Business Case Studies Sample Paper on IKEA’s Global Sourcing Challenge

IKEA’s Global Sourcing Challenge

Globalization has paved way for most companies to source for market and supplies from other countries thereby extending their supply chain. An extended supply chain means a conglomeration of various cultures and business operation laws leading to some challenges. Challenges arise from the source suppliers who may fail to adhere to acceptable business practices thereby harming the sourcing company. One such practice is child labor as focused in this paper. The paper tackles IKEA’s child labor case from its source suppliers in India. The paper recommends that Marianne Barner avoids taking part in Germany video program regarding child labor case because IKEA may not be accorded a fair hearing. The paper further suggests calculative management of the supplier’s contract and concludes by advising the IKEA to remain in the Indian market but engage in broad action to address the cause of child labor. 

Question 1

How Marianne Barner ought to respond to the Request for IKEA to Have A Company’s Representative Take Part in the Imminent Show of the German Video Program

The outcome of IKEA’s invitation can be equated to a coin, and given that every coin has two sides, either of Marianne Barner’s decision will have an impact on the company. Any decision will affect the company, but the most appropriate pronouncement will be to turn down the invite with a firm but polite “no.”  It can be argued that accepting the invite will be a golden chance for IKEA to distance itself from the issue of child labor in the media. This will enable it cement its status as a company with strong and firm values in its human resource policies. IKEA will be demonstrating its awareness of social community responsibilities, as well as shielding itself from potential social issues. Nevertheless, this might not be the case during the program, and thus IKEA should not take part in the program. According to Bartlett, Desain and Sjoman (4), the program was meant to take aggressive and confrontational approach at IKEA and thus IKEA will not have been accorded the luxury of clearing itself from the child labor issues. At the same time, IKEA won’t be allowed to preview the video, and thus the questions arising from the program would have misled the public. Barner should instead look for a chance to preview the video and verify the content before honoring the invite. In fact, IKEA should only honor such invite if there is an agreement between the two groups to preview the video and verify its content. To further cushion itself from child labor issues, IKEA should launch an investigation into the matter and come up with clear policies on child labor for all its supplies.

Refusing to attend the video program might raise eyebrows in the corporate scene. The public will have a lot of unanswered questions regarding IKEA’s position on child labor, and thus Barner should quickly move to cushion the company against such eventuality. Failure to take action on time may raise public debates as it was the case of Apple with its supplier Foxconn in China. Apple failed to respond on time regarding its supplier’s involvement with child labor thereby generating a bad public image (Garside par. 6). Barner should come up with an official note explaining the reasons for IKEA’s refusal to attend the video program and link the note to an appropriate website. The note should clarify the agenda or engagement of IKEA in India as well as information about IKEA’s plans in India.

IKEA has the mandate to operate according to its core values, vision statement, as well as principles. For instance, its vision is to create a better day-to-day life for everyone. This means people aligned to it through its suppliers ought to partake in this vision. The vision indicates IKEA’s quest and commitment to quality and affordable furniture all over the world. However, such commitment means sourcing from suppliers all over the world, including the current suppliers with child labor issues. As a result, it is upon the IKEA to clarify the issue using an appropriate forum.

Question 2

Actions Barner should take Regarding the IKEA Supply Contract with Rangan Exports

According to Bartlett, Desain, and Sjoman (6), it was clear that IKEA needed to take a stand on the child labor issues in the carpet industry in India. Given her stay and experience in the company, Barner knew that IKEA’s action on child labor should be industry-wide; meaning that no supplier should be spared. As a result, Barner should force Rangan exports to act by the addendum that explicitly forbid utilization of child labor.  It will not be wise to cut the services of Rangan exports abruptly because it is one of the major suppliers of IKEA.  Severing links with Rangan Exports will lead to loss of millions of dollars thereby hurting the sales performance of IKEA. As a result, any approach to the contract issue between the two companies should be done with considerations of some issues.

Although cutting links with Rangan Exports seems out of the question, Barner should have come up with a way of addressing the issue at the time of happening.  According to Bartlett, Desain and Sjoman (7), IKEA begun addressing the issue in 1994 and this means the company had more than one decade to come up with a solution to the suppliers who refused to comply with the policies in its addendum.   Such an extended time is enough to have set up some policies or rules to address the termination of contracts with suppliers such as Rangan Exports who refuse to adhere to the said addendum. At the same time, such a period was enough to figure out alternative suppliers in case circumstances would demand the termination of the contract with Rangan exports. If there were no such arrangement, Bernar would be forced to retain the contract of Rangan Exports while at the same time look for means of eliminating child labor in the looms.

Eliminating child labor in the looms would involve some issues. In the first place, Barner should seek to understand the situation thoroughly before taking any action. It should be noted that the global supply chain is affected by some cultural, regulatory, and social differences that vary from region to region. Such differences must be dealt with effectively for the supply chain to be effective. In this case, any approach to Rangan’s child labor issue should be through a way of awareness rather than blunt confrontation and demand that Rangan Exports adhere to policies outlined in the addendum. This should, therefore, involve helping Rangan understand the dangers of child labor in its supply chain through effective awareness. The awareness should include the effect of child labor on the physical, mental, moral, spiritual, and social growth of the child. The awareness should further involve the danger Rangan Exports faces from the international community if it continues to utilize children in its production line. After that, Barner should pile pressure on Rangan Exports to eliminate child labor in its production line.  

Question 3

Long-Term Strategy Barner Should Take Regarding Ikea’s Continued Operation in India and Whether the Company Should Stay or Exit the Indian Market  

IKEA ought to reason in line with long-term strategy regarding its stay in India. Such strategy should involve looking at damaging effects child labor has over the company.  Given its long-standing relationship with the Indian community, it is prudent the company continue sourcing in India. However, such continued stay in India should be accompanied by strict checks and balances effective in ensuring all labor laws are followed as outlined in the contract. Given its large scale operation and years of experiences in dealing with myriads of suppliers, IKEA needs to implement practical strategies to deal with child labor. For example, IKEA can carry out routine checkups on all its suppliers to ensure they all comply with child labor laws. Although such an undertaking would be expensive, it will maintain its image worldwide thereby cementing its position in the market. At the same time, the company would avoid public slam in child labor laws as it was the case of Apple incorporation (Garside par. 8).

Any practical solution to child labor issues needs to be balanced against the company’s operations. However, failure to implement practical strategies will result in a huge loss in public trust, as well as a major drop in company’s sales. This means that IKEA ought to achieve its operational strategies in India and the rest of the world while at the same time ensuring that all its suppliers are behaving ethically based on the contracts signed before the start of business.  A number of companies such as Apple have been affected by issues arising from child labor and thus if IKEA wants to succeed in its ventures, it must create a strict system that will ensure that suppliers follow the signed contracts to its latter.

According to Bartlett, Desain, and Sjoman (9) Marianne Barner was aware of the long-term strategy for IKEA, and thus she should not act otherwise. Such strategy involves taking a proactive stand to make a difference in the lives of children.  However, Bartlett, Desain, and Sjoman (10) further claims that such strategy would put IKEA at a risk as it would culminate into considerable cost handicaps when compared to its competitors.  Nevertheless, the company can find a way out of this situation without hurting its operational cost a great deal. One way is by involving with Save the Children organization or Rugmark. At the same time, the company can stay active in monitoring its supply chain behavior by remaining active in micro-managing its plants in India.

Based on the strategy described above, it means that IKEA will choose to remain in India and closely monitors the behaviors of its suppliers. IKEA will be forced to pop into the factories of its suppliers unannounced just to monitor the activities of its suppliers. However, such behaviors are likely to scare some suppliers away, but IKEA should be prepared to pay such price. In this case, it should be prepared to help its supplier reform rather than kick them away at first instance. Also, IKEA should not consider leaving the Indian market because of other advantages. First, it is a means of income for the Indian community, and thus IKEA’s stay will preserve some jobs for the locals. Second, India is among the major consumer of rugs and carpets. As a result, exiting such market will result in a huge loss to IKEA. Lastly, IKEA has been in operational in India for a long time and thus developed a good market niche. Leaving such as niche will destabilize the market orientation in terms of demand and consumption. People who are used to IKEA’s goods in Indian market will find it difficult adapting to other brands.

Question 4

Suggestion on whether IKEA should continue monitoring and control processes or sign-up to Rugmark, 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 labor as Save the Children

Answer to Part (a) Regarding Ikea’s Continue Owns Monitoring and Control Processes or Sign-Up to Rugmark

Even though it is imperative for IKEA to maintain a monitoring and control process, signing up to Rugmark is more profitable as it would result in more sales. Rugmark is an answer to child labor issues as it acts as an industrial response to child labor issues in the India’s carpet industry. Rugmark verifies whether a carpet was made using child labor or not. Since IKEA was invited to sign for Rugmark, such a move is the best for the company as it ensures transparency in the company’s deals with the consumers. If a customer sees Rugmark label on IKEA’s products, he or she would be motivated to buy the product as the label would communicate transparency in child labor laws. Such product won’t conflict with the morals and beliefs of the consumer. This means that it will be easy for the consumer to purchase more products based on the label.

Answer to Part (b) Regarding Whether Ikea Should Focus only on Abolishing Child Labor in or Engage In Expansive Action to Address the Root Causes of Child Labor

It is essential for IKEA to eliminate child labor in its supply chain, but the company will be wasting time and resources if it solely focuses on this issue. This is because other issues arise when dealing with child labor issues and thus the best way is to adopt a broad approach.  The company stands to benefit from wide public interest if it adopts a wider approach to child labor laws. Such wide approach may involve teaming with organizations such as Save the Children to address the cause of child labor thereby fixing some issues in the society. For instance, child labor may be caused by lack of education among children. Addressing this issue will mean ensuring the community is sensitized to the importance of taking their children to school thereby addressing issues of child illiteracy rather than child labor alone.  According to Bartlett, Desain, and Sjoman (11), the more one focuses on an issue, the more complex it becomes. As a result, teaming with Save the Children organization will ensure a balanced approach to the issue as it will involve more expertise. Experts from Save the Children organization will be better placed to teach IKEA more about child labor issue, and this will ensure IKEA acts in the best interest of the children. At the same time, it will be easy for Save the Children experts to reach to the root core of the matter in child labor than IKEA since Save the Children is a large organization with enough resources to deal with children issues. This means IKEA will reach to the core of the issue easily of it teams with Save the Children rather than doing it alone.

India is among the biggest carpet and rugs market for IKEA, and thus more effort should be made by IKEA to understand its dynamics in terms of child labor. Any solution to issues of child labor should thus ensure it goes hand-in-hand with beliefs and cultures of the Indians. It ought to be in the paramount interests of IKEA to study the market and cultural dynamics so as to solve the issue of child labor in India. However, such efforts had been made before. According to Bartlett, Desain, and Sjoman (6), Barner spent several months in India studying about business in India but got no exposure to child labor. This means the management and cultural practices in India are dysfunctional and require more efforts in understanding them.  

It should be noted that it is in the best interest of the IKEA to remain in the Indian market since it is its largest market. However, such stay will mean clarifying its position in regards to child labor laws and practices by its suppliers. At one point, IKEA can put in place some internal measures in its factories to eliminate cases of child labor. However, in another case, the media can continue to focus on an already spoilt image of the company regarding former activities. This means to overcome such issues; the company needs to protect what they stand for by teaming up with a reputable organization such as Save the Children.

IKEA has experience of assisting its suppliers adapt to global human resource management styles as it was in the case of Poland. This means the company needs to help its suppliers in India by adopting an industry-wide approach to understanding the whole issue. Although IKEA will lose its reputation at the first place for being associated with suppliers with cases of child labor, the company will gain confidence in the long run. People will acknowledge it for standing with its suppliers and fighting to protect what is right.  Such engagement will go in line with the policy of the company aimed at creating the world a better place for all.

It can be argued that other competitors will take advantage of IKEA’s involvement industrial-wide elimination of child labor in it supply chain and outshine them in competition. However, this ought not to affect IKEA because it has the largest sales volume compared to its competitors. At the same time the sales turnover for the rugs, which is the section affected by child labor, is small and thus won’t affect the company’s overall performance. Also, competitors using child labor will eventually run into problems as it was the case of IKEA thereby stunting their growth.

Since child labor cannot be abolished in a day, IKEA should implement a system that focuses on the whole process. The company can instruct its suppliers to cut on children’s working hours and substituting the hours with learning hours. Such case may involve IKEA giving financial assistance towards such venture. Also, IKEA would be forced to hire the assistance of Rugman since it is not well versed in the management of children welfare. IKEA can further carry out random monitoring as a way of ensuring that regulations are followed.

Works Cited

Bartlett, Christopher, Vincent Desain and Anders Sjoman. “IKEA Global Sourcing Challenge: Indian Rugs and Child Labor.” Harvard Business School Journal 906.414 (2006): 1-13.

Garside, Juliette. “Child labour uncovered in Apple’s supply chain .” 25 Jan 2013. web. 11 Oct 2015 <http://www.theguardian.com/technology/2013/jan/25/app                                                                                     le-child-labour-supply>.