Question

In IKEA’s Global Sourcing Challenge case, we discussed child labour in India. India's Child Labour Act of 1986 prohibits the use of child labour only in certain defined hazardous industries, and explicitly exempt craft industries so that specialized handicrafts skills could be passed on from generation to generation. Even though IKEA never violated the country’s local laws and regulations, the company considered terminating the supply contract with Rangan Exports. Explain why.

Answer 1

Even though IKEA has never violated the country’s local laws and regulations, the company has its own policy as well which is against employing children as laborers. The company had explicitly made this policy change after 1994 when use of child labor was detected in Pakistan.

Ikea's no child labor clause is clear about violation of its no child labor policy. The clause states, "if the supplier employed children under legal working age, the contract would be cancelled". After the company confirmed the violation of this clause by Rangan exports, it has decided to terminate the supply contract with them. Had the company not terminated the contract, it would have sent a wrong signal to other suppliers across the world as well.