Case Study of IKEA with Indian Rugs and Child Labour

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Case Study of IKEA with Indian Rugs and Child Labor IKEA is a Swedish company producing home furnishing products at low prices to make them affordable to people. The company was founded in 1943 by Ingvar Kamprad and kept growing tremendously from 2 stores in 1964 to 114 stores in 1994 to 231 stores in 2007 in 24 countries welcoming a total of 522 million visitors. IKEA‘s success story is the result of its founders opening store in 1951 to allow customers to inspect products before buying them, using a catalog to tempt people to visit an exhibition. Its key feature of providing self-assembled furniture starting from 1953 significantly cut transport and storage costs. Besides its success stories, the company has faced environmental and social issues. The environmental issue in the early 1980s was raised as IKEA products were proved to emit more Formaldehyde than was allowed by legislation. The reason is that most of its suppliers bought from subsuppliers, who collected materials from glue manufacturers. Afterward, the company worked directly with glue companies and reduced the formaldehyde off-gassing in its products. The problem was solved but sales dropped by 20% in Denmark. In 1992, the company hit the same issue, which cost IKEA $6 million to $7 million. IKEA learned a lesson; publicity can bring a great loss in sales, not counting the damage to the brand image. In regard to social issues, the company confronted the child labor problem, which this paper mainly discusses about. In 1994, a Swedish television showed a documentary film about children working in Pakistan, targeting IKEA. In India, IKEA faced criticism about child labor from various international organizations. In the spring of 1995, another film is threaten to be shown on German television about children working at looms at Rangan Exports, a company used by IKEA and the producer then invited IKEA to send someone to take part in a live discussion during the airing of the program. These events urged the company to consider environmental and social issues more seriously. Environmental and Social Issues: Cost of GlobalizationOn the process of globalization, IKEA needs to get the cheapest supplies and therefore go to countries that offer cheap labor. However, these developing countries such as India, Pakistan and Nepal are facing a lot of social issues about human rights. When IKEA set its foot in these countries, it could not avoid these problems. For example in India, estimates of child labor in India vary from the government’s 1991 census figure of 11.3 million children under 15 working to Human Rights Watch’s estimate of between 60 million and 115 millions child laborers and about 200,000 were employed in the carpet industry.
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Its corporate strategy style partly exacerbates, instead of helps the situation. The fact that IKEA does not have its own manufacturing facilities; instead it uses subcontracted manufacturers all over the world for supplies makes it more complex and difficult to keep track of the company’s suppliers and subsuppliers. It is even more difficult to keep track of children working in homes where whole families worked on looms from the subsuppliers’ level. However, on the positive side, this corporate strategy gives IKEA’s the advantage of being able to change its suppliers without much cost. IKEA realizes the challenge and questions itself ...

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