IKEA to shift more production to Turkey to shorten supply chain

© Reuters. FILE PHOTO: The company's logo is seen outside of an IKEA Group store in Saint-Herblain near Nantes, France, March 22, 2021. REUTERS/Stephane Mahe

By Ceyda Caglayan

ISTANBUL (Reuters) - Sweden's flat-pack furniture giant IKEA is planning to move more production to Turkey to minimise problems with global supply chains and increased shipping costs, the company's chief financial officer for Turkey said.

Products it expects to make and then export from Turkey, including armchairs, bookcases, wardrobes and kitchen cabinets, are currently shipped thousands of miles from east Asia to Middle East or European markets.

"Due to shipment problems we faced during the (Covid) pandemic, we are attempting to have more manufacturing in Turkey," chief financial officer Kerim Nisel told Reuters, declining to estimate how much capacity might be moved.

"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".

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

Nisel said the cost of a container from east Asia had leapt to $12,000 from $2,000 before the COVID-19 outbreak last year. "It is more rational to have them manufactured closer where they are sold. That's why we want to have them manufactured in Turkey".

IKEA's move follows similar steps by other European brands such as Benetton, which is bringing production closer to home by boosting manufacturing in Serbia, Croatia, Turkey, Tunisia and Egypt with the aim of halving production in Asia.

CURRENCY CHALLENGES

Straddling Europe and the Middle East, Turkey says it is well placed to benefit from changes to global supply chains.

"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.

While Turkey's strategic location and strong manufacturing base may be a plus, Nisel said 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.