Calvin White MBA 615DE_16FA

Mr. Ingvar Kamprad is the fuel behind the global success of IKEA, his matured mail

order company that he started nearly half a century ago. His business model was to create a

better life for the many people and to provide a substantial amount of resources to a larger part of

the population by keeping costs down and removing the cartel of furniture manufacturers from

the industry (not directly). By 1994 IKEA had expanded to 114 stores globally, and with that

came the need for a highly efficient supply chain.

IKEA does not own its means of production but rather a close relationship with its

suppliers, to the point that IKEA will commit to doing all they can to ensure their suppliers stay

competitive. This was great for the first few decades but as the retail chain reached 2300

suppliers in 70 different countries it began to be plagued by commercial issues. In order to

monitor all the suppliers and products IKEA maintained 24 trading and servicing offices in 19

countries to monitor production, new product ideas, prices and quality. That much of a gap in

servicing offices vs. suppliers resulted in environmental and social issues that hurt the bottom

line and reputation of IKEA. One of the biggest challenges was child labor; a common practice

in India, Pakistan, and Nepal, was being used to create rugs for Rangan Exports, one of IKEAs

main suppliers in India.

Approaching the issue of Child Labor

The history behind child labor in India is foggy at best, and there is not much data on

how many children is part of the labor pool. In India children as young as five years old are

working in agriculture, mining, quarrying, and manufacturing. The manufacturing industry

includes looms for the carpet industry that IKEA is involved in. The children are often bonded,

placed in servitude to pay off a debt of the parents. Although the amount owed often ranges
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between $30 and $300, it takes years for this to be paid off because of high interest rates and

very low wages offered to children. The issue in India is that lawmakers did take a stance with

bonded child labor but it was not as absolute with unbonded child labor. The industry in India

could continue to use child labor because the government had said that the children could work

alongside the parents in order to not outlaw the passage of specialized handicraft skills from

generation to generation. Leaving India all together it would further deprive those parents and

children income needed to get out of debt and poverty. There are a couple of paths IKEA can

take on this issue; creating an education program for the children to attend while their parents

worked (paid for by the profits of the rugs). Another option is to work with Rangan Exports

directly in conjunction with Rugmark to help remove child labor from their suppliers and to be

completely transparent about it with the host country. The first option I think is the better of the

two because it allows the children to pay it forward and exceed the expectations of their society.

German Documentary media invitation

Ms. Barner should not accept the invitation to the upcoming broadcast of the German

video documentary on child labor because IKEA hired a third party monitoring service that was

detailed to watch out for this sort of thing following the Pakistan incident. The German video

producer is not out to set the record straight as evidenced by the fact that he refused to send the

video for IKEA to review. Therefore, I believe they are out to be aggressive and confrontational

about child labor, Rangan Exports, and IKEA and it could end up being more disastrous in the

long run for IKEA. However, Ms. Barner should release a statement to the masses that they are

taking the use of child labor very seriously, and IKEAs culture and CEO have instilled a very
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high sense of moral duty for all those that work for IKEA. We will strive to end child labor and

provide a life for those families in need.

Rangan Exports

IKEA should stay with Rangan exports for a myriad of reasons; the most important being

that Ingvar Kamprand believed that IKEAs vision is to create a better everyday life for the

many people. How could IKEA walk away from being in a position to help stop child labor and

provide a better life for those who are working and providing the rugs that IKEA has been

selling? IKEA also developed another principle that allowed it to keep close relationships with

all of its suppliers beyond the contracts and technology transfer. It allowed suppliers to use loans

at reasonable rates, repayable through future shipments. They want long term business partners

and that are able to be competitive in the long run. IKEA can easily provide the same service(s)

or types of services as it did in Poland in the 1950s. Child labor is deeply imbedded in Indias

culture as many of its citizens are poor and with debts incurred it is inevitable for child labor to

exist for the families to survive. If IKEA were to leave a lot more poverty and livelihoods of

those families would falter and fade away. This action alone would damage IKEAs reputation

much more deeply than just having the documentary released. This whole situation will hurt the

reputation of IKEA but with proper planning and transparency with the public (either through

media or directly to consumers) it can curb the damage that could have happened. Not to

mention if you get the public involved in trying to help by donating, it could help IKEA with

ending child labor.

To ensure that the future of Rangan Exports and the highly valued reputation of IKEA are

upheld, Barner should implement a process IKEA controls that monitors the entire process from
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raw materials to finished product. Although this will take time to implement and IKEA would

need to hire more workers, thankfully there is already a program that was recently started called

Rugmark. It was started by human rights organizations, consumer activists, and trade unions in

Germany in the early 1990s. The Indo-German Export Promotion council joined up with key

carpet manufactures and exporters in India to develop a label certifying that the hand-knotted

carpets were made without the use of child labor. IKEA should accept the invited from the

council and participate heavily in this program until IKEA can create an additional monitoring

program of its own.

Course of Action

IKEA had an issue in Pakistan with child labor before it became a much larger social

issue. In 1989 the U.N passed the Convention on the Rights of the Child that was ratified by 120

countries (excluding India, Nepal, and Pakistan), and its principles were developed by Swedish

Save the Children foundation where they follow the best interest of the child. When the story

broke in 1994 IKEA sent a legal team over to Geneva to seek input and advice on how to deal

with the problem; following that inquiry a clause was added to all supply contracts that stated if

the supplier employed children under legal working age, the contract would be cancelled.

Although this was a smart move legally, it did not really follow Ingvars vision of helping

people. However, it was a step in the right direction to help motivate suppliers in ending the use

of child labor so they could continue to prosper under the contracts with IKEA. Barner also

contacted UNICEF, Swedish save the Children, and the ILO to expand understanding and advice

about why child labor existed especially in South Asia. All this being said Barner and IKEA took

steps to curb any future issues, but in my opinion they did not go far enough. The rug import
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business for IKEA is small percentage of its profits but the Child Labor issue has the potential to

damage the reputation of IKEA severely. This does not mean that IKEA can never receive rugs

from those countries again but it does mean that her (IKEA) social responsibility (or utilitarian

decision framework1) is to make the decision that provides the greatest social good. For Barner

after halting supply and distribution with Rangan Exports, they would need to come to an

agreement that involves not using child labor and accepting the Rugmark symbol into their

production looms. IKEA could also provide the capital for Rangan Exports to build a school for

the children to go to while the parents work so that they can learn something to help increase

their probability of being successful and able to provide for their families. By using the resources

and deep breadth of suppliers all over the world it is highly probable that IKEA can make a

significant impact on stopping child labor in the future.

Unfortunately, Barner knows that the investors and shareholders do not want to continue

doing business with India. However it is in the best interest of the shareholders to do what is

right morally and ethically. Their decisions, including Ms. Barner and IKEA are to help end

social injustices and not turn a blind eye. IKEA should use both of my courses of action in order

to bring Rangan Exports back onto the contractual agreement. One being opening a school for

the children to grow through education and not labor, and two for Rangan Exports and IKEA to

work with Rugmark and end child labor through its own culture. Either way is a win for IKEA

both in reputation and global acceptance. Success will be measured by how many children they

help not by how many dollars they make and it will provide those other entities that are fighting

for the children more resources to combat it in other countries.

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Bibliography
1)

Mondy, S. P. (2014). Linking Management Behavior to Ethical Philosophy. Journal Of

Business Ethics, 349-357.