Ikea’s faces cultural challenge as flat-pack empire grows; Retailer needs to stay true to its small-town Swedish values

November 28, 2013 1:11 pm

Ikea faces cultural challenge as flat-pack empire expands

By Richard Milne, Nordic Correspondent

Retailer needs to stay true to its small-town Swedish values

When Ikea entered the US in a big way in the 1990s, its executives were bemused by the number of vases they were selling. Slowly it dawned on workers at the Swedish retailer that Americans were buying them not to put flowers in, but to drink from: the European-style glasses Ikea stocked were just too small for US tastes.That cultural misstep – along with others such as mattresses that were too hard and measured in centimetres, not king or queen size – was soon corrected. But the tension between the Swedish heart of the world’s biggest furniture retailer and its far-flung outposts remains.

The latest demonstration came last week when French prosecutors placed the company and its two top executives in the country under formal investigation over spying allegations.

The probe is focusing on claims that Ikea’s managers in France illegally obtained police records of their employees to check if they had dodgy pasts. According to people familiar with the investigation, it is less concerned with another alleged spying angle uncovered: that Ikea may have used private detectives to check up on disgruntled customers.

Ikea itself says it is committed to finding out exactly what went wrong and putting it right. But the investigation – and a number of other controversies involving the flat-pack furniture group around the world – highlights the challenges for Ikea as it aims to double its revenues by 2020 to €50bn by growing rapidly intonew countries such as India

and Egypt.

Founded in the small town of Älmhult in a province known as the Bible belt of Sweden, Ikea has maintained a strong culture rooted in that thrifty and moral background. Co-workers, as Ikea calls its staff, are recruited heavily on values and beliefs rather than purely skills or experience.

Visitors to Älmhult are sometimes unnerved by what former Ikea executive Johan Stenebo has described as a cult-like atmosphere: the Ikea hotel in the town has two bedside books, the Bible and an Ikea catalogue.

Ikea’s founding tract in many ways is the 1976 manifesto of its founder Ingvar Kamprad, “The Testament of a Furniture Dealer”. It contains slogans such as “Expensive solutions to any kind of problem are usually the work of mediocrity”, and “Only while sleeping one makes no mistakes”.

The culture has certainly contributed to Ikea becoming one of the most successful retailers globally, avoiding some of the severe problems companies such as Walmart, Carrefour and Tesco have experienced in their efforts to expand internationally.

But both current and former executives question if the Swedish group will be able to keep that culture intact as it expands into ever more countries and ups its number of store openings.

It is not just in France that Ikea has had problems recently. In Russia it fired two senior executives in 2010 for tolerating bribery. More recently, it has faced criticism over its literature by airbrushing women out of its Saudi Arabian catalogue and excising an article on a lesbian couple from its magazine in Russia.

Senior Ikea executives acknowledge that adapting the company’s culture to national norms is a huge challenge. Controversies such as that in France offer good potential for lessons, they add.

The prize of getting access to the wallets of the growing middle classes in places such as India and China is a big one for Ikea

Ikea was rolling out a new global code of conduct at the time and implemented it in France first with exercises with all employees. It also put in a new legal department, risk manager and compliance rules in France.

Similarly, with its product range Ikea is imposing a slightly less one-size-fits-all approach. Most of its furniture is the same whether in the Dominican Republic or China, but there are a few country-specific products where it makes sense. Store managers also have the freedom to arrange the example bedrooms, kitchens and living rooms on the top floor of Ikea shops as they see fit, taking into account local sensitivities.

Mr Kamprad and his former assistant, Ikea’s new chief executive Peter Agnefjäll, seem more aware of the dangers than most. The company still aims to increase the number of store openings from what Mr Agnefjäll describes as a record low last year of five. But it has abandoned a plan to up the pace to 20-25 a year, a speed that worried Mr Kamprad, who favoured 10-12.

Many older Ikea managers remember the indigestion that followed previous expansion drives such as the one into the US.

The prize of getting access to the wallets of the growing middle classes in places such as India and China is a big one for Ikea. But it needs to ensure its southern Swedish values are not compromised to get there.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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