Ikea's Global Sourcing Challenge: Indian Rugs & Child Labor

IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor

Presented by group 14:

Table of Contents

I. Introduction

II. Key Issues

III. General Environmental Analysis

IV. SWOT Analysis

V. Strategic Alternatives

VI. Recommended Course of Action

VII. Conclusion

VIII. Update to Present

I. INTRODUCTION

IKEA is a company that sells “well-designed, functional home furnishing products at prices so low that as many people as possible can afford them.” According to Ingvar Kampard, Founder of IKEA, the spirit of IKEA is founded on the enthusiasm, constant will to renew, cost consciousness, the willingness to assume responsibility and to help, humbleness before a task, and simplicity of its behavior. It was this very spirit that made IKEA transform from a mail-order company in the forests of southern Sweden, selling lighters, pens, and binders into a multinational company with 313 stores in 38 countries.

IKEA’s success is attributed to the low-cost, well designed furniture that was attainable due to outsourcing since early 60’s. But outsourcing was also the source of scandal for IKEA in the 90’s, since the rugs they were buying from its suppliers were woven by children in Pakistan. Although IKEA had taken precautions through the Rugmark Foundation, which guaranteed no child labor in the making of the rugs, and by adding a “black-and-white” clause, which stated that if the supplier employed children under working age, the contract would be terminated. Unfortunately, the problem proved to be much more complex. It turned out that it was almost impossible to guarantee that child labor was not taking place since the production of the carpets was scattered throughout 200 villages and manufacturing took place even in the homes of some people. The initial policy taken by IKEA of cancelling the contract with suppliers if child labor took place would not solve the problem; children would look for another supplier for work. It was up to...