The Problems IKEA Corporation Faced in the Late 1990s - Essay Example

Business activity has been a part of the history of mankind for thousands of years. As society has evolved so has the business world. During the 20thcentury the pace of business activity accelerated a lot and there has a proliferation of activity that has come due to the spread of international business activity. Many companies capitalize on this new environment such as Cola-Cola-Wal-Mart, and Ikea to become multinational businesses that are respected by the global consumers. Corporate Social Responsibility (CSR) is a new business trend that has become essential in to succeed in today’s business environment which raised the expectation people have of corporate activity. It can also be defined as the way in which companies manage their business processes to produce an overall positive impact on society (Mallerbaker, 2009). This paper discusses the problems Ikea Corporation faced in the late 1990’s associated with CSR issues particularly child labor accusations. Case Synopsis Ikea Corporation create a corporate culture that while it was streamlined and relaxing since the manager did not operate in beaurocratic manner, they also seem to forget about their responsibilities of the activities of the company abroad. Ikea was not well prepared to deal with international issues such as child labor. The company got a wake up call after some of its suppliers were caught involved in child labor practices. The company did not like the negative impact the revelation had on its sales and customer relations. The firm realizes its needs solutions to deal with the issues the company is facing. Issues The company is facing public relations problems due to accusations that the firm is involved in child laborer practices. The child labor violations occurred not directly at Ikea, but as indirect associations since major supplier of Ikea at being accused of such acts. The first reaction of the company was that they were unaware of the child labor activity and they are against that type of illicit activity. The company never before had dealt with these types of issues. The executives of the company were at fault due to their incompetent managerial activity in which they failed to implement any proactive measures that could prevent such circumstances from occurring. The business risk of the company is high regarding its public image. After the public relations issues the company lost 20% of its sales in Denmark (Barlett et. al., 2008). Problem Ikea is a company that has been able to successfully implement an organic growth model during the last 40 years. The enormous growth was achieved in part to the company ability to create a brand image that attracted many customers due to its quality, value, and lower prices. The business depends on the customer willingness to accept doing part of the work themselves such as picking up the merchandise and performing their own assembly. When the people heard that Ikea, a company that was able to gain an edge through its unique supply chain configuration, was doing business with suppliers that hired children the company loss many customers. A problem statement that summarizes the situation is: Ikea needs to take immediate action in order to resolve its supplies chain relations which include the existence of child labor among Ikea suppliers. Alternative Solutions A1 Ikea can deal with the problem by simply ignoring the accusations in hopes that the issue will go away by itself through the passage of time. Such a conflict resolution technique can be referred to as avoidance. Avoidance involves pretending a conflict or issue does not exist (Schermerhorn & Osborn & Hunt, 2003). The cost of implementing the technique are low as far expenditure are concern, but the business risk is high because if the public suspects wrongdoing then not talking about may be seen by the public as proof of guilt. Other companies such as Reebook have been successful at applying a more proactive approach to deal with child labor practices. Reebok was able to tackle the problem by eliminating not only contracts with known child labor practioners, but it also change work structures to eliminate at home work which many times is used as the baseline for child labor (Balaguer, 2009). A2 The company can take a strong stance and immediately discontinue all contracts with suppliers that were involved in child labor practices. The move would ensure the company retains its public image of a good corporate citizen, but it could have serious legal and economic repercussions. These suppliers could sue the company since there no guidelines in place regarding the use of child labor when the business ventures started. Also the move could place the company at a competitive disadvantage in comparison with competitors because the cost structure of the company would change overnight. A3 A third alternative is for Ikea to immediately start an investigation into the matter, while at the same time face the media in open conference in which the company took responsibility while at same time started an honest new strategic path discontinue practices that endangered their public image and the well being of other stakeholders such as the employees of its suppliers. The solution has its flaws because it does not propose any real changes while the investigation is going on. The company does not provide an adequate timeline for the completion of the investigation and nor does it revealed the corrective action that will take place once the investigation has concluded. A4 A fourth alternative for the company is to write a brand new code of conducts for both its internal operations and the activities of its suppliers. The supplier code of conduct would include an extensive chapter on child labor and its prohibition. The code of conduct would not only set standard, but it would also include the corrective actions applications to deal with situation concerning violations of the code of conduct. The solution allows the company dealt directly with the situation in a prompt manner. The general public should be satisfied with the results of this solution since the company is creating new bylaws that must be followed by themselves and their suppliers. The solution promotes a higher ethical standard for everyone involved in business dealings with the organization. Optimal Solution The optimal solution for Ikea to deal with the public relations nightmare associated with supplier caught in child labor practices is alternative four: the creation of a new code of conduct. This solution provides the best remedy because it attends the immediate problem while at the same creating a corporate governance framework to deal with similar issues in the future. It is an alternative that can be implemented in a reasonable short period of time whose costs are also relatively low. Conclusion Ikea Corporation became a global icon because it created a new business concept that was good for both the customers and the company. In essence the company was providing discounts to the customer in exchange for an implicit labor proposition in the acquisition of furniture items. The close relationship the company created with its customers help marketers gain insight into the preferences of the customers. The internal operations were doing great, but externally the company had issues in its supply chain. Some its suppliers were involved in child labor practices. The company was unaware of issue, but being ignorant is no excuse. Such a response is classical of unethical players who also want to the public that they are innocent because of lack of knowledge. In reality that level of incompetence in not acceptable for major player in the international community. Ikea is taking steps to remedy the situation by instituting a brand new code of conduct for both its internal and external operations which include the suppliers. This new initiative should help the company meet its short, medium, and short term objectives. Based on the resolutions of the ILO Convention number 182 (1999) Ikea has been able to implement a corporate governance framework to manage business issues such as child labor (The IKEA Position on Child Labor, 2007). References Balaguer, A. (2009). Child Labour Resource Guide. UNICEF. Barlett, C., Ghosphal, S., Bearmish, P. (2008). Transirional Management (5th ed.). New York: McGraw Hills. Mallenbaker.net. (2009). Corporate Social Responsibility. What Does it Mean? Retrieved May 26, 2009 from http://www.mallenbaker.net/csr/definition.php The IKEA Position on Child Labor (2007).. IKEA. Schermerhorn, J., Hunt, J., Osborn, R. (2003). Organzational Behavior (8th ed.). New York: John Wiley & Sons. Read More