Russia and IKEA essay

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Corporate Diplomacy: IKEA and the Russian Market

A Communication Strategy of Multinationals in Relation to Host Governments

Corruption in the Russian Market

One of the main issues IKEA faced when it attempted to get into the Russian market was corruption (Heath, 2010). Because of the level at which that corruption took place, IKEA publicly rallied against it in an effort to change some of the problems that appeared to be so inherent in Russia's political system (Meyer, 2011). The corruption was something likely seen in other markets, as well, but not as blatantly as it was seen in Russia. IKEA's slogan in Russia was "Now Everything is Possible!" (Heath, 2010). That made sense in many ways. It sounded good in Russian, it spoke to the economic and political resurgence the country was experiencing, and it also related to the large number of items that can be found for sale in the IKEA stores (Heath, 2010). However, there was more to the slogan, which was used for IKEA's new catalog that year. Part of it was letting people know that IKEA was serious about being a part of their country, and that they wanted to make their country a better place to shop, and to live. The company even went so far as to fire two executives, who had been giving bribes to a utility company (Heath, 2010).

That sent a clear statement to the Russian people and the Russian government, that IKEA did not tolerate bribes as part of the way work would be done at the company, no matter what country it was located in (Meyer, 2011). Most of IKEA's bribery problems were centered in St. Petersburg, where the company was building a case against the corruption that it was finding in the Russian government and in the utility companies (Meyer, 2011). Unfortunately, two of the representatives who were on the committee to address these issues were found to have been taking bribes, and IKEA had to let them go (Heath, 2010). It is not possible to rail against bribery if people in the company are taking bribes. That was unacceptable behavior to IKEA, and did not help their case.

The swiftness of the action taken against the bribes was very important for IKEA when building a case that bribes were not acceptable and attempting to show that they were not going to take or give bribes for any reason. Without their willingness to do that, they may not have had a case when stating that bribery was not acceptable and that they would not play that particular game with the Russian government or any of its companies (Health, 2010). It is always possible for there to be a bad person at a company. That really cannot be helped. What the company does about that person, though, can make a strong statement about how the company really feels and the things that matter to the company, overall. With corruption running so rampant in the Russian market, IKEA soon found itself struggling to keep the values it held and still get anything done. It was not willing to give up on the idea of success in the Russian market, though, and was ready for a hard-fought battle (Heath, 2010).

Bribery From the Utility Company

The issue with bribery could not have come at a worse time, either, because the bribes between the company officials and the utility company Lenenergo took place right around the time the company launched a campaign saying it could not go forward with its planned expansion into Russia, because it does not accept or allow bribery (Heath, 2010). That all occurred in 2009, when the company was first working toward having a presence in Russia and getting everything worked out with the government, contractors, and utility companies there (Heath, 2010). Just as IKEA was about to open their store, the utility company approached them and said they would have to have a bribe before they would turn the power on (Bush, 2009). IKEA refused, and rented generators that ran on diesel and would power their store. It was not long until the power was turned on, without the bribe (Kramer, 2009). However, doing that was just the start of the problems faced by IKEA, which then tried to build a case against the corruption but quickly found that the courts did not want to side with the company and against Russian utility companies (Bush, 2009).

There were other behaviors engaged in that IKEA also had difficulty with, and one of the big questions was when the company learned about the behaviors vs. when they mentioned that they had become aware of them (Heath, 2010). This was a discussion that was addressed in the media, and also no doubt addressed within the company itself. However, there was little conclusive evidence to be had, and it was possible that IKEA really did not know what was taking place before it was brought to their attention and they were threatened with unpleasant publicity (Heath, 2010). Concerns were that IKEA had actually known about the bribery and was not going to do anything about it, until it became clear that the information would be made public and the company would have to say something regarding the issue (Heath, 2010). That would be an understandable concern, especially in a country where bribes are really accepted as normal behavior.

This has never been conclusively proven, however, and whether IKEA new much earlier is not known. Companies that publicly come out against bribery can have a difficult time when they are found to have accepted bribes. This is something about which IKEA had to do damage control quickly, in order to make sure it was showing that it would not tolerate this kind of behavior (Heath, 2010). The executives who were allowing the bribes were both fired, so they quickly paid a price for their role in the issue. However, that does not necessarily absolve IKEA of its guilt, and there were opinions on both sides of the issue as to whether IKEA knew about the issue and covered it up, or whether the company would have said something even if they had not been threatened with publication of that information (Heath, 2010). Either way, the bribery scandal put a black mark on IKEA's strong record of going up against those who would carry out bribes and other corrupt activities.

The Russian Side of the Issue

To fully understand the issue, one also has to look at the Russian side of things. There are a number of large, foreign investors in the country, and IKEA is one of the biggest (Heath, 2010). As of 2008, IKEA had already invested nearly $3 billion in Russia (Heath, 2010). While there is corruption in the retail sector, there is not as much seen there as in energy, healthcare, natural resources, and other areas. The hydrocarbons sector contains most of the large investors from foreign countries, as well, but IKEA is not far behind, and as such, Russia wants to keep IKEA investing in its country (Heath, 2010). Because Sweden, which is IKEA's home country, is very non-corrupt, and because the retail sector is one of the least corrupt sectors in the Russian market, one has to carefully consider the overall corruption issues that are seen in Russia and how strong they must be to spill over to a sector and a company that would largely find those types of issues unacceptable (Heath, 2010). Companies face extremely severe challenges in Russia when it comes to operating without any corruption, no matter what kind of company or which sector they fall into.

President Medvedev has, essentially, ordered a war on corruption throughout Russia, because he knows it exists and he sees the damage it is doing to the country and to the investors who want to come in but either cannot or decide against it. Since his inauguration, he has passed laws that have stopped some of the corruption and lowered the number of bribes that have been given (Heath, 2010). While this is a good start, it is not enough to wipe out corruption in the country, even though enforcement of the laws that were created and the ones that already existed has been better, as well. Unfortunately, there have been upsetting consequences that have come from this new enforcement. Most of the cases that have been prosecuted have been against those who have offered bribes, not those who have taken them (Heath, 2010). Additionally, the cases have been for small amounts, generally $300 or less (Heath, 2010). That does nothing for the large bribes that occur.

Breakdown in Russian Laws and Regulations

It also does nothing to stop the people who are taking the bribes, because they generally are not prosecuted. Since that is the case, the poor and powerless in Russian society (i.e. those who offer the small bribes in an effort to get things done) are the ones who are really paying the price…[continue]

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