1. Should Marianne Barner participate in the German Documentary?
• Yes. The German program planned to take a confrontational and aggressive approach aimed directly at IKEA and one of its suppliers. The best defense is to take this opportunity to fight back.
• Since IKEA already signed agreement on not using child labor, they can’t ignore the challenge this program may bring.
• IKEA has gained some positive accomplishments to the child labor issue and took actions to eradicate child labor. It is a good chance to further publicize their efforts.
• Marianne should prepare herself well by analyzing the situation of that year (May 1995) before going to the program; Rangan Exports should be investigated by both independent 3rd party auditors and IKEA before the program.
• It is the opportunity to communicate with the public regarding Ikea’s long-term strategy with accurate milestones to prevent child labor, in response to their social responsibility.
• If Marianne is not outspoken, an eloquent person from the senior management who is familiar with IKEA’s child labor issue and company’s stand should go to the program.
2. Should IKEA continue to deal with Rangan Exports?
• No. Rangan Exports apparently violated the contractual commitment it had made not to use child labor. Legally speaking, IKEA should terminate the contact right away.
• In 1994 after the Pakistan child labor issue, IKEA already had a clause to all supply contracts, stating that if the supplier employed children under legal working age, the contract would be cancelled (a “black-and-white” clause).
• By halting the contract with Rangan Exports, IKEA sends a clear message to other suppliers that principles must be adhered to.
• Indian rugs accounted for a tiny part of IKEA’S turnover. Even if cutting off Rangan Exports would disrupt supply and affect sales, it won’t greatly affect IKEA’s revenue.
• IKEA has other rugs’ suppliers in India which comply with the rules (dual sourcing, backup).
• Keeping Rangan Exports would severely damage IKEA’s public image on the short term.
3. Should IKEA continue to source rugs in India? Why? How?
IKEA should continue to source rugs in India, because of the below reasons:
• If IKEA goes to another country to source rugs, due to the cost consideration, likewise it will go to another developing country where child labor may be also a potential problem. The root cause of child labor phenomena is extreme poverty.
• If IKEA pulls out from the India market, these children will likely go to another factory to work because they would have no other means to reimburse their parents’ debts or eat.
• These children may go into illegitimate jobs such as dealing drugs and sex trafficking.
• It also hinders the family’s ability to fulfill basic needs for food ($1/person/day in the poorest Indian families).
• Leaving India without even trying to take the responsibility to solve the problem of child labor will affect the company’s reputation, as their mission statement explicitly says to create “a better everyday life for the many people” – “many people” include child labor in the suppliers’ factories.
• Indian rugs accounted for a tiny part of IKEA’S turnover. Sourcing outside of India won’t greatly affect IKEA’s revenue, and appear to be an easy way to get out of the issue. But it makes IKEA appear guilty. Formaldehyde scandal led to a sales loss of 20% in Denmark – suggesting that IKEA needs to deal with such problems in a proactive and progressive way.
IKEA should source rugs in India with higher caution:
• Establish a code of conduct and a reasonable timeline to allow the suppliers to comply with the laws of Child Labor in India.
• More transparency by collaborating with 3rd party activist to produce an investigation and report on working conditions in IKEA’s Indian suppliers; publish brochures on social media
• Fund a campaign with NGOs by sharing a certain profit percentage to support Indian children education and healthcare.
4. If IKEA continues to source rugs in India, what should it do differently?
• Regulation: raise the minimum age of workers, increase monitoring, and adapt clean air standards in all factories; protection of workers.
• Audit and transparency - Post its commitments, standards, and audit data as part of its corporate social responsibility reports.
• Becoming a leader rather than denying every allegation.
• Social responsibility: donate part of its revenue (i.e. $1 per rug profit goes back to children in developing country); grants and scholarship for children; provide grants to small businesses; support some of the cost for food, basic shelter, healthcare and education.
5. What is the larger learning for global supply chain managers?
• Be proactive, rather than reactive.
• Audit: Put in place processes to spot/check children labor cases.
• IKEA’s own monitoring and collaboration with Rugmark to set a label of excellence; become the leader to improve the processes through collaboration with other brands.
• Go onsite to obtain first-hand experience and have expert teams dealing with regulations.
• Dual sourcing within and outside India.
• Understanding cultural difference and embrace change.