IKEA's Trade Policy and Ethical Sourcing: A Case Study Analysis

This case study analyzes IKEA's trade policy challenges related to child labor in the Indian rug industry. It examines Marianne Barner's decisions regarding a German video program invitation, the IKEA supply contract with Rangan Exports, and IKEA's long-term strategy in India. The study explores whether IKEA should continue operations, and if so, whether to continue its own monitoring processes or sign up with Rugmark. Furthermore, it delves into the debate of focusing solely on eliminating child labor in the supply chain versus engaging in broader actions to address the root causes. The study provides a comprehensive overview of IKEA's ethical sourcing dilemmas and its response to external pressures, offering insights into the complexities of global supply chain management and corporate social responsibility.

Running head: IKEA TRADE POLICY 1
Case Study 1: Trade Policy
Student
University

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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?
Barner need to decline having a rep of IKEA appear on the upcoming broadcast of
the German Video Program. In any event Barner accepts the invitation by the German video
program, this may offer a perfect chance to make its target market understand its tireless
efforts towards ending child labour crisis in the company. Through this approach, IKEA
could assure the public media that it is more aware of child labour as a social issue and
looks to completely end it in future.
However, participating in the German Video program exposes IKEA to the risk of
exposure to negative public image and reputation. Since already the German program
exposed one of IKEAS’s suppliers using child labour, I think the German video program is
not in good faith inviting IKEA, for it is working to IKEA’s downfall and hostility in the
market (Christopher, Vincent, & Anders, 2006). In addition, the producers decision to deny
the company the preview of this video means that IKEA is unable to verify the evidence and
know the truth. Thus, accepting the invitation risks the company to get involved into the
wrong stand point.
The other reason why Barner should respond with a “NO” to the invitation is
because as (Christopher, Vincent, & Anders, 2006) notes, the German video program will
just result to a detriment and downfall of IKEA. Going to the show without any clue or
preparation about the kind of questions or issues to answer might potentially lead to wrong
responses. Therefore, Barner should courageously decline the invitation and be clear that
the company will not send any representative for the show. In the meantime, IKEA has

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insufficient time to do an investigation and get the truth about this issue and to help in
assigning more anti-child labour policies.
2. What actions should she take regarding the IKEA supply contract with Rangan
Exports?
Barner, the product managers should send out an investigation team to gather enough
information that will help in knowing the truth as to whether Rengan Exports failed to comply
with the ethical policies set out by IKEA. If the investigations reveal to IKEA that Rangan
Exports engaged in child labour, Barner need to cancel the trading agreement with Rangan
Exports since IKEA has prior included a clause to all supplier contracts, requiring that no
suppliers should employ children whose age is below the legal working age, and in case a
supplier does not comply, then the contract would be cancelled (Christopher, Vincent, & Anders,
2006).
In any case IKEA decides to maintain a business relationship with Rangan Exports, and
then this will expose IKEA to huge risks of losing reputation and truth from the public domain.
These associated risks would include severe financial damage since customers will become
unwilling to support a company that supports a defilement of children rights through forced child
labour (Bruce & Harbir, 1988). Clearly, Rangan Exports use of child labour would only amount
to breach of IKEA’s suppliers’ policy. Continuing trade with such an exporter would give a
wrong message to IKEA’s other existing and potential suppliers, making them thing IKEA is
supporting the use of child labour by forgiving Rangan Exports and providing them with
additional bargaining power.

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In simple terms, IKEA should immediately cancel the trading agreement and hold a press
conference where it publicly apologises to the consumers and openly disclose the information
that it has terminated the contract with Rengan Exports.
3. What long-term strategy would you suggest Barner 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.)
First and foremost, IKEA should continuing trading in India by tirelessly working
with suppliers to assist them in alleviating the social issues of child labour (Christopher,
Vincent, & Anders, 2006). The choice to withdraw trading operations in India would expose
IKEA to several disadvantages such as loosing loyal Indian customers who purchase the
rugs, although these imported rugs form a small business segment to its overall business
activities. Also, pulling out from India may not only provoke the members of public
interpret IKEA to be doing so to escape the child labour issue, but also force other buyers
to purchase the rugs produced by competing firms that use child labour, a social issue seen
to cause a corroding effect as far as child labour is concerned (Bruce & Harbir, 1988). In
addition, the reason why IKEA should continue trading in India is that people require
employment and money, and this makes it unwise to withdraw from the country due to the
benefit of company reputation.
On the other side, deciding to continue operating in India is risky for IKEA because
advanced child labour may be spotted, since India is not among the signatories who
participated in this conversation about abolishing labour by children aged below 15 years.
Due to this, IKEA should consider sending several managers to educate and manage these

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Indian suppliers (Christopher, Vincent, & Anders, 2006). After few years, IKEA needs to
visit the plants on unannounced and occasional patterns in order to supervise these Indian
suppliers if found using child labour. The other strategy is international monitoring to help
IKEA in ensuring that the suppliers strictly adhere to the rules set against child labour. Last
is laying more tighter and strict policies against violation of IKEA’s child labour policies
and clause.
4. Assume you are recommending that IKEA continue to source carpets in India.
Would you suggest that Barner:
a) Continue IKEA’s own monitoring and control processes or sign-up to Rugmark?
Despite the fact that enhancing the control processes of monitoring supplier
activities are deemed vital for the company, signing up with Rugmark will assist the
company in increasing its sales. As per the case, Rugmark is a recently established sector
response on the problem surrounding the use of child labour in India’s carpet industry.
The invitation requiring IKEA to sign up with this company acts as a perfect strategy for
alleviating the issue of child labour by the carpet manufacturers in India. The sign-up by
IKEA would be the right step for it creates a certain transparency level to its consumers.
Authorizing Rugmark to have labels on the rugs and carpets will go miles in
communicating IKEA’s values to the target consumers especially on the issue of child
labour. It would also ensure that there is no conflict of interest between the consumers
and the ethics, values, and morals or IKEA.
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 labour as Save the
Children is urging?

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For the company’s success, the termination of the issue of child labour on its chains of
supply remains necessary, but by only focusing on this aspect would be a waste of resources in
terms of money and time by the company. There is a potential that other issues would arise if
IKEA focuses on the issue of eliminating child labour. Some of these issues are that engaging in
a wider action in attempts to address the main child labour causes as well as partnering with
“Save the Children” will broaden the company’s public interests as well as in fixing other unseen
issues (Bruce & Harbir, 1988). Focusing to discharge what is best for schooling children would
encompass the broader child labour problem, and thus broadening actions to make children’s
lives better who bear better results. To Barner, the issue of child labour became more complex to
her as she continued to understand its history and the culture of IKEA. Thus, by putting more
efforts in doing what is best for children would make this matter simple to resolve.

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References
Bruce, K., & Harbir, S. (1988). THE EFFECT OF NATIONAL CULTURE ON THE CHOICE
OF ENTRY MODE. New York: University of Pennsylvania. Retrieved 2019
Christopher, A. B., Vincent, D., & Anders, S. (2006). IKEA's Global Sourcing Challenge: Indian
Rugs and Child Labor (A). Harvard Business School, 1-13.