global strategy hw

IKEA’S GLOBAL SOURCING CHALLENGE

The Richest 1% Now Own More Than 50% of the World’s Wealth • There are increasing numbers of dollar millionaires

• Almost half of the new dollar millionaires are in the U.S.

• Despite higher mean wealth per adult, median wealth fell again this year in Africa, Asia- Pacific and Latin America

• Those with low wealth tend to be disproportionately found among the younger age groups

• Millennials are more likely to be unemployed or earning less, priced out of the housing market, and unable to get a pension.

• Baby boomers have most of the wealth and the housing, so “millennials are doing less well than their parents at the same age.”

• http://fortune.com/2017/11/14/credit-suisse-millionaires-millennials-inequality/

What is the role of MNCs?

What is the role of MNCs?

• Huge increase in the use of outsourcing as a core part of the global strategy

• How companies, especially MNCs, can and should respond to the different labor laws that they find in the countries to which they are outsourcing their activities

Labor Exploitation

• How to define it?

Labor Exploitation

• How to define it?

• Relative to industry practices?

• Relative to local conditions or home country standards?

• Measured by worker treatment?

• Measure by firm profits?

What can we (companies) do?

• To examine corporate social responsibility related to a company’s global ethical standards

• To understand a company’s strategies in culturally different environments

• To explore the balance between the economic benefits of outsourcing and the strategic risks it may bring to a company’s brand image

Corporate social responsibility (CSR)

• Corporation's initiatives to assess and take responsibility for the company's effects on environmental and social wellbeing.

• The term generally applies to efforts that go beyond what may be required by regulators or environmental protection groups.

• Examples: o The diamond industry has come under fire for benefiting from injustices along

its supply chain, e.g., "Blood diamonds“ o Fair trade

Slavery in the Thai fishing industry

• Thailand supplies a large portion of America’s seafood, but Thailand’s giant fishing fleet is chronically short tens of thousands of fishermen per year

• Human traffickers have stepped in

• Once at sea, the men may never return to land – unless they escape

• https://www.oceans8films.com/ghost-fleet/

• https://www.vulcanproductions.com/ghostfleet/thefilm

• https://www.npr.org/sections/thesalt/2019/07/15/741138111/this-fearless-woman- is-fighting-to-keep-slavery-out-of-your-seafood

How many slaves work for you?

How many slaves work for you?

• http://slaveryfootprint.org/survey/#where_do_you_live

For methodology: http://slaveryfootprint.org/about/#methodology

Why don’t we know about it?

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Institutional Voids in Emerging Countries

 Access to Products Markets

 Access to Labor markets

 Access to Capital markets

 Political and social systems

 Bureaucracy

Note: Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries.

As discussed in Khanna and Palepu (1997).

Take a break

IKEA- Contractors

• Does IKEA have any responsibilities regarding the activities of their contractors?

IKEA- Standards

• If IKEA has established a set of standards for its contractors, what sort of compliance should be sought? oLocal standards or some other global standards? oDoes it depend on company size? Operating margin?

• As Marianne, what action would you take regarding Rangan Exports given the evidence provided by the television producer?

• Should IKEA take such strong action immediately without giving Rangan a chance to defend itself?

• Should Marianne send an IKEA representative to appear on the television program?

Media Questions

• A year ago, IKEA was identified by a Swedish television program as one of the companies buying carpets from suppliers that use child labor. How do you justify that a year later, you are still engaged in the same abhorrent practice?

• Why have the contract changes and internal audits you claim to have implemented been so ineffective?

• Why have you not joined Rugmark?

• Can you assure your customers that any product they might purchase at IKEA in the future will be free from child labor?

• Should IKEA join Rugmark initiative, a coalition of exporters, manufacturers, and some loccal NGOs? How effective will it be?

• Pros and Cons

• Given the difficulty of controlling this problem, and the potential risk it creates for the brand image – and perhaps even short- term profitability if there is a consumer boycott – is it worth the risk?

• If IKEA leaves India, what are the consequences? oIKEA will lose oIndian suppliers will lose oHow about those children?

Asking the Right Question!

• Instead of asking what should IKEA do given the publicity crisis

• It is crucial to ask: what/who should be IKEA’s priorities o Its own profitability? o Its own brand image? o Local suppliers? o The children?

“Acting in the best interest of the child”

• What does this mean to IKEA

• What can IKEA do toward this goal?

Epilogue

• Soon after Rangan’s Exports’ contract was canceled, IKEA learned that the German TV program had fabricated the evidence.

• After reinstating its supplier, IKEA sued the television company and passed the settlement on to the supplier who chose to use it to build a school next to the factory

• IKEA declined to participate in the Rugmark initiative, feeling uncomfortable with its ability to guarantee that “no child labor has been employed in this rug’s manufacture”

• Finally the company decided not to retreat form India, but to commit to long-term actions to help them deal with the child labor problem of which there were a part

Compliance or Integrity

• Compliance strategy: seeks conformity with externally imposed standards and is primarily aimed at avoiding legal sanctions.

• Integrity strategy: based on the notion of self-governance in accordance with a guiding set of principles.