IKEA Case: One Company’s Fight to End Child

Labor
Introduction
IKEA is a Swedish multinational company that was founded in 1943 by Ingvar Kamprad. [1] The
company mainly provides simple, affordable home furniture and furnishings, and it pioneered
DIY, or do it yourself, furniture. Kamprad originally sold binders, fountain pens, and cigarette
lighters, but eventually expanded to furniture in 1948. According to the Journal of International
Management, in 1953, Kamprad offered products that came as “a self assembled furniture” for
the lowest price, which ultimately became a key part of IKEA’s value proposition going forward.
In 1961, IKEA started to contact furniture factories in Poland to order chairs from a factory in
Radomsko.[2] Outsourcing to Poland was mainly due to other Swedish furniture stores pressuring
Swedish manufacturers to stop selling to IKEA. In the mid 1960’s, IKEA continued its supplier
expansion into Norway, largely because IKEA didn’t want to “own their own line of
production,”[3] and Germany due to its ideal location (downtown, suburban area) to place an
IKEA store. Given IKEA’s suppliers were now not just in Sweden, it led to an increased
importance on developing strong relationships with its suppliers.

In the following decades, IKEA continued its expansion and solidified its identity as a major
retail outlet with parts being manufactured around the world. By the mid 90’s, IKEA was the
“world’s largest specialized furniture retailer with their GDP reaching $4.5 billion in August of
1994.”[4] It also worked with 2,300 suppliers in 70 different countries, who supplied 11,200
products and had 24 “trading offices in nineteen countries that monitored production, tested
product ideas, negotiated products, and checked quality.”[5] IKEA’s dependence on its suppliers
ultimately led to problems in the mid 1990’s. At this time, IKEA was the largest furniture retailer
in the world, and had nearly “100 stores in 17 countries.” [6] Also during this time, a Swedish
documentary was released that highlighted the use of child labor in the rug industry in Pakistan,
which impacted IKEA given it had production there. The rug industry in particular is extremely
labor intensive and is one of the largest “export earners for India, Pakistan, Nepal and Morocco.”
Here, children are forced to work long hours for very little pay (if there is any pay at all). In
some cases, their wages are only enough to pay for food and lodging. In cases where children are
not paid, the wages are used by the loom owner to pay the parents and agents who brought the
children to the factories. Additionally, the work the children must do comes with a lot of risk.
More specifically, children face risks of diminishing eyesight and damaged lungs from “the dust
and fluff from the wool used in the carpets.” [7] As a result of these working conditions, many of
these children are very sick when they grow up. Despite these terrible conditions, it isn’t that
simple for families not to send children to work at these factories. A lot of the parents can’t
afford food, water, education, or healthcare, so they are often left with no choice but to send their
children to work for an additional source of income.[8]

IKEA and Child Labor Accusations

The accusations of child labor in the rug industry in Pakistan posed a serious challenge for IKEA
and its supply chain management goals. It would need to address the serious issues of alleged
injustice for the sake of its reputation and brand image. Additionally, as IKEA also had suppliers
in India, it would need to be in compliance with India’s “landmark legislation act against child
labor, the Child Labor (Prohibition and Regulation) Act of 1986.”[9]

As a result of these accusations, IKEA ultimately ended its contracts with Pakistani rug
manufacturers, but the problem of child labor in its supply chain still persisted in other countries
that were supplying IKEA. Marianne Barner, the business area manager for rugs for IKEA at the
time, stated that the film was a “real eye-opener…I myself had spent a couple of months in India
for some supply chain training, but child labor was never mentioned.” [10] She also added that a
key issue was that IKEA’s “buyers met suppliers at offices in the cities and rarely visited the
actual production sites.”[11] The lack of visits to the actual production sites made it difficult for
IKEA to identify the issue of child labor in these countries.

To make matters worse, in 1995, a German film “showed pictures of children working at an
Indian rug supplier... ‘There was no doubt that they were rugs for IKEA,’ says business area
manager for textiles at the time, Göran Ydstrand.”[12] In response to these accusations, Barner and
her team went to talk to suppliers in Nepal, Bangladesh, and India. They also conducted surprise
raids on rug factories and confirmed that there was child labor in these factories. The issue of
child labor, along with the accusations of having formaldehyde (a harmful chemical) in IKEA’s
best selling BILLY bookcases and the discovery of unsafe working conditions for adults (such as
dipping hands in petrol without gloves), led to increased costs and a significantly damaged
reputation for the company.

It was later discovered that the German film released in 1995 was fake, and the renowned
German journalist who was responsible for this film was involved in “several fake reports about
different subjects and companies.”[13] IKEA was now left with three options. First, some members
of IKEA management wanted to permanently shut down production of their rugs in South Asia.
Another option was to do nothing and proceed with its existing practices now that it was
announced that the film was fake. The third option was that the company could attempt to tackle
the issue of child labor that was clearly evident in its supply chain, regardless of whether the film
was fake or not. IKEA ultimately decided to opt for the third option, and its recent discoveries
would eventually help guide the policies the company implemented to address these issues,
particularly child labor in India.

Steps Taken to Address Child Labor in the Supply Chain

IKEA took multiple steps to deal with its damaged reputation and issues of child labor in its
supply chain. One way in which it did this was through institutional partnerships. One such
partnership was with Save the Children, which began in 1994. According to Save the Children’s
website, one of the main goals of their partnership is to realize childrens’ “rights to a healthy and
secure childhood, which includes a quality education. By listening to and learning from children,
we develop long-term projects that empower communities to create a better everyday life for
children.”[14]Furthermore, the partnership is intended to “drive sustainable business operations
across the entire value chain.”[15] Together, IKEA and Save the Children are focused on
addressing the main causes of child labor in India’s cotton-growing areas. [16] Save the Children
also advised IKEA to bring in an independent consultant to ensure that suppliers were in
compliance with their agreements, which further improved IKEA’s practices in its supply chain.
IKEA also partnered with UNICEF to combat child labor in its supply chain. According to the
IKEA Foundation, in 2014, IKEA provided UNICEF with six new grants totaling €24.9 million
with a focus “on reaching the most marginalized and disadvantaged children living in poor
communities and in strengthening UNICEF’s response in emergency and conflict situations.”
Additionally, five of the six grants were given to help programs in “Afghanistan, China, India,
Pakistan, and Rwanda,” with a “focus on early childhood development, child protection,
education, and helping adolescents to improve their lives and strengthen their communities.” [17]

Next, IKEA and Save the Children worked together to develop IWAY, which was launched in
2000.[18] IWAY is the IKEA code of conduct for suppliers. According to the IKEA website,
“IWAY is the IKEA way of responsibly sourcing products, services, materials and components.
It sets clear expectations and ways of working for environmental, social and working conditions,
as well as animal welfare, and is mandatory for all suppliers and service providers that work with
IKEA.”[19] In addition, IWAY is meant to have an impact in the following four areas: “promoting
positive impacts on the environment,” “securing decent and meaningful work for workers,”
“respecting children’s rights”, and “improving the welfare of animals in the IKEA value
chain.”[20] IWAY is used as a foundation to collaborate with IKEA’s suppliers and sub-contractors
to ensure supply chain transparency.

As mentioned previously, one of the main goals of IKEA’s partnership with Save the Children
was to address child labor in India’s cotton-growing areas. To do this, IKEA and Save the
Children developed a program that would ultimately help more than 1,800 villages between 2009
and 2014. More specifically, the program moved nearly 150,000 children out of child labor and
into classrooms. Also, as a result of this program, more than 10,000 migrant children “moved
back into their home communities.”[21]Last but not least, the program trained almost 2,000
teachers and 1,866 Anganwadi workers (whose duties include teaching students and educating
villagers on healthcare[22]) in order to provide each village with a community leader. This was to
ensure that the community had a skilled leader to assist in educating the villagers. In 2012, the
IKEA Foundation and Save the Children announced that they would expand with new programs
in Punjab, Haryana, and Rajasthan. This joint program illustrates IKEA’s commitment to
improving communities in addition to helping children go to school.

Conclusion & Looking Ahead

IKEA has taken numerous steps to ensure that suppliers abide by the IWAY Code of Conduct.
Companies around the world can learn from the policies IKEA has put in place to ensure that
each company has control and complete oversight over their supply chains, which can lead to a
more transparent and ethical supply chain. According to The IKEA WAY on Purchasing
Products, Materials and Services, one way in which IKEA does this is by requiring all suppliers
to share the content of the code to all co-workers and sub-suppliers, thus leading to more
accountability among the company's suppliers. IKEA also believes in the importance of long
term relationships with its suppliers. Therefore, if for some reason, a supplier is not meeting the
standards set forth by the code, IKEA will continue to work with the supplier if the supplier
shows a willingness to improve its practices with actionable steps to complete before a specified
period of time.[23]

Additionally, during the IWAY implementation process, IKEA monitors its suppliers and service
providers. To do this, IKEA has a team of auditors who conduct audits (both announced and
unannounced) at supplier facilities. The auditors are also in charge of following up on action
plans if suppliers are failing to meet the agreed upon standards specified by IWAY. Along with
this, “IKEA…has the Compliance and Monitoring Group, an internal independent group that is
responsible for independent verification of implementation and compliance activities related to
IWAY and Sustainability.”[24] IKEA also has independent third party teams who conduct
inspections on behalf of IKEA.[25] By conducting audits and putting together teams to ensure
cooperation from suppliers throughout the supply chain, companies can be better equipped to
prevent unethical practices in the production of goods and services. In Ximeng Han’s Analysis
and Reflection of IKEA’s Supply Chain Management, Han highlights IWAY’s importance in
maintaining links with IKEA’s suppliers.[26] Therefore, IWAY plays a crucial role in ensuring
supply chain transparency and in building a more ethical and sustainable supply chain.

In addition to all of the policies IKEA has put in place to address issues in its supply chain, the
company has also donated a lot of money to combat child labor in India. More specifically,
according to an IKEA Foundation article written in 2013, “Since 2000, the IKEA Foundation has
committed €60 million to help fight child labour in India and Pakistan, aiming to prevent
children from working in the cotton, metalware and carpet industries.” [27] Furthermore, in 2009,
the company announced that it would donate $48 million to UNICEF to “help poor children in
India.”[28]

IKEA’s goal to completely eliminate child labor from its supply chain is an ongoing battle, and it
is still committed to ensuring that this is ultimately the case. More specifically, it is extremely
difficult to completely eliminate child labor from a company’s supply chain because of the
various aspects involved. According to a report published in 2018 by the International Labour
Organization, these aspects include a legal commitment, building and “extending” social
protection systems (including helping people find jobs), “expanding access to free, quality public
education,” addressing supply chain issues, and providing more protection for children in
general.[29] Furthermore, Han points out the potential downsides that could arise as a result of
having a global supply chain like IKEA does. Given IKEA is an international retailer, the
company “has to spend a lot of time, money and manpower to enter new markets due to the
different cultures, laws and competitive markets in different regions, and there is also a
significant risk of zero return.”[30] Han also argues that the COVID-19 pandemic showed IKEA’s
and many other companies’ inability to respond to “fluctuations in supply and demand,”
primarily due to inflexible supply chains.[31] This information points out the various aspects that
need to align in order to completely end the issue of child labor throughout the world, as well as
the difficulties of having a global supply chain, which is why child labor is so difficult to
completely eliminate.

Specific to IKEA’s actions, in 2021, IKEA announced three key focus areas for its action pledge:
“Further integrating children’s rights into the existing IKEA due diligence system (by reviewing
IWAY from a child rights’ perspective in order to strengthen the code),” “accelerating the work
to promote decent work for young workers,” and partnering “up to increase and scale
efforts.”[32] IKEA’s fight to end child labor in India highlights the importance of supply chain
transparency and putting policies in place that ensures cooperation from suppliers and all parties
involved. Additionally, in a Forbes article written in 2021, “According to the data from the
OpenText survey…When asked whether purchasing ethically sourced and/or produced products
matters, 81 percent of respondents said yes.”[33] Steve Banker, who covers logistics and supply
chain management, also adds, “What is interesting is that nearly 20 percent of these survey
respondents said that it has only mattered to them within the last year, which indicates that the
Covid pandemic, and some of the product shortages we have faced, has made consumers re-
evaluate their stance on ethical sourcing.” [34] These results confirm that customers are now
considering how a product was sourced in their purchasing decisions, which makes it even more
important for IKEA to be transparent about its efforts to eliminate child labor from its supply
chain. Furthermore, the company’s open commitment to eliminating child labor and helping
communities in India is beneficial in maintaining a positive relationship with its stakeholders.

The increase in globalization has made it even more essential for companies to monitor their
supply chains and have complete oversight over business practices. IKEA is one of the
companies leading the way in building a more ethical and sustainable supply chain, but more
companies need to follow suit and implement policies similar to IWAY that holds all parties in
the supply chain accountable for their actions. Through supply chain transparency and
accountability, companies will likely be better equipped to handle issues that arise throughout
their respective supply chains. Furthermore, by implementing new policies, conducting audits,
and maintaining close communication with suppliers, companies can work to eliminate child
labor in their supply chains and put children where they belong: in school.

Reflection Questions:
1. What does this case teach you about supply chain ethics?
2. What are some of the ways in which management/leaders can ensure compliance of the
standards set forth by a company in terms of supplier behavior and ethical sourcing?
3. Who is primarily responsible for ensuring ethical behavior throughout the supply chain? Is
it the company? The suppliers? Both?
4. How can companies utilize the various platforms and technologies that exist today to better
understand and oversee their supply chains?
5. IKEA has taken numerous steps to address child labor in its supply chain. Do you think
every business working in a context that may involve child labor has a duty to act in a
similar way? Why or why not?