IKEA is moving more production to Turkey to shorten supply chain

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ISTANBUL (Reuters) – Sweden’s takeaway furniture giant IKEA plans to move more production to Turkey to minimize problems with global supply chains and increased shipping costs, the company’s chief financial officer for Turkey said.

FILE PHOTO: The company’s logo can be seen outside an IKEA group store in Saint-Herblain, near Nantes, France, on March 22, 2021. REUTERS / Stephane Mahe

Products it is expected to manufacture and then export from Turkey, including armchairs, bookcases, wardrobes and kitchen cabinets, are currently being shipped thousands of kilometers from East Asia to the Middle East or European markets.

“Due to shipping problems we faced during the (Covid) pandemic, we are trying to produce more in Turkey,” CFO Kerim Nisel told Reuters, declining an estimate of how much capacity could be moved.

“We all saw in the pandemic that diversification is so important,” said Nisel. “It may not be a good strategy to produce items in one country and then try to get them around the world.”

The company has seven branches in Turkey and already exports three times as much as it imports to Turkey, where it currently makes textile, glass, ceramic and metal products for global export.

Nisel said the cost of a container from East Asia rose from $ 2,000 before the COVID-19 outbreak last year to $ 12,000. “It’s more rational to have them made closer to where they’re sold. That is why we want to have them manufactured in Turkey. “

IKEA’s move follows similar moves by other European brands like Benetton, which is bringing production closer to home by increasing production in Serbia, Croatia, Turkey, Tunisia and Egypt with the aim of halving production in Asia.

CURRENCY CHALLENGES

Stretching across Europe and the Middle East, Turkey says it is well positioned to benefit from changes in global supply chains.

“With its strategic location, Turkey has represented a strong alternative to the centralized and Asian production network of the pre-Covid era,” said Turkish Vice President Fuat Oktay on Monday.

While Turkey’s strategic location and strong manufacturing base might be a plus, hedging against movements in the lira – which fell near record lows on Wednesday – remained a major challenge for retailers, while high interest rates spiked funding costs for investors drifted, said Nisel.

“It’s really difficult to hedge currency positions when interest rates are above 20%,” he said, adding that the company has used 3- to 6-month hedging contracts to offset currency volatility.

Reporting by Ceyda Caglayan; Editing by Dominic Evans and Elaine Hardcastle

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