IKEA

Affordable solutions for better living

Sunday 5 June 2011, by Annemieke Schuringa, Kyra Van Gestel, Marinka Van Schie, Merve Asaner

5 inspired

a) The main facts about the activities of the company.

IKEA is founded by Ingvar Kamprad. In 1943, when he was 17, he started his own business, named IKEA. The name IKEA is formed from the founder’s initials (I.K.) plus the first letters of Elmtaryd (E) and Agunnaryd (A), the farm and village where he grew up. In 1948 the first furniture was added to the collection, and in 1951 the first catalogue was printed. After a price war with one of its main competitors, IKEA opened a furniture showroom, which was a huge success. Competitors put pressure on suppliers to boycott IKEA, as a result IKEA was forced to design their furniture for flat packs and self-assembly. Nowadays IKEA is known for its flat packaging, which reduces shipping costs, minimizes transport damage, increases store inventory capacity, and makes it easier for customers to take the furniture home themselves, rather than needing delivery.
In 1958 the first IKEA store was opened in Sweden. Today IKEA has 280 stores and is operating in 41 countries. The headquarters of IKEA is located in Delft, Netherlands.
The business idea of IKEA is: ?To offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them?. Nowadays the IKEA Group has 626 million visitors a year, and it is expected this amount will keep on growing.

b) The ethical challenges this company is addressing.

The IKEA vision is to create a better everyday life for the many people. This includes doing what they can to help create a world where we take better care of the environment, the earth?s resources, and each other. IKEA knows this continuous improvement is a never-ending job, but IKEA works hard to be part of the solution.
IKEA made a Never Ending List which consists of the improvements they made for people and the environment, including efficient transport of their products by flattening the boxes. Furthermore, IKEA behaves by their code of conduct: IWAY (the IKEA Way on Purchasing Products, Materials and Services). IWAY includes zero tolerance for child and forces labour; safe, healthy working conditions, compliance with local laws and care with chemicals.

ENVIRONMENT

IKEA also cares about the environment. In 1991 IKEA banned the use of tropical wood not coming from sustainable forestry or plantations. In 2002 IKEA together with WFF started a number of projects to support the development of responsible forestry and combat illegal logging. The co-operation has contributed to doubling the amount of FSC certified forest areas in China. It also has helped increase the certified forest areas in Russia from 3.3 million to about 20 million hectares ? making it the world?s second largest country by certified forest areas. In their code of conduct IKEA states that they do not accept illegally felled wood or wood harvested from intact natural forests. IKEA forces their suppliers to trace the origin of the wood they use. The IKEA forest Tracing Survey showed that 98.8% of their solid wood complied with their minimum requirements, which, among other things, means the wood is logged legally and IKEA knows where it comes from. Compliance is verified by audits carried out by IKEA.
IKEA also started the project ?IKEA Goes Renewable? in 2006. IKEA Goes Renewable project means that all IKEA buildings will move towards being supplied by 100% renewable energy for electricity and heating and improve energy efficiency by 25%. IKEA also wants to take a leading role towards a low carbon society, and significantly reduce the carbon footprint from all aspects of their operations.
Furthermore, the cotton that IKEA uses for their furniture is grown in a more sustainable way using substantially less water, chemical fertilizers and pesticides. In 2005 the IKEA Foundation is founded. Together with WFF, IKEA start Farmer Field Schools in Pakistan and India to train cotton farmers in more sustainable cultivation practices. Last year IKEA developed a Sustainability Direction for 2015 in which they target to complete the following goals: Offering a range of products that are more sustainable, taking a leading role towards a low carbon society, turning waste into resources, reducing our water footprint and taking social responsibility.

EMPLOYEES

IKEA also takes into account of its employees, as they state ?Our co-workers are our most valuable resource ? when they grow, IKEA grows. IKEA is committed to being a good employer that offers a safe and healthy work environment together with development
opportunities for each individual.?

SUPPLIERS

IKEA wants their products to be manufactured under acceptable working conditions by suppliers who take responsibility for the environment. The best way of influencing and contributing to positive development is to maintain close, long-term relationships with their suppliers to motivate them to take more responsibility and the environment. Also, IKEA does not accept corruption in any form and works proactively to prevent it. They want their suppliers to sign an acceptance of this policy.

CHILD LABOUR

IKEA does not accept child labour in IKEA and in the factories owned by suppliers to IKEA or by their sub-contractors. Their production and trading are based on the ILO (International labour Organization) Convention number 138 (1973) concerning minimum working ages and number 182 (1999) concerning worst forms of child labour. Also they have a child labour code of conduct ?the IKEA way on protecting child labour?. According to the convention, the process is as following;
If child labour is found in any place of production, IKEA requires the supplier to implement a corrective action plan, taking the child’s best interests into consideration. Care shall be taken not merely to move child labour from one supplier’s workplace to another, but to enable more viable and sustainable alternatives for children (such as educational opportunities). If corrective action is not implemented within an agreed timeframe, or if repeated violations occur, IKEA will terminate all business with the supplier concerned.
IKEA is searching the reasons of using child labour and rather than prohibiting child labour they are trying to solve these problems and prevent the necessity for child labour. Hence they are trying to solve the origin of the problem. They know that it is very common in some countries such as India and it cannot be resolved immediately. But they are trying. Their actions concerning child labour are following;
? IKEA has one person employed in India who is working specifically on child labour problems and social projects in South Asia.
? IKEA is working with UNICEF to develop child labour projects.
? IKEA tries to solve the debt-burden of the families, the main cause of child labour. They provide rural women with work, read and learn about children?s rights.
IKEA finances these projects with USD 1.4 million. With these projects, 24,000 children are now attending school and more than 6,000 women now have the opportunity to contribute to their family income.

LOW PRICES

IKEA created its image as a supplier of cheap goods. However, their purpose is not keeping prices cheap but to reduce them. Their actions are the following;
? IKEA develops new production technologies to reduce costs, which enables them to lower their prices.
? IKEA recycles. So, they are not wasting the resources.
? IKEA includes cost-consciousness in their production process. According to them, decreasing the cost will reduce the prices and it will increase the sales volume more than the loss in prices. So, the company and the customer will earn at the same time.
? By decreasing the size of the packaging by flattening the transport boxes, customers can take the products home themselves and construct the product on their own. This saves costs in transporting and installation of the products.

c) What makes you believe this company is really ethical and why you trust it.

The values of Ingvar Kamprad make IKEA unique and a brand with deeply embedded personality. Ingvar came from a small province called Smaland, were the ground was thin and poor. Therefore he started IKEA with the ideas of frugality, dedication and to make the best out of limited recourses. This is still visible in the IKEA of today, were they use revolutionary cost-cutting techniques. Even though they are pursuing a low-cost strategy, IKEA places great value on their recourses. Their main recourse, wood, is very important and is accepted only if it is not coming from protected forestry. So not only does IKEA ban all wood when it is not from sustainable forestry, they are also involved in projects which support the development of responsible forestry.
Besides the concern about the quality of their most valuable recourses, IKEA does not stop caring there. They are involved in many projects and non-profit organizations like UNICEF, to fight for the right of children. This resulted in a code of conduct for child labour and the foundation of programs as SAVE THE CHILDREN and a child rights program in India.
Also the environment is important for IKEA. Using Totally Chlorine Free paper for their catalogue is one way of making sure their waste is set to a minimum. Besides this, IKEA places great effort on the reduction of waste, and even turning waste into new recourses. As stated in their sustainability report, IKEA keeps working for improvements. They have multiple goals which they want to reach before 2015. These include many different objectives concerning the environment.
It is not solely stated on their website, ?Home store Ikea was recently named one of the 2009 World’s Most Ethical Companies by the Ethisphere Institute, a research-based international think tank that evaluates more than 10,000 companies to determine winners. It is the third consecutive year Ikea has received the honour. The methodology used by the firm includes reviewing a business’s history of ethics, litigation and regulatory infractions, evaluating its investment in sustainable business practices and looking at activities that might improve corporate citizenship.
So for many reasons we believe IKEA is a true ethical company. One who has a devotion and care for the relationship with their suppliers, customers, environment, recourses, children and co-operation with non-profit organizations like UNICEF.

d) The possible challenges facing the company in the future and how you think this company may improve.

In the past IKEA was accused several times of not being ethical. Every time when they were in the news with unethical issues, like child labour or sustainable forestry, they agreed that they had made mistakes and promised to do something about it. That is one of the main reasons why IKEA has agreements with UNICEF, Save The Children, WWF and Greenpeace. In our opinion they are really ethical, if we look at what they do nowadays for their employees, the environment, their customers and developing countries. When they continue with their operations in all those areas and keep going on with their projects and new projects in those areas, there is not much to improve in these areas.
There is one aspect in which IKEA is not transparent at all. There still remain doubts about the structure of the IKEA holding. IKEA consists of two different companies. The first company is Inter IKEA Holding established in Luxembourg. However, Inter IKEA Holding is part of Inter IKEA Holding NV in Curacao. It is not explicitly stated who are the owners of this company, but it is expected that the family Kamprad is one of its owners. The other part is the IKEA Group which belongs to the INGKA Holding BV established in the Netherlands. Owner of INGKA Holding BV is the INGKA Foundation. Foundations are subject to another tax rate, which means that the INGKA Holding BV can pay less tax.
In January this year, IKEA was in the news because of their ?secret structure?. Different researchers wanted to reveal the secret of IKEA. They found out that Interogo Foundation, established in Liechtenstein is the real owner of IKEA. After a lot of rumours Kamprad agreed to say that Interogo Foundation indeed is the owner of IKEA. But that the only goal of the money in the Interogo Foundation, 10 billion euro, is to guarantee IKEA survival in the long term. Kamprad agreed that this is true, but we think more problems can occur after he admitted this. 10 billion euro is a lot of money and they did not pay taxes on this amount, so other companies and governments will not agree with this. This can be a challenge IKEA has to face in the nearby future. We think it is important to stay transparent in all areas, and especially about this amount of money. If they can show they really need it, then people are ok with this. Otherwise they have to do something else with the money, what is beneficial for all stakeholders, like for instance investing it in one of their projects.

Bibliography

http://www.ikea.com
http://www.nu.nl/economie/2431998/ikea-ontduikt-belasting-via-liechtenstein.html
http://www.unicef.org
http://www.wwf.org
http://www.express.be/joker/nl/platdujour/ikea-model-losse-schroeven/85543.htm

Start a new discussion

3 Discussions / 3 Messages

  • IKEA 20 June 2012 at 03:11 , by comino

    I’ve been shocked after knowing that IKEA has deposits on a tax haven. After being an employee more than one year there, I can make sure that they really care about sustainability: the company was constantly providing recycling courses and sustainability ones to reinforce their commitment with nature. The wood is 100% certified and if I’m not wrong for every spanish tree used they were replanting four. They really transmitted the idea of recycling and workers who didn’t collaborate were punished, so it was serious issue for them and they were really taking it into account.

    It’s really interesting how they did create a successful business model showing that the environmental commitment is possible.

  • IKEA 2 October 2012 at 15:31 , by lijuhui

    I do agree with the idea which IKEA is a model that has the ethics in business. The following is my additional reason as a common consumer of IKEA.

    a)IKEA provide the profit maximization for their shareholders.
    Today IKEA has 280 stores and is operating in 41 countries, it makes enough profit for their shareholders to enable to do some Non Profit activities.

    b)IKEA provide the excellent work environment for their employee.
    IKEA offers a safe and healthy work environment for their employee, for example, higher income, good welfare, house-fund, medical care and seldom work overtime.

    c)IKEA provide the best and comfortable consuming environment for their custom.
    Firstly, IKEA devoted to improve the experiential marketing environment.
    Secondly, the price of the product is reasonable and low by increasing the sales volume.
    Finally, there are the convenient restaurants in IKEA; it can provide the food for the custom.

    d)IKEA provide the corporate social responsibility for the society.
    IKEA cares about the environment. IKEA had banned the use of tropical wood not coming from sustainable forestry or plantations.
    IKEA does not accept child labor and maltreat their employee.IKEA care for the relationship with their suppliers, environment, recourses, and non-profit organizations.

  • IKEA 4 October 2012 at 15:19 , by zhulei

    In this article the author mainly talk about the corporation social responsibility of IKEA. I think for the author the most important thing of a company is the corporation social responsibility. The author thinks the IKEA vision is to create a better everyday life for the many people, whether in environment, employees, suppliers and child labour, the IKEA is the industry standard.

    In the last paragraph the author writes that every time when they were in the news with unethical issues, like child labour or sustainable forestry, they agreed that they had made mistakes and promised to do something about it. Even the IKEA has some problems about ethical, they still believe that the IKEA is a responsible and ethical company.

    The author is attracted by the high degree of social responsibility and contributions to society of IKEA, they are the main reason why the author is very inspired by the company.

Location: Amhult (Sweden)

Sector: retail

Official website: http://www.ikea.com

Key figures:

? Founder: Ingvar Kamprad
? Total Revenue (2010): 23.5 billion euro
? Total net income (2010): 2.7 billion euro
? Stores: 280 stores in 26 countries
? Operations in: 41 countries
? Employees: 127.000
? Suppliers: 1074 suppliers in 55 countries
? Products in the range: 9500
? IKEA Group store visitors: 626 million a year

Nbr. visits: 2797

Nbr. inspires: 5