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BUSM 4692: Managing InternationalBusiness ResponsibilityAssignment 2: Individual Essay - CompanyAnalysisSubject Code: BUSM 4692Subject Name: Managing International Business ResponsibilityLocation & Campus RMIT Vietnam, HCMCStudent Name: Le Thi Minh KienStudent Number: SYour Teacher: Mr. Thanapat...

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BUSM 4692: Managing International Business Responsibility Assignment 2: Individual Essay - Company Analysis Subject Code:

BUSM 4692

Subject Name:

Managing International Business Responsibility

Location & Campus

RMIT Vietnam, HCMC

Student Name:

Le Thi Minh Kien

Student Number:

S3817780

Your Teacher:

Mr. Thanapat Kijbumrung

Word Count:

2617

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Table of content: A.

INTRODUCTION:.............................................................................................................................4

B.

BACKGROUND OF IKEA COMPANY:............................................................................................4

C.

ANALYSIS CSR PROGRAM:............................................................................................................5 1.

Stakeholder interests:....................................................................................................................5

2.

Environmental responsibility:.......................................................................................................6

D.

EVALUATION CSR PROGRAM:......................................................................................................7 1.

CSR’s literature review:................................................................................................................7

2.

The Success of CSR Programs:.....................................................................................................7

3.

CSR’s program problems:..........................................................................................................10

E.

RECOMMENDATIONS:.................................................................................................................11

F.

CONCLUSION:................................................................................................................................11

G.

REFERENCES:...............................................................................................................................11

H.

APPENDIX:..................................................................................................................................14

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I declare that in submitting all work for this assessment I have read, understood and agree to the content and expectations of the Assessment declaration

A. INTRODUCTION: In recent times, the global economy develops rapidly which relates to the increase in production and commodity exchange. These influences lead to numerous serious consequences such as damage to brand image and customer’s loyalty (Clark 2021). Thus, enterprises must find the appropriate solution to solve these problems and corporate social responsibility is the proper activity for them to gain different benefits from this method; for example, build brand image and consolidate consumer loyalty (Murphy 2021). The company chosen to analyze in this essay is Ikea- one of the most famous furniture company in the world which implements and reports their sustainability activities annually. In this piece of paper, how CSR affects multinational company is analyzed coherently, especially Ikea. First of all, a brief introduction of Ikea and the purposes of CSR program are identified. Then, CSR influences on the operation of Ikea based on the information which related to CSR theories and gathered from company report and sustainability report. A critical evaluation about the benefit of CSR for Ikea is also provided based on the perspective of stakeholders like NGOs, union, and community. Last but not least, some of the useful recommendations are investigated to support Ikea to improve their CSR program. B. BACKGROUND OF IKEA COMPANY: According to Rud (2021), Ikea is the one of the largest furnishing retail companies in the world at the present. The company was first founded in Sweden by Ingvar Kamprad in 1943 (Ikea Company n.d.). Until now, Ikea has expanded to 50 markets with 422 stores and 139,000 employees in 2019 (Ikea Company n.d.). The business aims to create the better living space for people through well-designed, functional, and affordable furnishing products (Ikea Company n.d.). Regarding to Statista Research Development (2021), Ikea maintains the stable retail performance for many years and gained 36 billion euros of the revenue in 2020. Besides developing financial performance, the organization also concentrates on improving living conditions for citizens. Ikea’s founder - Kamprad said that the company ensured to use a part of the profit to support the people in need. Ikea does the corporate social responsibility for many years and CSR becomes one of its key values. To be specific, Ikea establishes an organization named Ingka Foundation with the charitable purposes (Ingka Foundation n.d.). Some of their dominant activities are recycling wastes into resources, protecting natural resources, and using 3

reusable materials for their products (Ikea Company n.d.). Furthermore, Ikea also corporates with UNICEF and supports educational programs for miserable children (Ikea Company n.d.). The business started doing CSR from 2012 with the name People and Planet Positive and their activities are reported particularly via company sustainability report (Dudovskiy 2019).

C. ANALYSIS CSR PROGRAM:

In this section, the CSR program of Ikea is analyzed completely based on the information taken from Ikea Sustainability Report FY20. 1. Stakeholder interests:

a. Human rights and labor: Supporting human rights and providing safe workplace. The international business has responsibilities to all stakeholders, especially their employees. Respecting human rights is the important motivation for the employees and protects them against discrimination in the workplace (National Action Plans on Business and Human Rights n.d.). Furthermore, committing civil rights also contribute on recruiting potential workers, attracting customers and investors (Amis 2011). After recognizing the importance of it, Ikea are committed to respecting and supporting human right in its workplace. To prove this point, the company ensures that the workplaces are safe, and the employee health are always concerned. In FY20, the number of accidents in Ikea’s manufactory decreases 29% in comparison with FY18 and the company constantly tries to reach the goal of zero accident in the near future. Besides that, Ikea guarantees that the exertion of workers is admitted, and the salary is paid equally based on the employee’s contribution. Ikea also promotes the equality of their workers, prevents the discrimination between different religion and skin color. b. Customers: encouraging people to live sustainable life. First and foremost, Ikea strongly supports its customers to live the more sustainable life. According to the details in company sustainability report FY20, more than 40% of their customers live in the high water-stressed areas. Thus, the firm produces water-recycling shower to solve this problem. This method saves 80% of water and 70% of energy for their clients’ 4

home. Additionally, Ikea supplies 10,000 solar panels to customer’s home that estimates to save EUR 10 million and 60,000 tons of . The life of products is also prolonged to promote customers pass on products in circular ways. c. Community: supporting communities during Covid-19 pandemic. The year 2020 is very special due to the serious situation of Corona pandemic which relates to the difficulties for many people. Because of that, Ikea creates many policies with the aim to support citizens overcome this challenge time. As stated in Ikea sustainability report FY20, this enterprise donates 1.7 million products for epidemic prevention, for example, face masks, beds, foods and health centers and hospitals. In India, Ikea store helps 200 beds with numerous of necessities like pillows, pillow covers and water bottles. Moreover, Ikea China supported 117,000 medical equipment for hospitals and Ikea Spain donated 5,000 hospital beds. To improve the quality of home learning, the business also corporates with 80 charities to provide “let’s play and learn” kits to 10,000 vulnerable children. 2. Environmental responsibility: a. Transforming into a circular business: The most concentrated environmental goal of Ikea is transforming into a circular business. Circular business model is defined as the way that a company creates, captures, and delivers value with the logical solution to improve resource efficiency and contribute to the extension of products life (Nußholz 2017). Ikea sets the goal to design 100% of products be reused, refurbished, recycled, and remanufactured at the beginning. To achieve this point, the firm carefully selects and combines materials to produce the products that designed with the standardization and adaptability enable reuse and refurbishment via maintenance and repair. In addition, Ikea decides to use only renewable or recycled materials for their products. For instance, 60% of Ikea products are made from renewable materials and 10% of them produced from recycled materials. There are four circular loops within the firm’s circular model (Appendix 1). b. Becoming climate positive: By 2030, Ikea committed to greenhouse gas emission within its business operation and becomes climate positive. The company investigates some solutions such as attempting towards 100% of 5

renewable energy, promoting sustainable resources and materials, changing into circular business. Ikea creates number of targets improve their footprint on climate such as drastically decreasing greenhouse gas emission, storing carbon in land or products and extending the project beyond the company by motivating customers using renewable resources at their house. In 2020, the carbon footprint produced by Ikea is approximate 21.2 million tones and reduces 11% compared to the previous year (Appendix 2). In general, Ikea achieves significant success of becoming climate positive in a few years and it continue to develop this goal until 2030. D. EVALUATION CSR PROGRAM: 1. CSR’s literature review: Although the topic of Corporate Social Responsibility has been discussed since 1950, the precise definition for CSR is still unknown (Thacker 2019). Normally, CSR refers to a firm’s activities that combine the concerns of society, environment, and ethics with the business operation to create value for its shareholders and stakeholders (Newman et al 2020). Apart from evaluating CSR program through company report, people can estimate the CSR program through the company’s performance in reality and the perspectives of its stakeholders (Dongho & Jieun 2018). In the situation of Ikea furnishing company, there are two concepts chosen to evaluate the CSR program. The first theory is Carroll’s Pyramid that focuses on 4 perspectives of CSR and Stakeholder theory. 2. The Success of CSR Program s: a. The Carroll’s Pyramid: Pyramid of Corporate Social Responsibility refers to the requirements, expectations, and desires of numerous stakeholders that a business must satisfy to meet its CSR. It was created by Archie Carroll and includes four main responsibilities of the organization which are the responsibility of economy, legality, ethic, and philanthropy (Bhasin 2019). In this essay, the Carroll’s Pyramid is applied to evaluate Ikea’s CSR program.

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Figure 1: Pyramid of Corporate Social Responsibility (Source: Carroll 1991) Economic responsibilities are the most basic requirements of every company and the foundation for other requirements; thus, it was listed at the bottom of the CSR Pyramid. The responsibility involves maximize the revenue, commit to be profitable, maintain the competitive position and operate efficiently (Carroll 1991). In spite of the serious circumstance of COVID 19 pandemic, Ikea achieved the strong financial performance in FY20. The value of sales of goods in 2020 is EUR 22,387 million and the total revenue is approximate EUR 23,613 million (Ikea Company 2021). In 2017, although the pandemic does not occur, Ikea’s financial results are not successful as FY20. The total revenue of FY17 is about EUR 22,878 million which is less than 2020 EUR 1,226 million (Appendix 3&4). In general, Ikea is developing remarkably from year to year and achieves the impressive financial results despite of the hard period. Owing to the strong increase in finance, Ikea has enough ability to improve the working condition for their employees and satisfy their shareholders’ interests (Shuwaler et at 2020). The second responsibility of businesses to meet their CSR is Legal responsibilities. Aside from focusing on generating profits, firms are required to obey the laws and regulations promulgated by local governments (Tamvada 2020). A successful business is known as the one that 7

accomplishes its legal obligations and complies with the rules of federals, states, and local governments (Carroll 1991). Although there are some problems relating to legality, Ikea are trying to improve these issues day-by-day. As stated in Ikea Sustainability Report FY20, Ikea faced numerous charges due to the illegal wood sources from Ukrainian suppliers. Hence, the firm and the Wood Supply and Forestry specialist team implemented an investigation and confirmed that there is no illegal logging in their supply chain. Besides that, the company also corporates with its partner that is Worldwide Funds for Nature (WWF) to decrease the illegal logging and protect old-growth forests (Ikea Company 2021). Thirdly, Ethical responsibilities are the one expected by number of company’s stakeholders (Wong & Dhanesh 2017). An organization embraces ethical responsibilities when it equally treats all stakeholders which consist of employees, investors, suppliers, and customers (Stobierski 2021). Ikea always provides the most comfortable working conditions for employees and adjusts its products and services to satisfy customers interests. Besides that, the benefit of supplier is also one of their concerns. During FY20, the key goal of Ikea is developing healthcare and safety for their employees. Moreover, equality between colleagues is also one of their core values and cultures (Ikea Company 2021). Besides that, during Covid-19 pandemic, Ikea communicates with its suppliers to understand what they need to do together. The enterprise also follows the purchase agreements if it is possible and adjust in order not to cancel any future orders (Ikea Company 2021). The ultimate responsibility of business to achieve CSR is Philanthropic responsibilities. Regarding to Kurniawati & Danthy (1991), Philanthropic responsibilities refer to the communities’ expectation of the firms which relates to chariable actions. Generally, these activities are understood as the voluntary activities that an enterprise contributes its available resources to support education or improve citizen’s living conditions (Grigore 2010). However, in contrast with Ethical responisbility, unless the company achieve Philanthropic responsibilities, it does not mean that this is the unethical business (Carroll 1991). To achieve this point, Ikea founded an charitable organsisation named Ingka Group to support the community and environment for many years. Ikea donates a large amount of its availble resources to support the community for a long time, especially during this difficult period. For instance, Ikea Canada commited to donate approxiamte $2 million for the local society to overcome this time (Ikea

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Canada 2020). Besides that, Ikea also takes responsibility for the environment. To demonstrate this point, Ikea invested $220 million for green energy, reforestation and project of forest protection in 2019 (Cuff 2019). In brief, Philanthropic responsibility is one of the most important concerns of Ikea and the enterprise strives for fulfilling this responsibility. b. Stakeholder theory: According to Freeman (1984), Stakeholder is understood as the parties that either affect or be affected by the company operation. These people includes employees, customers, suppliers, governments and shareholders. In order to become a successful business, not only does the firm simply generate profits, but it also satisfies the stakeholder’s interests equally (Dooms 2019). Ikea makes an effort to cover all stakeholders demands from the most important stakeholders like customers, employees, or suppliers to the community. The benefits of stakeholders are the important concerns of Ikea for many years (Fernando 2021). To demonstrate this attempt, Ikea facilitates its employees the most comfortable working conditions as mentioned in the section above. In 2020, Ikea Canada has donated $500,000 and products to help community overcome this period. This fund is used to support many different organisations like Black Health Alliance, Save the Children and National Association of Friendship Centers (Ikea Company 2020). Overall, Ikea spends lots of available resources to satisfy its stakeholders interests, especially during Covid 19 pandemic. 3. CSR’s program problems: As mentioning in the part of the evaluation CSR, Ikea has meet its CSR based on Pyramid of CSR and Stakeholder Theory: Normative Perspective. However, there are some problems occur during the operation that need improving as soon as possible. a. Using political prisoners as forced labors: The Sweden furnishing company received numourous critizism from society since using political prisoners as its forced labour since three decades ago (Milmo 2012). Ikea published an independent report and admitted that it allowed political prisoners to engage in manufacturing products in East German 25 or 30 years ago (SBS News 2012). Hence, Mr. Wagner, the chairman of victim’s group UOKG expected that Ikea would pay a fair compensation for these victims. b. Selling products related to illegal resources:

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According to a non-profit environmental organization, Ikea is doubted to use illegal logging from Russia for their products which threatens the natural environment and impacts negatively on the climates (Lehren et al. 2021). To be specific, some of the Ikea’s most popular children’s furnishing goods like Sundvik beds and Flisat Dollhouse made from pine wood which supplied by a Russian logging company in Seberia. However, these wood is cut illegally from protected forest and raised serious argument for Ikea (Lehren et al. 2021). E. RECOMMENDATIONS: a. Regulating HR management and compensation of employees: Human resources management must fulfill the safety and healthcare of labors and obey the relevant laws of the local government. Ikea made the serious issue in HR managemt, thus the firm has to adjust their CSR relating to human right and compensate rationally for these victims (Odina n.d.). b. Managing supply chains carefully: Ikea always maintains a good relationship with their suppliers and supports them to develop, especially during Covid 19 pandemic. Nevertheless, this is also the chance for them to exploit the confidence of the business and make some mistakes that directly affect the reputation of Ikea. Hence, it is important to manage the sources of supply carefully to avoid thesr problems (Nicasio 2021). F. CONCLUSION: Corporate Social Responsibility plays an important role in the long-term achievement of a company. In this paper, Ikea’s CSR program was analysed and evaluated completely based on Stakeholder theory and Carroll’s Pyramid of CSR. In general, the company achieves its CSR with many sustainable activities and satisfies the interests of stakeholders. However, Ikea meets some mistakes that partly influence on its reputation. For this reason, Ikea should constantly adjust their CSR program to improve the problems and develop company in long-term. G. REFERENCES: Amis, L 2011, ‘A Guide for Business How to De...