IKEA Case Study
Question 1
When IKEA succeeded in joining the Russian market, the company managed to capture the rising market provided by rising middle class. The success of IKEA in this market was evident in many ways. Contrary to the existing Russian stores that provided only two options of furniture, which in this case were the cheap furniture for the rest of the population and expensive furniture for the high class or affluent, IKEA provided affordable, simple, sturdy furniture. Besides, the prices of the furniture offered by IKEA attracted a significant attention from consumers. The firm managed to save customers from the need to engage in several months of saving for furniture. The organization’s success was also reflected in its store design or layout. The internal layout of the company’s store enabled customers to walk around without being impeded by shop assistants and handle the merchandise. Moreover, the company provided exemplary services to clients. Customers were encouraged to test the sofas and mattresses for themselves. The buyers had not witnessed such a service in other Russian stores. Other aspects that mirrored the company’s success were its exceptional business model as enormous entertainment and shopping complexes, potential to leverage economies of scale, and its vertical integration. As result, IKEA grew to be the largest foreign retail within Russia, with 14 stores, three manufacturing facilities in the country, and a distribution center. In addition, the firm’s success resulted in the Russian yuppies being named the IKEA Generation.
Question 2
After settling in the Russian market, IKEA experienced several challenges. IKEA experienced cases of blackmail, corruption and interference with the company’s operations from the government. For instance, in 2003, the firm was only allowed to conduct its operations in Solnechnogorsky after hiring the regional government’s contractor and donating $30 million to elderly individuals. In 2004, the company’s launching of a mega mall at Khimki was halted when the management declined to bribe the government. In 2006, the firm’s operations in Rostov-on-Don and Nizhny Novgorod also experienced government interference. Furthermore, IKEA’s activities were also impeded in cities such as St. Petersburg, Solnechnogorsk, Novosibirsk, Samara, and Ufa. Nevertheless, the company managed to effectively address these challenges and make a mark within the Russian market by being the largest foreign retailer. IKEA addressed these challenges in many ways. For instance, in 2003, operations in Solnechnogorsky, it can be noted that the firm’s managed decided to comply with the regional government’s directive of hiring its contractor and donating $30 million to support the elderly population. In some situations, the company’s management, under the leadership of Dahlgren, opted to stand up to the government’s corrupt bureaucrats as was evident in the Khimki incident in 2004. This undertaking attracted global media attention and earned the firm a lot of sympathy. As a result, the Khimki authorities witnessed harsh criticism, which made the government to allow IKEA to continue with its business launching exercise. In some circumstances, the company sought the support of government authorities that enabled it to smoothly execute its operations, as was evident in 2005 within the region of Kazan. It can also be noted that the company opted for strategic alliance in certain occasions. For instance, it partnered with Ramstore hypermarket in establishing the Mega Kazan in 2005.
Question 3
In the future, IKEA’s business strategy should be focused on investing and expanding into other markets where it experiences rapid growth or significant markets such as China. Moreover, the company should avoid expanding its operations into countries associated with high levels of corruption. The company was ambitious in its investment in Russia despite being aware of the heightened corruption levels in this market. Eventually, IKEA was compelled to terminate its operations in this country after it realized that it could not operate sustainably with the high levels of corruption in this market. The firm’s management should also be cautious in handling controversial issues such as those involving minority groups such as the lesbian, gay, bisexual, transgender, and questioning (LGBTQ). In addition, the company should continue upholding its belief and value system by embracing thorough employee recruitment and screening process to eliminate the possibility of hiring corrupt workers. It is significant to note cases of corrupt company officials also contributed to the IKEA’s reputational problems in Russia.
