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IKEA’s strong network

  • 2010-12-02
  • From wire reports

TALLINN - The Lithuanian furniture industry is teaching Estonians another lesson on how to benefit from such large customers as IKEA in these difficult times, reports Aripaev. From among the 30 major suppliers of IKEA from the Baltic States, the majority are Lithuanian furniture producers and almost none are from Estonia.

Although Estonians like to talk about the importance of having strong customers to boost exports, this is not clearly the case with IKEA. “One reason is that the Lithuanian cost basis is different, but Lithuanians are also able to think bigger than Estonians. After all, they had a king, they are Catholics, an entirely different mentality and larger plants [remain] from the Soviet times,” says Priit Tamm, one of the shareholders and marketing manager of Estonia’s largest office furniture maker, Standard.

“I think that the IKEA train has gone forever for Estonia,” laments Tamm, who is also head of the Estonian association of furniture makers.
Dalius Simenas, chief analyst at Invest Lithuania, says that IKEA’s importance to the Lithuanian furniture industry is immense. “Before the crisis furniture makers earned two-thirds of their export income through IKEA. This trend has continued also in the first half of this year,” Simenas states.

He says that such exports help manufacturers to cover domestic losses. “At tough times cheap, good-quality furniture is especially attractive for consumers both in Europe and North America. Lithuania has tens of furniture makers who have grown with the help of IKEA,” Simenas adds.

Statistics support this view. In the last five years, Lithuanian exports of furniture and interior decoration goods have increased 11 percent, while Estonia’s figure is up only four percent and Latvia’s numbers are down three percent. During the crisis, furniture exports fell 15 percent in Lithuania, 18 percent in Estonia and 33 percent in Latvia.
Tamm says that six to seven years ago the Estonian furniture industry was supplying IKEA, but when the customer decided to move production to cheaper countries, local furniture producers decided to look for other customers and develop their own brands.

According to Tamm, to supply IKEA in the Baltics means that the company basically works only for IKEA, adopts its new business plan structure and business philosophy to reflect the IKEA value. “Once IKEA signs you as a supplier, you will have huge volumes, but they must be well managed,” Tamm said.

According to him, Estonian manufacturers like to complain about IKEA’s cost and price structure, but the fact is that cooperation with IKEA would have required huge investments also from the suppliers. “IKEA is not planning to drive its subcontractors bankrupt. It is paying [bills] by due date,” he adds.
Aare Paloots, the CEO of Tarmel, says that when they were discussing possible cooperation with IKEA, the customer required lower prices every year. “If you did not, they moved the contracts elsewhere. We made this mistake twice,” he said.

One benefit that Lithuania may have is an IKEA store. Charlotte Lindgren, the press spokesperson of IKEA, said that although the company has no plans to open a store in Estonia or Latvia in the near future, they may decide to open one in Lithuania in three to five years.