Introduction
IKEA is global furniture company that was established many decades ago by Ingva Kamprad in Smaland, Sweden. According to the founder the company was established on the following principles: togetherness; cost-consciousness; respect; and simplicity.
After decades of hard work Kamprad created a global company that opened close to 300 stores in 36 countries worldwide. But in the 21st century many companies are aware that the bottom-line is not the only requirement to success, business organizations like IKEA must learn to develop sustainable practices that will benefit not only the firm but also other stakeholders in the company.
The United Nations’ Global Compact business initiative is a voluntary program that encourages multinational corporations to respect human rights and develop strategies that would demonstrate their commitment to the conservation of the environment.
In this particular case the proponent of this study would like to focus on Principle Number 1 and Principle Number 8 under the UN’s Global Compact. These two principles are important in the context of sustainability and environmental responsibility. These are the two key areas that are in need of serious action when it comes to the impact created by multinational corporations.
The first principle states: “Business should ensure that their own operations are not complicit in human rights abuses.” There several components under human rights abuse but in the case of IKEA building good community relationships stand out as one of the primary evidence that this company is serious in submitting to Principle Number 1.
The eight principle states that: “Business should undertake initiatives to promote greater environmental responsibility.” There are several ways to promote environmental responsibility but in the case of IKEA the focus would be on these three related areas: the need to develop sustainable production and consumption program; the need to work with suppliers to improve environmental responsibility; and the need to redefine company vision to include environmental quality.
Lessons Learned
When it comes to environmental responsibility a UK based company called the National Salvage Group or NSG. The main focus of NSG is to acquire end of life vehicles from insurers and other sources to recycle and reuse the parts that can be salvaged from old vehicles and those that are no longer functional after a serious car accident.
This business strategy helps the environment but at the same time it helps various stakeholders like insurers and the community. The insurers can get more value from the cars that they insured and the community benefits from the reduction of waste materials that crowd the local dumpsite.
In the case of IKEA, adherence to Principle Number 1 paved the way for the creation of the IKEA Foundation. One of the primary achievements of this foundation is the release of 7.5 million Euros to help improve water sanitation programs in India. It has to be pointed out that since IKEA has a presence in India then this move is an example of building good community relationships with the local community.
Adherence to Principle Number 8 paved the way for the creation of sustainable programs such as farming techniques that would ensure the production of sustainable cotton in India. There are at least 80,000 farmers in India and Pakistan that benefited from sustainable farming practices. The absence of sustainable farming strategies means that farmers are unable to ensure that they can continually provide for their families and be assured that there is a reliable source of income available to them.
The commitment to purchase cotton products through the use of sustainable practices is a risky strategy because it limits the capability of the company to buy cheap raw materials. Therefore, this strategy can easily hurt the bottom line of IKEA. On the other hand this action improves its image in the international community and therefore can attract more customers to the IKEA brand.
It is clear that the IKEA group understood the importance of corporate social responsibility. According to one report companies are made profitable through non-sustainable means and their customers and yet consumers and other interest groups are making it known that if there are alternative products that can show signs of adherence to corporate social responsibility and environmental conservation principle then they would readily patronise this product or service.
It is no longer acceptable to continue unlawful and non-sustainable practices such as: “as child labour, sweatshops, and discrimination in hiring and other forms of discrimination, produces products detrimental to society or engages in business dealings that are deemed reprehensible by most people.”
It is time to consider that “companies will be able to maximise their business opportunities by broadening the corporate vision to include the social dimension and by implementing responsible management policies and practices.” This statement is the reason why the UN Global Compact was established and many multinational companies will do well to adhere to the principles under it.
Recommendations
Multinational companies must understand the long-term benefits of adhering to the principles embodied in UN’s Global Compact. At first glance it seems to be a risky proposition because it is difficult to justify its cost-effectiveness. It must not be denied that in the beginning, the business organisation may find a reduction in their profitability but in the long run, long-term gains are sustainable and therefore business continuity is assured.
Stakeholders
Cotton farmers will greatly benefit from the program established by IKEA. They are assured that their farms will remain sustainable in the foreseeable future. They are also assured that there is a market for their products and that they are protected from unscrupulous businessmen that may force them to lower their prices below market value. There is peace of mind for the farmers and they need not worry about success of their livelihood.
Risk for Stakeholders
The clients of IKEA are also one of the primary stakeholders of the company. Although sustainable farming practices are beneficial to the environment there is no assurance that the company will not be forced to increase their prices to cover the investments made in eco-friendly ventures. Thus, there is a risk that IKEA products will become more expensive in the near future.
Implications for IKEA
The company needs to carefully map out its strategy in order to remain competitive. IKEA must study the operational expenses that result from developing sustainable farming practices as well as releasing funds to help something that has no direct impact on the overall business performance of the company. Case in point would be the humanitarian involvement in India where the company spent millions of Euros providing safe and potable water to the Indian and Pakistani people.
Conclusion
It is a bold step to participate with the UN Global Compact initiative. It is beneficial to IKEA’s image and long-term prospects. However, it is an expensive venture. There is a reason why not every major multinational firm participated in this UN project. It is imperative that IKEA must study its strategies and commitments in order to remain competitive in the long-run. It is also important that IKEA must communicate its goals and aspirations to its loyal clients and to potential clients so that customer loyalty can be ensured.
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