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IKEA’s billion dollar investment in Serbia

Details concerning the planned investment have not yet been disclosed to the public, however, one of the top Serbian government officials has confirmed the negotiations.

Government officials have given IKEA open doors for investment throughout the Republic of Serbia, and IKEA has mentioned of opening five of their trademarked stores throughout the country.

IKEAs interest is nothing new, as the big Swedish giant has recognized the market potential and been following Serbia’s economic development for more than a decade and a half. It even went by purchasing large land plots for its stores, but retracted from investing due to unfavorable political situations in the 1990s in the country.

Interestingly, IKEA aims to have at least 50% of its suppliers locally. This will be a challenge for local producers since IKEA holds stringent requirements for high quality products with low prices (something Serbian producers have not had to face yet). Currently capacity for production is low in Serbia and local producers, although supplied with very skilled labour, charge higher prices for their quality goods.

To work on the cost side, necessary FDI from producers from the East (e.g. Peoples Republic of China) may be a good solution in order to equip the local producers with the efficient production methods for affordability, but at the same time maintain the high quality. New producers and current suppliers to IKEA from China should consider this as a golden opportunity with the large investment in mind.

Recently, IKEA has been expanding on the Russian market as well as in Serbia’s neighboring countries Croatia and Bosnia.