2. Issue with Child Labor with
IKEA’s Suppliers
Social issue with Child la
bor
German TV station and S
wedish television docume
ntary
Remain or Exit?
3. IKEA should exit India for
the following reasons…
Past Issues
Time
Cost Evaluations
Reputation at Stake
Company’s Mission
4. Issues with IKEA in the
past…
Formaldehyde
Incident
2nd
Formaldehyde
Incident
Pakistan Child
Labor Incident
5. Wasting Time is a mortal
sin at IKEA
Pakistan Child Labor
Situation
Learn from old
mistakes and approach
using simplicity
6. Incur few cost now, and
reduce costs in the future
Loss of suppliers will
not stop IKEA
Opportunity Cost
Protecting IKEA Brand
and Image
Previous Losses
7. Promoting good
management and building
reputation
Past issues hurt
reputation
Strong relationships
with suppliers
Good management.
“We have always worried more about finding the
right management for our suppliers than finding high
tech facilities. We will always help good
8. Adhere to the Mission
Statement
• “To create a better life
for everyday people.”
• Stop bonded labor
• Encourage suppliers
• Start a CHANGE
10. Conclusion
We recommend to exit
India because of
Their past
Time
Costs
Reputation at Stake
Company’s Mission
• We plan to return to
India but only if they
make a change for the
better.
11. Works Cited
Bartlett, Christopher. "IKEA’s Global Sourcing
Challenge: Indian Rugs and Child Labor (A).”
Harvard Business Review, 2006.
http://www.ikea.com/
http://www.rugmarkindia.org/
http://www.ngosindia.com/
Editor's Notes
IKEA faced social issues with child labor. IKEA became more concerned with environmental and social issues child labor. Although IKEA signed an addendum to its supply contract explicitly forbidding the use of child labor on pain of termination, IKEA suppliers hired child labor in the production of rugs made for IKEA.German television showed children working at looms at one of IKEA’s major suppliers. In addition, Swedish television documentary also showed that IKEA was again the focus of accusations involving the use of child labor to get products made in Pakistan and India. Both televisions argued that IKEA is responsible to abolish child labor.Both German television and Swedish television accused the use of child labor in the industry.At this point, we can have a question about; IKEA should remain or exit India?
We concluded that IKEA should exit India because these five reasons.The five reasons are IKEA’s past problems or experiences, the allocation more time to carpet segment of business, the increased costs, protection of reputation, and company’s mission statement.
FormaldehydeEarly 1980s, Danish authorities passed regulations to define limits for formaldehyde emissions permissible in building products. As a leading local furniture retailer, IKEA was targeted on this issue for using particleboard in many of its products because regulators wanted to publicize the new standards. IKEA was fined for its products emitting more formaldehyde than allowed and after being publicized sales dropped 20% in Denmark.In response, IKEA quickly established requirements regarding formaldehyde emissions to meet standards. The problem wasn’t with suppliers; it was their sub suppliers who bought the binding materials from glue manufacturers so IKEA began working with glue producing chemical companies, with collaboration with ICI and BASF, to find ways to reduce the formaldehyde gas in its products.Repeat FormaldehydeIn 1992, a large German newspaper and TV company found that IKEA’s best-selling bookcase series, Billy Bookcase, emitted more formaldehyde than allowed. The lacquers of the bookshelves were to blame this time. IKEA stopped production and sales of Billy Bookcases until problem was corrected. The incident cost IKEA an estimate of $6 million to $7 million.Pakistan Child LaborIn 1994, a Swedish television documentary showed children in Pakistan working at weaving looms which was one of IKEA’s suppliers.Marianne Barner responded and apologizes for the incident. Failed to become aware of the situation, even after visiting India, Marianne was not exposed to child labor. “Our immediate response to the program was to apologize for our ignorance and acknowledge that we were not in full control of this problem. But we also committed to do something about it.”In response, IKEA sent a legal team to Geneva to seek advice from International Labor Organization (ILO). After this discussion, IKEA added the “black and white” clause to supplier contracts stating that if suppliers employed children under legal working age, their contract would be cancelled. Next, IKEA appointed a third party Scandinavian company to monitor its suppliers in India and Pakistan. This company was given permission to not only investigate complaints but also to undertake in random audits of child labor practices at supplier’s factories.
TIME· Pakistan Child Labor situation· Marianne Barner responded and apologizes for IKEA’s failure to recognize the issue. Marianne responded to the situation saying “Our immediate response to the program was to apologize for our ignorance and acknowledge that we were not in full control of this problem, but we’re also committed to do something about it.”· From this past experience, IKEA attempted to mend the situation by enacting the “Black and White” clause but suppliers did not take it seriously· IKEA has already spent time in attempt to prevent child labor so in order to preserve time, IKEA should withdraw their rug segment from India· Simplicity is a virtue – “Complex regulations and exaggerated planning paralyze.”
COST· Loss of a Supplier will not stop IKEA - Since 1950s, Sweden’s large furniture cartels pressured manufactured not to sell to IKEA and forced to find new suppliers. Ingvar Kamprad went abroad to contract with several furniture factories in Poland. IKEA taught its processes and even provided machinery to the new suppliers. Poland soon became IKEA’s largest supplier and at a lower cost.· In the mid 1990s, IKEA already had 2,300 suppliers. By breaking ties with their India rug suppliers, IKEA is open to seek out new and better suppliers. The costs that will be associated with this opportunity will be well worth it to develop long term relationships· Marianne Barner – “As a business manager with full profit and loss responsibility for carpets, she knew she had to protect not only her business but also the IKEA band and image.”· India rugs accounted for a tiny part of IKEA’s turnover and continuing this product lines won’t be worth the profit potential· IKEA’s previous issues already caused them to lose money:o First formaldehyde incident – sales dropped 20% in Denmarko 2nd Formaldehyde incident – Cost IKEA an estimate of $6-7 million without accounting for cost in loss sales and production or the damage to goodwill.· IKEA’s philosophy: “We don’t buy products, We buy unused capacity.” Managers seek out seasonal manufacturers with spare off season capacity: they had sail makers make seat cushions, window factories product table frames, and ski manufacturers build chairs in their off season
IKEA already had 3 past issues that hurt its reputation and existing India would prevent that from happening again. IKEA believes strongly in maintaining good relationships with their suppliers and promoting good management. The suppliers broke the contract and therefore IKEA’s exit from India would help them be known worldwide as a reputable company.
By exiting India, IKEA is abiding by its mission statement and working to create a better life for people, because they are saying no to an unethical production process. The children in India work with no benefits and minimal pay for heavy duty labor work, and they are working to pay off debt that could take years or even generations. By exiting India, IKEA is making an initiative to stop bonded labor and abiding by the Bonding Labor System Act of 1976 passed by the government. IKEA’s exit wouldn’t hurt their business as much as it would their suppliers in India. That leverage would encourage suppliers to change their ways, and possibly stop child labor.
Because of IKEA’s company mission is to “create a better life for everyday people,” we do not want to exit India and just forget about the problem.We know, because IKEA is such a large company worldwide, that even though it would not hurt IKEA to exit India, it would hurt the Indian supplier’s business drastically.When exiting India, we will communicate to all of our suppliers that in order to gain our business back, they will have to stop using child labor completely, and they must prove to IKEA that they have done so through physical evidence and for Marianne Barner and whoever to have ultimate access to the suppliers factory so that IKEA can show up unannounced on any circumstance.We also believe that if IKEA decides to return if the suppliers compromise, then they will sign up for Rugmark ensuring that this issue does not happen again.Barner believes that the company should do something that would impact the lives of the children that she witnessed first hand being abused in the factories.
In order to successfully do this without hurting our reputation, we will disclose all of the information about our decisions over in India on our website and also in the Letter to our Shareholders.
