Why IKEA Is Fed Up with Russia
businessweek.com
businessweek.com
One thing was clear from that article that should be clear to everyone here: Russia is not a good place to do business these days. Your competitors are the government are the criminals.
So, they bribe to make it happen, thus feeding the corruption loop, and don't see any problem with that! Until they do. Then, they brag the "ikea generation" crap in newspapers.
But I'm saying that they feed the corruption. By paying bribes.
I thought this was quite insightful. No matter how bad the conditions, there will be companies willing to make a profit there. After all, the choices are enter the market and make some money, or don't enter the market and make none. And Russia is a _big_ market, therefore a potential profit hard to dismiss.
This all means the system there will not run out of fuel very soon. It is less productive though, but their natural resources will probably make up for it. The biggest loser is the population. I read recently in a study of happiness per country Russia is very near the bottom. But as long as there are enough money to move the wheels, the system will go on.
A bribe-based economy has very high barriers of entry, especially when the main client in your industry is the state. Which means low competition which means... lots of bad things.
Example: Cell Phone service in the US. Actually, that's not the worst possible, but we are lagging the rest of the world.
That is exactly something to be expected from a corporation. You don't expect corporations to take the moral high ground and heal Russia's political system at the expense of their own profits?
With respect to corruption there's bad news and good news. The bad news is that only Russian people can do something about it. The good news is that Russian people can do something about it.
Corruption is a fact of life in Russia--almost a natural law--and has always been. If you find this distasteful, then don't do business there. Ikea has known this from day one. Everyone who has ever dealt with Russia since the Iron Curtain was bound to find out on day one. This article is a move in a chess game, and both sides (in fact there is probably a handful of sides in this one) are on exactly the same ethical ground.
Interesting if you're interested in minutiae of Russian politics, but otherwise business as usual.
So, opening a store is a net gain, as is investing 4 billion in the economy. In theory.
See http://en.wikipedia.org/wiki/Comparative_advantage for instance.
Built buildings in what country? With materials and contractors sourced from what country?
Have employees from what country?
I know a large part of IKEA's corporate structure is a non-profit organization, but trust me, that is only to evade taxes.
This is a giant corporate entity vs. a giant corrupt government. IKEA is complaining against the complicated bureaucratic nightmare that Russia set up so that it would be easier to extract bribes from companies like IKEA. _Technically_ IKEA is one breaking some local construction safety rules. Somehow I don't see Russians re-writing their crappy laws and regulations to suit IKEA. They might let IKEA ignore some of them... but that is exactly where the bribes come in ;-)
So far IKEA is going about it the right way -- shaming Russia on the international level.
Thank you all for the continuing maturity.
Seriously: you want to have a business in the country, a profitable and fast-growing one, yet you have complaints about the process. I guess, either shove it or leave.
In Moscow, there was an accident when an aquapark full of people collapsed due to bad engineering and construction, too. So, maybe those delays aren't just corruption? Also: In South Korea, there's a history of mall collapsing under its weight due to poor engineering and exploitation;
The bottom line is: If it would be corruption alone, they'd bribe and move on; they're huge. So, it's not just corruption. And as of stopping investments, maybe they're just out of money in their Sweden?
"The retailer has become such an icon of Russia's boom that today's yuppies are called "the Ikea Generation."" This is crap, never heard anything remotely like that. Perhaps stop making things up?
I know that on the basis of having some.
As for retailers: if it wouldn't be an IKEA mall, it would be some other kind of mall, it's not like there would be much difference.
"In other news, IKEA, after operating in Russia for 9 years, suddently discovers that there's a massive corruption there".
IKEA uses press to bash government for bad process; I use HN to bash IKEA for bad wares; If I troll, don't they?
What bothers me with the attitude of neo-patriotic Russians under Putin (which you seem to represent well) is that it considers the logic of "everyone cheats, therefore we can too, even so bad that it goes off the charts" valid.
To me it seems Ikea is not in this for any political games: it wants to make business, within moral codes it has set up for itself, that should be reasonable to everyone, even you. You on the other hand seem to be in this out of hurt national pride. That is not an argument as compelling as the first.
It is not difficult to understand that Russians do have a hurt national pride, looking at recent history. But don't take it out on Ikea - they're not the one at fault here. Take it out on the corrupt local government. That would be more constructive, and even build up some credit with Russia's current skeptics.
As for improving the lifestyles, you'll soon realise that cheap chinese wares don't improve the lifestyles that much. Cheap, but ugly and non-durable.
Especially global corporations are known for doing it in less economically developed countries to own them as they wish. Example is South America: there were some wars, even, growing out of conflict between two American oil corporations.
Now you can say that there's good bribe and bad bribe (first for doing legal things, second for questionable), but it's bribery in either case.
Although my experience is 5 years old, I don't think things have changed so much that Ikea isn't paying bribes.
With your reasoning, we could put forward that maybe the Moscow accident was caused by corruption: the builders paid off the inspectors to save on building costs.
The bottom line is: Ikea and Ingvar Kamprad has stated several times that they will not accept the Russian business practise of corruption. This is one of the reasons why some of Ikea's new locations have stood unopened for years, while waiting for permits from local governments (read: while refusing to pay bribes).
Может тебе сам перестать придумывать вещи, и посмотреть в зеркало?
About the Moscow accident; I'm sure it was, partly. But I don't see how is this fact going to help if their mall in Samara has safety problems, indeed. If it doesn't, as I've told, they have their three choices.
In short: I DO think there's a problem with corruption in Russia; I just DON'T see a problem with IKEA packing its bags and leaving.
There is an easy argument to make that they are a net destroyer of taste and destroy culture. I am not certain, personally.
But as a business, IKEA is as serious as a heart attack and is a competitor that seems unbeatable; an inspiration for all.
IKEA builds and manage an incredible amount of stores everywhere -- without any serious security problem. I've never read any article that IKEA complain about bribes in other countries.
Be grateful that the company risks billions of dollars by becoming unpopular among violent criminals like Russian politicians. It is bettering your country; economists claims that corruption destroys a country.
You don't help your suffering country by defending your politician-thieves, which even makes the politicians of my home country seem mild.
(Sorry for wasting space by beating a dead horse.)
Let us just hope that the Kamprad family (which owns IKEA) aren't Polonium poisoned, like Litvinenko.
(The last few months, I've seen quite a few people like you on discussion forums that defend Iran, Putin, etc. Strange.)
If you really care about Russia, start acting better than those who libel Russia. That means, don't libel back.
I guess that's just not interesting enough. Truth is overrated.
Well, I'm Russian too, and your comments are totally wrong. I can say my arguments after I hear yours.
Finally, cursing on HN (even in Russian) doesn't make you sound good.
Face with it: IKEA drains money from the country (is that called investments) and also their offerings are crap. Maybe it's just my experience; Тёмочка praises them. However, my experience is that you should only go there for tasty фрикадельки.
This is a common misconception and almost certainly wrong; you may need to brush up on your knowledge of economic theory if you harbour such fallacies. Perhaps start with comparative advantage:
If we'll find that we don't have comparative advantage over China in all manufacturing, we have two choices: - Ruin all the country manufacturing and hope for economical tooth fairy to save us - Fotrify economy against comparative advantage by introducing tariffs on imported goods.
It's noble and cool to think that every country have its own comparative advantages, but, some don't. In this case you either lose your manufacturing entirely, or defend it.
There are plenty of things highly skilled Russians can and should be doing rather than making crappy, expensive furniture. But you know this, of course. This is what every other country does.
And there are plenty of other countries which earn the bulk of their foreign currency in commodity exports, mine included, and it's not a hotbed of corruption. In fact, minimising corruption can be a comparative advantage in itself.
"In this case you either lose your manufacturing entirely, or defend it."
Who would want to defend their furniture manufacturing capacity!? Yes there are strategic industries you can make a case to defend. But furniture? "Mr. President, we must not allow... a furniture gap!"
Anyway, if you're going to protectionist your way to the poor house, at least do it legitimately as part of a top level economic strategy. Local corruption is absolutely not the way to enforce a tariff.
However: employing 140M people is a problem; distributing those money between regions is a problem; not turning into banana republic is a problem (already failed that one).
Those problems can be, to some extent, solved by having manufacturing intact and working, if slightly inefficient.
I'm not saying it's only about furniture. This question is probably orthogonal to the whole IKEA discussion. Sorry :)
I don't really buy it, though. It strikes me as being too cute by half and I can think of any number of counterexamples. For example, Norway, Canada and Australia have immense resource wealth per capita and no-one would say they're bad places to live. And Canada has 3x Russia's oil reserves, with 1/5th the population!
I think resource wealth is just a multiplier. If you have a bad government, it can make it even worse, but with good management it can provide a useful flow of income.
Norway was a democracy before the oil income. (I don't know about export incomes and Canada/Australia. Do they get most income from that?)
Edit: Syntax, so it will parse in your brain.
But yeah, good point on being a democracy before the money started to flow. That might indeed be the key. Resource income enables an otherwise uncompetitive, poorly-run country to keep its head above water, and sustain the worst sort of government even in the absence of advanced industry. And Russia is certainly pumping its oil as fast as it possibly can.
Who knows though. A bit of oil money would probably help North Korea. At least they'd have something to trade, some link to the outside world, some foreign currency to buy food. That's what I don't like about nice neat theories like that - they try to simplify the inherently unsimplifiable ..
1. Liberal democracy. Economy works more or less, so the leaders have lots to stea.. tax.
2. Dictator. Most everything, including citizens, belong to the dictator. Bad economy and dangerous, since dictators must have external enemies (so all complaints are treason).
3. A country with natural resources. There is no need for leaders to go to 1, since there is enough to steal anyway. Keep people down and fill the Swiss account as long as possible.
This categorization explain why democratizing has gone up for a few decades.
Model "1" generally gives more to steal for the politicians, even though they can only get part of the country. "2" is the only alternative if most people (would) hate the dictator if they got free media. See North Korea. Iran is an obvious example of model "3".
(The only country I can mention that doesn't fit the [broad] categories is China, but they start far back so give them time.)
Point is, oil would help NK's dictators but not anyone else.
Have you read this: http://en.wikipedia.org/wiki/Comparative_advantage ?
There are over 30 Russian factories working for IKEA. How does this correlate with your theory of IKEA killing local factories?
Anyway, a valid point.
Back on topic, I'm inclined to take the article on face value even though it doesn't provide much evidence, because the situation as described doesn't sound at all unusual. Whether IKEA is a good or bad company is utterly irrelevant to the discussion of bribery.