By Ceyda Caglayan

ISTANBUL, (Reuters) – IKEA, Sweden’s largest flat-pack furniture company is moving more production to Turkey in order to reduce global supply chain problems and increase shipping costs.

It expects Turkey to produce and export products, such as armchairs.

Kerim Nisel chief financial officer stated that Turkey is trying to make more of the Covid pandemic. However, he declined to provide an estimation on how much manufacturing capacity could be relocated.

Nisel explained that everyone saw the importance of diversification in the pandemic. It might not work to make items in one country, then transport them around the globe.

There are seven locations in Turkey. It already exports 3x more to Turkey than it imports.

Nisel stated that the price of shipping a container to east Asia has risen from $2,000 prior to the COVID-19 epidemic last year. It is rationaler to make them closer to where they will be sold. We want them to be made in Turkey.

IKEA’s decision follows similar moves by European brands, such as Benetton. It is working to bring production closer home, by improving manufacturing in Serbia. Turkey. Tunisia. Egypt. The goal of cutting Asia by half.

CURRENCY CHALLENGES

Turkey, which is located in the middle of Europe and Middle East says that it’s well-positioned to take advantage of changes to global supply chains.

Fuat Oktay, Turkey’s Vice President said that Turkey with its strategically located location has offered a viable alternative to the pre-Covid era’s mono-centred production system based on Asians.

Turkey’s location is strategic and the strong manufacturing base are a benefit. However, Nisel indicated that retailers still face challenges in hedging against moves to the lira, which dropped close to a record on Wednesday. High interest rates also pushed up funding costs for investors.

He stated that it was difficult to hedge FX position when interest rates exceed 20%. The company used 3- to 6-month contracts for currency volatility.