ikea child labor case study

• IKEA Case: One Company’s Fight to End Child Labor
• Markkula Center for Applied Ethics
• Focus Areas
• Business Ethics
• Business Ethics Resources

IKEA Case: One Company’s Fight to End Child Labor

A business ethics case study.

In this business ethics case study, Swedish multinational company IKEA faced accusations relating to child labor abuses in the rug industry in Pakistan which posed a serious challenge for the company and its supply chain management goals.

Empty garage with a highlighted walking path in front of an IKEA.

Photo credit: mastrminda/Pixabay

Yuvraj Rao '23 , a 2022-23 Hackworth Fellow at the Markkula Center for Applied Ethics graduated with a marketing major and entrepreneurship minor from Santa Clara University.

Introduction

IKEA is a Swedish multinational company that was founded in 1943 by Ingvar Kamprad. [1] The company mainly provides simple, affordable home furniture and furnishings, and it pioneered DIY, or do it yourself, furniture. Kamprad originally sold binders, fountain pens, and cigarette lighters, but eventually expanded to furniture in 1948. According to the Journal of International Management, in 1953, Kamprad offered products that came as “a self assembled furniture” for the lowest price, which ultimately became a key part of IKEA’s value proposition going forward. In 1961, IKEA started to contact furniture factories in Poland to order chairs from a factory in Radomsko. [2] Outsourcing to Poland was mainly due to other Swedish furniture stores pressuring Swedish manufacturers to stop selling to IKEA. In the mid 1960’s, IKEA continued its supplier expansion into Norway, largely because IKEA didn’t want to “own their own line of production,” [3] and Germany due to its ideal location (downtown, suburban area) to place an IKEA store. Given IKEA’s suppliers were now not just in Sweden, it led to an increased importance on developing strong relationships with its suppliers.

In the following decades, IKEA continued its expansion and solidified its identity as a major retail outlet with parts being manufactured around the world. By the mid 90’s, IKEA was the “world’s largest specialized furniture retailer with their GDP reaching $4.5 billion in August of 1994.” [4] It also worked with 2,300 suppliers in 70 different countries, who supplied 11,200 products and had 24 “trading offices in nineteen countries that monitored production, tested product ideas, negotiated products, and checked quality.” [5] IKEA’s dependence on its suppliers ultimately led to problems in the mid 1990’s. At this time, IKEA was the largest furniture retailer in the world, and had nearly “100 stores in 17 countries.” [6] Also during this time, a Swedish documentary was released that highlighted the use of child labor in the rug industry in Pakistan, which impacted IKEA given it had production there. The rug industry in particular is extremely labor intensive and is one of the largest “export earners for India, Pakistan, Nepal and Morocco.” Here, children are forced to work long hours for very little pay (if there is any pay at all). In some cases, their wages are only enough to pay for food and lodging. In cases where children are not paid, the wages are used by the loom owner to pay the parents and agents who brought the children to the factories. Additionally, the work the children must do comes with a lot of risk. More specifically, children face risks of diminishing eyesight and damaged lungs from “the dust and fluff from the wool used in the carpets.” [7] As a result of these working conditions, many of these children are very sick when they grow up. Despite these terrible conditions, it isn’t that simple for families not to send children to work at these factories. A lot of the parents can’t afford food, water, education, or healthcare, so they are often left with no choice but to send their children to work for an additional source of income. [8]

 IKEA and Child Labor Accusations

The accusations of child labor in the rug industry in Pakistan posed a serious challenge for IKEA and its supply chain management goals. It would need to address the serious issues of alleged injustice for the sake of its reputation and brand image. Additionally, as IKEA also had suppliers in India, it would need to be in compliance with India’s “landmark legislation act against child labor, the Child Labor (Prohibition and Regulation) Act of 1986.” [9]

As a result of these accusations, IKEA ultimately ended its contracts with Pakistani rug manufacturers, but the problem of child labor in its supply chain still persisted in other countries that were supplying IKEA. Marianne Barner, the business area manager for rugs for IKEA at the time, stated that the film was a “real eye-opener…I myself had spent a couple of months in India for some supply chain training, but child labor was never mentioned.” [10] She also added that a key issue was that IKEA’s “buyers met suppliers at offices in the cities and rarely visited the actual production sites.” [11] The lack of visits to the actual production sites made it difficult for IKEA to identify the issue of child labor in these countries.

To make matters worse, in 1995, a German film “showed pictures of children working at an Indian rug supplier... ‘There was no doubt that they were rugs for IKEA,’ says business area manager for textiles at the time, Göran Ydstrand.” [12] In response to these accusations, Barner and her team went to talk to suppliers in Nepal, Bangladesh, and India. They also conducted surprise raids on rug factories and confirmed that there was child labor in these factories. The issue of child labor, along with the accusations of having formaldehyde (a harmful chemical) in IKEA’s best selling BILLY bookcases and the discovery of unsafe working conditions for adults (such as dipping hands in petrol without gloves), led to increased costs and a significantly damaged reputation for the company.

It was later discovered that the German film released in 1995 was fake, and the renowned German journalist who was responsible for this film was involved in “several fake reports about different subjects and companies.” [13] IKEA was now left with three options. First, some members of IKEA management wanted to permanently shut down production of their rugs in South Asia. Another option was to do nothing and proceed with its existing practices now that it was announced that the film was fake. The third option was that the company could attempt to tackle the issue of child labor that was clearly evident in its supply chain, regardless of whether the film was fake or not. IKEA ultimately decided to opt for the third option, and its recent discoveries would eventually help guide the policies the company implemented to address these issues, particularly child labor in India.

Steps Taken to Address Child Labor in the Supply Chain

IKEA took multiple steps to deal with its damaged reputation and issues of child labor in its supply chain. One way in which it did this was through institutional partnerships. One such partnership was with Save the Children, which began in 1994. According to Save the Children’s website, one of the main goals of their partnership is to realize children's “rights to a healthy and secure childhood, which includes a quality education. By listening to and learning from children, we develop long-term projects that empower communities to create a better everyday life for children.” [14] Furthermore, the partnership is intended to “drive sustainable business operations across the entire value chain.” [15] Together, IKEA and Save the Children are focused on addressing the main causes of child labor in India’s cotton-growing areas. [16] Save the Children also advised IKEA to bring in an independent consultant to ensure that suppliers were in compliance with their agreements, which further improved IKEA’s practices in its supply chain. IKEA also partnered with UNICEF to combat child labor in its supply chain. According to the IKEA Foundation, in 2014, IKEA provided UNICEF with six new grants totaling €24.9 million with a focus “on reaching the most marginalized and disadvantaged children living in poor communities and in strengthening UNICEF’s response in emergency and conflict situations.” Additionally, five of the six grants were given to help programs in “Afghanistan, China, India, Pakistan, and Rwanda,” with a “focus on early childhood development, child protection, education, and helping adolescents to improve their lives and strengthen their communities.” [17]

Next, IKEA and Save the Children worked together to develop IWAY, which was launched in 2000. [18] IWAY is the IKEA code of conduct for suppliers. According to the IKEA website, “IWAY is the IKEA way of responsibly sourcing products, services, materials and components. It sets clear expectations and ways of working for environmental, social and working conditions, as well as animal welfare, and is mandatory for all suppliers and service providers that work with IKEA.” [19] In addition, IWAY is meant to have an impact in the following four areas: “promoting positive impacts on the environment,” “securing decent and meaningful work for workers,” “respecting children’s rights”, and “improving the welfare of animals in the IKEA value chain.” [20] IWAY is used as a foundation to collaborate with IKEA’s suppliers and sub-contractors to ensure supply chain transparency.

As mentioned previously, one of the main goals of IKEA’s partnership with Save the Children was to address child labor in India’s cotton-growing areas. To do this, IKEA and Save the Children developed a program that would ultimately help more than 1,800 villages between 2009 and 2014. More specifically, the program moved nearly 150,000 children out of child labor and into classrooms. Also, as a result of this program, more than 10,000 migrant children “moved back into their home communities.” [21] Last but not least, the program trained almost 2,000 teachers and 1,866 Anganwadi workers (whose duties include teaching students and educating villagers on healthcare [22] ) in order to provide each village with a community leader. This was to ensure that the community had a skilled leader to assist in educating the villagers. In 2012, the IKEA Foundation and Save the Children announced that they would expand with new programs in Punjab, Haryana, and Rajasthan. This joint program illustrates IKEA’s commitment to improving communities in addition to helping children go to school.

Conclusion & Looking Ahead

IKEA has taken numerous steps to ensure that suppliers abide by the IWAY Code of Conduct. Companies around the world can learn from the policies IKEA has put in place to ensure that each company has control and complete oversight over their supply chains, which can lead to a more transparent and ethical supply chain. According to The IKEA WAY on Purchasing Products, Materials and Services, one way in which IKEA does this is by requiring all suppliers to share the content of the code to all co-workers and sub-suppliers, thus leading to more accountability among the company's suppliers. IKEA also believes in the importance of long term relationships with its suppliers. Therefore, if for some reason, a supplier is not meeting the standards set forth by the code, IKEA will continue to work with the supplier if the supplier shows a willingness to improve its practices with actionable steps to complete before a specified period of time. [23]

Additionally, during the IWAY implementation process, IKEA monitors its suppliers and service providers. To do this, IKEA has a team of auditors who conduct audits (both announced and unannounced) at supplier facilities. The auditors are also in charge of following up on action plans if suppliers are failing to meet the agreed upon standards specified by IWAY. Along with this, “IKEA…has the Compliance and Monitoring Group, an internal independent group that is responsible for independent verification of implementation and compliance activities related to IWAY and Sustainability.” [24] IKEA also has independent third party teams who conduct inspections on behalf of IKEA. [25] By conducting audits and putting together teams to ensure cooperation from suppliers throughout the supply chain, companies can be better equipped to prevent unethical practices in the production of goods and services. In Ximeng Han’s Analysis and Reflection of IKEA’s Supply Chain Management, Han highlights IWAY’s importance in maintaining links with IKEA’s suppliers. [26] Therefore, IWAY plays a crucial role in ensuring supply chain transparency and in building a more ethical and sustainable supply chain.

In addition to all of the policies IKEA has put in place to address issues in its supply chain, the company has also donated a lot of money to combat child labor in India. More specifically, according to an IKEA Foundation article written in 2013, “Since 2000, the IKEA Foundation has committed €60 million to help fight child labour in India and Pakistan, aiming to prevent children from working in the cotton, metalware and carpet industries.” [27] Furthermore, in 2009, the company announced that it would donate $48 million to UNICEF to “help poor children in India.” [28]

IKEA’s goal to completely eliminate child labor from its supply chain is an ongoing battle, and it is still committed to ensuring that this is ultimately the case. More specifically, it is extremely difficult to completely eliminate child labor from a company’s supply chain because of the various aspects involved. According to a report published in 2018 by the International Labour Organization, these aspects include a legal commitment, building and “extending” social protection systems (including helping people find jobs), “expanding access to free, quality public education,” addressing supply chain issues, and providing more protection for children in general. [29] Furthermore, Han points out the potential downsides that could arise as a result of having a global supply chain like IKEA does. Given IKEA is an international retailer, the company “has to spend a lot of time, money and manpower to enter new markets due to the different cultures, laws and competitive markets in different regions, and there is also a significant risk of zero return.” [30] Han also argues that the COVID-19 pandemic showed IKEA’s and many other companies’ inability to respond to “fluctuations in supply and demand,” primarily due to inflexible supply chains. [31] This information points out the various aspects that need to align in order to completely end the issue of child labor throughout the world, as well as the difficulties of having a global supply chain, which is why child labor is so difficult to completely eliminate.

Specific to IKEA’s actions, in 2021, IKEA announced three key focus areas for its action pledge: “Further integrating children’s rights into the existing IKEA due diligence system (by reviewing IWAY from a child rights’ perspective in order to strengthen the code),” “accelerating the work to promote decent work for young workers,” and partnering “up to increase and scale efforts.” [32] IKEA’s fight to end child labor in India highlights the importance of supply chain transparency and putting policies in place that ensures cooperation from suppliers and all parties involved. Additionally, in a Forbes article written in 2021, “According to the data from the OpenText survey…When asked whether purchasing ethically sourced and/or produced products matters, 81 percent of respondents said yes.” [33] Steve Banker, who covers logistics and supply chain management, also adds, “What is interesting is that nearly 20 percent of these survey respondents said that it has only mattered to them within the last year, which indicates that the Covid pandemic, and some of the product shortages we have faced, has made consumers re-evaluate their stance on ethical sourcing.” [34] These results confirm that customers are now considering how a product was sourced in their purchasing decisions, which makes it even more important for IKEA to be transparent about its efforts to eliminate child labor from its supply chain. Furthermore, the company’s open commitment to eliminating child labor and helping communities in India is beneficial in maintaining a positive relationship with its stakeholders.

The increase in globalization has made it even more essential for companies to monitor their supply chains and have complete oversight over business practices. IKEA is one of the companies leading the way in building a more ethical and sustainable supply chain, but more companies need to follow suit and implement policies similar to IWAY that holds all parties in the supply chain accountable for their actions. Through supply chain transparency and accountability, companies will likely be better equipped to handle issues that arise throughout their respective supply chains. Furthermore, by implementing new policies, conducting audits, and maintaining close communication with suppliers, companies can work to eliminate child labor in their supply chains and put children where they belong: in school.

Reflection Questions:

• What does this case teach you about supply chain ethics?
• What are some of the ways in which management/leaders can ensure compliance of the standards set forth by a company in terms of supplier behavior and ethical sourcing?
• Who is primarily responsible for ensuring ethical behavior throughout the supply chain? Is it the company? The suppliers? Both?
• How can companies utilize the various platforms and technologies that exist today to better understand and oversee their supply chains? 
• IKEA has taken numerous steps to address child labor in its supply chain. Do you think every business working in a context that may involve child labor has a duty to act in a similar way? Why or why not?

Works Cited 

“ About Ikea – Our Heritage .” IKEA.

“Anganwadi Workers.” Journals Of India , 16 June 2020. 

Banker, Steve. “ Do Consumers Care about Ethical Sourcing? ” Forbes , 9 Nov. 2022.

Bharadwaj , Prashant, et al. Perverse Consequences of Well-Intentioned Regulation ... - World Bank Group .

“ Child Labor in the Carpet Industry Rugmark: Carpets: Rugs: Pakistan .” Child Labor in the Carpet Industry RugMark |Carpets | Rugs | Pakistan .

“ Creating a Sustainable IKEA Value Chain with Iway. ” Sustainability Is Key in Our Supplier Code of Conduct .

“ Ending Child Labour by 2025 - International Labour Organization .” International Labour Organization .

“ Film on Child Labour Is Eye-Opener for IKEA .” IKEA Museum , 31 Mar. 2022.

Foundation , ECLT. “ Why Does Child Labour Happen? Here Are Some of the Root Causes. ” ECLT Foundation , 17 May 2023.

Han, Ximeng. “ Analysis and Reflection of IKEA’s Supply Chain Management. ” Analysis and Reflection of IKEA’s Supply Chain Management | Atlantis Press , 27 Dec. 2022.

“ Human Rights and Global Sourcing: IKEA in India. ” Journal of International Management , 13 May 2011.

“ IKEA and IKEA Foundation .” Save the Children International .

“ IKEA Foundation Contributes €24.9 Million to UNICEF to Help Advance Children’s Rights. ” IKEA Foundation , 26 May 2020.

“ IKEA Foundation Helps Fight the Roots Causes of Child Labour in Pakistan .” IKEA Foundation , 18 Feb. 2013.

“ Ikea Gives $48 Million to Fight India Child Labor .” NBC News , 23 Feb. 2009.

“ IKEA Supports 2021 as the UN International Year for the Elimination of Child Labour. ” About IKEA.

The Ikea Way on Purchasing Products , Materials and Services .

Jasińska, Joanna, et al. “ Flat-Pack Success: IKEA Turns to Poland for Its Furniture. ” – The First News .

Thomas , Susan. “ IKEA Foundation Tackles Child Labor in India’s Cotton Communities .” Boston College Center for Corporate Citizenship , 15 July 2014.

[1] “About Ikea – Our Heritage.” IKEA .

[2] Jasińska, Joanna, et al. “Flat-Pack Success: IKEA Turns to Poland for Its Furniture.” – The First News .

[3] “Human Rights and Global Sourcing: IKEA in India.” Journal of International Management , 13 May 2011.

[4] “Human Rights and Global Sourcing: IKEA in India.” Journal of International Management , 13 May 2011.

[5] “Human Rights and Global Sourcing: IKEA in India.” Journal of International Management , 13 May 2011.

[6] “Film on Child Labour Is Eye-Opener for IKEA.” IKEA Museum , 31 Mar. 2022.

[7] “Child Labor in the Carpet Industry Rugmark: Carpets: Rugs: Pakistan.” Child Labor in the Carpet Industry RugMark |Carpets | Rugs | Pakistan .

[8] Foundation , ECLT. “Why Does Child Labour Happen? Here Are Some of the Root Causes.” ECLT Foundation , 17 May 2023.

[9] Bharadwaj , Prashant, et al. Perverse Consequences of Well-Intentioned Regulation ... - World Bank Group .

[10] “Film on Child Labour Is Eye-Opener for IKEA.” IKEA Museum , 31 Mar. 2022.

[11] “Film on Child Labour Is Eye-Opener for IKEA.” IKEA Museum , 31 Mar. 2022.

[12] “Film on Child Labour Is Eye-Opener for IKEA.” IKEA Museum , 31 Mar. 2022.

[13] “Film on Child Labour Is Eye-Opener for IKEA.” IKEA Museum , 31 Mar. 2022.

[14] “IKEA and IKEA Foundation.” Save the Children International .

[15] “IKEA and IKEA Foundation.” Save the Children International .

[16] “IKEA and IKEA Foundation.” Save the Children International .

[17] “IKEA Foundation Contributes €24.9 Million to UNICEF to Help Advance Children’s Rights.” IKEA Foundation , 26 May 2020.

[18] “IKEA and IKEA Foundation.” Save the Children International .

[19] “Creating a Sustainable IKEA Value Chain with Iway.” Sustainability Is Key in Our Supplier Code of Conduct .

[20] “Creating a Sustainable IKEA Value Chain with Iway.” Sustainability Is Key in Our Supplier Code of Conduct .

[21] Thomas, Susan. “IKEA Foundation Tackles Child Labor in India’s Cotton Communities.” Boston College Center for Corporate Citizenship , 15 July 2014.

[22] “Anganwadi Workers.” Journals Of India , 16 June 2020.

[23] The Ikea Way on Purchasing Products, Materials and Services .

[24] The Ikea Way on Purchasing Products, Materials and Services .

[25] The Ikea Way on Purchasing Products, Materials and Services .

[26] Han, Ximeng. “Analysis and Reflection of IKEA’s Supply Chain Management.” Analysis and Reflection of IKEA’s Supply Chain Management | Atlantis Press , 27 Dec. 2022.

[27] “IKEA Foundation Helps Fight the Roots Causes of Child Labour in Pakistan.” IKEA Foundation , 18 Feb. 2013.

[28] “Ikea Gives $48 Million to Fight India Child Labor.” NBC News , 23 Feb. 2009.

[29] “Ending Child Labour by 2025 - International Labour Organization.” International Labour Organization .

[30] Han, Ximeng. “Analysis and Reflection of IKEA’s Supply Chain Management.” Analysis and Reflection of IKEA’s Supply Chain Management | Atlantis Press , 27 Dec. 2022.

[31] Han, Ximeng. “Analysis and Reflection of IKEA’s Supply Chain Management.” Analysis and Reflection of IKEA’s Supply Chain Management | Atlantis Press , 27 Dec. 2022.

[32] “IKEA Supports 2021 as the UN International Year for the Elimination of Child Labour.” About IKEA .

[33] Banker, Steve. “Do Consumers Care about Ethical Sourcing?” Forbes , 9 Nov. 2022.

[34] Banker, Steve. “Do Consumers Care about Ethical Sourcing?” Forbes , 9 Nov. 2022.

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IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

By: Christopher A. Bartlett, Vincent Dessain, Anders Sjoman

Traces the history of IKEA's response to a TV report that its Indian carpet suppliers were using child labor. Describes IKEA's growth, including the importance of a sourcing strategy based on its…

• Length: 13 page(s)
• Publication Date: May 3, 2006
• Discipline: International Business
• Product #: 906414-PDF-ENG

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The Inside the Case video that accompanies this case includes teaching tips and insight from the author (available to registered educators only).

Traces the history of IKEA's response to a TV report that its Indian carpet suppliers were using child labor. Describes IKEA's growth, including the importance of a sourcing strategy based on its close relationships with suppliers in developing countries. Details the development of IKEA's strong culture and values that include a commitment "to create a better everyday life for many people." Describes how, in response to regulatory and public pressure, IKEA developed a set of environmental policies that grew to encompass a relationship with Greenpeace and WWF on forest management and conservation. Then, in 1994, Marianne Barner, a newly appointed IKEA product manager, is surprised by a Swedish television documentary on the use of child labor by Indian carpet suppliers, including some that supply IKEA's rugs. She immediately implements a strict policy that provides for contract cancellation if any IKEA supplier uses child labor. Then Barner is confronted by a German TV producer who advises her that he is about to broadcast an investigative program documenting the use of child labor in one of the company's major suppliers. How should she react to the crisis? How should the company deal with the ongoing issue of child labor in the supply chain?

Learning Objectives

To grapple with decisions and implementable action around complex strategic and ethical issues in an international context; to highlight the complexities of managing outsourcing to suppliers in developing countries; and to examine the role of MNE-NGO partnerships as agents of social enterprise.

May 3, 2006 (Revised: Nov 14, 2006)

Discipline:

International Business

Harvard Business School

906414-PDF-ENG

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Between 1994 and 1997, three documentaries screened by German and Swedish television accused IKEA — the home furnishing multinational — of using child labour under degrading conditions in Pakistan, India, Vietnam and the Philippines. Since then, IKEA was involved in several other child labour allegations featured in international media and high-profile research papers .

To address the issue, IKEA reinforced its due diligence efforts, including announced site visits of all suppliers and subcontractors in South Asia. IKEA also updated its supplier code of conduct , ‘The IKEA Way of Preventing Child Labour’ (later merged into IWAY ), according to which all suppliers are required to maintain a registry of all workers and to include their date of birth.

In addition, IKEA and its non-profit arm IKEA Foundation have partnered with UNICEF and Save the Children to implement several on-the-ground projects that aim to tackle the root causes of child labour, including improving the quality of schools and making them more inclusive for all children, as well as projects focused on maternal and child healthcare and child protection. IKEA estimates that through joint campaigns with UNICEF and Save the Children, millions of children in over 45 countries across sub-Saharan Africa, Asia and Europe have enjoyed better educational opportunities.

In April 2021, IKEA made a new pledge to accelerate its efforts to strengthen child rights and remove child labour from the company’s supply chain in support of the International Year for the Elimination of Child Labour . The IKEA action pledge aims to strengthen efforts on child rights with three key focus areas:

• Further integrating children’s rights into the existing IKEA due diligence system
• Accelerating the work to promote decent work for young workers
• Partnering up to increase and scale efforts (including joining the ILO Child Labour Platform )

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IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

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About The Author

Christopher A. Bartlett

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IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (TN) (A) and (B)

• IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (TN) (A) and (B)  By: Christopher A. Bartlett

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IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A) – Case Solution

IKEA, as a company, has always practiced strong culture and values in its commitment "to create a better everyday life for many people" in all its organizational processes. It has suppliers from developing countries as part of its sourcing strategy and has implemented environmental policies. Sometime in 1994, IKEA's product manager, Marianne Barner, was taken aback when it came to her knowledge, through a TV documentary, that some of its carpet suppliers from India use child labor. In response, she formulated a strict policy providing for contract cancellation if a supplier uses child labor. When advised by a German TV producer on the broadcasting of a documentary on the employment of child labor in one of IKEA's suppliers, Barner was faced with the challenge of how to go about such an issue and how the company should handle the same.

​Christopher A. Bartlett; Vincent Dessain; Anders Sjoman Harvard Business Review ( 906414-PDF-ENG ) May 03, 2006

Case questions answered:

Case study questions answered in the first solution:

• How should Barner deal with the child labor issue in relation to its sourcing activities in India? For example, should the company continue to source their rugs from India, or should they leave? If they decide to stay in India, should they deal with the child labor issue through their own suppliers or allow Rugmark to monitor the issue on their behalf? Or is there another option, and if so, what? Answer these questions as though you are a member of an internal project team that is directly assisting Barner.
• State the key problems that Barner has to address in relation to IKEA’s sourcing activities in India.
• Evaluate possible, mutually exclusive options in solving the key problems.
• Justify why your suggested option is the best possible option.
• Propose a brief implementation plan that outlines what actions should be prioritized and why.

Case study questions answered in the second solution:

• Should the company continue to try to deal with the issue through its own relationships with its suppliers?
• Should it step back and allow Rugmark to monitor the use of child labor on its behalf?
• Or should it recognize that the problem was too deeply embedded in the culture of these countries for it to have any real impact and simply withdraw?

Not the questions you were looking for? Submit your own questions & get answers .

IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) Case Answers

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EXECUTIVE SUMMARY – IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A)

This report is based on the Indian Rugs and Child Labour issues faced by IKEA. In this report, the Project Management Team will analyze the major issues faced by the company in relation to the involvement of its suppliers in child labor.

This report will evaluate whether IKEA should stay and source rugs from Indian suppliers. Simultaneously, it would deal with the child labor issues independently, rely on the Rugmark monitoring program, or leave the Indian market entirely. Additionally, it would also tackle whether IKEA should continue its partnership with Rangan Exports.

The report will, thus, directly assist the Business Area Manager, Marianne Barner, by outlining and evaluating the key issue of Child Labour in the Indian Rug market, analyzing potential solutions, and providing recommendations and a strategy to move forward.

The report will commence by identifying the underlying issues such as outsourcing, child labor, and negative publicity, followed by an evaluation of various options, as a result of which staying in India by forming a partnership with the Rugmark Foundation and incorporating certain initiatives on its own to mitigate the issues is recommended as the best course of action.

The report develops further by providing recommendations that could be used now or back in 1990, such as terminating its contract with Rangan exports, conducting surprise inspections, forming a new policy framework, and so on to help IKEA follow up on its decision to stay in the Indian market and later presenting an implementation plan to facilitate the process with well-defined short-term and long-term action plan.

INTRODUCTION

As the world’s largest furniture retailer, IKEA serves more than 1.6 billion people and employs more than 194,000 people across 49 countries (“IKEA 2017 by numbers”, 2018).

The Swedish company IKEA was founded in 1943 by Ingvar Kamprad with a vision to create a better life for many people. Therefore, the aim of the company is to provide affordable and inexpensive well-designed furniture to people while incurring the least possible costs.

Along with a few external factors, this cost-conscious objective of IKEA paved the way for outsourcing from international suppliers. IKEA aims to build long-term relationships. As a result, it invested in teaching its processes and know-how as well as providing machinery to its suppliers.

In the 1980s, IKEA was accused of having exceeded the limits for formaldehyde emissions. Although IKEA took quick measures to mitigate the issue, the damage was done.

In 1994, IKEA was again in the middle of a storm when the issue of child labor used by its suppliers in countries like India, Nepal, and Pakistan was brought to light by a Swedish Documentary. Due to the documentary’s emphasis and IKEA’s brand name, the corporate image of the company was further affected immensely.

Although the company actively took steps to alleviate the issues by creating contracts to prohibit child labor, a documentary was already in the process of broadcasting IKEA’s supplier’s – Rangan Exports – involvement in child labor.

SWOT ANALYSIS

IKEA, being a multinational company, has several notable qualities as well as weaknesses.

The following SWOT analysis will evaluate them:

The SWOT analysis shows that IKEA has a very…

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IKEAs Global Sourcing Challenge: Indian Rugs and Child Labor (A) Case Solution & Answer

Home » Case Study Analysis Solutions » IKEAs Global Sourcing Challenge: Indian Rugs and Child Labor (A)

Traces the history of IKEA’s response to a television report that its Indian carpet suppliers were using child labor. Describes IKEA’s growth, including the importance of supply strategy based on its strong relationships with suppliers in developing countries. Details the development of a strong culture and values ​​include a commitment of IKEA “creating a better everyday life for many people.” Describe how, in response to regulatory and public pressure, IKEA has developed a set of environmental policies are developed to encompass a relationship with Greenpeace and WWF on the management and conservation of forests. Then in 1994, Marianne Barner, head of IKEA newly appointed product is surprised by a Swedish television documentary on the use of child labor by suppliers of carpets from India, including some that provide IKEA rug. It shall immediately? Implement a strict policy that provides for the termination of the contract, if an IKEA supplier uses child labor. Then Barner faces a German television producer who informs him that he is about to deliver a program of research on the use of child labor in one of the main suppliers of the company. How should I respond to the crisis? How the company faces the issue of child labor be in the supply chain? by Christopher A. Bartlett, Vincent Dessain, Anders Sjoman Source: HBS Premier Case Collection 13 pages. Publication Date: 03 May 2006. # Prod: 906414-PDF-ENG IKEA Global Sourcing Challenge: Indian Rugs and Child Labour (A) Case Solution

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Ikea's global sourcing challenge: indian rugs and child labor (a) description.

Traces the history of IKEA's response to a TV report that its Indian carpet suppliers were using child labor. Describes IKEA's growth, including the importance of a sourcing strategy based on its close relationships with suppliers in developing countries. Details the development of IKEA's strong culture and values that include a commitment "to create a better everyday life for many people." Describes how, in response to regulatory and public pressure, IKEA developed a set of environmental policies that grew to encompass a relationship with Greenpeace and WWF on forest management and conservation. Then, in 1994, Marianne Barner, a newly appointed IKEA product manager, is surprised by a Swedish television documentary on the use of child labor by Indian carpet suppliers, including some that supply IKEA's rugs. She immediately implements a strict policy that provides for contract cancellation if any IKEA supplier uses child labor. Then Barner is confronted by a German TV producer who advises her that he is about to broadcast an investigative program documenting the use of child labor in one of the company's major suppliers. How should she react to the crisis? How should the company deal with the ongoing issue of child labor in the supply chain?

Case Description IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

Strategic managment tools used in case study analysis of ikea's global sourcing challenge: indian rugs and child labor (a), step 1. problem identification in ikea's global sourcing challenge: indian rugs and child labor (a) case study, step 2. external environment analysis - pestel / pest / step analysis of ikea's global sourcing challenge: indian rugs and child labor (a) case study, step 3. industry specific / porter five forces analysis of ikea's global sourcing challenge: indian rugs and child labor (a) case study, step 4. evaluating alternatives / swot analysis of ikea's global sourcing challenge: indian rugs and child labor (a) case study, step 5. porter value chain analysis / vrio / vrin analysis ikea's global sourcing challenge: indian rugs and child labor (a) case study, step 6. recommendations ikea's global sourcing challenge: indian rugs and child labor (a) case study, step 7. basis of recommendations for ikea's global sourcing challenge: indian rugs and child labor (a) case study, quality & on time delivery.

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Case Analysis of IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) is a Harvard Business (HBR) Case Study on Technology & Operations , Texas Business School provides HBR case study assignment help for just $9. Texas Business School(TBS) case study solution is based on HBR Case Study Method framework, TBS expertise & global insights. IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) is designed and drafted in a manner to allow the HBR case study reader to analyze a real-world problem by putting reader into the position of the decision maker. IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) case study will help professionals, MBA, EMBA, and leaders to develop a broad and clear understanding of casecategory challenges. IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) will also provide insight into areas such as – wordlist , strategy, leadership, sales and marketing, and negotiations.

Case Study Solutions Background Work

IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) case study solution is focused on solving the strategic and operational challenges the protagonist of the case is facing. The challenges involve – evaluation of strategic options, key role of Technology & Operations, leadership qualities of the protagonist, and dynamics of the external environment. The challenge in front of the protagonist, of IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A), is to not only build a competitive position of the organization but also to sustain it over a period of time.

Strategic Management Tools Used in Case Study Solution

The IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) case study solution requires the MBA, EMBA, executive, professional to have a deep understanding of various strategic management tools such as SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis.

Texas Business School Approach to Technology & Operations Solutions

In the Texas Business School, IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) case study solution – following strategic tools are used - SWOT Analysis, PESTEL Analysis / PEST Analysis / STEP Analysis, Porter Five Forces Analysis, Go To Market Strategy, BCG Matrix Analysis, Porter Value Chain Analysis, Ansoff Matrix Analysis, VRIO / VRIN and Marketing Mix Analysis. We have additionally used the concept of supply chain management and leadership framework to build a comprehensive case study solution for the case – IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

Step 1 – Problem Identification of IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) - Harvard Business School Case Study

The first step to solve HBR IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) case study solution is to identify the problem present in the case. The problem statement of the case is provided in the beginning of the case where the protagonist is contemplating various options in the face of numerous challenges that Ikea's Child is facing right now. Even though the problem statement is essentially – “Technology & Operations” challenge but it has impacted by others factors such as communication in the organization, uncertainty in the external environment, leadership in Ikea's Child, style of leadership and organization structure, marketing and sales, organizational behavior, strategy, internal politics, stakeholders priorities and more.

Step 2 – External Environment Analysis

Texas Business School approach of case study analysis – Conclusion, Reasons, Evidences - provides a framework to analyze every HBR case study. It requires conducting robust external environmental analysis to decipher evidences for the reasons presented in the IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A). The external environment analysis of IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) will ensure that we are keeping a tab on the macro-environment factors that are directly and indirectly impacting the business of the firm.

What is PESTEL Analysis? Briefly Explained

PESTEL stands for political, economic, social, technological, environmental and legal factors that impact the external environment of firm in IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) case study. PESTEL analysis of " IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)" can help us understand why the organization is performing badly, what are the factors in the external environment that are impacting the performance of the organization, and how the organization can either manage or mitigate the impact of these external factors.

How to do PESTEL / PEST / STEP Analysis? What are the components of PESTEL Analysis?

As mentioned above PESTEL Analysis has six elements – political, economic, social, technological, environmental, and legal. All the six elements are explained in context with IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) macro-environment and how it impacts the businesses of the firm.

How to do PESTEL Analysis for IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

To do comprehensive PESTEL analysis of case study – IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) , we have researched numerous components under the six factors of PESTEL analysis.

Political Factors that Impact IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

Political factors impact seven key decision making areas – economic environment, socio-cultural environment, rate of innovation & investment in research & development, environmental laws, legal requirements, and acceptance of new technologies.

Government policies have significant impact on the business environment of any country. The firm in “ IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) ” needs to navigate these policy decisions to create either an edge for itself or reduce the negative impact of the policy as far as possible.

Data safety laws – The countries in which Ikea's Child is operating, firms are required to store customer data within the premises of the country. Ikea's Child needs to restructure its IT policies to accommodate these changes. In the EU countries, firms are required to make special provision for privacy issues and other laws.

Competition Regulations – Numerous countries have strong competition laws both regarding the monopoly conditions and day to day fair business practices. IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) has numerous instances where the competition regulations aspects can be scrutinized.

Import restrictions on products – Before entering the new market, Ikea's Child in case study IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)" should look into the import restrictions that may be present in the prospective market.

Export restrictions on products – Apart from direct product export restrictions in field of technology and agriculture, a number of countries also have capital controls. Ikea's Child in case study “ IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) ” should look into these export restrictions policies.

Foreign Direct Investment Policies – Government policies favors local companies over international policies, Ikea's Child in case study “ IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) ” should understand in minute details regarding the Foreign Direct Investment policies of the prospective market.

Corporate Taxes – The rate of taxes is often used by governments to lure foreign direct investments or increase domestic investment in a certain sector. Corporate taxation can be divided into two categories – taxes on profits and taxes on operations. Taxes on profits number is important for companies that already have a sustainable business model, while taxes on operations is far more significant for companies that are looking to set up new plants or operations.

Tariffs – Chekout how much tariffs the firm needs to pay in the “ IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) ” case study. The level of tariffs will determine the viability of the business model that the firm is contemplating. If the tariffs are high then it will be extremely difficult to compete with the local competitors. But if the tariffs are between 5-10% then Ikea's Child can compete against other competitors.

Research and Development Subsidies and Policies – Governments often provide tax breaks and other incentives for companies to innovate in various sectors of priority. Managers at IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A) case study have to assess whether their business can benefit from such government assistance and subsidies.

Consumer protection – Different countries have different consumer protection laws. Managers need to clarify not only the consumer protection laws in advance but also legal implications if the firm fails to meet any of them.

Political System and Its Implications – Different political systems have different approach to free market and entrepreneurship. Managers need to assess these factors even before entering the market.

Freedom of Press is critical for fair trade and transparency. Countries where freedom of press is not prevalent there are high chances of both political and commercial corruption.

Corruption level – Ikea's Child needs to assess the level of corruptions both at the official level and at the market level, even before entering a new market. To tackle the menace of corruption – a firm should have a clear SOP that provides managers at each level what to do when they encounter instances of either systematic corruption or bureaucrats looking to take bribes from the firm.

Independence of judiciary – It is critical for fair business practices. If a country doesn’t have independent judiciary then there is no point entry into such a country for business.

Government attitude towards trade unions – Different political systems and government have different attitude towards trade unions and collective bargaining. The firm needs to assess – its comfort dealing with the unions and regulations regarding unions in a given market or industry. If both are on the same page then it makes sense to enter, otherwise it doesn’t.

Economic Factors that Impact IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)

Social factors that impact ikea's global sourcing challenge: indian rugs and child labor (a), technological factors that impact ikea's global sourcing challenge: indian rugs and child labor (a), environmental factors that impact ikea's global sourcing challenge: indian rugs and child labor (a), legal factors that impact ikea's global sourcing challenge: indian rugs and child labor (a), step 3 – industry specific analysis, what is porter five forces analysis, step 4 – swot analysis / internal environment analysis, step 5 – porter value chain / vrio / vrin analysis, step 6 – evaluating alternatives & recommendations, step 7 – basis for recommendations, references :: ikea's global sourcing challenge: indian rugs and child labor (a) case study solution.

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• IKEA Global
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Our view on forced labour

At IKEA, we want to have a positive impact on people, society and the planet, guided by the IKEA vision to create a better everyday life for the many people.

IKEA is committed to respecting human rights in all areas of our business, based on the UN Guiding Principles on Business and Human Rights (UNGPs) and the UN Children’s Rights and Business Principles . We are committed to addressing relevant root causes of negative impacts on people, society and the environment. However, we do not hold all the answers and need to work together with others to influence meaningful change and contribute to systemic improvements. We are also committed to taking responsibility to remediate any negative impacts we cause or contribute to on people, society and the environment. No matter where we operate, we do not accept any form of forced or bonded labour, anywhere in the IKEA value chain, be it at our own operations or operations in the IKEA value chain.

To make sure that everyone in the IKEA value chain works towards the same goal, we integrate our commitment to respect human rights into our long-term business priorities (the IKEA direction), the IKEA Sustainability strategy and IKEA People strategy and set clear standards and expectations for the IKEA business relationships and ourselves. The minimum expectations we place on our business relationships are found in the IKEA supplier code of conduct IWAY and in the IKEA franchisee code of conduct IConduct .

Both IWAY and IConduct are based on internationally recognised standards and principles, such as the UNGPs, the Ten Principles of the UN Global Compact, the ILO Centenary Declaration for the Future of Work, ILO labour standards and many others.

Supplier requirements and due diligence

We believe one of the key factors to reducing the risk of negative human rights impacts, including forced labour, is having long-term mutually beneficial partnerships with suppliers and service providers based on shared values. For example, the average length of the relationship between IKEA and our home furnishing suppliers is 11 years. This gives us the opportunity to continuously work with our business partners and together tackle social and systemic issues in the IKEA value chain.

IWAY, the IKEA way of responsibly procuring products, services, materials and components and our supplier code of conduct. IWAY is based on the ambitions and commitments in the IKEA Sustainability strategy and the IKEA Supply strategy and has been the base of our work across the value chain since 2000. It is mandatory for all suppliers and service providers, and addresses issues such as child labour, forced or bonded labour, responsible recruitment, wages and working hours, among other topics.

We focus on developing and supporting our suppliers and service providers through everyday business activities. We have competent and experienced teams in social and environmental topics in many regions and countries around the world. They actively work with the IKEA suppliers close to the business operations.

Wherever we operate, we must be able to secure that our mandatory requirements concerning working conditions, and social and environmental standards are being met. To verify compliance with IWAY, we conduct announced and unannounced audits. Any warning signs of forced labour are immediately investigated, always taking into account what is in the best interest of impacted workers. When a case of forced labour is confirmed, we collaborate closely with the supplier to ensure the situation is meaningfully remediated and that workers are supported throughout the process.

If a supplier fails to comply with the IWAY requirements within a given timeframe and despite the support provided by IKEA, the supplier is phased out and the business agreement terminated. When there is a confirmed forced labour case, the business relationship is only terminated after ensuring that any impacted workers are not negatively impacted by the business termination or put at risk of falling back into forced labour. IKEA continues to monitor the case until it is fully remediated.

Business requirements placed on IKEA franchisees

The IKEA brand unites hundreds of organisations all over the world, all of us committed to ensuring our brand is trusted and meaningful.

Requirements expected from IKEA franchisees are described in IConduct – the IKEA franchisee code of conduct. IConduct provides us with a strong base for ensuring that we act on our responsibility, helping us to fulfil the IKEA vision of creating a better everyday life for the many people.

The IKEA franchisees have the responsibility to comply with all applicable laws and regulations, including, health, safety, anti-corruption, data privacy, environmental, and employment laws and regulations and others. In IConduct we outline all specific requirements to live up to in the area of forced or bonded labour, among other topics.

Where IConduct requirements exceed those of applicable laws and/or regulations, franchisees must follow the requirements of IConduct. However, the applicable laws and regulations are followed if they impose standards that are contrary to and/or stricter than those set out under IConduct.

Partnerships

We know that eliminating forced labour from global supply chains and creating a positive impact on society will not be achieved by us alone. We welcome the opportunity to work closely with other stakeholders toward these goals. That’s why we play an active role, along with others, in leading the change we want to see.

One example is protecting vulnerable groups of migrant workers by ensuring responsible recruitment practices. The Leadership Group for Responsible Recruitment (LGRR) supports the Employer Pays Principle to eliminate recruitment fees being charged to workers anywhere in the world by 2026. In South-East Asia, we partnered with International Organisation for Migration (IOM) to support our suppliers in responsible recruitment of migrant workers. In 2024 IKEA Supply and IOM announced a new global partnership to promote the rights and well-being of migrant workers, employed across the IKEA supply chain.

We believe these types of initiatives, alongside dialogue and cooperation with our suppliers, governments and civil society, are crucial in the prevention of forced labour, respecting human rights and achieving our ambition to have a positive impact on people and society. We will continue to focus our efforts and collaborate to create a movement towards better working conditions and decent and meaningful work across industries. We acknowledge that in some areas and at some moments, this is a challenging journey. But by setting clear expectations, prioritising continuous development and working with others, we believe that we can contribute to a better everyday life where all people’s human rights are respected.

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IKEA makes pledge to act on child labour

LEIDEN - Swedish-owned homeware giant IKEA is pledging to accelerate efforts to strengthen child rights and remove child labour from the company's supply chain.

IKEA says it wants to support the United Nations (UN) which has designated 2021 as the International Year for the Elimination of Child Labour.

“All children have rights, everywhere and always. As a global business, we have a big responsibility to demonstrate leadership and be aware of our impact throughout the IKEA value chain and take action to address it.” said Lena Pripp-Kovac, chief sustainability officer, Inter IKEA Group.

IKEA says its work to tackle child labour in the supply chain dates back to the late 1990s when IWAY2, the IKEA supplier code of conduct, was established. 

However, it says the COVID-19 crisis has exacerbated the vulnerable situation for children globally, making action even more urgent.

IKEA's action pledge on child labour focuses on three key areas:

• Further integrating children’s rights into the existing IKEA due diligence system
• Accelerating efforts to promote decent work for young people
• Joining the ILO Child Labour Platform to tackle issues further down the supply chain

Alinde Melin, global human rights and children's rights leader at Inter IKEA Group, said: “The work to eliminate child labour requires continuous effort. We have been working to address child labour for 20 years and will accelerate efforts in 2021 and beyond in line with the goal set by the UN to end child labour in all its forms by 2025.

"In addition to the actions in our pledge, we are exploring internally as well as together with UNICEF how to advance family-friendly policies that address some of the root causes of child labour. Together with key partners we will continue to make progress.”

The UN is urging stakeholders across society – from companies to governments and individuals – to pledge specific actions that can be achieved by December 2021 as part of a goal to eliminate child labour by 2025.

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IKEAs Global Sourcing Challenge: Indian Rugs and Child Labor (A) Harvard Case Solution & Analysis

Home >> Supply Chain Management Cases >> IKEAs Global Sourcing Challenge: Indian Rugs and Child Labor (A)

IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A

Identify major problems /themes

The case “IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)” basically explains the issue which the company IKEA faces because of the increasing environmental and social issues with the suppliers. The problems identified and outlined in the case are all related to one another. The major problem faced by the company was firstly the environmental wake up with Formaldehyde emission by the suppliers of IKEA was found to be in excess of the allowed limit. This was the first issue where IKEA because of being a low cost manufacturer of furniture outsourced its manufacturing. The issue was identified by a German TV and the newspaper company that IKEA’s bookcase series Billy emitted higher amount of formaldehyde than the German legislation permission.

ikea child labor case solution

Another problem identified in the case is when IKEA faced the social wake up Child Labor issue were a Swedish television documentary identified that IKEA was involved in manufacturing rugs in Pakistan was using child labor to produce its rugs in India and Pakistan. The issue was raised publicly because child labor was banned internationally. IKEA had to face the issue because the rugs were being manufactured by the suppliers and the company was unaware of the fact that child labor was involved.

As discussed above both the issues are interrelated to the social and environmental factor where IKEA faced the issue because of the dependency on suppliers to manufacture low cost products. This is the main reason of the problem because IKEA was over relying on its suppliers and it did not keep a check and balance how they manufactured goods for the brand IKEA.

Identify potential solutions

To the above problem discussed in the case, IKEA can select out of the below possible solutions from which the company can make a recommendation for the future strategy.

• Manage the relationship with suppliers

Give authority to Rug Mark to monitor the issue

• Should the company withdraw its operations from India, Pakistan and Nepal

Decision Criteria

Legend: 01: yes, 00: no

Evaluate Alternatives

Manage the relationship with suppliers:

If IKEA continues to manage the relationship with its suppliers and make them aligned with the company policies it will help in increasing the profitability for the company. It will also align itself with the company that is to offer customers with low cost products. Having a relationship with suppliers will help the company in maintaining the low cost attribute that has been associated with the company for a long period of time. This will also increase the sales because the general public comes to the IKEA store because it offers customers with cheaper ranged products. However, managing relationship with the suppliers will not support the company in maintaining the image of being environmentally friendly?

By choosing to give authority to the Rug mark to monitor the issue, it will obviously increase the profitability of the company because this will develop the image of being an environmentally friendly company. Secondly the option will help the company to align itself with the company mission that is to offer customers a product that is manufactured with utmost quality and completeness along with innovative ideas. Having a Rug mark to monitor the issue the standards of being environmentally friendly will also be maintained.

Should the company withdraw?

The third option for the company is to withdraw its operations from South Asian countries such as India, Nepal and Pakistan. This will help the company IKEA in maintaining the corporate image, and it will also align the company with its mission of keeping itself as a company that does not sacrifice quality and social factors over sales. This will also increase sales because many customers are conscious of the fact that child labor is used therefore, they might prefer the idea of preventing from manufacturing goods through child labor..............

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Traces the response IKEA on TV report that its Indian carpet suppliers use child labor. Describes the growth of IKEA, including the importance of finding a strategy based on strong relationships with suppliers in developing countries. Details of the development of a strong culture and IKEA values, which include the obligation "to create a better everyday life for many people." Describes how to respond to regulatory and public pressure, IKEA developed a set of environmental policy, which has grown to encompass the relationship with Greenpeace and the WWF management and conservation. Then, in 1994, Marianne Barner, newly appointed product manager for IKEA, the Swedish surprises television documentary on the use of child labor, Indian suppliers of carpets, rugs, including that supply IKEA. She immediately implements a strict policy which provides for termination of the contract, if any IKEA supplier uses child labor. Barner then faced with a German television producer, who tells her that he is going to broadcast the trial program to document the use of child labor in one of the largest suppliers. How should it respond to the crisis? How the company has to deal with the ongoing problem of child labor in the supply chain? "Hide by Christopher A. Bartlett, Vincent Dessain, Anders Sjoman Source: HBS Premier Case Collection 13 pages. Publication Date: May 3, 2006. Prod. # : 906414-PDF-ENG

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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.

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).

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).

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

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