IKEA’s Response to Global Challenges
The contemporary globalized environment poses numerous challenges for business to achieve success. In this regard, various dimensions of globalization become more and more entwined and companies need to adapt to these changes. One of the most complex aspects is the socio-cultural dimension which requires systematic and multi-stakeholder involvement. The aim of this paper is to address the case of IKEA and its approach to resolving the issue of child labor used by its suppliers in India. Consequently, the rationale for IKEA’s approach is outlined with further implications for the company and global businesses in general. IKEA’s case demonstrates the new trends in globalization and business conduct which require multi-dimensional cooperation towards the sustainable development as a precondition for the successful business performance of a company. From the perspective of the local population, the primary benefit is long-term commitments of the international corporations and the consequent stability of the local socio-cultural development and economic growth.
Key words: IKEA, child labor, globalization, corporate responsibility.
IKEA’s Response to Global Challenges
In the contemporary globalized and internationalized world, of the company to achieve success it has to address numerous issues except the quality and cost-efficiency of its production. To achieve success, a company has to consider diverse political and cultural aspects of its business conduct and manufacturing of the final products. Although this concern becomes essential in the contemporary business environment, it can be incredibly challenging to fulfill monitoring across various branches located in around the word. On the other hand, in order to preserve a successful and continuous profile, the company has to make sure that its profile is integral across all branches and cooperation with suppliers corresponds to its profile and values. The aim of this paper is to address the issues of globalization and continuity of company’s profile in the example of IKEA and its child labor issue in India.
Although globalization poses numerous economic benefits for a business to expand, optimize its manufacturing capacities in the third world, and reduce cost of the final product, globalization also has numerous threats and challenges that company has to deal with and develop a consistent approach within its strategy (Smith, 2010). In this regard, a company also has to address such dimensions of globalization as political, cultural and ecological. In other words, having a strong public profile in the country of origin is no longer enough for one’s success. The company also has to demonstrate the consistency of its public profile on the global scale. In other words, the company has to abide by the rules and public perceptions of the country of its origin or according to the international standards also in other countries in order not to damage its image (Spinello, 2014).
IKEA had a negative experience of being criticized for some of its carpet supplier from India using child labor in carpets production. The company faced with cultural and political-legal challenges posed by globalization. Moreover, unlike nowadays, when a company has various cases and strategies to follow in resolving such issues, IKEA faced the problem when the issue of child labor was quite new in the business environment and consequent options for its handling were limited (Smith, 2010). In this regard, the available options branch manager Marianna Barner could choose from included cancelling contract with suppliers, withdrawing from the market or addressing the issue in some way. The first two options would mean financial losses, while the last one had very little certainty in its application (Spinello, 2014). On the other hand, the issue could not be ignored since media programs on the subject had already damaged company’s image before.
The primary threat of such issues on the global scale is that the national image of the company can be easily damaged and its core values challenged. For IKEA that placed equal access to its products across various categories of society, equality and humanness were the core of its philosophy. Moreover, the relationship with suppliers was based on the crucial principle of using sources in an unconventional way. Thus, giving up on suppliers would have been damage to that principle and could result in further deterioration of relations with other existing suppliers (Vogel, 2006).
The most functional resolution of the issue is to preserve company’s presence in the country and continue doing business but in a new way. In this regard, the company would have to develop its own way of dealing with the matter in accordance with the international law and company’s concept and values. Barner did the right choice of getting involved with the national and international organizations dealing with the issue of child labor. This gave her and the company the relevant knowledge of the issue and related aspects such as age differences of children allowed working in different countries, local legislature, a relationship between child labor and schooling (Spinello, 2014). In this context, IKEA created a precedent how other companies have to deal with similar issues – promoting the higher standards through cooperation with the local NGOs, international organizations and local suppliers:
organization promoting the well-being of children. Together with UNICEF experts,
local governments and NGOs, IKEA started an ambitious and large-scale project
aimed at improving education, recruiting for schools and raising awareness among
parents that education is important for their children. In order to decrease
dependency on child labor, a microcredit program was started mainly aimed at
strengthening the economic position of women” (Jeurissen, 2007, p. 135).
Moreover, as part of this response, the company introduced zero-tolerance policy regarding suppliers using child labor. For these purposes, monitoring workshops with suppliers in the target countries were introduced and strict rules were imposed. If the instance of child labor was found and not resolved, IKEA would cancel a contract with its supplier and would not conduct business with the anymore (Vogel, 2006).
IKEA’s solution of the issue is incredibly functional in dealing with various dimensions of globalization. It is three-fold in its nature. First of all, the company preserved its image and projected its values on the global scale. Secondly, it demonstrated the Western public that it follows the same standards in all countries were its conducts business, thus the company kept its customers. Finally, IKEA as an international company demonstrated its long-term commitments in the various foreign markets and moreover responsibilities with the local communities (Smith, 2010).
The last aspect is particularly essential since there is a tendency in the global business to demonstrate long-term commitments to the local communities rather than simple gaining profit schemes. In this regard, international companies accept the tendency of merging of different global dimensions and corporate responsibility in terms of development of the local communities (Vogel, 2006). The main benefit for the companies is that they build a functional relationship with the local people and also contribute to the improvement of the sustainable development of these communities. In a long-term perspective, these communities will become more functional labor force with desired skills and also future consumers of the companies’ products.
“Stakeholder dialogue and co-operation are important ways for business to shape
their social responsibility, since businesses are often partially responsible for causing
a social problem. However, business cannot solve problems by themselves they did
not cause by themselves, so it is important to seek collaboration with others. An
important mechanism within these partnerships is that different parties can mutually
influence the conditions of their performance” (Jeurissen, 2007, p. 135).
Thus, the essence of IKEA’s response to the child labor issue with its suppliers was to take on board as many stakeholders as possible in order to address the issue in the most systematic and functional manner. A similar approach was taken by Marriott International that placed the cultural differences and traditions in the heart of its global strategy (Spinello, 2014). In this regard, cooperation with various stakeholders aimed at improvement of life through work with Marriott International made it one of the most desired working places in the hospitality business (Vogel, 2006).
Overall, from all mentioned above it can be concluded that with the strengthening of global trends, companies have to pay more attention to their socio-cultural commitments in the communities they do business in. IKEA’s approach was in involving numerous stakeholders and treating the issue in its systematic and contextual complexity. IKEA’s approach became a precedent in the field of child labor and an example to follow by many international companies.
Jeurissen, R. (2007). Ethics & Business. Assen: Royal Van Gorcum.
Smith, C. (2010). Global Challenges in responsible Business. Cambridge: Cambridge
Spinello, R. (2014). Global Capitalism, Culture, and Ethics. New York, NY: Routledge.
Vogel, D. (2006). The Market for Virtue: The Potential and Limitations of Corporate Social
responsibility. Washington, DC: The Brookings Institution.