IKEA and Unbonded Child Laborers

Executive Summary
IKEA’s core founding value was based on the concept of making life better for people by giving them access to affordable products (Bartlett, Dessain & Sjoman, 2006). The problem that arose for IKEA in the 1990s, several decades after IKEA’s founding, was the issue of child labor and whether or not IKEA should continue to source rugs from a supplier that had been reported as using child labor in its manufacturing of rugs. From a social issues standpoint in the Western perspective, IKEA had to break ties with the supplier; however, in countries like India, unbonded child labor was not viewed as heinously as it was in the West: on the contrary, it was socially acceptable because children worked under the guidance of their parents and learned their trade in this manner. To break ties with a supplier that was simply engaging in a traditional custom of its country could be hypocritical. This paper examines the case and provides a recommendation for IKEA to assess whether the child laborers are bonded or unbonded—and if the latter then the company should continue to source from the supplier without worry as this would actually help Indian families.
Case Analysis
An IKEA supplier of Indian rugs has been the subject of a German television news report on child labor. This is problematic for the company because the CEO of IKEA “was being urged to sign up to an industry-wide response to growing concerns about the use of child labor in the Indian carpet industry” (Bartlett et al., 2006, p. 1). The Swedish Save the Children organization and a collective of “manufacturers, importers, retailers, and Indian nongovernmental organizations (NGOs)” were applying pressure to IKEA to “do the right thing” and sever ties with suppliers who used child labor in the production of their rug products in India (Bartlett et al., 2006, p. 1).
While on the face of it, child labor appears unethical—there are actually two types of child labor that exist in India: 1) bonded child labor and 2) unbonded child labor. In the former case, the child is basically in indentured servant who is used like a slave to pay off the debts of his or her parents at such high interest rates that it often takes a lifetime and sometimes longer to pay them off, in which case the debt is passed on to the next generation. This type of child labor is particularly offensive to Westerners. The other type of child labor involves the working of the child typically alongside the parents in whatever field they are in, whether in rugmaking or agriculture, etc. The child learns the parents’ trade by working alongside them and this is an ancient custom that simply seems foreign to modern sensibilities because in the modernized West all children are expected to attend public school. In India, where ancient customs continue to persist, there is a way of life that is much humbler and simpler.
The problem for IKEA is that if the company severs ties with the supplier it could actually end up hurting the Indian workers and families rather than help them. Many families in India depend on these jobs to make a living. Yet, IKEA is being pressured into cutting ties by other Western companies and organizations as part of a strategy of promoting corporate social responsibility. Is it mere virtue signaling (Orlitzky, 2017) or is there a real need to address this issue from a human rights point of view (Smolin, 2000)?
PEST Analysis
The PEST model of analysis allows for political, economical, social and technical factors to be considered when deciding on a course of action for a company. In the case of IKEA and its supplier dilemma, the PEST analysis would break the issue down into these four categories:
Poltical. IKEA is under pressure to appease various political and non-government organizations regarding the use of child labor in industry. IKEA can continue to sell its products around the world even if they are produced by child labor, so the political threat is low. Furthermore, India has no laws in place banning child labor, so IKEA is not breaking any laws there.
Economic. IKEA is not going to be affected economically by abandoning the supplier in India. The rugs account for only a small portion of what IKEA sells. However, this could set a precedent for the industry, which could have economic ramifications for families in India. The economic benefit of continuing with the supplier is that it provides families with an income in India and provides IKEA with access to cheap but durable rugs.
Social. The social threat is that IKEA develops a reputation as a company that does not care about human rights or child labor abuses. IKEA would have to explain its position, which can be understood only when the subtle nuances of culture, tradition, custom and bonded vs. unbonded are defined. Most people are unlikely to pay attention long enough to sit through such an explanation—so socially speaking the threat of damaging the brand is legitimate and significant; however, it is not insurmountable.
Technical. There are no substantial technical threats to this issue. IKEA will remain a solid leader in the home furnishings industry. Abandoning the supplier would not harm IKEA’s supply chain or disrupt its customer service. It could find an alternate supplier for rugs as well, so there is no substantial technical threat.
Conclusion and Recommendation
An investigation is required before anything is done. IKEA needs to assess the situation of its India supplier to ascertain the facts. The agendas of the various organizations pushing IKEA to cut ties with its Indian supplier may be other than they seem and IKEA should not act just to pacify these groups. IKEA’s core founding value is based on making life better for people—not harder. Cutting ties with the supplier because children work on the rugs may seem like the righteous thing to do in the eyes of Westerners—but what about in the eyes of the Indians themselves who make those rugs and whose livelihood is dependent upon being able to sell them to companies like IKEA? By refusing to buy from them because children take part in the process, learning under the guidance of their parents, would be potentially catastrophic for those families. That is all they know. Opportunities for schooling in India are not as plentiful as they are in the West, nor does an education necessarily translate into better opportunities for supporting a family in the future. India’s families depend on social and traditional customs—and so long as the children are not being exploited through bonded labor, IKEA really has to respect the culture of the Indian people and not give in to the peer pressure coming from Western organizations that are offended by any type of child labor and do not bother to look at the subtle nuanced differences between bonded and unbonded labor.
For that reason, IKEA should not sever ties with its Indian rug supplier—at least not yet. First, it should investigate to see whether the children are being exploited via bonded labor. If so, then the company should address the issue by obliging the supplier to either end the bonded labor contract and employ the families as unbonded laborers or move to another supplier, or even contract with the families directly. The company cannot conscientiously condone bonded labor. But if the contract is unbonded this would be acceptable is it is traditional and there is no exploitation.

References
Bartlett, C. A., Dessain, V., & Sjöman, A. (2006). IKEA's Global Sourcing Challenge:
Indian Rugs and Child Labor (A). Boston, MA: Harvard Business School.
Orlitzky, M. (2017). Virtue signaling: Oversocialized “integrity” in a politically correct
world. In Integrity in business and management (pp. 190-206). Routledge.
Smolin, D. M. (2000). Strategic choices in the international campaign against child
labor. Hum. Rts. Q., 22, 942.