IKEA detector test

Yuriy Kulikov
23:00, 11 March 2016
474 0

“IKEA is coming to Ukraine," that’s according to a March 2005 announcement of the then Kyiv mayor, Oleksandr Omelchenko, who promised that the first store of the company selling furniture and household goods will be significantly bigger than that in Warsaw and other European capitals.

Over the past 11 years, plenty of officials at different levels forecast the imminent entering of the Ukrainian market by the Swedish retail chain with democratic prices. However, IKEA never came, and, most likely, neither will it do so in the near future. Rather, the comfortable Swedish-made furniture and many other products of this brand seep into Ukraine only through the efforts of the Polish-based and other foreign IKEA stores.

This company does not operate in countries with high level of corruption

Popular desire to see the Swedish retail chain in Ukraine has turned obsessive: IKEA is reported to top the list of the world’s most coveted brands that are still missing officially in the Ukrainian market. Public opinion shares several reasons why the Swedes keep ignoring Ukraine.

Among the main ideas is that the company does not operate in countries with high level of corruption. Besides, the Swedes allegedly lost interest in Ukraine due to the devaluation of the hryvnia, a sharp decline in living standards, and a lack of market prospects.

The failure of IKEA’s Ukraine project is instructive. This example contains all the elements: stupidity and greed of Ukrainian officials, untimely business decisions and the mismatch of the European and Ukrainian business mentality. One more thing is the unrestrained desire of local officials to profit, if not from the actual investment project of the Swedish furniture seller, but at least from creating an "IKEA Fata Morgana.”

IKEA’s original plan to open the first store on the Ukrainian soil 10 years ago tripped over the artificial obstacle over granting the land parcel in a Kyiv suburb. The company then tried to switch its focus to Odesa region and launched negotiations into the purchase of land. Ukrainian officials were all into joyful comments to journalists at the time that the stores are also to be opened in Kharkiv and Dnipropetrovsk. Really, how great it would be for the local governors and mayors to have the long-awaited IKEA in their regions and cities, besides Kyiv!

But everything was just a myth. The promised multimillion-dollar investment never came to the said regions. In 2010, the company announced it terminated the search of land to build stores that would make many housewives happy.

Ukrainian officials were all into joyful comments to journalists at the time that the stores are also to be opened in Kharkiv and Dnipropetrovsk.

On one day in 2012, then-Minister of Economic Development and Trade Petro Poroshenko was assuring a  group of economic journalists, including myself, that the arrival of IKEA in Ukraine is a matter of the near future.

Well, this just didn’t happen. The Revolution of 2014 and the Russian military intervention in Crimea and Donbas that ensued removed the issue from both the public focus and the company’s investment agenda.

But it took little time for the new Ukrainian officials to restart the talks about possible fulfillment of the Ukrainians’ dream. In the early summer of 2015, the national media actively discussed the statement made by Deputy Chairman of Kyiv City State Administration Ihor Nikonov over IKEA allegedly eyeing the purchase of a 40-hectare parcel of land for its first Ukrainian store on the outskirts of Kyiv, near a busy highway.

A few days before local elections late October 2015, First Deputy Head of Kyiv Regional State Administration Leo Partskhaladze recalled the “dream” and vowed that the administration would seek IKEA’s entry to the Ukrainian market.

"The Regional State Administration has sent its proposals to IKEA. We are also trying to influence the position of the company's management through the Swedish Embassy in Ukraine,” Partskhaladze said. According to him, the company owners’ opinion is influenced by the negative experience of previous attempts to come to Ukraine, and therefore, the regional authorities should put efforts into convincing the owners of the company.

"IKEA will be a landmark for the actual state of affairs in Ukraine. That’s because it is a litmus test. If IKEA or, for example, McDonald's, or Metro come, then the attitude of investors changes," Partskhaladze said.

Similar thoughts were voiced by Minister of Economic Aivaras Abromavicius in an interview with the Sweden-based Dagens Industri: "We hope that IKEA will open a store [in Ukraine]. And it will be an important symbol due to the good reputation of the company and the fact that the investor did not pay bribes," said Abromavicius.

We will likely never know whether the Ukrainian officials have demanded bribes from IKEA in the period since 2005. It is not really important for domestic buyers. Most of them are interested in a more relevant question, whether the new Ukrainian authorities pass the so-called IKEA detector test.

I admit that some skeptical buyer might ask whether there is in fact such notorious Swedish anti-corruption detector, which was presented to us 11 years ago… Maybe it's some Fata Morgana?

Established in 1943 by a 17-year-old Swede Ingvar Kamprad, by the second decade of the XXI century the company has become one of the world's largest retailers, owning 381 stores in 47 countries. In 2015, 884 million people visited the stores of the group, leaving the equivalent of EUR 34 billion at the cash registers. The very name of the group is an acronym of the founder's name and surname, and the name of the farm where the successful Swede was born: Ingvar Kamprad Elmtaryd Agunnaryd.

Today, the group successfully makes money across the world, including in Russia (136th place in Transparency International ranking of the world’s most corrupt countries), Dominican Republic (115th), Egypt (94th), Thailand (85th), Bulgaria (69th), Turkey (64th). Moreover, in many of these countries, the group is mulling multibillion-dollar investments in the development of its networks in the next few years, and in some other untapped markets it is considering expansion.

So, IKEA’s priority might not be the level of corruption, but rather the ability to comfortably make money in particular local markets.

For over ten years, we haven’t managed to seal a deal on land purchase for the project the people wanted.

With the average monthly salary of full-time employees at $160 after a threefold devaluation, Ukraine is still far from meeting these criteria. Probably, that is why IKEA HQ has not replied to any of the two UNIAN requests sent early March to comment on the company’s position on the prospects of the Ukrainian market in 2016.

Last year, we received a brief formal reply that IKEA group of companies did not intend to develop their stores in the Ukrainian market. I suggest, IKEA officials now believe they should not waste time on the obvious answer.

Unfortunately, we have missed your chance. For over ten years, we haven’t managed to reach a deal on land purchase for the project the people want. Now there is plenty of cheap land, but the buyer is not interested any more. Traditional situation for us is when good ideas come too late.

And meanwhile, IKEA is trying to wash away accusations of fraud. MEPs from Green - the European Alliance faction  accused the company of evading taxes worth over EUR 1 bln since 1991. According to the deputies, IKEA avoided payments on part of its income via its Dutch subsidiary. Representatives of the group called the allegations unfounded. So, will IKEA  pass its own honesty detector? It’s a matter of a separate story.

Yuriy Kulikov

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