Case Study Report: Facebook Internet.org And IKEA In Russia

Demonstrating in-depth understanding of the case

The Facebook case study discusses initiatives that were proposed to increase the number of online users (Futter, Ariel and Alison 2015). The article indicates that Facebook founder Mark Zuckerberg, along with technological companies launched Internet.org in 2013. The purpose of Internet.org was to champion for basic internet facilities with the support of various governments in countries such as Kenya, Indonesia, Zambia, Paraguay, Rwanda and Philippines. Mark Zuckerberg was motivated to launch this initiative having knowledge of opportunities these developed countries had on the future growth of Facebook as a company based on assessment of India. The move to increase online subscriber base in developing nations was supported as well as criticized based on perception of the initiative.

According to the case study, proponents of the initiatives considered the move to have good intentions in increasing information and reducing literacy levels among the developing countries (Abbott 2012). On the contrary, opponents of the move suggested that Mark Zuckerberg together with technological companies supporting the idea were only doing so for the purpose of increasing their wealth by increasing their potential customer base in the countries selected. Since the move fails to explicitly determine the impact of the initiative, time will tell which side is likely to reap benefits. The Facebook case study is aimed at providing more information on how multinational organizations operate with regards to corporate social responsibility initiatives. Internet.org initiative is one of the CSR that is undertaken to create good relationship with the customers. However, in most cases, such actions are motivated by the need to increase profitability which opponents of the initiative suggest in the case study.

The second article focuses on IKEA and its operations in Russia. The articles addresses the company’s interest in joining the Russian market, challenges faced as a result of corruption and gains that the company managed to make after the challenges subsided (Jonsson, Anna and Nicolai 2011). The article suggests that a Turkish national acting on behalf of the IKEA in Russia was jailed for a five year term for corruption that involved kickbacks amounting to 225 000 dollars in exchange to push a contract to lease one of IKEA’s Mega shopping complex. IKEA welcomed the investigative agents to scrutinize the dealings of their leaders in Russia. It was not the first time the company was associated to corruption yet it was known to promote zero tolerance on corrupt individuals. Further, during the same year, the company came under intense attack from environmental agencies for not following Russian logging rules (Bruno et al. 2013).

Identifying the key issues and problems highlighted in the case

Since the company launched its operations in Russia in the 90s it has discouraged cases of corruption. However, the company received setbacks in setting up new stores as a result of scandals involving the company. IKEA reached a conclusion to stop its operations in Russia in 2009. Through the assistance of Russian ministry officials, IKEA revived its operation in Russia and is since continuing its expansion program. IKEA involvement with the Russian government provides insight of what goes on whenever a company enters in a new market. The external environment of the business affects the operations of a business which is expressed in the case study. The government and its authorities impact how new entrants to a market will carry out its duties. From the case study, IKEA had a bad relationship with the authorities in Russia which led to their closure. The company’s leadership is also to blame as they are involved in corruption and instead of addressing the issue they resorted to pull out of the market which expresses their incompetence.

Question 1: Brief outline of Facebook’s Internet.org’s initiative

The objective of this initiative was to ensure that the two thirds of the world’s population that is not online is connected. The initiative involved a consortium of technological companies, non-profit organization, communities and experts who are determined to increase internet connectivity especially in the developed world (West 2015). The role of Facebook partners in the initiative was to offer solution in terms of affordability and efficiency in implementing best practices. The initiative proposed investments in tools and application that could transmit data efficiently. In essence, Facebook aimed at working with developers, gadgets manufacturers and mobile operators to increase internet subscribers. Research findings by Deloitte affirmed that connectivity plays a crucial role in the economic growth of developing nations. Further, the studies motivated the initiative by suggesting that it had the potential to create millions of job and reducing the degree of poverty in developing nations (Best 2014). The study also determined that although a higher proportion of world population is under telecommunication companies, less than a third have access to the internet necessitating the need for increased internet connectivity through Facebook’s Internet.org initiative. Increased affordability contributed to the development of Internet.org app which provided users with free services such as health matters, job opportunities and local news.

Question 2: Impact of Internet.org on emerging economies

Mark Zuckerberg together with partners in the Internet.org initiatives believed that the move had a positive impact on emerging economies. From their perspective, internet connectivity would empower the citizens to decide the kind of government they needed. Internet connectivity would enhance access to healthcare and individuals would connect with families and friends living in distant places. Moreover, Internet.org initiative has contributed in saving more than a million lives in Africa and thousands in Latin America, India and parts of Asia (Mano, Winston and Wendy 2016). The initiative has also contributed in saving infant mortality by thousands in the regions mentioned above. HIV and AIDS patients have access to information that enable them to monitor their conditions hence encouraging longer lives. The Facebook’s Internet.org initiative has also impacted developing nations by increasing the rate of GDP, increasing annual GDP per capita, creating more jobs and decreasing abject poverty. Other impacts of the initiative can be attested by the individual countries (Brake, Doug and Belli 2016). For instance, in Zambia, the move increased information access through the Internet.org app. In Philippines, individual were given access to apps and the initiative increased inline subscribers by 25 percent. In Paraguay, more people were introduced to the benefits the internet offered.

Question 3: Serving the bottom of the pyramid or expanding reach

Articulating the essence of the case within the prescribed word limit

Whether the Initiative.org was a move to expand Facebook reach or serving the bottom pyramid is a question that can be answered through the impact the initiative had on both the consumers and the company. The initiative was a win-win situation for both the company and the consumers. This is because there are numerous benefits that are associated in the developing nations (Garber 2014). For instance, the program encouraged social education by introducing free online classes in Rwanda and increased information access to many parts of Africa and Asia. The move also contributed to growing the economy of emerging nations. On the other hand, Facebook’s Initiative.org was meant to expand Facebook’s reach. The idea behind this move can be explained by the company’s business model. Facebook makes money from advertisement as its main revenue stream (Sen et al. 2016). Increasing internet connectivity would imply that online subscribers would also automatically increased. Partnering with telecommunication giants and mobile companies would ensure Facebook as a product would be made available to the gadgets. This meant that a high percentage of new online subscribers from developing nations would also become Facebook users and clients which would translate to profits for the company.

Question 1: External factors influencing market entry strategy 

There are several external factors that influence entry to new market. In regards to IKEA case, political temperature plays a crucial role in influencing entry of a new company to a country. This can be attested by IKEA challenges in trying to enter the Russian market in 1991 when the Soviet Union collapsed as well as in 1993 when the country went into a constitutional crisis. Negative stereotype about a country may bring challenges for a company looking to enter a new market (Tarnovskaya, Veronika and Leslie 2011). This can be explained though Lennart Dahlgren who perceived Russia to comprise poor people without purchasing power only to determine that the country was viable for retail investments. Government regulations also contribute to influencing market entry for a company. The regulation system in Russia was characterized by corrupt bureaucratic system that demanded bribes for each and every process to be completed. Favorable regulations would facilitate as smooth flow of bureaucratic processes along with tough laws on corruption. Dishonesty is also among the external factors that influence market entry which can be attested by the Mayor of Moscow in the case study (Sagdiyev and Popov 2011). Consequently, financial crisis is an external factor that influences market entry which is explained by Russian Financial crisis that delayed the construction of its store in Khimki.

Question 2: IKEA’s Russian Sojourn

Information gathering and evidence to support arguments/ideas

A strong and collaborative government machinery offers numerous benefits to companies seeking new entry to a new market. It is noted that the authorities in Russia made things smoother for the company in its quest to set up businesses in Russia (Merrilees, 2012). Besides, the case study indicates that the authorities in Kazan were cooperative which contributed to opening the store within a record time of under a year.  A strong and collaborative government machinery would not have led to closure of the company’s operations as a result of corruption allegations and the building in question would have been assessed by independent authorities and an amicable solution reached. The Economic Development Minister in Russia along with safety inspectors would have ensured that the matter was handled before it became a problem that led to the company shutting its expansion operations (Tarnovskaya 2008). IKEA business strategy in future should carefully conduct research on various government machinery with an aim of determining whether they can conduct business based on accepted principles that shun unethical business practices such as corruption. Besides, the company should develop clear policies that govern how they conduct businesses with governments that may not necessarily comply with regulations of conducting businesses with foreign entities.

Question 3: Strategies, underserved market and large shopping complex

There are several strategies that a company can use to enter new market. Researching the risk associated to the country is one of the strategies that can keep a company in control of external risks. Among the common risks include economic risks and political risks. Economic risks encompasses foreign currency, breach of contract and payment issues while political risks comprises regulatory changes and import restriction (Kramer 2009). Besides, a company should be able to create a risk management program that is aimed at identifying the risks a company faces and evaluating potential losses. The program should specify action that should be taken to mitigate the risks. Additionally, the risk management program should be updated frequently. Moreover, a company should consider insurance for purposes of mitigating risks. Another strategy that can be implement by company before entry to new markets is overcoming cultural barriers and building reliable relationships. For IKEA to develop strong market presence in underserved market, the company ought to evaluate the regions needs by assessing the opportunities and threats to the business. This can be achieved through developing an elaborate global mission and vision statements. The company’s strategy to establish large shopping complex instead of standalone shopping centers is pegged on the idea of bringing many businesses under one roof that can thereby attract more people who could be potential customers as well as encourage sustainability initiatives (Dahlvig 2011).

Identifying and understanding the problems/issues

Conclusion of Facebook Internet.org initiative

The Internet.org initiative by Facebook is one of the company’s strategy that has received much criticism from users across the world. While most people agree that the initiative has good intentions for the consumers in developing nations, some view the move to be motivated by the desire to make money rather than helping the developed nations. This is because developing nations experience extreme poverty and internet connectivity is not their primary needs. However, the company has maintained its position that the initiative was meant to assist the developed nations although it would translate to profits for the company much later into the future.

Conclusion for IKEA in Russia case

Many companies look for opportunities to expand their businesses beyond their borders. For this reason, most companies find themselves dealing with governments that operate under different rules making it challenging for a foreign business to enter new market. Challenges of operating a business in a foreign market are expressed through IKEA expansion efforts in Russia. From the findings of the case study, IKEA experienced numerous challenges as a result of government regulations and several bureaucratic procedures that create loophole for officials to demand bribes in order to provide services for the company. Amidst all the challenges the company experienced, it managed to re-strategize its entry strategy which led to the company to continue its expansion efforts in 2012. Generally, there are proven strategies that are efficient in assisting companies to enter new markets. These strategies play a big role in ensuring that a company is able to run its operations smoothly by reducing external risks associated to political and economic situation of the country. The company strategy for opening large shopping complex instead of standalone shopping centers is to increase traffic and enhance sustainability of the company. Lastly, strong market presence for underserved market can be accomplished through extensive research on the needs of the market and functional aspects of the product to be offered in the market.

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