IKEA †Case Study Essay

outline of the itemIKEA (Ingvar Kamprad Elmtaryd Agunnaryd) is a privately held, international cornerstone intersection points smart set that designs and sells ready-to-assemble article of furniture, appliances and home accessories. The caller-out is now the worlds largest furniture retailer. IKEA was baseed in 1943 by 17-year-old Ingvar Kamprad in Sweden, named as an acronym comprising the initials of the founders name (Ingvar Kamprad), the farm where he grew up (Elmtaryd), and his home parish. Kamprad started the comp either at his home as a mail order comp any(prenominal). He sold goods which he purchased from low priced sources and then(prenominal) advertized in a newsletter to local shopkeepers. In 1948 he added in his catalogue furniture. Furniture was a success so he gave up the small items and focused only on furniture. In 1951 he unfastened the first display chime in in nearby Almhult where the clients could preview and glance products and then order from the cata logue.This was also an immediate success as commonwealth travelled plane from Stockholm to visit the store. This led IKEA to stop pass judgment mail orders. Now, the IKEA strategy is to publish a yearly catalogue, distribute it to the clients and abet them to visit the store name (Barlett, Ghoshal, & Beamish, 2008). The sales take off in the late 50s led IKEA to look abroad for new sources of supply as the local industry could not respond to the demand. In 1961, IKEA outsourced production to furniture pointories in Poland. Poland became IKEAs largest source and lowered significantly the production costs. This allowed IKEA to reduce its prices even more. The success in Poland led IKEA to adopt a general normal that it should mot own its means of production but should look for suppliers with whom it should get around close long term relationships.Building on the first stores success, the first store in Stockholm opened in 1965. Even before that, in 1963, IKEA operated a store i n Oslo. former(a)countries followed and today IKEA operates 313 stores in 38 countries, most of them in Europe, North America, Asia and Australia (IKEA, 2010). close to of IKEAs competitive advantages are that the brand is associated with simple, low cost,stylish products. The concept was furnishing products and house-wares that had massive appeal to a variety of markets and segments, both consumer and the business market exclusively. both(prenominal) markets were looking for well styled, high quality furniture that reasonably priced and quickly available.Also, IKEA developed a model for the business, where it was able to keep costs low. From the customer point of view, they were able to buy low cost furniture, even though they had to assemble and collect the flat-packed furniture from stores. IKEA to was able to reduce costs, as this dearly-won part of the value chain was carried out by the customer.Adding to that, IKEA promoted the Swedish lifestyle. many another(prenomina l) people associate Sweden with a fresh, healthy way of life. This Swedish lifestyle is reflected in the IKEA product range. The freshness of the open air is reflected in the colorize and materials used and the sense of space they create blond woods, natural textiles and untreated surfaces. Also IKEA stores promote Swedish food and products. IKEAs low-priced restaurant and securities industry shop adjudge made IKEA Swedens leading food exporter. However, international expansion was not without problems for IKEA. During the 1980s environmental problems arose with some of IKEAs products and during the 1990s IKEA was impeach that its suppliers were using youngster wear down. In the 1980s the formaldehyde regulations passed in Denmark caused problems to IKEA. by and by the discovery that some of its products emitted more formaldehyde than the legislation allowed the company was fined.The company responded and established stringent requirements regarding formaldehyde emissions. E ven though, the problem did not vaporise as in 1992 a German investigation team found that an IKEA bookcase had higher emissions that the ones allowed by the German law. Since then, IKEA has improved its procedures to evaluate the environmental collision of its products. Currently, IKEA uses a tool called the e-Wheel to evaluate the environmental impact of its products. The e-Wheelhelps IKEA to analyze the intravenous feeding stages within the life of a product. This also helps suppliers improve their understanding of the environmental impact of the products they are supplying (The generation 100).Next, the issue with tike lying-in arose in 1994 when a Swedish television documentary showed sisterren in Pakistan on the job(p) at weaving looms. IKEA was one of the several Swedish companies that were mentioned as importers of carpets from Pakistan. IKEA was unaware of the problem and tried to respond by sending a levelheaded team to Genevafor input and advice from the Interna tional Labor.Association(ILO). IKEA discovered that child moil was not illegal in these countries so the only way to portion out the problem was by adding a clause for child wear out in their contracts and outsource the monitoring of this clause to a deuce-ace party company. that it appears that this measure was not effective enough, as in 2007, Anders Dahlvig, the multi-nationals captain Executive Officer, admitted that some of the companys products were still produced using child labor (Wadsworth, 2007).Key Issues and PlayersThe key players in this case are the IKEA company and its suppliers. In order to keep its competitive advantage IKEA outsources its product manufacturing to third party suppliers throughout the world. But, this practice is often the source of many issues. umteen times the legislation in these countries does not match the standards and the ethical value of the western developed countries which are the main customer base of the company. This fact can cau se issues like weak environmental policies or child labor that hurt the public image of the company. This has direct effect on the companys sales.ProblemThe main problem that IKEA faces nowadays is the ungoverned child labor in countries which supply the company with carpets. Child labor in countries like India and Pakistan is a common phenomenon. The company lacks effective slipway to control its suppliers in these countries. At the same time, childlabor is socially acceptable in these places as poverty pushes people to divulge ways to survive. So the company cannot rely on the local authorities for help. Also, any attempts on behalf of IKEA to control this issue didnt seem to succeed.Alternative SolutionsA possible solution for controlling the child labor for IKEA is to cancel any contracts with suppliers in countries that do not adopt the convention 138 of ILO, that deals with the child labor issues. This way IKEA result be able to get assistance for child labor issues from local authorities since it will be prohibited by local laws. Another solution would be to come to more rigorous agreements with the suppliers and launch intensive controls for the effectuation of the agreement.Selected SolutionThe selected solution is IKEA to enhance its agreements with the suppliers and change its controls against child labor. The company should appoint inspectors in these countries that would inspect the suppliers and report the situation on frequent basisResults and Rationale of the SolutionThe cancelation of the contracts does not seem a rational choice at the moment because it will have a big cost for the company. The company will need to find new suppliers in other countries with higher labor cost and doubtable product quality. This is a move with higher risk and cost that the selected solution.Positive and prejudicious ResultsThe positive results of the selected solution are that the child labor issues will pass and the companys profile will be protected. The negative results are that the companys cost will increase as limited review staff will be hired to perform the inspections and some contracts will need to be canceled due to failure to adhere to the conditions of the contract by the suppliersReferencesBarlett, C., Ghoshal, S., & Beamish, P. (2008). Transnational Management. Singapore McGraw-Hill.Building a sustainable supply chain. (n.d.). Retrieved November 27, 2010, from The Times 100 http//www.thetimes100.co.uk/case-studybuilding-a-sustainable-supply-chain110-279-3.php IKEA. (n.d.). Retrieved November 28, 2010, from IKEAhttp//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 lying-in and green issues. Retrieved November 27, 2010, from The Latest http//www.the-latest.com/ikea-slammed-over-child-labour-andgreen-issues