Ethical Issue IKEA

IKEA is a Swedish company producing home furnishing products at low prices to make them affordable to people. The company was founded in 1943 by Ingvar Kamprad and kept growing tremendously from 2 stores in 1964 to 114 stores in 1994 to 285 stores in 2008 in 36 countries with an additional 26 stores to be opened in 2009 welcoming a total of 522 million visitors. IKEA’s success story is the result of its founders opening store in 1951 to allow customers to inspect products before buying them, using a catalog to tempt people to visit an exhibition. Its key feature of providing self-assembled furniture starting from 1953 significantly cut transport and storage costs. In 1956, IKEA began testing the concept of flat pack to reduce costs through lowered storage space requirements, reduced transportation expenses, decreased transportation damage and reductions in labor costs.

IKEA and its mission
IKEA’s mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them. The company targets the customer who is looking for value and is willing to do a little bit of work serving themselves, transporting the items home and assembling the furniture for a better price. The typical IKEA customer is young, low to middle income family.

Ethical Issues Related to IKEA’s Position on Child Labor
Besides its success stories, in regard to social issues, the company confronted the child labor problem, which this paper mainly discusses about. In 1994, a Swedish television showed a documentary film about children working in Pakistan, targeting IKEA. In India, IKEA faced criticism about child labor from various international organizations. In the spring of 1995, another film is threaten to be shown on German television about children working at looms at Rangan Exports, a company used by IKEA and the producer then invited IKEA to send someone to take part in a live discussion during the airing of the program. These events urged the company to consider environmental and social issues more seriously.

Social Issues
As a company whose operations are international, IKEA needs to get the cheapest supplies and therefore go to countries that offer cheap labor. However, these developing countries such as India, Pakistan and Nepal are facing a lot of social issues about human rights. When IKEA set its foot in these countries, it could not avoid these problems. For example in India, estimates of child labor in India vary from the government’s 1991 census figure of 11.3 million children under 15 working to Human Rights Watch’s estimate of between 60 million and 115 millions child laborers and about 200,000 were employed in the carpet industry. Its corporate strategy style partly exacerbates, instead of helps the situation. The fact that IKEA does not have its own manufacturing facilities; instead it uses subcontracted manufacturers all over the world for supplies makes it more complex and difficult to keep track of the company’s suppliers and sub-suppliers. It is even more difficult to keep track of children working in homes where whole families worked on looms from the sub-suppliers’ level.

However, on the positive side, this corporate strategy gives IKEA’s the advantage of being able to change its suppliers without much cost. IKEA realizes the challenge and questions itself how deeply the company wants to engage and to help eliminate local social issues of child labor. At the initial period, the way that IKEA dealt with Formaldehyde and forestry issues showed its engagement in social responsibility still remained at the reactive step but not yet at the proactive step or interactive step. This inadequate engagement explains why the company keeps undergoing social and environmental issues pushed by the public. IKEA is outstanding at new ideas for marketing but the company is still passive in social responsibility action. To fix this weakness, IKEA needs to be more aware of social responsibility and potential upcoming social issues.

The way out
First we take a look at how the company responded to environmental and social issues when they first emerged. According to the case document that referring to the child labor problem raised by a Swedish television documentary that showed children in Pakistan working at weaving loom, we first look at how IKEA addressed the event according to the case document. It “sent a legal team to Geneva to seek input and advice from the International Labor Organization (ILO) on how to deal with the problem. It turned out that India, Pakistan, and Nepal were not signatories to the convention”. The fact that India, Pakistan, and Nepal were not signatories to the convention implies it is unreasonable to accuse IKEA of violating the law of child labor. Still, this fact did not help IKEA much as child labor is an ethical issue. IKEA therefore “added a clause to all supply contracts, stating simply that if the supplier employed children under legalworking age, the contract would be cancelled”. The third step was to appoint a third-party agent to monitor child labor practices at its suppliers in India and Pakistan. This third step helped the company in publicity and media, and made things seem fairer from the public’s view.

The business manager Barner did some more research about the child labor issue by contacting concerned organizations, such as Swedish Save the Children, UNICEF, and the ILO to get advice. After acquiring some knowledge about the issue, Barner and her direct manager traveled to India, Nepal and Pakistan to investigate the real situation, this action reflects the company’s culture and management style as “management by running around”. On the trip, Barner learned more about Rugmark Foundation, “organized by the Indo-German Export Promotion, Indian carpet manufacturers, and exporters, and some Indian NGOs, to develop a label certifying that the carpets to which it was attached were made without the use of child labor”.

Barner then returned to Sweden and met frequently with the Swedish Save the Children’s expert on child labor. This helped Barner internalize the importance of child labor action that shaped up IKEA’s new attitude and stand. So what Barner initially did is compatible with the situation until the child labor issue called for more specific actions in the next event. In the spring of 1995, a well-known German documentary maker “notified the company that a film he had made was about to be broadcast on German television showing children working at looms at Rangan Exports” and “invited IKEA to send someone to take part in a live discussion during the airing of the program”.

To deal with this complex situation, it is recommended that IKEA should participate in the program. Up to that point, the company had gained some positive achievements to the child labor issue since the problem was first raised by Swedish television. IKEA could discuss the information it had collected so far from UNICEF, Swedish Save the Children and the ILO and show it possesses the same attitude as the director of the documentary film as well as pursuing the same goals of erasing child labor. It could turn the conundrum around by showing its gratitude to the director for helping spot the child labor at the company’s manufacturer and emphasizing that the company is going to consider the case thoroughly. IKEA possibly mentions its spirit of not avoiding mistakes to search for creative solutions. With a carefully considered plan, participating in the television program would help save the brand and image.

After the television program, IKEA needs to come up with a solution for the case and the long-term strategy to deal with child labor issue. Barner may need to make a trip to Rangan Exports and investigate the case thoroughly. All the children working there should be collected and offered education opportunities. The company needs to create its own children budget to help children discovered working at the company. IKEA should provide a hot line for people to spot children labor cases and hire experts to keep track of the problem and to execute investigation at its supplier and sub-supplier level. IKEA also should have its own trading service offices with staff, who speaks the language and are familiar with the culture and working conditions where its operates. This gives a good understanding and insight into production in various markets. By this way, IKEA could continue its relationship with its suppliers, calling for the cooperation from suppliers to allow IKEA’s professional random inspection. Working with Rugmark is another good option if IKEA can make sure the child labor problem is under control.

Because IKEA does not have its own manufacturers and gets its supplies from other suppliers, it is challenging for IKEA’s ability to manage and control the whole production process. Unless IKEA can be sure that there’s no child labor in the company, it is encouraged to allow Rugmark to monitor the use of child labor on IKEA’s behalf. If IKEA follows the steps described above, it will advance itself to the proactive level of social responsibility. The company could advance itself to the even higher level, interactive level, by executing more assertive plans. The interactive level promises a long-term advantage in brand image and profit. As child labor is considered “Indian culture”, it requires a lot of time, energy and finance to make progress. The company needs to work tightly with UNICEF, NGOs, and Save the Children Alliance to learn from each other. In India, because of economic initiatives, families send children to work.

Therefore, to help improve the situation, IKEA need to fund a budget in the need of education for those families. Besides, the company should lobby to coerce the government to get involved more actively in the process. In the long run, family income boosting plans need to be implemented to achieve a better standard living for Indian families as poverty is the root of the problem. Even though all these effort sounds challenging, a withdrawal from India, Nepal and Pakistan can inhibit IKEA from the opportunity of cheap labor that is fundamental to compete for cheap prices, especially when other giant rivals are looking at this opportunity at the same time.

Defending IKEA
The implication of using child labor will likely cause public relations issues for IKEA. Even if the allegations turn out to be false, its reputation will be damaged and sales negatively impacted. For this reason, it will be important for IKEA to address the public to minimize the damage. If no statement is made then the public may assume that IKEA does not care whether child labor is present among its suppliers. As IKEA has became aware of child labor within its company through its suppliers, they have worked hard to defeat child labor and apologized for their ignorance and acknowledged that they did not have complete control over this problem. Immediately after recognizing their error, they worked to learn more about the issue and formed a plan to clear IKEA’s name. In this plan they appointed a Scandinavian company to work directly with their suppliers to ensure that child labor is not present. They will give the appointed company mandate to not only investigate companies but also undertake random audits of child labor within IKEA’s suppliers.

After all, IKEA has been a key partner, contributing to UNICEF’s work through strategic social investments, cause-related marketing promotions, sales of UNICEF Greeting Cards, in-kind assistance and national-level fundraising and promotional activities by IKEA customers and employees around the world. The company has commitment to social responsibility and their direct engagement with issues affecting children. They have truly joined with UNICEF to tackle issues like child labor at their root causes. IKEA Foundation has committed more than $190 million in cash and in-kind donations to UNICEF program to save and improve the lives of children and their families also committed to promote the rights of every child to a healthy, secure childhood and access to quality education. IKEA fight against child labor in the supply chain has developed into a broad commitment to create a better everyday life for the many children. The IKEA Foundation focuses on a child’s right to a healthy and secure childhood with access to quality education and invests in a range of program with a holistic approach to create a substantial and lasting change in the lives of children and women by improving their health, enabling access to a quality education for children, and empowering women to create a better future for themselves and their communities.

IKEA Foundation’s commitments are targeted on South Asia, and especially India, where the needs of children and women are great, and where IKEA has long business experience. In India, UNICEF, IKEA and the Government of India created a partnership to address the root causes of child labor in the carpet belt of India such as debt, poverty, the lack of access to education, disability and ill health. Implemented in 500 villages in the Eastern Uttar Pradesh region of India, this program made it possible for 80,000 out-of-school children to get an education as well as 140,000 children and 150,000 women to be immunized. In addition, the program empowered more than 22,000 women to create sustainable economic opportunities through self-help groups. IKEA Social Initiative investments in India have expanded beyond program addressing child labor and now include child health, nutrition, education and protection. In the area of child survival, funding from the IKEA Social Initiative supports national and state-led strategic interventions to address the causes of high mortality among children and mothers, and to improve the nutritional status of children, with a special focus on disadvantaged populations.

The support from IKEA boosts UNICEF’s work to help improve the nutrition situation of India’s children and women at a time when increasing food prices and nutrition insecurity make families more vulnerable. The partnership with IKEA is expected to reach nearly 78 million children, four million adolescents and 10 million women by 2012. In the area of child protection and education, IKEA and UNICEF aim to expand coverage of this project started in 2000, by reaching more villages in the carpet and metalware regions of Uttar Pradesh and help prevent and reduce exploitation of children working in the cotton and cottonseed regions of Andhra Pradesh, all while improving service delivery for children. IKEA Social Initiative manages social involvements on a global level. The mission of IKEA Social Initiative is to improve the rights and life opportunities of the many children – fighting for children’s rights to a healthy and secure childhood with access to quality education. UNICEF and Save the Children are the main partners, with a range of projects take a holistic approach for creating a substantial and lasting change: improving the health of mothers and children, enabling access to a quality education for children, and empowering women to create a better future for themselves and their communities.

Conclusion
In our opinions, the moral responsibility of IKEA is to help its supplier having the issue of child labor and IKEA should not withdraw in importing carpets from sub continent. Child labor is currently an important worldwide issue. One industrial sector where children reportedly work is the rugs industry, however the recent reports suggest that the number of children assembling apparel is declining. Rugs manufacturers and retailers have been praised by international organizations for their contributions to reducing child labor. Implementing codes of conduct is the strategy chosen by many large rugs manufacturers and retailers to establish workplace standards, including minimum age of employment.

Therefore, IKEA should focus on the root causes of child labor by itself without the involvement of third-party as this is the issue of corporate social responsibility that has become a vital strategy for companies in a ruthless market environment. IKEA could provide the education and information about child labor and rug production to its supplier. And when customers see that IKEA continues to support child labor then it will able to increase as well as attracts its customers. On the other hand if IKEA does something to rectify the issue of child labor and even attempt to be proactive techniques, the company may gain more customers who are pleased with their actions and wish to support their scheme. IKEA should also provide strict guidelines to its new suppliers and codes of conduct in regards to child labor. NGO’s such as Rug mark and UNICEF could be addressed for advice on rules and code of conducts to understand the issue child labor.

References

– Bartlett, Christopher A. Dessain, Vincent. Sjoman, Anders. “IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A)”. November 14, 2006. – http://huele3287.blogspot.com/2009/11/case-study-of-ikea-with-indian-rugs- and.html – http://www.customerthink.com/article/ikea_branded_experience_important – http://www.ikeafans.com/ikea/ikea-history/ikea-history.html – http://www.ikea.com/ms/de_AT/about_ikea/pdf/ikea_position_child_labour.pdf – http://www.scribd.com/doc/50766903/IKEA-case-analysis

– http://www.the-latest.com/ikea-slammed-over-child-labour-and-green-issues – http://www.unicef.org/corporate_partners/index_25092.html
– http://www.unicef.org/corporate_partners/index_49612.html
– IKEA Webpage. [http://www.ikea.com/]

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