Rough draft: AMDP Investment Proposal

TO: Clark Hansen, CEO, AMDP

FROM: Xian Zhang, Research & Development, AMDP

DATE: June 27, 2017

SUBJECT: Investment Proposal: IKEA

As a AMDP R&D analyst, I would not recommend that AMDP invest in IKEA.

The AMDP Standers

Triple Bottom Line

the “triple bottom line” to represent the three component areas of sustainability: social, environmental and economic or “people, planet profit” (Hall).

• Social measures(People) - education, equity and access to social resources, health and well-being, quality of life, and social capital
• Environmental measures (Planet) - air and water quality, energy consumption, natural resources, solid and toxic waste, and land use/land cover
• Economic Measures(Profit) - income/expenditures, taxes, business climate factors, employment, business diversity factors.

Corporate Social Responsibility

CSR is the integration of business operations and values, whereby the interests of all stakeholders including investors, customers, employees, the community and the environment are reflected in the company's policies and actions(Csrwire).

Social Enterprise

Social enterprises are revenue-generating businesses with a twist. Whether operated by a non-profit organization or by a for-profit company, a social enterprise has two goals: to achieve social, cultural, community economic and/or environmental outcomes; and, to earn revenue (BC center). A social enterprise's primary purpose is its social and / or environmental mission - it tries to maximize the amount of social good it creates balanced against its financial goals (Supply Shack).

Carbon Footprint

A carbon footprint is an estimate of the climate change impact of activity – such as making a product, living a lifestyle or running a company (Clark). The total amount of greenhouse gases produced to directly and indirectly support human activities, usually expressed in equivalent tons of carbon dioxide (Time for change).

Company Background

IKEA is a global retailer that offers housewares and fashionable, ready-to-assemble furniture at affordable prices. It was founded in 1943 by Swede Ingvar Kamprad. The Company designs a range of products for the home and office including bedroom, living room, kitchen, children and bathroom furniture(Bloomberg).

In addition, IKEA has an intricate corporate structure, which means the company is not likely to go public. Most of the operations, management of the stores, design and manufacture of furniture is run by a trust, INGKA Holding, headquartered in Delft, Holland (Loeb)

People

IKEA claims they are valued employee’s benefits and help them achieve their goals— “we promote co-workers with potential and stimulate them to surpass their expectations.” However, Ikea has a bad record on employee issues—employees protested that they were treated unfairly within the company which incompatible with the values claimed by IKEA. According to the Los Angeles report, the workers from IKEA’s U.S. factory located on Danville, VA complains the company existing problems which including eliminated raise, mandatory overtime and racial discrimination (Popper).

In order to save costs, IKEA would source items from supplier in developing countries such as India. However, some supplier’s used child labor freely led IKEA at the center of scandal. Later, Ikea though cooperation with NGO or IGO, make more donations by their own foundation named Stichting Ingka, “Unfortunately the Foundation does not have a grant application procedure as it prefers to work with partners with programmes managed by established and well-regarded NGO’s and IGO’s in order to secure top experts, develop innovative approaches, influence and navigate government policy, and achieve the critical mass it takes to make an impact. The largest recipients of funding from the INGKA Foundation were UN agencies such as UNICEF, UNHCR and UNDP as well as Save the Children.”

Planet

As a furniture manufacturer, IKEA is heavily dependent on raw material such as wood and plastic. IKEA’s Annual report have constantly emphasizing their concept of sustainable development of production and manufacturing, as well as sales model; they also intention to become one of the world's most sustainable businesses. But in fact, over the years, Ikea is still being criticized by many environmental groups.

In addition, most of IKEA's furniture is made of particleboard—made out of woodchips bound together with resins into panels at high temperature and pressure—in other words, we have no way of knowing IKEA’s furniture weather from old-growth or illegally logged forests (Laskow).

Financial Performance

IKEA rang up €4.2 billion ($4.46 billion) in net income in fiscal 2016 (ended August), an increase of 20% versus the prior year. The total revenue jumped 7.4% to €35.1 billion ($37.3 million) (Furniture Today). IKEA’s low-price strategy to customers and better supply chain efficiency makes IKEA become a highly profitable company, and IKEA expects to reach sales of 50 billion euros around 2020 (Ringstrom).

Ikea's profitability is very satisfactory, which beyond the requirement by triple bottom line. However, for more than ten years, IKEA built up a complex corporate structure aim to facilitate profit shifting and tax avoidance, which up to 1 Billion Euros that greatly benefiting the founder Kamprad and his family (Wood).

Recommendation

Very rough draft

Reference

Hall, Tanya J. "The triple bottom line: what is it and how does it work?." Indiana business review 86.1 (2011): 4.

"Corporate Social Responsibility - CSR Press Releases". Csrwire.com. N. p., 2017. Web. 29 June 2017.

"What Is Social Enterprise?". BC Centre for Social Enterprise. N. p., 2017. Web. 29 June 2017.

"Supply Shack | Social Enterprise Dorset | Business Supplies". Supply Shack | Social Enterprise Dorset | Business supplies. N. p., 2017. Web. 29 June 2017.

"What Is A Carbon Footprint - Definition | Time For Change". Timeforchange.org. N. p., 2017. Web. 29 June 2017.

Clark, Duncan. "What's A Carbon Footprint And How Is It Worked Out?". the Guardian. N. p., 2012. Web. 30 June 2017.

Jill Gregg Clever. "IKEA." St. James Encyclopedia of Popular Culture, Gale, 2013. U.S. History in Context, Accessed 30 June 2017.

Loeb, Walter. "IKEA Is A World-Wide Wonder." Forbes. Forbes Magazine, 05 Dec. 2012. Web. 30 June 2017.

Popper, Nathaniel. "Ikea's U.S. Factory Churns out Unhappy Workers." Los Angeles Times. Los Angeles Times, 10 Apr. 2011. Web. 30 June 2017.

"Stichting INGKA Foundation." Funds for NGOs. N.p., 22 Sept. 2013. Web. 30 June 2017.

"Worldwide Protest against the Destruction of Primeval Forests by IKEA."Rainforest Rescue. N.p., n.d. Web. 30 June 2017.

Kelly, Annie. "Ikea to Go 'forest Positive' – but Serious Challenges Lie Ahead." The Guardian. Guardian News and Media, 14 Dec. 2012. Web. 04 July 2017.

Laskow, Sarah. "Ikea Won’t Tell Where It Gets Its Wood — and Congress Is about to Give It a Pass." Grist. N.p., 21 June 2012. Web. 04 July 2017.

Murphy, Hannah. "Ikea Enjoys 20% Climb in Profits." FT.Com, 2016, ABI/INFORM Collection; Business Premium Collection; International Newsstand; ProQuest Central, http://libproxy.usc.edu/login?url=http://search.proquest.com.libproxy1.usc.edu/docview/1856041630?accountid=14749.

"Ikea Profit Soars 20% in Fiscal 2016." Ikea Profit Soars 20% in Fiscal 2016 | Furniture Today. N.p., n.d. Web. 01 July 2017.

Ringstrom, Anna. "IKEA's Net Profit up 5.5 Percent, Helped by Online Sales and China." Reuters. Thomson Reuters, 10 Dec. 2015. Web. 04 July 2017.

Wood, Robert W. "How IKEA Billionaire Legally Avoided Taxes From 1973 Until 2015." Forbes. Forbes Magazine, 11 Nov. 2015. Web. 04 July 2017.