IKEA Case

Company History

* Established by Ingvar Kamprad in 1943 at the age of seventeen. * The name IKEA was derived from the combination of first letters of CEO name (Ingvar Kamprad), followed by the first letters of the farm and village he grew in (Elmtaryd and Agunnaryd). * Originally sold pens, binders, watches, wallets, cigarette lighters and expanded into furniture, kitchen and other products. * Small backyard company soon developed in to one of the world’s largest furniture retailers. * Currently have 340 stores in 38 countries with €28 billion in 2012. * Donated $82 million in 2012 to fund children’s programs. IKEA Vision

* The Ikea worked with vision “To create a better everyday life for the many people.” * The business idea is “to offer a wide range of well-designed functional home furnishing products at low prices so that many people could afford to purchase them.” IKEA Strategy

* The majority of IKEA’s furniture is flat-pack, ready to be assembled by the consumer. This allows a reduction in costs, packaging & transportation. * Offering products at low prices is key to IKEA furniture retailing business model. * Configure the interior of the stores so that customers have to pass through each department to get maximum exposure to the products. * Introduce eye-catching products and have a wide range in room settings and self-service areas to inspire and attract customers with ideas, hints and tips for smart new home furnishing solutions. * Company organized “anti-bureaucrat week” every year, requiring all managers to spend time working in stores to establish relations with front-line and the customers. * Company always focused on low cost which was made as part of management culture. Supplier relationship:

* IKEA adopted a procurement principle that it shouldn’t own production but should develop a close tie with suppliers and support them for long-term relationship. * IKEA provided machineries, technology, loan at reasonable rates to its trusted suppliers. Challenges faced

A. IKEA products emitted more formaldehyde than the allowed concentration that produced more side effects. Due to this issue IKEA was fined and the case publicity bought them losses and taught a lesson. Solution: IKEA noticed the route cause was not from suppliers and sub suppliers but it is from glue manufacturers. In order to resolve this issue IKEA collaborated with companies like ICI and BASF to reduce the emission of formaldehyde. B. Billy incident: In 1992 the formaldehyde issue reoccurred. This time it was not the glue but it was the lacquer on the bookshelf series, Billy. Solution: IkEA responding to the issue stopped both production and sales. Realizing the environmental concern IKEA decided not to accept any type of wood material from intact natural and high conservation value forests.

C. Child Labor issue: Through a Swedish television documentary IKEA faced a social wake-up call regarding child labor in India, Pakistan and Nepal in rug and carpet industries which were major suppliers to IKEA Solution: In response to this completely unaware situation IKEA discussed the issue with UNICEF and ILO. IKEA appointed a third-party agent and later a well-known Scandinavian company to monitor child labor practices. As part of this IKEA signed up with RUGMARK, label which certifies that the carpets are made without the use of child labor. In 1995, a year after IKEA initiated to address this issue, similar issue resurfaced at rangan exports a major supplier to IKEA.

1. How should Marianne Barner respond to the invitation for IKEA to have a representative appear on the upcoming broadcast of the German video program?

It is recommended that Marianne Barner should accept the invitation and take part in the discussion for the following reasons: * IKEA does not own any manufacturing company and it is just banking on the supplier companies for its products. Hence, IKEA is not directly responsible for child labor. * IKEA should mention the necessary steps taken when the same issue was telecasted in the Swedish television. * IKEA must mention about the discussions made with UNICEF and ILO for the advices show the Ikea’s concern towards the issue. * IKEA should honestly acknowledge the problem and must mention that they are trying their best to deal with issue. Hence, came up with RUGMARK and other monitoring agencies. * Barner should make clear that Ikea’s responsibility is much broader than just trying to abolish child labor. * IKEA must clarify everyone that child labor is deeply embedded in the system and culture. Hence, it is not a single person or single company could eradicate this issue. Infact, every system should take initiative and responsibility.

2. What actions she should take regarding the IKEA supply contract with rangan exports?

* Barner should not give a second chance to Rangan exports that has violated supply contract. Encouraging these kind of customers would impact IKEA brand image. * IKEA must clearly mention that any supplier who violates the basic rules will be terminated and no further contract relation is encouraged. * IKEA should employ some special teams for unusual and random monitoring of loom manufactures to cross check accounting the policy. * IKEA should seek assistance of UNICEF, ILO, NGO’s to address the problem as a whole and provide awareness about the issue to the society and abandon the root causes of the concern.

3. What long-term strategy would you suggest she take regarding IKEA’s continued operation in India/should the company stay or should it exit? * It is recommended to continue operation in India and tie with known suppliers. * As observed IKEA is more responsible socially and environmentally. It should address the problem and face the challenge to their best. * IKEA should form a team to discuss the issue and propose some solutions and with the help of government agencies it should implement several codes at least in the looms as a first step and eventually introduce in other areas as well. * IKEA should make all the suppliers sign and stand by the basic rules regarding the labor and age requirements mentioning clearly regarding the child labor.

* IKEA should appoint third group to monitor keenly about the working conditions and labor. And these third groups must be supervised by internal resources. * IKEA should take a step ahead and collaborate with some private agencies or organizations that are actively involved in eliminating child labor. * Unlike other issues child labor reporting line should be introduced so that any responsible individual can report regarding this issue so that immediate action can be taken. * All the employees working in the looms must be encouraged to discourage child labor.

4. For those recommending that IKEA continue to source carpets in India, would you suggest that she: a. Continue IKEA’s own monitoring and control processes or sign-up to rugmark? b. Continue to focus only on eliminating the use of child labor in IKEA’s supply chain or engage in broader action to address the root causes of child labor as Save the Children is urging?

a. Rugmark is a very small organization and IKEA should continue support Rugmark for its long term purpose. Having said that, IKEA should setup its own monitoring process to identify and abolish child labor.

b. It is highly recommended to IKEA not to loose focus on eliminating the child labor in supply chain by educating its suppliers and monitoring process and eventually work with UNICEF, ILO, and NGO’s government to emerge as a big player in finding the root cause to abolish child labor.

If IKEA continues to source carpets in India the company must find a more effective way of monitoring and controlling its suppliers. One option would be to deal with the problem through IKEA’s own supplier relationships. In this alternative IKEA could persist in its original plan to arrange for its monitoring of its suppliers and make the suppliers accountable to its policies on child labor.

An obvious advantage to this alternative is that it allows IKEA to theoretically have direct control over the situation; it will not have to adhere to the terms and provisions of Rugmark’s program and it will not have to rely on the accuracy of Rugmark’s certification. It also gives IKEA the most flexibility in dealing with its suppliers. Another potential advantage of this alternative is that it will enable IKEA to develop a model for dealing with supplier child labor problems in other segments of the furniture business. A key disadvantage, however, is that it has thus far proven unsuccessful. Unless the system is successful, IKEA’s reputation will be subject to severe damage.

The other option is to step back from the situation and allow the Rugmark coalition to monitor child labor on IKEA’s behalf. A key advantage to this alternative is that it takes IKEA out of the “hot seat” and lumps it in with a larger group of manufacturers, retailers and suppliers who are collectively trying to deal with the problem. However, this option disrupts IKEA’s direct, close relations with its suppliers. Another disadvantage is that it may leave the appearance that IKEA is seeking to shield its own bad actions behind the Rugmark façade. Finally, the “no child labor employed” promise implied by the Rugmark label may not be possible. With an estimated 175,000 looms in the Uttar Pradesh carpet belt accommodating two or three workers at a time in many small workshops or homes, it is unlikely that any organization will be able to monitor the fragmented rug production process and guarantee no child labor is employed.

We would recommend that IKEA deal with the longer-term problems of child labor through its own supplier relations rather than joining the Rugmark coalition. This option is most consistent with IKEA’s established policies, mission, and culture. IKEA’s supplier relations are core strengths for the firm. The company can signal support for the underlying principles and forge its own model for addressing the child labor problem. Of course, child labor is an ingrained part of the culture for many communities in India. A complete solution must also address “the root causes such as debt, poverty, lack of access to education, disability and ill health.”

To implement these solutions, I recommend that Barner work with executives in marketing and public relations, as well as Asia country experts and child welfare experts to develop a comprehensive anti-child labor initiative. The initiative should include: a. A new internal monitoring program to ensure supplier compliance with no child labor rules; b. A program to educate Asian suppliers on the harm of child labor and to help suppliers develop financially viable alternatives; c. A program, developed in cooperation with international and Asian governmental agencies, to educate people in developing countries about the harm of child labor and alternatives to its use; d. A financial commitment to contribute to children’s education in developing countries; and e. A commitment to cooperate with other manufacturers, retailers, etc. and to cooperate with and share information with the Rugmark coalition.

Once the initiative is developed, Barner should arrange for an internal training program to inform and educate IKEA personnel – especially those contracting with Asian suppliers – about the terms of the initiative and IKEA’s commitment to ending the problem of child labor. Additionally, she should call a press conference to inform the public about the new initiative.

After the program has been in place for six months, IKEA should conduct an evaluation to determine how well it is working and make revisions as necessary. At the end of each year, the company should issue a formal, public report detailing the extent of its compliance with its anti-child labor policies and programs. Finally, over the next five years, IKEA can draw on its experience with the child labor initiative to identify and address other important issues related to corporate social responsibility.