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    IBT - 12 Task Performance

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    stella hallare
    IKEA produces much of its products in China to take advantage of lower costs. This allows IKEA to increase profits and offer lower prices than competitors. However, concentrating production in China also carries political and economic risks if policies change negatively. To mitigate these risks, IKEA could adopt strategies like diversifying its supply chain across multiple countries and evaluating lessons from China to prepare for potential policy shifts.

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    IBT - 12 Task Performance

    Uploaded by

    stella hallare
    84 views2 pages
    IKEA produces much of its products in China to take advantage of lower costs. This allows IKEA to increase profits and offer lower prices than competitors. However, concentrating production in China also carries political and economic risks if policies change negatively. To mitigate these risks, IKEA could adopt strategies like diversifying its supply chain across multiple countries and evaluating lessons from China to prepare for potential policy shifts.

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    IKEA produces much of its products in China to take advantage of lower costs. This allows IKEA to increase profits and offer lower prices than competitors. However, concentrating production in China also carries political and economic risks if policies change negatively. To mitigate these risks, IKEA could adopt strategies like diversifying its supply chain across multiple countries and evaluating lessons from China to prepare for potential policy shifts.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    84 views2 pages

    IBT - 12 Task Performance

    Uploaded by

    stella hallare
    IKEA produces much of its products in China to take advantage of lower costs. This allows IKEA to increase profits and offer lower prices than competitors. However, concentrating production in China also carries political and economic risks if policies change negatively. To mitigate these risks, IKEA could adopt strategies like diversifying its supply chain across multiple countries and evaluating lessons from China to prepare for potential policy shifts.

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    © All Rights Reserved
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    IKEA Production in China

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

    In the last decade or two we have seen exponential growth in Chinese Business, especially in the
    industry of manufacturing. Many companies around the world have shifted manufacturing
    operations to China or other Asian countries for a few major benefits, but one primary benefit,
    cost. By moving manufacturing operations to China companies can reduce labor costs, reduce
    operating costs (facilities for example), obtain cheaper source materials, and produce higher
    quantities at lower rates. With the overall reduced costs of manufacturing IKEA can do two things,
    increase their profit margin, and offer similar products to competitors at a much lower price to the
    consumer. This also opens IKEA up more to the global market. By having operations housed in
    different parts of the world they can establish brand recognition and loyalty in many different
    markets while also sourcing only the best of the best. They can pick and choose the best areas to
    do certain business activities. Aside from the cost and because of the cost, IKEA can have a higher
    production capability. Since the costs in China are cheap, it can help IKEA to produce more
    products to have a much higher profit and margin. And from the cheaper costs, IKEA can easily
    have a better expansion and diversification opportunities because Outsourcing to China
    manufacturers allows you to do this on-the-fly. You can expand and diversify your product
    offerings, as well as sell your products to international markets much easier.

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

    Risks are mainly associated with occasionally unstable political and economic factors, such as
    political turmoil and the rise of economic barriers. Also, highly concentrated production location-
    wise is never the optimal option, as the mentioned factors can become critical for the whole
    supply chain in that case. One of the risks of having a high concentration of manufacturing assets
    in China is having to deal with political changes and unfavorable policies. Any political issues would
    have an immediate impact on business and make it difficult for foreign companies to navigate
    changing policies. If the new policies do not favor the reason why they invested in that foreign
    country in the first place, it may be difficult for foreign businesses to operate in the country and
    may even cause them to withdraw from it.

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

    The IKEA concept lies at the heart of the company's business strategy. The IKEA concept is based
    on the idea of offering a wide selection of home furnishings that are accessible to a wide range of
    people, not just a select few. It's done by integrating function, quality, design, and value, all while
    keeping the environment in mind. From design, sourcing, packing, and distribution to the business
    strategy, the IKEA concept is present in every aspect of the organization. The strategies might IKEA
    adopt to maximize the benefits and mitigate the risks associated with association with moving so
    many products is that its strategies to become profitable in China because of its low-cost strategy
    perplexed aspiring Chinese customers, and local competitors imitated its designs. IKEA changed its
    strategy to expand and profit in China. It also evaluates some of the lessons learned in China that
    might be valuable. The major benefits to IKEA of shifting so much of its global production to China
    are Low production costs: The cost of manufacturing in China is much cheaper due to lower labor
    costs and other raw material costs. Local sourcing of material and labor helped IKEA in keeping the
    cost low and price its products competitively in the market against.

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