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Mark O'Neill

Shanghai warehouses will be the firm's main distribution centre in Asia and highlight focus on China

Swedish furniture maker Ikea is spending Euro75 million (HK$741.79 million) on two warehouses that will turn Shanghai into its biggest distribution centre in Asia, replacing its current centre in Kuala Lumpur.

An Ikea executive said the company had signed an agreement with the government of Songjiang district, in southwest Shanghai, to build the warehouses, with an  area of 268,000 square metres, as part of its strategy to make Asia its fastest-growing area of expansion.

Construction on the centre will take three years and  will be the largest foreign-invested warehouse facility in China when it is complete.

The plan will delight the Shanghai city government, which has targeted buying  and distribution as a priority industry.  It wants foreign multinationals, which conduct an increasing amount of their global buying  in China, to base their  operations and storage in Shanghai.

This is one of many sectors where Shanghai is challenging Hong Kong; it wants to be the marketplace where importers and exporters meet.

It plans to copy Atlanta and build a facility similar to AmericasMart, the largest wholesale market in the United States.

The government's ambitions fit with those of Ikea.  In the  year to August 31 last year, Asia accounted for only 3 per cent of Ikea's global sales of Euro11.3 billion, but 31 per cent of its buying,  with China the largest single source at 18 per cent.

Ikea has only two mainland stores - in Beijing and Shanghai - with sales last year of 700 million yuan. It plans to open eight more by 2010.

The new facility will replace a site in Kuala Lumpur as Ikea's biggest distribution centre in Asia and is better located for its planned expansion into other countries in Asia.

The company  plans to open its first store in Japan at the end of this year.

Ikea is typical of many multinationals that buy  more in China than they sell to the domestic market, which means that they need extensive storage and transport facilities.

French retail giant Carrefour bought  more than US$5 billion worth of goods in China last year. Wal-Mart, the world's biggest retailer, buys more than  $12 billion of goods a year from the mainland.

Shanghai is competing not only with Hong Kong but also other mainland cities with Wal-Mart and IBM  building global buying  centres in Shenzhen.



Ikea plans $741m base as heart of mainland growth push