Value-transmission in Multinational Corporations

The case study is a good exercise for contemplating value-transmission in multinational corporations and shows the difficulty of staying committed to development in the countries of operation.

IKEA Case Study

IKEA’s global sourcing challenge with Indian rugs and child labor exhibits the challenges and complexities of conducting international business. This case is particularly interesting because it shines light on a company’s response to new issues in corporate social responsibility brought about by globalization. The events take place at a time when the concept and definition of corporate social responsibility was rapidly evolving in the wake of increasing media coverage of labor violations on major Western companies.

It brings about the challenge for these global companies: how do you shift to address these new issues while maintaining the strongly held values and beliefs that were the foundation of your success?

Discussion

While to the general public it may seem incomprehensible that IKEA not know the labor practices of one of their major suppliers of Indian rugs, behind the scenes was a complex supply chain with enough length for values to fall short. The problem is that IKEA’s relationship with its suppliers was dominated by commercial issues. Though that changed in the 1980s when environmental concerns with some of their products hit the news, the relationship wasn’t evolved enough to the point where Barner, in her role of business area manager for carpets in 1994, was aware of child labor in the production of IKEA’s products. Barner states that, in fact, “’we were caught completely unaware: It was not something we had been paying attention to. For example, I had spent a couple of months in India learning about trading but got no exposure to child labor.’” (Bartlett, Dessain, & Sjöman, 2006)

To their defense, child labor was not a high-profile issue at the time and was only beginning to gain traction in the media when the Swedish TV documentary exposed IKEA’s child labor usage in 1994. The U.N. Convention on the Rights of the Child (CRC) had only been published five years before, and both India and Pakistan were not signatories (Bartlett, Dessain, & Sjöman, 2006). According to the CRC, “The government should protect children from work that is dangerous or might harm their health or their education” and “Governments have a responsibility to take all available measures to make sure children’s rights are respected, protected and fulfilled.” (unicef)

Yet we still need to ask, should IKEA have been responsible for knowing? Theoretically, to conduct international business is to understand and take responsibility for the effects that your activities in foreign markets have on the communities and individuals involved. Therefore, to engage in international business, one must understand human rights law. It requires a company to engage in monitoring and evaluation of not only performance and practices, but also human rights. However, at the time, corporate social responsibility wasn’t widely discussed in the realm of international business. Though the concern for social responsibility became popular in the 1940s with the publishing of Theodore Krep’s Measurement of the Social Performance of Business, the scope was largely domestic. It was in the 1990s that the concept gained serious international traction, around the same time that IKEA’s global sourcing challenge occurred (Moura-Leite & Padgett, 2011). This is likely due to the rise in press coverage of labor violations of major Western companies during the early ‘90s.

So we see that the relationship between IKEA and its suppliers shifted from focusing on commercial issues to including social and political issues, as a part of their response to the 1994 social wake-up. IKEA indeed was, as Barner states in the case study, “‘not in full control of this problem.’” But were they responsible? It seems as if they felt they were at the time, judging by how committed they were to addressing the problem. Instead of dropping the supplier for violating their supply contract, which forbid the use of child labor, they took responsibility, per one of founder Ingvar Kamprad’s cornerstone’s of the IKEA culture – Exhibit 3 “A Furniture Dealer’s Testament – A Summarized Overview” presented in the case study. It was almost as if they took on the role of a State Party, in India’s absence, to “take legislative, administrative, social, and educational measures to ensure the implementation” of the U.N. Convention on the Rights of the Child: Article 32 (unicef).

At the time, it would have been appropriate for IKEA to have used the concentric?circle (CON) model of corporate social responsibility based on the code of conduct published in 1971 by the Committee for Economic Development. The model consists of concentric circles that supports a non-hierarchical relationship between economic, legal, ethical, and philanthropic business considerations. It allows for a company to meet demands for both economics and ethics without having to choose between them. Bearing this in mind, it would make sense that IKEA invest in external monitoring, education, and relationship-building with Indian NGOs as a means to protect their sales and improve ethics. But is the problem best solved through IKEA’s own relationships with its suppliers? Yes, to a point.

Conclusion

Overall, I think that the approach IKEA took to the issue of child labor was appropriate. Without getting involved deeply, IKEA’s knowledge of their supply chain would remain shallow. They would be more likely to repeat their mistakes and be unaware of human rights violations of their suppliers if they simply dropped the supplier and found a new one. They would not have discovered that the problem is deeply embedded in the cultural and political structure of the country, and they would not have developed important relationships with the United Nations and other organizations. Furthermore, it’s important for them to show a commitment to the Indian community and work to improve labor practices conditions. I would suggest that IKEA participate in the German television program so that they can control the narrative and show the media that they have a commitment to social responsibility, as well as the interests of the child. In true IKEA fashion, they would show their willingness to assume responsibility and help “create a better everyday life for the many people.” (Bartlett, Dessain, & Sjöman, 2006)

However, the supplier’s lack of respect and clear violation of IKEA’s contract is concerning. It leads us to believe that IKEA’s efforts to combat child labor at their suppliers’ in India, including hiring a third party evaluation team, were not successful. Looking at the bigger picture, we have to ask: with a multinational corporation, where do values fall flat?

The case study brings us through pages of Kamprad’s business philosophy. IKEA had clear values and a distinct organizational culture that was rooted in simplicity, cost consciousness, and performance – only one of which their Indian supplier possessed (cost consciousness). At a certain point, IKEA’s carefully designed culture did not trickle down to the suppliers. While open doors (literally) in the office encouraged IKEA employees to perform, labor rights violations were happening behind the closed doors of their Indian suppliers. They have proven to disrespect and violate their supplier contracts despite IKEA’s best efforts to reform their practices. This shows that multinational corporations can and will be faced with the decision to prioritize values when they are dealing with overseas suppliers. Culture and values did not trickle down to the supplier-level in the case of IKEA. Could they have conducted their supplier relationships in a more effective way to transmit their values? Or is the sheer nature of being a multinational corporation to accept that you will have to sacrifice some values in order to prioritize others?

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