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IKEA’s Global Sourcing Challenges in India

 

 

IKEA’s Global Sourcing Challenges in India

 

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IKEA’s Global Sourcing Challenges in India

The article “IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labour” by Bartlett, Dessain, and Sjoman (2006) highlighted the significance and the flaws of IKEA’s operations in India. Specifically, it analyzed the strategy of working with overseas suppliers that led to the use of child labour. After the accusation regarding employing underage workers emerged, the top management led by Marianne Barner considered terminating Indian activities. Even though doing so appeared the simplest remedy, there existed other alternatives that could have lessened the damage caused by the charges. In particular, IKEA should have considered ratifying its stance on child labour issues and sent an agent to the airing of the report to alleviate the possibilities of public outcry.

Critical Analysis

IKEA is a leading global furniture retailer with headquarters situated in Sweden. Founded in the 1940s by Invar Kamprad, the company developed from being a simple mail-order entity into a display store selling furniture in the 1950s. His earliest vision was to offer quality commodities at lowest prices that everybody could afford. In so doing, the ambitious entrepreneur cut ranks with leading cartels in the country that colluded to inflate prices to benefit themselves. Also, he successfully advanced his company’s competiveness by making its products attractive to many buyers.

Interestingly, by mid-1990s Kampard’s organization had establishments in 17 countries, making it the most profitable furniture seller in the world (Bartlet, Dessain, & Sjoman, 2006). To survive in the in the international market, corporations have to learn to compete effectively (Krugman, 1994). Some of the ways to do so is to use an appropriate pricing strategy, and to embrace value addition (Prestowitz, 1994). Therefore, from the outset IKEA successfully used the low-pricing strategy for its high-end commodities to gain economies of scale that enabled it to expand its customer base beyond Sweden. The two approaches also helped it to raise entry requirements for any potential rivals.

India is one of the countries the company depended on for low-cost supplies. However, in 1995 its operations in this country got accused of promoting child labour to produce rugs. The seriousness of this accusation prompted Marianne Barner, IKEA’s carpet sales manager, to consider closing supplies from the country. Such an action had immediate ramifications that could puncture profitability. Nonetheless, doing so seemed the best solution at hand, especially after careful consideration of the company’s cultural values.

For years IKEA attained fast growth by developing special long-term working relationships with its worldwide suppliers. As a result, it was always willing to fund any cost-effective plans crafted by its international dealers (Bartlett, Dessain, & Sjoman, 2006). Indeed, it perpetually sought traders who could offer it goods at the least possible prices. Consequently, to remain viable and guarantee the durability of their contracts, some of the company’s associates sought extreme measures that would improve their profitability. For instance, in 1994 use of child labour by merchants working for IKEA was reported in Pakistan. Therefore, similar claims in India did not come as a surprise to the company. However, it was surprising that the head of the carpet department was considering closing activities in India when there were more feasible alternatives.

Alternatives

Before the 1990s the use of children in economic activities was not an intricate issue. However, after its ratification by the United Nations (UN) in 1989, many observers began to campaign against it. Therefore, the matter at hand was not unique to the company, and it should have reacted to it by becoming a signatory to the anti-child labour movements that were gaining momentum. Secondly, it should have taken the incriminating report head on by sending a representative to its release to undertake damage control. The agent was to rebuke the actions of its suppliers and to restate the new policy position of IKEA that prohibited its partners from using underage workers.

References

Bartlett, C. A., Dessain, V., & Sjöman, A. (2006). IKEA’s global sourcing challenge: Indian rugs and child labor (A). Harvard Business School.

Krugman, P. (1994). Competitiveness: A dangerous obsession. Foreign Affairs, 73, 28-44.

Prestowitz, C. V. (1994). “The fight over competitiveness: A zero-sum debate?” Playing to win. Foreign Affairs73(4), 186-189.

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