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Ikea faces cultural challenge as flat-pack empire expands

Richard Milne
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Source: Ikea

When Ikea entered the US in a big way in the 1990s, its executives were bemused by the number of vases they were selling. Slowly it dawned on workers at the Swedish retailer that Americans were buying them not to put flowers in, but to drink from: the European-style glasses Ikea stocked were just too small for US tastes.

That cultural misstep – along with others such as mattresses that were too hard and measured in centimeters, not king or queen size – was soon corrected. But the tension between the Swedish heart of the world's biggest furniture retailer and its far-flung outposts remains.

(Read more: India clears Ikea's 1.5 billion euros investment plan)

The latest demonstration came last week when French prosecutors placed the company and its two top executives in the country under formal investigation over spying allegations.

The probe is focusing on claims that Ikea's managers in France illegally obtained police records of their employees to check if they had dodgy pasts. According to people familiar with the investigation, it is less concerned with another alleged spying angle uncovered: that Ikea may have used private detectives to check up on disgruntled customers.

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Ikea itself says it is committed to finding out exactly what went wrong and putting it right. But the investigation – and a number of other controversies involving the flat-pack furniture group around the world – highlights the challenges for Ikea as it aims to double its revenues by 2020 to €50 billion by growing rapidly into new countries such as India and Egypt.

Founded in the small town of Älmhult in a province known as the Bible belt of Sweden, Ikea has maintained a strong culture rooted in that thrifty and moral background. Co-workers, as Ikea calls its staff, are recruited heavily on values and beliefs rather than purely skills or experience.

Visitors to Älmhult are sometimes unnerved by what former Ikea executive Johan Stenebo has described as a cult-like atmosphere: the Ikea hotel in the town has two bedside books, the Bible and an Ikea catalog.

Ikea's founding tract in many ways is the 1976 manifesto of its founder Ingvar Kamprad, "The Testament of a Furniture Dealer". It contains slogans such as "Expensive solutions to any kind of problem are usually the work of mediocrity", and "Only while sleeping one makes no mistakes".

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The culture has certainly contributed to Ikea becoming one of the most successful retailers globally, avoiding some of the severe problems companies such as Walmart, Carrefour and Tesco have experienced in their efforts to expand internationally.

But both current and former executives question if the Swedish group will be able to keep that culture intact as it expands into ever more countries and ups its number of store openings.

It is not just in France that Ikea has had problems recently. In Russia it fired two senior executives in 2010 for tolerating bribery. More recently, it has faced criticism over its literature by airbrushing women out of its Saudi Arabian catalog and excising an article on a lesbian couple from its magazine in Russia.

More from the Financial Times:

French authorities investigate Ikea
Sweden's Ikea sticks by growth targets
Tidy sum found hidden down back of the sofa

Senior Ikea executives acknowledge that adapting the company's culture to national norms is a huge challenge. Controversies such as that in France offer good potential for lessons, they add.

Ikea was rolling out a new global code of conduct at the time and implemented it in France first with exercises with all employees. It also put in a new legal department, risk manager and compliance rules in France.

Similarly, with its product range Ikea is imposing a slightly less one-size-fits-all approach. Most of its furniture is the same whether in the Dominican Republic or China, but there are a few country-specific products where it makes sense. Store managers also have the freedom to arrange the example bedrooms, kitchens and living rooms on the top floor of Ikea shops as they see fit, taking into account local sensitivities.

(Read more: Housing shortage threatening this European bedrock)

Mr Kamprad and his former assistant, Ikea's new chief executive Peter Agnefjäll, seem more aware of the dangers than most. The company still aims to increase the number of store openings from what Mr Agnefjäll describes as a record low last year of five. But it has abandoned a plan to up the pace to 20-25 a year, a speed that worried Mr Kamprad, who favoured 10-12.

Many older Ikea managers remember the indigestion that followed previous expansion drives such as the one into the US.

The prize of getting access to the wallets of the growing middle classes in places such as India and China is a big one for Ikea. But it needs to ensure its southern Swedish values are not compromised to get there.