IKEA: Indian Rugs and Child Labour, Case Study Example

Executive Summary

IKEA was founded by Ingvar Kamprad in the early 9150’s and was the C.E.O until 1986. In the 1990’s, the company had become the world’s largest retailer in specialized furniture. Kamprad brought to an end the traditional furniture maker and invested outside the Swedish Furniture cartel. He managed to establish relationships with outside suppliers and created a unique business structure that featured exhibition retail displays. It highlighted a wide range of functional and affordable uniquely designed home furnishings that customers could purchase to take home and assemble themselves. Kamprad established a mission for IKEA “to create a better everyday life for the many people”. He executed his mission through a strategy of selling affordable and high quality furniture to consumers in mass markets (Christopher, Vincent, & Anders, 2006).

Introduction

In 1994, a Swedish television documentary revealed IKEA’s connections to a carpet supplier of Pakistan who used child labour. At the time, child labour was just emerging as an issue of public concern. Although the problem caught IKEA unaware, it was quick to respond by seeking for advice from organizations involved in children’s rights. This was followed by an adoption of anti-child labour policy that was instituted through a section in all supply indentures. The clause stated that IKEA would discontinue any contracts with any supplier who was involved in child labour. IKEA collaborated with a third party agency in order to monitor the progress of child labour practices at suppliers in India and Pakistan, (Bill 2008).

For one year, the Swedish documentary focusing on child labour was aired, Marianne Barner, IKEA ’s business manager in charge of carpets discovered that a German T.V station was planning to air an investigative article naming one of IKEA ’s Indian Rug suppliers as a key employer of children. The supplier in this case had already signed a contract agreement with IKEA not to use child labour. The story was revealed at a time when the issue of child labour was gaining momentum in reporting in the media.

Furthermore, Germany was IKEA’s largest international market. The TV station for German seemed to be less disposed towards IKEA than the Swedish T.V show had been in its 1994 documentary. There was increased media play as the child labour issue was getting the attention of global organizations and NGOs including manufacturers, importers, and retailers as well as Indian organizations who were in support of use and certified their products as free of child labour, (Christopher, Vincent, & Anders 2006).

Barner was under pressure of deciding how to handle the problem with the impending documentary by German TV and the negligence by IKEA’s Indian rug supplier. More importantly, deciding on the best way of addressing over the long-term deeply imbedded issue of child labour in the supply chain of IKEA.

Discussion

How should Marianne Barner respond to the invitation for IKEA to have a representative appear on the upcoming broadcast of the German video program?

The producers of the German T.V documentary presented their invitation to IKEA, asking them to send a representative who was to participate in a live debate when broadcasting the program. By accepting the invitation, IKEA would benefit by being given an opportunity to educate the producers as well as the public at large on their current efforts directed towards fighting child labour. However, it is evident that the producers will not allow IKEA to have a preview of the video and that the program planned to have a confrontational approach aimed at undressing IKEA. This raises the possibility that IKEA’s message would not be properly portrayed. Therefore, Barner should not accept the invitation and only give a response to the accusations in the video once they have been allowed to preview and verify the evidence, (Christopher, Vincent, & Anders 2006).

What actions should she take regarding the IKEA supply contract with Rangan Exports?

If the available evidence on child labour at Rangan Exports is accurate, this means that the supplier has directly violated KIEA’s clause of no child labour. There are two alternatives for Barner in handling the situation. First, she can immediately bring the contract with the supplier to an end based on breach of their breach of the child labour provision. According to IKEA’s policies, this option is legal. The only disadvantage with this option is that it may deprive IKEA of a lucrative supplier relationship. IKEA’s bottom line might be affected adversely due to the cutting off access to Indian rug resources (Rosabeth 2009).

Another option for Barner is to maintain its relations but issue a warning to the supplier. They should demand that the supplier stop employing child labourers. The advantage of this option is that IKEA would maintain a potential, lucrative supplier relationship. It would also be a ground for IKEA to educate suppliers on the hazards of child labour. On the other side, this alternative would be a direct contradiction of IKEA’s own established policies. It may send a message to suppliers that IKEA might in secretly tolerate child labour while openly condemning it. Another possible effect would be the level of negative publicity that would be generated and the likely damage it would cause to the reputation of IKEA (Rosabeth 2009).

IKEA should embrace the first alternative and terminate relations with the violating supplier. In case they fail to do so, they might send the wrong message to other suppliers who then might increase their bargaining power resulting in violation of IKEA’s policies. Moreover, it leaves IKEA as open to allegations of unethical behaviour. IKEA should publicly terminate its relations with Rangani Exports with immediate effect. The company should issue a press release with clear reasons to justify the decision and summarize IKEA’s policy on suppliers using child labour (Bill 2008).

What long-term strategy would you suggest she take regarding IKEA’s continued operation in India? Should the company stay or should it exit? Describe the impact of such a decision and how would you manage it?

There is a wide range of options, which IKEA could be use to address long-term strategy in India. The first alternative is to withdraw from India. This option has a key advantage in that it would solve the problem by withdrawing IKEA from the situation – at least as it has a relation with Indian rugs. Losses are likely to be minimal as rugs represent only a small percentage of IKEA’s business. However, some disadvantages including the likelihood of IKEA to lose potential businesses to customers looking for such imported rugs (Jiangyng, Tao, Yu & Grace 2009).

Another disadvantage is that the decision by IKEA not to carry any Asian rugs. This may encourage the purchase of extra rugs produced by employed children because customers go to competitors lacking competitive policies on child labour. This may also result to an impression that IKEA is hiding from the issue and not attempting to contribute to its solution. Lastly, this option does not prevent IKEA from being involved in another scandal of child labour in yet another home furnishing industry. Therefore, I would recommend that IKEA continues with its operation in India and work hand in hand with suppliers to curb child labour, (Rosabeth 2009).

Conclusion

As globalization continues to make the globe small, organizations are facing new ethical challenges. An international company must find effective ways of bridging the cultural gap in order to ensure the observation of consistent standards in all sectors of business and all levels of the supply chain. There is a direct link between behaving ethically and developing long-term shareholder value. It would be costly for suppliers failing to maintain high ethical standards. This has been evident in the public relations fallout from IKEA’s child labour allegations. Placing values as first priority can easily lead to profit and values creation for consumers, shareholders as well as communities (Bill (2008).

This case study has demonstrated the interdependence of all nations in the entire global economy. Just like the Tsunami in Japan would affect the economy of the US, the actions and values of US businesses would affect the rest of the world. Businesses across the world are with no doubt linked in one global economy. This link should be checked to create a positive change all over the world. Businesses that recognize labour rights pay their workers well helping them to educate their children. It is not easy to effect change because issues are complex. However, the knowledge on the strength of business decisions and its effects on the entire world is an essential step (Viederman 2011).

References

Bill G. (2008) “Ethics must be Global, Not Local.” Bloomberg Business week.

Christopher A., Vincent D., & Anders S. (2006) IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labour (B). Boston: Harvard Business Publishing

Christopher, A., Vincent D., & Anders S. (2006). IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labour (A). Boston: Harvard Business Publishing

Jiangyng, L., Tao Z., Yu L. & Grace L. (2009). “Mattel’s Strategy after its Recall of Products Made in China. Harvard: Harvard Business Review.

Rosabeth, K. (2009). Inside Procter & Gamble’s New Values-Based Strategy. Bloomberg Business Week

Viederman, D. (2011). “Overseas Sweatshops are a U.S. Responsibility.” Bloomberg Business Week