Why IKEA Is Fed Up with Russia
MOSCOW - The Web site for the Mega-Samara mall sports a banner that screams "OPENING Soon!" The problem is, no one can say just how "Soon!" the public will be able to enjoy the 1.4 million-square-foot mall's skating rink, restaurants, and 200 shops. The owner, Swedish furniture giant Ikea, says the mall has been ready for more than a year. But local government officials say the facility violates numerous safety regulations and other rules.
The delay appears to have been the last straw for Ikea. On June 23 the retailer said it was putting on hold all new investment in Russia. Ikea's Russia country manager, Per Kaufmann, said in a statement that the decision was "due to the unpredictability of the administrative processes in some regions," specifically Samara. While Kaufmann says Ikea hopes to complete a handful of projects under way, plans for an additional 30 or so stores have been postponed.
It's a remarkable about-face for Ikea. The company—among Russia's largest foreign investors—has plowed some $4 billion into the country since opening its first store in 2000. Samara is its 12th outlet, each anchoring a mall with hundreds of other tenants. The retailer has become such an icon of Russia's boom that today's yuppies are called "the Ikea Generation."
While Ikea hasn't said so directly, company officials have implied they're tired of corruption in Russia. Samara regional authorities, they say, are creating artificial obstacles, such as a requirement that the mall be able to withstand near-hurricane force winds, even though there's no history of such weather conditions there. In an interview with the German paper Handelsblatt, Kaufmann said a Samara official had suggested a particular local construction company could "quickly help" fix the alleged deficiencies.
Samara authorities reject the notion that the delays are linked to corruption. "To say the government is creating artificial barriers is an invention," says Gigibulla Khasaev, economic development minister for the region. He says Ikea has refused to correct numerous defects and has gone public with its complaints to "distract attention from its own poor work."
This isn't the first time Ikea has run into trouble in Russia. In 2004, executives were outraged when local officials forced a last-minute delay in a Moscow mall due to alleged safety concerns. The problem was solved only after Ikea kicked up a fuss and appealed to President Vladimir Putin. And founder Ingvar Kamprad told Swedish radio on June 20 that over time, Ikea has been "swindled" out of $190 million in recent years because Russian utilities had failed to provide electricity as promised.
Despite those complaints, many expect Ikea's disillusion will prove short-lived. In the past, the company's public griping has attracted the attention of officials concerned with Russia's image abroad, who have intervened to smooth over problems. But for other investors, the Ikea affair may well serve as a warning that Russia's byzantine bureaucracy remains a formidable roadblock. "Investors need dozens and dozens of approvals from an incredible number" of agencies, says Evgeny Kovrov, a researcher at retail consultancy Magazin Magazinov. "That provides for unlimited corruption opportunities."