Ikea Trade Policy

Case Study 1: Trade Policy

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

In the case of Marianne Barner, Business Manager for IKEA’s carpets, being invited as the IKEA representative for the upcoming broadcast of the German video program, I believe there are pro’s and con’s to going. Ultimately Barner’s aspirations in either case would be to leave IKEA in a better situation socially, than if they were to do nothing at all. However, depending on Barner’s experience with public speaking and her depth of knowledge regarding what the German Programing may dissect, which I suspect would be strong, Barner may then need to evaluate whether immediate public action should be taken, or whether she should wait for the programing to air and ‘damage control’ afterwards. Bartlett, Dessain, & Sjȍman (2006) explained that this German footage was built with attempt to slander IKEA and one other particular manufacturer, rather than providing support for the issue of child labour presented. Though in many cases it is important for business to face corporate social responsibility head-on, given Barner’s very short tenure with IKEA, and the seemingly strong opinionative philosophy of the opposition, a decision to not participate should protect IKEA in this time of distress. We also need to bear in mind that at this time Germany had the largest volume of sales accumulated of all countries with $10.4M and or 29.7% of the entire company’s sales (Bartlett et al., 2006). Sales of this magnitude need to be at the front of mind, as one false step may send the company in a tailspin. Barner should ultimately discuss the issue with her executive and public relations team to formulate a plan to rebuttal once the video has been released.

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

“In the mid-1990s IKEA worked with almost 2300 suppliers in 70 countries, sourcing a range of 11,200 products.” (Bartlett et al., 2006, pg 5). Staggering numbers like these don’t give warrant to break the rules of compliance within child labour laws; however it does make it difficult to monitor and or audit compliance. In many cases, business needs to rely on professional procurement processes in order to trust that suppliers in this case are not in breach of their signed contract. Of course now that IKEA and namely Barner is aware of Rangan Export’s production process, precedence must be set for all other suppliers that could potentially be doing the same thing. It’s clear that IKEA had no intension of utilizing child labour, however now that a public source has proven them guilty, reassurance for customers is pivotal to maintaining capital growth and the success of the business. Barner’s predicament is that Rangan Exports is one of IKEA’s largest suppliers and therefore expulsion from operation in allegiance with IKEA would come at an astronomical cost to the business, IKEA (Bartlett et al., 2006). Barner needs to decide how she’s going to continue working with Rangan Exports, however at the same time, ensuring that absolutely no children are working under the IKEA regime. A possible solution could be to have a full audit conducted on Rangan Exports and a costly penalty assessed to them for not complying with their contract. Earnings from the penalty could be donated to education development in developing countries like India, or UNICEF, thus putting a positive spin on a negative case.

3. What long-term strategy would you suggest Barner take regarding IKEA’s continued operation in India? Should the company stay or should it exit? (Be prepared to describe the impact of such a decision and how you would manage it.)

When looking at potential long-term strategies, Barner knew that after this social harm, IKEA would have the need to proactively enhance the livelihood for many children affected and not, within India particularly (Bartlett et al., 2006). Adversaries within IKEA of course thought that these types of actions could put the company at risk monetarily when comparing to competitors, which is a systemic reaction in terms of how Kamprad constructed IKEA from the grassroots up (Bartlett et al., 2006). As Bartlett et al. (2006) suggested, teaming up with businesses like Rugmark would be a fantastic long-term strategy, although costs may increase, accountability is now shared and risk would be drastically lowered given the compliance and assurance ability Rugmark can offer. Promoting charitable acts in light of the recent news would also be a good strategy to allow consumers to see that you are consciously acting on this matter, and that you are determined to right these wrongs. Profit sharing to enable access to education is another avenue to explore, and as a bi-product, if IKEA were to have educational staff placed in India, they could monitor manufacturing facilities as well. Suppliers need to continually be made aware of the consequences if they were to use child labour, and sporadic visits would likely keep these suppliers in line with their contracts (Hill, Hult, & McKaig, 2018). Finally, India is the largest consumer of rugs and carpets, therefore leaving this marketplace would result in large revenue loss.

4. Assume you are recommending that IKEA continue to source carpets in India, would you suggest that Barner:

a. Continue IKEA’s own monitoring and control processes or sign-up to Rugmark?

IKEA needs to monitor and control its process regardless of having a third party distributor or service provider ensure that production is ethical. An example of this would be that IKEA, if in business with Rugmark, should be monitoring their efforts and ensuring their ‘gold star’ standard hasn’t be deteriorating. Having said that, I would recommend that IKEA use Rugmark as their established rug provider for multiple reasons: To list a few, Rugmark would take on equal responsibility for ensuring that no child labour is being used to produce their products, as their reputation is on the line, therefore Rugmark is assuming some of the risk. Also, being able to promote this conversion should bring goodwill to IKEA and peace of mind for their consumers who have been made aware of the recent Rangan Exports case. We know that “empirical support for the effect of national culture on entry choice is found” (Kogut & Singh, 1988). Given that Rugmark was an industry response to child labour, IKEA must recognize that competitors will likely move in this direction as well, therefore price points although potentially higher, remain relative to the retrospective market. An IKEA, Rugmark coalition would communicate that products will not deceive their consumers, and assurance is given through the Rugmark stamp, something that’s easily marketable to any consuming country.