IKEA

Pulling the rug out…

IKEA - Background

• Formed in 1940 in Sweden by Ingvar Kamprad

• Sold incidentals like cigarette lighters, fountain pens, etc. from his kitchen as a 17 year old. Added furniture to great success.

• Competition in furniture industry was a cartel that conspired to keep furniture prices high

IKEA Philosophy

• Creating a Better Life for People

• We shall offer a wide range of home furnishings items of good design and function at prices so low that the majority of people can afford to buy them.

How?

• Self-assembled furniture

• Systemized production

• Low transportation costs

• Low storage costs

• Sales double in just 3 years in the hungry postwar years

But…

• Swedish furniture cartel opposes IKEA’s competitive threat

• Pressure local manufacturers not to sell to IKEA

• IKEA forced to look abroad for new sources

• IKEA looks to Poland to source manufacturing – even lower costs, manufacturing control and revitalizes Polish furniture industry

Business Philosophy emerges

• Build long-standing partnerships

• Buy unused production capacity, not products

• IKEA directly involved in production abroad

• Retail expands

The Mission

• Product: well-designed functional home furnishings priced so low that as many people as possible can afford them.

• Spirit: Enthusiasm, renewal, thrift, responsibility, simplicity and humility

• Profit: provides the resources needed through low prices, good quality, economical production, improved purchasing

Values

• Waste is a sin

• Do it differently

• Focus

• Make mistakes

• Take responsibility

• Simplicity and common sense

By the mid 1990s…• IKEA is the world’s largest furniture

retailer, with sales of $4.6 billion

• 116 million people visited 98 stores in 17 countries

• 2,300 suppliers in 70 countries

• 24 trading offices monitored production, negotiated prices, quality

Environmental and Social Issues

• Formaldehyde in particleboard products

• IKEA publicly shown to have high levels, sales drop 20% in Denmark

• IKEA reduces emissions by working directly with glue manufacturers; stops production on product line with biggest problem (a $7 million loss)

Environmental awakening

• IKEA refuses to use any timber, veneer or plywood from intact natural forests or forests with high conservation value

• Extends into other area:– Paper in catalogs– Elimination of PVC in packaging– Links with WWF and Greenpeace on global

conservation

Social wake-up

• A 1994 television program shows children working on looms making carpets for a range of suppliers, including IKEA

• IKEA stunned; adds a clause to all contracts promising to cancel any contractwith a manufacturer who uses labor of children

under legal working age.

The Problem’s Scope

Hard to grasp

Indian government estimates 11 million children under 15 working in India

Human Rights Watch estimates between 60 and 115 million

Some as young as 5 working in agriculture, mining, manufacturing, servants, street beggars

Deeply embedded

• Children could be bonded into servitude to pay off parents’ debts. Illegal, but still done

• Government position was equivocal: poverty demanded that children work; okay when children worked alongside parents in agriculture, cottage industries, craft work

• Prosecution very rare

Certification

• In response, European export operations in collaboration with Indian rug manufacturers and NGOs for “RugMark”

• Certifies that no child labor wasused

• U.N. Convention on the Rights of the Child urges “do what is in the best interest of the child.”

New crisis

• Documentary about to air that shows a major IKEA rug supplier in India using child labor

• IKEA invited to respond on air

What is the problem?

• Who are the stakeholders?

• How do the vision and mission of IKEA influence these decisions?

Questions and alternatives• Should they participate in the documentary?

• What should IKEA do about the Indian supplier?

• Should IKEA let the RugMark organization deal with issues of child labor?

• Should IKEA manage their own issues of child labor with suppliers?

• Should they accept that they may have little impact on deeply-held cultural and socio-economic issues of child labor and withdraw?