Ikea

How should M Barner respond to the invitation for IKEA to have a representative appear on the upcoming broadcast of the German video program?

 

Barner should communicate the situation with her supervisor seeking the most senior person available from the country to participate alongside herself at the upcoming broadcast.  Child labor is an issue that has the potential to damage the company’s reputation.  The problem discovered also goes against the grain of IKEA’s core principles.  Addressing the issue honestly, rapidly, and seriously will help mitigate the potential harm to the company.  In fact, done well; IKEA could be seen as a leader in developing new corporate child labor practices.

 

It is important to understand IKEA’s business principles that have guided the company since its inception.  There are 67 improvements noted from IKEA’s website.  The improvements are changes that the company has addressed to adapt to new environmental and social concerns.  IKEA centers its corporate principles around six areas:  “people, planet, products, business, life at home, and about the never ending job”[1].  IKEA has grown a global business by offering “a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”[2].

 

In the quest to deliver the lowest possible prices to the consumer, IKEA has contracted with manufactures and suppliers in developing nations where labor costs are very low.  IKEA does not own any of its manufacturing; instead it has developed close relationships with suppliers.  These manufacturers have to abide by IKEA’s corporate responsibilities and quality standards in order to continue a relationship with IKEA.  A small manufacturer in turn faces pressure to earn a profit while providing IKEA with a low-cost product.  Frequently, child labor has been utilized to keep costs low.

 

Barner must be very prepared for the broadcast.  The problem should be honestly acknowledged.  Tiger Woods is a recent example of poor public relations relating to public problems.  Rangan Exports should be investigated by independent auditors from one of the Big 4 accounting firms under rush instructions before the broadcast.  If Rangan Exports is found in violation of their contractual agreement with IKEA, they should be halted immediately.  This sends a clear message to other contract sewers that principles must be adhered to.  Finally, Barner should have a plan prepared to announce how IKEA will be dealing with child labor issues in the future.  It would also be helpful if Barner could have representatives from global organizations chime in their insight about the child labor issue.

 

What actions should she take regarding the IKEA supply contract with Rangan Exports?

 

The contract should be halted if Rangan Exports is found in violation of the child labor provision.  Barner should personally visit the factory unannounced.  Any children found working at Rangan Exports should be documented.  These children should immediately be righted for the labor provision violations.  Barner needs to see the larger problem of child labor in impoverished countries and spearhead a program by IKEA to manage immediate problems and pursue a grander scheme of eliminating child labor practices in all companies.

 

There must be a penalty to Rangan Exports for employing children.  The contracts between IKEA and its suppliers can be updated to address the issue of child labor more specifically.  All suppliers for IKEA should be made aware of child labor issue through company literature and interactions with company representatives.

 

The children found in the Rangan Exports plant should be taken to their homes where IKEA representatives will meet with the families to see what their needs are.  Food, basic shelter, healthcare, and educations will be provided for the family until the child exits high school.  This will serve as retribution for IKEA’s part in the child labor issue for any particular family.  IKEA will care for these families and ensure that they have sufficient resources so that the children are not compelled to work until they are of age to work.  At that point, IKEA’s suppliers should be contacted to aid in job hunting for the young adult.

 

What long term strategy would you suggest she take regarding IKEA’s continued operation in India?  Should the company stay or should it exit?  (Be prepared to describe the impact of such a decision and how you would manage it.)

 

IKEA should stay in India.  Rug sales are a small portion of IKEA’s global revenues, but the public relations impact could be very damaging.  When tests proved that IKEA products produced formaldehyde, sales fell by 20% in its Denmark stores.  This further demonstrates the importance of dealing with problems in a progressive manner.  Leaving India does not address the problem of child labor, it only makes IKEA appear more guilty.

 

Continuing operations in India does have some risk; more child labor violations could be found.  That would serve as further evidence that the company is not living by its principles and is instead focused on profits at the expense of children.  The drop in sales from that public perception would be costly.  Barner should have all of IKEA’s Indian suppliers audited immediately and then randomly for contract violations.  The auditing firm can also be employed to monitor the progress of families whose children were found to be working in factories for IKEA.  Rugmark has been presented as a possible monitoring service for IKEA’s child labor practices.  This option should be passed on.  IKEA is too large a company to depend on a small non-profit organization to investigate its suppliers.  The Rugmark approval is relatively unknown globally.  The efforts that IKEA spends informing  customers about Rugmark would be better spent on a large independent auditing firm.  An internal monitoring group should be created within IKEA to track business operations to see if they are in compliance with IKEA’s principles.

 

Secondly, Barner needs to address the larger issue of child labor and how IKEA is prepared to make a difference.    IKEA should promote the adoption of the United Nations labor standards by all companies.  Brochures explaining IKEA’s efforts should be made available in the retail stores near the rug section.  Increasing awareness of the problems and roots of the problems will lead to new ideas and solutions for child labor.  There are several organizations that are actively involved in eliminating child labor.  IKEA should seek input from these experts in how to direct its resources most efficiently to protect the children.

 

For those recommending that IKEA continue to source carpets in India, would you suggest that she:  a) Continue IKEA’s own monitoring and control processes or sign-up to Rugmark?  b) Continue to focus only on eliminating the use of child labor in IKEA’s supply chain or engage in broader action to address the root causes of child labor as Save the Children is urging?

 

IKEA will act more inline with core values by staying in India and trying to improve working conditions at its supplier factories.  The company should not sign-up for Rugmark.  IKEA should utilize its own compliance monitoring group and independent auditors to oversee its operations in India.  Corporate representatives must be reminded of the values and principles that guide IKEA’s business.  An anonymous reporting system should be deployed for the reporting of child labor abuses in India.  IKEA can also send representatives to global child labor organizations as a way of helping these organization create stronger awareness of the problem.

 

Rugmark is a small organization that cannot be given the responsibility of monitoring IKEA’s suppliers.  The idea is a good one, but IKEA is too large of a company to pass along its responsibilities.  Acknowledging the current situation and creating an internal compliance monitoring group will keep the issue at the forefront of IKEA’s own staff.  Outsourcing created the problems of child labor for IKEA, and outsourcing the solution seems like a bad idea.

 

Independent auditors can be deployed in India to perform random audits looking for child labor violations in IKEA suppliers.  The reports should be published on the internet.  This accountability makes IKEA standout as an honest company looking to improve global conditions.  Keeping the issue on the forefront will also scare some suppliers into compliance.  Only large accounting firms should be considered for the auditing engagements.  That credibility is necessary to appease the critics.

 

IKEA can implement an anonymous reporting system with rewards for the discovery of child labor practices within supplier companies.  A free telephone number and website address for reporting violations should be posted within the factory.  Each employee should be given a brochure with the contact information to report violations.  This will help distribute the reporting system throughout the factory workers in India.

 

Barner should use this crisis as an opportunity to become a spokesperson for the child labor problems that face large companies.  IKEA might even want to consider changing her job function for a year to that of a global child labor advocate on behalf of the company.  Barner’s business credentials and experience would be a nice compliment to several of the global organizations that are fighting child labor practices.  Barner can work with other companies that have been caught in child labor practices to create a global network of information sharing and best practices to prevent child labor and how to deal with it when it is found.

 

IKEA’s brand is associated with environmentally and socially sound business practices.  This image can be tarnished quickly if child labor is allowed to continue.  Yet, in acknowledging the practices at Rangan Exports and putting effort to stop child labor at its suppliers and globally, IKEA can reinforce its brand as a responsible corporation.  This brand enhancement comes from acting honestly with compassion for all in the world.

 

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