Ikea targets to boost export value to US$ 1 bn will produce more in Indonesia

Ikea, the Swedish multinational company who achieved sales of ¤30.1 billion last year in its 361 stores worldwide, is looking to produce mattresses and flat-pack furniture in Indonesia next year, as well as textiles and batik-pattern products by 2017 as it has set its sights on boosting its export value, tenfold to US$1 billion in the long-run. It will produce more in Indonesia, said Tony Mampuk, Ikea Indonesia’s country government relation manager.

The flat-pack furniture [production] will depend on the results of their supplier gathering […] If they are interested, it will be very easy to build flat-pack furniture. Flat furniture includes particle board and ceramic products such as plates.

President Joko “Jokowi” Widodo, intrigued by the fact that Indonesia’s furniture exports only amount to a third of Vietnam’s, has called on furniture exporters to meet a target of $5 billion in exports by 2019, more than double the $2 billion last year.

All Ikea’s soft toys worldwide are produced in Indonesia as Ikea Indonesia is “all about children”, Tony said. They have tried sourcing [soft toys] from other countries — China, Vietnam, Thailand — but they never found [producers] that are as good as here, he added.

Ikea in 2014 exported 706 products from Indonesia, or almost 10 percent of the overall 8,500 product range sold worldwide, ranging from soft toys, rattan products and textiles, to ceramics and rugs. That represented a 20 percent growth from the same period in 2013, according to Tony.

It has 11 suppliers spread across Java and will soon start teaming up with small and medium sized enterprises many involved with the Association of Indonesian Craft Development (Apikri) in Yogyakarta.

Ikea Indonesia, whose franchise is held by publicly listed retailer PT Hero Supermarket, plans to open two more stores every five years until 2025, Tony revealed, as it sought to cater to the nation’s rapidly emerging middle class with an increasing purchasing power.

Southeast Asia’s largest economy has grown between 4 to 6 percent per year over the past decade, helping to elevate nearly a third of its more than 250 million citizens into the middle-class or affluent consumer status. This is projected to further double by 2020, meaning that each year, between 8 and 9 million people will enter the middle-income bracket, according to a study by the Boston Consulting Group.

The rise in the country’s middle class has attracted a number of global retailers to invest in Indonesia, including South Korea’s conglomerate Lotte Group and Japan’s largest retailer AEON Co.

Today in Southeast Asia, Indonesia holds the most charm for the retail sector, said Tony, who is also head of the retail working group at the European Business Chambers of Commerce (Eurocham) in Indonesia.

About 1.75 million visitors have been to the 35,000-square meter Ikea Alam Sutera, Tangerang, store — some 25 kilometers from Jakarta’s city center — since it opened in October last year, some 8,000 visitors per day. Globally, Ikea store visits reached 821 million last year.

Ikea Indonesia is tapping into the middle-income consumer market in Greater Jakarta, which is home to a 28-million population and a $1.1 billion market in 2013, a figure that is projected to double to almost $2.2 billion by 2019, company statistics show.

According to Ikea, there are several hindrances to expansion in Indonesia, which include infrastructure bottlenecks — with shipping containers being stuck in port for up to three months, creating high logistics costs and uncertainties for the company’s finances — as well as multi-layered taxes that make some of its products more expensive here than elsewhere. Hence, all their expansion plans will depend on the regulatory environment and government support.