IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor 1. List and describe the key components of IKEA’s business strategy? * Low price is one of IKEA’s most important components of business strategy. Its low price attracts many people to purchase products there, especially young householders looking for well-designed but inexpensive furniture. It is the low price that helps IKEA stick on its version: “selling affordable, good-quality furniture to mass-market consumers around the world”. To stay constant low price, IKEA matches products to supplier capabilities and also makes cost consciousness a really strong part of the IKEA’s management culture. * Opening display stores is also a key component. Customers can go to the display stores to look around and inspect furniture and other products before buying. This is really helpful for customers to choose the right products they need and also helpful to reduce products returns at the same time. * Self-assembled furniture is a key feature of IKEA. This concept helped IKEA gain so many customers. Customers buy furniture in flat packages and assemble the furniture at home. This idea save IKEA’s transport and also storage costs. With money saved, IKEA could offer constant low prices for its customers. * Advising by issuing catalog is a significant idea. By sending is catalogs to customers, IKEA get the chance to introduce every products to its target market. Many people who go to IKEA to purchase are driven by its well-designed catalogs. * Other features IKEA serves customers include playrooms for children, low-priced restaurant, and also shops that sell Sweden groceries and snacks. These features make people to have much more convenience whiling purchasing furniture there, and also give customers a more comprehensive experience in IKEA. Besides, these services also help IKEA to earn extra profit.

2. How does the issue of child labor affect IKEA’S business model?
To show its attitude on child labor, IKEA added a clause called “black-and-white” clause to all supply contract stating that if the supplier employed children under legal working age, the contract would be cancelled. Furthermore, IKEA appointed a well-known company with extensive experience to monitor child labor practices at its suppliers in Pakistan and India.

3. What are some of the key problems faced by IKEA in trying to monitor potential child labor use in the manufacture of its carpets? What is the best strategy for IKEA to overcome these problems?
Problems faced by IKEA: Children could be bonded to pay off debts incurred by their parents and it always take years to pay off such loans. The worse thing is some indentured child laborers passed on the debt to their own children eventually. Though the Child Labor Act prohibited the use of child labor, critics said that laws were poorly enforced and prosecution rarely severe. Besides, children are working under the supervision of their parents and the law permitted children to work in craft industries in order to learn skills and pass the skills from generation to generation. The involvement of culture and imperfect law makes the problem of child labor more complicated.
Best strategy: The Indo-German Export Promotion Council had joined up with key Indian carpe manufacturers and exporters and some India NGOs to develop a label certifying that the hand-knotted carpets to which it was attached were made without the use of child labor. A recently initiated industry called Rugmark Foundation is the supervisor of the use of the label. IKEA signed up with Rugmark to show its efforts of dealing with the child labor problems. The child labor problem was too deeply embedded in the culture of some lesser developed countries, and really need to be solved by gradually efforts. It’s really hard to solve this problem by one company and by one single action. So by now, signing up with Rugmark to show its attitude and efforts is the best strategy for IKEA.

4. Do companies, such as IKEA, have moral/ethical obligations to eliminate child labor? Why or why not?
The primary responsibility for eliminating child labor may be seen as lying with national governments and international bodies, but international businesses are one element in a complex set of factors that can result in or conversely help the problem of child labor. Therefore, I think businesses, as part of the global community, have an obligation to eliminate child labor. Companies should sign up contracts with suppliers on eliminating child labor. If a company find out the child labor problem exists with one supplier, then the company should cancel the contract with the supplier. Furthermore, the company should hire a third-party agent to monitor child labor practices. If every company really makes efforts on the elimination of child labor, I am pretty sure that there will be a big difference in the short future.