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 which 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?
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Case answers for IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A)
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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 the Indian suppliers, simultaneously, dealing with the child labor issues independently or relying on the Rugmark monitoring program; or leave the Indian market entirely. Additionally, 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, 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 the 1990’s 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.
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 its way into outsourcing from international suppliers. IKEA aims to build long term relationships, as a result, it invested in teaching its processes, know-how as well as provided machinery to its suppliers.
In the 1980’s, IKEA was accused of having exceeded the limits for formaldehyde’s 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.
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…