IKEA Case Analysis (Case Study Sample)

Name
Instructor
Task
Date
IKEA Case Analysis
1. How should Marianne Barner respond to the invitation for IKEA to have a representative appear on the upcoming broadcast of the German video program? I am for the idea that Marianne Barner should respond to the invitation for IKEA to have a representative appear on the upcoming broadcast of the German video program by sending a representative and it is preferable that she attends the interview on a personal level at her capacity as the head of Business Area Manager for carpets. This is due to the reason that IKEA had been exclusively mentioned by a Swedish television documentary as being involved in selling carpets and mats woven by children from Pakistan. In addition, it was only in December 1989 that the U.N. Rights of the Child Convention was published thus the TV program which had invited her for an interview was vital in raising awareness on the less comprehended topic of child labor, which also a foreign phenomenon amongst the IKEA staff. The topic had widely been neglected and ignored since despite Barner visiting India for a couple of months to get more trading knowledge, she was not exposed to the child labor phenomenon. Since buyers only met with suppliers at the city offices and seldom visited the production places, they were oblivious to the threat of child labor. Marianne Barner’s appearance for the television interview was necessary to protect IKEA’s reputation by first apologizing for the company’s ignorance and admit that though the company lacked exclusive control of the crisis, it offers a reassurance that it was committed to see an end to the problem.
Denying to appear for the German television interview would do more harm than good to the company since the German film maker who had produced the film of underage children working at Rangan Exports had already availed still photos taken from the video therefore there was enough evidence to incriminate IKEA since they were well known of being supplied their carpets and mats by Rangan Exports. Barner therefore had a duty to defend IKEA in that situation and reassure IKEA’s commitment towards solving the issue.
2. What actions should she take regarding the IKEA supply contract with Rangan Exports? In order to remedy the situation, Marianne Barner with the help of IKEA’s legal team should ensure the adoption of convention 138 of the International Labor Organization (ILO) as a good remedy to the problem. The 1973 convention adopted by ILO and ratified by 120 countries compelled the ratifying countries to immediately abolish or work towards the abolition of child labor by under 15 year olds or any compulsory school going children in the countries. Since Pakistan, India, and Nepal had not signed and agreed to the convention, IKEA’S discussion with the ILO resulted to an additional clause to the convention that touched on all the supply contracts stating that there would be immediate cancellation of supplier contracts for any suppliers that employed underage children below the legal working age. It was challenging to protect IKEA’s reputation, brand and image considering her responsibility to monitor profits and losses for carpets since there were numerous critics who thought that dropping the Asian supplier market would very much harm IKEA’s profits and place the business at a competitive disadvantage to its competitors especially from a cost perspective.
3. What long-term strategy would you suggest she take regarding IKEA’s continued operation in India? Should the company stay or should it exit? (Be prepared to describe the impact of such a decision and how you would manage it) The best long-term action that Bannner should take would be to append her signature to a partnership of different industry stakeholders such as importers, retailers, manufacturers, as well as Indian nongovernmental organizations (NGOs) whose primary concern was the growing employment of child labor in the Indian carpet industry. The suggested solution ranged from the introduction and monitoring of a certification label called "Rugmark" attached on carpets as an indication that no child labor was used to produce the carpets. The Rugmark foundation was an industry response recently initiated by the various stakeholders such as consumer activists, human rights organizations, and German trade unions in the early 1990s and was triggered by a program to create consumer awareness. In order to ensure smooth implementation, Rugmark Foundation was mandated to supervise and monitor the continuous and unfailing use of the label.
In addition, Banner should continue with her efforts to bring on board various NGOs for instance the Swedish Save the Children who were continuously pushing for IKEA’s continued assurance that it would respond to the situation in a manner that best benefits the child, regardless the implication. Furthermore, Banner should involve IKEA’s Finance and Project Management departs to undertake cost-benefit analysis on the benefits the Indian, Pakistan markets offer to IKEA in terms of the total turnover vies a vies the cost, time, risk, and tainted reputation the company may suffer if they continued to be supplied from this controversial market. The profit potential of the Asian suppliers does not seem to be worth the above mentioned demerits.
I am of the opinion that IKEA should not continue receiving their carpets and mats supply from India since despite the fact that India is among the largest sources for rugs and carpets; the industry also creates lots of jobs for the indigenous community. A 1991 census concluded that the total under 15 years working children as 11.3 million. A significantly large number of Indian children ranging from 5 years old and above, work in mining, agriculture, manufacturing, and quarrying industries. An estimated 200,000 out of the above mentioned figures, 200,000 worked in the carpet industry, weaving on looms for small subcontractors, large companies, as well as homes where the entire family weaved on looms for an extra coin. However, the problem is deeply rooted beyond our comprehension.
The problem of child labor emanated from ancient India from the concept of bonding of children and making them servants so as to pay up debts that their parents incurred mainly in the region of $30-300. However small this amount may seem, the high interest rates and meager wages paid to children remarkably extend the repayment periods. Despite the India’s government abolition of bonded child labor, which had been already deemed illegal under the British colonial rule through the Children (Pledging of Labor) Act, there was continued spread of the practice until it was later countered by the 1976 Bonded Labor System (Abolition) Act.
Nonetheless, the loophole that most companies employing child labor in China exploited is the aspect that the Indian government was overly lenient on unbounded child labor terming it as a socioeconomic phenomenon emanating from poverty and stagnating economic growth. Whereas the 1986 Child Labor (Prohibition and Regulation) Act condoned the employment of children below 14 years old in specific "hazardous industries”, while regulating their working conditions and hours in others, the government was of the view that a large proportion of child labor entailed children working hand in hand and under the surveillance of their guardians especially in the cottage, agriculture, and service industries. It is the Indian law that permitted children to engage in crafting so as to pass down the specialized handicraft skills to the future generations, that has been exploited by child labor offenders. This shows how it may pose such a big challenge to reinforce the bonded labor abolition laws due to poor enforcement and mildly severe prosecution.
Industry Analysis
Threat of New Entrants
The procurement principle adopted by IKEA that rather than owning and controlling its sources, it would aim at forging close ties by sustaining long-term relationship with its suppliers aimed at not only providing technology transfer and supply contracts, but also loan advancements payable through future shipments and at very favorable rates. In the quest for reduced prices, the company developed a unique way of identifying new sources by purchasing unused production capacity as opposed to buying the products themselves. An example of such is getting sail makers to sew their seat cushions, employ services of window makers to manufacture table frames, and ski makers build chairs during their off season. All these efforts are channeled towards reducing the prices of the final products and thus strength of becoming the cheapest furniture retail store globally. By IKEA getting control of the suppliers, this means that it is locking out some of the potential new entrants to the industry since IKEA will enjoy cheap supplies and thus reduce the costs of its products. Controlling the sources of raw materials also means that IKEA would enjoy economies of scale thus reduced production costs and less prices that lock out potential new entrants.
Supplier power
In the initial years of IKEA’s development, the founder, Kamprad, experienced a lot of supplier power which was really striving to frustrate him by the furniture manufacturing forming cartels that took control of the Swedish furniture industry in order to maintain high prices. The limited supply that resulted from the pressures from Sweden’s large furniture retailers from dealing with IKEA led to higher price tags on their items until they sourced for new suppliers abroad. IKEA’s strategy of seeking a new source in Poland and the company going to extents of transferred its technological knowhow, availed machine...