Furniture industry needs new strategy to compete

Design innovation and creativity are no longer enough to get export orders. Furniture manufacturers have to adopt a focus-differentiation strategy that will concentrate export marketing efforts and resources towards niche markets.

This was the recommendation made in the 2006 State of the Sector Report on Furniture based on three years of research and data by the Private Enterprise Accelerated Resource Linkage (Pearl2). Pearl2 is a private sector development project of the Canadian International Development Agency (CIDA) managed by Agriteam Canada.

In partnership with the De La Salle University (DLSU), Manila through its Center for Business and Economic Research and Development (CBERD), the project conducted surveys among members of the three furniture business support organizations (BSOs), namely the Chamber of Furniture Industries of the Philippines (CFIP); Cebu Furniture Industries Foundation (CFIF); and the Iloilo Furniture Manufacturers Association (IFMA) for this report.

According to the report, the furniture sector, particularly exporters, remains under intense global and regional competitive pressures. A global downward price pressure influenced by a weakening dollar and stiff competition from China and Vietnam, for example, severely affect Philippine manufacturer-exporters’ viability and competitiveness.

The report cites that in 2006, local furniture exports made $275 million, 9 percent less than its 2005 performance. The industry has not been able to reach the export levels it experienced at the start of the decade when exports totaled $381 million.

The furniture sector remains to be one of the major industries in the country with an estimated 15,000 micro, small and medium-enterprise furniture makers nationwide according to the Department of Trade and Industry (DTI). Unlike exports, domestic sales have been expanding steadily, influenced by the recent boom in the Philippine real estate and construction market.

About 70 percent of domestic consumption happens in and around the National Capital Region, mostly supplied by furniture manufacturer-retailers in Metro Manila, Pampanga, and Regions III (Central Luzon) and IV (Calabarzon). Local manufacturers, however, also face a number of concerns in the local market.

Import-liberalization and the recent dollar devaluation vis-à-vis the peso have increased the inflow of imported furniture to the country, posing stiff competition for furniture firms catering to the domestic market.

The report noted that there is lack of good quality raw materials, which is compounded by wastage at the supplier level due to insufficient materials handling skills, storage facilities and equipment. The industry remains heavily dependent on subcontractors and worker productivity also needs to be further raised and more investments in modern machineries are needed to raise overall competitiveness of furniture firms. There are no industry standards as yet that could help guide and optimize firms’ manufacturing activities.

In marketing, the industry generally lacks resources to mount a sustained promotional and marketing program. Shifting targets markets to the medium and high-end segments entail much investment in marketing collaterals and promotional activities. There is also heavy dependence on the US market and efforts need to be directed at opening up and expanding exports to other countries.

To address these challenges, an industry-wide competitive strategy shift is proposed in the report. The industry is advised to consider a focus-differentiation strategy for the global market which needs to be adopted by the major stakeholders including the manufacturer-exporters, the furniture industry business support organizations (BSO) and appropriate government agencies.

The proposed strategy will concentrate export marketing efforts and resources towards specific target niche markets. It will attempt to differentiate Philippine furniture from the rest of the competition through aggressive product design and development, productivity breakthroughs, and other “differentiation” initiatives, to increase the perceived-value of local products in selected markets.