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RMIT International University VietnamBUSM4692: Managing International Business ResponsiblyAssignment 2 - Individual Essay – Company AnalysisSubject Code: BUSMSubject Name: Managing International Business ResponsiblyLocation & Campus RMIT Vietnam , HCMCClass Group Number: 2Student name: Lam A...

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RMIT International University Vietnam BUSM4692: Managing International Business Responsibly Assignment 2 - Individual Essay – Company Analysis

Subject Code:

BUSM4692

Subject Name:

Managing International Business Responsibly

Location & Campus

RMIT Vietnam , HCMC

Class Group Number:

2

Student name:

Lam Anh Huy

Student Number:

S3741230

Your Teacher:

Thanapat Kijbumrung

Words (excluding references)

3345

A Paper of analyzing IKEA CSR Works

I.

Introduction

Corporate Social Responsibility (CSR) is becoming a dominant term in global business reporting system. In fact, in order to gain competitive advantages, companies usually have to apply CSR in their operations (Gronvius & Lernborg 2009). It has been proven that CSR not only brings practical benefits to the society but also to the corporations’ profitability (Crowther & Aras 2008). Moreover, there are numerous reasons for companies to engage in CSR such as branding, legitimacy and moral obligation. Therefore, having a decent understanding of CSR would be an advantage for corporations to sustain their economic ability and improve their environmental sustainability position. With a brilliant vision for achieving sustainable development, IKEA has gained wide acclaim for their CSR work that bring ethical value for the society and for the company as well. This report would give insight of the CSR framework of IKEA and why they’re doing it as well as the evaluation of IKEA’s CSR works. Finally, with a decent understanding of IKEA’s CSR works, we can suggest the suitable recommendations of how IKEA could improve their CSR programs as well as their company performance.

II.

Background of IKEA

IKEA is one of the world’s top furniture retailers. In addition, it was founded in 1943 by Ingvar Kamprad in Sweden (IKEA n.d.). In the next decades, IKEA expanded rapidly into USA, France and Italy (IKEA n.d.). Nowadays, IKEA has opened 433 stores all over the world in 52 countries (IKEA 2019). According to Loeb (2012), IKEA is considered to be the largest retailer in the world as well as very focused on core values such as sustainability, quality, market differences and customers. Additionally, IKEA’s products are eco-friendly designed and most of which are assembled by the customers as the company stated that would help it easily-carried and reduce the packaging (IKEA n.d.).

III.

Literature Review of CSR

Initially, according to Su & Jie (2015) and Dahlsrud (2008), CSR is defined into 5 dimensions: environmental, social, economic, stakeholder, and voluntary dimension. There are different perspectives and definitions of CSR from different dimensions. However, in this

paper, we would describe CSR by using only 2 main perspectives: social perspective and stakeholder perspective. In terms of social perspective, corporations’ CSR works prefer to their actions taken to improve the social well-being (Davis and Blomstrom 1975). In addition, according to Freeman (2008) for the stakeholders perspective, businesses’ CSR is basically to treat their stakeholders in a responsible manner in order to maintain businesses’ development and profitability. In either definition, it is clear that CSR plays an important role to maintain the businesses’ operations and achieve the ideal performances. Therefore, corporations need to take decent actions that show their responsibility and contribute positive values to the society.

IV. 

Analysis of IKEA CSR works. Responsibility to the ecological environment

Followed by the environmental aspects, the meaning of CSR basically means that businesses have responsibilities to protect the environment (Hawrysz and Foltys 2015) Indeed, IKEA acknowledged that the furniture industry is one of the hardest industries to become sustainable to the environment as it intentionally or unintentionally damages to the nature in their product development and production. In addition, this is negatively impacted not only to the society but also to their own business’s performance as well. Therefore, IKEA stated that CSR comes at a way that would help them to eliminate their operations impact on the environment. IKEA Circular economy Initially, IKEA is working on changing their entire value chain into a more effective model – a circular economy. In addition, IKEA has shown their commitment in the very beginning of their process – designing. In the furniture designing, it is important that companies addressed environmental issues toward their products’ design. In addition, eco-logical design is a concept that is widely use for ‘sustainable, eco-friendly design’(Yeang 2010; Yuksel 2015). Followed to the IKEA sustainable report in 2018, IKEA is developing their product to be able for reused, remanufactured, refurbished and recycle. Moreover, they’re implementing technologies and data analyst to predict the ideal lifespan of each product category to improve upgradability and adaptability. In fact, in 2018, IKEA’s over 60% products were made by recycled and renewable materials (IKEA Sustainability Report 2018). This makes the circular economy concept of IKEA become a reality that could solve many environmental

issues. They are also received the World Economic Forum’s Circular Economy Award in January 2018 for their eco-friendly design products and CSR works. Climate positive – environmentally friendly corporation With the vision of the negative effects of climate change, IKEA is committed toward reducing emissions and changing their entire production process to 100% renewable energy (IKEA Sustainability Report 2018). In terms of their environmental footprints, IKEA is set to become carbon neutral by 2030 in their production process with the budget up to 200 million pound for green energy and reforestation (Butler 2019). In addition, followed to the same source, from 2009 until now, the company has spent over 3 billion pounds for sustainability investments such as renewable energy, and recycling plants in order to reduce their climate footprint up to 70% per product. These actions from IKEA would change the furniture industry and make it becomes “climate positive”. Moreover, all products that are made from single-use plastic would be eliminated from all their franchises and stores. In addition, IKEA stated that it would not only benefit to the society but also to their economic performance as well.



Responsibility to the community

One of the key dimensions in CSR is community engagement where companies not only produce high quality products and services but also involved in the development of external stakeholders such as local communities (Ismail 2009). In the modern world, stakeholders have high ethical standards toward the brands; therefore, corporations have obligations to satisfy the social requirements through their community contributions and engagements. In addition, IKEA has shown their commitments toward the society and creating shared value (CSV) toward the local communities. Statistically, in 2018, over 15% of IKEA’s co-workers participate in 208 community engagements such as low-income community center was provided furnishings from IKEA Dan Ville and IKEA Malacky (Slovakia) was teaching local children about waste management and water pollution during the Earth Day. Moreover, IKEA’s work on affordable furniture and food would make a huge impact and create shared value toward the accessibility of low income community (Porter 2015; Mahtani 2018).



Responsibility to the workplace

One of the most important components of the stakeholders theory is the company’s employee. In addition, business’s operations, performance and CSR policy could be directly affected by the employees’ actions (Low 2016). Hence, the company’s workers could be considered as

the stakeholders to evaluate and assess the company’s CSR policy (Rupp et al. 2006). Therefore, global corporations like IKEA have to treat the internal social well-being carefully and ethically as it could affect the brand reputation and performance. Moreover, with a highly dangerous environment such as exposing to chemicals, heavy traffic and machinery, there were only decent actions from IKEA to improve their wellbeing at work. Initially, the new program that IKEA apply – the IKEA Job portal would help fresh graduates or other candidates find insights about IKEA or inspirations. Moreover, with the new recruiting solution – SmartRecruiters, this allows the IKEA hiring teams to contact with the candidates through a variety of different communication channels. This would create more opportunity and flexibility for talented candidates and IKEA’s recruiters. In addition, the IKEA Guidelines for Responsible Recruitment ensures that every candidate is treated fairly and doesn’t have to pay any cost for their job. In terms of working environment, IKEA guarantees that their workers would have stable and predictable employment conditions in order to ensure the workers’ confidence in making their life plans. Moreover, the IConduct and IWAY ensures the requirements on responsible wage and fair income practices towards their entire value chain, suppliers and partners. However, IKEA has not yet made ‘real’ progress on ensuring safety at work as the incidents trend in 2018 still remains significantly high compared to the previous years (IKEA Sustainability Report 2018).



Responsibility to the marketplace.

IKEA is working on making their product to be affordable to lower income group of people. However, they are still able to remain or even improve the quality of their product by using sustainable materials. After the 2017 scandal of IKEA dangerous dresser design, IKEA is committed toward making not only eco-friendly design but also safe for home-users through their Safe Home pilot project. This project is basically an app that would give users a better awareness of using their product safely and prevent potential risks. Moreover, they are developing a new risk assessment program and standards from their previous mistakes especially on tip-over risk assessments (IKEA Sustainability Report 2018).



Past Scandals of IKEA

Despite being recognized as one of the leaders in corporate social responsibility, IKEA has made several mistakes that indicate their lack of responsibility and ethnicity toward their customers and employees. Firstly, recently in 2017, the Swedish furniture company IKEA was accused for making dangerous dresser design as it occurs tip-over incidents (Gibson 2019). This is one of the issues that affect significantly to their credibility in furniture design. In fact, IKEA was pretty slow and irresponsible in responding to this problem as the deadly tip-over problem first occurred in 1989 – 30 years ago (Gibson 2019). After the death of the 8th children happened, IKEA was taking action on recalling 17.3 million dressers and had to compensate over 50 million EUR to the victims (Hellstrom and Scrutton 2016). This is a step back for their reputation and business performance as it negatively impacts on their economic performance. Secondly, despite IKEA ‘called’ themselves with a pride of strong ethical responsibility, 30 IKEA has violated several human rights standards. The first case was the use of forced labor by IKEA’s suppliers in the communist East German 35 years ago (BBC 2012). They were accused of using political prisoners in their supply chain. However, up until 2012, IKEA admitted using forced labor and show ‘deep’ regrets. This thus indicates the slowness in responding to their issues and shows that their measurements and guidelines were not effective enough (Kulish & Werdiger 2012). Another unethical behavior from IKEA was related to spying on their employees in France. In addition, this behavior infringes personal privacy of their employees which is problematic in France (Ebnother, Rivera, and Sawayda 2014). As a result, IKEA was required to post a bond of over $680,000 and they did not have any announcements and responses to this issue.

V.

Evaluation of IKEA’s CSR Works.

1. Evaluation based on Carroll’s Pyramid of CSR Carroll’s Pyramid of CSR basically is a framework or concept that businesses should embrace in terms of doing CSR (Carroll 1991). This concept includes 4 components of corporate social responsibility: economic, legal, ethical and philanthropic. In addition, these four components were depicted as a pyramid which also indicates the priority of each component. However, in some extensions, ethical and philanthropic is becoming more significant toward the corporations and the society. Firstly, one of the foundations in the Carroll’s Pyramid is economic responsibility. This is also the primary purpose of a company – making profit (Carroll 1991). This indicates the company ability in providing goods and services that met the consumers’ needs to make

profit in their production. IKEA is obviously done well in generating profits in the previous years. Even though IKEA’s economic performance has fallen by more than a third compared to 2017, the company is still not facing any loss yet as their 2018 profit is up to 1.4 billion EUR (IKEA Financial Summary 2018; Butler 2018). Therefore, they’re still fulfill their economic responsibility toward their stakeholders. Furthermore, IKEA is just in the beginning of changing their entire value chain to a circular economy. To be specific, IKEA is changing their materials and designing their products to be able to reuse, refurnish and recycle. According to examples from the European Commission Report (2017), companies that follow circular economy principles would be able to generate better revenue in the longterm as well as increase the production process efficiency and quality. As a result, if IKEA was able to follow their CSR strategy for circular economy, they would be able to achieve very high margins on each product. In addition, this would ensure their profitability in the long-term.

Secondly, in terms of legal responsibility, this basically reflects the ethical view of the business by obeying the law (Carroll 1991). There are many requirements and guidelines from IWAY that prevent illegal conducts such as child laboring, deforestation and working conditions in their supply chain. In fact, IKEA has funded for many foundations such as Save the Child to eliminate child laboring issue (Save the Children Annual Report 2018). Moreover, according to Olier (2016), even though IKEA has avoided 1 billion EUR of taxes, they were still fulfilled their obligation and not doing anything ‘illegal’. However, this would refer more to ethical responsibility. Even though there were adequate guidelines from IWAY, they were still accused for cutting ancient trees to make furniture in Russia in 2012 (Karlsson 2012). It is an act of logging made by IKEA and could be considered as illegal conduct. Moreover, refers back to 2017, IKEA dresser’s design was considered a highly dangerous product as it killed at least 10 children and other victims with the previous version (Olson 2017; Zimmermann 2017). This is an act of negligence in their designing and selling process and they agreed to compensate up to $50m for the victims (Bromwich 2016). Therefore, even though there were huge mistakes and scandal, IKEA was still fulfilled their legal responsibility. Thirdly, ethical responsibility is recently being recognized as one of the most important components in CSR because of the high expectations of the consumers to the brand. In addition, ethical activities basically refer to the community expectations of what should or

should not do even though they are not codified by laws (Carroll 1991; Carroll 2016). As mentioned above, IKEA managed to avoid paying 1 billion EUR by using the flaws of the EU taxing system. This is actually an unethical behavior that could potentially affect the company’s reputation and operations afterwards. On the other hand, IKEA has followed to the U.N Sustainable Development Goal 16 in promoting a peaceful society. IKEA has ensured equality, gender equality, and diversity in their value chain. Moreover, other ethical responsibility such as changing to a circular economy to protect the environment or ensure workers’ well-being by being responsible in wage practices, giving stable employment (Lee, Park and Lee 2013). In addition, IKEA has fulfilled their ethical responsibility by embracing newly value especially based on all 17 U.N Sustainable Development Goals. Finally, the highest level of Carroll’s Pyramid of CSR – philanthropic responsibility. According to Carroll (1991), philanthropy includes corporations’ actions that engage human welfare and go beyond the society’s expectation. As mentioned in the analysis part, IKEA has several activities that help the community such as teaching children about waste management and water pollution. Moreover, according to IKEA Sustainability Report (2018), IKEA create IKEA Social Entrepreneurship B.V. that provide supports to vulnerable and marginalized people and give them the opportunity to develop themselves. Moreover, IKEA franchises from Jordan, Kuwait hosted a series of meal for orphanages and disable, autism children. In addition, IKEA also makes their product to be cheaper that

2. Evaluation based on core characteristics of CSR. The core characteristics of CSR basically contains six characteristics and ‘are the essential features of the concept that tend to get reproduced in some way in academic or practitioner definitions of CSR’ (Crane et al. 2013; Hamidu, Haron and Amran 2015). Initially, in terms of voluntary, IKEA has a series of initiatives and activities such as voluntary teaching and development program for children that could be considered as voluntary behaviors because it’s not required by law. Secondly, IKEA was able to manage their externalities by applying circular economy as well as making development on their eco-friendly designs which would reduce significantly their emission footprints and environmental impact. In terms of multistakeholder orientation, IKEA was being able to indicate their responsibility not only to the investors and shareholders but also to multiple stakeholders like the local communities, employees, and their customers. In addition, they have applied decent works on improving human resources and ensuring stability, diversity and equality in the workplace. Fourthly, the

alignment of economic and social responsibilities, even though IKEA has not gain significant economic benefit from being social responsible, it is predicted to be able to generate high value in the future as they are just at the beginning of changing their value chain. Hence, IKEA has shown their commitment in taking social responsibility into their process. In fact, there are practices from IKEA such as changing to circular economy and becoming carbon neutral indicate IKEA is reducing their negative impacts and creating shared value toward the society and environment. Finally, IKEA’s CSR works has shown that they’re on the track of achieving beyond philanthropy through the mentioned voluntary and community development activities in the analysis of IKEA CSR Works. Moreover, they also have several assessments of their production processes’ impact on the environment and the society.

3. Evaluation of IKEA CSR Work under Value Driven Model and Stakeholder Theory. According to Freeman (2008) and Stieb (2009), the main purpose of stakeholder theory is basically to ensure the company’s ability in meeting their stakeholders’ satisfaction and generating mutual interests among different stakeholders, and thus benefit and gain success from it. In addition, it is necessary for global corporations to emphasize their responsibility toward different groups or individuals in order to improve and remain their economic performance (Jensen 2012). IKEA has ...