Case study of IKEA’s Global Sourcing Challenge
Case study of IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labour (A)
IKEA is a Swedish Company producing home furnishing products. (Bartlett, Dessain, ; Sjoman, 2006) said that Ingvar Kamprad founded the company in 1943. Working out of the family kitchen, Kamprad sold goods such as fountain pens, cigarette lighters, and binders that has purchased from low-priced sources, and then advertised in a newsletter to local shopkeepers. In 1951, to reduce product returns, Kamprad opened a display store to allow customers to inspect products before buying them using a catalog to tempt people to visit an exhibition.
Moreover, IKEA is the world’s largest furniture store that offers well-designed functional home products at low prices so that the majority of people can afford to buy. The key feature of providing self-assembled furniture starting from 1953 significantly cut transport and storage cost. Between 1953 and 1955, the company’s sale doubled from SEK 3 million to SEK 6 million.
The company IKEA face problems because of the rise of environmental and social issues. The environmental issue arises in the early 1980’s and it has found that the products formed by IKEA Company emit more formaldehyde than was allowed by legislation. The chemical formaldehyde was generally used as binding glue in the materials like plywood and particleboard that results in the leakage of the formaldehyde in the air. The gas in air causes different health problems such as watery eyes, headaches, a burning sensation in the throat, and difficulty in breathing.
Subsequently, the company IKEA had reduced the formaldehyde off- gassing from its products by working directly with the glue company. The problem had solved but its sale dropped 20% in Denmark. (Bartlett et al., 2006) says that the Company IKEA again faced a problem of formaldehyde in 1992. This time IKEA’s best- selling bookcase series Billy emits formaldehyde higher than allowed by the German legislation. It has been estimated that the arisen of problem again cost IKEA $6 million to $7 million.
The Company IKEA also faces a main problem that was relating to social issue. In 1994, a Swedish television showed a documentary film about children working in Pakistan, targeting IKEA. Also, in India, IKEA faced criticism about child labour from numerous organisations. This issue had risen publically because child labour had banned internationally.
Furthermore, according to Bartlett et al. in 1995, a year after IKEA began to address the issue, a well- known German documentary maker broadcast a film on German television showing children working at looms at Rangan Export, one of IKEA’s major supplier (2006). IKEA had faced the issue because the company was unaware of the fact that the child labour was involved as IKEA thinks that the suppliers were manufacturing the rugs. In addition, another issue was arises because IKEA was greatly depend on supplier to manufacture low cost products and the company was over- relying on its supplier. The Company IKEA even did not keep a check and balance how the suppliers manufactured goods for the brand IKEA.
To solve the environmental issue that arises from the chemical formaldehyde, IKEA has to take the environmental concern more directly. (Bartlett et al., 2006) state that IKEA should establish a forestry policy under the discussion with Greenpeace as well as, with World Wide fund for Nature and standard set by the forest Stewardship Council. This greatly helped IKEA to control the forestry issues and the problems that had risen under public pressure.
Furthermore, IKEA should identify several other areas where environmental criteria had applied to its business operations. In addition, working with suppliers as well as, by giving more attention toward the environment friendly stores helps IKEA to solve problems related to formaldehyde. Also, running store under responsible forestry helps to resolve issues.
IKEA should take an advice from the International Labour Organisation on how to deal with the problem raised of child labour. After the discussion with ILO, IKEA should simply cancel the contract if the suppliers employed children under the legal working age.
Furthermore, IKEA should appoint a Rugmark to monitor the child labour practices at its suppliers in India and Pakistan. Appointing Rugmark has helped the company largely in dealing with the child labour problem, and makes things seem fairer from the public’s view.
IKEA should participate in a live discussion that had offered by the producer of the filmmaker during the airing of the program in the spring of 1995. By participating in the live discussion, the company IKEA has gained some positive achievements to the child labour issue. IKEA could discuss the information that had collected so far from UNICEF, Swedish Save the Children and the ILO. Furthermore, during the discussion, IKEA should possess the same attitude and goals of overcoming the child labour within the company.
Good relationship with the supplier will help the company to enhance the profitability for the company. So, IKEA should try to manage the relationship with supplier because having a good relation with supplier help IKEA to maintain the low cost attribute that has associated with the Company for several years. Moreover, IKEA should hire experts to keep track of the problem. By this way, the company IKEA could continue its relationship with its supplier.
Several solutions help IKEA to resolve issues that their company faces. But, giving authority to the Rugmark agent to monitor child labour issue help IKEA largely. Rugmark is one of the exceptional ways where child labour rights are being monitoring. The monitoring takes place without the involvement of government and other multilateral organisations.
Furthermore, the phenomenon of involving Rugmark is effective in eradicating child labour at the product originating countries. This solution not only helped IKEA to protect the business; but also helps to maintain IKEA’s brand and image. As Rugmark is the Foundation that greatly respond to the child labour problems that arises in the Indian Carpet industry.