Swedish-based furniture retailer IKEA is planning to minimise problems with global supply chain and increased shipping costs by moving more productions to Turkey, according to Kerim Nisel, IKEA’s chief financial officer. “Due to shipment problems we faced during the pandemic, we are attempting to have more manufacturing in Turkey,” said Nisel to Reuters.
“We all saw in the pandemic that diversification is so important. It might not be a good strategy to produce items in one country and then try to transport them all around the world.”
Products such as armchairs, bookcases, wardrobes and kitchen cabinets are currently shipped from east Asia to Middle East or European markets. However, the cost of a container from east Asia has increased from US$2,000 to $12,000 ever since the COVID-19 outbreak, hence the rational decision to manufacture these furniture items closer to where they are sold in Turkey.
IKEA already has seven stores in Turkey, and exports three times as much as it imports into Turkey, where it currently produces textile, glass, ceramic and metal products for global export.
Turkey benefits from changes to global supply chains, since it is situated between Europe and the Middle East.
“Turkey with its strategic location, has posed a strong alternative to pre-COVID-19 era’s single-centred and Asian-based production network,” Fuat Oktay, Vice President of Turkey, said.
However, Nisel noted that hedging against moves in the lira – which fell close to a record low on Wednesday – remained a major challenge for retailers, while high interest rates pushed up financing costs for investors. “It is really difficult to hedge FX positions when interest rates are above 20%,” he said, adding the company was using 3- to 6-month hedging contracts to offset currency volatility.
Source: Retail.com from The Economic Times