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ABSTRACT
This case is about Sweden-based furniture retail giant IKEA Group’s (IKEA) entry into and
expansion in Russia. When IKEA entered this key emerging market as part of its
international expansion strategy, it had to face several roadblocks when setting up stores,
inaugurating them, and even while advertising them. According to the company, its strict
adherence to its principle of non-tolerance for corruption did not go down well with
Russian authorities who were largely believed to be corrupt.
Over the years, the company expanded and experienced success with its stores in Russia.
Some of them, in fact, became the top grossing stores in the world for IKEA. It was also
in Russia that the company introduced its successful new business model, wherein its
furniture stores were operated not as standalone stores but as part of large shopping and
entertainment complexes.
While IKEA tasted success in Russia, it was mired in several controversies: its executives
were accused of taking kickbacks and engaging in corruption, while its ethical and
environmentally sensitive image was also questioned as it was criticized for utilizing ill-
defined Russian logging rules to cut down old growth forests. Despite several hurdles,
IKEA planned to invest US$2.1 billion in the country since it sensed tremendous potential
in the Russian market due to an increase in the disposable incomes of middle class
consumers. However, the business environment in the country was fraught with risk for
the company
INTRODUCTION
In October 2018, Swedish furniture retailer and designer of home accessories and kitchen
appliances the IKEA Group (IKEA) announced its plans to enter into partnerships with
Russian companies in a bid to boost its local online business, according to Pontus Erntell,
IKEA’s Russia country manager. The retailer planned to open 100 pick-up points in a bid
to boost its online business in Russia in the financial year September 2018-August 2019.
The company announced ambitious plans to expand its stores in the Russian market after
it witnessed an increase in sales by 2% in the fiscal year 2017-18, with a 12% increase
in visits to its eCommerce site
ABOUT IKEA
IKEA was a privately held company. It designed and sold ready-to-assemble furniture,
home appliances, and accessories. From humble beginnings in 1943, the company had
gone on to become the world’s largest furniture retailer by the 2000s. In the financial
year 2001, the company earned revenues of €10.4 billion (See Exhibit I for IKEA’s Growth
in Revenue). By 2018, the company’s revenues had increased to €38.8 billion (See Exhibit
II for IKEA’s Income Statement). By August 31, 2018, the IKEA Group had a total of 422
stores in more than 50 markets with 957 million visitors

THAI THU THUY – thuy.thaithu@hust.edu.vn

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CORPORATE STRUCTURE
IKEA was structured in such a way as to prevent any kind of takeover of the company
and to protect the Kamprad family from taxes. Though Kamprad was the founder, he did
not technically own IKEA. He wanted an ownership structure that stood for independence,
a long-term approach, and continuity. Therefore in 1982, he created Stichting INGKA
Foundation, a non-profit organization registered in Leiden in the Netherlands. In 1984,
Kamprad transferred 100% of IKEA equity as an irrevocable gift to the Foundation. IKEA
was privately held by this Foundation. Its purpose was to hold shares, reinvest in the
IKEA Group, and to fund charity through it. It also protected IKEA from family squabbling
and its inheritance in whole or in part by the Kamprad family. Kamprad said,
INTERNATIONAL EXPANSION
The first IKEA store was opened in Älmhult, Sweden, in 1953. Since there was limited
opportunity for growth in the Swedish market, IKEA decided to expand into international
markets. IKEA’s international expansion progressed in three phases: in 1963, in
Scandinavia; in 1973, in Western Europe; and in 1976 in North America
EARLY HICCUPS IN RUSSIA
Since the 1960s, Kamprad had been quite keen to do business in Russia, when it was still
the Soviet Union . It was only decades later, however, that he attempted to set up
operations in Russia for the first time. But the attempt came to naught due to the collapse
of the Soviet Union in 1991. Another attempt failed due to the ‘Russian constitutional
crisis of 1993’ which saw the beginning of an unfavorable economic scenario in the
country
RUSSIAN CONSUMERS LOVE IKEA, BUT
In March 2000, IKEA’s first store in Russia was opened at Khimki (See Exhibit V for IKEA
Russia’s Stores). The inaugural day drew a large crowd of 40,000 shoppers and a constant
stream of customers emptied the store of its stock within two weeks. People waited for
an hour to get into the store and all the roads leading to the store were blocked by traffic
for miles around. Analysts believed that the rising middle class in Russia was looking to
abandon the old world Soviet-era furniture in favor of the modern Scandinavian furniture
offered by IKEA
IKEA FACES MANY ROADBLOCKS
IKEA also had to face a number of obstacles in its expansion plans. The business
environment in Russia was such that the company constantly encountered problems with
regard to its stores from government officials in the fire, health and safety, electricity,
tax, customs, and other related departments. These officials reportedly discovered
‘problems’ with IKEA stores, especially during critical times such as store openings

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FREEZE ON EXPANSION
There were also instances when IKEA received support from the Russian authorities that
made things smoother for the company. The company opened another store called the
‘Mega Kazan’ in the Kazan region, 500 miles east of Moscow, in 2005. The store, built in
partnership with Ramstore hypermarket , went on to become the largest regional mall in
Russia. Dahlgren said that the authorities in Kazan had been very co-operative, which
enabled the store to be opened in record time
ACCUSATIONS AGAINST IKEA
However, some incidents seemed to indicate that certain IKEA officials were bowing down
to the all-encompassing corruption in Russia. Some industry observers believed that, at
least in the initial years, its officials had been involved in corruption. “They were trying to
exploit first-mover advantage and may have let their due diligence and corporate
governance standards slip by cutting corners,” said Cushman & Wakefield’s, Alexei Slesar
LOOKING AHEAD
By 2020, IKEA aimed to achieve a revenue growth of 1.5 times to €50 billion from €34.2
billion in the fiscal year ended 2015-2016. Commenting on its future goals, Walter Kadnar
(Kadnar), the general director of the network in Russia, said, “Our goal is long-term
investment. The disposable incomes of consumers [in Russia] have declined, and we are
trying to attract as many buyers as we can, keeping prices down. Such a policy should
also enable us to achieve the goals set by 2020.”

THAI THU THUY – thuy.thaithu@hust.edu.vn