There was an article in one of our national newspapers this weekend that shows how deep the corruption goes. A huge investment company, with 4 billion in assets, was unwilling to pay up and was driven out of business. Several government officials committed fraud to the extent of 290 million dollars (seizing taxes the company paid to the Russian government) and despite sending different parts of the government piles of evidence, no one did a thing.
One thing was clear from that article that should be clear to everyone here: Russia is not a good place to do business these days. Your competitors are the government are the criminals.
Well, you know why they still do business here?
The answer is M O N E Y.
So, they bribe to make it happen, thus feeding the corruption loop, and don't see any problem with that! Until they do. Then, they brag the "ikea generation" crap in newspapers.
If you need to pay bribes, you need to raise your prices to still make a profit. Your customers, i.e. you, need to pay more. Corruption hurts the population of a country, as every cent comes directly out of their pockets. That is partly why people in properly democratic countries have, and keep, a higher standard of living.
It's much worse. The cost of bribes is bigger then the actual sum, and incomparable for the economy as a whole.
A bribe-based economy has very high barriers of entry, especially when the main client in your industry is the state. Which means low competition which means... lots of bad things.
> Well, you know why they still do business here? The answer is M O N E Y
I thought this was quite insightful. No matter how bad the conditions, there will be companies willing to make a profit there. After all, the choices are enter the market and make some money, or don't enter the market and make none. And Russia is a _big_ market, therefore a potential profit hard to dismiss.
This all means the system there will not run out of fuel very soon. It is less productive though, but their natural resources will probably make up for it. The biggest loser is the population. I read recently in a study of happiness per country Russia is very near the bottom. But as long as there are enough money to move the wheels, the system will go on.
What you described is unethical but quite a rational strategy in a corrupt political system. Pay up as long as the bribes are tolerable, use political leverage otherwise. Add a risk bonus (and bribe bonus) to your prices.
That is exactly something to be expected from a corporation. You don't expect corporations to take the moral high ground and heal Russia's political system at the expense of their own profits?
With respect to corruption there's bad news and good news. The bad news is that only Russian people can do something about it. The good news is that Russian people can do something about it.
"These days" as opposed to which days? Yeltsin days? If this is what you meant, then this is sneaky of you (perhaps unintentionally so), because you are offering political opinion, which is wrong, and which I may not refute on this site because of its political nature.
Corruption is a fact of life in Russia--almost a natural law--and has always been. If you find this distasteful, then don't do business there. Ikea has known this from day one. Everyone who has ever dealt with Russia since the Iron Curtain was bound to find out on day one. This article is a move in a chess game, and both sides (in fact there is probably a handful of sides in this one) are on exactly the same ethical ground.
Interesting if you're interested in minutiae of Russian politics, but otherwise business as usual.
I don't think it was a retrospective statement. I think he meant "these days" as opposed to days in the future, where Russia is less corrupt than it always has been. Saying this is political opinion is a straw man argument.
Problems like this seem to be endemic to Russia. Not only is corruption extremely common, but outside investors also have to worry about the government basically taking their shares and selling them to Russian companies, leaving them with nothing to show for the money they invested.
The article makes the implicit claim that IKEA does a favor to Russians by selling them stuff and not Russians do by buying the stuff. I'm not saying the opposite just that this is not as obvious as the article makes it sound. It says that they invested x billions of dollars. Obviously they are planning to make a profit, so on the net money will leave the country due to their presence. If I understand correctly they want to open retail stores not manufacturing plants. Did I miss some finer point ?
In theory, trade only happens when it benefits both parties. I might hate the local Exxon selling soda for 2$ a bottle, but I can still buy it at other stores. The only reason you complain is they are charging you for the amount of effort they save you and not their costs.
So, opening a store is a net gain, as is investing 4 billion in the economy. In theory.
Of course state protectionism might help local furniture manufacturers to catch up and grow their own business and that might actually benefit the Russian economy even more. Perhaps the legal, administrative burdens are there with a purpose, or maybe I'm reading too much into it...
Protectionism is bad. It doesn't benefit an economy. It can benefit the protected industries short term as well as the people they bribe to get the protection. But overall it is bad.
Trade happens when both parties think it benefits them. If one side gets fooled and screwed enough, it should stop. If that one side is the government, it may not, since it is paying with someone else's money.
So are you suggesting that IKEA is in the philanthropic business of propping up developing countries? At a loss, they will provide local workers with employment, will hire local construction companies to build unneeded crap just to help them out? Really?
I know a large part of IKEA's corporate structure is a non-profit organization, but trust me, that is only to evade taxes.
This is a giant corporate entity vs. a giant corrupt government. IKEA is complaining against the complicated bureaucratic nightmare that Russia set up so that it would be easier to extract bribes from companies like IKEA. _Technically_ IKEA is one breaking some local construction safety rules. Somehow I don't see Russians re-writing their crappy laws and regulations to suit IKEA. They might let IKEA ignore some of them... but that is exactly where the bribes come in ;-)
So far IKEA is going about it the right way -- shaming Russia on the international level.
IKEA does not have to be "in the philanthropic business" to benefit the countries in which they have operations. The fact that they make a profit does not preclude other people (the landlords, contractors and employees in the post you replied to, among others) from benefiting. Economics is not a zero-sum game. Wealth can be created. More at http://www.coyoteblog.com/coyote_blog/2007/04/wealth_creatio...
Sure, but on the whole they make a profit, so the money they take out of the country will be more than what they bring in the form of products, rents, wages, etc. or otherwise they would go bankrupt.
I'd just like to take the time (and the modding down this comment will probably get) to thank HN, simply because this article has been posted for more than 4 hours and nobody has yet made an "in soviet russia" joke.
Ну и пусть пиздуют со своим китайским барахлом ломающимся.
Seriously: you want to have a business in the country, a profitable and fast-growing one, yet you have complaints about the process. I guess, either shove it or leave.
In Moscow, there was an accident when an aquapark full of people collapsed due to bad engineering and construction, too. So, maybe those delays aren't just corruption?
Also: In South Korea, there's a history of mall collapsing under its weight due to poor engineering and exploitation;
The bottom line is: If it would be corruption alone, they'd bribe and move on; they're huge. So, it's not just corruption.
And as of stopping investments, maybe they're just out of money in their Sweden?
"The retailer has become such an icon of Russia's boom that today's yuppies are called "the Ikea Generation.""
This is crap, never heard anything remotely like that.
Perhaps stop making things up?
Why does one have to accept the practise of corruption, to have a profitable and fast-growing business, as you seem to suggest?
With your reasoning, we could put forward that maybe the Moscow accident was caused by corruption: the builders paid off the inspectors to save on building costs.
The bottom line is: Ikea and Ingvar Kamprad has stated several times that they will not accept the Russian business practise of corruption. This is one of the reasons why some of Ikea's new locations have stood unopened for years, while waiting for permits from local governments (read: while refusing to pay bribes).
Может тебе сам перестать придумывать вещи, и посмотреть в зеркало?
Well, you can either accept "practice of corruption" or circumnavigate around in some way, or not have a business.
About the Moscow accident; I'm sure it was, partly. But I don't see how is this fact going to help if their mall in Samara has safety problems, indeed. If it doesn't, as I've told, they have their three choices.
In short: I DO think there's a problem with corruption in Russia; I just DON'T see a problem with IKEA packing its bags and leaving.
There is an easy argument to make that they are a net destroyer of taste and destroy culture. I am not certain, personally.
But as a business, IKEA is as serious as a heart attack and is a competitor that seems unbeatable; an inspiration for all.
IKEA builds and manage an incredible amount of stores everywhere -- without any serious security problem. I've never read any article that IKEA complain about bribes in other countries.
Be grateful that the company risks billions of dollars by becoming unpopular among violent criminals like Russian politicians. It is bettering your country; economists claims that corruption destroys a country.
You don't help your suffering country by defending your politician-thieves, which even makes the politicians of my home country seem mild.
(Sorry for wasting space by beating a dead horse.)
I think it will have noticable consequences when IKEA has to go, because this is not an isolated case. What kind of a signal does that send to other investors?
Downmodded for profanity. I'm another Russian here, and would rather the site stayed civil.
Back on topic, I'm inclined to take the article on face value even though it doesn't provide much evidence, because the situation as described doesn't sound at all unusual. Whether IKEA is a good or bad company is utterly irrelevant to the discussion of bribery.
Because you so obviously are more interested in spreading libel and doubt about those who put forward critique of Russian corruption, than to actually analyze the subject matter in a civilized manner.
If you really care about Russia, start acting better than those who libel Russia. That means, don't libel back.
Your "truth" is based on what, you being Russian? "I will be in Samara" in your only argument. You didn't provide any data on furniture sales, no references to the "fact" that IKEA put local stores/factories out of business.
Well, I'm Russian too, and your comments are totally wrong. I can say my arguments after I hear yours.
Finally, cursing on HN (even in Russian) doesn't make you sound good.
Well, did the article provide any data on how much are they expected to bribe, in $, and how good their mall building is? No, instead we've seen some bashing. It's okay to bash, it's okay for me to troll.
Face with it: IKEA drains money from the country (is that called investments) and also their offerings are crap.
Maybe it's just my experience; Тёмочка praises them. However, my experience is that you should only go there for tasty фрикадельки.
This is a common misconception and almost certainly wrong; you may need to brush up on your knowledge of economic theory if you harbour such fallacies. Perhaps start with comparative advantage:
The problem with comparative advantage is:
For what products do Russia have comparative advantage? Besides oil, because being an Oil banana republic suck, and also all kinds of banana republics gravitate towards corruption and despoty.
If we'll find that we don't have comparative advantage over China in all manufacturing, we have two choices:
- Ruin all the country manufacturing and hope for economical tooth fairy to save us
- Fotrify economy against comparative advantage by introducing tariffs on imported goods.
It's noble and cool to think that every country have its own comparative advantages, but, some don't. In this case you either lose your manufacturing entirely, or defend it.
Give me a break. Russia has huge natural resources, a large aerospace and military industry, and a promising if undeveloped IT/maths/science sector. The possibilities and potential is endless.
There are plenty of things highly skilled Russians can and should be doing rather than making crappy, expensive furniture. But you know this, of course. This is what every other country does.
And there are plenty of other countries which earn the bulk of their foreign currency in commodity exports, mine included, and it's not a hotbed of corruption. In fact, minimising corruption can be a comparative advantage in itself.
"In this case you either lose your manufacturing entirely, or defend it."
Who would want to defend their furniture manufacturing capacity!? Yes there are strategic industries you can make a case to defend. But furniture? "Mr. President, we must not allow... a furniture gap!"
Anyway, if you're going to protectionist your way to the poor house, at least do it legitimately as part of a top level economic strategy. Local corruption is absolutely not the way to enforce a tariff.
Thanks for mentioning that theory, yeah I'd heard about it.
I don't really buy it, though. It strikes me as being too cute by half and I can think of any number of counterexamples. For example, Norway, Canada and Australia have immense resource wealth per capita and no-one would say they're bad places to live. And Canada has 3x Russia's oil reserves, with 1/5th the population!
I think resource wealth is just a multiplier. If you have a bad government, it can make it even worse, but with good management it can provide a useful flow of income.
Well, I don't know about Canada but in AU there's a mining lease fee, then corporate and income tax, then ownership restrictions (majority local ownership of shares). The government certainly gets its pound of flesh, in fact we're running our first deficit in 15 years mainly because commodity income is down, heh.
But yeah, good point on being a democracy before the money started to flow. That might indeed be the key. Resource income enables an otherwise uncompetitive, poorly-run country to keep its head above water, and sustain the worst sort of government even in the absence of advanced industry. And Russia is certainly pumping its oil as fast as it possibly can.
Who knows though. A bit of oil money would probably help North Korea. At least they'd have something to trade, some link to the outside world, some foreign currency to buy food. That's what I don't like about nice neat theories like that - they try to simplify the inherently unsimplifiable ..
You could mangle/simplify the "resource curse" theory:
1. Liberal democracy. Economy works more or less, so the leaders have lots to stea.. tax.
2. Dictator. Most everything, including citizens, belong to the dictator. Bad economy and dangerous, since dictators must have external enemies (so all complaints are treason).
3. A country with natural resources. There is no need for leaders to go to 1, since there is enough to steal anyway. Keep people down and fill the Swiss account as long as possible.
This categorization explain why democratizing has gone up for a few decades.
Model "1" generally gives more to steal for the politicians, even though they can only get part of the country. "2" is the only alternative if most people (would) hate the dictator if they got free media. See North Korea. Iran is an obvious example of model "3".
(The only country I can mention that doesn't fit the [broad] categories is China, but they start far back so give them time.)
Point is, oil would help NK's dictators but not anyone else.
Money aren't the problem when you sit on a sea of oil.
However: employing 140M people is a problem; distributing those money between regions is a problem; not turning into banana republic is a problem (already failed that one).
Those problems can be, to some extent, solved by having manufacturing intact and working, if slightly inefficient.
I'm not saying it's only about furniture. This question is probably orthogonal to the whole IKEA discussion. Sorry :)
"Today we order $50m of furniture here from Russian factories. In the future want to buy at least ten times that amount," said Dahlgren." -- http://news.bbc.co.uk/2/hi/business/1836004.stm (2002)
There are over 30 Russian factories working for IKEA. How does this correlate with your theory of IKEA killing local factories?
And as of their "investments". Those "investments" just build huge malls that sap away money and life from small busines and local furniture making factories, instead introducing a wave of cheap Chinese crap. Why care? Such investments aren't life-savers for anything.
Not only that, but it creates jobs, helps the economy by supporting the major logging industry in Russia (a sustainable industry if done right) and improves the lifestyles of normal Russians, among other...
It does. But I don't think they deserve some special rights because of that or because of their size; that is, a right to use corruption (when trying to do something questionable) and blame corruption (when it gets in their way) at one time.
As for improving the lifestyles, you'll soon realise that cheap chinese wares don't improve the lifestyles that much. Cheap, but ugly and non-durable.
Because every big corporation uses corruption unless proven otherwise.
Sorry.
Especially global corporations are known for doing it in less economically developed countries to own them as they wish. Example is South America: there were some wars, even, growing out of conflict between two American oil corporations.
You as a Russian should know better than to generalize about others, in the same way Russians are being unfavorably generalized elsewhere. It just makes you look as bad as them.
Well, doesn't it seem strange to you that they SUDDENTLY discovered that there's corruption.
There's two branches:
- It's really the first time they ran into corruption; it would be a cool fairy-tale, but neither I nor you beleive this.
- They managed to get along before despite corruption. Which means that either corruption is not so much severe (they managed to open and operate successfully and profitably, on a large scale), or that they used that corruption (bribed).
Now you can say that there's good bribe and bad bribe (first for doing legal things, second for questionable), but it's bribery in either case.
Do you see the title of the original article: it includes the expression "fed up". It implies they have been fighting corruption issues before, but until now managed to stomach it. Now, however, they are fed up with it, resorting to going public. See?
This is an attitude that I see more out of writers from countries with corrupt governments. Perhaps it's a way of trying to justify your own country's problems, rather than working to fix them?
Well I'm sure that if Russian furniture is so fine and good value for the money, it will have no problems competing with Ikea on domestic or international market (and that is a big if). Or do you want in your absurd hatred of Ikea to ban it from the market, even though normal people like me for example would prefer it (I have several Ikea products that are just fine and are several years old). Anyhow, I don't see what you are arguing for, limiting the marketplace and imposing your will on what people actually what? First you argue for suck up to corruption or leave, now this... I admit, it's very tempting for me to give now a quick generalization of your statements as a reason for current economic status of Russia, but I won't because that would be also stupid.
I argue that IKEA uses "free press" as a lever to get whatever it wants from government, for cheap.
Then I say that if we don't like IKEA that much, we shouldn't buy into that.
Are you implying Ikea would want anything else than normal, civilized treatment from local authorities? If not, why on earth would Ikea need to slander the local government for anything? I'm sure this is not the kind of publicity either one wants.
Maybe they want normal, civilized treatment. However, they do some serious bashing in process of acquiring that, so I did some bashing too.
And! I didn't want anything besides normal, civilized treatment, too!
Makes it an interesting social experiment.
The question is: Is their "bashing" of the local government justified? Is your "bashing" of Ikea justified?
To me it seems Ikea is not in this for any political games: it wants to make business, within moral codes it has set up for itself, that should be reasonable to everyone, even you. You on the other hand seem to be in this out of hurt national pride. That is not an argument as compelling as the first.
It is not difficult to understand that Russians do have a hurt national pride, looking at recent history. But don't take it out on Ikea - they're not the one at fault here. Take it out on the corrupt local government. That would be more constructive, and even build up some credit with Russia's current skeptics.
Ikea would interest us as a company trying to do business without paying bribes in Russia. No matter what the quality of its products, it does not deserve to be extorted by corrupt authorities. So don't mix up the quality of its products with the corruption issue.
Sounds like you think the world is Russia. If you ever get a chance, try exploring the corporate culture in another country, say, Sweden. You will be amazed at how many things you assumed to be universal actually are characteristics of Russian corporate and government culture. This includes rampant corruption in large corporations and government.
What bothers me with the attitude of neo-patriotic Russians under Putin (which you seem to represent well) is that it considers the logic of "everyone cheats, therefore we can too, even so bad that it goes off the charts" valid.
One thing was clear from that article that should be clear to everyone here: Russia is not a good place to do business these days. Your competitors are the government are the criminals.