“The withdrawal of such a large foreign investor from the Russian market may cause considerable damage to the image of the country.” This is an understatement published this week in Pravda, Putin’s personal PR machine, relating a major, and far-reaching decision by Ikea.
Ingvar Kamprad, Ikea’s founder, revealed that his company had been swindled of $190 million by Russian authorities. Many businesses have pulled out of Russia in the past couple of years, but to have one of the wealthiest individuals in the world make such an emphatic declaration against a country, is a powerful signal that warns others who might venture into the corrupted climate ruled by Putin.
Ikea is one of the largest privately held companies in the world with approximately 300 stores across 40 countries, and it employs over 127,000 people. It’s more than $31 billion annual sales give Ikea a broad reach and clout, yet, it could not find the ceiling of the graft that was required to be paid as it attempted for almost 2 years to open its most recent store in Samara, Russia. Now that 130,000 meter facility will never open. A pioneer in the Russian market has slammed on the parking brake.
Kamprad’s very sarcastic characterization of Russia’s business landscape, “the unpredictable character of administrative procedures,” while almost humorous, is very telling. Businesses and investors know that doing business in Russia means you will very likely deal with either remnants of the KGB, or the mob. Dealing with the KGB provides more powerful and far-reaching influence than buying support from the mob. With the former KGB, you get protection from the highest levels of government.
For giant corporations such as Ikea, size means that the price extracted for doing business becomes an impossible number to cap. The money extraction process is insidious, and because the corporate coffers are enormous, the blood money has no ceiling. Kamprad has finally cried, “uncle.” More importantly, he has done so very publicly. Since 2009 he had made Ikea’s entry into Russia a very personal project. It is entirely possible that this declaration is a temporary stance by Ikea, intended to shake up Putin and his friends into putting a ceiling on the graft payments. Either way, there are no indications that the underlying corruption throughout the system has any hope of finding much-needed repair. Ikea found that, “blackmail, sabotage and pressure for bribes,” as well as disrespect for contracts, became too much.
These are economically difficult times for Russia, as with most other countries. Russia can ill afford declarations such as those made by Ikea and its boss. Such news, of course, means that for the foreseeable future, America will continue to be the safe haven for the world’s cash.
James Raider writes The Pacific Gate Post