Essay Preview: Ikea
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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. IKEAs 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 worlds 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 IKEAs 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 IKEAs European stores. Prices were significantly lower in Beijing.
IKEAs global, and now regionally intensified, low-pricing strategy puts it in an interesting position. Competing on price in the middle and lower levels of Chinas 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 IKEAs position so interesting is the unique flexibility it has in striking this balance. As a privately held company owned entirely by one of the worlds 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. IKEAs 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 Gods 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 IKEAs suppliers are struggling to maintain sufficient profitability to survive and to support poverty alleviation in their villages.
If IKEAs 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 Chinas SR entrepreneurs? Companies like IKEA have an opportunity to educate their customers about the implications of being an IKEA customer. Currently IKEAs 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 IKEAs social and environmental responsibility practices in an IKEA store. An excellent comparison of energy saving compact fluorescent and incandescent light bulbs encourages IKEA customers in the lighting department to buy energy saving bulbs, because it is in their financial interest. However, IKEA pulls back from any effort to systematically and openly discuss the environmental and social impacts of its individual products. They view such product information as a distraction from the impulse cost-based decision making of their perceived customer base. They believe that they have created