IKEA awards Thai firm 15 billion baht contract .

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IKEA awards Thai firm 15 billion baht contract 
The Nation: 26 Sep 2008
SPS lands Bt15bn contract from Ikea

Deal to supply products worldwide.

Ikea, the giant furniture maker and home product retailer, yesterday announced a Bt15 billion plus contract with Thailand's SPS Group for the supply of furniture to its outlets in Asia, the western coast of the United States and some parts of Europe.

John W Carlsson, Ikea Group's Asia business manager for board based furniture, said the contract followed two decades of good business relations with SPS as well as an attractive price quotation by the Thai firm.

"Raw material is the significant cost of furniture production. Hence, apart from the good relationship, we have chosen SPS because it can secure raw material and make us stay competitive in the long term," he said.

Ikea, based in Sweden, recorded sales of ?21.2 billion (Bt1 trillion) globally in its latest fiscal year, which ended in August 31. This represents a 7 percent annual increase.

Seventy per cent of the sales came from the European market, 20 per cent from North America and the rest from AsiaPacific.

Carlsson said that because the Asian market has the fastest growth, the company has more expansion plans in the region than in the United States.

SPS Group president Kerati Sermpraphasilp said that in order to fulfil the supply contract, the company would invest at least Bt1.2 billion to boost its annual production capacity from 3,000 containers to 8,000. The contract to supply Ikea will account for 70 per cent of production.

Following the expansion, SPS will also become one of the largest panel furniture manufacturers in Asia. It will account for 24 per cent of Thailand's exports of wooden furniture and 12 per cent of overall furniture exports.

Of the total investment, Bt650 million will be for buying new machinery and warehouse construction, Bt400 million will be circulating capital and Bt150 million will be for renovating its plants.

Ikea and SPS have agreed to review the contract in two years' time.

"If orders increase, we will continue expanding the second phase of our manufacturing plant and warehouse," Kerati said.

SPS Group's sales revenue is about Bt2 billion, with a normal annual growth rate of 10 to 20 per cent. Following the Ikea contract, however, he said annual revenue was expected to soar to Bt5 billion within three years.