Ikea Global Sourcing Challenge

Ikea Global Sourcing Challenge: Indian Rugs and Child Labor

IKEA and Marianne Barner are facing a very challenging issue. Because they were blind sided by the child labor issues with their supplier, they had to scramble to respond to the issues in a quick and appropriate manner. IKEA sent a legal team to Geneva to seek input and advice from the International Labor Organization on how to deal with the problem and to find out more about the child labor issues. They also hired a third party agent to monitor child labor practices in India and Pakistan and to conduct random audits to ensure there were no children working. They had all their suppliers sign a legal document stating that if a supplier employed children under legal working age that the contract would be cancelled. Ikea and Marianne felt that these actions would protect them. They reacted to this as a social issue, they did not ignore the problem and just hope that it would go away, they accepted responsibility and moved towards creating a plan to deal with the problem.

IKEA's founder, Ingvar Kamprad, has ingrained a very strong value and belief system in the company that were based on his own values. Because the company has this culture the decision Barner had to make was not a difficult one. The company's vision statement is "To create a better everyday life for the many people". Because Ingvar cultivated a corporate culture based on his personal beliefs and styles his employees had a mentor to rely on and could feel comfortable in knowing right from wrong and that they would be supported in their decisions. The company has a history of confronting social issues and taking responsibility when they have done something wrong. They have not used rationalizing techniques in order to make themselves look better in the public eye. This is evident in the formaldehyde environmental issue. When this issue arose IKEA immediately stopped production on affected product which ended up costing the company million in sales and quickly moved to address the problems. IKEA has proven again and again with the issues they face and solutions they derive that they are a very social responsible company.

Social Responsibility contains four major components

* Economic Responsibility

* Legal Responsibility

* Moral Obligations

* Discretionary Responsibilities

IKEA addresses all four components in their company. For economics they are a very profitable company as shown by the 1994 sales where they generated 35 billion. They also provide a very low cost alternative for furniture and accessories to consumers as stated in their vision statement. For the legal component they have complied with all the regulations in the states and countries they have stores in, they have also addressed the issues so far with formaldehyde, by cutting out the suppliers because they could not trust them to meet their new stringent standards and instead decided to work directly with the glue-producing chemical companies to find ways to reduce the formaldehyde off-gassing in their products. IKEA also participates in discretionary responsibilities; the formaldehyde issues they encountered prompted them to address broader environmental concerns. Their main focus was on wood since it is the material used in almost half of all their products; forestry was a good starting point. IKEA also identified four other areas that applied to its business operations: adapting the product range, working with suppliers, transport and distribution and ensuring environmentally conscious stores. Because IKEA as a company has such a focus on social issues it helps to foster their organization ethics which will hopefully be widely adopted by members of the organization.

IKEA's corporate culture is at the heart of their ethics and because they have proven by example what their culture is this should help to teach their employees. IKEA needs to lead their employees to follow the corporate culture and to recognize when something is not right. IKEA has done this by placing specially trained "IKEA ambassadors" in key positions in all units to spread the company's philosophy and values by educating their subordinates and acting as role models. Because their employees understand the culture they will be more comfortable in ambiguous situations and know how to choose the right decision and even if it is a difficult social or ethical decision they know the company will support them. IKEA also needs to teach employees to follow the business goals as well as the organization goals; they need to learn how to make sure they are tied together in the best possible way. Without the companies guidelines on code of conduct and possible limitations, the employee can end up being confused and not know how to make the best possible decisions.

IKEA's corporate strategy comes directly from their vision statement "To create a better everyday life for the many people". There strategy was to provide a low cost product for their customer. In order to achieve this goal they had a management process that stressed simplicity and attention to detail, a willingness to assume responsibility and to help as evidenced by the formaldehyde and the child labor issues. Because of their willingness to admit fault, IKEA stepped up to the plate to try to monitor and maintain the relationship with their supplier.

India is the largest purchasing source for carpets and rugs, because of this Barner did not initially feel she should just cancel the contract with the offending supplier. She researched the issue to find out the laws and statistics and tried working with the supplier to resolve the problem. During the research Barner found that even though there are laws against the bonding of children, it was still a widespread problem. The laws for unbonded child labor were less absolute. This was a gray area, the laws only applied to children under 14 who were working in certain defined hazardous industries and the laws regulated children's hours and working conditions in others. The law specifically permitted children to work in craft industries. Even with the laws, the practice of exploitive child labor was widespread because of rationalizing. The laws were poorly enforced and prosecution was not severe so companies could use denial of responsibility, denial of injury, or denial of victim to rationalize why it was okay for their company to continue the use of child labor.

IKEA has a history of social responsibility, so because of that one would think IKEA would choose to stand against the use of child labor in India and work to help solve the social