HISTORY OF IKEA

Founder of IKEA

Ingvar Kamprad Childhood Biography

Ingvar Feodor Kamprad was born on March 30, 1926 in a small province Smalandiya
in Pjätteryd (now part of Älmhult Municipality), Southern Sweden. Kamprad’s
biographers believe that the trading hobby was passed to Ingvar by inheritance. In
1897, the company, that belonged to the grandfather of the future billionaire was on
the verge of bankruptcy. His grandfather could not pay the mortgage and committed
suicide. But the Ingvar’s grandmother was able to save the business. So she taught her
grandson to bridge over the difficulties with willpower and perseverance. Ingvar’s
grandmother Francis had a huge positive impact not only on him, but on the entire
family. She was a very intelligent woman, although a simple origin though.
People, who closely work with Ingvar Kamprad, say that he is a brilliant marketer,
wise man who never makes a mistake. Indeed, the strategy of Kamprad is studied and
examined by major entrepreneurs from around the world. Although, as artfully Ingvar
says about himself, he is a dropout. And this is true as he never attended a university
(school teachers could not teach him to read for a long time). The lack of a university
degree Kamprad always replaced with enthusiasm. Once he remarked: “If you work
and do not feel incorrigible enthusiasm, consider that at least a third of your life has
gone down the drain.”
First bargains young Kamprad made in childhood. He bought pencils and matches in
bulk, which he then resold to classmates for a profit. During the study Ingvar
managed to try a variety of activities: from fish to Christmas cards trading. And that
was the real school. He was neither trained doing business nor he read books on the
subject. But what we know exactly today is that the IKEA Company came through
thanks to the personal experience and care of the founder.

Ingvar Kamprad in childhood (left)

In the field of business, I guess I was a little different from the others, as I has started
to show business activity very early. My aunt helped me to buy the first one hundred
boxes of matches on the sale of so-called “88 Øre” in Stockholm. The whole package
was worth 88 øre, and the aunt did not even make me pay for postage costs. After that
I sold a box of matches at a price of 2 or 3 øre and some of 5 øre. I still remember the
pleasant sensation experienced by receiving my first profit. At the time, I was no more
than five years.

BACKGROUND OF IKEA

The First Major Thing – the Foundation of IKEA

The future entrepreneur set money aside. While school peers spent their time at
football fields and dating with girls, Ingvar Kamprad was thinking about how to
expand the business. And in 1943, when he was 17 years he added money, borrowed
from his father (who, however, was convinced that he’s giving money his son for his
studies), to the accumulated capital and opened his IKEA. The name IKEA is derived
from Kamprad’s initials (I.K.) plus the first letters of Elmtaryd and Agunnaryd, the
farm and village where he grew up.
At the beginning of its operation, the young Kamprad engaged in the trade of different
things (from matches to discount stockings). But the biggest demand was for pen. At
the beginning of 1940s they were a novelty even in Sweden. Kamprad ordered 500
pens from Paris, taking a loan of 500 SEK in a district bank (at the time around 63
USD). According to Kamprad, this was the first and the last loan that he had taken in
his life.
To attract prospective customers to the presentation of the store, the young
entrepreneur promised a free cup of coffee and a bun to everyone who would come.
Imagine his surprise when this modest event attracted more than a thousand people!
The first presentation of the day was about to become the last one. Nevertheless,
everyone got a cup of coffee and a bun. And the idea about opening a fast food
restaurant in each store looked great for the owner of IKEA. Time passed and each
IKEA store got a fast food restaurant.
Furniture – This is What We Need!
Further, a young entrepreneur draws attention to a feature of life in Sweden: furniture
was luxury for most people due to the high cost. In 1948, Ingvar Kamprad comes up
with a fresh idea and he decides to engage in trade of furniture. Further it will be the
main source of profit for IKEA.
Guimars Fabriker from Alvesta, who was my main competitor, has been selling
furniture in Kagnuit for a long time. I saw his ad in an agricultural newspaper and
also decided to try my hand in the business. Thus, furniture sale, which I started by
chance, and solely in order to outdo my competitors, has determined my fate.
After finding places where he could buy the cheapest furniture, Ingvar agreed with
fine upholstery manufacturers. The range of his store was replenished with a coffee
table and a chair without armrest. The chair was called ‘Root’. Since then, every good
in the store had its own name. The names was invented by the owner of the company,
due to his inability to remember the numeric items.
In 1951, IKEA started spreading booklets among its customers called ‘IKEA News’.
They were those booklets that became a prototype of the modern IKEA catalogs.
Young entrepreneur’s business was targeted to customers with medium and low
incomes. For this, he ordered cheap furniture at local furniture factories. It was then
when he invented his famous formula: “It’s better sell 600 chairs at a lower price,
than sell 60 chairs at a high price”.

The first IKEA catalog is published (1951)

From Ingvar Kamprad biography we learned that in the early 50’s he bought an old
small factory in Sweden, which let him to put on production flow even cheaper
furniture for his stores. It was ‘nonsense’ to the country where the furniture had
always been considered an expensive commodity. Such a risky move could not
remain unnoticed by competitors. Kamprad was boycotted. The Swedish Federation
of Wood and Furniture Industry was so outraged by IKEA’s dumping prices that
persuaded leading loggers cease all cooperation with IKEA.
Perhaps such turn for any businessman could have been tragic, but not for Ingvar
Kamprad and not for the IKEA brand. Any problem and its solution generates new
stages of a company’s development. As a result, the entrepreneur had to make an
unusual step for the Swedish business at the time: he began to acquire some furniture
components on the cheap from Polish suppliers. This is how the founder of IKEA laid
the future strategy of the company and purchased furniture components in those
countries where they are cheaper.
The first IKEA furniture showroom was opened in 1953 in Älmhult, Sweden.
Customer’s could look and touch IKEA home furnishings before purchasing them.
And five years later a new 6,700 square meter store was opened which was more or
less similar to what we see today under huge IKEA signboard. By the way, initially
the traditional company’s colors were red and white. Nowadays the IKEA network is
painted in yellow and blue, the national colors of Sweden.

Ingvar Kamprad at the opening of the first IKEA store in Älmhult, Sweden
During that period, Ingvar Kamprad was no longer a miracle child of Småland. He
turned into a confident, sleek and dangerous competitor, whose methods sometimes
were perceived with contempt and resentment.
In the early 60’s, Kamprad made a cognitive trip to the United States. There he first
saw how the Cash & Carry trade system worked. He liked that form of trade where
customers paid in cash and carry the goods away themselves. In 1965, the largest
31,000 square meters IKEA Kungens Kurva store was opened near Stockholm.
Things were arranged there taking into the account the American experience,
however, they were creatively improved. First, the store was opened in a suburb.
Rental land costs there were much lower, and there was built a spacious car parking
lot. Second, to reduce the transportation costs, the company ordered ready-to-
assemble furniture, where every detail was placed in a flat package. It was easier and
cheaper to transport it and customers had to assemble the furniture themselves.
Kamprad had noticed that people actually liked to self-assemble cabinets and sofas.
Especially, if the assembling process was so simple thanks to the detailed instructions.
Also, Ingvar knew that a car boom began in Sweden and he realized that people were
ready to go shopping to distant lands. To encourage customers to go shopping in
IKEA, they started selling them roof racks for cars for a knockdown price. Thanks to
this policy the company’s turnover has doubled in one year.
The largest store in Sweden looked like The New York’s Guggenheim Museum,
which Kamprad found very attractive. However, when Ingvar Kamprad opened it, he
did not take into account one thing: a possible shortage of goods on the store’s
shelves. A huge number of people literally swept the IKEA products from the store’s
shelves. Thirty thousand Swedes would certainly want to buy furnishings at low
prices. And even in such large store there weren’t so many goods to sell and a
considerable part of them left at warehouse unpacked.

IKEA Kungens Kurva (1965)

Ingvar Kamprad made the only right decision in this situation and opened a self-serve
warehouse. So, quite by accident, IKEA found a formula for success, which provided
profits for many years. The self-serve warehouse was just the right thing what a
modern client needed. Now every IKEA furniture store is a kind of showroom, where
there are exhibited not only sofas and cabinets, but also any little things of everyday
life: tablecloths, curtains, bedspreads, towels and candleholders. Thus, the visitor can
see ten children’s rooms in a row, and then twenty-five dining rooms or living rooms
and so on. By imagining what particular furniture will look in his interior, a customer
should go for it to the self-serve warehouse. Then a customer transports the furniture
in comfortable packages to his home and then assembles it by reading clear and
sensible instructions.
IKEA Explores Overseas Markets
After the success at home, IKEA had nothing to do but to explore overseas markets.
In 1963, IKEA starting its expansion with Norway and opens the first store outside
Sweden in Oslo. In addition, in the 1960s, IKEA introduced a quality control system
that allowed the company’s products to be recognized as the best quality ones by
several Swedish reputable journals. Decisions were made spontaneously. For
example, the head of the company’s hesitated for a long time whether to open a store
in Switzerland. The country was known for its conservative tastes, besides there were
two local furniture chains that operated quite well. But once Ingvar Kamprad, walking
around Zurich, overheard a young couple. “What a beautiful chair!” – a young woman
said, looking into the window. “Yes, but it is still too expensive for us. Let’s buy it
next year”, – her husband replied. This episode was crucial. And soon, in 1973, IKEA
appeared in Switzerland, Australia, Netherlands, France, and USA. Now IKEA
operates 338 stores in 40 countries.

IKEA Logo

In 1986, Ingvar Kamprad retired from Group Management and became an advisor to
the parent company INGKA Holding B.V. Anders Moberg was assigned as the
President and CEO of the IKEA Group. In 1990s, the IKEA Group developed and
introduced the first an environmental policy to make sure that the company and its co-
workers take environmental responsibility for all activities conducted within its
business. Anders Dahlvig replaced Anders Moberg and became the President and
CEO of the IKEA Group. In 2000, IKEA realized how Internet was important and
introduced its customers e-shopping in Sweden and Denmark. Since then many IKEA
stores launched online shopping in many other countries.
Ingvar Kamprad has been married twice. His first wife was Kerstin Wadling who
born him a daughter, Annika Kihlbom. However, it was his second wife Margaretha
Kamprad-Stennert who helped him to fulfill the dream of IKEA. His wife passed
away due to an undisclosed disease in 2011 at the age of 71. She born him three sons:
Peter, Jonas and Mathias.
Peter Agnefjäll, President and CEO

Further history of IKEA cannot be called cloudless as there are many competitors
such as Argos (Italy), Ilva (Denmark) and others. But Ingvar Kamprad knows that his
stores offer customers everything essential where they can get visual and tactile
sensations and the real pleasure of being there. Ingvar Kamprad net worth is $3.8
Billion as of November 2014. The current IKEA Group’s President and CEO is Peter
Agnefjäll, who was assigned on this position on September 1, 2013 and who gained
deep and broad knowledge, experience from IKEA.

Vision
“To create a better everyday life for the many people”, this is the IKEA vision. Our
business idea is “to offer a wide range of well-designed, functional home furnishing
products at prices so low that as many people as possible will be able to afford them”.
We work hard to achieve quality at affordable prices for our customers through
optimizing our entire value chain, by building long-term supplier relationships,
investing in highly automated production and producing large volumes. Our vision
also goes beyond home furnishing. We want to create a better everyday for all people
impacted by our business.

Mission

To create a better life for everyone.

BOARD OF DIRECTOR

From left to right:

Martin Hansson, Retail & Expansion
Petra Hesser, Human Resources
Jesper Brodin, Range & Supply
Steve Howard, Sustainability
Peter Agnefjäll, President and CEO
Helen Duphorn, Corporate Communications
Leif Hultman, IKEA Industry
Alistair Davidson, CFO
NATURE OF BUSINESS

The store is where our visitors meet IKEA face to face. We want to give our visitors
plenty of ideas, solutions and inspiration. It should be fun and easy to shop and the
customers should be able to do most of their shopping by themselves. When a visitor
needs assistance, a well-informed and friendly co-worker should be on hand to attend
to his or her needs. Achieving our high standards in this respect requires a keen and
skilled team in each store, from motivated and responsible managers and team leaders
to enthusiastic staff at the loading bay, warehouse, sales, checkouts, restaurant,
administration and display.

RISK MANAGEMENT OF DEPARTMENT

Risk assessment and product testing

Each year thousands of tests are carried out on IKEA products during the
development stage. Even more tests are conducted during production. Once a product
is approved for production, any proposed changes to the product or to the production
method are reviewed by IKEA to decide whether additional risk assessment testing is
required.

We must also ensure that banned chemicals such as formaldehyde and phthalates
don’t exceed IKEA requirements. IKEA has a third-party accredited test laboratory
that is certified each year by external auditors and third-party accredited test
laboratories perform random tests. IKEA requires suppliers to order certified products
testing by third party auditors.

PROFIT AND LOSS

Furniture retailer IKEA said growth in its sales channels aided the slight rise in its
fiscal 2014 net profit, as increased spending on employee programs and price
reductions weighed on operating income.
The maker of low-price build-it-yourself furniture said demand remained high in
North America and continued to recover in Europe, reporting record revenue as
customers turned to less-expensive products amid the global economic slowdown.
IKEA said net profit for fiscal 2014 rose 0.4% to €3.33 billion ($3.79 billion).
Revenue grew 2.8% to €29.29 billion, from €28.5 billion a year earlier.
Increased costs related to employee programs and larger price reductions compared
with fiscal 2013, however, weighed on operating income and gross margin. Operating
income for fiscal 2014 declined 5.8% to €3.79 billion and gross margins slipped 0.4%
to 42.9%.
“North America performed well and while the challenging economic situation may
not be over, Europe continued to show improvements,” IKEA said. “An especially
positive sign was the growth in most of southern Europe where Portugal did
particularly well and the situation in Spain is improving quite quickly.”
The furniture maker now has 315 stores in 27 countries. It plans to open 25 in India.
IKEA, which generates most of its sales from Europe, said it grew in nearly all of its
markets. It said its fastest-growing regions include China and Hungary.
The furniture maker is facing a slowdown in Russia, a key market where it owns 14
Mega-brand shopping centers. The collapse of the ruble in December resulted in
Russian customers stockpiling IKEA products, pushing the company to halt sales for
a few days and go against form by raising prices. IKEA said it received 270 million
visitors to its Russian shopping centers in fiscal 2014, 10 million more than in 2013.
“Fiscal year 2014 was a good year for IKEA. I am happy to see increased growth in
all our sales channels; in existing stores, in the opening of new stores and in e-
commerce,” Chief Executive Peter Agnefjäll said.
For the fiscal year ended in August, IKEA opened 12 new stores in 10 countries,
including its first store in Croatia and its first city-center store in Germany. In
December, it also opened its first store in South Korea.
The company cut prices by an average of 1% in fiscal 2014, compared with a price
reduction of 0.2% a year earlier.
Planet Retail analyst Niklas Reinecke said the annual report shows IKEA is sticking
to its strategy of lowering prices, expanding in more markets and broadening its e-
commerce offering. He pointed in particular to Italy, where the company has recorded
largely flat revenue of around €1.5 billion since 2010, yet has continued to open new
stores including one in Pisa in fiscal 2014.
“IKEA is showing commitment to its markets in a challenging environment,” Mr.
Reinecke said.
The furniture maker invested €1.7 billion in stores, factories, renewable energy and
shopping centers and now has 315 stores in 27 countries. Visits to IKEA’s website
jumped 15% in fiscal 2014 to more than 1.5 billion, while physical store visits rose
4.7% to 716 million from a year earlier, IKEA said.
The company reiterated its goal to increase revenue to €50 billion by 2020 and said it
was moving ahead with plans to open more stores in emerging markets, including 25
in India.

RISK MAY OCCUR

Ikea Recalls 3.36 Million Blinds Over Strangulation Risk
After receiving a report that a 1-1/2 year old child nearly strangled to death on a loose
cord, Ikea — along with the U.S. Consumer Product Safety Commission and Health
Canada — has issued a recall on all Roman and Roll-up blinds, as well as roller blinds
that do not have a tension device attached to the bead chain, sold between Jan. 1998
and June 2009.
According to the CPSC, here are the potential hazards:
Roller Blinds: Strangulations can occur if the blind’s looped bead chain is not
attached to the wall or the floor with the tension device provided and a child’s neck
becomes entangled in the freestanding loop.
Roman Blinds: Strangulations can occur when a child places his/her neck between
the exposed inner cord and the fabric on the backside of the blind or when a child
pulls the cord out and wraps it around his/her neck. An additional hazard exists when
the Roman blind has a continuous looped bead chain that if not attached to the wall or
floor, which poses a strangulation hazard to children.
Roll-up Blinds: Strangulations can occur if the lifting loops slide off the side of the
blind and a child’s neck becomes entangled on the free-standing loop or if a child
places his/her neck between the lifting loop and the roll-up blind material.
For detailed photos of the recalled products, go to the CPSC’s recall page.
The CPSC says anyone in possession of recalled blinds should stop using them
immediately. All Roman and roll-up blinds can be returned to Ikea for a full refund. If
you own the recalled roller blinds, make sure the tension device is installed properly
into the wall or floor.

RISK MANAGEMENT DEVELOPMENT

The development of corporate objective, together with a clear understanding of
stakeholder expectations will assists with the development of the risk agenda, this is
illustrated by the example of IKEA. The risk agenda needs to pay due regard to the
following:

 Risks to strategy are usually long-term risks that impact the ability of the
organization to maintain the core processes concerned with the development
and delivery of strategy. The organization needs to confirm that the risks
embedded in strategy are the risk it is willing to take and that they are justified
by the potential rewards.

 Risks to operation are usually short-term risks that impact the ability of
maintain efficient core processes concerned with the quality, continuity and
monitoring of routine operations. The organization needs to confirm that the
operations will run smoothly, compliantly and without inefficiency or
unplanned disruption.
  Risks to compliance can be associated with the long, medium, and short-term
activities and processes that can impact the ability of the organization to
maintain compliance within these activities and processes. The organization
has to confirm that adequate compliance can be achieved and maintained in
relation to strategy, tactics and operation.

 Risks to tactics are usually medium-risk that impact the ability of the
organization to maintain effective core processes concerned with the
development and delivery of strategy. The organization needs to confirm that
the risk embedded in strategy are the risks it is willing to take and that they are
just justified by the potential rewards.

CONCLUSION

The problem of this study is that IKEA expands too fast. More and more quality
problems influence the customers’ feelings and the image of the company. The hard
situation makes it difficult for them continuing to guarantee the quality of the
products. According to the literature review, some theses were found to help us with
thoughts and theory. They support this thesis.

The value of this thesis is firstly; it provides empirical knowledge about the
relationship between price and quality for IKEA products. Secondly, it shows that the
development path of IKEA and give suggestions to the future development and
thirdly, it contributes to the field if large-scale companies are suitable to expansion
and how fast it should go.

. People were divided into three groups and in each group were 60 people divided
after income. Then the chi-square test was used to prove the relevance. The most
important part is analysis and discussion. In these two parts, the main thinking and
idea were introduced. We used a scientific way to analyze why IKEA expands too fast
and we also gave our suggestions to IKEA. Firstly, slow down the expansion steps,
and turn back to have a check; what have been done, what have not. Secondly,
improve the corporate to suppliers. Test the quality in every single step. Don’t leave
this job to customers. Customers’ feelings decided how far you could go forward and
thirdly the board of directors should not give too much pressure to the company.
Otherwise, the managers of the company only care about the target instead not caring
about the success of the company. Adjust the policy from the top manager in order to
change the management pattern. Put the key point on not only the profit but also the
quality.

WE want to advise them not to expand too fast and always remember that the:
customers are the best tester.
 CORPORATE RISK
MANAGEMENT
(PFS 3173)
GROUP 1

PREPARED BY:
MUHAMMAD NAIM BIN MOHD NASIR
(4134007611)
BACHELOR OF FINANCE

PREPARED FOR:
EN. ZULKIFLEE BIN ABD RAHIM @ AB RASIM