The business model that brought IKEA annual sales of over 20bn euros, which targets the lowest possible costs, was the reason why the Romanian plant, held by its production unit, Swedwood, was forced to close down.
The retailer is pursuing a maximum cut down in costs across all production and sales stages, and the increase registered by these indicators, in an area where IKEA has a production facility, has forced the plant to exit the market. In recent years, the Swedwood facility in Suceava unit has seen its raw material costs go up by 70%, while in 2005 the plant started to post losses, which hit a cumulated value of 10m euros, so that the firm last month decided to shut down production.
As a rule, when it decides to invest in production, the Swedish retailer wants to cover the entire cycle, from the production of timber to components, and finally a furniture plant.
In 1999, Swedwood started a 12m-euro investment in Romania, but it did not succeed in launching plans for the other two activities that would have ensured more efficient cost control.
"Research showed it wouldn't be able to secure long-term supplies for this level of integrated production, so that the firm decided to give up the business," says Kelemen Balaci, head of Suceava plant.
The timber the plant used came from Suceava, but because of rising prices the firm also resorted to imports.
After 2003-2004, Swedwood went into the red.
On the other hand, turnover rose by just 39% in six years, so that in 2007 the plant generated only 1% of Swedwood's entire production. In Romania, Swedwood last year generated turnover worth 16.3m euros and 2.8m-euro losses.
Under the circumstances, Swedwood last month decided to close the plant, which entailed 500 layoffs. The plant located on a 5.2-hectare area, which includes 15,000 built square metres, was put up for
