Ikea Global Strategy by S.P Jain Students

Authored by: Aditya Sinha, Mona Sharma, Rachit Chandra, Ramnath S., & Sushmita Sarkar

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IKEA’s Global sourcing challenges:Indian rugs and child labour# Group 8A |

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Executive summary

The case is a classic example of a situation where organizations have to walk the tightrope between ethics on one hand and profits on the other. Marianne Barner, business area manager for carpets, has to decide whether to terminate IKEA’s contract with Rangan Exports. The dilemma is based on unsubstantiated video clips on child labour produced by a German documentary maker. This follows from the fact that IKEA has been stringent with child labour issues, with a clause in its supply contracts stating termination of contract with the supplier on evidence of child labour.

IKEA, which is the world’s largest furniture retailer, was founded by Ingvar Kamprad in Sweden. It started out as mail-order company which eventually transformed into furniture business. Ingvar Kamprad was a man of values and principles. He was disturbed by high prices in the Swedish furniture industry caused due to a cartel of furniture manufacturers. He introduced several strategies to attract customers to IKEA and then offer low cost furniture to them. For instance, he introduced the idea of allowing customers to inspect the products which they intended to buy. This strategy was coupled with IKEA offering knocked down furniture to its customers. By doing so, IKEA could save on its transportation and storage costs. This translated into lower prices for customers.

To beat opposition from Swedish furniture cartel, IKEA introduced the principles of a modern value chain. It started sourcing from other low cost countries viz. Poland to keep the prices of its products low. Eventually it incorporated the strategy of sourcing almost its entire product range from suppliers. IKEA further reduced costs by utilizing the unused production capacity of its suppliers. To maintain the reliability and quality of...