PROFIT MAKING STRATEGY OF FURNITURE INDUSTRY

(Assignment in the subject of Managerial Economics submitted on 25.9.2014)

SUBMITTED BY: SUBMITTED TO:
Digvijay Singh (Roll no. 1058),
Kriti Gupta (Roll no. 1062),
Madhurima Gadre (Roll no. 1063)
Semester III (Batch of 2018)- BBA. LLB

Dr. Rituparno Das,
Faculty of Management,
NLU Jodhpur.




National Law University, Jodhpur
(Session of July-November 2014)
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ACKNOWLEDGEMENT


We take this opportunity to express my profound gratitude and deep regards to my guide Dr.
Rituparno Das for his exemplary guidance, monitoring and constant encouragement throughout
the course of this assignment. The blessing, help and guidance given by him from time to time
shall carry me a long way in the journey of knowledge on which I am about to embark.

We also take this opportunity to express a deep sense of gratitude to the staff of the library for
their cordial support and valuable information, which helped me in completing this task through
various stages.

We are thankful to the staff members of NLU, Jodhpur for the valuable information provided by
them in their respective fields. I am grateful for their cooperation during my venture.

Through the medium of this assignment in the subject of Managerial economics, we have tried
our best in giving the reader a full analysis of the Profit Making Strategy of Furniture Industry
and its various aspects. I sincerely hope that after going through my work on this topic, one will
be enlightened on the subject.

Lastly, we thank everyone for their constant encouragement without which this Herculean task
would not be possible.



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TABLE OF CONTENTS



TABLE OF CONTENTS3
OBJECTIVES..4
RESEARCH METHODOLOGY..4
INTRODUCTION........................................................................................................5
CHAPTER 1: INDIAN FURNITURE INDUSTRY...........................................6
CHAPTER 2: PROFIT MAKING STRATEGY OF THE INDIAN FURNITURE INDUSTRY...........................9
CHAPTER 3: COUNTRY-WISE COMPARATIVE ANALYSIS...13
LIMITATIONS.........................................................................................................23
CONCLUSION...................24
BIBLIOGRAPHY......................................................................................................26


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OBJECTIVES:

1. To understand the various concepts relating to Profit Making Strategy of Industries.
2. To study the application of the concepts relating to Profit Making Strategy on the Furniture
Industry in India.
3. To analyze on a comparative basis the Profit Making Strategy in Indian Furniture Industry
with that of the Furniture Industry in other countries.


RESEARCH METHODOLOGY:

Primary sources for data required for the study of this topic include books, journals, reports etc.
These sources are available in the library and also on online databases. Secondary sources will
include articles, commentaries, & other information which is available on various websites on
the internet. Firstly, the various concepts relating to Profit Making Strategy are thoroughly
discussed. Then, the application of the concepts relating to Profit Making Strategy on the
Furniture Industry in India is studied in detail. The assignment is concluded by a comparative
analysis of the Profit Making Strategy in Indian Furniture Industry with that of the Furniture
Industry in other countries.


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INTRODUCTION


This assignment seeks to provide a detailed overview of the Furniture market in India in
comparison to the Furniture Industry in America and China with relevant facts and figures
regarding the structure and size, consumption, growth rates, key players, main challenges,
restraints, international trade as well as an indication of future outlook of the industry.
Key players in the Indian Furniture Industry are: Fabfurnish, sponsored by German start-up
incubator Rocket Internet; Pepperfry, funded by Norwest Venture Partners and Flipkart. The
Indian home and furnishing market is pegged at $20 billion (Rs 1.2 lakh crore), half of which is
expected to be in the furniture category. By 2017, the total expected to grow to $30 billion.
Profit margin is generally between 10-25%.
Product delivery strategy is as follows: Most companies in the furniture category promise
delivery between three and 20 days. On a general note, about 90 per cent of the orders are
prepaid and for orders of more than Rs 10,000 (on an average), one cannot avail of cash-on-
delivery. As the delivery mechanism is stretched (first, products are brought from vendors to the
warehouse; subsequently, these are transported to consumers, often through third party
suppliers), ensuring products aren't damaged becomes a challenge.
The Indian Furniture market accounts to about $20 billion (Rs 1.2 lakh crore), of which the
furniture segment accounts for about half. As about 90 per cent of the market is unorganized, it is
an attractive avenue for online players. At a time when Swedish furniture major IKEA is
planning to roll out its stores in India, online retailers are becoming increasingly active in this
segment. German Rocket Internet-sponsored FabFurnish and Norwest Venture Partners-funded
Pepperfry are among those who have entered the furniture segment. From Maharaja Beds to
wardrobes, these websites allow one to buy all furniture online. It is expected leading e-
commerce player Flipkart will step into the furniture category later this year.


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CHAPTER 1:
I NDI AN FURNI TURE I NDUSTRY


A. OVERVIEW OF THE FURNITURE MARKET:

The furniture industry in India is estimated to be worth Euro 5 Billion. Within this, the wooden
furniture accounts for Euro 750 million. Of this the imported furniture market is currently worth Euro
75 million and is growing at 50 - 60% each year. The furniture sector in India only makes a marginal
contribution to the GDP, representing about 0.5 per cent of the total GDP. The major part of this
industry is in the informal sector which is, about 85%. The remaining 15% is in the formal sector and
is made up of manufactures and importers catering to the various segment of the industry.

Size of the
Industry
The Indian furniture industry is estimated at around Rs 35,000
crore (Rs 350 billion). Eighty-five per cent of this falls into the
unorganized sector

Geographical
distribution

All the metropolitan cities
Output per
annum
The market of wooden furniture solely owns the share of
nearly Rs. 60 crore
Percentage in
world market
India was the biggest furniture importer in 2004-05, with
a 17 % share in furniture imports worldwide.

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Some of the major segments in furniture industry are Residential, Office, Contract and Institutional.
There are other segments also based on the application (Kitchen, Bathroom, Bedroom, etc.) or on the
raw material (wooden, plastic, metal, bamboo, etc). These industry segments include big payers from
the formal sector such as Godrej & Boyce Manufacturing Co. Ltd., BP Ergo, Featherlite, Haworth,
Style Spa, Yantra, Renaissance, Millenium Lifestyles, Durian, Kian, Tangent, Furniture Concepts,
Furniturewala, Zuari, Truzo, N R Jasani & Company, V3 Engineers, PSL Modular Furniture, etc.
According to one market survey, home improvements (38%) and leisure holidays (37%) as the two
pursuits Indian consumers are willing to indulge in. Many of the world's leading home fashion brands
are available in India through domestic retail outlets.

Imports of
Furniture in
India In Euro
Millions \Year
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Total Imports of
furniture
15.67 24.66 43.44 69.49 114.17


B. FACTORS INFLUENCING THE BUYING TRENDS:

While upwardly mobile Indians are increasingly buying differently styled foreign furniture, they
need to guard against poor stuff. Interior design for homes is no longer the preserve of the rich
and wealthy. The concept of good living is catching up with the middle class Indians. They do
not mind spending an extra buck in decorating their new homes. This has resulted in a boom in
the dcor market. Imported and designer seem to be the key words when it comes to buying
furniture at home. It's hardly surprising, considering that more and more foreign furniture
manufacturers and traders have been finding their way into the country of late. Consumer
strategy can be briefed as follows:
While decorating a new residence: Buying Decision is left to a Builder/Architect/Interior
Decorator or the owner.
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While renovating a Residence: Buying Decision is made by an Interior Designer or by the
owner.
While furnishing a commercial complex: Buying Decision is made by the
Builder/Architect/Interior Designer.
The major reason that has propelled the growth of the imported furniture market is the exposure
that the Indian people have received thanks to globalization. The media too has played a very
vital role in exposing the people to good living. Exposure coupled with easy availability of funds
have made more and more urban middle class couples to look for interior decorators while doing
up their houses.
In conclusion, it is important to target the following: Architects, Builders, Interior Designers and
Participation in Furniture / Interiors Trade Fairs for good exposure.

C. TARIFFS AND IMPORT POLICY:

In recognition of the significance of the continued supply of imported logs to its wood-
processing industry and following court-ordered restrictions on domestic logging in 1994-95, the
Government of India began liberalizing wood product imports in 1995.
Since then, there has been a gradual decrease in import duties on wood and wood products. For
example, until 1995, logs were the only wood product item freely-importable to India with a duty
of 15%. Imports of other wood products were only against advanced licenses or special import
licenses. Since 1996, import licensing requirements (quantitative restrictions) have been
progressively removed on round wood, sawn lumber and several value-added products. By April
2000, there were no quantitative restrictions on any import tariff line in the entire forestry sector,
with the sole exception of newsprint.
Today, the situation is that logs are subject to a duty of around 5%, while the ad valorem duty
payable on lumber is 20% and the duty on veneer and wood-based panels is 40%. The duties
were reduced in February/March, 2004 and further cuts are planned, as part of an on-going
commitment to WTO. However, market commentators suggest that the duties on lumber and
veneer will never be dropped completely and may even rest at around 15% for the long-term.

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CHAPTER 2:
PROFI T MAKI NG STRATEGY OF THE I NDI AN FURNI TURE I NDUSTRY


Profit maximization refers to the sales level where profits are highest. It is the process
that companies undergo to determine the best output and price levels in order to maximize
its return. The company will usually adjust influential factors such as production costs, sale
prices, and output levels as a way of reaching its profit goal. Profit maximization is a good thing
for a company, but can be a bad thing for consumers if the company starts to use
cheaper products or decides to raise prices.
Basic profit maximization strategy used by all firms can be summarized as follows:

I. Increasing Revenue [selling more]:

There are several ways to increase revenues. To apply this profit maximization option, here are
four things that a firm can do-
Firstly, increase the quantity of sales, for example by better marketing the product or
improving quality. Analyze where money is majorly coming in from and focus on making
more sales in those product/service categories.
Secondly, up-sell to existing customers, for example by persuading them to buy enhanced
services or accessories.
Thirdly, diversify into selling a wider range of products.
Fourthly, revise pricing to produce a more efficient balance of the number of sales and the
revenue from each sale.

II. Decreasing Expenses [cutting costs]:

There are also several ways to cut costs. To apply this profit maximization option, here are four
things that a firm can do-
Firstly, analyze where money is being spent. Overhead is one of the biggest categories of
expenses that business owners face.
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Secondly, negotiate cheaper prices for supplies, particularly when buying in bulk.
Thirdly, make the manufacturing process more efficient, for example by breaking it down
into individual tasks and setting up a production line system. Improving your business
processes can reduce wastages financially. Always adopt time saving and production
boosting technologies.
Fourthly, buy equipment you currently lease, or lease the ones you currently need to buy or
do a hire purchase. Assessing costs here may require taking a long-term view.

Now that we have dealt with the basic profit maximization strategy used by all firms, we proceed
to the analysis of the profit-maximization strategy of the Indian Furniture Industry. The
following methods form a part of the Profit Maximization Strategy which is employed by the
Furniture Industry in India.
The weightage given to the following methods may differ from firm to firm but basically, all
firms in the Indian Furniture Industry use the following strategies:

A. OUTSOURCING:

One of the biggest sources of expenditure for businesses is human resources. Because no
entrepreneur can do all that is required to move their business forward, theres always a need for
talented people in every company, big or small. But for majority of small business owners, the
owner does not have to employ all the talents he needs on full time.
No matter which firm (small or big) in the Furniture Industry is in question, they all probably
have work that can be outsourced for a minimal fee. The firm looks for strategic partners who
can offer certain freelance or outsourcing services on a pay-as-you-go basis. Design projects,
press releases and website content are all things the owner can stop doing in-house. The owner
can thus, focus on full-time employees on revenue-building projects and send simple tasks out
for freelancers to complete. By doing so, overhead expenses of the firm will be reduced and thus,
there will be an increase in the firms profitability.



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B. RAISING OF PRICES:

One of the easiest ways to maximize profits is to increase prices. Having a good business is not
all about offering the lowest price. Sure, its what some people may be looking for, but for many,
quality and customer service are equally important. If the firm has a superior product, it should
not shy away from charging a superior price. The firm may lose a few customers at first, but
studies show they customers likely to return for a quality product or valuable customer service
options.
Also, reviewing the cost structure is necessary. The firm has to make sure that there is a
sufficient markup on the goods. When the cost of raw materials and related costs increase, the
additional costs need to be included in the selling price. Reviewing the cost structure on a regular
basis will help keep track of costs that are on the rise before the cost is too great to completely
include in the selling price.

C. FINDING A NEW ENERGY SUPPLIER:

Energy is an expense that every company has to deal with. It is one of the key areas where
recurring expenses flow. So if the firms owner does not look around for energy rates regularly,
it could prove costly. In developed countries and deregulated areas, businesses are able to choose
their own energy suppliers. Many suppliers offer competitively low rates that might be better
than what the firm is currently paying. And if the object is to make the business more
sustainable, many suppliers offer green energy made from wind and solar resources. The most
important takeaway is that even a penny difference in energy prices can have a significant effect
on the profits.

D. BORROWING BEST PRACTICES FROM OTHERS:

The business model does not have to reinvent the wheel since; it is okay to copy best practices
from others, especially from outside the industry. This includes finding out whats working for
the competition or similar companies and implement it in your business. There is nothing wrong
with having a business model that works well, even if it is similar to another company. The point
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is to find a way to differentiate the firms offering (product/service i.e. in this case, furniture)
with that of other firms. If a competitor is excelling with customer engagement, the firm needs
to mimic it. If it is using different technology, look into it.

E. EDUCATING POTENTIAL CUSTOMERS:

If people are not aware of the existence of a particular firms product, then there may be a
problem increasing profits. In the age of digital media, its just silly not to have an online
presence. Create a website, join Facebook and blog about your industry. It is crucial to let
everyone know about your company and how great your product is.
The firm can also take it one step further by creating advertisements for the company. Choose
mediums that an ideal customer would be using. TV, radio, print and online are just a few of the
many platforms on which a Company can advertise. Once sufficient attention has been gained,
work on engaging the customers. The firm has to create relationships that will keep them coming
back for more.

The above methods are exhaustive in nature and form a part of the Profit Maximization Strategy
which is employed by the Furniture Industry in India. As stated earlier, the weightage given to
these methods may differ from firm to firm but basically, all firms in the Indian Furniture
Industry use only the above strategies.

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CHAPTER 3:
COUNTRY-WI SE COMPARATI VE ANALYSI S


The furniture industry in America and China has been analyzed in this chapter. The furniture
industries in both these countries have been analyzed individually so that the conditions and
market circumstances in both these countries and its effect on the furniture industry can be
brought out properly.

A. ANALYSIS OF THE AMERICAN FURNITURE INDUSTRY

a. I ntroduction to the American Furniture I ndustry:

While the first decade of the 21
st
century was a dark and bleak time for the American Furniture
Industry- a deadly combination of the domestic economic meltdown, the competitive onslaught
of offshore manufacturing and shrinking demand, there now seems to be a glimmer of hope for
the Furniture Industry. Although not yet effusive about the future, economists and furniture
insiders have begun to loosen the death grip on projections and forecasts. Unfortunately, this
optimism comes too late for the legions of manufacturers and retailers who couldnt weather the
economic storm and were forced into bankruptcy and liquidation.
In August, 2013, Furniture Brands International, one of the largest residential furniture makers in
the United States, representing the Broyhill, Thomasville, Drexel Heritage, Lane, Hickory, La
Barge, Lane Venture, Maitland-Smith, Pearson and Henredon brands- voluntarily delisted its
stock from the New York Stock Exchange because its market capitalization had fallen below the
New York Stock Exchanges listing requirement. In early September, the Company filed for
Chapter 11 i.e. bankruptcy protection. The future of the Company, including opportunities for
restructuring, will remain to be seen. The sale of the business seems inevitable, although the
possibility that not all individual brands represented by Furniture Brands will be purchased by
the same suitor is a real one. One thing is for sure- this situation will create competitive
advantages for other industry players, at least in the short term.
Following are the significant findings about the American Furniture Industry:
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With labor costs on the rise, manufacturing in China may not be the most cost-effective
option for U.S. furniture manufacturers.
Momentum in the U.S. housing market will continue to impact furniture manufacturing- both
positively and negatively.
Consumer preferences are changing dramatically as the Baby Boomers exit and a younger
generation enters the market.
Consumers control retail distribution channels, even as manufacturers try to dictate how
furniture buying is done.
While quality is critical, it is no longer the most important variable in the manufacturing
process. Technology, logistical efficiencies and agility are growing in importance.
For those willing to invest the time and effort, export markets may be opening up.
Inadequate marketing and branding continues to plague the industry, especially in the areas
of new media.

b. Overview of American Furniture I ndustry:

In many respects, the Furniture Industry is much stronger in 2013 than it was in 2009. Although
most manufacturing has remained overseas, many furniture companies have seen consistent
increases in sales and profits during this period. In 2012, furniture imports rose 9%. This is a
trend that is expected to continue as Russia, India and Eastern Europe enter the Import Market.
The industry as a whole has seen great improvements over the past few years. After a 13% drop
in sales in 2009, new orders have increased 4-6% every year. As of 2012, orders were up 16.5%
from 2009 and up 1.38% from 2008. This steady increase is expected to continue in the coming
years.
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c. Manufacturing aspect:

Although overseas manufacturing has provided significant cost benefits, manufacturers are
rethinking whether to stay. There are several emerging problems with manufacturing in China
and other Far East countries. First, labor costs are rising, with wages increasing 15-20% a year.
Second, trans-Atlantic shipping rates are going up. Furniture has always been expensive to ship
due to its size and weight, but rising oil prices and a slowdown in shipbuilding have pushed
shipping costs up by 71% in the past four years. Third, currency challenges exist when dealing
with the Thai Baht, Vietnamese Dong, Chinese Yuan, and others. The appreciation of the Yuan
continues to cut into profits, further decreasing the benefits realized in the past. Lastly, a supply
chain that reaches half way around the world is fraught with challenges, including quality
control, supply disruptions, language barriers and many others.
One example is Lincolnton Furniture. After making the move to overseas production, Lincolnton
found that their customers preferred to buy USA goods. This led them to complete a $5 million
renovation on the old family plant in Lincolnton, NC and hire 130 workers- many of whom had
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worked for the company before their move offshore. Lincolnton Furniture produces mid- to high-
end furniture.
With its wages lower than China and its proximity to the U.S., Mexico has the potential to
become a major source for U.S. furniture manufacturing for less-expensive home furnishings.
Goods can reach the U.S. in a fraction of the time needed to ship furniture from China, and they
can enter the U.S. duty-free, thanks to the North American Free Trade Agreement. However, due
to quality concerns, high-end products will likely continue to be manufactured in the U.S.

d. Exporting- A New Frontier:

Historically, American furniture producers have considered the export market to be a waste of
time, and made only token attempts to develop international sales. They had enough domestic
business to keep their plants running, and the export business was tricky. American
manufacturers were not comfortable dealing with currency fluctuations, style and size
differences, language issues, oceangoing freight procedures and cultural idiosyncrasies. They
lacked the patience required to build export sales. Likewise, when it came to importing
component parts and finished goods, the same indifference was in evidence. They paid lip
service to the need to be a global organization and looked for reasons to justify the lack of
imports. The easiest culprits were quality and delivery reliability, but in truth, the American
factories had their own problems with these issues. This hesitation has decreased in the past few
years. Several emerging markets have made the export business more appealing. The rising
middle classes in China, India and Brazil have created a market for more high-end furniture,
offering new markets to those manufacturers willing to spend the time and energy to address the
challenges. In addition, Canada, Mexico, Japan and the UK represent growing export markets for
the furniture industry.

e. Conclusion:

With so much transformation happening in the furniture industry, there will be endless
opportunities for companies to increase market shareIF they approach the task with ingenuity,
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vision, creativity and patience. As difficult as the last decade has been for furniture, the long-
awaited recovery may not be any easier, but it certainly will be exciting.
Automation will offer opportunities for manufacturers to increase efficiency, and therefore their
profit margins. However, not every process can be automated. For example, short runs and
automation dont mix. Also, mass producing case goods opens the door to problems with
consistency, while many consumer preferencesparticularly in upholsterychange too
frequently for manufacturers to create efficiencies.
Further opportunities will exist for acquisition and consolidation in the market, affording new
opportunities to affect market share. Only the players who can be nimble and are willing to
embrace change- not something the industry is historically known for- will reap the rewards.


B. ANALYSIS OF THE CHINESE FURNITURE INDUSTRY


a. I ntroduction to the Chinese Furniture I ndustry:

China's Furniture Industry and the Chinese consumer marketplace have been experiencing
dramatic changes over the last 10 years. These changes impose intense pressure on the United
States and other furniture manufacturers; but, they may also provide opportunities to tap into the
Chinese consumer furniture market.
After almost 30 years of economic reform, China has become not only "the world's factory" but
also the second largest marketplace. The Chinese have purchasing power equivalent to US$7,592
billion (IMF, 2005). This amount is almost double Japan's purchasing power according to the
International Monetary Fund (IMF, 2005). Many reports point out that China is not only a
potential marketplace for international vendors but that it is also an increasingly realistic market
for foreign manufacturers. As Ray Allegrezza, chief editor of Furniture Today, in 2003, reported,
Chinese automobile sales spiked to an incredible 56 per cent over the previous year. This trend
was maintained through 2004 and only slowed down in 2005 because of high gasoline prices.
Meanwhile, David Lynch (2006) reported that U.S. companies, from hardwood lumber suppliers
to manufacturers of sophisticated mining equipment, were prospering by exporting to China.
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This is in spite of the high trade deficit. Meanwhile, China's retail sales have increased at a rate
of more than 12 per cent per year over the last 2 years. This rate is projected not to drop under
the 12 per cent level until 2009 (IMF 2005).
With the increasing influence of China's furniture industry and the growing Chinese consumer
marketplace, more and more foreign interests are attracted to selling in China. Further, economic
reforms during the period 2001 through 2005 have reached a new level and have caused
profound changes in China's economic life. However, separated by language, culture, business,
and political differences, it is hard for Western decision makers to fully understand China's
furniture industry and the Chinese consumer market.

b. Competition Framework in China:

In the current global economy, competition is not only intense but also coming from all aspects
of worldwide businesses. This is evident in China where the Chinese markets are seeing
competition growing from both the Far East and the West.
The large number of existing companies definitely shaped the landscape of the Chinese market
competition. As China's furniture production reached high levels, globalization made China a
most desirable place for investment. However, competition for resources, from raw materials to
basic labor within the Chinese furniture industry has escalated. This intense internal competition
force for resources among the large number of manufacturers pushed the bargaining power of the
Chinese furniture industry suppliers to the number one competitive factor position when using
the Porter Method.
The number two competitive factor determining China's furniture industry competition is the
relatively low-level entry barrier that allows potential new Chinese and other manufacturing
entrant access into the industry. Since the China furniture industry has a low entry barrier; it is
relatively easy for new entrants to penetrate the industry.
The threat of potential new entrants is ranked as the third competition factor. The bargaining
power of the domestic and international customers is the fourth competition factor. China's
furniture industry customers can be classified as either domestic or international. The bargaining
power of domestic consumers did show a clear influence on the Chinese furniture industry (DRC
Net, 2006). Moreover, some international manufacturers have made legislative efforts to prevent
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the importation of Chinese furniture. The results have not been very successful. Regardless of
foreign importation resistance, China's furniture export still has grown at a steady, albeit slower,
pace (DRC Net 2006). Therefore, consumer bargaining power is ranked as the fourth
competition factor.
Furniture has been used for thousands of years and built mostly of wood. There is little evidence
indicating that wood furniture will be replaced by some other material in the foreseeable future.
Thus, potential substitute material is ranked as the least important competition factor effecting
China's furniture industry. Therefore, this force is not effective in this study and is ignored.

c. Rivalry among existing firms:

The Chinese Furniture Market's complex competition is due primarily to the large number of
furniture companies, coupled with the rivalry generated among the large number of furniture
factories competing for resources is the number one competition force. In 2005, there were more
than 30,000 furniture companies in China. The change in the number of China's furniture
companies from 2001 to 2005 is listed in Table 1. During this 5-year period, the total number of
furniture companies increased 81 per cent.


2001 2002 2003 2004 2005
No. % No. % No. % No. % No. %
Large-
sized
285 1.7 278 1.7 217 1.0 69 0.3 168 0.6
Medium-
sized
484 2.9 621 3.7` 726 3.5 1996 8.2 2436 8.0
Small-
sized
16029 95.0 15797 94.6 20047 95.5 22290 91.5 27812 91.4
Total 16798 16696 20990 24355 30416



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d. Threat of Potential Entrants:

The small productivity difference between small-sized companies and medium-sized companies
showed that technology and management systems may not make a significant difference in
average output (DRC Net 2006). This makes it easier for newly entering small companies to gain
a foothold in China's furniture industry.
Therefore, the second highest competition factor is competition among existing Chinese furniture
manufacturing firms. In the Chinese furniture industry, the capital required to enter the furniture
industry is considerably low. Furthermore, the productivity difference between the small-sized
companies and the large-sized companies is not large. The combination of all this evidence
indicates that the entrant barrier into China's furniture industry is relatively low.

e. Supplier Bargaining power:

Chinese furniture exports have experienced significant increases during the 2001-2005, which
has led to increased investment being made in the Chinese furniture industry. This investment, a
portion of it in State-of-the-Art manufacturing machinery and equipment, has increased
production significantly. The Chinese furniture industry's wood supply depends heavily on
imported lumber and other wood products. Thus, the dramatic rise in production of the Chinese
furniture industry has precipitated a huge wood products demand. This increase in demand is
fulfilled by imports. Concurrently, this demand spike has generated fear among China's neighbor
countries that the increased demand for wood would encourage illegal logging activities. This
situation could lead to widespread deforestation; thus, some of these nations have begun to limit
their hardwood log exports to China. However, the point here is that lumber demand by the
Chinese has driven up furniture manufacturers' costs. Low labor cost is the most important
advantage of the Chinese furniture industry. However, there is evidence showing that there may
be a labor shortage in qualified workers in heavily industrialized areas. In responding to the
shortage of qualified workers, some provinces are considering increasing the minimum wages to
attract more workers.


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f. Consumer Bargaining Power:

The fast expansion of China's furniture industry is derived from the rapidly growing domestic
and foreign markets, capturing market share from other manufacturing sources. Chinese
consumers' incomes have continued to increase over the last 5 years. When compared to
American consumers, the Chinese tend to save a larger portion of their income.
On the international market, China's furniture companies have had substantial growth during the
period 2001 through 2005. Certain Chinese financial and business practices caused some
legislature concern resulting in the U.S. passing antidumping restrictions against certain Chinese
wood furniture imports. The antidumping petition was filed in 2003 and was approved and
became effective in 2004 (Gorimor and Christianson 2004). This caused the growth rate of
Chinese furniture to the U.S. market to drop to 39 and 35 percent in 2003 and 2004, down from
57 percent in 2002 (DRC Net 2006). On the other hand, the antidumping tariff did little to slow
down the Chinese furniture invasion. Despite facing duties up to 198 percent, U.S. imports of
Chinese-made wood bedroom furniture increased to more than US$1.7 billion (Christianson
2006). The data also indicate that China's furniture exports to Europe and Canada continue to
grow. In 2004, the Chinese wood furniture export growth to major European markets exceeded
60 percent, while the export growth to Canada reached a phenomenal 112 percent (DRC Net
2006).

f. Conclusion:

A handful of large-sized Chinese case goods furniture companies have grown into effective and
competitive companies. However, the majority of China's furniture manufacture is still done by
medium- to small-sized companies. These factories have relatively low production output of
roughly US$13,000 per worker per year. It is interesting to note that the productivity differences
between the small- and medium-sized companies are relatively small. Although the large-sized
furniture companies possess superior production output, no companies were observed
dominating the market. The sum of all these competition forces provides a favorable
environment for complex and fierce competition for market share.
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The newly established domestic market and low entrance barriers provide good opportunities for
the mature as well as new furniture manufacturers. Concurrently, the wise furniture manufacturer
should be fully aware of the fact that the marketplace is partitioned or even isolated. Thus,
choosing the appropriate target market is the key to success. A low entrant barrier makes China a
perfect place for furniture outsourcing, but increasing raw material prices, along with rising
energy and labor costs, will be considered as potential risks in the near future.
Therefore, as the Chinese consumers' incomes increase, the domestic market will attract more
and more attention from both domestic and international investors. The fast-growing export of
China's furniture verifies that China's furniture industry is a growing industry. However, there
are inherent risks such as antidumping legislation from major markets, low spending rate of the
Chinese consumers, and many competition forces.



23

LIMITATIONS


The study of profit maximization strategies of Furniture Industry in various countries undertaken
by the authors has come across the following limitations:

1. Difficulty to gain access to primary & secondary data without which the research could not
proceed further.
2. However, this was addressed by availability of material on online sources which was very
limited but anyways, proved useful.
3. The large size of the Furniture Industry in various countries hindered an extremely detailed
analysis of its various aspects relation to profit maximization strategy, but a broad outline of
their profit maximization strategies has been provided.
4. The global presence of the Furniture Industry could not be dealt with adequately due to the
size of the industry and lack of data pertaining to the same.


24

CONCLUSION


The Indian wooden furniture industry is able to generate approximately a turnover of Rs 3,500
crore annually. The market of wooden furniture solely owns the share of nearly Rs 60 crore. And
as per one of the surveys done recently, the industry is expected to grow by 20 percent in coming
times. The Indian furniture business has been witnessing a virtually exponential expansion in the
recent years. The business demands the utilization and tapping of various unutilized resources in
large proportions. The furniture market resources include wood, leather-based, wooden
foundation panel, metals, textiles, plastics and several other elements in large quantities. The
Indian furniture sector has been producing and exporting substantially good quality furniture
products on a global scale. The industry is dominated by unorganized sector, which constitutes
90% of the total Indian market. The organized furniture market is at 10% and growing at about
35% CAGR. Furniture industry comprises 65% of the home market & 35% of small scale
institutions. The entire Home Decor category furniture accounts for about 68% of the share while
remaining 32% comprises of furnishings and home improvement. Imported furniture constitutes
to 85% of the total organized furniture industry in the country. India imports furniture from Italy,
Germany, Spain, China, Korea, Malaysia, Indonesia and Philippines. Indian share of the wooden
furniture market is around Rs 60 crore (Rs 600 million).
The world home furniture market is worth Rs 20,000 crore (Rs 200 billion). During the past three
years, it grew by 20 % a year. According to a World Bank study, the organized furniture industry
is expected to grow by 20 % a year and India, Russia and Brazil will witness a boom. Indian
range of indigenous furniture includes both residential and contract system furniture, with an
increased concentration in office and kitchen furniture. Indian manufacturers generally use a
three-tier selling and distribution structure, comprising the distributor, wholesaler and retailer.
Also, India was the biggest furniture importer in 2004-05, with a 17 % share in furniture imports
worldwide. A total of 10,476 importers shipped furniture to India during this period. The current
imports are mainly from Italy, Germany, Spain, China, Korea, Malaysia, Indonesia, the
Philippines and Japan.
25

Simply put, over the years, Indian Furniture Industry has created a market for itself and found a
spot in the houses of royals and commoners both. Also, profit margins stand at 10-25 per cent,
making it competitive and on a par with the apparel space. In relatively developed markets such
as China and Brazil, the share of the home-and-furniture category in the overall e-commerce
space is estimated at 15-20 per cent, encouraging numbers for Indian online retailers.





26

BIBLIOGRAPHY


LITERATURE REVIEW:

G.S. Gupta, Managerial Economics (Tata McGraw Hill Publishing).
Thomas J. Webster, Managerial Economics (Emerald Group Publishing).


REFERENCES:

www. business-standard.com
scholar.google.com
www.furnishingsindia.com
www.furniture.co.in
finance.yahoo.com
www.worldfurnitureonline.com
www.afmi.co.in
www.tradeindia.com
www.furnituretoday.com
www.reasearchandmarkets.com
www.economywatch.com