Case Study of IKEA’s Global Sourcing Challenge

In 1995, IKEA met a problem that its main supplier, Indian rugs, used the child labor to produce products, although they had signed an attachment of the contract to ban employing child labor. In addition, a German documentary maker was about to broadcast the problem of child labor on German television and also invited an employee from IKEA to have a live discussion in the TV program. Marianne Barner, the leader of IKEA, must find a great solution to this serious issue to both save her business and the corporation’s brand image. In this issue, IKEA was not the one who produced products, so they might not realize the use of child labor in the process of production. In addition, child labor did not attract lots of attention from the society at that time, so they did not pay attention to the use of child labor when they were finding their suppliers. However, they sold terminal products so they were to blame. As a result, Marianne had to make several decisions, respectively about whether IKEA should accept the invitation to join the TV program, how to deal with the broken contract with Rangan Exports, how to deal with the child labor on the long term and whether IKEA should use Rugmark.
To address this problem and make these decisions, IKEA has four choices. One is that IKEA could utilize its own relationship with its suppliers to solve the issue. The second choice for IKEA is to invite Rugmark Foundation on its behalf to monitor the use of child labor. The third one is that IKEA could stop the relationship with these countries which use child labor, and find some other suppliers. The last thing IKEA could do is to establish a nonprofit organization, in which all suppliers should be involved, to prevent the child labor and help poor children. However, every choice has its advantages and disadvantages.
First, IKEA could use their own relationship with suppliers. In the past, IKEA dealt with commercial issues through monitoring and negotiating, so IKEA has reputation and experience to have deep negotiations with suppliers and try to prevent them from using child labor. In addition, it could be easier for them to communicate because there will not be some external voice. In this way, using its own relationship will not cost a lot. However, this issue was not a common issue. It might be useless because Indian rugs had already signed the attachment of their contract but they still used child labor. Moreover, IKEA is not an expert in monitoring the use of child labor and IKEA does not have enough resources and experience to monitor the use of child labor. If IKEA cannot follow the routine to negotiate with suppliers, it will be expensive for IKEA to solve this problem because it costs a large amount of time and money. As a result, this solution could be difficult to carry out.
The second method for IKEA is cooperating with Rugmark Foundation. This organization, established to supervise child labor with labels, was based on “the partnership of manufacturers, importers, retailers and Indian nongovernmental organizations” (Bartlett, C.A., 2006). They can help IKEA monitor the use of child labor in the process of rug production because they are more professional and experienced in that. In addition, it is pretty common for companies, which meet important social issues, to ask the third parties for help. Because third parties do not have a stake with companies, they could be more just and fair to solve the issue. If IKEA cooperate with Rugmark Foundation, this organization could help IKEA monitor the use of child labor more efficiently. Moreover, customers will trust IKEA’s products because the label can indicate products are produced without child labor. However, working with the third party is also of some risk. For instance, if IKEA allows Rugmark to monitor the process of production, they will learn about some internal information about IKEA, such as the way to manage suppliers. The foundation has members such as manufacturers and retails. If they know this kind of internal information, they might utilize it. To be worse, if this information is leaked to IKEA’s competitors, IKEA will be uncompetitive. Another disadvantage is that if the third party asks IKEA to pay for supervision, it might be costly.
Another way is to stop the relationship with these suppliers which use child labor and find some other partners. In this method, it can help IKEA get rid of the blame for using child labor. When IKEA does not sell the products which are produced by child labor, the issue will not hurt IKEA any more. But it is also of high risk. Child labor is a social issue embedded in Indian culture. If IKEA would like to find some suppliers without using child labor, it is almost impossible for IKEA to find suppliers in India. As a result, IKEA must target at other countries such as China or Vietnam which might have cheap labor force. However, searching for suppliers is very time consuming. In addition, if the labor force in other countries is not as cheap as that in India, the cost of rugs will be increased. To be worse, if IKEA cannot find any other supplier, stopping the old relation will cut the supply of products and hurt the sale. As a result, they have to stop selling this product. In addition, cutting the relationship with the kind of suppliers cannot solve the social issue. IKEA would like to address the issue of child labor in society more broadly, so they should find some ways to help solve this social issue and not just as their own problem.
Last but not least, IKEA should establish a nonprofit organization, in which all suppliers could be involved, to prevent the child labor and help poor children. This organization can be held by IKEA with all of its suppliers becoming members of the organization. Though this approach, IKEA can improve suppliers’ awareness of children’s living conditions and prevent suppliers from using child labor. In addition, they can donate some annual profits to this organization to help poor children. In that way, IKEA can take on the social responsibility and achieve their company value to help children and have a good company image. However, this solution is full of challenges. It is pretty difficult to start a new organization. In addition, helping these children in need means giving up some of IKEA’s and its suppliers’ profits. If members do not agree to do that, then it will be unreal.
In this serious issue, cooperating with third parties such as Rugmark Foundation will be a better solution. In addition, this solution can be combined with joining the program made by the German documentary maker. Child labor is a social issue which is difficult to solve only by IKEA itself. It is necessary for IKEA to find some help from third parties. For example, Rugmark Foundation can find out the companies who use child labor and also has resources and experience to monitor the use of child labor. The ultimate way to solve this social issue is not just stopping the relationship with these illegal companies but forcing them not to use child labor any more. The cooperation between IKEA, which is a big company, and the organization, which has lots of related members, can lead the society to paying more attention to banning the use of child labor. Furthermore, if IKEA joined the live discussion program and tell audience they cooperate with the third party to solve the issue of child labor, it will have positive effects on them. Audience will think that IKEA is very worth to be trust. In this case, these solutions can help IKEA keep a good brand image because it shows that IKEA has a great social awareness. Moreover, However, it could be costly because they might pay a large amount of management fees to the organization.
In conclusion, IKEA can cooperate with Rugmark Foundation to solve this problem. It not only can help IKEA to solve the issue, but also can increase the awareness of child labor from the whole society. However, a serious issue is seldom solved just by one solution. IKEA can put some efforts into improving the lives of children to realize their value and social responsibility. In addition, to prevent other similar issues from happening, IKEA should pay more attention to their suppliers.

References
Bartlett, C. A., Dessain, V., & Sjoman, A. (2006, November 14). IKEA’s Global sourcing challenge: Indian rugs and child labor (A). Harvard Business School, 9, 909-414.