Case 4.
3
IKEA: Entering Russia
' I n Russia all possible things turn out to be
impossible, and all impossible is possible.'
Lennart Dahlgren
Former I K E A Country Manager, Russia
When Swedish furniture retailer IKEA's country
manager arrived in Russia to set up the first store,
the country was in a state o f deep shock. It was 17
August 1998, the day Russian monetary policy finally
collapsed. Almost all foreign companies were leaving
the country, but I K E A stayed and this may turn out
to be a very favourable strategic move from a long-
term perspective. The decision to remain i n Russia in
1998 was, however, taken almost entirely by one man,
IKEA's founder, Ingvar Kamprad. During one o f his
visits to Russia, he shared his vision o f how I K E A
Russia would develop in the coming years: ' I K E A
becomes the main supplier o f home furniture to the
normal Russian families and our sales in Russia w i l l
exceed those i n our o l d home country Sweden.' To
realise this vision he stood in opposition to the entire
management group when the decision was taken to
enter the country.
The fact that IKEA's owner saw Russia as a long-
term investment also enabled the management to
apply a long-term perspective that may become a
competitive advantage i n the years to come. A s a
Russian manager commented: 'We have been on the
market here for three and a half years now, and we can
note the tendency, and i f the tendency grows as
quickly as it has done during this time, the market
w i l l be unlimited for a company like I K E A , and for
most Western companies who are now interested to
come here.'
Transferring the IKEA culture and
values to Russia
I K E A is a leading home furnishing company w i t h
around 340 stores in 40 countries, selling a range o f
some 10,000 articles and having more than 150,000
employees. The company was founded in 1943 by
Ingvar Kamprad in Smaland, a province i n Southern
Sweden where people are renowned for working
hard, being thrifty and innovative, and achieving big
results w i t h small means. Today, the I K E A group is
controlled by a private foundation and the company
is thus not on the stock market. Ingvar Kamprad's
innovative idea was to offer home furnishing prod-
ucts o f good function and design at prices much lower
than competitors by using simple cost-cutting solu-
tions that did not affect the quality o f products. This
is a prominent philosophy at I K E A , w h i c h is now
realising its ambitious plans in Russia. I K E A has
been operating in Russia since 1990 but opened its
first store in Moscow, K h i m k i , only in March 2000,
followed by one more i n Moscow in 2 0 0 1 , one in
St Petersburg in 2003, and one i n Kazan i n March
2004. I n 2012 I K E A had 14 stores in Russia and
some o f them in distant places such as Novosibirsk
(2007) and the newest ones in Ufa (2011) and Samara
(2012). A l l Russian operations are controlled as fully
owned ventures by the I K E A group.
I K E A is characterised by a strong brand based on
its vision to create a better everyday life for many
people. A set o f explicit values is linked to the vision
and plays a guiding principle i n the strategy develop-
ment. The values are the foundation o f a culture called
internally the ' I K E A Way', which is an expression o f
IKEA's history, the product range, the distribution
system, the management style, the human resource
ideas, etc. Brand and cultural values coincide and
affect the strategy, organisational processes, product
development and customer relationships. Thus the
key value o f cost-consciousness that lies at the heart
o f IKEA's flat-package concept dictates the necessity
o f global sourcing, defines the customer relationship
where ' I K E A does a half and customers do a h a l f
and guides the product design, choice o f materials
and logistics. The value o f simplicity is reflected i n
the fast planning process, behaviours and routines
governed by commonsense, straightforward relation-
ships w i t h suppliers and customers as well as in the
product development process. B y l i n k i n g vision and
values, I K E A thus creates a firm platform for entering
a new market.
It was the overall company vision that guided the
desire to establish business i n Russia,; most particu-
larly, the impression that few companies i n Russia
focused on solving the needs o f the many people by
offering attractive products at reasonable prices.
However, knowledge o f the Russian market when
I K E A initially decided to open its first store i n
530 Case 4.3 IKEA: Entering Russia
Moscow was very scarce. N o special market research
was carried out before setting up the store. According
to a company representative: ' I f we had done such
research, it should have shown that the consumption
level is too low, the individual income level is too low,
there are no traditions o f retailing, which result i n the
fact that consumers generally don't go to the chains
to shop.'
I n each new market I K E A enters it must recreate
its company culture from scratch. I n Moscow that
included the replication o f the store design and layout
in accordance w i t h the latest version o f the existing
store and extensive cultural education that was imple-
mented by the team o f experienced I K E A people. It
involved introducing the newly employed co-workers
to I K E A routines and cultural traditions as well as
helping them to develop the necessary competences
(eg teamwork, leadership, skill diversity, etc) and the
I K E A management style. It has its roots i n Swedish
leadership style and gives responsibility to each co-
worker and emphasises 'learning by d o i n g ' . I n the
Russian case, the store played an additional role by
becoming the training site for new employees who
later got involved i n new projects or formed teams for
the newly opened stores - a sort o f cultural incubator.
The extensive in-store training produced some very
positive results. According to a store manager, the
second store i n Moscow could operate well from the
first minute it opened because the whole staff was
trained i n the first store i n corresponding jobs: 'Here
they just started and then they went on like this! N o
downturn, no nothing, no reaction, they just knew
what to do!'
The role o f IKEA's experienced management staff
has also been indispensable i n Russia. A major task is
to train and prepare local people who w i l l be ready to
lead the expansion process further. A s a manager
commented about his management group: ' M y main
task is really to make this group more Russian and to
export people for the upcoming expansion.' The
demand for knowledgeable Russian staff is indeed
very large, w i t h a few new stores opening every year.
The development o f the experienced staff is impossi-
ble without extensive training.
As a whole, therefore, there is a strong emphasis
on the vital role o f training at I K E A Russia, both at
an overall management level and the store level. The
local staff on the store level w i t h a p r i m a r i l y aca-
demic education and a prioritisation o f abstract
knowledge is faced w i t h the necessity to translate
this into concrete sales figures. This includes cul-
tural training and education i n I K E A values as w e l l
as different levels o f professional on-the-job
training.
Developing and positioning the
retail proposition in Russia
As we have seen, market information was not regarded
as necessary when selecting the Russian m a r k e t
According to one manager, I K E A knew that a lot
o f people live i n Moscow so that at least one store
should succeed. A survey presenting this information
was considered unnecessary. Furthermore it was con-
sidered less important to develop specific strategies
for the market i n advance. Instead entry was based on
the view that there is a need to live and learn about
the new market before setting the strategies. W i t h i n
I K E A , setting up a new business was described as
very little theory and very much practice. However,
once the decision was made to enter the Russian mar-
ket I K E A specialists were sent to Russia to investi-
gate, but data about the Russian market was often
uncertain and difficult to assess. For example, one
initial conclusion was that the I K E A store should be
situated near a Metro-station since there were hardly
any cars in Moscow. Five years later, however, traf-
fic jams were one o f Moscow's biggest problems. The
country manager argued that instead o f information
about the market it is better to acquire market k n o w l -
edge and the best way to get that knowledge is to live
and learn i n the market.
I K E A introduces more or less the same product
range in all new countries, irrespective o f what is con-
sidered popular by local customers. I n Russia IKEA's
Scandinavian furniture design is i n some contrast to
the historically preferred dark wood, massive, lac-
quered, expensive furniture. I n order to support this
strategy, I K E A usually identifies the potential needs
that are similar across markets: 'We have the I K E A
range and we have the market knowledge and the
people needs, which are pretty much the same needs
in Moscow and i n M a l m o . ' Another I K E A approach
was to create the needs that the range could satisfy,
and to inspire customers w i t h numerous new solu-
tions based on the existing range. The theme ' L i v i n g
w i t h small spaces' was one such solution used i n
Russia. The storage solutions are among those most
popular in Russia, where average apartments are small
and often house several families. Cheap and good-
looking accessories for the home also became very
popular w i t h Russian customers and accounted for a
large part o f the stores' turnover.
IKEA's basic strategy to neither adjust the style o f
products to local needs nor follow the competitors'
product development was central as the cornerstone
in preserving the I K E A concept and image: 'The
range is supposed to be I K E A - u n i q u e and typical
I K E A . ' A l l products are divided into four major

Developing and positioning the retail proposition In Ruilll
categories or styles - Scandinavian, Country, Modern,
and Young Swede - which are clearly distinguished i n
all business areas across the store. One o f the reasons
why I K E A was successful w i t h its standard product
ranges in Russia was the fact that several o f these
I K E A ranges emphasise the modern style, which is
very different from the traditional Russian style but is
attractive and fresh for the Russian customers because
it symbolises change.
A n important factor in the market approach was
to identify needs that are not fully recognised and to
teach customers what I K E A is about. I K E A ' s retail
proposition is based to a large extent on its Swedish
roots and history, w h i c h is, i n turn, very different
from Russian traditions. Therefore, learning as
much as possible about the local culture and cus-
tomer needs was considered essential. For example,
I K E A made home visits to customers to talk to peo-
ple, see how they lived and used their homes and to
identify potential needs and wants not fully acknowl-
edged by customers themselves. Understanding
local family conditions and furnishing traditions
then provided a basis for the effective introduction
and marketing o f the I K E A concept. A s exemplified
by a store manager, the main p r i o r i t y for Russians is
normal l i v i n g costs; then comes the car and T V ; and
afterwards maybe a trip abroad. The idea o f chang-
ing people's priorities by explaining to them that a
beautiful home does not have to cost a fortune, and
they can afford both the wardrobe and a trip abroad,
is an essential leitmotif of the marketing campaigns
in Russia.
Since I K E A was totally new to many Russian cus-
tomers, 'to bring people as much as possible in the
store in order to learn about I K E A and get a positive
attitude' was a main goal from the very beginning.
I K E A put a strong emphasis on making Russian cus-
tomers feel welcome and important in the store, which
was very unusual for Russian stores at the time. The
way the range was presented and the opportunity to
touch and test everything i n the store also made the
products much more desirable to the Moscow custom-
ers. This was a new and unusual retail approach.
However, a great deal o f IKEA's success w i t h the
product range can be attributed to its work in influ-
encing the customer's decision making. One example
o f how I K E A has considered the local preferences is
in creating the room settings to reflect local condi-
tions i n terms o f apartment sizes and local furnishing
traditions. A s discussed earlier, it is vital to under-
stand local customer needs and 'transfer the I K E A range
into relevant solutions' for the families where three
generations often live together i n small apartments o f
50-60 square metres. The range should also allow the
possibility to ' m i x and match' within the Russian home.
H H P ' 9
111
The importance o f aligning the IKliA concept Wltft
the desired image was critical from the very bo(jinnin|J.
The intention was to build an image with a low price
brand that also guaranteed attractive and modern prod*
ucts o f good quality. To achieve this, I K E A fmn laced
many challenges such as: high customs fee*; the
requirement to purchase more from the local produc-
ers; difficulties in finding and developing supplier* In
Russia; still low buying-power o f Russian customer*,
etc. For I K E A , it was critical to associate the low price
with the desired significance. For Russian customers
low price was very strongly related to unattractive
products o f poor quality, and one challenge has been to
overcome this and explain how it is possible to offer
good product at low prices. Therefore, it has also been
an ambition to provide the Russian market with the
best and most attractive I K E A products.
M a r k e t i n g communications became an impor-
tant tool i n creating the right image o f I K E A i n
Russia. The ways to communicate the image were
many: the outdoor product ads (prices), image ads
in the glossy magazines, T V (though I K E A has
used this very restrictively due to high costs), and
articles i n the newspapers (press coverage has
become very broad and quite positive towards the
I K E A culture and philosophy). A n o t h e r very impor-
tant communication means i n Russia is the buzz
network or word-of-mouth communication that
works very effectively. I n addition, I K E A had an
open and friendly approach towards Russian j o u r -
nalists. This was i n sharp contrast to most other
large organisations. I K E A was completely open to
the journalists and introduced them to the I K E A
way and values by organising press trips to A l m h u l t
in Sweden to learn how the range is created. The
result was that the press coverage o f I K E A i n Russia
became much more positive.
Government authorities and officials o f different
ranks were also critical stakeholder groups. Their
goodwill and support was crucial for IKEA's expan-
sion i n Russia. What played a pivotal role in the pres-
ent success o f IKEA's operations in Russia was the
fact that I K E A was the only company that stayed in
Russia after the currency devaluation and subsequent
economic collapse in August o f 1998, when almost
all foreign companies left the country. That created an
immediate effect o f trust and willingness to cooperate
w i t h I K E A on behalf o f the major Russian politicians.
In 2008 the firm was considered the most important
foreign investor in Russia outside o f the gas and o i l
industry. The positive image i n Russia plays an
increasingly important role in IKEA's further expan-
sion, since it is crucial for creating new contacts w i t h
the local government and finding sites for the new
stores in the distant regions.
532 C a s e 4.3 IKEA: Entering Russia
Internal organisational processes also supported
the positioning strategy. C o m m o n activities carried
out on a regular basis were informal and formal dis-
cussions at the store level, where co-workers from
one or several store departments participate. The dis-
cussions covered different customer issues and the
best ways to present the range to the customers.
Market data and experience were also transferred and
shared w i t h i n and between different departments and
units at the company. The store managers and depart-
ment heads meet regularly to share the sales informa-
tion and the latest decisions regarding the room
settings, etc. The data about local customer percep-
tions and opinions about IKEA's different product and
service parameters collected by the store department
heads was also quickly reported to the marketing and
sales department at the service office in Moscow. This
information i n most cases is about product pricing,
w i t h the goal to lower the price for a specific product.
These issues were discussed at the weekly, and even
daily, store meetings since speed o f reaction might be
very crucial for store sales statistics. The topics
included outgoing articles, a new range, and different
solutions to present it, and take a form o f an informal
exchange o f opinions. The inter-departmental and
local corporate flows o f information were prerequi-
sites o f the fast decision making at I K E A . For exam-
ple, new product development supported the trading
retailing organisations in Russia w i t h ideas about new
products and supplier capabilities.
In the spring o f 2009 I K E A thus had 11 stores
operating in Russia. Most o f these locations were
mega mall shopping complexes operated by I K E A .
The shopping complex at the Tyoplyi Stan site i n
Moscow for example accommodates around 210,000
square metres o f retail space and 240 retail outlets.
The mega malls were treated as a separate business,
and were an addition to IKEA's core concept.
Normally, I K E A does not manage or develop shop-
ping centres but this was considered necessary i n
Russia due to its lack o f an existing structure o f large
branded stores and external as well as central shop-
ping centres o f a Western kind. Previously, many
Russians have shopped for furniture as well as other
products in outdoor markets or at smaller, local stores.
From IKEA's perspective, developing a whole mega
mall was part o f attracting Russian customers to the
stores.
Current developments and
challenges
As a whole, I K E A has made substantial investments
i n Russia, and turnover is increasing rapidly. However,
a major principle has been that monetary returns are
needed to back up further expansion: 'As soon as we
make a profit, I can see at least ten years ahead when
we w i l l need all the money that is generated in Russia
in Russia. So, the day when we w i l l start to take out
profit from Russia and use it in other countries is per-
haps 15 years away.'
In the near future I K E A hopes to open a number
o f new stores i n Russia. A project team has been
made responsible for the expansion: to look for new
cities, acquire permissions, build a store and recruit
and educate I K E A co-workers. As a whole, experi-
ences and knowledge i n general about the process o f
opening a new store, as well as specific market knowl-
edge, is important in this expansion phase. One exam-
ple is the knowledge about potential sites for the new
stores. The choice o f cities is to a large extent based
on local attitude and IKEA's intention is to establish
new stores only in cities where the authorities wel-
come the company. However, as a manager argued,
the fact that authorities are hesitant about the estab-
lishment o f a new large store in the area can be seen
as an opportunity. I f it is difficult to enter a new city
or region other retailers w i l l also face difficulties and
may give up the attempt. I K E A can, on the other
hand, take advantage o f its previous experiences
regarding this type o f challenge and may eventually
succeed i n opening a new store in an area w i t h little
competition.
However, establishing new stores and shopping
centres i n remote and culturally different places
involves risks and uncontrollable factors even for an
experienced player like I K E A . In 2006, as a new
mega mall was opened i n Nizjnij Novgorod, an acci-
dent occurred. A woman lost control o f her shopping
cart and a five-year old boy was killed. The local court
decided to close the whole establishment, possibly
due to pressures from local business interests. It was
re-opened after a week but the incident was consid-
ered to be very serious.
A n even more problematic example was the new
mega mall i n Samara. It was completed in December
2008, w i t h a skating rink, a number o f restaurants,
and about 200 shops, but the Russian administrative
process delayed the opening. I K E A simply d i d not
receive the necessary permissions to open from local
authorities. The company argued that the local author-
ities continually set new, unreasonable, requirements.
A major explanation was believed to be that another
shopping centre owned by local interests was planned
to open simultanueously. IKEA's manager for Russia
and Eastern Europe declared that the outcome o f this
incident could seriously influence the firm's future
plans for Russia. After being delayed another eight
times, the complex was finally opened in 2012.
 Further reading 5 3 3

1: 'As soon as we During the same time period I K E A also experi- fact, I K E A prices are still very high for many ordi-
'ears ahead when enced another major incident in Russia. Two senior nary Russians. For example, even i n St Petersburg,
nerated in Russia managers had to be dismissed after being accused o f the second-largest city, shopping power is, according
start to take out tolerating bribery. A Swedish newspaper published to different estimates, 30 to 50 per cent lower than i n
' countries is per- the story, and could present evidence based upon Moscow, where an average purchase value equals
email conversations w i t h details about how managers that in Stockholm.
allowed bribes to be paid by a contractor i n order to
a open a number As a whole, almost all I K E A managers have per-
fix an electricity supply problem quickly at its store i n
t team has been ceived the cultural differences between Sweden and
St Petersburg.
to look for new Russia as very substantial. It is clear that the cultural
store and recruit A t the moment, there seems to be renewed opti- aspect w i l l continue to play a major role when consid-
a whole, experi- m i s m when it comes to the Russian expansion. The ering that many o f the regions and cities that I K E A
ut the process o f realisation o f these ambitious plans w i l l also to a plans to enter in the future are likely to be even more
ic market k n o w l - large extent depend on the progress in IKEA's local different from the West when compared to the major
hase. One exam- buying and production in Russia. A n increased cities o f Moscow and St Petersburg. A s one manager
sites for the new capacity and bigger volumes by the Russian suppli- commented: 'Everything we believed would have
rge extent based ers w i l l allow the company to cut costs and reduce been a problem when we came to Russia has turned
in is to establish prices i n Russia as well as to export the Russian- out to be no problem at a l l . Everything we believed
authorities wel- made furniture to its other markets. As a matter o f would work nicely was and still is a problem.'
nanager argued,
about the estab-
irea can be seen
enter a new city
; difficulties and
n, on the other
J
)us experiences
^Ncan you see any alternative entry strategy that IKEA could have applied w h e n entering the Russian
may eventually
market? What would have been the advantages and disadvantages of these alternative strategies?
1 area w i t h little
To what extent do you think that IKEAs entry strategy for Russia is based on adaptation and on
standardisation? How are those approaches balanced?
s and shopping 3 Would you consider IKEA to be a market-driving company?
different places
4 In what respects do you think that IKEAs market behaviour in Russia has been different due to the
tors even for an
fact that Russia is an emerging market?
!006, as a new
vgorod, an acci- 5 IKEA has a vision of building up a global brand. Can IKEA be regarded as a global brand? How does
o f her shopping IKEA's marketing strategy in Russia influence/contribute to the company's brand vision?
. The local court 6 What do you think that the ownership form means for IKEA's entry strategy and its long-term
nnent, possibly activities in the Russian market.
interests. It was 7 Discuss IKEAs opportunities to achieve long-term success in the Russian market. What are the main
;nt was consid- challenges that IKEA faces? How can they be managed?

ile was the new

:d in December
o f restaurants,
i administrative
simply did not (FURTHER READING
)pen from local
he local author- • www.IKEA.com.
:, requirements,
be that another
its was planned
ager for Russia Written by Ulf Elg, Anna Jonsson and Veronika Tarnovskaya
outcome o f this at the School of Economics and Management, Lund
e firm's future University.
1 another eight
in 2012.