IKEA’s Global Sourcing
IKEA has developed from a backyard company and is now one of the largest furniture retailers in the world. The company had undergone speculation that it has suppliers from unreliable countries such as Pakistan, Nepal, and India. In 1995, the company was threatened by a T.V reporter from Germany. The allegations were that one of their main suppliers from India was using child labor in their operations (Bartlett et al. 1). The reporter broadcasted details of the ongoing investigations. After learning about the activities of the Indian company, Marianne Barner ordered the immediate termination of the contract with that company. They, however, signed an agreement with the company that they would cease using child labor. Apparently, the reporter’s investigation indicated that the operations were still ongoing (Bartlett et al. 1). This paper will show what Marianne Burner should have done regarding the contract and the long-term strategy that she should employ to tackle the ongoing operations.
IKEA has a clause that is against child labor (Bartlett et al. 6). Depending on the accuracy of the presented evidence accusing Rangan Exports of utilizing child labor, that is a direct violation of the company’s clause. Rangan Exports, one of their key suppliers, were employing underage children thereby depriving them their childhood and interfering with their ability to attend school. The situation is a dilemma for Marriane Barner since the suppliers are violating their child abuse clause and at the same time they are an invaluable part of the company. In this case, she should apply her ethical decision-making skills since this is an ethical issue. For the sake of the business, the employed strategy should involve retaining Regan Exports in part of the business since losing them would consequentially lead to them losing millions of dollars in terms of revenue. She should however not compromise with the ethical status of IKEA. Barner should consider the following two alternatives.
First, she can decide to terminate their contract with the suppliers. She has the right to do that since they have breached the clause that prohibits child abuse. Although this action is consistent with IKEA’s policies, it will cost them much in terms of business. Cutting off a major supplier will ruin their business relationships and might temporarily deny them access to Indian sources. In an ethical perspective, cutting of Rangan Exports will be the best solution. If the suppliers decide they cannot comply with the regulations, this happens to be the only solution.
Another alternative would involve Banner convincing the suppliers to cease using child labor. This will entail maintaining a relationship with them as the discussions ensue on how they will tackle the issue. They can first issue the suppliers with a warning to see if they will terminate the illegal operations. Although this would be a breach of their policy, it would present them a chance to teach Regan Exporters about child abuse. The two companies can join hands and develop a strategy, like looking for other employees even if it means IKEA contributing to the financial obligations that will come with this decision. This alternative, however, comes with the risk of the company getting bad mouthed due to its failure to comply with child abuse policies. This can, in turn, lead to the loss of customers hence affecting the business. This alternative can also cause them to be charged on the grounds of unethical behavior in their business operations. If she decides to go with this alternative, she can issue a press release explaining their decision.
What long-term strategy would you suggest she take regarding IKEA’s continued operation in India? Should the company stay or should it exit? (Be prepared to describe the impact of such a decision and how you would manage it.)
A good long-term strategy is one that will impact IKEA positively and also improve the lives of the children getting abused (Bartlett et al. 8). This will involve them coming up with better child labor initiatives with the suppliers. This will play a role in ensuring that they will no longer experience problems related to child abuse. Exiting operations in India is not a viable solution. This is because an exit will negatively affect the business in terms of revenue since India is the largest source for purchasing rugs and carpets. An exit will also not help the abused children in any way.
IKEA should strive to work side by side with organizations like Rugmark and Save the Children. Through this, they will pledge their fight against child abuse in India. This process will, however, come at a cost. It will lead to higher costs of operations hence lower profits. This price is worth it since this process will mend their public image and at the same time, they will have made a difference in the lives of the abused children. IKEA can implement strategies such as regularly visiting the suppliers unannounced so as to make sure they are adhering to the child abuse agreement.
Exiting India could also lead to adverse criticizing from the public. This is because as a company they should not only be concerned with profits but also the wellness of the societies they operate in. A company should not only be entitled to the shareholders but also to the society. Refusing to help society in need, in this case India, would create a bad image for the company. A bad image can then lead to sales deterioration and the loss of value for IKEA.
Work Cited
Bartlett, Christopher A., Vincent Dessain, and Anders Sjöman. IKEA's Global Sourcing Challenge: Indian Rugs and Child Labor (A). Harvard Business School, 2006.
