Report on: IKEA’s Global Sourcing Challenge: Indian Rugs and Child

Labor (A)

Author: Chandandeep Singh

Prepared for: Professor Todd Thexton

Instructor: MGMT 566: Sustainability and International Corporate

Citizenship

Royal Roads University

1 Image Source: http://tinyurl.com/bl8kag9

MGMT 566: IKEA’s Global Sourcing Challenge Author: Cha ndandeep Singh

IKEA Global Sourcing Challenge: Introduction: Purpose

The purpose of this case analysis report is to summarize the key child labour issues face by IKEA,
world’s largest furniture retailer, through its sourcing of rugs from India. The report will also highlight
various alternatives and recommendations that IKEA could have used in 1995 and may use it currently
for the prevention of practices of child labor.

Child Labor: Child labour is a practice of employing children who are under the legal working age.
Based on Human Rights Watch’s estimates of 1991, between 60 million to 115 million children were
found to be working as child labourers in India alone. 2

IKEA: IKEA is a Swedish company that offers a wide range of functional home furnishing products at
significantly lower prices to make them affordable for as many people as possible. The company was
founded in 1943 by Ingvar Kamprad and it continued to grow from 2 stores in 1964 to 114 stores in
1994 to 330 stores currently.3 Apart from the success stories the company was unintentionally
involved in many social and environmental issues that refuted its brand image and reputation which
caused loss business, reduced profits and respect.

Child Labour Issues in IKEA’s Supply Chain

IKEA first recognized the involvement of child labour in 1994 when a Swedish documentary showed
that children in Pakistan were working at weaving looms. According to the case IKEA was completely
unaware of this practice and apologized for its ignorance in this regard immediately.

As the case describes of IKEA’s global sourcing of rugs from India, following were the child labour
issues found in IKEA global sourcing of rugs from India:

1. Indian factories and workplaces employed between 60 million to 115 million children who worked
as child labourers and out of this, estimated 200,000 children were employed in carpet industry 4

2 Ikea global s ourcing case s tudy

3 http://franchisor.ikea.com/concept.html
4 Ibi d

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MGMT 566: IKEA’s Global Sourcing Challenge Author: Cha ndandeep Singh

2. The factories involved in IKEA’s global supply chain employed child workers who worked on looms
in large factories, for small subcontractors and in homes where whole families worked to earn
extra income5
3. Convention 138 of International Labour Organization (ILO) that was adopted to abolish the child
labor was ratified by 120 countries but did not have India, Pakistan and Nepal as signatories which
indirectly endorsed the ongoing child labour practices in India 6
4. In 1994, IKEA appointed a well-known Scandinavian company to monitor the child labour practices
of its supplier’s factories in India and Pakistan with an aim to abolish the involvement of child
labour in its supply chain however the Scandinavian company failed to report the involvement of
children who worked at the Rangan Exports, one of IKEA’s major suppliers 7
5. Children in India also worked as bonded laborers to pay off the debts incurred by their parents and
the enforcement of bonded child labor laws in India was not significantly as strong as to abolish
this practice from its roots 8
6. The issue of unbonded child labor was not absolutely pressing for the Indian government as the
government felt that majority of the children work along with their parents under their
supervision and the laws specifically permitted children to work in craft industries 9

These issues indicate that initially, IKEA was not even aware of involvement of child labor in its
suppliers factories in countries like India and Pakistan. Children labor’s involvement was present deep
down in the roots of Indian labour industry that was employing child labour in factories and
workplaces at lower wages with minimal law enforcements by these related governments. To
conclude, it can also be said that it was unreasonable for the Swedish TV channel to accuse IKEA in
1994 considering the fact that India, Pakistan, and Nepal were not even signatories to the ILO’s
convention 138.

5 Ibi d
6 Ibi d
7 Ibid
8 Ibid
9 Ibid

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MGMT 566: IKEA’s Global Sourcing Challenge Author: Cha ndandeep Singh

Is child labour always a bad thing? Arguments

As a general human perception, Child labour is an immoral and unethical practice at any workplace as
it deprives young children from education and intellectual exposure in the early stages of their lives.
However, there is a flip side to it which reflects that the children who work as child laborers start to
earn to support their families which enables them to provide some basic necessities of daily life like
food and shelter. In countries like India, there are millions of families who cannot afford to send their
children even to publicly funded schools as they don’t even have enough money to pay for such
schools. This in turn means that if these children will not work they will not be able to eat and survive
in their life and eventually die of hunger or starvation.

Child Labour Issues in IKEA’s Supply Chain: Alternatives Options for Prevention with Support of
International Stakeholders

Before suggesting the alternative options for IKEA to deal with this problem, it is very evident that
IKEA already took very commendable steps to prohibit the use of child labour in its supplier network.
It added a clause to its supply contract stating termination of contract with the factories if in any case
IKEA finds that the supplier factory uses child labor. It also sent a team to Geneva to take advice from
ILO and also took assistance from UNICEFF and Save the Children Foundation of Sweden. In order to
avoid any further loss originating from bad publicity by different TV channels IKEA must take following
steps that show its responsiveness in dealing with this issue and its intentions of strongly prohibiting
the practice of child labour:

1. Rugmark or GoodWeave: Good Weave which was formerly known as Rugmark is a network of non-
profit organizations that monitors the production activities of Indian Rug -making industry and puts
a ‘Rugmark’ on the carpets that certifies that the carpets were made without child labor. One
alternative option for IKEA is to collaborate with Rugmark to closely monitor that none of the
carpets or rugs its sells are made by child labor. It must only sell Rugmark certified rugs. 10

2. Subsidies to Supplier Industries: Offering subsidies in the form of financial production assistance to
its suppliers with a mandate of employing labour of legal working age.

10

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MGMT 566: IKEA’s Global Sourcing Challenge Author: Cha ndandeep Singh

3. Associating with Provincial Government & Media: Associating with local authorities and media
will prove extremely beneficial for IKEA as IKEA can discuss its intentions of prohibition of child
labor at grass root level with the local authorities and provincial government. It can encourage the
government to enforce strict labor laws in the states by pressing on the fact that IKEA is a valuable
stakeholder in the growth of local states due to the amount of foreign direct investment it brings.
Establishing strong ties with local media is also of utmost importance as it has outright ability to
highlight the work done by IKEA in past, its current reforms and its future plans towards the
elimination of child labour practices.
4. Initiate Reforms Movements: As a part of long term corporate brand building process it is
recommended that IKEA continues to invest a part of its profits earned in the establishment of
facilities and infrastructure that fulfills the basic schooling and rehabilitation needs of children
whose parents are employed at its suppliers factories and children who are involved in rug making
industry. IKEA must also adopt policies outlining frequent un-informed inspections at supplier sites
as well.
5. Publicizing its efforts to Stakeholders and General Public: IKEA must invest it building up its public
image by producing some documentaries that show the socially responsible and morally ethical
work done by IKEA in the prevention of child labour in countries like India, Pakistan and Nepal
along with the close association of institutions like UNICEFF, ILO and Swedish Save the Children
Foundation. It will help IKEA to remain on top of its brand image than that of its competitors like
Walmart, Primark and Target.

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