IKEA, a Swedish furniture retailer, is known as the world’s largest designer and retailer of well-designed and relatively inexpensive ready-to-assemble furniture, appliances and home accessories. The company is private owned and reported a 3.2% rise in revenue in fiscal year 20131. According to IKEA’s annually report, last year it had 684 million visitors in 26 countries and distributed over 212 million printed catalogues2.
As mentioned in the case, in order to understand IKEA’s operations, one has to understand the history of this company and the philosophy of its founder. IKEA was founded in 1943 by 17 year-old Ingvar Kamprad in south Sweden. IKEA’s concept was created at that time and it still applies. They use a catalog to tempt people to visit their stores and “offer a wide range of home furnishing items of good design and function at prices so low that the majority of people can afford to buy them”3. Relatively lower price is one of IKEA’s most important competitive advantages. They have developed many innovative ways to lower the costs such as selling their ready-to-assemble furniture in flat packages to save transport and storage costs, outsourcing and developing long-term relation with abroad suppliers and buying “unused production capacity”. During the expansion of Kamprad’s business, his philosophy of doing business, “To create a better everyday life for the many people”, has never changed and later was formalized into IKEA’s cultural norms and values.
IKEA’s cost-consciousness and the willingness to help to create a better life are the key factors to its success. IKEA for decades has been sourcing products from abroad. In 2013 it had 1046 home furnishing supplier in 52 countries. They are also building on many years of working with social and environmental issues to ensure they have a positive impact on people and the planet4. Here are some facts: Always turn their costs saving into lower prices for their customers; Suspend deliveries from supplier who fail to meet the IWAY Forestry Standard, Launched new Chemical Strategy which will help identify and phase out chemicals; More than 2/3 of their cotton is from more sustainable sources; The IKEA Foundation donated €101million in 2013 and over 100 million children would benefit from it.
However, IKEA also has strategic issues about environmental problems that related to some of its products and about the accusation of its supplier using child labor.
2. Identify strategic issues: social issue and environmental issue
From the case we have learned about that the company was confronted with environmental and social issues. The social issue, which is more severe, is about child labor. In 1994, a documentary film concerning children working in Pakistan, aiming at IKEA, was broadcast by a Swedish television company. Actually, it wasn’t IKEA that using the child labor. The blame for this issue attaches to the local suppliers in India or Pakistan who used child labor to save costs without notifying IKEA. Again, in 1995 IKEA was threatened by a German television that another film would be shown about the abuse of child labor by Rangan Exports, a supplier of IKEA. And IKEA was also invited by this television to send someone to participate in the live discussion of this show. Since then, IKEA suffered the criticism from various international organizations.
The environmental issue is about the safety of some of its products. In the early 1980s, it was reported that the amount of Formaldehyde emitted by IKEA furniture was over the accepted amount by legislation. IKEA quickly required its suppliers to reduce the off-gassing formaldehyde but they couldn’t manage to do so. Reason for that is IKEA’s suppliers also get raw materials form sub-suppliers, who bought materials from glue manufacturers. Even though IKEA tried to prevent this problem from happening by working directly with the glue-producing chemical and it did ease the situation to some