Expansion difficulties with IKEA

Cross Cultural Management

Individual paper work

Question:

Although IKEA is a highly successful global player it has recently experienced problem in its expansion in Russia (Vasilyeva, 2009). Based on the material in Jackson (2002) discuss critically how IKEA has succeeded in instilling its Swedish ways of managing into its international subsidiaries, considering also whether cultural factors have any relevance to its current difficulties in Russia.

Introduction:

Before going in the question i.e. the problems IKEA is facing in Russia, we will discuss about IKEA, Sweden and IKEA in France, Germany, Spain and United States of America.

Discussing about IKEA, we will know the history first, IKEA, as we all know is a Swedish company. It was started by Ingvar Kamprad in 1943, and since has grown to become world’s largest retailers of furnishing. IKEA got its name from the initials of four words, the first two from the name of the founder, Ingvar Kamprad. Making I and K, and the second two from the letters of Emltaryd and Agunnaryd, the farm and the village he grew up in. IKEA started by selling pens, wallets watches etc, but out of all the furniture it sold got the greatest response, so, it opened its first store in Sweden in 1958. And in Norway and in Denmark in 1963 and 1969 respectively.

Culture:

We will define the IKEA’s and the Swedish culture based on Hofstede’s four dimensions.

The four dimensions are;

1. Power distance
2. Uncertainty avoidance
3. Individualism and collectivism
4. Masculinity and femininity.

More or less the IKEA and the Swedish cultures and same, the simple reason being that IKEA is a Swedish company. Now according to the Hofstede’s dimensions we can compare and tell about the cultures.

We will start from the Power distance dimension, this dimension is about the distance between the employees and the managers of the company, in short, equal relations are also seen as normal in some cultures and even inequality is seen as normal in some. In Sweden, the managers and the organizational employees scored very low, i.e. there power distance is very low, they all are considered more or less equal. They scored 31 making it a follower of low power distance; where 104 is the maximum and 11 being the minimum.

The second dimension we will talk about is Uncertainty avoidance, by Hofstede’s definition and from the given case study (Jackson, 2002), it says that, this refers to a preference for structured situations versus unstructured situations. This dimension runs from being comfortable with flexibility and ambiguity to a need for extreme rigidity and situations with a high degree of certainty. Here again Sweden scored 29, which is low, compared to other countries like Spain and France scoring 86. 8 being minimum here and 112 being the maximum.

Third in the list is Individualism and Collectivism, this factor or dimension is about the mentality or way of working of employees, that is, are they used to work as a individuals or as a group. This is again a important factor, which differentiates between the cultures. In this dimension Sweden scored 71, and here 6 being minimum and 91 being maximum. This means the Swedish culture is more individualistic.

The fourth one is Masculinity and femininity, now again, according to the given case study, Hofstede (1980a) distinguishes ‘hard value‘ such as assertiveness and competition, and the ‘soft’ or ‘feminine’ values of personal relations, quality of life and caring about others, where in masculine society gender role differentiation is emphasized. So in this dimension, Sweden scored 5, which is the lowest and 95being the highest. This implies us that Swedish culture is a very feminine culture, that is they are very soft and caring kind of people.

So to sum up all, we can say that Swedish culture is a low power distance, again low on uncertainty avoidance, high on individualism and a feminine culture. IKEA being a Swedish company fallows the similar culture, but, being a global player and having its existence in other different counties; it faced a lot of cultural differences. IKEA had an organizational culture similar to Swedish culture, but when it went to France or Spain or United States of America, it faced little problems there and a lot in Russia.

Cultural Differences:

A global player is a company which works worldwide; likewise, IKEA is a global player. It is a Swedish company and as talked about, its organizational culture is similar to the Swedish national culture. IKEA always wanted to maintain its unique ‘Swedishness’. This was essential to maintain because it was there competitive advantage over other competitors and along with this, it wanted to adapt to the other different national cultures it was working in. Well that is the sign of the global player. IKEA fitted perfect in this.

Over the years, IKEA spread its market mainly in Europe, North America, Middle East, Singapore, Hong Kong, Mainland China and Russia. Germany, France and Sweden were its single biggest markets. It has also recently taken over Habitat, another competitor in the UK and France.

IKEA’s international headquarters are in Almhult, a remote location in Sweden where only Swedish is spoken, this is the place where products are designed and all the important decisions are made.

Well now before we speak of Cultural differences, we will discuss about the key IKEAN cultures. They believe that a person learns by doing mistakes, it is seen as a way of learning. They encourage practically solving the problems. The managers from IKEA generally expected to share the information they have, their knowledge and skills with the employees. Hence it states employees are also considered very important in the organization and are encouraged the work and are made feel responsible. The management style is seen very casual, informal, open and caring. Hierarchy system is almost flat, with three levels of responsibilities at the store level store managers and co-workers. Co- workers may be employees or associates.

The managers do not give titles on their business cards. The bureaucratic approach and status barriers are disparaged and the managers are expected to be friendly, understanding and close with the employees. The employees are also provided with a small formal training. In this culture humbleness is not seen as weakness and learning from experiences, though it takes a lot of time and patience but is a condition for moving up the ladder.

“Testaments of a Furniture Dealer” a book by the founder, which sets out his philosophy is distributed throughout the organization. The managers are seen as and encouraged to act as ‘missionaries’. And even one week seminar or training is provided for the managers who have not been directly exposed to the founder’s philosophy. Whenever IKEA opens a new store in any other country than Sweden, the store is first run by a tight knit group of managers or even called as missionaries who are in position to make of the decisions and are able to solve problems in typical IKEAN way. They are in charge of the store until the store is handed over to the local managers. Overall IKEA offers good and pleasant working environment, job security and a caring attitude to its employees.

Overseas, all this has proved relatively easy in Netherlands, but didn’t work in some countries, say for example in Germany, France, United States of America and Spain.

Like in Germany, managers are not used to be called by first names and undermining managers’ authority. They are used to do what managers say, they usually take all the orders from the managers, they are not used to do work by taking owns initiative. In Germany manager’s suggestion are generally taken as orders. And IKEA’s methods were considered as distinct or not clear.

In France, unlike Sweden, informality is seen as a weakness. Being informal is considered as being indecisive. And even no formal job titles meant loss of identity; it was creating problems because they felt like they were lost in the crowd.

But in United States of America, the older workers had a bit of problem working with the young American managers because of their ways of doing things. The young American managers showed a lack of elegance with the employees, but they went off with ease with the Swedish managers. But again, on the other side, there was a difference in the perception, Sweden did not believe in individual awards to maintain equality and avoid discrimination between the workers and the employees. American managers thought that it was slowing their progress in the company; they had second thoughts about their future in the company, and as the result they lost their key American managers.

To overcome these problems IKEA had to work on some stuff, like in France to attract and retain the employees, they had to provide clear communication with the facts and figures, just to highlight the benefits of IKEA over its competitors. And had to create some formal training programmes for the new employees, instead of the traditional learning by doing and experience methodology. And even did some changes for the other countries as well. IKEA also gave more autonomy to the local management.

In the case study, by Jackson T (2002), he gave a bit more emphasis on IKEA in Spain. It is said that IKEA was a complete unknown when it entered Spain. And since then is has mixed the IKEA culture and its Swedish characters in its Spanish Subsidiaries. Firstly, a network of Swedish managers was sent to Spain to pass on their knowhow and IKEA culture to the local management. This turned out to be an extremely important stepping stone in IKEA’s entry in Spain.

Even the selection of the employees is important, selecting the ‘right’ people is perfect way of preserving the IKEA culture. To select the employees who have not been contaminated by the culture of other companies. Moreover awareness for IKEA culture is created through introductory programmes for the co-workers and the employees by ‘IKEA Way’, during which, participants are given lectures on IKEA’s history, human resources ideas, and many more and by official scriptures, handbooks and other IKEA documents.

The IKEA’s culture, i.e. the methods they fallow, are very different from the normal style in Spain. IKEA is taking a more serious and conscious approach in developing the organization and adjusting it for the local needs. In this case, the first step was by recruiting a Spanish human resource manager. They even provided off-the-job training courses, this was done on the strong demand of the co-workers. Again the important point is they adapted a flexible salary approach is developed in order to attract and retain competent employees.

Problems in Russia

IKEA entered Russia almost after 5 decades of its international existence. Year 2000 was the entry year for IKEA in Russia. But unfortunately it had to face a lot of problems in Russia. IKEA has opened 12 stores in Russia till the date in all over the country. It has invested around $4 billion in the Russian market. IKEA saw Russia as a lucrative market; it was like a gold mine for IKEA. IKEA was on the verge of becoming the potent symbol of Russian consumer boom. It started attracting the young generation of the country. It was also building giant shopping malls in various cities of Russia. Overall the start was looking good. But the problems they faced were mainly the corruption in the country.

Corruption was the biggest and the most disturbing problem that IKEA had to face. Russian President Dmitri A. Medvedev also acknowledge on the fact that corruption is Russia’s national problem. On 23rd June 2009, IKEA announced that it is suspending its future investments in Russia for the time being. The official reason was given by IKEA country manage, Per Kaufmann, was the unpredictability of administrative processes in Russia. But some of the observers even believe that corruption within the country and demand for bribes was the other important reason for the decision made. The founder Ingvar Kamprad was firm on his decision that he was going to solve the problem without giving bribes.

For example, in year 2004, when IKEA was about to open a outlet in Moscow, the officials there delayed the opening by giving reasons like, the parking of the store was near the gas pipe line, and because of the safety reason, they could not open it on the given date. The same thing happened with the outlet in Samara; it was delayed 8 times and still has not opened. It was about to open in November 2007, it has been 2 years and still it is at the same place.

They gave a different reason every time, the recent reason was, and the store was not hurricane resistant. And was not safe, but there was data of so power hurricanes in that area. And even at the time of opening a first store in the out skirts of Moscow, they needed electricity, the officials increased the rate of the electricity, as a backup plan, they had generators, but the generator company, also increased their rates. IKEA tried to sue the company for this but unfortunately, it lost the case and in return had to pay a amount as compensation to them.

IKEA also had to face accusation made by Russia’s anti-trust watchdog when it investigated and accused that IKEA urges the tenants at its mall outside Moscow to use services of selected companies.

James Franker, head of Moscow based Red Star Asset Management also said a few things on the Russian economy like, “They need GDP growth to help them expand, and that’s reversed” and he also commented about the informal taxation being very high in Russia.

Conclusion:

At last in the conclusion, we can say that, IKEA follows a totally different culture, it also had to face a lot of problems in other countries as well, but in Russia it had a lot more serious problems. The main problem being the corruption of the country. As given to us, Transparency International ranks Russia 147th out of 180, with countries like Kenya, Syria and Bangladesh. IKEA has stopped the investments in Russian furthermore due to such problems. In a situation where Ingvar Kamprad wants to be firm on his stand of not giving bribes, let us see what IKEA has in its future in Russia and around the world.

Bibliography:

Case study- Jackson T (2002), International HRM : A cross-cultural approach

• Rey French, cross cultural management: in work organization
• Ikea, http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/ikea_group_stores/russia.html.
• http://www.kwintessential.co.uk/resourses/global-etiquette/sweden.html
• Ikea upbeat Russia after 10 years of problem, Alex Anishyuk, Moscow times,

  http://www.cdi.org/russia/Johnson/2009-160-7.cfm.

• Why is Ikea fed up with Russia, Jason Bush, http://www.businessweek.com/magazine/content/09_28/b4139033326721.htm.
• Ikea turns sour on Russia,

  http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2009/06/ikea_turns_sour.html.

• Ikea plans to halt investment in Russia, Andrew E Kramer, http://www.nytimes.com/2009/06/24/business/global/24ruble.html.
• Ikea tries to build public case against Russian corruption, Andrew E Kramer,

  http://www.nytimes.com/2009/09/12/business/global/12ikea.html?_r=1&pagewanted=2