To: Marianne Barner (Business Area Manager for Carpets)
From: Alyssa Fukumoto
Re: IKEA Global Sourcing Challenge
I understand IKEA encountered an issue with Rangan Exports, one of IKEA’s major suppliers, being exposed as using child labor. This was after Rangan Exports had just signed a contract forbidding the use of child labor. The German television that aired the documentary did so in attempts to accuse child labor exploitation and tarnish the brand’s reputation. For IKEA, reputation is important and the negative publicity immediately impacted the financial health of the company as it dealt with public and regulatory pressures. The use of child labor in some developing countries such as India remains a societal dilemma despite efforts to abolish child labor. Even with laws put in place to stop the practice, the laws were inadequately enforced and prosecution, if any, is rarely harsh. IKEA is faced with the challenge of keeping true to its social responsibility commitment and ensuring that its products are child labor free. This challenge affects their brand image. You must decide whether to discontinue the sourcing of carpets from India and other suppliers that are suspected of child labor exploitation, renew Rangan Exports with IKEA’s own monitoring program, or renew Rangan Exports with the Rugmark program. IKEA has had in the past controlled environmental issues with the formaldehyde fiasco in the 1980’s. The first setback was with the IKEA products that emitted more formaldehyde than was allowed by legislation. The company quickly established strict requirements but soon found suppliers were failing to meet the standards. IKEA had to work directly with the glue-producing chemical companies and soon found ways to reduce formaldehyde off gassing in its products. Then IKEA’s best selling bookcase series was found to have higher emission than German legislation allowed. This was not due to the glue but to the lacquer on the bookshelves. IKEA immediately stopped production and sales then corrected the issue before starting distribution. The events encouraged IKEA to address broader environmental concerns more directly and they now work with advocacy groups to promote their causes. This shows how responsible the company is and it is compatible with its commitment of the IKEA spirit of the “willingness to assume responsibility and to help, on our humbleness before the task, and on the simplicity of our behavior.” How IKEA reacts to the societal child labor issues should be similar to the way it responded to the environmental issues. Rangan Exports has been one of IKEA’s major suppliers of rugs/carpets for many years in India. IKEA’s relationship with Rangan Exports is important and therefore necessary for IKEA to respond. I see that steps were taken to address the child labor issue. You and a team did legal research in Geneva; you also went onsite to visit the suppliers. I understand that you are cooperating with NGO’s and UNICEF to meet legal requirements and understand the situation. IKEA hired a third part agent to monitor child labor practices in India and Pakistan, to conduct random audits to ensure there were no children working on site. I know you had suppliers sign a legal document stating that is a supplier employed children under the legal working age, that the contract could and would be cancelled. I understand that these actions were presumed to protect the company from child labor issues from arising. In the past, IKEA has not removed itself from a situation just because it was difficult. They have planned through thorough research the root causes of the problem and tried to fix it. The best tactic is to avoid the issues from the beginning because when they emerge, they immediately affect the product sales of the company and the image. IKEA’s main strategy is to reduce cost between IKEA and its customers to offer the lowest price possible. Consumers perceive the...
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