November 30th, 2013

Case Analysis: IKEA Global Sourcing Challenge: Indian Rugs and Child Labor IBUS 5701 D Dr. Diane Isabelle

Harshal Naik #100953980

1. Although the broadcast of the German video program is aimed at aggressively confronting IKEA and one of its suppliers, I believe she should accept the invitation for IKEA to have a representative appear on the program. A live discussion would give IKEA the chance to explain themselves and their intentions concerning their engagement in India although she has to be careful of the fact that the program might have an aggressive and confrontational attitude towards IKEA for using a supplier, which employs children and suggesting IKEA simply cares about profit. However, since Marianne Barner feels that IKEAs responsibility is much broader than simply trying to abolish child labor by discontinuing contracts with partners employing children. The program provides IKEA with an opportunity to create a positive image and strengthen their engagement. IKEA can increase its brand value and let the customers know that the company cares for social values than just profit. 2. IKEAs supply contract with Rangan Exports

Marianne Barner must go with the industry-wide response to growing concerns about child labor in the Indian Carpet industry. It would be in IKEAs best interest to force Rangan Exports to comply with the addendum which explicitly forbid the use of child labor face termination of contract. Since, Rangan Exports is one of IKEAs major suppliers, terminating the contract would result in loss of millions of dollars and impact sales till a suitable replacement is found and ready to export, which could be possibly take multiple years. IKEA should set policies in place for termination of suppliers that decide to not comply with the said addendum. Mariannes ideal solution would entail IKEA figuring out a way to keep its contract with Rangan Exports while making sure children no longer work at the Rangan Exports.

3. Though the strategy to exit the Indian rug market would be the simplest solution it would require IKEA to find a new cluster to manufacture rugs without child labor at an affordable cost and high quality. Since this idea does not incorporate the best interests of the children, this approach was not recommended by the Swedish Save the Children foundation. Also, there is a possibility that many children would move to more dangerous jobs or prostitution if they were summarily dismissed from rug manufacturing jobs as apparent from the US crackdown on Bangladeshi garment factories in 1993.

a. Although maintaining a monitoring and control process is imperative for IKEA, the sign-up to Rugmark would results in more sales. Rugmark, a recently initiated industry response to the child labor problem in the Indian carpet industry, certifies whether a carpet was made with or without the use of child labor. IKEA was invited to sign up with Rugmark as a way of dealing with its ongoing potential problem for child labor problems on products from India. This would create a level of transparency for the consumers and IKEA. Seeing the Rugmark label on a carpet or rug would communicate that IKEA is not dealing with child labor anymore and that these products wouldnt conflict with their consumers morals and beliefs. Thus, the consumers would become aware and make more purchases based upon this new visible label.

However, the difficulty with this strategy is the sheer size of the manufacturing area that would need to be monitored and audited. There are an estimated 175,000 in one of Indias carpet producing clusters that would make auditing, monitoring, and compliance a costly proposition. IKEA has such a strong commitment to low costs being passed on to the consumer that this would be a difficult strategy for them to peruse long term.

b. To achieve this goal IKEA would have to promote child welfare and education, engage their suppliers as partners, provide incentives for compliance, and maintain a policy of continuous engagement with both suppliers and any programs they put in place. This is neither a short term solution nor one that could be performed by IKEA alone, however it is the strategy they should pursue. IKEAs approach should be multifaceted. They should partner with Anti-Child Labor bodies to ensure that all children in the carpet producing cluster in India had a chance to receive an education. They should try building some schools for those that are not allowed to attend public schools. In addition to this partnership with Anti-Child Labor bodies, IKEA should also work to create a tight relationship with their suppliers and engage them to create solutions to eradicate child labor practices. They should have supplier audits on a regular basis. If child labor is discovered during the audit the supplier would have to write a corrective action plan. The corrective action plan would not just fire the child laborer but the supplier would be responsible for ensuring the education of the child and welfare would be taken care of. IKEA should then follow up with the supplier and the school of the child to ensure that they corrective action plan was actually being followed. If the supplier does not follow through on the corrective action plan then the contract will be broken and IKEA would no longer transact any business with them.

Bibliography::
Press centre. (n.d.). UNICEF. Retrieved November 30, 2013, from http://www.unicef.org/media/media_65718.html CSRwire Talkback. (n.d.). RSS. Retrieved November 30, 2013, from http://www.csrwire.com/blog/posts/547banning-child-labor-the-symptom-or-the-cause Ikea to release report on child labour allegations. (n.d.). The Chronicle Herald. Retrieved November 30, 2013, from http://thechronicleherald.ca/business/170593-ikea-to-release-report-on-child-labour-allegations About IKEA. (n.d.). IKEA does not accept child labour. Retrieved November 30, 2013, from http://www.ikea.com/ms/en_CA/about_ikea/our_responsibility/working_conditions/preventing_child_labour.html Business in the best interests of children. (n.d.). the Guardian. Retrieved November 30, 2013, from http://www.theguardian.com/sustainable-business/ikea-childrens-rights-beyond-supply-chain