The Paradox of Business in Russia

IKEA Russia

"Welcome to the New Russia!"

IKEA's role in supporting "Russianness"

"Party Rock Anthem" at IKEA – visit www.youtube.com/embed/3kPgmbcZJKk

Summer sale items at IKEA now!

"Despite Absurdity: How I Conquered Russia While It Conquered Me"

IKEA Russia advertisement, "Smiling Makes the Day Go Quicker" – visit https://www.youtube.com/watch?v=V8H5qwDOp7I

The Swedish superstore IKEA is a globally recognized brand for its affordable home furnishings and lifestyle attributes. Walk in to any store and you will see the same iconic blue and yellow signs, carefully meandering walkways, and brightly lit displays touting the low prices of the goods on sale.

The first IKEA in Russia opened in 2000 at Teply Stan outside of Moscow, and the company has seen an impressive expansion rate in the decade since. IKEA now not only operates 14 of its iconic stores in 11 cities across the Russian state, but has also expanded its business model to include MEGA shopping centers, massive complexes full of Western stores choosing to affiliate with the company to gain entry into the Russian market. This model, the first of its kind for IKEA, has been extremely profitable and made the company the largest shopping center operator in the country. A well-known brand in the Western world with simultaneously influential commercial interests in Russia, IKEA is a company that provides a fascinating lens through which to understand Russia’s place in global perspective. Indeed, the formidable physical presence of these megastores and their ongoing success is representative of an emerging consumer market and a lifestyle of the twenty-first century to which many in the Russian middle class seemingly aspire. As a powerful multinational company, IKEA also stands for a business ideology and case study of entering and navigating the Russian market. As such, the company, its brand, stores, and megamalls all sit at the intersection of social and political themes in contemporary Russia.

In a broad sense, IKEA’s emphasis on lifestyle stems from its business ideology. The company’s vision is “to create a better everyday life for the many people.” In this way, “better” is a somewhat inherently normative statement for its claim that what one might possess at the moment can be continually improved – that one can always achieve a better everyday life through material goods. Unsurprisingly, IKEA has become the harbinger of modernity in the post-Soviet period for a growing demographic in Russia: the middle class. As the scholar Christoph Neidhart concludes in his analysis of Russia’s commercial transition during the post-Soviet era, “In Russia, Ikea, more than any other company, has been read as bringing the future into the homes of the emerging middle class.”[1] 

This influence can be seen between both IKEA’s publicity efforts and the receptiveness of the Russian public to the IKEA brand. And, on the whole, it has been an astounding reception. While IKEA (known worldwide for advertisements that often push the envelope of social customs) has profited greatly from its 14 stores, it is its associated set of MEGA malls full of other Western stores that is one of the biggest drivers of traffic to the commercial centers located, for the most part, on the outskirts of large cities. As the IKEA website describes, MEGA has been a “natural launch pad for success: With IKEA at their heart, MEGA centers are supported by high-profile, market-leading anchors such as Auchan, and are filled with an attractive mix of international and world-famous brands like Zara, American Eagle Outfitters, Starbucks, Promod, C&A, Debenhams, The Body Shop, Marks & Spencer, Converse, Victoria’s Secret and many more.”[2] These malls thus have the effect of branding IKEA as the leading symbol of Western trends and fashion. In the words of one Western journalist reporting on Russia, the retailer has become such an icon of Russia's boom that today’s yuppies are called “the Ikea Generation.”[3]

Thus, to see Russia through IKEA’s lens into the country’s emergent mass consumer culture in the post-Soviet era is to see a desire for new, affordable goods in cheerful colors. It is an understanding, particularly of the new middle class, of Russian desires to purchase household goods and clothing emphasizing a higher standard of living and buying in to brands that connote this vision of modernity. In the context of history, Neidhart argues that IKEA’s entrance into the Russian market was perfectly timed to meet the needs of this new demographic: “With its reasonably priced furniture with simple lines and clear, cheerful colors, Ikea enables the consumers – many for the first time – to escape the rough feel…of its Soviet counterpart and to simultaneously avoid the showiness of the New Russians and the high prices this entails.”[4]

Yet for all of this success, IKEA’s entrance into Russia has been anything but smooth relative to its operations in every other part of the world. Termed a “chaotic reality” by the former head of IKEA Russia, Lennart Dahlgren, the company has faced both internal and external hardship in attempting to launch and grow its business since the early 1990s when the idea of entering Russia was first put on the table.[5] First they were stymied by the collapse of the Soviet Union. Next came the economic crisis in 1998 when Russia defaulted on its debt. Since 2000 with the opening of their first store, the company has been faced with the bureaucratic difficulties of getting building permits to construct new stores and accusations of bribing officials – as well as the reported adversity of not paying said bribes.

In one example, IKEA officials in Moscow were flummoxed when the employees of the local utility company demanded a bribe if the managers wanted to have electricity for their grand opening in 2000. Instead, IKEA rented several diesel generators large enough to power an entire shopping mall, and the opening went on as planned. The utility company turned the power on soon after. As IKEA continued to open stores throughout Russia, in the process earning the reputation as one of the most outspoken critics of Russian corruption, it became common practice to rent generators in order to avoid extortion from local power companies. But several years later the company realized that the Russian executive hired to manage the rental agreements had been taking kickbacks himself to inflate the rental price – and rather than awarded for any punitive damages for the fraud, IKEA was rebuked in court for a breach of the rental contract.[6] More recently in 2010, two top executives of the IKEA’s Russian division were fired for “looking the other way” when bribes were paid to complete a construction site on time.[7] (And even beyond extortion, IKEA has dealt with the controversy of a subsidiary company being accused of clear cutting ancient Russian forests.)

This, then, has become the paradox for IKEA in doing business in Russia. Although there is clearly a high level of demand for their products and the lifestyle that the company portrays as part and parcel of the IKEA experience, only one of the fourteen stores has ever opened on schedule due to repeated issues with permits and construction woes. Such a statistic depicts the necessitated complexity of IKEA’s operations and goes to the heart of the tension between social and political themes in contemporary Russia. Indeed, as one Russian journalist writes, “For middle-class Russians, economic power has not brought political power.”[8] If such a powerful and desired company faces these issues, repeatedly, what does that signal to both consumers, whose interests are often sidelined, and other international companies wanting to enter the Russian market? Indeed, as the Moscow Times warned, “For other investors, the Ikea affair may well serve as a warning that Russia's byzantine bureaucracy remains a formidable roadblock.”[9]

Reading IKEA’s story in Russia as a proxy for multinational business interests thus portrays a much more complicated picture than the one given by just IKEA’s commercial success and celebration of a Western lifestyle. It projects the friction seen between political elites and the rising wave of prosperous young professionals and families who envision and desire different tenets of modernity. Perhaps Neidhart characterizes this best when writing, “Ikea promised to fill the gap between the pretentious, prohibitively expensive designer brand furniture and the musty Soviet stuff. Many Russians of the emerging middle class and expatriates rejoiced. The Moscow city government, however, raised all sorts of obstacles to block Ikea’s way, which delayed its opening by several months.”[10]

With all of the controversy, IKEA decided to halt its expansion efforts in 2009 until its various legal disputes were resolved and it could adopt a strategy that would favor both its continued economic success and align with company values. Briefly addressing the media coverage of IKEA’s expansion into Russia, it is at this point in time that Western newspapers generally stop reporting on the company – most recent accounts (in English) come from The Moscow Times, which fastidiously avoided any mention of bribery in the company’s history in Russia, except to cover court decisions or official statements from the government.[11] Discussions of IKEA’s future in Russia in recent years have been particularly bright, as Russian blogs and newspapers have applauded the company’s decision to continue expansion to a possible 25 more sites in the coming decade.[12]

IKEA has become an institution there to stay in Russia. Regardless of how new construction projects and hopes to offer online commerce play out in the coming years, the country’s fourteen megastores currently generate at least five percent of the brand’s global sales – an impressive feat given that they represent just one percent of the total number worldwide. As the IKEA website celebrates, “Research also tells us that the average visitor spends three hours at MEGA each time they visit, at least twice a month.”[13] The saturation of IKEA’s brand and image into the Russian middle class vision of the modern is an impressive feat, although one that comes with its own set of paradoxical impressions and business operations that seem inherent to running a business in contemporary Russia. As the former executive of IKEA Russia concludes in his memoir, “You can love Russia or you can hate it, but you can never remain indifferent.”[14]