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IKEA's global sourcing challenge: Indian Rugs and Child Labor

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Leonora Hristova

on 16 April 2013

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Transcript of IKEA's global sourcing challenge: Indian Rugs and Child Labor

Key factors for IKEA:

-> Strong Swedish heritage
-> customers play the role of parthers by assembling the furniture themselves
-> A multinational furniture manufacturer and

-> the largest international retailer of household goods and furniture

- Shopkeepers
- Customers
- Suppliers
- furniture manufacturers KEY CAUSES and ROOTS OF THE PROBLEM with CHILD LABOR:

Cultural and social factors such as:
-> Poverty
-> Education
-> Embedded social norms Discussion: Q&A session IKEA NOWADAYS

2004: over 80% of the unschooled 24 000 children attended primary schools
the rest 20% attend one of the 103 ALCs

more than 6,000 women part of the 429 self-help thrift/credit groups -> “added a clause to all supply contracts, stating simply that if the supplier employed children under legal working age, the contract would be cancelled”.

-> Parthership with UNICEF and Save the Children

-> ‘The IKEA way on preventing Child Labor’- an IKEA’s child labor code of conduct WHAT ELSE? Barner became IKEA’s children’s ombudsman So what did IKEA do? ‘’At IKEA our vision is to create a better everyday life for the many people. Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’’ Mission statement and vision
Content: -> Be proactive, not reactive

-> provide a hot line for people to spot children labor cases

->Own monitoring and control or sign up to Rugmark

-> Build their own factories

-> Government involvement

-> Always with the best interests of children

->Alternative supplier- China RECOMMENDATIONS: LONG-TERM cooperation between IKEA and UNICEF Three year community development project :

-> 200 villages with population of 400 000

->Target- 24,000 uneducated children

->Setting alternative learning centres (ALCs) –‘bridge schools’

-> extended for another 3 years

->Target: 500 villages with a population of 1 million people

-> New element of health care added Prepared by
Leonora Hristova & Jörg Südkamp IKEA’s global sourcing challenge: Indian Rugs and Child Labor 5 compliance auditors, working with Bergmark
80 auditors located in the regions
International audit for 2-3 days
a third-party agent to monitor e.g. in India and Pakistan:
KMPG- external auditor
Full IWAY audit- Checklist of 90 items
Between 2002-2003 : 1.500 suppliers were audited
9 cases of child labor were discovered involving 13 children,

2004: 2 cases in India and 11 in China;
10 suppliers relationships were terminated AUDIT and Compliance BACKGROUND IKEA’s reputation was seriously
damaged 1995 Drivers of Corporate Social Action Profit vs. Ethics “…5 years ago it would have been impossible to even conduct such an audit at most of the suppliers.” – IKEA Compliance Officer –

2004: Compliance with IWAY
Europe: 96%
Americas: 96%
Asia: 75%

Still violations
Recurring child labour incidents Results of IWAY policies Working Conditions:
-> No forced or bonded labour
-> no child labour
-> no use of illegal overtime
-> no restrictions concerning unions
-> no mental or physical disciplinary action including harassment

Environment and Forestry:
Suppliers must
-> reduce waste and emissions to air, ground and water
-> handle chemicals in a safe way
-> contribute to the recycling and reuse of materials

Suppliers must NOT:
-> use substances forbidden by IKEA’s list of Chemical Compounds and Substances
-> use wood from intact forests, nature reserves or any area with officially declared high conservation value, unless certified. IWAY policies Mission – Objective - Conduct New CEO, Anders Dahlvig, defines new mission statement and strategic objectives for IKEA  action plan to attain new objectives:
“Ten Jobs in Ten Years”

Job No.9:
To take responsibility for our suppliers, their co-workers and for the environment  Development of
“IWAY – The IKEA Code of Conduct” New CEO – New Level of Commitment Ends

Means Mission
To create a better everyday life for the many people…

(1) To be the leading home furnishing company (2) To strengthen IKEA’s competitive position
(3) To sustain long-term profitability

# 1 To develop a strong and vital range of products
# 2 To offer outstanding sales prices
# 4 To continue to reduce purchase prices & improve product quality
# 5 To develop a logistical efficiency in the whole pipeline
# 9 To take responsibility for our suppliers, their co-workers and
for the environment IKEA’s Strategic Objectives -> Long-standing major supplier

->Continuously worked on improving compliance to IWAY policies

-> But, recurring intentional breaches to cut costs

->Recent suspicion of violations in regard to child labor policies

How would you react ? Would you cancel their contract? Venkat Industries Situation



? Should IKEA change its… -> Polices are vague

-> No measurable goals

->Effective auditing difficult due to the large number of suppliers Con’s -> Holistic approach including work conditions, environment protection and forestry

-> IKEA takes responsibility for its suppliers actions

-> States what the suppliers can expect from IKEA in return

-> Partnering with acknowledged and capable NGO’s

-> Attempt to change the “rules of the game”

-> Being legitimate instead of legal Pro’s Evaluation of IWAY policies
->Venkat Industries is an important supplier for IKEA.

->Switching costs will occur.

-> Venkat has improved over time, so not all hope is lost. Do not cancel contract
-> If Venkat Industries has not internalized the IWAY policies by now, it never will.

-> Suppliers from China are getting more important and compliance is also better. Cancel contract Venkat Industries Situation

Do you think IKEA made a good decision not to join the Rugmark Consortium ? What do you think are IKEA's drivers behind its CSR activities? http://www.ikeafoundation.org/News-Details?NewsID=NEWS-05112012150215 -> 1943: founded

-> first products: pens, lighters, binders

->1948: furniture was added -> the company's name is an acronym comprising the initials of Ingvar Kamprad, Elmtaryd (the farm where he grew up) and Agunnaryd (his hometown in Småland, South Sweden) THANK YOU FOR YOUR ATTENTION
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