This paper analyzes IKEA's experience entering and expanding in the Russian market, with particular attention to the systemic corruption it encountered and the corporate diplomacy strategies it employed in response. The paper traces IKEA's refusal to pay bribes to utility companies and safety inspectors, its dismissal of executives involved in bribery, and the resulting freeze on store expansion. It examines Russia's broader business climate, the challenges of intercultural negotiation between Swedish and Russian corporate cultures, and how IKEA's strategic management allowed it to eventually resume expansion. The paper also considers managerial perceptions of political risk and the role of crisis communication in resolving disputes with host governments.
The paper demonstrates applied case analysis: it uses IKEA's Russian market entry as a lens through which to examine broader theoretical constructs, including Henisz's corporate diplomacy framework, Salacuse's intercultural negotiation model, and Frandsen and Johansen's crisis communication theory. Rather than summarizing those theories in isolation, the paper tests them against real events, showing how theory maps onto practice.
The paper opens with a narrative account of IKEA's bribery encounters and moves methodically through cause, context, and response. After establishing the factual record, it widens its lens to analyze Russia's business climate and legal environment, then applies communication and management theory to explain IKEA's decisions. It concludes with a reflective evaluation of what the case reveals about corporate diplomacy, making the essay's structure roughly problem → context → theory → evaluation.
One of the main issues IKEA faced when it attempted to enter 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 available for sale in 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 the company wanted to make Russia a better place to shop and to live. IKEA 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 business would be conducted, no matter what country it was operating in (Meyer, 2011). Most of IKEA's bribery problems were centered in St. Petersburg, where the company was building a case against the corruption 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 dismiss them (Heath, 2010). It is not possible to rail against bribery if people within the company are taking bribes — that was unacceptable behavior to IKEA, and it did not help their case.
The swiftness of the action taken against those involved in bribery was very important for IKEA when building a case that bribes were not acceptable and demonstrating that the company would not take or give bribes for any reason. Without that willingness to act decisively, IKEA may not have had a credible case when stating that bribery was not acceptable and that it would not play along with the Russian government's culture of corruption (Heath, 2010). It is always possible for there to be a bad actor within a company — that can hardly be helped. What the company does about that person, however, can make a strong statement about the company's real values. With corruption running so rampant in the Russian market, IKEA soon found itself struggling to uphold its values while still getting anything done. It was not willing to give up on success in the Russian market, though, and was ready for a hard-fought battle (Heath, 2010).
The bribery issue could not have come at a worse time, because the bribes between company officials and the utility company Lenenergo took place right around the time IKEA launched a campaign declaring that it could not go forward with its planned expansion into Russia, given that it does not accept or allow bribery (Heath, 2010). This all occurred in 2009, when the company was first working toward establishing 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 its store, the utility company approached them and said a bribe would be required before the power would be turned on (Bush, 2009). IKEA refused and instead rented diesel generators to power its store. It was not long before the power was turned on without the bribe (Kramer, 2009). However, that was just the start of the problems IKEA faced. The company then tried to build a legal case against the corruption, only to find that the courts were not willing to side with the company against Russian utility companies (Bush, 2009).
There were other troubling behaviors that IKEA also had difficulty with, and one of the big questions concerned when the company learned about those behaviors versus when it disclosed that it had become aware of them (Heath, 2010). This was a question addressed in the media and no doubt within the company itself. However, there was little conclusive evidence to be had, and it was possible that IKEA genuinely did not know what was taking place until it was brought to their attention when they were threatened with negative publicity (Heath, 2010). The concern was 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 respond (Heath, 2010). That would be an understandable concern, especially in a country where bribes are widely accepted as normal business behavior.
This has never been conclusively proven, and whether IKEA knew much earlier remains unknown. Companies that publicly oppose bribery face serious difficulties when they are found to have accepted bribes. This is something IKEA had to address through rapid damage control, in order to demonstrate that it would not tolerate such behavior (Heath, 2010). The executives who had allowed the bribes were both fired, so they quickly paid a price for their role in the matter. That does not necessarily absolve IKEA of all responsibility, however, and there were opinions on both sides as to whether the company knew about the issue and covered it up, or whether it would have come forward even without the threat of publication (Heath, 2010). Either way, the bribery scandal placed a black mark on IKEA's otherwise strong record of standing against corruption.
To fully understand the situation, one must also consider the Russian perspective. 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, it is not as pronounced as in energy, healthcare, natural resources, and other areas. The hydrocarbons sector contains most of the large foreign investors as well, but IKEA is not far behind — and as such, Russia has an interest in keeping IKEA investing in the country (Heath, 2010). Because Sweden, IKEA's home country, is among the least corrupt nations in the world, and because the retail sector is one of the least corrupt sectors in the Russian market, one must carefully consider how strong Russia's overall corruption problems must be to spill over into a sector and a company that would largely find such behavior unacceptable (Heath, 2010). Companies face extremely severe challenges operating without any corruption in Russia, regardless of the sector.
President Medvedev essentially declared war on corruption throughout Russia, recognizing the damage it was doing to the country and to investors who wanted to enter but either could not or chose not to. Since taking office, he passed laws that curbed some corruption and reduced the number of bribes being exchanged (Heath, 2010). While this was a positive start, it was not sufficient to eradicate corruption in the country, even though enforcement of both new and existing laws improved as well. Unfortunately, these enforcement efforts produced troubling unintended consequences. Most of the cases that were prosecuted targeted those who offered bribes, not those who accepted them (Heath, 2010). Additionally, the cases generally involved small amounts — typically $300 or less (Heath, 2010) — which did nothing to address the large bribes that were still routinely changing hands at higher levels.
It is easy to see that there are no simple answers where IKEA and Russia are concerned, and that cases like IKEA's are not particularly common. However, they can and do happen, often because of communication breakdowns and related problems that arise when companies move into countries where the culture is very different from their own or not well understood. That is not to say that companies should avoid such moves — expanding into new markets is important. However, the more thoroughly a company understands a country and its culture before attempting to enter that market, the better prepared it will be. That preparation also helps a company anticipate political and business obstacles. IKEA likely thought it was prepared for Russia, but the political and cultural differences were so significant that the company still struggled considerably. In the end it managed to prevail, but it was a hard-fought battle, and IKEA did incur losses before all was said and done. The profit it is now making on its Russian stores makes the investment worthwhile, but there were clear lessons learned, and some things could have been handled differently.
The communication between IKEA and Russian officials was one of the most significant aspects of the case. There were many communication breakdowns throughout the entire history of what IKEA was trying to accomplish in Russia. The company's refusal to bribe officials was also important to note. Had it been willing to pay bribes, things would have moved much more smoothly. However, there is something admirable about a company that holds firmly to its values and does not abandon them simply because it enters a market where those values are not respected. IKEA could have adapted entirely to the Russian way of doing business, but it had its limits and held strongly to them.
Corporate diplomacy was very important for IKEA, but it was not something the company always practiced consistently. Getting generators to power its store rather than paying a bribe to the electric company made sense as a principled stand, but it could hardly be called diplomatic. When corporations are truly diplomatic, they handle things with grace rather than force. While many applauded what IKEA did, it could also have set the company back in terms of how it was perceived by Russian officials. That is not to say that IKEA should have paid the bribe — only that there may have been more diplomatic ways of addressing the situation and working something out. Companies that practice genuine diplomacy are often able to navigate issues that others handle poorly, and that diplomacy can carry a company a very long way when entering new markets and dealing with host governments.
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