IKEA in Russia - Ethical Dilemmas
| Case Code: BECG128 Case Length: 12 Pages Period: 2000-2012 Pub Date: 2013 Teaching Note: Available |
Price: Rs.400 Organization: IKEA Industry: Specialty Retail Countries: Russia Themes: Business Ethics, Corporate Governance |
Abstract Case Intro 1 Case Intro 2 Excerpts
Introduction
In July 2012, a Turkish national, Okan Yunalan (Yunalan), who acted as an intermediary for Carl Ola Ingvaldsson (Ingvaldsson), former Head of the Leasing Department in IKEA's Russian subsidiary (IKEA MOS), to extract a bribe, was sentenced to five years in a high-security prison. Yunalan was found guilty of large-scale extortion after he demanded 6.5 million ruble (US$ 225,000) from a company that sought to lease two premises at IKEA’s Mega shopping complex in Tyoply Stan, a suburb in Moscow. Ingvaldsson and another accomplice managed to leave the country and Russia was seeking their extradition.
IKEA stated that it welcomed the investigation by Russian authorities into the incident and would co-operate fully with them. This was not the first instance of corruption seeping into its Russian operations negating its tough stance against the all-pervasive corrupt business environment in Russia. IKEA was known for its uncompromising attitude toward corruption but it had not always been successful in ensuring that its employees adhered to its ethical standards.
The same year, the company came under the scanner of global environmental agencies when an investigative report revealed that it was utilizing ill-defined Russian logging rules to cut down old growth forests. This raised questions about its claims of being an ecologically sensitive company that believed in sustainable logging practices.
It was in the late 1990s that IKEA decided to enter the Russian market as part of its global expansion strategy. From its early days, the company had displayed a non-tolerance for corruption. This standpoint meant that it had to face several setbacks when setting up stores, inaugurating them, and even while advertising for them. However, there were also instances of support from authorities, whether local or federal, and of difficulties being smoothed out, which enabled the company to get things done faster than in any other country in the world.
Over the years, the company expanded and experienced success with its stores in Russia. Some of them, in fact, became the top grossers 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.
Though the company continuously faced and overcame the serious hurdles caused by the corrupt bureaucratic system, it finally decided to halt all expansion in Russia in 2009. The decision came in the wake of permission being denied to setup two if its stores, allegedly after it refused to pay bribes to safety inspectors. However, the top Russian ministry officials convinced the company to go ahead with its expansion in 2011....
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