A VIEW ON WORLD FURNITURE INDUSTRY

Furniture industry has changed over the years. It no longer restricts itself to a production
of a chair or a table or a bed but today it includes manufacturing of a range of furniture
and home furnishings and designed interiors which spell class and elegance. There is a
boom time for furniture industry. Every country sport a string of furniture showrooms of
all kinds and sizes. Changing lifestyle, disposable incomes, economy growth, increasing
migration to urban areas have all contributed to the demand for furniture and in turn the
growth of the furniture industry as whole. Furniture industry comprises not only the
production of a wide range of products related to office, living room, bedroom, kitchen ,
garden, school furniture but also mattresses, furnishings, upholstery, parts of furniture
etc. A wide variety of raw materials are used in production of furniture like wood, rattan,
plastic and metal and more recently silver. Including various varieties of wood, wooden
furniture is the major production and exports of the furniture industry in almost every
country.

Characteristics of the furniture industry

 Furniture manufacturing worldwide forms a regionally centralized competition

pattern under the clustering effect.
 The furniture industry is both an organized and a non-organized sector.
 Utilization of skilled and unskilled workers.
 Utilization of handcrafted tools, machines and CAD/CAM for manufacturing and
designing.
 Source of employment for rural workers.
 Employment is spread across many sectors showing the diverse nature of the
industry and a broad product range.
 Consumer expectations and purchasing behaviours have marked regional
variations.
INDUSTRY TRENDS

As the world economy is in recession in the past 5 years, despite the depression
furniture markets have shown growth. Traditional furniture making countries continue to
firmly take up over 70% of the global market. This is possible because of their long
established production capacity, advancement in science and technology, solid funds
and rich management experiences. Meanwhile, developing countries and regions like
China, Southeast Asia, Poland and Mexico, with China taking the lead, have built upon
their respective competitive advantages and gradually have covered almost 30% of the
world market. The furniture industry in such countries is developing strongly and
showing great potentials. The European Union furniture industry accounts for about half
of the world's furniture production. Considered to be a labor-intensive industry it
provides employment for around 1 million people. Among the European countries,
Germany takes the lead as the largest furniture producing country, accounting for about
27% of total EU production. This is followed by Italy (21.6%), France (13.5%) and the
UK (10.4%).The Canadian Furniture Industry is the 5th largest exporter of furniture in
the world. The major furniture producing countries in South East Asia are Philippines,
Indonesia, Malaysia, Singapore, Thailand, Korea , Taiwan and India. In the context of
global furniture trade, Asia shows healthy signs of growth with respect to its other
international competitors. Over 20 years of fast growth, China has been able to bring
unlimited business opportunities and vitality to the global furniture industry. Now, China
has today emerged as a furniture production centre, a circulation centre as well as an
exhibition centre in the world. The rise of China's furniture industry has brought about a
new round of restructuring of the global furniture industry and trade pattern. According
to a study by the World Bank, the organized furniture industry is expected to grow by 20
per cent a year and India, Brazil and Russia will witness a boom.

In the 1990s with the emergence of better public housing, improved incomes and raised
expectations of households, the market has moved beyond the provision of shelter to
the quest to provide pleasant homes tailored to the households needs.

The result of this trend has been for the Chinese government to begin to sell-off state
housing and create a class of homeowners, primarily in the larger cities but gradually
throughout the country. With the future development of a secondary housing market,
eventually it is envisaged that the Chinese housing market will come to resemble that
Seen in mature private property markets.

• The market had grown by 106.4% since 1994, with the opening up of the housing
market, continuing rapid increases in average salaries and consumer spending power
and the improved retail supply of goods all contributing to the strong growth.
IKEA offers a wide range of well-designed, functional home furnishing products at
prices so low that as many people as possible will be able to afford them. This is the
single idea at the heart of everything IKEA does, including the way it develops and
purchases products and the way they are sold in IKEA stores around the world.

IKEA is an internationally known home furnishing retailer. Recognised for its

Scandinavian style. The majority of IKEA's furniture is flat-pack, ready to be assembled
by the consumer. This allows a reduction in costs and packaging. IKEA carries a range
of almost 14000 products, including home furniture and accessories.

IKEA stores include restaurants and cafés serving typical Swedish food. They also have
small food shops selling Swedish groceries, everything from the famous meatballs to
jam. Stores are located worldwide. In August 2008 the IKEA group had 253 stores in 24
countries, with a further 32 stores owned and run by franchisees. It welcomed a total of
565 million visitors to the stores during the year and a further 450 million visits were
made to the IKEA website. IKEA sales reached 21.2 billion Euros in 2008 showing an
increase of 7%. The biggest sales countries are Germany, USA, France, UK and
Sweden. In 2008 IKEA opened 21 new stores in 11 countries and expects to open
around 20 more in 2009 as part of its strategy for growth.

Low prices are one of the cornerstones of the IKEA concept and help to make
customers want to buy from IKEA. This low price strategy is coupled with a wide range
of well designed, functional products. IKEA's products cater for every lifestyle and life
stage of its customers, who come from all age groups and types of households. This is
vital in times when the retail sector is depressed, as it increases IKEA's potential
market.

Since it was founded IKEA has always had concern for people and the environment.
The IKEA vision 'to create a better everyday life for the many people' puts this concern
at the heart of the business. IKEA has responded to the public’s rising concern for
sustainability in its choice of product range, suppliers, stores and communication. It has
also spotted business potential in providing sustainable solutions.
IKEA's concern for people and the environment encourages it to make better use of
both raw materials and energy. This keeps costs down and helps the company to reach
its green targets and have an overall positive impact on the environment.

The IKEA vision is "To create a better everyday life for the many people."
The business idea is "To offer a wide range of well designed, functional home furnishing
products at prices so low that as many people as possible will be able to afford them."
The market positioning statement is "Your partner in better living. We do our part, you
do yours. Together we save money."

IKEA stores sell the IKEA product range in room settings and self-service areas
and inspire customers with ideas, hints and tips for smart new home furnishing
solutions. To keep prices low, the stores buy and transport products in bulk. They’re
also located in less expensive areas of their market area. IKEA customers help to keep
prices low by picking their furniture up at their store’s warehouse, transporting it home
and assembling it themselves.

The IKEA marketing mix consists of different areas of focus:

 The IKEA product range is the starting point. All other marketing communication
is used to amplify the product range.
 the store is the primary medium for presenting and communicating the range, it's
low price and the IKEA concept.
 Distribution - IKEA has 27 distribution centres in 16 countries. These centres
supply goods to IKEA stores, and they ensure that the route from supplier to
customer is as direct, cost-effective and environmentally friendly as possible.
 Efficient distribution plays a key role in the work of creating the low price
 the IKEA catalogue is the main marketing tool with around 70% of the annual
marketing budget being spent on this alone. It is produced in 38 different
editions, in 17 languages. 110 million catalogues were circulated last year the
IKEA advertising, PR and other types of communication are complements to the
IKEA range. The store and catalogue are used to spearhead the penetration of
the target market.

Problems with IKEA:

IKEA was successful with a different model of the value chain, but they had many
problems associated with multinational companies.

Strong corporate culture is too much for subsidiaries. The Swedes culture is an
informal management style with pragmatic problem solving and consensus based
decision-making as part of IKEA’s everyday practice. This ends up causing a rift for
international companies like IKEA because this approach might not be what the local
managers are used to doing.

Transnational strategy faults were clearly seen in the United States. IKEA was very
good at picking the right suppliers and the sales outlets were positioned well in areas
that were low cost, but the research and development was only done in Sweden.
Examples: Americans would purchase flower vases in the retail outlets mistaking them
for drinking glasses.
Americans slept in king size beds and the IKEA beds were five inches narrower.

Management and Human resource issues were prevalent also in the United States.
IKEA would hire managers who value job security, enrichment and long vacations, but
many managers in the United States did not want this. They wanted to pursue career
advancement rather than a five-week trip to the Bahamas. This would all stem back to
the Swedish approach to the work environment. Examples: One American manager is
quoted in saying, “A lot of people have left IKEA because they can’t move up fast
enough here.” Another young manager said, “Our management needs to be much more
professional in managing human resources. We need to bring new people into the
organization, and reward individual accountability for results.”
External factors changed because baby boomers had become middle aged and their
desires changed. One result was fewer new homes were being built. The competition
was also adapting to IKEA’s supply strategy and making furniture better for lower prices.
This put direct pressure on IKEA’s sourcing advantages.

Too large of a multinational was another problem facing IKEA. The product range
grew from 10,000 to 14,000 items causing long production runs, and a lot of the new
managers were not versed well on IKEA culture. This caused the subordinates to begin
to act according to their own management practices and it opened a rift with policies
from the home company.

The Problem: IKEA was successful with implementing their long-term strategy of cost
leadership and product differentiation, but they were too Swedish for their own good.
When the company became a large multinational they started to experience poor
human resource development, and lack of communication with subsidiaries, which gave
their competition the time needed to began to mock their distribution processes and
product development.

Over the years, IKEA had worked with different advertising agencies to bring out some
of the most creative and unconventional television spots across the globe. For
these reasons, an IKEA account was considered a choice catch as it allowed the
agency the freedom to explore some interesting and unexplored ideas...

Forsman & Bodenfors are known for some great creative work, and they devised
a Facebook campaign for a new Ikea store in Malmo, Sweden. When small budgets and
big briefs clash, the outcome only ever heads in a single direction these days… to
Facebook!

IKEA has grown rapidly in recent years to become one of the world's largest retailers of
home furnishing. In its initial push to expand globally, IKEA largely ignored the retailing
rule that international success involves tailoring product lines closely to national tastes
and preferences. Instead, IKEA stuck with the vision, articulated by founder Kamprad,
that the company should sell a basic product range that is "typically Swedish" wherever
it ventures in the world. The company also remained primarily production oriented; that
is, the Swedish management and design group decided what it was going to sell and
then presented it to the worldwide public--often with very little research as to what the
public actually wanted. Moreover, the company emphasized its Swedish roots in its
international advertising, even going as far to insist on a "Swedish" blue and while color
scheme for its stores.
Strategies for China
IKEA has a 4 prong strategy for China: setting up commercial offices, opening stores,
establishing procurement centres and investing in setting up factories. It is reported that
IKEA has invested US$60 million to build Asia's biggest furniture market in Shanghai
(area 36 000 square metres). The company president is on record as saying the
company also plans to set up 2 new stores every year in China. The coastal cities and
developed inland cities will be its main focus. Currently the company's commercial office
in Chengdu City, Sichuan Province plans to procure furniture valued at
yuan4millioneveryyear.
The company also invested US$180 million to build an industrial area in Shanghai's
Song Jiang and establish IKEA's production base in China. Today furniture companies
in China have become IKEA's biggest trading partners and 30% of IKEA's products are
made in China. Most of the raw materials also come from China so that product prices
competitive.

IKEA won the hearts of Chinese consumers, and the government, by announcing its
expansion plans for China, during the SARS crisis, when many international businesses
were re-examining what they would do. Just as China Business Strategy predicted at
the time, China's economy and consumers have quickly bounced back from SARS
crises

"Our low price strategy is also a result of a survey conducted among local residents,"
said Jerome Deloix, IKEA China sales manager. "After the survey, we decided we
should aim at local families