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Why+IKEA+is+Fed+Up+with+Russia - Why IKEA is Fed Up with...

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Unformatted text preview: Why IKEA is Fed Up with Russia - BusinessWeck Page i 0152 NEW BUSINESS July 2 2009. 5:00PM EST Why EKEA is Fed Up with Russia Bureaucracy and red tape have the Swedish furniture giant holding back on further investment By Jason Bush MOSCOW ~ The Web site for the Mega~Sarnara mall sports a banner that screams "OPENING Soon!" The problem is. no one can say just how "Soon!" the public will be abie to enjoy the 1 4 million~square~foot rnail’s skating rink, restaurants. and 200 shops The owner, Swedish furniture giant ikea, says the mail has been ready for more than a year But local government officials say the facility violates numerous safety reguiations and other rules The delay appears to have been the last straw for litea On June 23 the retarter said it was putting on hold ati new investment in Russia tkea‘s Russia country manager. Per Kaufmann. said in a statement that the decision was "due to the unpredictability of the administrative processes in some regions." specifically Samara While Kaufmann says Ekea hopes to complete a handful of projects under way. plans for an additional 30 or so stores have been postponed it's a remarkable about~face for lies The company—among Russia‘s iargest foreign investors-has plowed some $4 biition into the country since opening its first store in 2000. Samara is its 12th outlet, each anchoring a mail with hundreds of other tenants The retailer has become such an icon of Russia's boom that today's yuppies are called "the lkea Generation " While lkea hasn't said so directly, company officials have implied they’re tired of corruption in Russia Samara regional authorities. they say, are creating artificial obstacles. such as a requirement that the mall be able to withstand near~hurricane force winds. even though there's no history of such weather conditions there in an interview with the German paper Handelsblatt, Kaufmann said a Samara official had suggested a particular locai construction company could "quickly help" fix the alleged deficiencies Samara authorities reject the notion that the delays are linked to corruption "To say the government is creating artificial barriers is an invention,“ says Gigibuila Khasaev. economic development minister for the region He says tkea has refused to correct numerous detects and has gone public with its complaints to "distract attention from its own poor work " This isn't the first time lkea has run into trouble in Russia. in 2004, executives were outraged when local officiats forced a last— minute detay in a Moscow mall due to alleged safety concerns. The probiem was solved only after Ikea kicked up a fuss and appeaied to President Vladimir Putin And founder ingvar Kamprad told Swedish radio on June 20 that over time, litea has been “swindled” out of $190 mitiion in recent years because Russian utilities had failed to provide electricity as promised. Despite those complaints, many expect ikea‘s disiiiusion will prove short—iived In the past. the company‘s public griping has attracted the attention of officials concerned with Russia's image abroad, who have intervened to smooth over probiems But for other investors. the ikea affair may weil serve as a warning that Russia's byzantine bureaucracy remains a formidable roadbiocit "investors need dozens and dozens of approvals from an incredible number" of agencies. says Evgeny Kovrov, a researcher at retail consultancy Magazin Magazinov. ”That provides for unlimited corruption opportunities." With Kerry Capell in London flush is Businessl/Veek‘s Moscow bureau chief http://www.businesswcek.com/print/magazinc/contcnt/O9_2 8/134 1 39033 326721 ,htrn ._.- 8/20/2009 ...
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