Authored by: Aditya Sinha, Mona Sharma, Rachit Chandra, Ramnath S., & Sushmita Sarkar
IKEA’s Global sourcing challenges:Indian rugs and child labour# Group 8A |
The case is a classic example of a situation where organizations have to walk the tightrope between ethics on one hand and profits on the other. Marianne Barner, business area manager for carpets, has to decide whether to terminate IKEA’s contract with Rangan Exports. The dilemma is based on unsubstantiated video clips on child labour produced by a German documentary maker. This follows from the fact that IKEA has been stringent with child labour issues, with a clause in its supply contracts ...view middle of the document...
To maintain the reliability and quality of its products, IKEA would often provide technical and educational training and support to its suppliers. IKEA recognized the fact that quality, cost effectiveness, and stability of sourced products could only be sustained by fostering mutually beneficial and long-term relations with its suppliers. By mid 1990s, IKEA had approximately 2300 suppliers in seventy countries.
Ingvar Kamprad inculcated IKEA with his values and principles. IKEA has been a strongly value driven company ever since. Its vision statement states- “To create a better everyday life for the many people”. Its values are based upon offering low cost, good quality products to consumers across countries. The values are founded upon a strong sense of responsibility, humbleness, simplicity, cost consciousness, and innovative ideas among others.
IKEA’s strong adherence to its values means that it has always been quick and proactive in resolving any social or environmental issue that has crept up. Be it the formaldehyde issue or the child labour issue in Pakistan, IKEA has never shied away from approaching organizations and bodies viz. BASF, WWF, UNICEF, ILO etc. to quickly resolve the matter. Further, IKEA has always been open in its transactions and operations. It owned up to its laxity during the Pakistan child labour case in 1994. At the same time, it was quick to appoint a third party Scandinavian company to look into future compliance and audit issues.
The present situation is tricky because it involves child labour in Rangan exports which is one of IKEA’s major suppliers in India. IKEA is under pressure from Rugmark Foundation, Swedish Save the Children, NGOs and media to take action on Rangan Exports and to decide on long term strategy on operations in India.
A PESTLE analysis with respect to child labour in India and the world in the year 1995 is as follows:
Political- At present there are laws in India and the world (UN Convention on the Rights of Child: Article 32) to prevent child labour. The Child Labour (Prohibition and Regulation) Act of 1986 prohibits children (under fourteen) in hazardous work and regulates the child’s working hours. But due to prevalent poverty in India, the law is poorly enforced and those prosecuted are let off lightly. The government may overlook the issue due to vote-bank politics or may support child labour to allow passage of handicraft skills through generations. In many cases children work under the supervision of their parents. The UN Convention asks States to enact legislative, social, administrative, and educational initiatives to prevent child labour.
Economical- In the long term, IKEA has to decide on its future operations in India. India is the largest source of carpets and rugs for IKEA. Rest of the world including India contributes 22.7 percent to its global purchases. India is also a low cost location for sourcing its products. Leaving India could be a...