Why IKEA Is Fed up with Russia - Dissertation Example

Why IKEA Is Fed up with Russia In a globalised world during the contemporary period, it is possible for various multinational companies (MNCs) to establish business in different countries since globalisation liberalised trade among countries. However, noble as it may sound, the major challenge that is often encountered by these MNCs is the conflicting interest of either totally retaining their own national cultures or adopt the culture of the host country in their business operations internationally. Careful consideration ought to be taken in such a way that adopting the cultural values of the host country would ensure overall success of the organisation while at the same time trying to make a fine balance between retention of their own culture which defines their own identity and the ultimate goals of the organisation. Against this backdrop, this essay seeks to critically analyse the operations of IKEA, which to date has been rated as a highly successful global player. It has however, recently experienced problems in its expansion in Russia (Vasilyeva, 2009). This analysis seeks to critically discuss how IKEA has succeeded in instilling its Swedish ways of managing into its international subsidiaries. Special attention will be given into considering if whether cultural factors have any relevance to its current difficulties in Russia based on Hofstede’s notion of four dimensions of cultural values. Established in the 1950s, IKEA is a Sweden based low-priced furniture distributor which over the years after its inception has managed to internationalise its operations across the globe. Since its establishment, this organisation has always tried to maintain its unique Swedish culture as a competitive advantage while at the same time trying to adapt to other national cultures. For instance, IKEA has been facing a dilemma where it had to deal with maintaining some of the attributes peculiar to the Swedish culture while accommodating others as is with the Russian case. Indeed, it is common knowledge that organisations which operate internationally have to deal with different cultures that characterise the different people of the host nations. These cultures ought to be taken into consideration when communicating and interacting across the nations (Jackson 2002). This organisation in question has managed to make a mark across nations for its unique ‘Swedishness’ while at the same time managing to operate viably across cultures. Hofstede (1980) as quoted in Jackson (2002) derived a theory on cultural values and how they relate to organisational life. In this case, this model is going to be used to analyse the main attributes of Swedish culture on the operations of IKEA. Hofstede’s four dimensions of cultural values include the following: power distance, uncertainty avoidance, individualism and masculinity. Though criticised in some sections, this model has come to be widely regarded as the basis upon which organisations shape the way they operate across cultures in different parts of the world. These four dimensions can be used as yardsticks upon which a country can be ranked in terms of the influence of these attributes on society. In most cases, cultural values define the identity of people as well as shaping their behaviour. It is culture which helps maintain the fabric of the society tightly knit and to a greater extent, it also influences the way organisations operate. Jackson (2002) posits that power distance is the first attribute which is defined as “the extent to which inequalities that exist among people are seen as normal.” Power distance is mainly characterised by the aspect of position and authority which often defines the degree of power an individual possess within an organisation. Those highly paid are often the most powerful and vice versa. The most viable strategy adopted by IKEA is that conditions of the people occupying the same positions have been standardised so as to ensure that the organisation operates as a homogenous entity. IKEA appears to offer pleasant working environment, job security and a caring attitude towards its employees. In this regard, it can be noted that this Swedish organisation has put measures in place so as to ensure that areas of HR practice such as working conditions, training as well as pay related issues are standardised especially from a global scale perspective if the organisation is to triumph. These complement each other and play a major role in determining the success of the organisation particularly in its performance with regards to goal attainment while at the same period trying to meet the needs of the employees. Thus, the human resources approach states that organisational goals and human needs are mutual and compatible: one set need not be gained at the expense of the other (Carell et al 1995). These cases are interrelated and to a greater extent, they affect the functions of the human resources management. This approach has greatly contributed towards mapping the success of Swedish organisations internationally. The second attribute is uncertainty avoidance which is described as a matter of preference for structured situations versus unstructured situations (Jackson 2002). This mainly refers to preference between structured and unstructured situations depending on the company’s comfort level with flexibility versus embracing a rigid structure. According to Jackson (2002), Sweden scored very low on this scale suggesting that there limited measures in place to avoid uncertainty where emphasis is on equality of the workers. Priority is given to the welfare of the people in the organisation in a clear indication that there is less of formal structure in the operations of the organisation. Other countries like France and Spain scored a high on this section meaning that they are particular on structured situations where hierarchical structures define the levels of authority within the organisations. The third attribute is individualism which specifically looks at whether individuals are used to work as individuals or as part of a cohesive group. This ranges from collectivism to individualism where emphasis is put on the interests of an individual person in case of individualism. As is the case, Sweden scores a high in this category with a 71 but America is the highest with 91. Whilst people may work as a group, their individual interests are given priority as a way of ensuring that they positively contribute towards the well being of the organisation as a whole. Where there is also a cordial relationship among the workers, there would be very high chances of successfully achieving the goals of the organisation. It can be noted that in this case, leaders also play a leading role in encouraging the employees to be open and discuss difficult situations they may encounter during the dispensation of their duties which is very helpful to the organisation. The last attribute is masculinity which according to Hofstede (1980), distinguishes “hard values” such as assertiveness and competition and the “soft” or “famine” values such as personal relations, quality of life and caring about the others. In a masculine society, gender differentiation is emphasised. Men are supposed to deal with the facts and women are expected to deal with feelings as well as submitting themselves below the authority of men. In most instances, men are supposed to be identified by the amount of wealth they have as a symbol of status in society. According to Jackson (2002), Sweden has the lowest score in this section scoring a minimum of 5. As already noted above, Swedish organisation prioritise the aspect of equality of all human kind regardless of sex or gender which is one major contributor to its excellence performance even internationally. The workers are treated as valuable asserts to the organisation. Sweden is considered to be low in power distance which means that organisations tend not to be hierarchical and the culture is high in individualism, firminity and low in uncertainty avoidance (Hofstede 1980 as cited in Jackson 2002). From this assertion, it can be noted that the society regards power distance as an acceptable system where the workers can be ranked as equal against the hierarchical setup. The Swedish culture is mainly comprised of three facets mainly love of nature, individualism through self development and equality. The hierarchy level is generally flat. Decision making by consensus is embedded in management practice and co-workers are encouraged to take initiatives. Making mistakes is seen as an aspect of doing by learning where pragmatic problem solving is encouraged (Jackson 2002). This human resources management approach mainly relies on two way communication where the leaders engage the employees in the decision making process by listening to their ideas and suggestions and incorporating them in the organisation’s objectives. This initiative is meant to stimulate employee morale. The main advantage of involving the employees in the process of decision making is that they would have a sense of belonging to the whole organisation. By virtue of engaging the employees in the decision making process, they would feel to be part of the organisation and they would fully contribute towards the attainment of the set goals. This style of leadership would inculcate a sense of collective responsibility where everyone would put maximum effort towards the attainment of organizational goals. This is a recommendable style compared to those that seek to impose authoritarian rule and this has greatly contributed to the success of Swedish organisations. It defies logic to exclude the people who are affected by the decisions made as they ought to be fully aware of the developments that would be taking place since their success would wholly depend on the employees. The Swedish philosophy is based on the notion that there ought to be well defined channels of communication and these should be open to make communication more effective. There should be feedback from both ends to ensure that there is mutual understanding within an organisation. Timely response to communication from both ends would remove the barriers that may exist which can block the free flow of information. Thus, effective communication mainly contributes positively towards the success IKEA in a Swedish fashion. The main advantage is that communication forms the back bone of successful operations of any given organisation. Without proper communication, there would be high chances of conflict and misunderstanding hence efforts should be made to ensure that all the workers are well informed about the developments that would be taking place in an organisation. Communication is effectively used across cultures to create a conducive working environment that is based on mutual understanding among all the people involved. Policies to be implemented ought to be accommodative to a diverse range of cultures. Globalization entails that organisations can operate in different parts of the globe and it must always be noted that there are diverse cultures with different values. Against this background, it can be seen that IKEA is particularly concerned with taking into consideration the value system of the local people in different host countries since these often form the labour pool. In some instances, failure to recognise cultural values of the local people would be dangerous as this would negatively impact on the operations of the organisation. If the policies are not compatible with the value system of the employees and the ordinary members of the society, it may be difficult to implement the organisation’s policies with regards to its operations towards the attainment of its own set goals. Sweden has also managed to instil its ways of managing the international subsidiaries through fair and just recruitment of the employees that is not based on gender or beliefs. The managers are drawn from Sweden and the play a great role in educating the local managers the Swedish character of managing. This is carefully done in such a way that there would be mutual understanding between the locals as well as the Swedish people. The triumph of Swedish organisations is mainly attributed to its careful consideration of the value systems of different people in which it would be operating. Organisations do not operate in a vacuum hence the need to shape their operations according to the cultural values of the people in host countries. Whilst Swedish has managed to score a first in its international operations, it has certainly encountered various problems in Russia to the extent of getting fed up. Bureaucracy and red tape are the major impediments that is holding Swedish furniture giant back from further investing in that country. Having constructed a huge shopping mall, the furniture giant was held back from opening it by the local government arguing that the mall violated various safety regulations. Indeed, IKEA is one of the largest investors in Russia but of late its plans to further expand its operations in the country have been dogged by various administrative issues. The organisation’s authorities allege that the delay could have been caused by corruption where the local authorities seek to give a tender to correct the mistakes on the mall to their favourite construction company so that they too will benefit from the deal. In actual fact, these artificial obstacles created by the authorities have hampered the organisation’s expansion drive and is deciding to stop spending more money on investment. According to Bush (2009), “it can be seen that the IKEA affair may well serve as a warning that Russia's byzantine bureaucracy remains a formidable roadblock to invest in Russia for the other organisation. Bureaucratic structures that obtain on the ground within the Russian setup of business environment are not compatible with the IKEA’s philosophy of conducting business. In a bureaucratic system, there are likely chances of corrupt activities being promoted by the system. It can also be seen that within this system, there type of authority is vertical and the decision making process is mainly confined to the few people on top of the hierarchy within the organisations. Usually, an organisation investing in a particular country has to be guided by the rules and regulations that are outlined in the country’s laws. Even the people employed would be used to their Russian way of doing things hence they would likely to be a bit problem in attempting to condition them to follow the proper Swedish way of doing things. The situation obtaining on the ground in Russia is completely different from the principles of IKEA as far as conducting business is concerned. It can be noted that Swedish organisations are low in power distance which is the direct opposite from the situation in Russia where there are bureaucratic structures which are somehow oppressive to the employees. The organisation emphasizes on the interests of the individuals while at the same time focusing on the goals and objectives of the company. The Swedish way of doing business emphasize that individuals in the organisations are valuable assets and they should be given the autonomy to make decisions which is a bit different from the culture in Russian organisations which are alleged to be ridden with corrupt activities. The environment in a given country can affect the operations of the organisation investing in it in various ways as noted in the given case. Over and above, it can be noted that IKEA, a Sweden based low-priced furniture distributor has over the years after its inception managed to internationalise its operations across the globe. Since its establishment, this organisation has always tried to maintain its unique Swedish culture as a competitive advantage while at the same time trying to adapt to other national cultures. Hofstede suggested through his four dimensions of culture that the aspect of culture plays a very significant role in determining the success of an organisation in an international business setup. Failure to take the national culture of the host country may be dangerous as the risk of performing poorly will be very high if the organisation is shunned by the targeted consumers. In the given case, IKEA has however faced various impediments in the Russian industry owing to the fact that the situation obtaining on the ground is completely opposite to the organisation’s philosophy of doing business. References Bush J (2 July 2009). Why IKEA Is Fed Up with Russia. Available at: http://www.businessweek.com/magazine/content/09_28/b4139033326721.htm Accessed on 11 July 2010. Carrell, R. et al (1995), Human Resources Management: Global Strategies for managing a diverse workforce, 5th Edition, Prentice Hall, USA. Colette P. (2008-11-21). “Cross cultural Management” Available at: http://www.mightystudents.com/essay/Cross.Cultural.Management.61936 Accessed on 07 Jul. 10. Isaksson R & Suljanovic M (2006). The IKEA Experience: A case study on how different factors in the retail environment affect customer experience. Available at: http://epubl.luth.se/1402-1773/2006/162/LTU-CUPP-06162-SE.pdf Accessed on 07 Jul. 10 Jackson (2002) -http://books.google.co.th/books?id=MuVaMzrF86QC&pg=PR12&dq=jackson+t+ikea&hl=th&ei=4WgzTJHCJdDGOJbz4aEC&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDIQ6AEwAg#v=onepage&q&f=false Read More