IKEA Company’s Corporate Social Responsibility Analysis Ethical/CSR Ombudsman —How do the activities of the company compare with the corporate social respo

IKEA Company’s Corporate Social Responsibility Analysis Ethical/CSR Ombudsman —How do the activities of the company compare with the corporate social responsibility model–to make a profit, be legal, be ethical, be philanthropic? Analyze each level. Discuss any gaps you have observed. (For example, what legal/ethical issues impacting the organization currently or in the future. You may also share any current event information related to the case study. Please provide HEADERS for each element in your job deliverable assignment. For example if conducting the CSR analysis, you must provide headers for legal, economic, ethical, philanthropic levels. Deliverables must be 1.5-2 pages in length and have at least one academic source–12 inch font Times New Roman–double spaced. Additionally, it is important to remain cognitive of current events and ethical issues surrounding the organizations/industries we study each week.You need to make one recommendation based upon the information you provide in your analysis. C-66
Part 4: Case Studies
CASE 6
IBS
HYDERABAD
Business Model and Competitive Strategy of IKEA in India
Syed Abdul Samad
were keenly waiting to see what strategies the furniture
IBS Center for Management Research (ICMR)
giant would come up with to win the highly-fragmented,
price-sensitive Indian market—as many Indian mid-
“We are very determined but very patient at the same time. dle-class families preferred to have their furniture cus-
We started this journey six years ago. Things are finally tom-made from small retailers or local carpenters. No
moving and we are satisfied with the progress so far… two Indian homes had the same kind of furniture as
Indians in general showed more of an affinity for unique
“I truly believe that the IKEA format is going to work. What woodwork and designs rather than flat geometric furni-
is an IKEA store? An IKEA store has more than 9000 dif- ture. “Living room in India is different from any other
ferent articles for the entire family. We offer an experience country-a place for socializing and every activity is
for the whole family. Also remember, at IKEA we don’t sell around the food. In some countries it is the kitchen and
products, we sell inspiration.”
in some countries living room is used for sleeping,” said
– Juvencio Maeztu, IKEA’s Country Manager for
Maeztu. More important was the fact the Indian cus-
India, in 2013
tomer did not prefer the concept of do-it-yourself (where
buyers had to assemble different pieces of the product
After a year of lobbying and negotiating with and con-
themselves), a key part of IKEA’s globally successful
vincing the Indian politicos and bureaucrats, IKEA’s €1.5
business model. Analysts opined that though the com-
billion investment proposal to set up its stores in India
pany had managed to impress the Indian Government,
was finally accepted by the local government on May 2,
getting into the homes of Indian consumers would be an
2013. However, as of July 2013, Juvencio Maeztu (Maeztu),
entirely different ball game.
IKEA’s Country Manager for India, found he still had a
colossal task ahead of him.
Ab ut IKEA
IKEA, the Netherlands-based Swedish company, was
the largest furniture retailer in the world with a pres- IKEA was a privately held company. It designed and
ence in 44 countries around the globe-in countries like sold ready-to-assemble furniture, home appliances, and
the US, the UK, Russia, the EU region, Japan, China, accessories. From humble beginnings in 1943, the com-
Australia, etc. However, it did not enter into the Indian pany went on to become the world’s largest furniture
market till 2013, though the company had had a pres- retailer by the 2000s. In the financial year 2001, the com-
ence in the country since the 1980s as a sourcing destina- pany earned revenue of €10.4 billion (Refer to Exhibit 1
tion for its global stores. It had even opened its regional for IKEA’s Growth in Revenue). By 2012, the company’s
procurement office in Gurgaon, India, in 2007. In 2009, revenues increased to €27.6 billion with a net income
IKEA tried to enter the country to establish its stores, but of €3.202 billion (Refer to Exhibit 2 for IKEA’s Income
its attempts were thwarted by India’s stringent Foreign Statement). By August 31, 2012, the IKEA Group had
Direct Investment (FDI) regulations. It again applied for operations in 44 countries, including 30 service trad-
permission for entry in June 2012, after India had made ing offices in 25 countries, 33 distribution centers, and
some changes in its FDI rules. However, IKEA had to 11 customer distribution centers. By August 31, 2012, the
wait another year, hitting many roadblocks on the way, IKEA Group had a total of 298 stores in 26 countries
before it was able to ob the Indian government’s and employed 139,000 people.* Globally, the company
approval to establish its stores. The company also had had doubled its sales to €27.6 billion in the past decade
to tweak its global store model to fit the Indian FDI and and further planned to double them again by 2020 and
sourcing outlines and Indian consumer preferences. to open 20-25 stores a year from 2015.
While Maeztu was tasked with tapping the Rs. 925 IKEA was founded in Sweden in 1943 by 17-year-old
billion Indian furniture and furnishings market, analysts Ingvar Kamprad (Kamprad). IKEA was an acronym of
*Rs. = Indian rupees or INR. As of 2013, US$1 was approximately equal to Rs. 62; €1 was approximately equal to Rs.85.
This case was written by Syed Abdul Samad, under the direction of Debapratim Purkayastha, IBS Hyderabad. It was compiled from published sources, and
is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review hus deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it
Case 6: Business Model and Competitive Strategy of IKEA in India
C-67
Exhibit 1 IKEA’s Revenue Growth (2001-2012)
Total Revenue in Billion €
30
27.6
25.2
25
23.5
21.5
21.8
20
20
17.5
15
15
12.9
10.4
11
11.4
10
5
II
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Adapted from: “Welcome Inside – IKEA Group Yearly Summary FY12”, http://www.ikea.com/ms/en_CA/pdf/yearly_summary/ys_welcome_inside_2012_final.pdf
Exhibit 2 IKEA’s Consolidated Income Statement (2008-2012)
In million € (for September 1-August 31 of)
2012
2011
2010
2009
2008
operational details, and continuous product develop-
ment, which allowed it to lower its prices. Instead of
selling pre-assembled products, the company designed
furniture that could be self assembled. This helped it cut
down on costs and the use of packaging. The company’s
website featured around 12,000 products which repre-
sented its entire range.
27,628
25,173
23,539
15,723
13,773
11,400
12,454
11,085
21,846 21,534
11,878 11,802
9,968
9,732
11,905
8,423
7,808
7,888
7,198
7,078
3,482
3,592
3,197
2,770
2,654
427
165
76
143
177
Revenue
Cost of sales
Gross profit
Operating cost
Operating
income
Total financial
income and
expense
Income before
minority inter-
est and tax
Tax
Minority interests
Net income
3,909
3,757
3,273
2,913
2,831
695
781
577
384
546
12
10
8
Corporate Structure
IKEA was structured in such a way as to prevent any kind
of takeover of the company and to protect the Kamprad
family from taxes. Though Kamprad was the founder,
he did not technically own IKEA. He wanted an owner-
ship structure that stood for independence, long-term
approach, and continuity. Therefore in 1982, Kamprad
created Stichting INGKA Foundation, a non-profit
organization registered in Leiden in the Netherlands. In
1984, Kamprad transferred 100% of IKEA equity as an
irrevocable gift to the Foundation. IKEA was privately
held by this Foundation. Its purpose was to hold shares,
reinvest in the IKEA Group, and to fund charity through
it. It also protected IKEA from family squabbling and
its inheritance in whole or part by the Kamprad family.
Kamprad said, “My family will never have the chance to
sell or destroy the company.”: The Foundation was con-
trolled by a five-member executive committee that was
chaired by Kamprad and included his wife and attorney.
3,202
2,966
2,688
2,538
2,280
Source: Adapted from www.ikea.com
Ingvar Kamprad, Elmtaryd (the farm where he grew
up) and Agunnaryd (his hometown in Småland, South
Sweden). The company’s products were well known
for their modern architecture and eco-friendly designs.
In addition, the firm paid attention to cost control,
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-68
Part 4: Case Studies
6
The Foundation was only controlled (not owned) by
the Kamprad family. The Foundation, however, owned
INGKA Holding BV, a private, for-profit, Dutch com-
pany that controlled IKEA’s operations.
IKEA’s structure was a complicated array of not-
for-profit and for-profit organizations. It had two main
components-operations and franchising. Operations
included the management of its stores, the design and
manufacture of its furniture, and purchasing and sup-
ply functions which were overseen by INGKA Holding.
As of August 31, 2012, only 30 of the 298 IKEA franchi-
sees, while the remaining stores were run by the INGKA
Holding
The franchising part (trademark and concept) was
owned by a separate Dutch company called Inter IKEA
Systems. All IKEA stores (franchised and those run by
INGKA Holding) shared 3% of their revenue with Inter
IKEA Systems as a franchise fee. Inter IKEA Systems was
owned by Inter IKEA Holding of Luxembourg, which in
turn belonged to Interogo Foundation in Liechtenstein.
This foundation was also controlled by the Kamprad
family. Apart from these holdings, the food joints that
operated in IKEA stores were directly owned by the
Kamprad family and represented a major part of the fam-
ily income. This corporate structure allowed Kamprad
to maintain tight control over the operations of INGKA
Holding and IKEA stores (Refer to Exhibit 3 for IKEA’s
Corporate Structure).
Going Global
In 1943, after founding IKEA, Kamprad increased his
product range to include pens, wallets, picture frames,
table runners, watches, and jewelry and nylon stockings
at reduced prices. He initially made individual sales
calls to sell the merchandise. When his business grew,
he advertised in local newspapers and operated via the
mail-order service using the local milk van to deliver the
products to his customers. In 1948, he introduced fur-
niture into the IKEA range. The furniture was made by
local manufacturers close to his home. The furniture met
with good response and Kamprad decided to expand his
range. However, the company’s sales were threatened
by the price wars among the competitors. Therefore, in
1953, he opened a showroom in Älmhult, Sweden, so that
his customers could have a look at the furniture before
placing an order. This helped the company as custom-
ers chose the products with the best value for money.
However, the pressure that competitors exerted on sup-
pliers to boycott IKEA led to the company deciding to
design its own furniture. When IKEA began exploring
the packaging of its furniture, one of the workers disas-
sembled a table to fit it into a car for transportation. This
led to the invention of flat packs and the self assembly
concept, which became a huge success.
In 1958, the company opened its first IKEA store
‘Möbel-IKEA’ in Älmhult, Småland, Sweden, with 6,700
Exhibit 3 IKEA’s Corporate Structure
Stichting INGKA
Foundation
(The Netherlands)
Interogo Foundation
(Lichtenstein)
Inter IKEA Holding
(Luxembourg)
INGKA Holding B.V.
(The Netherlands)
Inter IKEA Systems
(The Netherlands)
Shops & Factories
Franchise &
Trademarks
IKEA group
Range Strategy,
Product Development
& Supply Chain
Industrial Groups
Swedwood, Swedspan
Retail
Group Staff Functions
Source: Adapted from “Welcome Inside – Yearly Summary FY09″, http://www.ikea.com/ms/en_CN/about_ikea/press/press_releases/Welcome_inside_2010.pdf
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Case 6: Business Model and Competitive Strategy of IKEA in India
C-69
square meters of home furnishings—the largest furni-
ture display in the Scandinavia region during those times.
In 1960, it added a restaurant to the store, which over a
period of time became an integral part of the store con-
cept and layout. However, after this the company began
looking at markets other than in its home country. In
1963, the first store outside Sweden was opened in Oslo,
Norway. Later in 1969, it entered Denmark with its store
at Copenhagen. The company then spread out to other
parts of Europe in the 1970s. In 1973, it went outside the
Scandinavian region and opened a store in Switzerland
followed by a store in Germany in 1974. The global
expansion of IKEA stores took place at a rapid pace
during the 1970s and 1980s. Stores were soon opened in
other parts of the world including Japan (1974), Australia
and Hong Kong (1975), Canada (1976), and Singapore
(1978). In the 1980s, IKEA further expanded its store
network in France and Spain (1981), Belgium (1984), the
US (1985), the UK (1987), and Italy (1989) among other
areas. It further expanded into more countries in the
1990s and 2000s. In 1998, it entered China by setting up
a store in Beijing. In 2010, the company also entered the
Latin American region with a store in Santo Domingo,
Dominican Republic. However, the company did not
have much of a presence in the developing countries.
Germany, with 44 stores, was IKEA’s biggest mar-
ket, followed by the US with 37 stores. The IKEA store
at Stockholm Kungens Kurva, Sweden, with an area
of 55,200 m2 was the largest in the world, followed by
the stores in Shanghai, China (49,400 m2), Shenyang,
China (47,000 m2), Tianjin, China (45,736 m2), and
Berlin Lichtenberg, Germany (45,000 m2). The IKEA
store located in Tempe, Sydney, was the biggest store in
the southern hemisphere with an area of 39,000 m2. By
the end of 2013, IKEA planned to open its first ware-
house in Croatia and its first shopping center in Vilnius,
Lithuania, which would be the biggest furniture-selling
mall in the Baltic States.
and to use more of natural light to reduce energy costs.
The stores required customers to first go through the
display making note of the required items, then proceed
to the open shelves to make smaller purchases, and then
go to the self serve warehouse to collect the previously
noted products. They were then directed to the in-house
warehouse or external warehouse to collect the products
and make a payment.
All the IKEA products were designed in Sweden but
were largely manufactured in developing countries. The
company had 50 suppliers mostly in Europe and Asia.
China, Poland, Italy, and Sweden formed the top produc-
tion centers for IKEA. Most of its products were identi-
fied by single word names, which were Scandinavian in
origin—like names of places, men and women, rivers,
lakes, flowers, plants, etc.
“People flock to IKEA stores because of price”,
said Debashish Mukherjee, partner and vice president
at AT Kearney, a global management consulting firm.
For instance, in China, the company had cut its prices by
60% since it entered in 1998. The secret lay in its design-
ing, sourcing, and packaging. The company’s product
developers and designers worked directly with suppliers
and the concept of do-it-yourself drastically reduced its
cost. Devangshu Dutta (Dutta), chief executive of Third
Eyesight, a retail consultancy, explained, “When they sell
flat packs, there are no assembling costs, no shipment
costs and mostly products are sold on catalogues, which
helps them reduce operational costs and lower prices.
Those flat packs work well with young consumers whose
budgets are normally tight.”:0
Most of the IKEA stores included restaurants serving
traditional Swedish food. However, in some countries,
a few varieties of the local cuisine and beverages were
served besides the Swedish staples. For instance, the
IKEA restaurant in Austria offered a free refill policy for
soft drinks, a practice that was otherwise unknown in the
country. Another important feature of the IKEA stores
was Småland (Swedish for Small Lands), where parents
dropped off their children at a gate to the playground,
and picked them up at another gate after shopping. IKEA
also launched a loyalty card called IKEA Family, which
was free of charge and could be used to avail of discounts
on a special range of IKEA products.
IKEA was involved in various charity and social
initiatives. The INGKA Foundation was involved
in several international charitable causes like help-
ing the tsunami victims in Indonesia, Sri Lanka, and
India; the cyclone affected in Burma; Somali refugees;
earthquake victims in Pakistan and China; donating
to schools in Liberia, saving and restoring forests;
Manufacturing and Other
Initiatives
Unlike the traditional retail stores where the customer
could directly go to the needed section, IKEA encour-
aged its customers to go through its store in its entirety.
Therefore, its stores were designed in a one-way layout
in the anti-clockwise direction. Most of the IKEA stores
were very large buildings decorated in blue and yellow
patterns. However, the newer stores used more of glass
for functional and aesthetic purposes—to give a better
impression of the product and a better look to the store,
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C-70
Part 4: Case Studies
and reducing pollution. In September 2005, the IKEA
Social Initiative was formed to manage the company’s
social involvements on a global level. The main part-
ners to IKEA’s Social Initiative were UNICEF and Save
the Children. IKEA also took a proactive stance on
environmental issues and developed an Environmental
Action Plan in 1990, which was adopted in 1992. The
company’s environmental measures included elimi-
nation of polyvinylchloride (PVC) from its products
and packaging and minimizing the usage of formalde-
hyde, chromium, cadmium, lead, PCB, PCP, and Azo
pigments. The company used wood from responsibly
managed forests, stopped providing plastic bags to cus-
tomers, but offered reusable bags. In August 2008, it
created IKEA GreenTech, a €50 million venture capi-
tal fund, to invest in 8-10 companies with a focus on
solar panels, alternative light sources, product materi-
als, energy efficiency, and water saving and purification.
In February 2011, IKEA announced its plans for a wind
farm in Dalarna County, Sweden, to achieve the goal
of running on 100% renewable energy. As of June 2012,
IKEA had 17 stores powered by solar panels in the US,
with 20 additional installations in progress.
In 2004 and 2005, IKEA was named as one of the
100 Best Companies for Working Mothers by Working
Mothers magazine. In 2006, it ranked 96 in Fortune’s 100
Best Companies to Work For. In 2008, IKEA Canada
LP was named one of Canada’s Top 100 Employers’ by
Mediacorp Canada Inc., and was featured in Maclean’s
newsmagazine.” In addition to these, the company
received many more awards and recognitions.
China, the Philippines, Indonesia, Malaysia, Singapore,
Thailand, Korea, Taiwan, India, Poland, and Mexico,
were growing and showing great potential in furniture
production. With their newly identified competitive
advantages, these countries took up the remaining 30%
of the world market. The European region, on the other
hand, accoun…
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