4- The external institutional and social environment of a business often generates

challenges for a businesses, and these challenges lead pressure on decision

making process. Problematic decisions and behaviors may result damaging
effects for both businesses themselves and society. On the other hand, if these
challenges are handled with caution and decision making process is properly
managed, businesses can avoid from detrimental effects of negative externalities
and further generate solutions for their own and societies good. Ikea, worlds
largest furniture retailer, was one of the companies who successfully handled
external factors and even generated industry standards, when they faced the
child labor use for their imported Indian rugs.

The problem of child labor use rose and threatened the Ikeas public image in
1994, when a Swedish television mentioned Ikeas name as an importer during
the documentary that showed children working in weaving looms in Pakistan.
Ikeas initial response to this documentary was apologizing for their ignorance
and admitting that they were completely unaware of child labor problem. There
were two limiting factors that prevent Ikea to realize this problem earlier. First,
Ikeas area manager for carpets had not been exposed the child labor issues
during her trading experience trip to India, and second, Ikeas buyers were
meeting with the rug suppliers often in their office, rather than where the actual
production occurs. Nevertheless, Ikea committed to take an action about child
labor issue.

Since Ikea had not had previous experience and expertise on the child labor
issues, they consulted with the International Labor Organization (ILO) to seek
input and advice (get help from outsider). As a result of their consultation with
ILO, Ikea added a clause to their supply contracts, which clearly states that Ikea
had right to cancel the contract with them, if the supplier let the children work
under legal working age. In addition to this clause, Ikea hired a well-know
company that has experience in external monitoring of companies to investigate
any complains and perform random audits to monitor for the use child labor in
suppliers.

Once Ikea handled the first shock wave of the crisis, Ms. Barner, the business
area manager for carpets, decided to gather more information about the child
labor problem, and travelled to India, Nepal, and Pakistan. During this trip she
and her group met every possible stakeholder, such as suppliers, unions,
politicians, activists U.N. organizations etc. The more they learned, the more they
realized there were almost no way for Ikea to have the rugs no child labor
involved. Because of this awareness, they did not even consider to join the
Rugmark Foundation, the organization that supervises the use of label for child-
labor free rugs. While Ms. Barner was trying to convince the Ikea to take
proactive and reasonable role in child labor issue, a new crisis broke out.


In 1995, year after the first incidence, Ikea got a call from a well known German
documentary maker for an invitation to defend themselves in a TV program as
oppose to the video that he claimed shows children working at looms at Rangan
Exports, one of the Ikeas supplier for rugs. This call made Ikea to question if
their overall approach to the issue of child labor was appropriate or not. Ikea was
not willing to take hand weaved Indian rugs out from their shelves, even though
rugs were making up really small part of their income. On the other hand, Ikea
was really sensitive to child labor issue, since it claims to be the company that
provides better life for everybody. In developing countries such as India, with
high poverty and poor schooling opportunities, the issue of child labor was deeply
embedded problem. Even though Ikea terminated its contract with Rangan
Exports and looked for another supplier, there was no guarantee that other
suppliers would not have child labors. Further more, there was no solid evidence
but a video children working at looms claimed to be Ikeas rug supplier Rangan.
Without deep investigation termination of a contract with Rangan might cause
loss of credibility for Ikea among the other suppliers. Realistically, Ikea had two
options; they would either get out of the rug business or try to find an alternative
way to weave their rug to make sure there were no child labors in the production
of rugs.
Ikea announced the termination of Rangan contract, declined to join Rugmark
because of the stated resons. Ikea sued the German Tv producer who was jailed
for fabricating documents, won the lawsuit and used to money to build a school
on site. Ikea and decided to have an active role in child labor issue and partner
shipped with UNICEF and WHO, initiated many programs to provide alternative
schooling and womens micro finance. Issued Ikea Way, consisted of subunits to
screen their implementations and take an immediate action as oppose to use of
child labor that requires contract termination.
Despite the all problems that use of child labor caused, Ikea managed the come
up with the unique solution that made a change in thousand of childs life and set
high standards for the whole industries that child labor got involved.