IKEA is not welcomed with open arms in Belarus

The world’s largest trading networks, French "Auchan" and German "Metro Cash & Carry" are looking closely at Belarus. The Swedish Concern IKEA also still has hopes for attempting to open a business in our country (both as a retailer and manufacturer).

Quite a few foreign trade companies would like to work in Belarus, told "the Belorusskije Novosti" the Deputy Minister of Trade Vyacheslav Dragun. According to him, the Ministry of Trade is now actively negotiating with foreign investors interested in Belarus due to the growing consumer market in the country. Particular interested in Belarus show "Auchan" and "Metro Cash & Carry". In addition, regular talks are taking place with IKEA.

The Swedish company, in parallel with the setting up of furniture production in Belarus, would also be interested in building a large shopping center MEGA. It is actively building this type of stores in Russia. A shopping centre would have under one roof about 150 shops of different kind (IKEA furniture store, food hypermarket, mortar store, hypermarket of electronics and home appliances, clothing stores, shoe shops, accessories), as well as indoor skating rink, restaurants and other recreation facilities for the whole family.

The entrance into the market of such a large player would be interesting in the first place for consumers since IKEA brings many famous world companies with it that occupy the areas of the shopping center, believes the Deputy Minister of Trade. However in this way "we are drawing up a tremendous competition for our manufacturers and our own trading network", admitted Vyacheslav Dragun.

Therefore the Deputy Minister thinks there is time for everything: this process must be moving slowly. The state would like to see IKEA using local raw materials, local labour and local equipment. In particular, in the course of the negotiations Swedes were invited to create a joint production at Mozyr MLC. IKEA agree to that. However difficulties came out regarding the land for the construction of a shopping center near Minsk. In the mean time, Mr. Dragun said, there were no obstacles, "they may buy a plot of land at an auction and start the construction". Indeed, IKEA would like to buy the land cheap, but today its price in the Minsk region is the highest in the country and the state is not intending to lose additional revenues.

Investors think that the price of land will be falling, however it is growing, said the Deputy Minister. "When they are ready to participate on an auction they need to review and reconcile their expenses. And this is a long bureaucratic process ", said Mr. Dragun.

In addition, IKEA would like to purchase more than 30 hectares of land near Minsk, while the authorities are ready to allocate no more than 10 hectares. IKEA is also not willing to build a shopping center in other regions of the country, although "the distance from Minsk is only 100 kilometres". “Being a global company, it has its requirements, said the Deputy Minister.

Actually, the concern has common requirements for all countries regarding the construction of its shops. Conventionally, it buys (or rents) plots of land of several dozen hectares outside a city. There also must be convenient transportation routes, due to the fact that most customers will have to transport the disassembled furniture on their own. Usually furniture and household goods occupy about one third of the area of the shopping centre, the rest is used for multiplex, cafes and restaurants. Other spaces are leased to other retail chains.

The Deputy Minister said that, the Swedish company has not yet entered the Belarusian market largely due to the fact that it was not willing to adjust to the Belarusian conditions. "We welcome those investors that comply with the local legislation. It is not a serious approach for a large company such as IKEA, with an annual turnover of tens of billions of euros, to ask for some benefits. First they ask to reduce the inventory value of the land, then they ask to remove restrictions on price growth for socially significant goods. However it is not an option for us to let off prices, we have socially oriented economy”, said the Deputy Minister. Meanwhile, Russian and Lithuanian companies agree with the conditions put forward by the Belarusian side, cited Mr. Dragun as an example.

Talks on the organization by the Swedish concern of production in Belarus date back in 2001-2002. Then the country was visited personally by IKEA owner Ingvar Kamprad (according to the "Forbes" magazine, one of the richest persons in the world). The project envisaged investments amounting to 30 million US dollars. A foreign enterprise was to be set up in the Vitebsk region. It was supposed to deal with logging, sawing wood and furniture release. However, mostly due to the opposition from the side of local wood processors who were afraid of competition the project was not supported by the government.

Another attempt to enter the local market was undertaken in 2007. Then IKEA addressed to the Latvian Ministry of Economy via its partner companies, with a proposal to establish a joint venture company for the production of furniture in the Grodno region. It was planned to invest 25 million dollars. Also, the Swedish concern requested to receive forest area for the long-term use, as well as to provide it with a number of benefits. However the authorities refused to the company. The representatives of the Ministry of Forestry explained back then, that forest resources of the Grodno region were fully involved, and that the concession of forest plots interfered with the forest management.

The Swedish company IKEA operates in 44 countries. It produces furniture and house accessories (about 9.5 thousand kinds of item). Turnover for 2007 by IKEA group of companies for 2007 amounted to 19.8 billion euros.

Today, IKEA goods are present in Belarus via intermediaries. A procurement agency IKEA, which coordinates cooperation with the Belarusian suppliers is working for already few years.

Dmitry Yermak

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