Bed, Bath & Bribes

IKEA's struggle to do business in Putin's Russia.

BY ALEXANDER OSIPOVICH | SEPT. / OCT. 2010

A media frenzy ensued. Newspapers around the world ran articles sympathizing with IKEA's plight and criticizing the Khimki authorities. Under pressure from his higher-ups, who worried about the damage to Russia's reputation, Strelchenko finally called Dahlgren into his office and said the Mega Mall could open its doors.

IKEA has been remarkably persistent in the face of such difficulties, investing $4 billion in Russia to date and opening a dozen stores throughout the country. But lately the company has shown signs of wearing down. Last year, it announced that it was halting its expansion plans in Russia because of trouble with bureaucrats. (Notably, officials in the city of Samara had prevented a store from opening because they said its walls could not withstand hurricane-force winds, though such weather conditions are virtually unknown there.) And in February, IKEA's squeaky-clean image took a hit when it fired two senior executives for tolerating the paying of bribes to a Russian subcontractor.

Throughout his time in Russia, Dahlgren kept searching for farsighted officials who could grasp the value of working with a big foreign investor like IKEA. He got help from some colorful characters, including a mysterious man whom Dahlgren suspected of being a former KGB agent. He once showed up at Dahlgren's office carrying an odd device with glowing lights. "Lennart, do you know your office is being listened to?" he asked. Then he pushed a button: "Now nobody can hear us."

Dahlgren's book made a splash in Russia this year after a selection of juicy excerpts was published in various magazines and newspapers. For those familiar with the struggles of Russian entrepreneurs, the book was further proof of a grim reality. "It is clear from this book that many here are not especially concerned about our country's attractiveness to foreign investors," Kommersant business daily dryly observed.

There will likely be more books documenting the grip that corruption holds over life in Putin's Russia. But until the Kremlin is ready to open up society, allowing a free press and genuine opposition parties to criticize government graft, whistle-blowers like Lennart Dahlgren are unlikely to have much impact. And bribery will remain just as omnipresent in everyday life as IKEA furniture is in the apartments of middle-class Russians.

Eric Feferberg/AFP/Getty Images

 SUBJECTS: RUSSIA, BUSINESS, CORRUPTION
 

Alexander Osipovich, formerly a reporter for Agence France-Presse in Moscow, is a Knight-Bagehot fellow in economics and business journalism at Columbia University.

KERZHA

12:15 PM ET

August 16, 2010

It has nothing to do with

It has nothing to do with Putin's system. Corruption is in the blood of Russians.

 

CONST_VAN_G

8:24 AM ET

August 17, 2010

Corruption is in the blood of

Corruption is in the blood of "Homo Sovieticus", not Russians. It's a two different nation !

 

NEWHORIZON

9:00 PM ET

August 18, 2010

"Homo Sovieticus"

So true.

For a Ukrainian example, google for: donetsk decorative plants business - and click the first match. A business owner appeals to the Ukrainian president to help fend off a competing business who harasses and sabotages his business.

 

SHADOWLEGION

2:06 PM ET

August 16, 2010

In the blood?

It's like saying that all Americans are fat, French - rude and Puerto-Ricans violent - all it does is perpetuate a stereotype. It is not a question of nationality, but of access to power - US had it's own share of corrupt dealings in the early 20th century, between powerful businesses and government oficials - Russia is about 100 years behind in the development of market-based economy.

 

DKJACK

12:41 PM ET

August 19, 2010

Here's how media can help.

Russian media must begin relentlessly beating the drum that things won't get better until people start paying their taxes and the state starts enforcing collections.

Russian corruption is directly related to the state's abysmal failure to collect taxes. Because of structural inefficiencies, tax evasion and "diversion," revenues, which all Russians, including the oligarchs, are subject to, don't make it to state coffers to pay the bureaucracy. Meanwhile, the grossly underpaid bureaucracy must supplement their income by making their offices proprietorships.

The rantings of tea partiers and their GOP panderers notwithstanding, the story of civilization has been the story of getting citizens to pay their taxes.

 

ADAMGARDNER00

2:45 AM ET

August 20, 2010

Illegal acts...

Illegal acts of authorities governing a country are the main reason why most country remained to be at a very depressed status. On the other hand, we must choose the right people in order to see some changes in the government.Adam Gardner

 

NAIUY

7:19 AM ET

September 15, 2010

A business owner appeals to

A business owner appeals to the Ukrainian president to help fend off a competing business." Search for m2ts converter ? flv to wmv converter. Hulu Downloader The fact that the government hires militias like the Salwa Judum to spy and intimidate ordinary people is clearly a prescription for disaster. How can any civilized government justify empowering militias to hunt and kill fellow citizens.