Ikea's Global Sourcing Challenge: Indian Rugs and Child Labor

IKEA is a Swedish company producing home furnishing products at low prices. The company was founded in 1943 by Ingvar Kamprad and kept growing tremendously from 2 stores in 1964 to 114 stores in 1994. It's very useful to mention the ikea's vision that says "Creating a better life for the many people" for understanding the deep credo of saving cost among all the departments of IKEA, everything that IKEA does has the aim of reducing price to the customer. Besides its success stories, the company has faced environmental and social issues. The environmental issue of Formaldehyde was solved but sales dropped by 20% in Denmark. In 1992, the company got the same issue, which cost IKEA around $7 million. IKEA learned a lesson; publicity can bring a big loss in sales, not considering the damage to the brand image. In the spring of 1995, another film is threaten to be shown on German television about children working at looms at Rangan Exports, an Indian company used by IKEA, and the producer then invited IKEA to send someone to take part in a live discussion during the program. These events urged the company to consider environmental and social issues more seriously. It is very important to focus to the long term contract that IKEA establishes with its suppliers, in fact they promote "to develop long-term business partners", and they also say "...We are in this for the long run" always with the aim of reducing cost and creating a faithful relationship. On the process of globalization, IKEA needs to get the cheapest suppliers and therefore goes to countries that offer cheap labor. When IKEA set its suppliers in these countries, it could not avoid these problems. The fact that IKEA does not have its own manufacturing facilities; instead it uses subcontracted manufacturers all over the world for supplies makes it more complex and difficult to keep track of the company’s suppliers and subsuppliers (almost 2300 suppliers in 70 countries and a range of 11200 products). It is