(Student assignment) ikea’s challenges in global markets and child labor
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Transcript of (Student assignment) ikea’s challenges in global markets and child labor
IKEA’s Challenges in Global
Markets and Child Labor
Charles James. Alicia Stevenson, Sheila Smith
Law/531
July 22, 2013
Lisa Smith
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What is IKEA?
• Started by Ingvar Kamprad while living on Elmtaryd farm in Agunnaryd Sweden when he was 17
• The name IKEA means: Ingvar Kamprad Elmtaryd Agunnaryd
• In 1953 IKEA started selling affordable, consumer assembled, furniture
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Corporate Profile
• Cost consciousness and prohibition of wasting of resources
• Sells well designed, functional home furnishings products at low prices for a larger audience of consumers
• World’s largest specialized furniture retailer
• Has stores in 17 countries
• Has relationships with 2300 suppliers in 70 countries
• Sources around 11,200 products
• Has 24 trading service offices in 19 countries tasked with monitoring production, testing product ideas, price negotiation, and quality assurance (QA)
• Won’t accept any timber, veneer, plywood or layer-glued wood from intact natural forests or high conservation forests.
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IKEA’s Mission: Creating a better life for the many people
Ingvar Kamprad’s business philosophy centered around using simple business processes, discount suppliers, and “common sense” approaches to decision making.
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Issues in a Global Market: Child Labor
• IKEA relies on suppliers for all their products.
• German TV station ran story on child labor used to make Indian rugs sold in IKEA stores.
• IKEA’s contract with their rug supplier had a clause that the contract could be cancelled if child labor was being used in the manufacture of the rugs.
• IKEA hired a third party company to provide monitoring and inspection services in the area of child labor used by the suppliers.
• IKEA was asked to sign up to a partnership that certified products as not being created by child labor (Rugmark).
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Issues in a Global Market: International Law
• IKEA selling the “Billy” line of shelves in Germany
• German law sets limits on formaldehyde emissions from consumer products
• A German TV station broadcasted a news story on IKEA bookcases emitting formaldehyde fumes
• IKEA quickly enacted strict requirements on glues that used formaldehyde as a base
• IKEA worked with chemical suppliers to limit formaldehyde in their products that IKEA used through it’s suppliers
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Issues in a Global Market: Bonded Labor
• Bonded labor: adults and children working in factories to work off debts.
• The debts were transferred from the parents to the children.
• Due to the low wages and the high interest rates on the debt some children never worked off the debt and passed it to their children.
• In 1976 the Bonded Labour System Act was passed to reinforce the original Pledging of Labour Act of 1933.
• Lack of enforcement in the source countries is preventing IKEA from stopping this from happening in their supplier’s factories
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How IKEA deals with ethical dilemmas
• Switching from Beech to recycled yogurt cups in their OLGA chair line to save natural resources.
• Maintained communications with environmental and conservation groups like World Wide Fund for Nature (WWF) and Greenpeace.
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Positives
• Competitive pricing for the masses
• Supply chain monitoring
• Keeping simplicity in their business model to make effective “common sense” business decisions.
• Quick to address adverse situations
• Keeping leadership in touch with the front line employee experience
• Purchases supplier’s off season capacity for product manufacturing
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Negatives
• Liberal use of outsourcing of process completion and product manufacturing
• Uses a 3rd party company to handle their QA for their products exclusively
• Not affiliated with organizations, like Rugmark, for supply chain monitoring
• Maintaining relationships with suppliers that violate the terms of their contracts
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Room for improvement
• Incorporate a blended in-house and outsource solution for process completion and product manufacturing
• Have internal staff to handle the QA of their products in conjunction with 3rd party companies tasked to do the same.
• Should join organizations, like Rugmark, that are dedicated to socially conscience business practices.
• Review contract compliance and take appropriate actions for remedies
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Conclusion
• IKEA should enforce the terms of their contracts with their suppliers and monitor their suppliers for any sign of breach.
• Maintain vigilant monitoring efforts over their suppliers and distributors to make sure legal and ethical issues are noticed and quickly addressed.
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REFERENCE
• Harvard Business School: IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor (#9-906-414)
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