IKEA to move more manufacturing to Turkey as shipping costs soar

Istanbul — 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 CFO for Turkey said.

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

“Due to shipment problems we faced during the pandemic, we are attempting to have more manufacturing in Turkey,” CFO Kerim Nisel said, 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 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 in 2020. “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 [foreign exchange] positions when interest rates are above 20%,” he said, adding the company was using three- to six-month hedging contracts to offset currency volatility. 

Reuters