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More Production To Be Shifted By Ikea To Turkey To Reduce Length Of Supply Chain


More Production To Be Shifted By Ikea To Turkey To Reduce Length Of Supply Chain
The Swedish flat-pack furniture giant IKEA is planning to buck the global supply chain issues being faced currently by all industries as the company now aims to shift more of its production activities to Turkey so that it faces minimal issues in quickly supplying its products through the global supply chain. This move is also aimed at tackling the increasing shipment costs, said the company’s chief financial officer for Turkey.
Armchairs, bookcases, wardrobes, and kitchen cabinets are among the products that the company plans to make and then export from Turkey. Much of these products are currently shipped for thousands of miles as they are exported from manufacturing hubs in East Asia to its markets in the Middle East and Europe.
"Due to shipment problems we faced during the (Covid) pandemic, we are attempting to have more manufacturing in Turkey," chief financial officer Kerim Nisel said. He however did not say anything about the estimated production capacity that the company is aiming to move to Turkey.
"We all saw in the pandemic that diversification is so important," Nisel said. "It might not be a good strategy to produce items in one country and then try to transport them all around the world".
Currently, the company exports three times its products made in Turkey as it imports into the country and has seven stores in the country. The company makes textile, glass, ceramic, and metal products at present in Turkey for exporting globally.
Compared to the cost of a container from East Asia at $2,000 prior to the pandemic hit last year, it has now risen to $12,000, Nisel said.  
"It is more rational to have them manufactured closer where they are sold. That's why we want to have them manufactured in Turkey," Nisel added.
A number of other European brands such as Benetton, which is in the process of bringing back its production closer to its home market by increasing its manufacturing capacity in Serbia, Croatia, Turkey, Tunisia, and Egypt, so that it is able to reduce its Asia production by half, have also undertaken a move similar to that by Ikea.
Turkey is hopeful that it will be able to benefit from the changes to global supply chains since it straddles both Europe and the Middle East.
"Turkey with its strategic location has posed a strong alternative to pre-Covid era's single-centred and Asian-based production network," Turkey's Vice President Fuat Oktay said on Monday.
Despite the strategically lucrative location of Turkey and the robust manufacturing base in the country which are advantages, one of the major challenges for retailers is to adequately hedge against moves in the lira - which dropped close to a record low on Wednesday, Nisel said. Further, investment and financing costs could also go up because of high interest rates in Turkey.  
"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.