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

Concordia University Portland Oregon
MBA 506 Business, Government & International Economy
IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor

Tatyana Smart

Submitted to

Alain Gracianette
17 July 2016

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

Ingvar Kamprad founded IKEA in 1943, and since then, the IKEA group has grown into a global brand with 127,000 workers in 41 countries. From the beginning, IKEA has been committed to creating a company respectful of the world’s environment, resources, and people.  IKEA’s core business is home furnishings and home accessories. IKEA’s strategic planning is successful due to selling at low prices. To stay the low price leader, IKEA buys a product, ships the goods unassembled using flat packaging and has customers assemble many items after purchase.

1. Introduction

IKEA’s choice to keep low prices for basic household furniture makes the company a unique furniture store. The product range is design to satisfied the needs of the consumer by offering an affordable, easy to assembly variety of goods. The company’s corporate slogan, “low price with meaning,” captures their commitment to offering tastefully designed products.

IKEA’s vision statement is to create a better life for the majority of people, which is the basis of its strategic orientation.

The primary factor in IKEA’s success is low production cost. IKEA has developed an elaborate network of the suppliers in over 70 countries and is always seeking cheaper labor and low-cost manufacturers. IKEA has been sourcing handmade carpets from four Indian suppliers for 26 years.

IKEA’s goal is to find the cheapest way to manufacture products while addressing environmental and social issues.

One example of environmental concern shown by IKEA is demonstrated when they discovered that some manufacturers were using formaldehyde in the form of binding glue during furniture production. The emissions from the chemical compound have many health hazards for workers and consumers of the finished products. IKEA’s response was to stop the production of the product where the glue was used. The company’s estimated profit loss was between $6- $7 million. Thus, IKEA became a more environmentally responsible manufacturer.

Next, IKEA faced political blame for using the child labor in countries such as India, Pakistan, and Nepal. Ikea’s business area manager of carpets, Marianne Barner, decided to save the company’s reputation by cutting off the market’s major supplier of Indian rugs, leading to the loss of sales. When the child labor became apparent, Marianne Barner stated: “IKEA was completely unaware of the ongoing child labor.” She admitted that it was “not something we were paying attention to.” She also claimed that “our buyers met suppliers in their city offices and rarely got out to where the actual production took place. Our immediate response to the program was to apologize for our ignorance and acknowledge that we were not in full control of this problem.” (M.Barner 2011).