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IKEA to shift more production to Turkey

IKEA's chief financial officer (CFO) has told Reuters that the Swedish flatpack furniture supplier is to move more of its production to Turkey in response to increased shipping costs and problems with global supply chains.

"Due to shipment problems we faced during the pandemic, we are attempting to have more manufacturing in Turkey," Kerim Nisel told the news agency. "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".

Nisel said the cost of a container from east Asia had risen from US$2,000 to US$12,000 even before Covid-19 spread worldwide in early 2020. "It is more rational to have [products] manufactured closer where they are sold. That's why we want to have them manufactured in Turkey".

Hedging challenges

The report notes that IKEA has seven stores in Turkey, where it already produces textiles, glass, ceramics and metal products and exports three times as many goods as it imports into the country. Products likely to be added include furniture such as bookcases, armchairs, wardrobes and kitchen cabinets, which currently the group ships from east Asia to its European and Middle East markets.

Although Turkey's strategic location and strong manufacturing base are positives, Nisel told Reuters that hedging against moves in the Turkish lira (TRY) - which has recently languished at record lows against the dollar after Turkey's central bank made an unexpected interest rate cut – remains a major challenge for retailers, while high interest rates have pushed up financing costs for investors. "It is really difficult to hedge FX positions when interest rates are above 20%," he commented, adding IKEA uses 3- to 6-month hedging contracts to offset currency volatility.

Nestlé warning

Swiss multinational Nestlé has also admitted its supply chains are under stress and that it could face potential supply problems ahead of the key Christmas sales period.

Group CEO Mark Schneider told the BBC that it was "working hard" to maintain supplies of products such as its best selling Quality Street chocolate selection boxes to supermarkets over the coming weeks.

“Like other businesses, we are seeing some labour shortages and some transportation issues but it’s our UK team’s top priority to work constructively with retailers to supply them,” he added.

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