Reference no: EM132829125

IKEA Production in China

Founded in Sweden in 1943 by 17-year-old Ingvar Kamprad, IKEA is the largest furniture retailer in the world. The IKEA name comes from its founder, Ingvar Kamprad-specifically, the IKEA acronym consists of the founder's initials from his first and last names (Ingvar Kamprad) along with the first initials of the farm where he grew up (Elmtaryd) and his hometown in Sweden (Agunnaryd). 

But beyond its founding in Sweden and its current headquarters location in Delft, The Netherlands, IKEA presents an amazing global supply chain story and production apparatus. IKEA is a multinational corporation where most of the company's operations, management of the more than 350 stores in 46 countries, and design and manufacturing of furniture is run by a trust, INGKA Holding. It is the trust that is headquartered in Delft, Holland. Most of the furniture designs of IKEA products are still made in Sweden, but the manufacturing of that furniture-or, really, the pieces that customers buy to put together into furniture-has been outsourced to China and other Asian countries.

Considering that IKEA produces an assortment of some 12,000 furniture and related products, production capabilities and capacities are at a premium for IKEA to sustain its market leadership in the world. To start off, 

IKEA has a clear vision for the products that it designs and produces. The company's idea is to provide welldesigned, functional home furnishings at prices so low that as many people around the world as possible will be able to afford them. Importantly, the critical functions to make this happen, such as global supply chains and global inventory management, work in concert to support IKEA's distinctive value proposition

The Sweden-based home furnishing giant opened its first wholly owned manufacturing facility in China on August 28, 2013. In a local move, the factory supports the rapid expansion in Asia and, especially, in China (the facility is located in Nantong, Jiangsu province). As the largest sourcing country for IKEA, China accounts for more than 20 percent of its global procurement, with about 300 local Chinese suppliers. The factory is also not far from IKEA's two biggest warehouses that are located in Shanghai.

Questions

1. What are the benefits to IKEA of shifting so much of its global production to China? 

2. What are the risks associated with a heavy concentration of manufacturing assets in China?

3. What strategies might IKEA adopt to maximize the benefits and mitigate the risks associated with moving so much product?