IKEA's Global Sourcing Challenge: Indian Rugs, Child Labor, and Ethics

This case study examines IKEA's global sourcing challenges, particularly concerning child labor in the Indian rug industry. It analyzes the company's responses to crises, evaluates the effectiveness of its IWAY policies, and explores long-term strategies for ethical sourcing. The study delves into specific issues like the Rangan Exports contract, the 1994 crisis, and the recent audit of Venkat Industries, providing recommendations for Marianne Barner and Anders Dahlvig. It emphasizes the need for stricter monitoring, technological solutions, and long-term changes in IKEA's philosophy, policies, and practices to address social issues and maintain its ethical standing. The document highlights the complexities of balancing affordability, quality, and ethical sourcing in a global supply chain, offering insights into the company's efforts to eradicate child labor and improve supplier relationships.

Running head: IKEAS’s GLOBAL SOURCING CHALLENGE
IKEAS’s GLOBAL SOURCING CHALLENGE
Name of the Student
Name of the University
Author Note

1IKEAS’s GLOBAL SOURCING CHALLENGE
Table of Contents
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? Why?......................................2
2. What actions should she take regarding the IKEA supply contract with Rangan Exports?....2
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? What is the impact of such a decision and
how would you manage it?..............................................................................................................3
4. If Marianne Barner continues to source carpets in India; how should she proceed and why?.4
5. How appropriate were the various actions IKEA took in response to the 1994 crisis?...........4
6. What is your evaluation of the IWAY policies & practices that have redefined IKEA’s
relationship with its suppliers? What benefits do you see? What concerns do you have?..............5
7. What does the recent audit of Venkat Industries tell us about the effectiveness of IKEA’s
overall approach to dealing with the problem of child labor in its supply chain?...........................6
8. What should Marianne Barner recommend to Kaisa Mattson in dealing with Venkat
industries recent audit result?..........................................................................................................6
9. What long-term changes in IKEA’s philosophy, policies and practices should she
recommend to Anders Dahlvig?......................................................................................................7

2IKEAS’s GLOBAL SOURCING CHALLENGE
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? Why?
By analyzing the case study, it can be seen that the German video program is prepared to
bash IKEA in public as their name has been associated with Rangan Exports who have been
using children to work in their looms which has been captured in a video. However, Marianne
Barner should send a representative to the program as the video will anyway be broadcasted in
their channel. It is necessary for a representative to be there on behalf of the company and defend
the company. It is important to voice out the steps that the company has been taking to cater to
the issues to make the people aware of the situation and how the company despite all the
initiatives and practices has been unaware about the issue. According to scholars, it is important
for organisations to be transparent especially during a situation of crisis to build a relationship of
trust between the organisation and the consumers which may lead to consumers giving the
company a chance for redemption (Schnackenberg & Tomlinson, 2016). Thus, Marianne Barner
should send a representative in the program to keep their side of the story to the public.
2. What actions should she take regarding the IKEA supply contract with
Rangan Exports?
The case study suggests that Rangan Exports had violated a serious law and the contract
which they signed with IKEA. After IKEA faced challenges because of reports of them doing
business with suppliers who use child labor, the company took many steps that helped in curbing
the issue. IKEA incorporated a rule in their contract that they will not partner with any suppliers
who would use child labor. This was the very reason why IKEA partnered up with Rangan
Exports as they claimed that they did not use child labor in their business.

3IKEAS’s GLOBAL SOURCING CHALLENGE
IKEA should take legal actions against Rangan Exports because of breaching of the contract.
IKEA also needs to discontinue their contract with Rangan Exports and stop selling their
products that were supplied by them. This step will align with the values the company has set for
itself and will also contribute to making a positive brand image. Murphy & Dweck, (2016) states
consumers always want to associate themselves with ethical brands and who brands that have a
positive reputation in the market. Thus, this will help IKEA in redeeming their reputation,
position themselves as an ethical company and gain the trust of people.
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? What is the impact of such a decision and how would you manage
it?
India is famous for their rugs and carpets which are of fine quality and one of the largest
suppliers of rugs and carpets of IKEA and thus discontinuing their operations in India will bring
huge loss to the company thus IKEA needs to continue their operations in India but come up
with strict and measurable rules like huge penalty and also recruit team of employees which will
help them in monitoring whether the suppliers they are associating with are using child labor or
not. Barner should also appoint a team to ensure their suppliers do not use child labor.
This might impact the sales of the company initially because of their association with
suppliers who use child labor as a means of their production. According to scholars, it takes time
for organisations to build their reputation back in the market thus making ethical decisions often
help in redeeming the image of an organisation (Ferrell et al, 2019). The company should come
up with campaigns and promote the welfare of children who have been suffering because of
child labor and should fund the children for their education and food. IKEA to manage this
situation needs to show concrete proof of the complete eradication of child labor from their

4IKEAS’s GLOBAL SOURCING CHALLENGE
operations of the suppliers will help them revive their brand image and will help them in
overcoming the situation and also ensure increase in their sales.
4. If Marianne Barner continues to source carpets in India; how should
she proceed and why?
Marianne Barner needs to source their carpets from India because of the cheap labour and
cheap prices that are provided by the suppliers because of the philosophy of the company which
promotes affordability and high quality of their products.
Marianne Barner should hire a team to do all the necessary research about child labor and
the laws regarding child labor. She should hire teams and place them in countries where their
suppliers operate that will monitor the factories of the suppliers and also incorporate in their
contract about the repercussions of using child labor like a huge penalty, legal actions and
disassociation of the company with their suppliers.
The strict actions against the suppliers of IKEA are necessary not only for the reputation
of the organisation but also to curb the social issue that is growing and affecting the lives of
several children. IKEA needs to collaborate with NGO’s to help in eradicating this issue and
work for the welfare of the child.
5. How appropriate were the various actions IKEA took in response to the
1994 crisis?
IKEA has been considered to be an ethical organisation and it has been seen that the
company has taken several measurable steps to continue to be ethical. In the 1994 crisis, it had
been seen that IKEA was not directly involved with the issue and was unaware of the issue of the
use of child labor by their suppliers. However, IKEA did not turn around their face rather took

5IKEAS’s GLOBAL SOURCING CHALLENGE
responsibility of mitigating the situation. Bundy & Pfarrer, (2015) states, when crisis in an
organisation occurs, the best way is to look into the matter rather than being in denial which
shows the concern of the organisation for their stakeholders and their environment. IKEA did
take full responsibility and their response to the action was appropriate that showed their concern
for the matter. They terminated their contract with Rangan Exports during that time and also took
steps in educating themselves on the issue and partnering up with company for external
monitoring did help the company to overcome the issue to some extent.
6. What is your evaluation of the IWAY policies & practices that have
redefined IKEA’s relationship with its suppliers? What benefits do you
see? What concerns do you have?
The IWAY policies and practices is one of the initiatives by the organisation that has been
seen to be fruitful to some extent because of their new strategy which was the upgradation of the
audit and compliance process and their collaboration with UNICEF. According to the audit
reports it shows that the issue of child labor had decreased in comparison to the previous years.
The relation between the suppliers and IKEA has been redefined in a positive way as the main
issue was tackled to a great extent.
The revised and upgraded IWAY policies and practices have helped IKEA in spreading
awareness to the suppliers about the legal actions one may face because of the use of child labor
which n their operations has made them restrict the use of child labor and has helped the
suppliers operate their business in an ethical as well as in a systematic way.
However, child labor in India is a huge problem, strict laws and actions in India are taken for
bonded child labors however, there are no measurable steps taken for the unbounded child labors
as many work under the assistance of their own parents (Mehta & Bhattacharya, 2019). This may

6IKEAS’s GLOBAL SOURCING CHALLENGE
create a problem and result in many people leaving the jobs which may have a negative impact
on the suppliers as well as on IKEA.
7. What does the recent audit of Venkat Industries tell us about the
effectiveness of IKEA’s overall approach to dealing with the problem of
child labor in its supply chain?
According to the recent audit of Venkat Industries it has been seen that after the
implementation of the IWAY policies, Venkat Industries had achieved about 80% compliance
after the installation of the water treatment plant which they did not do before and the issue of
using child labor also reduced.
The new overall approach of IKEA has been seen to be effective and beneficial for the
company as from the recent audit it has been seen that the use of child labor by their suppliers
had reduced and the suppliers worked efficiently and in a systematic manner. This was mainly
due to the compliance process that they incorporated in their company policy and their effort to
eradicate the use of labor issues from the root cause by funding UNICEF to look into the matter
and also by providing education facilities to the children of the labors working in the factories of
the suppliers.
8. What should Marianne Barner recommend to Kaisa Mattson in dealing
with Venkat industries recent audit result?
According to the recent audit result of Venkat Industries, it can be seen that Venkat
Industries had achieved about 80% compliance with the IWAY policies and the other laws that
have been put forward by the government. However, from the audit the information was gained
that Venkat Industries became a very crowded place, the equipment of fire-fighting and the
safety signs were missing and found out that there were false time records in the audit.

7IKEAS’s GLOBAL SOURCING CHALLENGE
These problems are important and show the mismanagement of the factories and the lack of
stringent rules in the factories of the suppliers. Marianne Barner should recommend the
following to deal with the recent audit results:
 Installation of technological devices in the factories to maintain the actual record which
cannot be tampered. Installation of CCTV cameras in the factory to check on the
behavior of the employees for security and monitoring reasons.
 Strict actions taken against the factory if the rules are not maintained like suspension and
salary deduction.
9. What long-term changes in IKEA’s philosophy, policies and practices
should she recommend to Anders Dahlvig?
The philosophy of IKEA, “to create a better everyday life for the many people” that was put
forward by the founder of the company, Ingvar Kamprad became the vision statement for the
company and is one of the major reasons for the success of the company. However the company
needs better policies and practices that will help IKEA to overcome the social issues which has
been in the company for a very long time. The long term changes that IKEA needs and should be
implemented by Anders Dahlvig are the following:
 IKEA needs to come up with strict policies that will help eradicate the issue like child
labor like imprisonment, suspension, legal actions, penalty and many more. Jang et al,
(2018) opines strict and concrete rules help employees performance aligning with the
value and culture of the organisation.
 IKEA needs to terminate their contracts with suppliers violating the laws set forth by
IKEA.
 Constant monitoring of the suppliers that ensure they do not violate any rules.

8IKEAS’s GLOBAL SOURCING CHALLENGE
 The company needs to set up small offices in the factories of the suppliers from where
they get their supplies to ensure a healthy work culture and see that there is no use of
child labor.
 Collaborate with local NGO’s to help in educating the children of the laborers and take
care of their overall development for a better future.
These will not only help IKEA in eradicating the social issue of the use of child labor but will
also help in the productivity of the company in an ethical manner that will help the company in
creating a positive brand image and an identity that will lead to the positive reputation and
increase in their sales.

9IKEAS’s GLOBAL SOURCING CHALLENGE
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