IKEA Case Analysis
I. Analyze: Identify Issue and its Scope
The primary CSR issue reflected in this case is the use of child labor by one of IKEA’s Indian carpet supplier. The supplier was explicitly made to sign the contract which restricted the use of children below the age of 14 to be used as laborers. The practice of child labor is considered exploitative by many international organizations and is illegal in many countries. The fifth principle of UN Global Compact's Ten Principles specifies "Businesses should uphold the effective abolition of child labor." In addition to this principle, UN published ‘Convention on the Rights of the Child’ in December of 1989 stating that the right of a child to be protected from economic exploitation and from performing any work that is likely to be hazardous, interfering the child's education, or harmful to the child's health or physical, mental, spiritual, moral or social development. Nevertheless, in 1994, a Swedish television documentary broadcasted a film disclosed IKEA was one of the carpet importers from Pakistan where children worked at weaving looms. As a part of its response, IKEA sent a legal team to Geneva to seek input and advice from the International Labor Organization on how to deal with the problem. Following discussions with the ILO, IKEA added a clause to all its supply contracts – a straightforward “black-and-white” clause stating that if the supplier employed child labor under legal working age, the contract would be terminated immediately. The company also hired external agent to monitor child labor practices at its suppliers in India and Pakistan. After managing the initial response to crisis, in the spring of 1995, IKEA was preparing actions to address this issue but a well-known German documentary maker notified the company that a film was about to be broadcasted showing children working at looms at Rangan Exports, one of IKEA’s major suppliers in India. While refusing to let the company preview the video, the producer invited IKEA to send someone to take part in a live discussion during the airing of the program. Beyond the immediate public relations issue, the company faced a tough decision as it sought to address the issue. Firstly, IKEA should solve the issue in order to secure major suppliers of Indian rugs in terms of short-term business strategy. Above all, IKEA has to protect its brand and its image since this issue could impact deeply on the future of its business by deteriorating its reputation. While the company was being urged to sign up with “Rugmark”, many were concerned that a very proactive stand could put IKEA’s business at a significant cost disadvantage. Some piece of information which would be really helpful to make a decision is the credibility of ‘Rugmark’ and the specific metrics they use to filter suppliers. This information could help IKEA decide whether the company should sign up with ‘Rugmark’ for monitoring the use of child labour in India. II. Stakeholder Analysis: Define Those Affected By or Who Can Affect the Outcome The table below outlines the stakeholders involved, their concerns, motivations and priority. Priority| Stakeholders| Concerns| Motivations|
High| Company Management| - Impact on brand image- Impact on profits- Sustainability - Monitor suppliers worldwide | - Sustainability of its brandimage- Addressing their concerns | High| Investor or Shareholder| - Decline of the company’s value| - Improvement of company’s value- Investment’s return Rate| Low| Consumer| - Purchase of immoral products and what others would think.- Cost & Product Quality| - Fair-trade without increase in the price of the products| High| ILO or UNICEF| - Increased number of child labor worldwide| - Termination of child labor| High| NGO| - Increase in number of cases of child labor worldwide| - Participation of IKEA to sign up with ‘Rugmark’| High| Indian...