Case Study Solution
Case Study Solution
The case which is discussed throughout this document is “company’s Global Sourcing Challenge: World Rugs and Child Labor”. Internal analysis of company and issues faced by company are discussed. First introduction of company is given which included information regarding model of company business and its products. The progress of company since its inception is also discussed. It is also discussed that how company is different from its competitors and what are its strategies and values. Strategy that company used for its customers and suppliers is also defined. Company efforts towards its vision and basic values are reason for its success. The way of company for planning of its future is emphasized. Then key issues and problems that company and related companies from same industry faces are also highlighted. These are those key problems that face by companies which are based in developing countries but having presence throughout the world. So these companies have different issues like rules and regulations of underdeveloped countries are different from developed countries. Company is also facing these type of issues which includes child labour. There is negative impact of child labour and other environmental issues on revenues of company. Then it is highlighted that how company approach to issue of child labour. Company consider child labour as main issue because it is against its company’s values. Also company had been penalized in the past for not meeting standards of required quality for its products in 1992. Company had failed to meet required standards on formaldehyde for some of its products. Which results in loss of company sales by 20% and loss of around $6 to $7 million. Then analysis of respond to German video program is followed.It is concluded from analysis that invitation needs to be accepted because it provides Barner to have live conversation during on-air programming. It generates a probability to give better explanation of their concerns about their relationship with World. Specifically, Barner can possibly demonstrate her thought of mind with a clear justification letting people know that for her it is more important to be more concerned about the company reputation as she is only responsible for this. Then analysis regarding actions on supply contract with Rangan Exports has debated. It is concluded from analysis that company concerns about the most strategic and rational technique in reference to the child labour problem should provide Rangan Exports with another chance to assist them in overcoming this dilemma. The company can maintain its reputation in the market and somehow can bear the loss created by one supplier. With the stable reputation in the market, company will surely cover up its financial crisis within a short period of time. Then long term strategy is suggested which company should consider in under developed country like World. The long term strategy which is suggested is the same strategy that was used by company in Poland could be borrowed. The strategy was to outsource production of furniture and not produce by its own. Company also needs to make sure that they involve public through its marketing actions which should be helpful in understanding company’s intentions. Company needed to make sure that child labour is not used for their products. Discontinuing operations from World would not ensure solution to child labour but also negative reputation would be built that company is not taking any reliable action to solve basic issue. It is also suggested that company should sign up to Rugmart because they are experienced in this field of child labour and ask Rugmort to establish and monitor process suggested by company. However, company needs to take surprise audit for that program to make sure that required purpose is achieved.It also concluded on the basis of evaluation that company should resolve route cause of child labour in order to support its long term vision. It also be noted from evaluation that if company remained in World market then it would result in higher costs for consumers. However, conflicts of interest for society and management would be resolved. Introduction:
Company is an international company in Sweden. It is mainly a home furnishing company founded by Ingvar Kamprad in 1943. He named the company at the age of 17 when he initiated his first mail-order company. It was named as company by a combination of terms relating to his personal life from his personalizes to his family farm i.e. Ignvar Kamprad Elmtaryd Agunnaryd. He started his vision to make true by selling his some goods procured by a cheap source for the local retailers by newsletter advertisement. In 1948, by the additional advertisement in the newsletter about the furniture has matched the criteria with its competitors. It has led to renounce the goods sale and begin with furniture. For the customer satisfaction and reduce the rate of returns, he purposely opened a store in anAlmhult named township near his hometown. Later on, the small newsletter advertisement transformed into a catalogue.
Since 1950 to late 1990s, it has made tremendous progress in both the revenues as well as in expanding of the business. Initially, it had one store while in the late 1990s it has more than 100 stores residing in multiple countries. The company was growing so well in competition with leading rivals in the market. The competitors due to declined sale threatened the suppliers of company to not take orders at low rates. In 1961, company contracted with many of the factories manufacturing furniture and thus it again came up with low costs. On the other hand, company divided its store in a number of departments like cheap price cafeteria, children play-area, as well as a Sweden Shop for the cuisines making it a popular exporter of food. However, over a period of time, the product range was expanded ranging from carpets, floorings, lamps to various product line required in furnishing home.
The motive of the company was to sale quality products with reasonable prices with variation in products globally based on a vision to create a better lifestyle for almost everyone. Every year, the company celebrates an anti-bureaucrat week to establish better contact between the suppliers and customers. Kamprad believed on the fact that it is only possible to make no mistake while you sleep. However, the idea of planning for the future was highly encouraged. In 1986, Kamprad was replaced by his Personal assistant who was an experienced person of the company.
In the mid period of 1990s, company has a broad working networking with about 70 countries tracking down its products about 11,200. It worked with almost a larger number of suppliers around 2300 globally.When there were ecological issues arising about company’s products simultaneously the issuance on the child labor emerged. This has led the company to face the challenging situation in the maintenance of their relation with suppliers. Due to this reason, company’s popularity decreased dropping the 20% of its sale in Denmark.
Case Study Help: Key Players
There are two key players in this case one is company company and other is its suppliers. Company’s strategy is to outsource its product manufacturing to suppliers. These suppliers are usually third party and based throughout the world.
Case Study Analysis
The strategy of outsourcing has some issues like rules and regulations of these countries. Sometimes suppliers from these underdeveloped countries does not follow required standards as compare to developed countries. So these weak rules and regulations can result in weak environment policies or child labour. There is negative impact of these issues on revenue of the company and also reputation of the company. Because most of the company’s customers are based in developed countries. These customers have high expectations from company in terms of good quality products with low cost. These customers have also high expectations from company in aspect of social responsibility. They wanted company to be socially responsible and wanted that it did not have any connection with child labour or any other environment issue. As company got its supply of carpets mostly for under developed countries like World, Pakistan, Nepal. These under developed countries have uncontrolled child labour. So this is main problem that company is facing recently. The company is not controlling its suppliers effectively. Also underdeveloped countries allow child labour because of poverty. So company cannot depend on local government for resolving this issue. Company strategies also did not work well enough to address this issue.
Approaching Issue of Child Labour
Company strategy is to maintain high level of social responsibility because it is one of the significant catalyst in success of company. Company is concerned on child labour issue and other environmental issues to support this strategy. There was factor of social responsibility which was engrained in the culture of company’s founder Ingvar Kamprad. People from World had conflicting views regarding child labour and social responsibility. According to World people child labour is not bad if it is allowed by parents or if children are working under supervision of their parents. There is common practice of child work in World and government is also relaxed over this matter if it is unbounded child labour or if their parents are agreed and allowed their children to work. Children are also permitted to work in craft industries to make sure that skills from earlier generation are not lost. Additionally, company was also encouraged by Swedish Save the Children organization to act “in the best interest of child”. According to this they would be doing only that work which is in the best interest of children. They would not be involved in any transaction in which child labour is used or there is any possibility of environment issue. Most of the families would be lacking important source of income because they are dependent of child labour. Their basic expenses like food, clothes are satisfied through their working of child. Also laws are not strict enough to address issues of environment or social issues like child labour so companiesneed to worry whether it is appropriate to conduct business in World or not. They needed to make sure that their business does not engage in any activity which is against social responsibility. The decision needs to be taken by also incorporating philosophy of social responsibility from the perspective of consumer not from perspective of suppliers. Consumers should not be having doubt their company is engaged in any unwanted activity. There could be negative result if standards regarding social responsibility from consumer point of view are not followed. There was case happened in 1980’s. Company had failed to meet required standards on formaldehyde for some of its products. In that case company had lost its revenues by 20% in Denmark. Because company’s reputation in the eyes of customers had declined. In 1992 there was also loss of around $6 to $7 million. This loss was resulted from discontinuation of a popular bookcase series because it was not according to required level of formaldehyde. This also harm company’s reputation significantly.
Response to German producers on Video Program:
In response to the invitation of German producers for company, the invitation should need to be accepted. The first foremost thing to consider is that the documentary is made by a German company. However, it is not mandatory to accept the invitation and be part of the live conversation but it is of crucial importance. As it provides Barner to have live conversation during on-air programming. It generates a probability to give better explanation of their concerns about their relationship with World. Specifically, Barner can possibly demonstrate her thought of mind with a clear justification letting people know that for her it is more important to be more concerned about the company reputation as she is only responsible for this. It is important to eradicate the criteria of child labour but this can possibly not done by stopping business links with their partner companies which involve the trend of child labour. This perception of Barner might help her in maintaining company clear reflection and may also lead to stronger relationship of the companies. It also provides company to aware the German producers to fight against the child labour.
As the German Producers had only offered company to view some of the shots from their documentary. They should be requested to let them watch the whole movie instead of some shots which shows certainly an unclear image of the fact. This might be the strategy of German producers to prove themselves right against the allegation but leaving company behind full of doubts about their relationship with the companies of World on the issue of child labour.
On the contrary, the company has been positively portrayed about the issue of Child labour when the problem was initially put up by the Swedish Television. There are a set of information on child labour by company which was significantly collected by ILO and UNICEF. This information truly demonstrates the same viewpoint as same as that of the documentary makers. This will let the producers to perplex about the problematic issue by clear representation of child help during their labour at the manufacturing industries.
As the television industry has great potential to show false news as the truth by their excellent ability to modify any lie into a truth and makes people believe on it without any doubts. Therefore, it seems quite impossible for Barner to assess the documentary before the session. As the German producers refused to show their documentary to company before it is telecasted simply indicates there evil intention of point the finger at someone and their relationships with company possibly. There may a strong contradiction that the company is fearlessly engaged with an organization which uses child as their labour and continue their relations to earn revenues with the suppliers while being aware of the fact.
Furthermore, Barner has a strong point of justification which is their philosophical statement i.e. everyone makes mistakes but one takes its responsibility. The responsibility of the mistakes taken by anyone is considered as the best source of pride.Despite of the fact that company was not aware about the growing concern over the child labour as well as the involving child’s as labours by the industries, the suppliers of the company. During the acceptance of contract, company started investigation against its supplier industries around the world. The management of company is not afraid of accepting its mistakes if shown in the documentary by German producers. It will accept its mistake and take measure to put it right again.
Barner can also come up with another justification on the inefficient responsibility over social concerns. It is intending to be involved with the social concerns but has not taken such measures yet. In the field of marketing, company is on top with excellent ideas as well as its eye-catching products.
The concerns of the company is towards leading long term relationships with its network of distribution globally. Company is not recently involved in any of the social activities about the rights and concerns of each individual working in the industries and earning them a handsome profit. In future, company will plan to be part of responsibility over the social concerns.
Hence, it can be concluded that as per the concern for the company’s reputation and share of share should accept the invitation and present it valid thoughts only in case if everything in documentary is against the company. Specifically, company had started a Foundation based on the principle of protecting rights of child labour and to provide them with free environment to educate themselves.
Actions on Supply contract with Rangan Exports:
Under the company concerns about the most strategic and rational technique in reference to the child labour problem should provide Rangan Exports with another chance to assist them in overcoming this dilemma.
Company needs to take some measures in order to determine of the truth. If the proof against the Rangan export is true thus leading it in the failure on the moral level which were outlaid by company. This clearly indicates that on company, the supplier industry resulting in contravention on the child labour issue.
Subsequently, company works with a vision of creating better lifestyle for every individual which is a strong representation for the enterprises to stand for the rights of workers of Rangan Exports. The concept of child labour does not involve a single company as a vast network of companies are responsible in putting it ahead. This is one of the most critical issue of social concerns and it would be injustice to blame a single one.
Barner can consider two alternatives to resolve this issue. At first, either termination of the contract with the Rangan Expors on the basis of involving child labour to work after the investigations to be sure about the fact. If the management of company not decides for the contract termination, this brings a threat of losing brand position and reputation. This might result in the financial decline state of company by decreased ratio of sale, less popularity of the brand and the concerns over social responsibilities. As it is surely not supported by the inhabitants if any country to include child labour. This substitute is legal and reliable with the policy of company. The main drawback of this substitute is the company deprivation with a worthwhile association and may result in the terminating relations with the sources of rug by World.
The second alternative is to warn the supplier industry with continuation of the links with a promise to let not do this mistake again and surely inhibit the child labour. This will help in maintenance of the healthy association between the supplier and the company. This also provides a chance to better teach the suppliers about the drawbacks of the child labour. However, this decision is made on the basis of company’s self-created policy. This makes obvious for the all suppliers that company is strictly against the child labour and truly condemn it. This may have a bad impact on the market reputation of company by the generation of false publicity.
As it is for the second time that company became a victim of child labour which has greatly damaged its reputation. For this purpose, Barner should pursue the help by ILO and UNICEF as well as NGOs which may assist Rangan in escaping the need to used child labour for the rugs manufacturing. It may choose to spread awareness among the residents globally about the social concerns and how one’s life is influenced by in terms of social, and ethical values.
Company by the adoption of first alternative, terminates its relationship with thesupplier violation. If results in the failure then portray a bad impact on all suppliers by the increased power of bargaining and the violation of the policy of company. Moreover, it can make a charge for the behaviour which is not ethically right. Thus, Barner should make the decision of disuniting with Rangan public. The press should be called upon for the announcement of their decision with its reason with the summarization of the policy of company on the use labour of child. She should report all the whole scenario of the issue emerged and be sure that all the suppliers are strictly following the rules of the contract. If any of the supplier found in compliance to exploitation of the any of the contract rule offering labour of child should be fired.
In sum, the company can maintain its reputation in the market and somehow can bear the loss created by one supplier. With the stable reputation in the market, company will surely cover up its financial crisis within a short period of time.
Strategy Regarding company’s Operations in World
Company strategy is basically focus on long term relationship with its suppliers rather than short term. This long term strategy helps company in getting competitive and reliable supplier source. For long term relationship they used to help their supplier to make full use of their capacity. For example, they asked suppliers to provide products and services other than their core products and services. The same strategy that was used by company in Poland could be borrowed. The strategy was to outsource production of furniture and not produce by its own. Company also needs to make sure that they involve public through its marketing actions which should be helpful in understanding company’s intentions.
Their intentions should also be justifying company’s policy. Their actions should also be according to Kamprad’s view i.e. “create a better everyday life for many people”. They believe that they can achieve this goal by providing best quality products with low cost. But at earlier time company had no focus on environmental and social issues which also contains child labour they used to focus on only one strategy i.e. providing affordable and quality products to customers. So as time passed they needed to include other values too to their focus. That improved focus could help company in improving its reputation towards its customers. The new focus included the viewpoint “in the best interest of the child”. So for that purpose it needs to be make sure that engagements in World would be fulfilling the required purpose too i.e. they did not engage any activity which includes child labour. Majority of population in World is below poverty line so there is culture of child labour and also child loan. Parents used to allow their children to work in compensation with money. Discontinuing operations from World would not ensure solution to child labour but also negative reputation would be built that company is not taking any reliable action to solve basic issue i.e. child labour.
There would be also one other negative effect i.e. disagreement from public. As there is common view point that big companies are always selfish and are interested in only generating profit and consumers would be thinking that company is one of them. Public has common view that these companies should be socially responsible to society as like they are required to be responsible to its shareholders. If company did not take any possible step to solve problem of child labour then it would result in loss of sales and company’s value too. For a company like company reputation loss is huge loss because value of company also based on it and also there would be decline in revenues and goodwill if there is any reputation loss.
However if company consider only sales figure then getting out from World market is preferable. Because sales from World market only contributes small portion to company’s revenues. In an economical/capitalistic view risk is more than benefits. But to achieve company’s long term goal i.e. “to create a better everyday life for many people” and “in the best interest of the child” it is recommended to not get out from World market and continue operations in World market with taking necessary precautions.
Company needed to make sure that child labour is not used for their products. So for that purpose company needs a system that can monitor whole procedure. That system should quickly detect whenever child labour is used in any activity. Suppliers should be encouraged to provide education to children so children can learn something. For that purpose, suppliers would be having financial issues. As supplier has lack of financial resources to provide education to children, so company should help supplier financially and provide them financial aids and ask to offset by future deliveries.
There could be one other solution for this problem that company could install its own manufacturing company combined with school. All financial needs of that school could be met by proceeds from that manufacturing company. Company should run this school by itself and its auditing task should be given to any other institute like Rugman to make sure it is working properly for best interest of children.
Company Should Sign up to Rugmark
Company believes that every company has its own strengths and weaknesses. As company has no experience regarding child labour so new staff would be required for this purpose. It should sign up to Rugmart becausethey are experienced in this field of child labour and ask Rugmort to establish and monitor process suggested by company. Apart from this there should be also random monitoring from company to make sure that required purpose is achieved.
Resolving Root Cause of Child Labour
Company needs to resolve root cause of child labour in order to support its long term vision. For that purpose child welfare and education needs to be promoted. There should be partnership with suppliers and encourage suppliers to execute programs for child welfare and education. As suppliers had lack of resources so they should be provided financial aid and asked then to offset by future orders. This is long term strategy not short term solution. So it could not be performed by company alone. Company starting executing its strategy in multi ways. There was partnership between UNICEF and company. The purpose of this partnership was to provide education to all children who are working in carpet producing cluster. For example some alternative learning centres were established for those children who were not permitted to get education from public schools. Community welfare was also promoted through this program. In addition to this partnership they also partnered with their suppliers in order to create solution for problem of child labour. There was program established with supplier. The significant quality of program was audit of suppliers on regular basis. Corrective action plan would be required if there was any child labour found during audit. In corrective action plan child labour is required to be eliminated and supplier is required to compensate for welfare and education of that child. Then there would be proper follow up from company to make sure that in real required corrective action plan is implicated. However if it is found that supplier did not take any corrective action plan then company would broke contract with that supplier and there would be no trade with that particular supplier in future.
Evaluation of company’s Strategy
Company has commitment to its customers to provide high quality products with low prices. Their strategy would make full use of engaging suppliers and work together to resolve issue of child labour. However according to my personal perception as from shareholders point of view, company is not using its resources efficiently through this strategy. They would be having tough choice in future from deciding that whether to increase return on investment for shareholders or continue involvement with social responsibilities of World and UNICEF. Shareholders would be having negative image of company because of less return of investment if is heavily invests for social welfare. If company remained in World market then it would result in higher costs for consumers. However conflicts of interest for society and management would be resolved. A customer would not feel comfortable when he came to know that he purchase a rug which was woven by child but is now getting educated by supplier of company. But he would be feeling more comfortable when he came to know that he purchase a rug on slightly higher price which was not woven through child labour.
It can be concluded from analysis that company had been facing problem in under developed countries because rules and regulations of under developed countries are different from develop countries. The main problem that company is facing currently is child labour because a German documentary maker makes documentary of a supplier of company that was using child labour for production of goods. It is concluded that company should accept invitation to live discussion because in this way they would be having opportunity to defend and explain their case to public.It was also concluded that company should sign up Rugmart because company has no any knowledge regarding child labour and Rugmart is professional having knowledge regarding issues of child labour.As company has no experience regarding child labour so new staff would be required for this purpose. The strategy that is suggested for child labour is that there should be partnership with suppliers and encourage suppliers to execute programs for child welfare and education. As suppliers had lack of resources so they should be provided financial aid and asked them to offset by future orders. This strategy would make full use of engaging suppliers and work together to resolve issue of child labour.
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