This morning I read a very interesting article by Johan Myrsten in the Swedish daily newspaper Svenska Dagbladet. He reported from a visit at one of IKEA’s 350 suppliers in China. According to the article 22 percent of all that IKEA is selling is being produced in China. The manufacturer that Myrsten had visited produced lamps and had grown from 60 to 2500 employees in ten years. Now the manufacturer was a typical mid-sized industrial company and with the employees living in the companies dormitories.
IKEA was very early in working closely with their supplier in long term relationships. This is also the case in China. They have set up an organization in China to support the suppliers with developing quality together with environmental and social aspects. Some 40 auditors work full time with IKEA’s Chinese suppliers. They used to focus on fire safety but now the focus is on working hours, work contracts, decreasing environmental pollution and securing that no child labor is being used.
The whole IKEA business concept is built on cost consciousness and of course also in purchasing. I guess this is one of the main reasons why they are sourcing a lot from Chinese suppliers. The suppliers are being pushed on both cost but also on parameters driven by IKEA’s Corporate Social Responsibility. However, in strive for cost it is also apparent how IKEA and other companies develops their suppliers to be more competitive in the global marketplace which will support in the fast development of the Chinese economy.
With a booming Chinese economy, salaries, rents and other costs will increase quickly. This will mean increased purchasing costs for companies sourcing goods from China. At some time there will be a trade-off on purchasing cost and the price for not taking responsibility for decreasing environmental impact due to transporting goods from countries far away from the market where the products are being sold. On the other hand, at that time maybe Africa will be the new low cost region to source from or the trend will be to only use local sourcing. I guess time will tell.
