Posted by: itm2011 | May 13, 2011

Human Rights and Global Sourcing: IKEA in India

Human Rights and Global Sourcing: 

IKEA in India

By: Jaclyn Cirillo

OVERVIEW OF CASE:

After a few years of IKEA undergoing speculation of unreliable suppliers in countries such as India, Pakistan, and Nepal whom used child labor freely throughout their practices, Ikea’s business area manager of carpets, Marianne Barner, was faced with a dilemma that she was quickly forced to overcome, change, and improve.

In 1995, a well-known German TV reporter broadcasted an ongoing investigation report naming a main supplier of Ikea used child labor in their work place.  Although this supplier claimed to recently sign an agreement in their IKEA contract forbidding the use of child labor or else termination, recent video and still-photographs have proved otherwise.

In a whirl-wind of events, Barner was forced to look into alternatives to help save the reputation and image of IKEA as well as maintaining a profit.  Three of these alternatives that Barner juggled that were stated within the case included:

1. Sign up to an industry wide response to growing concerns of child labor in India – monitoring manufacturers, importers, and retailers to use the new label of RUGMARK: a label on carpets that states they were made without the use of child labor. 

2. Barner started conversing with the Swedish “Save the Children” organization who urged Ikea to respond to this situation in “the best interest of these children,” whatever that change may be.

3. Cut the use of these companies within India to lessen the loss of a profit for the company IKEA. 


Before investigating these possibilities further, a deeper look into the company IKEA is necessary.

HISTORY OF IKEA:

At seventeen years old, Ingard Kamprad started a mail order business out of his parents home in Sweden.  The name IKEA derives from Ingard’s initials, as well as the E from his family farm, Elmtaryd, and A from his parish Agunnyard. Ingard started small, selling fountain pens, cigarette lighters, and binders.  But in 1948, he urged to increase the products of his business and added furniture to his newsletters.  After that, he kissed the small items ‘good-bye.’

In 1951, Kamprad opened a small display store for his products in Almhult Village, a small village within his country Sweden.  This allowed his consumers to inspect their products before buying.  After the success of this show room, he stopped accepting mail orders as a whole.  Instead, he started offering a large range of home furnishing.

From the beginning, Ingard had a goal to sell “a wide range of home furnishing items of good design and function at prices so low that the majority of people can afford them.”  With the start of an already successful business as well as this mind set, Ingard started offering a full catalog, expanding his business larger than ever before.

IKEA’s concept started becoming what it is today in 1953.  For the lowest price, Kamprad’s products came as a self assembled furniture.  From then on, sales only increased.  From 1953 to 1955, sales doubled from SEK three million to SEK six million.  Not everyone loved the idea of this new furniture store though.  Swedish furniture stores started pressuring Swedish manufacturers to stop selling to Ikea.  So in 1961, IKEA went elsewhere and contracted several furniture factories in Poland.

IKEA decided that they didn’t want to own their own line of production. Instead, IKEA felt the need to develop close ties to other suppliers  and that creating long term relationships were more important than anything else.  In 1963, Norway welcomed IKEA with open arms.

Kamprad didn’t just stop there.  1965 was the first time Kamprad self-financed a store of his own.  He decided the best location for this concept was a downtown, suburban area with large parking lots waiting to be filled with an over abundance of cars.  This concept was greatly accepted, and in 1974, Germany became IKEA’s largest market!

Ingard didn’t let the success of his business get to his head.  He also refused to let the success get to his managers and high-ups head’s, either.  He instated an “anti-bureacratic week” where all store managers spend time working within a store to reestablish contact with frontline and the consumer.  And IKEA offices have no separate cubicles or offices, for anyone.  Everyone works together in the open.

IKEA also became extremely cost consciousness as time progressed.  Ingard stated that “waste of resources is a mortal sin at Ikea.”  This includes the use of travel.  No one will fly first class, no matter what the circumstances.  He believed in his code of values so strongly that he created a document that all managers must teach called: “Testament of a Furniture Dealer.”

After being the backbone of IKEA for many years, Kamprad stepped down in 1986 and appointed a company veteran to take over his place as president and CEO — Anders Moberg.  Kamprad remains an honorary chairman and is still very much involved with Ikea today.

When the mid 1990’s arrived, IKEA became the world’s largest specialized furniture retailer with their GDP reaching $4.5 billion in August of 1994.  They had ninety-eight stores within seventeen countries, worked with 2,300 suppliers in seventy countries whom supplied 11,200 products, and had twenty-four trading offices in nineteen countries that monitored production, tested product ideas, negotiated products, and checked quality.

But there were a few issues within the company of IKEA that needed to be solved, included a huge environmental issue involving the use of formaldehyde glue.  This product had proved to have harmful affects to the consumer including: a burning throat, red and watering eyes, and a runny nose.  IKEA found help with organizations such as GreenPeace,  the World Wide Fund for Nature, and the Forest Stewardship council.  IKEA claimed they would stop accepting timber, veneer, plywood, or layer-glued wood if they couldn’t trace the wood back to it’s original source.

When these issues became apparent to IKEA, they started to look further into what they can do to prevent other problems.  These steps included:

1. Adapting to the Product Range

2. Working with Suppliers

3. Monitoring Transport and Distribution

4. Ensuring Environmental Conscious Stores

But as soon as they were finished with one social problem, another came to head.  In 1994, a Swedish television documentary showed children in Pakistan working at weaving looms.  IKEA was the only high profile company name on the list for that supplier of rugs.  As soon as the documentary became aware to the company of IKEA, Marianne Barner spoke.  She stated:

       “IKEA was completely unaware of the ongoing child labor.” She admitted that it was “not something we were paying attention to.”  She also claimed that “Our buyers met suppliers in their city offices and rarely got out to where the actual production took place.  Our immediate response to the program was to apologize for our ignorance and acknowledge that we were not in full control of this problem.”

IKEA then sent their legal team to Geneva to seek input and advice from the International Labor Organization.  From that meeting, Ikea learned of the Convention 138 which “committed ratifying countries working for the abolition of labor by children under fifteen or age of compulsory schooling in that country.”  India, Pakistan, or Nepal were not signatures to this convention.

But to Marianne Barner’s argument, she claimed that IKEA added a “black and white clause” to all their contracts.  This clause stated that if suppliers employed children under legal working age, that their contract would be canceled.  As time progressed, Barner became more interested in the child labor within these countries and continued to research.  She learned that a total of 200,000 children were employed in the carpet industry in India, working in the looms in the larger factories.  Children could in fact be bonded in order to pay off debts from their parents.

As Barner continued her research, another blow to Ikea occurred.  In 1995, a German television reporter showed children working at looms in Randan Exports – one of IKEA’s major suppliers.  Marianne Barner had to think fast of how to regain the reputation IKEA once had while making a change to these awful child labor conditions.

OPTIONS TO CONSIDER:

Instead of Marianne Barner spending a total year just researching the epidemic of child labor within India and Pakistan, Barner should have started putting forth actions.  She was fed enough information and had plenty of resources reaching out to the company of IKEA, including that of RUGMARK, Save the Children, and NGO’s, yet she became so infatuated with the issue and not infatuated with a solution.  Here are some ideas Barner should have considered:

1. As stated prior, IKEA claims to have twenty-four trading offices in nineteen countries that monitor production, test product ideas, negotiate products, and check quality.  Along with the concern of their product, IKEA could have expanded these concepts to their suppliers and manufactures as well.  Considering they are smart and logical enough to have a team of experts checking their products so carefully, they should have easily expanded this into a company wide check of the entire chain of goods – starting from where they are made and ending at quality check.  

IKEA never owned their own production company, and have never planned to.  Ingard stated that he always believed that the relationship of two companies was more important to him than owning his own supply chain.  Therefore, a plan that IKEA should have instated a program that checked thoroughly of where their product was coming from, beginning to end.  This would have let the company take a step in a direction of taking control of social responsible issues.

2. After the issues with the Formaldehyde glue, IKEA set up a list of ideas as of where they wanted their company to improve in.  Included in this list was “working with suppliers” as well as “transport and distribution.”  Instead of focusing on the environmental problems solely, the should have considered expanding this concept to all parts of their manufacturing, supplying, and retail chains!  This could have prevented any issues that occurred later on within India.

  Even though that it is a little too late to not establish this immediately, this is still an option that Barner can look into instead of cutting their supply chain in India and Pakistan completely.  Greater monitoring, meetings at the place of production, and reports should be a mandatory concept that is stated within the contract between IKEA and the supplier.

3. Does Barner want to save time and have someone else do the work for her?  RUGMARK invited IKEA to sign up as a way of dealing with the ongoing issue of child labor.  In short, RUGMARK sets a criteria that manufactures must meet before being signed on to.  This includes the agreement of random, independent inspections to earn the RUGMARK label.  All IKEA  would have to do is pay a licensing fee that helps support the monitoring of RUGMARK, inspections, as well as the list of education programs they have to offer to underprivileged children faced with these dilemmas.  

This would be an easy fix to the ongoing issue that IKEA seems to be facing.  

(http://www.goodweave.org/about – RUGMARK now called GOODWEAVE)

4. IKEA can prove a point to these suppliers by acting in the way their contract claims they would — terminate their contract.  The difficult part of this is a large portion of IKEA’s rugs are in fact manufactured in India, which would be a loss for the company.  They would have to then invest time in finding a new supplier in which they have better control over how this supply chain is run.  

5. Lastly, Marianne Barner could have dealt with this in a way other companies have — addressing their issues in a private matter without ever addressing it to the public.  A classic case of someone who handled a situation like this can be found within the NIKE case, where soccer balls in Pakistan were being made by children  After being accused of using factories that allowed the use of child labor, NIKE ignored the subject while fixing the problem behind scenes.  

(http://www1.american.edu/ted/nike.htm)  

WHAT DID MARIANNE BARNER DECIDE?

Marianne decided to take matters into the business’ own hands.  They created a “special code of conduct” that is called the IKEA way, which focuses on ways to purchase home furnishing products.  They started monitoring trading service offices as well as engaging in unannounced visits to the suppliers of IKEA as well as the sub-contractors.  Workers within these services are able to observe social and working conditions to prevent child labor in these work places.

If children are found within manufacturer, the supplier must correct their mistake and immediately place the child into an education program.  IKEA will then visit the school the child attends and continue to make unannounced visit to that supplier.  If it is noted that changes are not made, Ikea will then terminate all business with that supplier.

CONCLUSION:

In the end, the choice that Marianne Barner made was a step in the right direction.  I agree with the solution to the problem she came up with.  IKEA as a whole can not point fingers and say “it’s not our fault!,” when in fact, it is.  The company chose to do business with these supply chains, therefore, they need to take full responsibility for not monitoring these supplies deeply.

IKEA took into consideration a lot of the concepts that RUGMARK had, including a monitoring team, an educational program for these children, as well as unannounced visitation to these production sites.  On IKEA’s website, they have a whole section dedicated to “working conditions” where they come to terms with preventing child labor law and improving children’s rights in India.

(http://www.ikea.com/ms/en_US/about_ikea/our_responsibility/working_conditions/preventing_child_labour.html)

If Marianne wanted to go about this in a way that will keep IKEA out of the headlines as much as possible, I believe practicing the way NIKE handled this accusations would have also helped.  The pressure would have still been on her to handle the child labor situation, yet the pressure from the public would have declined.  While addressing the public, she allowed both consumers and the industry to get under her skin and almost panic (pointing fingers, relying on contract to cover the company of IKEA).  Allowing herself to fix the problem solely in private while making the corrections she had would have been a greater alternative, as well.

OTHER SOURCES:

http://huele3287.blogspot.com/2009/11/case-study-of-ikea-with-indian-rugs-and.html

http://human-rights.unglobalcompact.org/case_studies/child-labour/

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