IKEA – Case Study Essay

September 11, 2017 Management

Outline of the state of affairs

IKEA ( Ingvar Kamprad Elmtaryd Agunnaryd ) is a in private held. international place merchandises company that designs and sells ready-to-assemble furniture. contraptions and place accoutrements. The company is now the world’s largest furniture retail merchant. IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden. named as an acronym consisting the initials of the founder’s name ( Ingvar Kamprad ) . the farm where he grew up ( Elmtaryd ) . and his place parish. Kamprad started the company at his place as a mail order company. He sold goods which he purchased from low priced beginnings and so advertized in a newssheet to local tradesmans. In 1948 he added in his catalogue furniture. Furniture was a success so he gave up the little points and focused merely on furniture. In 1951 he opened the first show shop in nearby Almhult where the clients could preview and inspect merchandises and so order from the catalogue.

This was besides an immediate success as people travelled even from Stockholm to see the shop. This led IKEA to halt accepting mail orders. Now. the IKEA scheme is to print a annual catalogue. administer it to the clients and promote them to see the shop name ( Barlett. Ghoshal. & A ; Beamish. 2008 ) . The gross revenues take off in the late fifties led IKEA to look abroad for new beginnings of supply as the local industry could non react to the demand. In 1961. IKEA outsourced production to furniture mills in Poland. Poland became IKEAs largest beginning and lowered significantly the production costs. This allowed IKEA to cut down its monetary values even more. The success in Poland led IKEA to follow a general rule that it should mot own its agencies of production but should look for providers with whom it should develop near long term relationships.

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Building on the first store’s success. the first shop in Stockholm opened in 1965. Even before that. in 1963. IKEA operated a shop in Oslo. Other states followed and today IKEA operates 313 shops in 38 states. most of them in Europe. North America. Asia and Australia ( IKEA. 2010 ) . Some of IKEAs competitory advantages are that the trade name is associated with simple. low cost. fashionable merchandises. The construct was supplying merchandises and house-wares that had broad entreaty to a assortment of markets and sections. both consumer and the concern market entirely. Both markets were looking for good styled. high quality furniture that moderately priced and readily available.

Besides. IKEA developed a theoretical account for the concern. where it was able to maintain costs low. From the client point of position. they were able to purchase low cost furniture. even though they had to assemble and roll up the flat-packed furniture from shops. IKEA to was able to cut down costs. as this dearly-won portion of the value concatenation was carried out by the client.

Adding to that. IKEA promoted the Swedish life style. Many people associate Sweden with a fresh. healthy manner of life. This Swedish life style is reflected in the IKEA merchandise scope. The freshness of the unfastened air is reflected in the colourss and stuffs used and the sense of infinite they create: blond forests. natural fabrics and untreated surfaces. Besides IKEA shops promote Swedish nutrient and merchandises. IKEAs low-cost eating house and food market store have made IKEA Sweden’s taking nutrient exporter. However. planetary enlargement was non without jobs for IKEA. During the 1980’s environmental jobs arose with some of IKEAs merchandises and during the 1990’s IKEA was accused that its providers were utilizing child labour. In the 1980’s the formaldehyde ordinances passed in Denmark caused jobs to IKEA. After the find that some of its merchandises emitted more formaldehyde than the statute law allowed the company was fined.

The company responded and established stringent demands sing formaldehyde emanations. Even though. the job did non vanish as in 1992 a German probe squad found that an IKEA bookcase had higher emanations that the 1s allowed by the German jurisprudence. Since so. IKEA has improved its processs to measure the environmental impact of its merchandises. Currently. IKEA uses a tool called the ‘e-Wheel’ to measure the environmental impact of its merchandises. The e-Wheel aid IKEA to analyse the four phases within the life of a merchandise. This besides helps providers better their apprehension of the environmental impact of the merchandises they are providing ( The Times 100 ) .

Next. the issue with child labour arose in 1994 when a Swedish telecasting docudrama showed kids in Pakistan working at weaving looms. IKEA was one of the several Swedish companies that were mentioned as importers of rugs from Pakistan. IKEA was unaware of the job and tried to react by directing a legal squad to Geneva for input and advice from the International Labor.

Association ( ILO ) . IKEA discovered that child labour was non illegal in these states so the lone manner to manage the job was by adding a clause for child labour in their contracts and outsource the monitoring of this clause to a 3rd party company. But it seems that this step was non effectual plenty. as in 2007. Anders Dahlvig. the multi-national’s Chief Executive Officer. admitted that some of the company’s merchandises were still produced utilizing child labour ( Wadsworth. 2007 ) .

Key Issues and Players

The key participants in this instance are the IKEA company and its providers. In order to maintain its competitory advantage IKEA outsources its merchandise fabrication to third party providers throughout the universe. But. this pattern is frequently the beginning of many issues. Many times the statute law in these states does non fit the criterions and the ethical values of the western developed states which are the chief client base of the company. This fact can do issues like weak environmental policies or child labour that hurt the public image of the company. This has direct consequence on the company’s gross revenues.

Problem

The chief job that IKEA faces presents is the uncontrolled kid labour in states which supply the company with rugs. Child labour in states like India and Pakistan is a common phenomenon. The company lacks effectual ways to command its providers in these states. At the same clip. child labour is socially acceptable in these topographic points as poorness pushes people to happen ways to last. So the company can non trust on the local governments for aid. Besides. any efforts on behalf of IKEA to command this issue didn’t seem to win.

Alternate Solutions

A possible solution for commanding the kid labour for IKEA is to call off any contracts with providers in states that do non follow the convention 138 of ILO. that trades with the child labour issues. This manner IKEA will be able to acquire aid for child labour issues from local governments since it will be prohibited by local Torahs. Another solution would be to come to more rigorous understandings with the providers and launch intensive controls for the implementation of the understanding.

Selected Solution

The selected solution is IKEA to heighten its understandings with the providers and escalate its controls against child labour. The company should name inspectors in these states that would inspect the providers and describe the state of affairs on frequent footing

Consequences and Rationale of the Solution

The cancelation of the contracts does non look a rational pick at the minute because it will hold a large cost for the company. The company will necessitate to happen new providers in other states with higher labour cost and doubtable merchandise quality. This is a move with higher hazard and cost that the selected solution.

Positive and Negative Consequences

The positive consequences of the selected solution are that the child labour issues will diminish and the company’s profile will be protected. The negative consequences are that the company’s cost will increase as inspection staff will be hired to execute the reviews and some contracts will necessitate to be canceled due to failure to adhere to the conditions of the contract by the providers

Mentions
Barlett. C. . Ghoshal. S. . & A ; Beamish. P. ( 2008 ) . Multinational Management. Singapore: McGraw-Hill.
Constructing a sustainable supply concatenation. ( n. d. ) . Retrieved November 27. 2010. from The Times 100: hypertext transfer protocol: //www. thetimes100. co. uk/case-study–building-a-sustainable-supply-chain–110-279-3. php IKEA. ( n. d. ) . Retrieved November 28. 2010. from IKEA:

hypertext transfer protocol: //www. ikea. com/ms/sv_SE/about_ikea/facts_and_figures/ikea_group_stores/index. html Wadsworth. M. ( 2007. May 22 ) . IKEA exposed over ‘child Labour’ and green issues. Retrieved November 27. 2010. from The Latest: hypertext transfer protocol: //www. the-latest. com/ikea-slammed-over-child-labour-andgreen-issues

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