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IKEA Case Study
Dealing with Child Labor
Marianne Barner is face with a very difficult decision. German TV has not been an ally to the company; instead they have been exposing IKEA’s flaws for years. In this case, however, a documentary is about to be released that is specifically and aggressively targeting IKEA as the main offender in child labor laws. What is about to be exposed will contradict the philosophy the “for the people” philosophy that IKEA has worked diligently to create for over half a decade. This potential crisis requires immediate and drastic action from Marianne Barner.
Barner has been asked if IKEA wants to send a representative to discuss the issue on TV as the program is being broadcast. In my opinion, they should not send a representative. If I were in her position I would rather develop a strategy first, and then release a company statement to the public. Going on the program does have its advantages. Their presence on the program could indicate to consumers that IKEA is addressing the problem head on, and not trying to hide from the issue. However, I do not believe there is anything a representative could say that would immediately wipe away the images that the watcher will have just seen. Very often in these types of programs, the station invites the company representative and says they will offer them a chance to defend themselves. However, the interviewer usually ends up attacking the representative even further, and the company does not look any better. I believe they are better off letting the program run, and focusing on how they are going to fix the actual problem before they say anything to the public. The public is becoming more aware of social issues, and they will be able to tell if IKEA is simply trying to save face without any real plan, or if they truly have a strategy to deal with child labor laws.
IKEA should be aware of factors concerning a porter analysis before they make a decision on how to handle this issue. The furniture market is a large one, and there are several other substitutes that may take IKEAS place if this documentary ends up sabotaging the company. It is important that they keep their market share. Their buyer power may also be affected depending on how they plan to continue or discontinue business with this supplier. Completely cutting ties with a major supplier will undoubtedly cause production and profit to drop drastically. They also need to consider their public image. IKEA has done things differently for decades, and they have developed the reputation of a company that cares about its consumers, which is displayed through their significantly lower prices than their competitors. IN the industry today, this reputation is synonymous with ethical practices. Although child labor has only recently become a hot button issue, it is considered one of the worst offenses in the eyes of the consumer. Finally, IKEA must consider that this program is being released in Germany, its largest base of consumers. If they are going to focus on addressing a particular set of consumers it would be the Germans.
Regarding the supply contract with Rangan Exports, I believe that a change of policy is necessary. Cutting them off completely would hurt IKEA too much in terms of production, but if they do not take any action it will irreversibly damage their reputation. I recommend that IKEA keeps their contract with Rangan Exports, but sets up a small team of IKEA employed supervisors at the Rangan plant. This will address the problem of negligence. In past visits to India, execuives have been shielded from child labor factories, and even kicked out of buildings. This shady behavior on the part of the suppliers needs to stop. IKEA must give Rangan an ultimatum: sign a contract that allows IKEA supervisors to monitor their plants, or cut off ties completely. Because Rangan relies so...
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