia and more insight into the challenges of doing business in Russia: Bed, Bath & Bribes
IKEA is setting aside significant opportunities for growth and profits by slowing down its business in Russia. Are they making the right decision? Will the stance of this large, prominent company potentially provoke change in Russia?
8 comments:
IKEA has dealt with controversial issues prior to this. They had the issue of child labor in India making rugs. I believe that IKEA has learned a lot from previous issues. I believe that they are looking long term and they believe that they will still turn profits all over the world. I think that it will take more than this company leaving for Russia to make any drastic changes.
I believe that IKEA are making the correct decision in slowing down their Russian operations as they will be showing they have learned their lesson from the child labor issues which plagued them in India. Furthermore, I do not believe IKEA's stance will provoke any change in Russia as corruption and dishonesty engulf nearly every aspect of life in the former Soviet nation. Unfortunately, this will be merely another drop in the ocean to them, and it will take much more than one large company departing from Russia in order for any alterations in business practices to occur.
I believe if there are concerns about corruption now, and even proof by the company firing two executives, then these concerns are only going to become bigger issues and cause greater problems for the company down the road. I do agree with what IKEA is doing, if for no other reason than for the CEO’s to know that they are leading an ethical company. My knowledge of what a large company IKEA is in Russia is limited to this article however, it seems as though they are very popular in Russia and do very well. So by stopping further investment I do believe they are sending a loud message and while it may now happen overnight, I do think this will provoke some type of change in Russia.
I was unaware of this situation until now, but I am pretty sure that this will not negatively effect business much because of what IKEA is marketing and who they are marketing to (middle class consumers). It is important that they keep their stance on corruption which will in turn bring even more people to their market. People are starting to appreciate companies that value CSR more and more due to situations such as Enron and other companies that deal with improper working conditions across borders. As stated in several comments before, this is an eye-opener to Russia and others because this company is willing to lose business in order to stay in compliance of their mission.
Kierra Warren
IKEA is a successful ever-growing company. If they want to take their business out of Russia because of ethical reasons I don't believe it will have much of an impact on the company as a whole since they supply to 26 other countries as well. Many of these countries would probably prefer them to have a cleaner business without bribes. Knowing that IKEA is a honest company and having it made public can only better their image.
I believe that it would be wrong to discontinue investment because of corruption. IKEA can not change a corrupt economy but can choose not to participate in it. We are talking about business, if IKEA can not satisfy the growing demand, other companies might enter the market and create competition. That might end up forcing IKEA out of business.
In my opinion, IKEA started well by firing two of its executives, sending the message and confirming its ethical stand on corruption. IKEA can only control its own organization and hope that its business partners will respect their values and adhere to it.
Russia is notoriously corrupt, well, that's what the movies tell me. I always hear about bribes, mafia activity, and other crime-filled activities taking place behind the scenes in Russia. This being said, it makes sense to me that a company would want to pull out of a country like that, especially if they're making enough money around the world. IKEA is a HUGE company, and terminating relations with Russia is not going to sink them. I think that yes, they did make the right decision in pulling out of Russia, for similar reasons I think doing business in Mexico is not a good idea: corruption and greed are too rampant.
It's nice to see a company take a stand against unethical business practices. I would have to agree with Noreen and say that only they can control what goes on in their company. While it may be against the normal flow of how things work in Russia, they will feel much better about themselves if they lay down strict guidelines on bribes (among other things). It IS a business and a business needs to succeed. If they didn't, they should have looked a little deeper into Russia's culture before they even began setting up shop there.
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