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IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labo

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Lee Chak Hing Angel

on 5 February 2015

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Transcript of IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labo

IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor
by Angel Lee
Overview of IKEA
Since 1943
Founder: Ingvar Kamprad
IKEA: An acronym of the initials of his name Ingvar Kamprad and his family farm Elmtaryd, and parish, Agunnaryd
Small household goods-> wide range of furniture
Famous for its showrooms
1994 - A Serious Crisis Concerning IKEA Happened
Environmental crisis - twice
(1994) The Real Deal - Child Labor Crisis
Agenda of the Presentation
Case Introduction
A. Overview of IKEA
Case Keypoints + Analysis
B. Environmental Crisis (Formaldehyde and Billy's Bookcases) ->
C. **Social Crisis (Child Labor)
D. Suggestions
Broad-View Analysis
E. IKEA's growth in Crisis Solving
F. Our Take-aways
Similar Case
G. Analysis of Foxconn vs. Apple

IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (A)
Overview of IKEA
Strong Swedish culture
An international furniture company
Affordable and quality products
Consumers can try the products before purchase
IKEA the company
Customers and consumers
Suppliers/ Manufacturing factories
Government (Legislations)
What happened before this crisis to enable IKEA to survive this crisis?
(Early 1980s) Environmental Crisis I - Formaldehyde
IKEA's Vision Statement
"To create a better everyday life for the many people"
Formaldehyde emission control passed by Danish government
Tests showed that some IKEA products emitted more formaldehyde than was allowed and results were publicized
IKEA was severely fined; sales in Denmark dropped by 20%
(Early 1980s) Environmental Crisis I - Formaldehyde
Challenges: Media exposure, government's and public pressure
Important factors concerned: Public health, environmental protection, law violation

Early 1980s- 1992
Two major environmental crisis occurred consecutively - both regarding formaldehyde which poses threats to health and the environment
What did IKEA do in the first formaldehyde crisis?
Quickly established stringent requirements regarding formaldehyde emissions
Decided to work directly with glue-producing chemical companies
Cooperated with ICI and BASF to find ways to further reduce formaldehyde emissions in its products
(1992) Second Environmental Crisis - Formaldehyde in Billy's Bookcases
Formaldehyde crisis came back in a decade
German media found out the formaldehyde emissions were higher than German law had allowed
What IKEA has done good...
What did IKEA do in the second environmental crisis?
Immediately stopped both the production and sales of Billy bookcases worldwide
Corrected the problem before resuming distribution
Wood--> Forestry
Came up with "Forestry Policy" cooperating with WWF and Greenpeace
Willing to trace all woods used by IKEA
Appointed forest managers to carry out random checks of wood suppliers and run projects
Proactive attitude
Immediate response and solutions
Sustainability (partnerships with renowned NGOs and government)
Third-party endorsement and participation -> Transparency
Willingness to make promises
Set goals for the company itself
Further actions which were seemingly unnescessary

A Swedish TV documentary was broadcasted acknowledging and unmasking that IKEA, the only high-profile brand-name, used child labor in their factories in Pakistan
(1994) Child Labor Crisis
Challenges: A sudden crisis - IKEA has NO knowledge of the case, pressure from the globe, amid dealing with the Billy incident
Important topics concerned: poverty, education, developing countries, man force, corporate social responsibility
What did IKEA do?
IKEA immediately apologized for their ignorance, committed to do something and found the root cause of the problem (subsupplier's fault)
Sent a legal team to Geneva and worked with International Labor Organization (ILO)
Added a clause to ALL contracts banning the use of child labor in any supplier chains
What did IKEA do?
Appointed a third-party agent to monitor child labor practices at its suppliers in India and Pakistan
Partnership with Swedish Save the Children, UNICEF and the ILO
Analysis- What IKEA has done good
Immediate, honest and sincere response and apology
Took responsibility for its supplier's fault
Third-party endorsement and participation - Third party monitoring and partnerships with renowned NGOs
Established personalized feature
Took active role to perform CSR
Analysis - What IKEA could have done better...
Vague policies
Effective auditing difficult due to a large number of suppliers
Lack in publicizing their hard but good work
1. Solid measurable goals (concrete figures)
2. Could further their actions by requesting the ILO to include India, Parkistan and Nepal in Child Labor Protection Convention
3. Publicize their work by launching campaigns arousing public awareness
Broad-View Analysis -
in Crisis Solving
Broad-View Analysis - Our Takeaways
Similar Case Analysis - Foxconn and Apple
Throughout all cases happening in a row, IKEA has done a GOOD job
Overall Success Points:
Immediate Response
Good use of third-party endorsement and participation
Cooperation with acknowledged NGOs
4. Joint appeal with the public to urge other countries to ban child labor (India government's poor prosecution)
5. Alternative supplier: China (also cheap but with less serious child labor problem)

Broad-View Analysis -
in Crisis Solving
1. Further their actions to a wider range of parties (its own suppliers and customers-> social and global aspect: children in developing countries)
2. Increase the sense of Corporate Social Responsibility -> build a good corporate/ brand image
IKEA helped itself survive all crisis
Through accumulated issues and crisis, IKEA has built a nice corporate image, which is highly responsible, helpful, insightful and cooperative
Previous good deeds act as a buffer when child labor crisis arises
Faster and more effective recovery from crisis (public acceptance increases)
Broad-View Analysis -
IKEA's Growth in Crisis Solving
3. Taking even more active role cooperating with NGOs/ the government on social problems
(Less active to proactive from Formaldehyde incidents to Child Labor crisis)
4. Valued making a difference in children's lives and treated it as a significant cost disadvantage to its competitors (Social>Business)
What did IKEA do?
Business Managers traveled to India, Nepal and Pakistan and met with unions, politicians, activists, NGOs, U.N. organizations, and carpet export organizations
Worked with Rugmark Foundation
Developed an IKEA-style label certifying hand-knotted carpets are not made by child labor face
Long-term image building > short-term monetary gain/lost
Taking initiatives in corporate social responsibilities-> act as buffer and better recovery when crisis arises
Business is sometimes not the first priority in business
Increase transparency of work done
Discussion Questions
Similarity: Foxconn is infamous for being a sweat factory in China and India's factories as the suppliers of IKEA
Labor problem (sweatshops and child labor)
Differences: Sales of Apple had no significant drop
Thirteenth employee at China's iPhone factory attempts suicide amid row over working conditions
Several Chinese workers in Foxconn committed suicides out of great stress under intensified shifts, unfair salary and stringent and inhumane rules in factories
What Apple has done: called on the Fair Labor Association to assess working conditions and labor practices at its partners’ facilities in China
Analysis- What Apple has done good
Like IKEA, Apple made partnerships with a known organization for monitoring further labor problem
Use of third-party endorsement and participation
Analysis - What Apple could have done better
Sustainable efforts in order to relieve unfair labor treatment
Unlike IKEA, Apple did not take the responsibility of supplier's faults
Better crisis communication
Reactive instead of active attitude
More CSR for a better image/sales
Why Apple's sales can escape from such crisis?
Apple products relating with "style" representing "lifestyle" and "personality"-> Boycotting of companies cannot apply to Apple
People value the quality of Apple's products WAY MORE than its CSR
Blind trend of Apple's products
1. Second Crisis - Germany TV found that Rangan Exports’ used child labor. They would like to invite IKEA to send someone to take part in a live discussion. Should IKEA take this confrontational and aggressive program? Why?

2. Say Apple's incident happened on IKEA, what could IKEA do to survive it and be "immune" to another labor crisis?

3. What are other rooted reasons why Apple could escape from nearly all crisis without doing much CSR?

Four clear and concise domains: adapting the product range; working with suppliers; transport and distribution; and ensuring environmentally conscious stores
Examples: using chlorine-free recycled paper in its catalogs,using waste material from yogurt cup for chairs, redefining its packaging principles to eliminate any use of PVC
Funded a global forest watch program to map intact natural forests worldwide
Full transcript