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

Ikea is a multinational global leader in the home furnishing industry. Founded as a family enterprise in Sweden in 1943, it now operates 351 stores in 43 countries. With the idea of producing well-designed, functional pieces at low cost at the heart of its business practice, it also aims to ensure the well being of its employees, suppliers and the environment. The Ikea group with an estimated net worth of over $50 billion, sources its materials from over 16000 suppliers spread across all continents. One of its principles is to maintain close, long-term relationships with its suppliers based on an ethical system outlined in their personalized Code of Conduct. Despite serious attempts to implement their code, Ikea still faces challenges with some of its carpet belt suppliers in India who are not meeting basic standards of practice and especially in the sensitive area of child labor. The question arises as to whether, given the very different realities inherent in both cultures, there can ever be true common ground for an ethically congruent relationship.

Seeing how Ikea has responded to some of its sourcing challenges over the years has brought to light some key ethical issues and learning curves for the company and interested third parties alike.

In 1994 Ikea was accused of the possibility, that some of its rugs were made by child labor. Their immediate response was to draw up a contract that on signing, suppliers acknowledged that they were not using child labor. A consequent, similar story, broadcast on German television led the Company to immediately terminate a contract with one of their long-term suppliers. It turned out that this story was fabricated and left Ikea with the task of reinstating the contract, getting a settlement from the broadcast company and admitting to a huge learning curve. Their reaction, although understandable, highlighted a key lesson in any social and business contract, and that is to always check the integrity of the information given before deciding on a course of action. The results of this lesson, along with their commitment to long term strategies of sustainability, became evident when they refused to join the Rugmark Consortium, despite reputational risks, in which they felt correctly, that they could not guarantee that the product was not child labor free. To further answer to their own company’s questioning of their stance and desire for clarity, they proactively sent employees to India to investigate hands - on the complexities of these issues, thus effectively educating their own organization through participation. People development is necessary to help align approach with the organization.

The Company has proved proactive on a number of levels. Once it was identified that the issue of child labor existed in a complex social, cultural and financial framework, it then aimed at getting to the root cause of the issue – which was that of poverty, illiteracy, poor health, indebtedness and discrimination. Simplistic solutions were not the answer, nor did they realize were just good intentions. Some well-intentioned practices led to more harm than good in some cases. So Ikea set up a strategic alliance with UNICEF to help forge fundamental change through the building of schools and educational facilities. It didn’t stop there, they established heath care initiatives and initiated self - help programs, and recruited NGO’s. They looked to finding a total solution. Teaching people how to fish so to speak. Co-ops, start up schemes, networking puts an economy in motion. Establishing an alliance with a credible, competent and recognized ally to implement change for the highest good is an excellent strategy. I believe that Ikea’s response to the issue is admirable as it is motivated by the desire to do real and lasting good, and furthermore understands the need for fundamental change. It has highlighted a couple of important issues