Ikea Case Study

In order to attract customers and investors, many multinational corporations with Chinese supply chains have begun to require certification to global standards associated with quality and environmental management, such as ISO 9000 or ISO 14000. Others impose their own more demanding ‘codes of conduct’ upon those who supply them with finished products or components for assembly. IKEA and the shower curtain manufacturer discussed previously are one example. After a manufacturer of some of their carpets was linked to child labor in the mid-1990s, IKEA developed “The IKEA Code of Conduct” for its suppliers, as do many retailers sensitive to public image and the value of their brand names. IKEA was an early and high profile leader in openly addressing issues of social and environmental responsibility in the supply chain. IKEA’s motto is “low prices, but not at any price.” Clothing and sport goods retail giants such as The GAP and Nike have experienced similar, though more troubled, conversions to high profile implementation of social responsibility programs.

The difficulties that western multinational corporations have in balancing their desire to maximize the financial bottom line, while addressing the social and environmental costs of doing business and wishing to appear and to be socially responsible, are apparent within the business model of IKEA. Publicly and internally, IKEA is dedicated not only to maintaining its low prices, but to continually lowering its prices. Recently IKEA committed itself to implementing this strategy not only in its European and North American stores, but in the world’s most ferociously price competitive market, China. In order to gain and hold market share in China, IKEA has made significant price reductions to attract reluctant Chinese consumers to products which reflect strong Swedish and European aesthetics. IKEA sells some of its featured items more cheaply in China than in Europe . We recently wandered through IKEA’s Beijing store with one of its suppliers who had just traveled through Europe, and he pointed to numerous items that he manufactured and had priced in IKEA’s European stores. Prices were significantly lower in Beijing.

IKEA’s global, and now regionally intensified, low-pricing strategy puts it in an interesting position. Competing on price in the middle and lower levels of China’s already low-priced market will test a business model that seeks to continually lower its prices while assuring customers that products are produced and traded responsibly and fairly. What makes IKEA’s position so interesting is the unique flexibility it has in striking this balance. As a privately held company owned entirely by one of the world’s wealthiest families, IKEA is not bound by demands from shareholders desiring maximum quarterly returns or pension fund investors needing to secure steady and maximized incomes. IKEA’s owners can afford to experiment with change and innovation, and to find the formula to ‘do it right’. Their choices reflect not only the owners’ personal values, but the values of two very different cultures confronting one another. On the one hand Lutheran Swedish culture reflects a Protestant ethic that infused capitalism with its spirit of maximizing personal wealth. The German sociologist Max Weber described how this spirit equated individual personal wealth accumulation with comforting hints that material good fortune reflects God’s favor and spiritual salvation for the individual. Chinese culture may also relate “salvation” to wealth, but only insofar as it is shared and made collective. Representing this communal spirit of wealth sharing, many of IKEA’s suppliers are struggling to maintain sufficient profitability to survive and to support poverty alleviation in their villages.

If IKEA’s owners have brought contrasting entrepreneurial values into stark relief in China, so too have they shone the limelight on contrasting consumer values and on the dilemma of corporate dependence upon the values of consumer culture. Ultimately, large multinational corporations like IKEA cannot succeed at being socially and environmentally responsible if the customers for their products do not see such action as added value. Customers must be willing to reward this SR value either by paying more for it or by selecting goods and retailers incorporating such values.

How might this apply to China’s SR entrepreneurs? Companies like IKEA have an opportunity to educate their customers about the implications of being an IKEA customer. Currently IKEA’s social responsibility practices are documented in its website and in an internally circulated brochure for educating staff about the Code of Conduct so that they may respond if customers should happen to ask about this. However, it is difficult to find any mention of IKEA’s social and